Is L.A. creating phantom jobs?
A few days after Mayor Antonio Villaraigosa brought in financial whiz Austin Beutner to help him woo fleeing jobs back to L.A., the city's Community Redevelopment Agency awarded nearly $6 million in free land and low-interest loans to lure a tiny company away from nearby South Gate — and dubbed it "job creation."
On January 21, the mayor's appointees on the CRA commission approved a deal that hands developer Pacific Center Place a $2.7 million chunk of public land on East 59th Street in South Los Angeles — for free — and gives the developer low-interest loans approaching $3 million. The CRA will give Pacific Center Place a $750,000 forgivable loan — essentially a grant of public funds — plus a second, low-interest loan of about $2 million.
For his part, Pacific Center Place owner Sam Eshaghian, who develops land for the garment industry, will clean up toxins on the former Goodyear site on East 59th Street, build facilities and then bring in 30 existing jobs connected to a small garment-related South Gate manufacturer called D&J Sportswear. Eshaghian would be the landlord, receiving rent from the garment firm.
The small garment-industry factory will move a distance of just 3.7 miles, from working-class South Gate to the site at East 59th Street.
"In this economy, anything that creates jobs is job creation," Bruce Ackerman, CRA commission chairman, argued a few days before the vote.
However, critics question whether moving 30 existing, low-wage garment-industry jobs to inside the Los Angeles city limits — positions that pay only $16,000 to $23,100 — is worth spending $46,622 to $71,500 in public subsidies per job.
"Only 15 [of the 30 jobs] are going to have living wage, and that's a disgrace," lifelong South L.A. resident Delores Kelley said just before the CRA board approved the deal last Thursday. "We're in a poor neighborhood. Many more people should be able to use those jobs."
A few days before the board vote, Ackerman had appeared to backpedal somewhat in his support for the unusual deal, stating that he would only vote for a major outlay of public land and loans if it was "a good business deal — until I see the numbers, I can't really weigh in."
But the numbers the CRA commissioners relied upon for its vote last Thursday were highly speculative. For example, those numbers assume a robust growth of D&J, from 30 to 74 workers as the Los Angeles area fights its way out of a recession. Although some commissioners, including Ackerman, have avidly supported the plan since mid-December, other Villaraigosa appointees have openly questioned it.
"I think this is a terrible deal for the city and for the people of South Los Angeles, who deserve better," says CRA commissioner Madeline Janis, who termed the deal "more [money spent] per job than I've seen for a long time at the CRA." Half of the envisioned jobs would pay the so-called living wage of $11.55 per hour, or about $23,100 a year. The other half of the workers could be hired at minimum wage, about $16,000 annually.
Last week's vote was scheduled on a day when Janis, the most outspoken opponent of the scheme, could not attend. The comments at the hearing were instead dominated by proponents, led by commissioners Ackerman and Kenneth Fearn.
"The land has no potential use" because of the contamination left by Goodyear, Fearn notes. He says the developer is taking on substantial risk, and adds, "How many people have been clamoring to put jobs in South L.A.?"
Jenny Scanlin, the CRA's project manager on the plan, also argued for the subsidies, saying that "money follows money" — and that if the CRA subsidized the project at East 59th Street, the city's spending would prompt private industry to also invest in the area.
Under the agreement, the number of garment-worker jobs at D&J would, theoretically, grow to 40 in D&J's third year and expand to 74 jobs in the firm's fifth year at the site. At that point, if the employment projection is reached by the garment company, landlord Eshaghian would be forgiven his $750,000 CRA loan for toxic cleanup, making it a gift of public funds in addition to the free land he is being granted.
An analysis using a commonly accepted industry formula demonstrates that if the estimated 74 jobs ever materialize, each job would have cost L.A. taxpayers more than $46,000 in various subsidies. If only 40 jobs are created at the site, the cost to taxpayers for each job would be roughly $71,500.
When the Weekly pointed out to Ackerman that even if D&J grows to 74 workers, it would still mean a cost of more than $46,000 apiece to move each low-wage job a few miles to South L.A., Ackerman admitted he had never worked out the cost himself.
To leaders in badly hammered South Gate, where the unemployment rate has hovered between 15.5 percent and 16 percent, making a competing bid to keep Los Angeles City Hall from stealing its jobs is not in the cards. "There's no way I could even entertain" a similar package, says Steve Lefever, the city's director of community development. "I don't have the level of resources that L.A. is considering for this particular move."
South Gate Mayor Henry C. Gonzalez is far more blunt. "That kind of money, for 30 or 40 jobs, is crazy."
Eshaghian disputes the idea that the 74 jobs he has promised would cost more than $46,000 each in public funds. He envisions that the company, which had been seeking a new location, will eventually employ as many as 200 people, and he argues that he's taking a bad property off the CRA's hands after the agency bought it at the top of the real estate bubble.
According to Eshaghian, the South Los Angeles parcel, which cost the CRA $2.7 million at the height of the market, is now worth only $1.1 million "maximum" and, he says, cleaning up the toxins left by Goodyear is "going to cost $400,000 to $600,000."
But, as Commissioner Janis points out, that cleanup is being paid for by the CRA's $750,000 forgivable loan — not by Eshaghian. And Alejandro Ortiz, a commissioner who voted for the deal, nevertheless dispute's Eshaghian's estimate of the South Los Angeles land's value, saying the most recent appraisal was $2.4 million, not $1.1 million.
"It is not an ideal deal," Ortiz concedes. But, he says, the scheme is the best way to rid the CRA of the land on 59th Street, which was purchased with the idea of creating an incubator for local businesses — a CRA plan that collapsed when the economy tanked.
"How do we get out of this without too much pain?" Ortiz asks. "What I really don't want is for us to own an empty building for 10 years."
Dena Belzer, president of the Berkeley-based consulting firm Strategic Economics, says there is some justification for the redevelopment agency's approach.
Looking at the "straight ratio" between the public funds spent on the move and the number of jobs created can "potentially underestimate the total benefit," she says. "The best way to think about it may be not to think of it in terms of subsidy-per-job but how it fits in a larger strategy."
But Alec Levenson, of USC's Marshall Center for Effective Organizations, says that cities can much more effectively create new jobs in neglected areas not by using subsidies but by doing the obvious: improving a neglected area's infrastructure and services so businesses want to move in.
"Subsidizing developments directly is almost always a losing proposition from a taxpayer's perspective," Levenson says. "These huge net transfers to businesses out of taxpayer monies [result in] about the same distribution of jobs that you would have otherwise." Nearby cities end up competing against each other in a shell game — a game that "companies and developers have learned how to play a long time ago," he says.
As for whether the initial 30 jobs relocating to L.A. amount to "job creation," Levenson asks, "Is it really less than four miles? To me, that's giving a really nice subsidy for someone who was already employed locally."
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