Serving Two Masters

When Mayor Antonio Villaraigosa and the Los Angeles City Council announced plans last year for a $1 billion bond measure to pay for affordable housing, developers and lobbyists from all over Los Angeles flocked to the campaign to lend their support. And few companies were more eager than CityView, a company that finances the construction of homes for entry-level buyers.

CityView's founder, former secretary of the federal Department of Housing and Urban Development Henry Cisneros, signed up as one of the two chairmen of the Proposition H campaign, telephoning business leaders across the city for contributions. The company's chief operating officer, Sean Burton, became the campaign's treasurer, signing off on contribution reports to the Ethics Commission.

And CityView's retinue of developers, lawyers and partners gave nearly $200,000 to win voter approval of the measure, which would have hiked Los Angeles property taxes to build 10,000 new homes and apartments.

Prop. H went down to defeat on November 8, falling four percentage points shy of victory. But now, CityView has teamed up with city officials on a new home-building initiative — securing up to $40 million in municipal pension funds to build housing for families who earn $52,000 and up.

The Los Angeles City Employee Retirement System, or LACERS, voted last week to invest up to $25 million in CityView. And a second retirement system, which covers L.A.'s police officers and firefighters, is slated to invest another $15 million this week (the vote is scheduled for Thursday, the day the L.A. Weekly hits the streets).

The funding for CityView is only the latest example of the city's primary pension fund, where four of seven seats are controlled by Villaraigosa, pouring millions of dollars into the construction of condos, apartments and shopping centers, many of them in Southern California. Since Villaraigosa's election in 2005, the pension fund has invested $160 million in "urban infill" — eight times as much as the amount invested during the prior two-year period.

That shift in pension funds stands to dramatically rework the basic arithmetic of city politics. Under the old system — one that already tended to make voters a bit queasy — politicians at City Hall got elected with contributions from real estate developers, who in turn asked them to approve their construction projects. Under the new system, city government is even more directly involved, becoming not only the gatekeeper, but the financial backer, for many of the city's biggest development projects being pursued by their contributors.

"It's a conflict of interest," says Richard Close, president of the Sherman Oaks Homeowner Association. "When the mayor and council are deciding whether or not to approve these projects, whose interests are they looking at? Are they looking at whether the project is beneficial to the community, or whether the project will be beneficial to the pension plan?"

Villaraigosa spokesman Matt Szabo says the mayor enthusiastically embraced the concept of the "double bottom line" — asking public pension funds to achieve societal goals, like the construction of housing, while seeking a solid return on their investments. But he insists that Villaraigosa never instructs his pension-board appointees on investment strategies.

"He doesn't dictate policy or how they should vote," Szabo says.

CityView's 69-page investment pitch to LACERS, which represents nearly 42,000 working and retired municipal employees, name-dropped the mayor, pointing to Villaraigosa's support for Proposition H and his belief that public agencies should help build housing. The booklet, which includes a photo of Villaraigosa at a housing conference, also bragged about CityView's work with the mayor in securing a zoning change for one of its loft projects.

Still, Cisneros insists he has never spoken to the mayor about his company's request for city pension funds. "We're going on the merits," he says. "And the merits are, you can use pension resources to solve problems, including the production of work force housing."

By 2009, LACERS will expand its investment in urban real estate even more, moving it from 4 percent to 7 percent of its $10.5 billion portfolio — a move that could pour at least $300 million into real estate development. Robert Aguallo Jr., the city official who runs LACERS, says the shift toward "work force" housing — one step above subsidized apartments — is the result of sound investment policy, not any political agenda. Aguallo also downplays worries about the increasingly jittery housing market.

"When you do real estate, there's always a housing-bubble concern," he says. "But given the demand for housing" among workers who have to commute long distances, "it makes sense to [invest in] housing that's closer to downtown or the city's urban areas."

While LACERS voted unanimously to invest in CityView, a second city-related pension board initially balked — not out of concern over the real estate market, but because of a decade-old investigation involving Cisneros. Commissioner George Aliano, who serves on the Los Angeles Police and Fire Pension board, said CityView is a risky investment, since Cisneros pleaded guilty in 1999 to one misdemeanor count of lying to the FBI about money he paid to a former mistress.