Seattle Mayor Ed Murray used last May Day to announce that business and labor had agreed to a historic plan to raise the minimum wage to $15 an hour. Seattle’s bold measure is part of a growing wave of activism and local legislation around the country to help lift the working poor out of poverty. The gridlock in Washington – where Congress hasn’t boosted the federal minimum wage, stuck at $7.25 an hour, since 2009 – has catalyzed a growing movement in cities and states.
The Seattle victory was a game-changer. Within months, politicians in other cities jumped on the bandwagon. San Diego city officials voted in August to adopt a $11.50 an hour by 2017. In San Francisco, which already has a citywide minimum wage, voters will decide in November whether to raise it to $15.
On September 24, the Los Angeles City Council voted by a 12 to 3 margin to require large hotels to pay at least $15.37 an hour to their workers. The momentum for change created some unlikely allies for L.A.’s labor-led progressive movement. Although the local Chamber of Commerce opposed the plan, two of Los Angeles’ most politically-connected business leaders – Democrat Eli Broad and Republican Rick Caruso – told the Los Angeles Times they favored the idea. (Los Angeles, which already has a living wage law that covers employees for companies that get city contracts and workers in hotels near LAX airport, pegged at $10.91 or $15.67 without health benefits.)
Seeking to take advantage of this momentum, LA Mayor Eric Garcetti has proposed adopting a citywide minimum wage that would begin at $10.25 next year, increase to $11.75 in 2016 and $13.25 in 2017, and rise with inflation after that. He called it “the biggest anti-poverty program in the city’s history.” According to an analysis commissioned by the mayor’s office and conducted by researchers from UC Berkeley, Garcetti’s plan would increase incomes for an estimated 567,000 workers by an average of $3,200, or 21 percent, a year. Predictably, the LA Chamber of Commerce warned that “this proposal would actually cost jobs, would cause people to lose jobs and would cause people to have cutbacks in hours.”
The battle in Seattle began last year. In November 2013, voters in the suburb of SeaTac approved a union-sponsored Good Jobs Initiative’ to raise the minimum wage to $15 an hour for workers in Seattle-Tacoma International Airport and at airport-related businesses, including hotels, car-rental agencies, and parking lots. The new law applied to only 6,000 workers, but the victory had huge ripple effects. Seattle Mayor Mike McGinn and his chief challenger Murray (a gay state legislator best known for leading Washington’s campaign for sex-same marriage) both supported the SeaTac initiative and raised the possibility of doing the same thing in Washington’s largest city.
On the same day that the SeaTac measure won, so did Murray and Kshame Sawant, a socialist candidate for Seattle City Council who had made the $15/hour minimum wage a centerpiece of her campaign. After his victory, Murray followed through. He appointed a 24-person Income Inequality Committee – co chaired by Howard Wright, CEO of Seattle Hospitality Group, and David Rolf, president of SEIU Local 775, who had been a major force behind the minimum wage proposal.
Rolf was adept at playing the inside/outside game. While pushing to forge an agreement among the task force members, he worked with Seattle’s labor movement and community activists to keep the pressure on city officials and to keep the issue in the media. He made sure that economists and other experts were available to educate the public, politicians, and journalists and to rebut the business leaders’ warnings that the $15 minimum wage would kill local jobs.
Both Rolf and Mayor Murray discovered that socialist Sawant was a useful, though unpredictable, ally. She was working with a group called 15 Now that threatened to put an initiative on the November 2014 ballot to raise the minimum wage to $15 an hour on January 1, 2015 for all businesses. Murray told business leaders that unless they reached an agreement with the unions, he would announce his own plan that was closer to Sawant’s proposal than the phased-in plan that was being discussed in the mayoral task force.
The SeaTac referendum was nullified in court on a technicality, but in Seattle the progressives clearly had the political momentum. Even after a series of compromises, the unions and their allies won a huge victory. They agreed to a three- to seven-year phase-in, with large businesses — those with at least 500 workers — required to reach the $15 wage first.
In 2004, San Francisco and Santa Fe, New Mexico were the first two localities to adopt citywide minimum wage laws, now $10.74 and $10.66, respectively. Then, in November 2013, 66 percent of the voters in Albuquerque, New Mexico, voted in favor of establishing a citywide wage that would automatically adjust in future years to keep up with the rising cost of living; it is currently $8.60 an hour. That same day, 59 percent of voters in San Jose, California approved a citywide $10 an hour wage that would also increase with the cost of living. The San Jose victory created a regional momentum. Last May, the City Council of Sunnyvale – a San Jose suburb of over 140,000 residents – voted by a 6-1 margin to establish a local minimum wage of at least $10/hour, and to increase it annually with the cost of living. That same month, in a remarkable display of regional cooperation, Washington, DC and its suburban neighbors, Montgomery and Prince Georges County, Maryland, all adopted laws establishing a minimum wage of $11.50. The joint efforts was forged to counter business warnings about an exodus of jobs if the nation’s capital moved on its own. In 2012, Long Beach, California voters passed a ballot measure that raised the minimum wage for hotel workers in that tourist city to $13 per hour and guarantees hotel workers five paid sick days per year.
Last November New York City voters gave progressive Democrat Bill de Blasio a landslide victory over Republican Joe Lhota. One of de Blasio’s key policy planks was addressing the proliferation of low-wage jobs in America’s largest city. enacting a living wage of $11.75 per hour for workers employed by companies that get tax breaks and other subsidies from the city. Last Tuesday, by executive order, he expanded the city’s existing living wage law from $11.90 per hour to $13.13 per hour for workers at companies that receive more than $1 million in city subsidies. He also included commercial tenants of those companies in the law; as a result, retail workers inside projects subsidized by the city will also be paid the higher wage. De Blasio also eliminated an exemption for part of the Hudson Yards megaproject being on Manhattan’s West Side built by Related Companies, a politically-connected developer.
In May, the Santa Clara County Board of Supervisors – an area with 1.8 million residents that includes San Jose and Silicon Valley high-tech corridor – voted to create a living wage that would affect county workers and those employed by companies contracted by the county (although they still had to agree on a wage level), and include health care, job security and other quality-of-life requirements.
Nineteen states now have minimum wages over $7.25 an hour, 10 of which automatically increase their minimum wages with inflation. Last November, even as New Jersey voters were giving conservative Republican Gov. Chris Christie a second term, they also overwhelmingly approved a constitutional amendment to raise the state’s minimum wage by a dollar to $8.25 an hour. The new law includes an automatic cost-of-living increase each year.
The highest state wage law is in Washington State, where the minimum wage increased to $9.32 last January and will rise to $9.47 at the start of 2015. Last year, In September, California Gov. Jerry Brown signed legislation that raised the state’s minimum wage from $8 to $9 an hour this year and to $10 an hour in 2016. (Brown had vetoed the same bill a year earlier). In March, Connecticut lawmakers passed, and the governor signed, a bill to increase a state’s minimum wage to $10.10 an hour by 2017. In Montgomery County, Maryland – outside Washington, DC – the county council just voted to increase the minimum wage to $11.50 over the next four years.
In November, voters in South Dakota will go to the polls to decide whether to adopt a statewide minimum wage of $8.50 an hour. If it is approved, about 34,000 workers – who now make from $7.25 (the federal minimum) to $8.50 – will get pay raises, according to a study by the South Dakota Budget and Policy Institute.
Activists in other states are gathering signatures to put minimum wage hikes on the ballot and pushing state legislators to raise the minimum wages in their states, too.
This upsurge in government-mandated wage hikes hasn’t come about suddenly. It is the result of years of both changing conditions, effective grassroots organizing, and changing public views about the poor.
Throughout his presidency, Ronald Reagan often told the story of a so-called “welfare queen” in Chicago who drove a Cadillac and had ripped off $150,000 from the government using 80 aliases, 30 addresses, a dozen Social Security cards and four fictional dead husbands. Journalists searched for this welfare cheat and discovered that she didn’t exist. Nevertheless, Reagan kept using the anecdote to demonize the poor.
Reagan’s bully pulpit, and the increasing success of right-wing think tanks and writers in dominating public discussion about poverty, led to a protracted political debate about welfare. To show that he was a different kind of Democrat, Clinton campaigned in 1992 to “end welfare as we know it,” in part by “making work pay.” Congress enacted so-called welfare reform in 1996, limiting the time people can receive assistance.
Although liberals understandably decried this approach, it ironically helped shift public opinion and stereotypes about the poor. According to historians and sociologists, the public distinguishes between the “undeserving” and the “deserving” poor. The latter are viewed as more responsible, hard-working, and victims of circumstances beyond their control. Increasingly, Americans came to view low-income people as the “working poor,” a group considered more sympathetic than the so-called “welfare poor.”
In the 1990s, the mainstream news media began to pay more attention to the working poor, while academics and journalists expressed growing concern about the “Walmart-ization” of the economy – the growing number of low-wage jobs with few benefits. In 1999 Barbara Ehrenreich published an article in Harper’s magazine that two years later became her bestselling book, Nickel and Dimed: On (Not) Getting By in America, recounting her experiences toiling alongside hard-working low-wage employees who couldn’t make ends meet.
But it took effective grassroots organizing to translate these changing sentiments into public policy.
Progressives and Socialists advocated for minimum wages – sometimes called a “fair” or “living” wages – in the early 1900s. Their activism paved the way for state laws and eventually the adoption of the federal minimum wage in 1938. That law requires Congress to set the federal minimum wage, which reflected the partisan and ideological swings. In terms of purchasing power, the federal wage reached its peak in 1968 – $1.60 an hour back then, but $10.69 in purchasing power today.
The federal wage rarely came close to putting workers above the poverty line. In 1994, it had sunk to $4.25 — or $7.31 in today’s dollars. Congress hadn’t raised the threshold in three years, despite rising living costs.
Frustrated by Congressional inaction, a coalition of community organizations, religious congregations, and labor unions in Baltimore – called BUILD – mobilized a successful grassroots campaign to pass the nation’s first “living wage” law in 1994. It required companies with municipal contracts and subsidies to pay employees decently. The movement was not only motivated by stagnating wages but allow by the city governments efforts contract public services to private firms paying lower wages and benefits than those that prevailed in the public sector.
The idea quickly caught fire. Since then, about 120 cities have adopted laws that establish a wage floor, from $9 to $16 an hour, mostly for businesses that receive contracts or subsidies from local governments. Unions and community organizing groups – particularly ACORN – played key roles in mounting these campaigns.
The living wage movement was one of the most successful, if unheralded, community organizing efforts over the past two decades. By injecting the phrase “living wage” into the public debate, it helped shift public opinion, since it implicitly suggests that people who work full-time should not live in poverty.
Likewise, the Occupy Wall Street movement, which began in New York City in September 2011 and quickly spread to cities and towns around the country, change the national conversation. At kitchen tables, in coffee shops, in offices and factories, and in newsrooms, Americans began talking about economic inequality, corporate greed, and how America’s super rich have damaged our economy and our democracy. Occupy Wall Street provided Americans with a language – the “one percent” and the “99 percent” – to explain the nation’s widening economic divide, the super-rich’s undue political influence, and the damage triggered by Wall Street’s reckless behavior that crashed the economy and caused enormous suffering and hardship.
Even after local officials had pushed Occupy protestors out of parks and public spaces, the movement’s excitement and energy were soon harnessed and co-opted by labor unions, community organizers, and progressive politicians like Seattle’s Murray, New York’s de Blasio, newly-elected mayors Betsy Hodges of Minneapolis and Marty Walsh of Boston, and many others, who embraced the idea of using local government to address income inequality and low wages.
The proportion of American workers in unions has fallen to 11 percent — and to 6 percent in the private sector. Union activists view these campaigns among low-wage employees – disproportionately women, people of color, and immigrants – as a potential catalyst to rebuild the labor movement as a force for economic justice and as a way to regain public support.
Growing activism by low-wage workers around the country – assisted primarily by SEIU, UNITE HERE, and the United Food and Commercial Workers union – has put a public face and sense of urgency over the plight of America’s working poor. Over the past two years, workers across the country at fast-food chains such as McDonalds, Taco Bell and Burger King have gone on strike and demanded a base wage of at least $15 per hour. Walmart workers have engaged in one-day work stoppages and civil disobedience as part of an escalating grassroots campaign to demand that the nation’s largest private employer pay its workers at least $25,000 a year, thousands more than a full-time worker making $10.10 per hour would earn.
These protests triggered increasing media coverage, including brilliant put-downs on The Daily Show with Jon Stewart and The Colbert Report of the conservative arguments against the minimum wage. Progressive think tanks have produced reports that gave substance to growing public outrage about the widening divide and the plight of the working poor. According to the National Employment Law Project (NELP), the majority of new jobs created since 2010 pay just $13.83 an hour or less. Last year a NELP study revealed that the low wages paid to employees of the 10 largest fast-food chains cost taxpayers an estimated $3.8 billion a year by forcing employees to rely on public assistance to afford food, health care, and other basic necessities. A study released in March by the Institute for Policy Studies found that the bonuses handed to 165,200 executives by Wall Street banks in 2013 – totaling $26.7 billion – in would be enough to more than double the pay for all 1,085,000 Americans who work full-time at the current federal minimum wage of $7.25 per hour.
The reality of widening inequality and declining living standards, the activism of Occupy Wall Street radicals and low-wage workers, and increasing media coverage of these matters has changed public opinion. A national survey by the Pew Research Center conducted in January 2014 found that 60 percent of Americans – including 75 percent of Democrats, 60 percent of independents, and even 42 percent of Republicans – think that the economic system unfairly favors the wealthy. The poll discovered that 69 percent of Americans believe that the government should do “a lot” or “some” to reduce the gap between the rich and everyone else. Nearly all Democrats (93 percent) and large majorities of independents (83 percent) and Republicans (64 percent) said they favor government action to reduce poverty. Over half (54 percent) of Americans support raising taxes on the wealthy and corporations in order to expand programs for the poor, compared with one third (35 percent) who believe that lowering taxes on the wealthy to encourage investment and economic growth would be the more effective approach. Overall, 73 percent of the public – including 90 percent of Democrats, 71 percent of independents, and 53 percent of Republicans – favor raising the federal minimum wage from its current level of $7.25 an hour to $10.10 an hour.
Major business lobby groups routinely oppose raising the minimum wage at local, state and federal levels. But a new survey of business executives suggests that these trade associations may not be speaking for the majority of their members. In fact, a majority of business executives surveyed by CareerBuilder.com actually favor raising the minimum wage, saying it would raise the standard of living among their employees and give the companies a better chance to hold on to their workers. A whopping 62 percent of employers said the minimum wage in their state should be increased. A mere 8 percent of those surveyed said $7.25 an hour, the current federal minimum wage, is fair. The majority of employers, 58 percent, said a fair minimum wage is between $8 and $10 an hour, while others nearly 20 percent said a fair minimum wage is between $11 and $14. And another seven percent believed that minimum wage workers should make $15 or more per hour. (The study was based on a survey of 2,188 full-time hiring and human resource managers).
In other words, progressives have clearly won the moral argument. Americans believe that people who work should not live in poverty. So business groups have to resort to persuading the public that raising the federal minimum wage – or adopting a living wage or minimum wage plan at the local level – will hurt the economy. Business lobby groups and business-funded think tanks – including the U.S. Chamber of Commerce and its local affiliates, the National Restaurant Association, the American Legislative Exchange Council, the Employment Policies Institute (an advocacy group funded by the restaurant industry) and other industry trade associations – typically dust off studies by consultants-for-hire warning that firms employing low wage workers will be forced to close, hurting the very people the measure was designed to help.
But such dire predictions have never materialized. That’s because they’re bogus. In fact, many economic studies show that raising the minimum wage is good for business and the overall economy. Why? Because when low-wage workers have more money to spend, they spend it, almost entirely in the local community, on basic necessities like housing, food, clothing and transportation. When consumer demand grows, businesses thrive, earn more profits, and create more jobs. Economists call this the “multiplier effect.”
Moreover, most minimum-wage jobs are in “sticky” (immobile) industries – such as restaurants, hotels, hospitals and nursing homes and retail stores – that can’t flee.
In their new book, When Mandates Work: Raising Living Standards at the Local Level, economists Michael Reich and Ken Jacobs of the University of California at Berkley summarize the findings of research on the impact of local minimum wage laws. They discovered that there are no differences in employment levels between comparable cities with and without living wage laws. In doing so, they showed that business lobby groups are crying wolf when they claim that these laws drive away business and kill jobs.
All this local activism and shifts in public opinion have had a significant political impact. Mainstream politicians of both parties increasingly feel compelled to discuss the nation’s growing inequality and the greed of the super-rich.
In his January 2013 State of the Union address, Obama proposed raising the federal minimum wage to $9 an hour. “Even with the tax relief we’ve put in place, a family with two kids that earns the minimum wage still lives below the poverty line. That’s wrong,” Obama said. The following November, he embraced a bill sponsored by Sen. Tom Harkin of Iowa and Rep. George Miller of California to lift the federal minimum to $10.10 an hour.
In the 2012 Republican presidential primaries, some GOP candidates attacked Mitt Romney for being an out-of-touch crony capitalist. In his campaign against Obama, Romney opposed a hike in the minimum wage. But this May Romney urged Republicans to endorse a $10.10 minimum wage, arguing that it would help GOP candidates “convince the people who are in the working population, particularly the Hispanic community, that our party will help them get better jobs and better wages.”
It is unlikely that either Obama’s or Romney’s change of heart was the result of key economic advisers persuading them that a bigger wage boost was needed to reduce poverty and stimulate the economy. Both of those things are true, and surely entered into their thinking, but the major impetus was political. They were responding to the growing protest movement, public opinion polls and election outcomes that reflect widespread sentiment that people who work full time shouldn’t be mired in poverty.
Despite public support for a federal wage hike, the Republicans in Congress have refused to budge. In March 2013, for example, all 227 House Republicans (plus six Democrats) voted against the Harkin-Miller bill. (184 Democrats voted yes). This year, Democrats, unions and other progressives view the growing momentum for a minimum-wage hike as a way to pressure Congressional Republicans facing tough re-election campaigns next year, hoping to persuade them to support an increase.
Whether they do or don’t, the movement to raise wages will continue to gain momentum at the local and state levels. It is a heartening reminder that democracy – the messy mix of forces that typically pits organized people versus organized money – can still work.
(This feature was crossposted at Huffington Post.)
Lights Out, Clean Green: How Janitors Are Boosting High-Rises’ Sustainability
A Los Angeles-based program—the only one like it for janitors in the country—has helped align janitorial staffs with the sustainability goals of office building owners.
“Janitors can tell you down to the tenant – to the desk – who doesn’t care and just throws everything in the trash or contaminates the recycle bin.”
Janitors, who are often the unseen eyes and ears of the commercial office buildings they clean, are on the front lines of an innovative effort to turn their workplaces green.
Aida Cardenas, director of the Building Skills Partnership, a labor-management funded initiative, launched the Green Janitor Education Program in 2014 at a time when building owners were increasingly seeking Leadership in Energy and Environmental Design (LEED) certification for their properties. The widely-used LEED rating system lets owners put a green stamp of approval that indicates a building’s level of conformity to green operation and maintenance standards. “Janitors weren’t really part of that conversation,” even though the kinds of chemicals and equipment they used were important in determining whether a building received a certification, Cardenas said.
The program began in Los Angeles with a pilot of about 120 workers in seven buildings as a collaboration between the Service Employees International Union-United Service Workers West, the Building Owners and Management Association (BOMA) of Greater Los Angeles, the U.S. Green Building Council (which developed the LEED system) and the Building Skills Partnership. (Disclosure: Several SEIU locals are financial supporters of this website.) Since then, more than 1,000 janitors have graduated from the program and are working in 65 buildings across the state.
Casilda De Jesus now unplugs her TV, radio and other appliances when she’s not using them, knowing that as, “energy vampires,” they are still draining power.
Janitors participate in 30 hours of classroom training, which takes place during their shifts over a 15-week period. One focus of the training is the purpose of environmental sustainability efforts, which can sometimes make work harder for janitors who must contend with “thinner trash bags that rip” and cleaning chemicals that they may not view as effective, said Cardenas.
The program—the only one like it for janitors in the country—has helped align the janitorial staff with a building owner’s sustainability goals. For example, some janitors had resisted using green chemicals that did not tackle dirt as quickly as other products.
Casilda De Jesus, who graduated from the program in August, recalled co-workers sneaking Ajax to the worksite until they were discovered by supervisors. “Having a better understanding of green concepts” helps janitors buy into green practices, De Jesus said through an interpreter. The use of cleaning products that have a recognized environmental seal helps buildings receive points toward their LEED certification. De Jesus claims the switch to green cleaning detergents, made several years ago by her building, has alleviated her asthma symptoms.
Buildings that participated in the Green Janitors program used 5.6 percent less energy on average in 2016 than buildings that did not, one study found.
The janitors are “turning off the lights that people leave on,” according to Cardenas. “They’re sorting through bins to divert as much waste as they can. They’re reporting leaks and [they] understand the urgency because they’re conserving water.”
The training has contributed to energy savings, said a pro-bono study conducted by seedLA, an environmental consulting group. Buildings that participated in the Green Janitors program used 5.6 percent less energy on average in 2016 than buildings that did not, the study found. The authors attribute those savings to green building maintenance practices, as well as to physical changes to the building due to energy efficiency upgrades.
“Building a low carbon economy takes workers and an awful lot of those workers are blue collar workers. They are not just engineers and highly technical professionals,” points out Carol Zabin, director of the Green Economy Program, at the University of California, Berkeley Center for Labor Research and Education.
The Building Skills Partnership’s programs—which also include English as a Second Language and digital literacy classes – are paid for by a fund created through collective bargaining between the janitors’ union and janitorial firms that contract with building owners. Last year, the Green Janitors program received a $520,000 grant from a state training fund, administered by the California Workforce Development Board, intended for sectors of the economy that must undergo transformation to combat global warming.
De Jesus and other janitors have brought what they learned home about composting, energy and water conservation. De Jesus now unplugs her TV, radio and other appliances when she’s not using them, recognizing that as, “energy vampires,” they are still draining power. She urges her neighbors to report water leaks to their apartment manager.
De Jesus would like to see her office building’s tenants benefit from the kind of training the janitors received. “I think it’s really important that the tenants in the building go through this program, so that they are sharing the same practices,” De Jesus said.
“Janitors can tell you down to the tenant – to the desk – who doesn’t care and just throws everything in the trash or contaminates the recycle bin,” noted Cardenas.
Building managers do not typically authorize janitors to talk to office tenants about profligate energy use or subpar recycling habits. But last Earth Day, the Building Skills Partnership released a video – introduced by Mayor Eric Garcetti — that educated property managers and janitorial companies about the program. It includes janitors delivering gentle reminders about how to be better environmental stewards by using public transportation, bicycling and recycling.
Rising Realty Partners owns and manages the Garland Center, the West Seventh Street building where De Jesus works, as well as several other downtown L.A. buildings whose janitorial staff are participating in the Green Janitors program. The company opted into the program so as to invest in the staff that maintains its buildings while also contributing to “building wellness,” said Kayce Hawk, senior vice president of property services for the company. The janitors have only recently graduated from the program, but the reports from the building staff have all been positive, she added. “It’s empowering for them to get free continuing education that benefits them in their job and in their home life.”
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Randy Shaw on Los Angeles’ Lost Housing Generation
What: Randy Shaw discusses his book, Generation Priced Out.
When/Where: Skylight Books, Los Angeles; Saturday, Nov. 17, 5 p.m.
When I began writing my new book on the pricing out of the working and middle class from urban America — Generation Priced Out: Who Gets to Live in the New Urban America — the first place I turned to after the Bay Area was Los Angeles. I grew up in Los Angeles. I try to closely follow its land-use politics but was shocked to see how even neighborhoods like Boyle Heights faced displacement and gentrification. I also learned that Venice, which I always thought of as a progressive bastion, was filled with homeowners opposed to affordable housing in their neighborhood. The deeper I looked, the more I found the reasons for Los Angeles’ worsening housing and homelessness crisis: The city was not effectively protecting tenants and its rent-controlled units, nor was it building enough new housing.
Generation Priced Out tells the stories of those on the front lines of the Los Angeles housing crisis. Mariachis facing eviction from Boyle Heights describe their struggle to stay in their homes, and I defend the “by all means necessary” tactics of tenant groups battling displacement. I describe the struggle by Venice Community Housing to build housing for the homeless on a parking lot, a plan vigorously resisted by homeowners. I discuss the enormous power of the city’s affluent homeowner groups, and how they aggressively stop the building of new apartments. I also assess how Mayor Eric Garcetti and other city officials have responded to the crisis and explain why they must do more.
I’ll be talking about my book and the L.A. housing crisis at Skylight Books, Saturday, November 17 at 5 p.m. I look forward to a great discussion and hope to see you there.
Randy Shaw is director of San Francisco’s Tenderloin Housing Clinic and the editor of BeyondChron.org. His prior books include The Activist’s Handbook: Winning Social Change in the 21st Century and The Tenderloin: Sex, Crime and Resistance in the Heart of San Francisco.
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Los Angeles’ Measure B Is a Moonshot Aimed at Creating a Public Bank
A baby step toward establishing municipal banking in America’s second-largest city would be a giant leap for this national movement.
A ballot measure in support of creating a public bank in Los Angeles could serve as a referendum on an idea that has gained traction in cities and states across the country since the 2008 financial crisis.
“To have a resounding ‘Yes’ vote from Los Angeles, which is one of the most powerful opinion centers of the world, would be tremendously historic,” says Trinity Tran, co-founder of Public Bank LA, an advocate for Measure B, which would amend the city charter to allow the city to establish a municipal bank.
But Measure B is a baby step in what promises to be a lengthy process to set up a municipal bank whose stated purpose is to provide the nation’s second-largest city with a socially responsible and cost-effective alternative to Wall Street banks.
The movement for public banks draws inspiration from the success of a 99-year-old public bank in the red state of North Dakota and from Germany’s network of over 400 regional public banks (or Sparkassen), which advocates say provided significant funds for the development of that country’s renewable energy sector.
Since the Great Recession, over 20 U.S. states have introduced bills to establish state-owned banks or to study their economic feasibility. New Jersey Democratic Governor Phil Murphy, a former Goldman Sachs executive, successfully campaigned for his current job on the promise of creating a state-owned bank. And California’s gubernatorial frontrunner Gavin Newsom has made the formation of a state bank that would fund infrastructure, student loans and housing part of his platform as well.
A lack of resources is one motivation for city and state leaders’ interest in public banking, said Deborah Figart, a distinguished professor of economics at Stockton University in New Jersey.
After the Great Recession, “we really became much more aware of unmet infrastructure needs,” said Figart, who conducted an economic impact study for the proposed New Jersey bank. The American Society of Civil Engineers gives the U.S. a D+ grade for the state of its roads, bridges and other infrastructure — “practically a failing grade,” she noted. Meanwhile, local governments devote a significant portion of their budgets to paying interest on bonds that go to Wall Street banks and finance companies at a time when interest rates are on the rise.
In Los Angeles, the push for the bank emerged from grassroots activists who demanded that the city divest from San Francisco-based Wells Fargo, whose aggressive sales practices resulted in more than three million deposit and credit card accounts being opened without customers’ knowledge.
“We knew that it wasn’t really divesting if we were going to move our money to another predatory extractive bank,” said Tran. “So we introduced public banking early on in the campaign as a permanent solution to housing the city’s public finances.”
Last year, the city paid $1.1 billion in interest to bondholders, which in turn funds “wars and pipelines and private prisons,” said Tran, who would rather see tax money put to work to address city needs like housing and clean energy. Her banking advocacy began four years ago when she started meeting with fellow activists in Koreatown coffee shops. As of October 20, “Yes on B” supporters had raised $10,128 for the measure, according to the Los Angeles City Ethics Commission. No committee has been formed to oppose the measure.
There are critics, however. Rob Nichols, president and CEO of the American Bankers Association, writing in The Hill, fears that the public bank proposal would suffer from a “scattered business focus” and fall under “undue political influence” that would result in risky loans that would damage the public purse.
“It’s easy to make the banks the bad guy,” said Stuart Waldman, president of the Valley Industry and Commerce Association. But “it’s not easy to run a bank,” and a municipal bank would require significant start-up capital. “This is public money, so if they lose public money, if they realize that it doesn’t work, that hurts every person in L.A.”
The Los Angeles Times editorialized that the measure was one of “the most ill-conceived, half-baked ballot measures in years” and urged a no vote, in part, because the measure does not articulate a vision or plan for the bank.
But if the proposal on the ballot lacks detail, it’s because city officials have not wanted to invest in a business plan and feasibility study while the city is still prohibited by its charter from operating a bank, City Council President Herb Wesson told a news conference in October.
Wesson assured reporters that there was “no way on God’s green earth” the city would move to create a municipal bank without a subsequent citywide vote on a more detailed plan, and the ballot argument in favor of the measure that goes to every city voter says as much. For now, voters are only being asked to remove a legal hurdle in the charter that prevents the city from establishing a municipal financial institution.
Proponents of public banking regularly point to the Bank of North Dakota as a model. The Progressive-era institution was created in 1919 out of frustration with a banking system that was putting the squeeze on farmers. The bank was initially greeted with suspicion by a national press corps anxious about a Bolshevik incursion into the finance sector. But the bank, now very much part of the state’s business establishment, has seen record profits for 14 consecutive years. Because it steered clear of the volatile derivatives market, the Bank of North Dakota avoided the upheaval many financial institutions suffered when the housing market tanked in 2008.
“It’s partly because you have civil servants in charge rather than folks whose paychecks depend on how much money the bank makes in a quarter,” Sam Munger, director of external affairs for the State Innovation Exchange, told The American Prospect.
Considered a “banker’s bank” with a $4.9 billion loan portfolio that supports agriculture, business, homeownership and higher education, the Bank of North Dakota does not compete with other financial institutions.
“It’s not a bank for regular household customers, for car loans, credit cards and mortgages,” said Figart. “It is a bank for accepting public deposits and lending mostly to the public sector or public-private partnerships.”
Wesson has talked about L.A.’s municipal bank as a place where the cannabis industry could park its cash since pot is illegal under federal law. Such a move could restrict the bank’s ability to make federal wire transfers, but the L.A. activists who back the initiative see other uses for the bank.
“For our organization, it was never about cannabis; it was always about neighborhood issues,” says Gisele Mata, housing organizer of Alliance for Californians for Community Empowerment, a community-based non-profit that has been part of the coalition advocating the bank.
Public Bank LA leaders envision Los Angeles’s municipal bank playing a similar role to that of the Bank of North Dakota, but focusing on the city’s priorities. “It would start as a banker’s bank for the city, refinancing city debt and trying to consolidate the investment away from Wall Street and harmful extractive industries,” co-legislative director David Jette told KPCC-FM in October.
Public Bank LA, he added, also envisions the municipal bank “partnering with local credit unions and community banks” to fund housing, small businesses, low-interest student loans, renewable energy projects and, eventually, credit for the underbanked. The bank could also fund infrastructure projects more cheaply than commercial banks by avoiding the interest and fees that go to commercial banks, according to advocates.
Many hurdles remain before an L.A. bank could become operational. State and federal laws do not currently provide a regulatory framework for the formation of public banks, according to an August report by the city’s Chief Legislative Analyst’s office. The city must come up with a source of collateral for the bank and an oversight structure, and receive approval from the California Department of Business Oversight.
But a modern public bank can be made from scratch. In April, the Federal Reserve approved a public bank for American Samoa in the South Pacific, after the Bank of Hawaii abandoned the geographically remote U.S. Territory.
The North Dakota and American Samoan banks may be rare cases for now, but Figart believes that “in the next five years, there will be” more public banks, and “in the next 10 years, there certainly will be more.”
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Will Proposition 11 Mean Less Rest for Ambulance Crews?
Supporters describe Proposition 11 as necessary to ensure public safety, but EMT workers describe grueling 12-hour shifts in which crew members can often go eight hours without having a chance to stop for food.
California’s Proposition 11, which seeks to rewrite California’s Labor Code as it relates to rest and meal breaks for private-sector ambulance employees, might appear to be a strange ballot measure, even for a state that has seen its share of odd propositions. It has no opponent listed on the state’s official voter guide, and the only backer of the proposition, American Medical Response, is a company headquartered in Colorado, which has spent $22 million to secure the bill’s passage. Prop. 11 seems like it must have an interesting backstory, and it does.
That story begins with a California Supreme Court ruling in 2016, Augustus v. ABM Security, which found that private security guards were required to be given uninterrupted rest breaks by their employer. Guards for ABM had been instructed to keep their pagers on during breaks and to respond to calls for assistance, a practice that the court ruled was in violation of state labor law.
Like security guards, the state’s private sector emergency medical technicians (EMTs) and paramedics are on call during breaks — and they have filed lawsuits against private companies, including American Medical Response, over the practice. According to the California Legislative Analyst, those suits, after Augustus, are likely to be successful. The analyst’s report estimates that to be in compliance with Augustus and offer uninterrupted breaks to their employees, companies would need to hire about 25 percent more ambulance crews, at a potential cost of more than $100 million per year. Then there’s the class action lawsuit against AMR, which is the largest private ambulance company in California. Prop. 11 seeks to nullify the lawsuit.
Prop. 11 comes after last year’s failure of Assembly Bill 263, which sought a solution to emergency workforce staffing. The bill, which was supported by the union that represents emergency medical services (EMS) workers, and opposed by AMR, would have created a carve-out in the labor code for private ambulance companies, allowing them to require workers to be on call during breaks and respond to emergencies that demand the use of sirens and emergency lights. “We wanted to create a policy that protects workers’ rights, allows a little bit of [time] to get meals, but still protects public safety,” said Jason Brollini, the president-executive director of United EMS Workers, a local of the American Federation of State, County and Municipal Employees. (Disclosure: AFSCME is a financial supporter of this website.)
What the proposed bill wouldn’t have done was shield AMR from previously filed lawsuits now before the court. “We weren’t willing, through the stroke of the pen, to take away the ability of workers to seek redress in court,” Brollini said.
Supporters describe Proposition 11 as necessary to ensure public safety and provide lifesaving assistance. “If Prop. 11 does not pass, first responders will not be able to keep their radios on during breaks, putting patient care at risk,” said Marie Brichetto, a Yes on Prop. 11 spokesperson. “Prop. 11 would simply continue the longstanding practice of paying private EMTs and paramedics to be on-call during breaks — just like other first responders, including police and fire.”
Brollini disputed the notion that response times will increase if Prop. 11 fails, noting that such times are mandated by contracts between private companies and the counties they serve. “There is not a provider in the state that is going to turn their radios off,” he said. “What we do need is some kind of relief.”
Although his union didn’t file paperwork in time for its opposition to Prop. 11 to be included in the state’s voter guide, Brollini says his own opposition is grounded in his 25-year career as an EMT worker, most of it spent working in an AMR ambulance. He described grueling 12-hour shifts in which workers can often go eight hours without having a chance to stop for food. Unlike police or firefighters, he said, they frequently don’t have stations at which to recuperate, exacerbating an already heavy workload.
In 2015, a survey published in the Journal of Emergency Medical Service found that first responders are 10 times more likely to attempt suicide than the general public. And a joint report in 2017 by the University of California, Berkeley and UCLA’s Labor Center reported that one-third of California’s EMTs and paramedics are low-wage workers, defined as earning less than $13.63 an hour, or two-thirds of the state median.
“We want to see our companies profitable,” Brollini said, “but we don’t want it to be at the expense of the worker’s mental and physical health.”
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Are Prop. 10’s Big-Money Foes Making California’s Housing Problem Worse?
Co-published by The American Prospect
Topping the list of corporate anti-rent control donors are some of the country’s largest landlords — many funded by Wall Street investment dollars — whose bottom lines could be negatively affected by Prop. 10’s passage.
A significant amount of No on Prop. 10’s $65 million war chest comes from large, publicly traded real estate investment trusts.
Co-published by The American Prospect
One of California’s most hotly contested ballot measures, Proposition 10, would repeal the 23-year-old Costa-Hawkins Rental Housing Act that restricts a city’s ability to apply rent control to post-1995 construction and exempts single-family homes from regulation. Proposition 10’s opponents claim it will worsen the state’s housing crisis, which has left teachers, blue-collar workers and retirees struggling to keep roofs over their heads. To that end, the No on Prop. 10 campaign has deployed an ensemble of small property owners, non-profit housing developers and veterans as spokespeople against the measure.
However, topping the list of No on Prop. 10’s big donors are some of the country’s largest landlords — many funded by Wall Street investment dollars — whose bottom lines could be negatively affected by Prop. 10’s passage. The No campaign’s $65 million war chest is more than two-and-a-half times as much as the $25 million raised by Prop. 10 supporters, according to the California Secretary of State’s office. A significant amount of the No funding comes from large, publicly traded real estate investment trusts like the ones highlighted on a recent tour held by tenant activists in downtown Los Angeles.
Despite their affordable housing message, some No on Prop. 10 donors have long records of opposing efforts to include affordable housing in their developments.
New York-based Blackstone Group heads the list of these donors, contributing $5.6 million to defeat the measure which, if passed, would let cities enact laws to stabilize rent increases on a broader range of buildings and limit how much a landlord could increase rents when a new tenant moves in. Invitation Homes Inc., the investment vehicle created by Blackstone in 2016, owns more than 80,000 single-family homes nationwide and kicked in almost $1.3 million.
Despite their affordable housing message, these and some other No on Prop. 10 donors have long records of opposing efforts to include affordable housing in their developments, or employ business models that critics claim exacerbate the housing crisis. Some focus on high-end rentals that tenant advocates say do little to address the affordability crisis plaguing California’s job-rich urban areas. Others have been criticized for raising rents on the properties they acquire in an effort to pump up hefty returns for investors.
Steven Maviglio, a spokesperson for the campaign to defeat Proposition 10, claims that real estate investment trusts (REITs), which earn money for their shareholders through rental income and property value increases, only account for a tiny percentage of the state’s residential rental market. “REITs own .004 percent of California’s rental housing,” he wrote in an email, a statistic he attributes to the California Apartment Association.
On an August call with investors, Invitation Homes CEO Fred Tuomi argued that increasing housing supply — as opposed to regulating rents — was the answer to the affordability crisis facing California, where more than half of renter households pay more than a third of their incomes toward housing. “We just need more supply when it’s needed and, most importantly, where it’s needed and [at] the price points that it’s needed,” Tuomi said.
Equity Residential CEO: “Regardless of [Proposition 10’s] outcome, we will continue to fight attempts at the local level to enact rent control.”
But increasing the supply is not part of the business model of Invitation Homes, which focuses on property management and acquisition. In the aftermath of the 2008 housing collapse, the company scooped up tens of thousands of foreclosed single-family homes, mainly near Sunbelt cities, crowding out mom and pop landlords, imposing steep rent increases on tenants, and skimping on maintenance in order to generate large returns for investors, according to a report released early this year by the Alliance of Californians for Community Empowerment (ACCE) and two other advocacy organizations, and a separate Reuters investigation published in July.
In a written statement to Capital & Main, Invitation Homes countered that its residents “give us high ratings for customer service” and “stay 50 percent longer compared to the apartment industry,” adding that the company invests $22,000 per home in renovations. (Maviglio said that No on Prop. 10’s other corporate donors had no comment for this story.)
On October 10 in downtown Los Angeles, about 60 housing activists, replete with colorful T-shirts and noisemakers, held a “tour of the housing tyrants” that included stops at luxury apartments they said were owned in whole or in part by Blackstone Group and Essex Property Trust — two companies that are helping to fund the effort to defeat the rent control measure. The marchers’ “The rent is too damn high” chant attracted the attention of office workers and drivers stuck in lunchtime traffic.
Sheri Eddings, who is 55, joined the battle for rent control in response to letters she received from Invitation Homes demanding $500 rent increases after her two-year leases expired, first in 2015 and then in 2017. Each time, Invitation Homes has been willing to negotiate with her to reduce the increase, she says. But she would like to be able to count on staying in the South Los Angeles County neighborhood where her grandchildren live. “I don’t know what’s going to happen in 2019,” she said at the tenant action.
One stop on the activists’ tour was Essex Property Trust’s owned Gas Company Lofts, which offers studios for about $2,000 per month and two-bedroom apartments for more than $3,500. To date, the San Mateo-based real estate investment trust has donated $4.8 million to defeat Proposition 10.
The vast majority of the company’s more than 60,000 apartment units are located in the Bay Area and Southern California. During an August 2 quarterly earnings call, Essex CEO Michael Schall told investors that the company would be “favoring market rents instead of favoring occupancy” for the next year, suggesting the company is choosing to leave units vacant in the hope of locking in higher rents.
Public policies, says ACCE’s Amy Schur, are only encouraging high-end housing where developers “can make the most money” instead of “ensuring that they contribute toward addressing housing needs of the state, which include housing that average working families can afford.” ACCE is part of the coalition advocating for passage of the ballot measure and was an organizer of the October 10 tour.
Another big Wall Street donor, Chicago-based Equity Residential, has so far invested more than $3.7 million to the No on Proposition 10 campaign. The REIT is focused on acquiring, managing—and, to a lesser extent, developing — housing in walkable urban markets favored by millennials, according to its filings with the Securities and Exchange Commission.
The company’s leadership has engaged in local and statewide rent control battles before. Equity Residential’s board chair is billionaire Sam Zell, whose heavily leveraged acquisition of the Tribune Co. was followed by bankruptcy and mass layoffs. His Equity LifeStyle Properties, another real estate investment trust (formerly Manufactured Home Communities), began to acquire mobile home parks across California more than two decades ago, and proceeded to bring costly legal actions against small cities that housed the parks in an effort to do away with local rent control laws. The leadership of its sister company, Equity Residential, apparently shares that combative spirit.
These Corporate Landlords Have Each Donated
More than $2 Million to Defeat Proposition 10
|Essex Property Trust||$4,816,200|
|Michael K. Hayde, including Western National Group & Affiliated Entities||$4,761,840|
|AvalonBay Communities Inc.||$3,006,100|
|Geoffrey H. Palmer, owner of G.H. Palmer and Associates||$2,000,000|
Source: California Secretary of State, downloaded October 22.
*Invitation Homes Inc., created by and partially owned by Blackstone Group, contributed another $1,286,250 to the effort to defeat Proposition 10.
“Regardless of the outcome [of Proposition 10], we will continue to fight attempts at the local level to enact rent control,” president and CEO David Neithercut told investors on a call this past July, during a discussion about Costa-Hawkins. About 45 percent of the company’s 79,000 apartments are located in California.
Interestingly, on that same call Neithercut proposed “inclusionary zoning” as part of an alternative “basket of solutions” to the state’s affordable housing crisis. Such zoning requires developers to set aside a certain number of units in their projects for low-income tenants.
Neithercut’s endorsement of inclusionary zoning might signal a shift for Equity Residential, which sought to wriggle out of a requirement that it keep a portion of a downtown San Francisco building’s units affordable five years ago. The company attempted to raise the rents on 33 low-income occupants of apartments on Geary Street, a move that would “almost certainly have forced many tenants from their homes,” had not the city of San Francisco sued, according to a statement issued at the time by city attorney Dennis Herrera, who settled with Equity for $95,000. (The company had reneged on an agreement with the city to keep a percentage of units affordable when the complex was built in exchange for tax-exempt bond financing for the project.)
Meanwhile, No on Prop. 10 donor Geoffrey Palmer’s hardball lawsuit against the city of Los Angeles resulted in a 2009 court ruling that for eight years discouraged cities from adopting inclusionary zoning laws. That prohibition ended with the so-called Palmer fix last year, a state bill that restored cities’ ability to require set-asides if they also offered developers alternative ways to comply with the law. (Palmer, who is well known in Southern California for his fortress-like apartment complexes with Italianate names like the Medici and the Lorenzo, is an avid Donald Trump supporter and has given $2 million to defeat Proposition 10.)
Perhaps it’s not surprising to find major landlords opposing Proposition 10. But will the ballot measure upend the housing market as they contend?
Anya Lawler, policy advocate for the Western Center on Law & Poverty, a Proposition 10 supporter, says rent control is an important tool for tenants but downplays any disruptive impact the repeal of Costa-Hawkins would immediately have in California. Proposition 10’s passage won’t guarantee the enactment of any local law, she says, nor will it be a cure-all for California’s housing woes, which have been decades in the making.
“Rent control ordinances need to be negotiated locally because every housing market is different, and communities have different needs,” says Lawler, who adds that stakeholders, including property owners, will need to be consulted. The idea that the repeal of the Costa-Hawkins law will lead to “draconian rent control policies” is not rooted in “political reality.”
Lawler’s sentiments are echoed by corporate housing executives, at least in their conversations with their own investors. Asked if his company would redline cities due to a rent control, Essex’s Schall stressed, during his August 2 call, that “rent control is only one factor” that the company considers when making investment decisions.
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Video: Rising Rents Force a Choice Between Eating or Shelter
According to the U.S. Department of Agriculture, 15 million American households experienced food insecurity at some point in 2017.
Why Many Millennials Still Live at Home
For in-depth analysis of millennials’ economic dilemma, read Eric Pape’s latest “Priced Out” report.
Is Goldman Sachs’ New Fund Really Just Greenwashing Stocks?
Critics are questioning the motives behind a banking giant’s socially responsible investment strategy.
Even as Goldman Sachs markets itself as a champion of social responsibility, it is helping CEOs block key environmental and social justice reforms proposed by their shareholders.
Co-published by The Guardian
When Goldman Sachs and billionaire Paul Tudor Jones announced a partnership three months ago to help socially conscious investors support “just business behavior,” they promised that their new index fund would generate solid returns for savers while directing their investment dollars towards truly humane companies.
“Capitalism should be a positive force for change,” said Jones in a press release announcing the fund, which is designed to track an index of socially responsible companies identified by his nonprofit JUST Capital. “Its future will be driven by a new definition of corporate success that is aligned with the values and priorities of the public.”
Socially responsible investing (SRI) offers
Wall Street an image makeover in a time of growing public distrust in the financial system.
The partnership comes as pension funds, university endowments and other institutional investors increasingly seek to put their financial weight behind ethical and sustainable corporate behavior — and as Goldman Sachs tries to shed its reputation as a “vampire squid.” So far, the rebrand seems to be working: The JUST fund debuted in June to rave reviews from the financial press and ended its first day of trading with over $250 million in assets, making its launch one of the most successful in recent history.
However, a Capital & Main review of corporate documents shows that some of JUST’s largest investments are in fossil fuel firms that have been sued for suppressing global climate research, Wall Street behemoths fined for defrauding investors, a social media platform accused of helping rig elections and a tech industry giant criticized for paying its workers starvation wages.
Moreover, proxy voting records reveal that even as Goldman Sachs now markets itself as a champion of social responsibility, the firm has been using its existing stakes in many JUST fund companies to help CEOs block key environmental and social justice reforms proposed by their shareholders. Those initiatives range from gender pay gap and diversity initiatives to corporate governance reforms; from efforts to increase lobbying transparency to prohibitions on doing business with companies tied to genocide and other human rights violations.
Meanwhile, in the months before JUST fund’s launch, Goldman was slammed for blocking a human rights resolution at its own company — and one of Goldman’s key lobbying groups in Washington was working to shape Republican legislation that would make it far more difficult for shareholders to file environmental, human rights and other socially minded initiatives in the future.
“You shouldn’t be able to, with a straight face, invest in the Dakota Access Pipeline with your left hand, and with your right hand tell people that you’re doing responsible investing,” Lisa Lindsley, Capital Markets Advisor for the shareholder advocacy group SumOfUs, told Capital & Main. “The compartmentalization is very hypocritical.”
Through a spokesperson, Goldman Sachs declined to comment on the process by which its equity funds vote on shareholder proposals, and how that process may differ with the JUST fund — which, as a newly launched fund, has not yet participated in proxy voting for any of the companies in which it holds stock.
“Ethically Motivated Versus a More Greenwashing Approach”
Goldman’s new fund spotlights socially responsible investing (SRI) — a financial strategy that represents Wall Street’s more affirmative answer to negative or exclusionary “screening” tactics like divestment from fossil fuel producers and tobacco firms.
While a recent directive by the Trump administration has been viewed by some experts as an effort to limit SRI strategies, the market for such investments remains strong. According to the Forum for Sustainable and Responsible Investment, U.S.-based assets managed using SRI strategies more than doubled to $8.7 trillion between 2012 and 2016, and now account for more than one in five dollars under professional management in the country.
Goldman’s hostility toward many SRI initiatives is illustrated by its votes on resolutions at the companies now in its JUST fund.
The rise in SRI investment comes amid questions about whether corporate boards are adequately evaluating environmental and social justice concerns when they look at their company’s long-term financial prospects. PwC’s 2017 survey of corporate officials found “that directors are clearly out of step with investor priorities in some critical areas” and the report added that “one of these areas is environmental issues.”
High-profile initiatives like the JUST fund are a chance for the industry to tout its eagerness, as Goldman Sachs executive Timothy O’Neill put it in a press release, to “[allow] investment to flow toward a more sustainable and equitable future, while seeking to generate attractive returns for investors.”
The trend has given Wall Street an opportunity for an image makeover in a time of growing public distrust in the financial system: According to a Gallup poll conducted last month, fewer than half of Americans under 30 report having a positive view of capitalism, a 12-point drop in just the past two years.
For some activists and investors, though, the rapid expansion of the market for SRI-branded financial products has raised concerns about greenwashing — the practice by which companies market themselves as socially or environmentally responsible without actually adopting business practices that meet those goals.
“Putting the word ‘ethical’ or ‘sustainable’ in the name of a fund does not make it so,” said a report by British investment advisory firm Castlefield, whose recent reports documented how some environmental funds include investments in fossil fuel firms. “It is increasingly important to differentiate between those funds genuinely responding to customer demand for a sustainable approach and those which use terms like ethical, Socially Responsible Investment or stewardship in their name but include companies such as British American Tobacco or Shell in their key holdings.”
Goldman’s Record on Socially Responsible Investing
Amid surging interest in SRI funds, Goldman’s JUST U.S. Large Cap Equity ETF aims to convince investors that the company is serious about injecting a spirit of ethics and morality into its financial strategies. To that end, the fund says it directs money only into companies that are ranked highly by JUST Capital.
The 426 companies featured in the JUST index were selected on the basis of their performance across seven different criteria, including labor practices, customer service and environmental impacts. Goldman itself ranks in the top tenth of the JUST rankings, despite the company being attacked for supporting the fossil fuel industry and also being fined $5 billion in 2016 by the Department of Justice for “serious misconduct in falsely assuring investors that securities it sold were backed by sound mortgages, when it knew that they were full of mortgages that were likely to fail.”
Whether Goldman’s new JUST fund represents a step in a larger shift towards socially responsible investment remains to be seen. Baruch College’s Jared Peifer says that one way to judge a firm’s commitment to social responsibility is to watch how it deals with resolutions brought by shareholders, whereby investors attempt to force management to adopt socially responsible policies.
“There is variance to the degree that SRI funds are ethically motivated versus a more greenwashing approach,” Peifer told Capital & Main. “Is the fund dialoguing with management? Issuing shareholder proxy votes, voting on others? If so, that seems like a more ethically motivated fund to me, because they are exerting additional effort many other funds do not bother with.”
In recent years, Goldman executives have been fighting off SRI resolutions at their own company, including initiatives that have asked management to more transparently disclose their political lobbying and create a human rights committee to review the company’s policies regarding doing business with governments engaged in censorship and repression. Only three months before Goldman announced the JUST fund, Goldman successfully pressed the Securities and Exchange Commission to bless its move to block shareholders from voting on a resolution asking the company to honor indigenous peoples’ rights.
“The company’s extraordinary no action request shows the notable lengths that the Company is willing to go, and to stretch credulity, in order to prevent its directors from shouldering fiduciary obligations on indigenous and human rights,” wrote shareholder proponents at the time.
Last year, Goldman was lauded by Share Action, an SRI activist group, for switching its position and using its holdings to support a series of climate-change-related shareholder initiatives. In its proxy voting guidelines, Goldman says it will generally vote for proposals asking companies to report on “policies, initiatives and oversight mechanisms related to environmental sustainability, or how the company may be impacted by climate change.”
However, those guidelines do not make the same commitment when it comes to initiatives requiring companies to actually reduce their carbon emissions. The guidelines also say the company will generally vote against “proposals requesting increased disclosure of a company’s policies with respect to political contributions.” The company further says it will vote to remove representatives of employees or organized labor from a company’s board if they are overseeing company audits or executive compensation, and if there is no legal requirement for them to be in that position.
Goldman Votes Against Resolutions at JUST Fund Companies
Goldman’s hostility toward many SRI initiatives is illustrated by its votes on resolutions at the companies now in its JUST fund.
For example, there is Chevron Corporation, which ranks as the JUST fund’s 17th-largest holding as it faces accusations that it is trying to intimidate environmentalists and avoid cleaning up pollution in the Amazon rainforest.
In May, the oil giant’s shareholders were asked to vote on a slate of seven proposals, including a requirement for the company’s board to nominate a director with environmental experience; the preparation of a report on transitioning to a low-carbon business model; increased transparency relating to lobbying activities; and stronger prohibitions on Chevron’s interests overseas from doing business with governments that are complicit in genocide or crimes against humanity.
As shareholders in Chevron, 14 different Goldman Sachs Asset Management (GSAM) funds voted on these proposals. The majority of funds voted in support of just one, a request for the company to prepare a report on its efforts to minimize methane emissions. In every other case, the funds unanimously or overwhelmingly opposed the proposals.
Proxy-voting records from dozens of shareholder meetings reviewed by Capital & Main show a similar pattern. In rare cases, Goldman funds did vote in favor of some shareholder reforms, including the preparation of a report on the gender pay gap at Facebook and Google. At several pharmaceutical companies, including AbbVie, Amgen and Eli Lilly, Goldman funds supported increased accountability for executives regarding high drug prices.
Such votes, however, were few and far between. Of the 10 companies that make up the largest share of Goldman’s JUST fund, eight considered shareholder-proposed reforms that were overwhelmingly opposed by Goldman-managed funds at their most recent annual meetings. The proposals included prohibitions on offshore tax avoidance schemes, increased transparency on lobbying activities and requirements that companies appoint an independent board chair — a governance model that advocates say leads to more responsible corporate behavior. The remaining two companies, Microsoft and Visa, did not consider any shareholder proposals.
At JPMorgan, the recipient of JUST’s fourth-largest investment, Goldman funds voted unanimously against a requirement for the company to release a report on its investments in PetroChina, a firm that activists accuse of helping to fund crimes against humanity due to its ongoing business relationships with oppressive regimes in Syria and Sudan. Goldman made that move despite its own proxy voting guidelines saying the company would “generally vote for proposals requesting a report on company or company supplier labor and/or human rights standards and policies, or on the impact of its operations on society.”
Eighteen of the 19 Goldman funds with shares in JPMorgan also voted against an effort to prohibit the accelerated vesting of awards for executives who enter government service, a practice often criticized for fueling the revolving door between Wall Street and financial regulators.
A shareholder proposal to the board of pharmaceutical manufacturer Johnson & Johnson, expressing concern that the company’s compensation practices “may insulate senior executives from legal risks” relating to the opioids crisis, recommended that opioid-related litigation costs be factored into executive pay. All 16 Goldman funds with stock in Johnson & Johnson voted to defeat the proposal.
Goldman asserts that its fund is designed to invest in firms that rank well in JUST Capital’s ratings. But even that assertion is not what it seems.
Because the index features companies ranked in the top half of their respective industries, it includes dozens of firms in sectors like energy and financial services that score poorly overall. For example, the fund invests in both National Oilwell Varco, a drilling equipment firm, and Entergy, a Louisiana utility, despite the fact that the companies rank 626th and 676th, respectively, among the 875 companies evaluated by JUST Capital.
“Every industry is represented at approximately the same weight as [in] the Russell 1000,” said JUST Capital’s Hernando Cortina, referring to the best-known index fund tracking the largest publicly traded companies. Cortina added that the JUST fund is designed to feature responsible companies “while providing diversified equity exposure to every industry.”
Lisa Lindsley of SumOfUs said the situation spotlights how socially responsible investing is seen on Wall Street not as a values-based cause, but as yet another way to trick investors into believing that the investment industry has reformed itself a decade after the financial crisis.
“The reason they’re going into this is that there’s money there. It’s all driven by greed,” she said. “It’s pretty easy to do some greenwashing and call yourself a responsible investment manager.”
As Goldman now markets its JUST fund, it remains unclear whether the company will change its proxy voting or its posture towards shareholder resolutions in general. Those resolutions, though, could be more rare, if congressional Republicans pass their legislation that would make it more difficult for shareholder resolutions to qualify for a vote. Federal records show that the American Bankers Association — which lists Goldman Sachs as a member — has been lobbying on that bill, which critics say could undermine the SRI movement.
“Shareholder proposals play an important role in ensuring that owners get a say in how their companies are run, and in setting the broader agenda across the market,” wrote Dimitri Zagoroff of the shareholder advisory firm Glass Lewis. “Making it harder for shareholder proposals to be resubmitted from year to year would make it that much harder for proponents to refine their ideas and build a coalition of support. This often takes several years, both to generate interest in the underlying topic, and to convince other shareholders that the specific proposal offers the appropriate means of addressing the topic.”
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Medi-Cal Home-Delivers a New Prescription: Healthy Meals
California’s Medically Tailored Meals pilot program could lead the medical industry, and especially insurers, to include nutrition as part of overall health care.
One study showed that patients who received three medically tailored meals per day had a
50 percent lower rate of hospitalization.
A $6 million Medi-Cal pilot program launched in April may demonstrate what many in the health care field have reported anecdotally: That tailored nutrition can improve health for chronically ill patients and lower medical costs. The three-year Medically Tailored Meals (MTM) pilot provides free curated, low-sodium meals brought through in-home visits for 1,000 patients who suffer from congestive heart failure — a group with some of the highest rates of hospital readmissions.
Meals will be delivered by registered dietitians from six California nonprofits in the Food is Medicine Coalition: Project Angel Food (Los Angeles County) Project Open Hand (San Francisco), Ceres Community Project (Sonoma County), Mama’s Kitchen (San Diego), Food For Thought (North Bay Area) and Health Trust (San Jose). The funding was included in Senate Bill 97, a budget bill approved in June 2017 by the California Senate.
The program is already showing results, according to Richard Ayoub, CEO of Project Angel Food. Ayoub points to three out of four clients who have avoided a hospital stay during the pilot’s first 30 days. In a YouTube video, one of Project Angel Food’s pilot study patients, Candice, explains how she’s already enjoying better health through three daily prepared meals.
“For years,” Ayoub says, “we’ve known that what we do here helps people live longer and happier, and now we’re seeing results that are quantitative. We can see health care systems saying, If it was good for congestive heart failure maybe it will be good for renal disease, maybe it will help keep people off dialysis.”
The Medi-Cal pilot is modeled off a small 2013 study led by Philadelphia-based nonprofit MANNA (Metropolitan Area Neighborhood Nutrition Alliance). That study showed that patients who received three medically tailored meals per day had a 50 percent lower rate of hospitalization and 37 percent shorter stays for those who went to the hospital, compared to a control group. On average, patients had a 31 percent reduction in health care costs, which equaled $13,000 per month per patient.
Sue Daugherty, MANNA’s CEO, said four companies that administer Medicaid in southeastern Pennsylvania have signed contracts with MANNA to deliver specially tailored meals for selected patients with diabetes and cancer, and she’s hoping that the California study will lead her state’s Medicaid agency to include medically tailored meals as part of treatment.
“The big barrier is getting folks to realize we’re not talking about just food,” Daugherty said. “When people hear ‘food’ they start shutting down and thinking ‘entitlement,’ and forever. What we’re doing is something that a health care provider will prescribe.”
Daugherty added that food is often an afterthought among medical providers, and that when a diet is prescribed, little thought is given to how patients will access that food and pay for it. With the exception of the four Pennsylvania providers, food is not included in any medical plans.
Richard Seidman, M.D., chief medical officer of L.A. Care Health Plan, one of the public agencies that administers Medicaid insurance in L.A. County, said he hopes that if the pilot program is as successful as the MANNA study suggests, California lawmakers will expand it.
“With nearly 13 million people receiving Medi-Cal benefits, it’s not a giant leap to suggest that food insecurity is a barrier to good health for many, not just those with chronic conditions,” Seidman wrote in an email.
Seidman and other supporters say if the pilot is as successful as they expect, it could lead the medical industry, and especially insurers, to include nutrition as part of overall health care.
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