Tag Archives: Los Angeles

Using the “B-word” in California’s Public Sector Pensions

At City Journal, Steven Greenhut writes that cities in California are becoming increasingly comfortable talking about bankruptcy. Los Angeles and San Diego have their eyes on the city of Vallejo which filed for Chapter 9 in 2008. What drove the port city of 117,000 to this point? Benefits and salaries for public sector workers. To see the handiwork public sector unions on Vallejo’s fiscal plight consider that 74 percent of the city’s budget is spent on police and firefighter salaries and benefits. Some highlights include $300,000 a year for police captains, and average fireman’s compensation of $171,000. The looming question for Vallejo and cities and states across the country is how to pay for pensions. Vallejo was given a chance to void its existing union contracts by the court but chose to buckle. Now the options are between the impossible and the unpalatable. Vallejo can ask bankrupt Sacramento for a bailout or they can raise taxes on city residents.

How Vallejo manages will be an early indicator for the rest of the nation. State pensions face an unfunded obligation of $3 trillion, nearly triple what is officially reported. Johnathan Lang writing for Barron’s offers a few possible scenarios in the near future for state and local governments including higher property, sales and income taxes, cuts in essential services, debt defaults and bankruptcy filings. He writes, “The possibility of taxpayer revolts and likely insolvencies has shaken some investors’ confidence in general-obligation bonds–those backed by the “full faith and credit” of the states or localities.”

Assorted Links

Asbury Park Press reports, Monmouth County, NJ pays 336 public employees $100 K a year.

Governor Chris Christie is “stuck with 7 percent pay increase” for public sector workers.

Federal agency to investigate Los Angeles schools.

California’s College Dreamers: UC tuition tax hikes spark protests.

Deathbed bonds: Investors team up to buy bonds from the terminally-ill.

A Range of School Reforms: Vouchers in Chicago and Teacher Control in L.A.

William McGurn writes in this week’s Wall Street Journal about a seemingly strange political alliance. The Rev. William Meeks, a Democratic Illinois State Senator introduced a bill to provide school vouchers to 42,000 students in some of Chicago’s worst schools. In fact, the growing call for vouchers, and  charter schools has increased support from many Democrats. Those with the greatest stakes in education are the parents of children in failed districts.

The status quo tends to be guarded, not suprisingly, by those who have the most to lose from school competition and choice: the teachers unions and politicians who benefit from their support.

Reform appears to be percolating  in New Jersey. This week the New Jersey Department of Education approved the first Mandarin-English charter school in the state, bringing the state’s charter school total to 68.

Control over schools is at the heart of a recent reform in Los Angeles. This Tuesday, the state’s Board of Education voted to award control of 30 of its schools to teachers’ groups, or to charter school groups. Most went to the teachers, leading charter school groups to protest. The teacher’s unions generally oppose charters because they don’t require teachers be hired under union contracts.

The tension between charter schools and the teachers unions has been a major challenge in the school reform movement. For more, see the recent documentary, The Cartel.

Conflicting Trends in Urban Development

In 1970, the first Business Improvement Area was instituted in Toronto, Ontario, and the concept has since  spread throughout North America and the world. In the United States, these organizations are most commonly known as Business Improvement Districts (BIDs), and they are collectives of neighboring business people who work together to maintain their public spaces at a higher level than their municipalities would.

BIDs have been highly successful in many areas of the United States, including New York, Los Angeles, and Washington, because they allow businesses to pay for specific services that are beneficial to their immediate vicinities rather than providing these services through an unpopular and inefficient tax levied at the city or state level. Business owners may elect to use allocate this funding to market their neighborhoods, provide street clean-up or security beyond the level offered by their municipality, or enact improvements to storefronts and building facades.

In parts of the Midwest, the trend is developing into organizations known as Special Improvement Districts, allowing both residents and businesses to participate in neighborhood governance. A Crain’s Cleveland Business article explains:

These groups are encouraged by the success of the downtown Cleveland SID, which was created in 2005. The SID, which is operated by the Downtown Cleveland Alliance, has gotten high marks for a program it calls “Clean & Safe” that has put a team of “ambassadors” in yellow shirts on downtown streets. They scour sidewalks, water plants, provide directions to pedestrians and keep an eye out for any bad behavior.

The downtown group also sponsors special events designed to bring people downtown and markets downtown as a tourist destination.

Property owners agreed to a special assessment that raises about $3 million a year for the program.

The SID concept is effective because the taxing authority is devolved to the lowest possible level, the neighborhood. This direct democracy allows for the fees collected to be spent as desired by those who pay them. Obviously the demand for various services varies across different neighborhoods’ organizations. Additionally, those who pay SID fees are likely to closely monitor how they are spent, rendering it unlikely that the money will be spent wastefully or lost to corruption.

As this grassroots concept is gaining momentum at the local level, a new White House initiative, the Office of Urban Affairs, is taking a top-down approach to urban issues. The purpose of this new office is to promote the administration’s urban policy agenda, heavily influenced by the ideas promoted by the Brookings Institution’s Metropolitan Policy Program, in municipalities across the country.

A Washington Post article explains that some critics of the program believe that urban issues should be handled at the local level, varying with the diverse challenges and opportunities that face different cities across the country:

“Cities improved dramatically in periods when the federal government backed off the most,” said Fred Siegel, a history professor at the Cooper Union who served as an adviser to former New York mayor Rudolph W. Giuliani (R).

Undoubtedly, research institutions have valuable insights to offer neighborhood and municipal leaders in the fields of transportation, land use, and community development. However, a one-size-fits-all approach to implementing these ideas in urbanities across the country is impractical and will be weighted down with many layers of bureaucratic inefficiencies. Rather, BIDs, SIDs, and city governments should have the freedom to select the policies that are most practical and efficient for their localities.

Homeowners and the Great Recession

Writing at Forbes.com, Joel Kotkin weighs in on the claim that homeownership caused the Great Recession:

Increasingly, conventional wisdom places the fundamental blame for the worldwide downturn on people’s desire–particularly in places like the U.K., the U.S. and Spain–to own their own home. Acceptance of the long-term serfdom of renting, the logic increasingly goes, could help restore order and the rightful balance of nature.

Once considered sacrosanct by conservatives and social democrats alike, homeownership is increasingly seen as a form of economic derangement. The critics of the small owner include economists like Paul Krugman and Ed Glaeser, who identify the over-hot pursuit of homes as one critical cause for the recession. Others suggest it would be perhaps nobler to put money into something more consequential, like stocks.

Much of Kotkin’s piece is devoted to the implications for the future:

Rather than a source of economic weakness, this renewed quest for homeownership could underpin a sustainable recovery. As prices fall to reasonable levels, more people will qualify for reasonable loans. First, the empty houses and somewhat later, the condominiums now on the market will find buyers, in most places in a matter of a few years.

This shift will create huge opportunities for a diverse set of geographies. For urban areas like New York or Los Angeles, there will be a unique–perhaps once in a generation–chance to induce middle-class people to settle down in big-city homes or condominiums. If they become homeowners, they will be more likely to stay than move elsewhere to the suburbs or other regions when the time comes to buy a home.

Other, more affordable, less regulated and often more economically dynamic places like Texas and the Great Plains may realize even greater gains. Over time, we will likely see a recovery in some now-suffering parts of the Sunbelt. The renewal of home demand could also help revitalize many of our hardest-hit sectors, including construction and manufacturing.

Additionally, Economic Recovery Digest points to new research about homeowners who can afford to pay mortgages but choose not to; the research suggests that a quarter of defaults could be “strategic.”

Want to Help the Earth? Move Back to Metropolis

Ed Glaeser writes in City Journal on his latest study, which suggests that cities emit less carbon than suburbs. (Full NBER paper with Matthew Kahn can be found here.) The top five cities (by emissions) are in California.

This sounds counterintuitive at first blush. But, Glaeser suggests, people who live in the suburbs drive more and consume more housing. The policy implication is make cities more affordable by loosening building restrictions:

If climate change is the major environmental challenge that we face, the state should actively encourage new construction, rather than push it toward other areas. True, increasing development in California might increase per-household carbon emissions within the state if the new development, following the current model, took place on the extreme edges of urban areas. A better path would be to ease restrictions in the urban cores of San Francisco, San Jose, Los Angeles, and San Diego. More building there would reduce average commute lengths and improve per-capita emissions. Higher densities could also justify more investment in new, low-emissions energy plants.

Similarly, limiting the height or growth of New York City skyscrapers incurs environmental costs. Building more apartments in Gotham will not only make the city more affordable; it will also reduce global warming.

Here’s Glaeser’s write-up at the New York Times Economix blog. Here’s Tyler Cowen on a previous, related study.