Whose Interests Are “Fiscal Watchdogs” Protecting?

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There is a full throttle mayoral race going on right now in Los Angeles. Four major candidates are vying to succeed current Mayor Antonio Villaraigosa, who finishes his second term on June 30. Each of these candidates is asserting more forcefully than the next that she (or he) will be both a “fiscal watchdog” and “helpful to business.”

But can political leaders honestly be both “fiscal watchdog” and “helpful to business,” at least in the way that government leaders typically think of those things? On one hand, many leaders argue that we need to cut the pensions and health benefits of public employees and keep public services lean and mean. On the other hand those same political leaders advocate for cutting business taxes and giving away large subsidies to big developers who promise simply to “create jobs,” with few if any strings attached.

Why don’t political leaders who watch every penny that goes to public employees put the same care and effort into examining the expenditure of public funds that go to private businesses?

A recent profile of one of the leading mayoral candidates in the Los Angeles Times brought this issue into sharp relief for me. The profile quoted dignitaries who credit mayoral candidate Councilmember Jan Perry for being a leading proponent of public pension reform, being a force behind downtown Los Angeles’ revival, and creating thousands of jobs that she has promoted with tax subsidies.

The Times article also said that:

On occasion, Perry has also stood up to unions, as she did in 2008 when labor allies tried to force the Fresh & Easy market chain to guarantee thirty living wage jobs in return for city approval of a housing and retail project in a historic South-Central area that needed a grocery store. “This puts the project in serious jeopardy,” Perry wrote in a letter to Mayor Antonio Villaraigosa.

I was the “labor ally” who pushed for a living wage in exchange for a $2.5 million subsidy for that 18,000 square-foot market on the border of downtown and South Los Angeles. As a member of the Board of the L.A. Community Redevelopment Agency for ten years, I repeatedly interacted with Perry on hundreds of development projects.

Here’s what actually happened with that Fresh & Easy project. The original proposal was for a $2.5 million public subsidy to pay for an 18,000 square foot market, to be operated by Fresh & Easy, a supermarket chain owned by the British corporate giant, Tesco. This proposal was unusual, in that it called for a direct grant to go to the developer to pay for the market, rather than the more typical loan that has to be paid back over time. While the grant was structured as an “easement” on the property, the “easement” had few conditions other than the requirement that there be some sort of food sale on the property.

At the time, I was one of seven CRA board members tasked with reviewing and approving all projects. When the proposal was initially put on the board agenda, I wrote a memo to the agency CEO on behalf of three board members asking that the agreement be crafted to ensure transparency and enforceability, given the size of the public investment. (Two and a half million dollars for 30 part-time jobs worked out to be an unprecedented $83,000 per job, more than twice the $35,000 maximum allowed in federal economic development subsidy programs.)

At the time, the three of us wanted to ensure that – in exchange for the public investment – there was an enforceable program guaranteeing that local residents could gain access to those jobs and that they pay at least a living wage (then about $10 per hour). We also asked that the market on the property be required to sell healthy food and that the final, signed agreement be circulated to every board member in advance of the hearing, so that it could be fully and fairly vetted before approval.

Unfortunately, Councilmember Perry wrote a letter directly to the mayor criticizing us for even proposing the living wage idea. Because of that intense political pressure, the chair of the CRA board decided to move the matter to a quick vote, despite the fact that final agreements on the project had not been fully negotiated nor signed by the developer, as was typically required by CRA policy. The project was then approved by a majority of the board.

Fast forward to the end of 2012 and Tesco’s decision to close all of its Fresh & Easy markets in the United States. Without guarantees of a full-service supermarket or living wage jobs, the taxpayers may soon end up with a 99 cent store selling processed foods and jobs that pay $8 per hour in exchange for our $2.5 million investment.

How could one of the city’s leading “fiscal watchdogs” have been so careless with this gift of public funds to a large private developer? The answer to that question reveals one of the biggest contradictions in American politics today: public support for private development is seen as a good investment, whereas public support for good public sector jobs is seen a waste of precious public resources.