Villaraigosa: Faking an Economic Miracle

LOS ANGELES MIGHT BE in the middle of a housing crisis, suffering the nation’s highest fuel costs and plummeting in its ranking as a center of global commerce. But there’s a place in L.A. immune from turmoil, where incomes have swollen by double digits, homeownership has skyrocketed and the grass is green. It’s a land of untapped wealth.

At least, those were the conclusions of the D.C.-based nonprofit Social Compact, whose report, “Los Angeles DrillDown,” studied nine heavily minority neighborhoods, several of which are economically downtrodden: Boyle Heights, Central City East, Crenshaw/Baldwin Hills, Hyde Park, Jefferson Park, Leimert Park, Vernon Central, Watts and West Adams.

Over the last two weeks of July, the study’s conclusions made their way unhindered by critical examination into a prominent L.A. Times article in the business section, as well as a Times editorial and a KPCC public-radio discussion.

Too bad the nonprofit’s spin — that there is significantly more money in those enclaves than ever imagined — is based largely on misleading, useless, selectively chosen, egregiously rosy data and inexplicable omissions that read like a primer from the 1954 classic How to Lie with Statistics.

“I’m not comfortable as a researcher to say I can really believe these numbers,” says Jennifer Magnabosco, associate director of Loyola Marymount University’s Leavey Center for the Study of Los Angeles, echoing the concerns of several academics.

But even misleading data can serve a purpose — especially for inner-city boosters like landowners and politicians, who can point to ginned-up accomplishments. Solid examples of investment are still rare, such as Wal-Mart and Macy’s in Baldwin Hills and the new British-owned Fresh & Easy markets — think Trader Joe’s meets miniature Costco — in Glassell Park and on South Central Avenue.

Enter Mayor Antonio Villaraigosa.

Social Compact launched its L.A. study in 2007 — invited and embraced by Villaraigosa’s office, says its president and CEO, John Talmage. It finished its expensive study in May, spending $100,000 to complete “DrillDown,” which was underwritten mostly by Bank of America’s Charitable Foundation.

What accounts for much of the study’s high production cost is also what is supposed to make “DrillDown” better than other such reports. It combs private and public databases, like credit agencies, utilities, the Internal Revenue Service and mortgage data.

Social Compact’s usual message to urban leaders and corporations is that you can make money off of inner-city residents — and make them richer and healthier at the same time — by replacing the staples of slum-dom with the staples of middle-class consumerism. Replace “vig”-charging payday lenders and pawn shops with Washington Mutuals and Bank of Americas; liquor stores with Jamba Juices; and corner mom-and-pops with Costcos. Big-city politicians who cut ribbons for grocery stores in dowdy urban cores tout such events as proof that they are smart leaders with policies that work.

The idea behind Social Compact’s “DrillDown” is simple: If its studies “prove” — and, curiously, they always do — that there’s more prosperity in an area than claimed by conventional wisdom, media depictions and existing data — think the U.S. Census — then grocery stores or banks will rethink their aversion to the inner city, move in, make money and revitalize an area in the process.

After Talmage’s group studied L.A., he boldly asserted to the Times, “Retailers have said up to now there isn’t a market there. I’m telling you — you have a market.”

The most optimistic signs for this prosperity were contained in the report’s “DrillDown Highlights” and regurgitated as fact by the paper’s business section.

IF TRUE, IT WOULD HAVE been huge news. One of the most surprising statistics is that “average household income” in the nine areas is $46,000 — a startling jump of $9,000, or 24 percent, over what was found by the 2000 Census. But facts are left out that could erase, if not reverse, that claim: It doesn’t explain that it’s a mean average — which, unlike the median average, seriously distorts incomes upward and, for that reason, is not used by the Census. And it doesn’t divulge what year it’s counting — 2005? Or 2007? — preventing a calculation of inflation as the real cause of the “increase.”

In the eight years since the Census, inflation has grown more than 27 percent, says Jack Kyser, chief economist at the L.A. Economic Development Corporation. Kyser’s figure is actually conservative.

Since the households in the nine areas have seen incomes rise only 24 percent, they may have backslid, not surged forward. And it’s clear why the nonprofit quietly failed to adjust for inflation: It would defeat its central purpose of boosterism, not impartial analysis.

Consider its CEO’s explanation: “We’re not there to shill for anybody,” Talmage defends, then adds, “We don’t necessarily highlight” things that might reflect poorly on a troubled community. “Part of what we want to do is ‘Do No Harm.’ We’re trying to show that there are assets that aren’t captured. It’s not an econometric study.”

No academics were fooled by the study. The researchers who reviewed it for L.A. Weekly applauded the nonprofit’s intentions to draw positive attention to blighted, ignored or heavily minority areas but universally questioned its methods and conclusions.

“Their units of analysis really concern me,” says LMU’s Magnabosco. “Even in the tables for these particular communities, I would never allow something like this to leave my shop. [With] a lot of these numbers that they’re putting out, it’s not clear who vetted this.”

The study cites a surprising 16 percent increase in resident ownership as evidence of new wealth in the nine L.A. neighborhoods. It fails to mention that thousands who could not afford homes bought anyway — and are now the sad stats in the foreclosure crisis.

“There’s going to be a huge area here affected by the mortgage crisis,” says James Allen, a Cal State Northridge geographer who co-authored “Changing Faces, Changing Places,” the most comprehensive demographic profile of Los Angeles since the last Census. “That’s going to defeat a large part of the positive here.”

According to the April to July data from RealtyTrac, a foreclosure database, more than 905 default notices have been sent to the nine areas — the very homeowners touted by the fluffy study. All told, 1,401 homes are in the process of foreclosure.

“DrillDown L.A.” didn’t impress Ali Modarres either. The associate director of the Pat Brown Institute at Cal State L.A. points to Social Compact’s unacceptable use of “apples and oranges”: comparing the income of current homeowners to the 2000 earnings of “average” residents. Where to start with such a tortured piece of data? Homeowners make more money than average residents, who are mostly renters. They can’t be compared. Second, average residents’ incomes were taken from the 2000 Census, not adjusted for inflation, further padding the supposed progress.

“Methodology typically determines the outcome,” Modarres says. “And they chose their own methodology. How much of this is inflationary and how much is even comparable [to the Census data] because they’re using a completely different methodology?”

Mayor Villaraigosa, who has come under criticism for chronically announcing big quality-of-life initiatives — planting 1 million trees, reducing congestion, fighting grafitti, ending filthy dumping — that go nowhere, seems almost desperate to make struggling neighborhoods appear better off.

Cecilia V. Estolano, the Villaraigosa appointee who heads the Community Redevelopment Agency, is not at all bothered by the pointed questions raised by these independent academics. “We think it’s a great report,” she tells the Weekly, “and we think it’s going to be tremendously useful to get companies to invest in these areas. We intend to use this data to [give to] marketers. ... I think this report will help spur more investment.”

In fact, the opposite is more likely. Villaraigosa’s seeking of a hollow study will probably be seen as statistical chicanery by serious community investors like grocery stores — an effort by the Villaraigosa administration to paper over a situation instead of addressing the quality-of-life issues that keep investors out.

Richard Livingston, a veteran site consultant for grocery chains nationwide, who is also familiar with Social Compact’s impact on luring investments like grocery store chains, says simply, “All that data is meaningless!”

He tells L.A. Weekly, “They’re all cherry-picked to make it look better than it really is. It makes me sick when I read these things. It’s like late-night infomercials. It’s selected information. ... You can’t pee on these supermarkets and tell them it’s lemonade.”

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