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Election 2018

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.

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All photos by Jessica Goodheart.

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.

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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.

Also Read “California Workers and Retirees Are Unwittingly Financing an Anti-Rent-Control Campaign”

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

ContributionContribution
Blackstone Group*$5,575,497
Essex Property Trust$4,816,200
Michael K. Hayde, including Western National Group & Affiliated Entities$4,761,840
Equity Residential$3,724,900
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.

“We’re going to seek areas that have the best dynamic – the best supply-demand dynamic,” he said. “And right now we believe that’s in California, in the various markets that we’re in.”


Capital & Main’s contributors include groups supporting Proposition 10. This website is not funded by commercial entities that stand to profit from the outcome of the ballot initiative.

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Election 2018

Listen: The Wall Street Money Behind the War Against Prop. 10 Explained

Capital & Main reporter Jessica Goodheart discusses the findings of our Proposition 10 stories, linking Wall Street to the campaign to defeat the rent-control ballot initiative.

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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.

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Photo by Jonathunder

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.

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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.

Pot profits for deposit? (Photo: Pandora Young)

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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Proposition 5: A New Tax-Cutting Measure Shakes Up California’s Ballot

The state Legislative Analyst’s Office estimates that California schools and local government losses will run $1 billion annually if voters approve a new property tax measure.

Bobbi Murray

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(Photo by Justin Sullivan/Getty Images)

Proposition 5 is about property taxes, who pays them and how much. But it is a measure whose presence is practically drowned out on the crowded Nov. 6 ballot despite the stakes for California.

The measure, a constitutional amendment, is also about the state budget. The California Legislative Analyst’s Office puts the amount the state collects from property tax income, which supports local government services and schools, at $60 billion annually.

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Prop. 5, placed on the ballot by the California Association of Realtors , would change present law that allows both homeowners 55 years or older and the severely disabled a one-time opportunity to take their existing property tax assessment based on their old home’s original purchase price to a new home of equal or lesser value in California counties that permit the transfer (not all do) rather than an assessment based on the new home’s market value.

The Prop. 5 adjustment to the tax code would allow homeowners with the same eligibility to essentially keep their existing property tax bill when they move, with some possible adjustments — no matter how many times or where in California they move, and no matter the price of the new property they buy.

The taxes on the new property would be based on the assessed value of their old home, what that home sold for, and the purchase price of the new home.

If Prop. 5 passes, “you, as a person, would have a property tax you take with you,” said Lenny Goldberg, executive director of the California Tax Reform Association.

“You could buy a house on the beach and still retain your prior property tax status.”

There’s an inequity here and it skews against younger homebuyers. A California Budget & Policy Center calculation shows that a Californian 55 or older who sells a $1.4 million home that has a taxable value of $200,000, and purchases a new home for $1.5 million, would only pay $3,000 in annual property taxes. Someone under 55 would be taxed $15,000 for the same property.

The potential loss of local property tax revenues that support schools and services is what motivates Prop. 5 opponents, from the California League of Women Voters to the San Luis Obispo Chamber of Commerce. The state Legislative Analyst’s Office estimates that the schools and local government losses will run $1 billion annually. The analyst’s report notes that 85,000 homeowners older than 55 currently move to different homes each year without a property tax break incentive.

“Prop. 5 brings the realtors more profit,” said Veronica Carrizales, policy and campaign development director at California Calls, a statewide alliance of 31 organizations working to educate and mobilize young and infrequent voters. California Calls has organized nearly 4,000 volunteers statewide to speak to voters about Prop. 5 and its potential impacts on local school and government budgets.

The ballot measure is a gambit “to bring the tax conversation back to residential tax issues rather than the reform of commercial property tax structures,” she said. “Expand protections for seniors—keep it all about benefits for seniors.”

California Calls and other Prop. 5 opponents have set their sights on a bigger fight in two years. In September, as part of a coalition of labor, faith and community organizations, they qualified a measure for the 2020 ballot that would adjust Proposition 13 to re-assess commercial property taxes.

Unlike residential property that frequently changes hands in a straight-forward deed transfer, commercial land holdings can change ownership in a variety of ways. The sale of shares in a company that owns the land, for example, changes the ownership but not in a way that would trigger a property tax re-assessment.

In California political terms, any challenge to Prop 13 is potentially seismic. The landmark 1978 measure set the property tax rate at one percent of a property’s purchase price, with annual increases capped at two percent. It applies to commercial and residential properties but got its momentum and brand when it was overwhelmingly approved by homeowners hit hard by the existing tax structure on residential property.

Prop. 13 maintains a tight grip on the psyches of likely voters over 55. The 2020 ballot measure would not apply to their residential property. Commercial and industrial properties presently locked in at 1976 levels would be taxed based on current market value. The reform could yield up to $10.5 billion annually for the state, but would not change the tax structure for residential properties.

“Re-looking at Prop. 13 opens up a discussion about the real flaw in Prop. 13—which is [its] commercial property tax structure,” Goldberg said.

The real estate industry may well be bracing for that fight. In the meantime, August polls showed Prop. 5 trailing badly.

Proponents recently petitioned the Secretary of State to place a new version of Prop. 5—similar to the November measure—on the 2020 ballot. It is approved for circulation for signatures, with an April, 2019 deadline for signature collection.

Representatives of Prop. 5 proponents did not respond to multiple email queries from Capital & Main.


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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.

Gabriel Thompson

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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.

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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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Proposition 6: Rough Roads Ahead If California Repeals Its Gas Tax

Co-published by The American Prospect
Beyond jeopardizing road repairs and mass transit, Prop. 6 would strike at the very nature of governance itself in the Golden State.

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GOP leaders helped place Prop. 6 on the ballot, hoping it would goose conservative turnout in California’s congressional races.


 

Co-published by The American Prospect

State legislatures are required to balance budgets. When there’s a shortfall, they have two options to bring things back into equilibrium: Raise taxes, or cut spending. Long ago, California’s anti-tax conservatives set up barriers to raising taxes, forcing a two-thirds majority in the legislature for any tax increases. Despite this high bar, Democrats managed to find the votes last year for Senate Bill 1, increasing gas and vehicle taxes to fund the state’s crumbling transportation infrastructure.

In other words, Democrats played by the rules. They won elections, acquired a supermajority, and used it in the manner prescribed by state law to fund a public need.

Now conservatives want to roll that back as well.

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Proposition 6, on the November ballot, would repeal SB1, eliminating $5.1 billion in annual funding for road repair and mass transit, and halting thousands of projects, several of which have already begun. It would also require that any future change to gas and vehicle taxes go before voters, taking that tool away from legislators.

At stake, beyond fixing roads and funding reliable bus service, is the very nature of governance itself in the Golden State. “We wouldn’t be having this discussion if we had a more normal system,” said Chris Hoene of the California Budget & Policy Center.

Proponents of Prop. 6, led by conservative activist and radio host Carl DeMaio, explicitly connected their effort to saving Republicans up and down the ballot in a midterm election where antipathy to Donald Trump is high in California. Republican Congressional leaders helped place it on the ballot, hoping it would goose conservative turnout. This has not worked out, as Republicans went scurrying to save their own electoral hides, leaving next to no money for the Prop. 6 campaign.

Prop. 6’s supporters argue that hiking fuel taxes disproportionately affects less wealthy Californians. SB1 adds 12 cents a gallon to gasoline prices, or about $1.50 for the average fill-up. California has not increased its gas tax since 1994, and if it had indexed gas taxes to inflation at that time, the tax would be more today than it is with the added 12-cent increase. Plus, the vehicle fees, which range from $25 to $175 annually and scale up for more expensive cars, offset the regressive nature of the tax package. All these taxes will be indexed to inflation in the future.

In exchange, California will obtain $1.9 billion in annual funding for state highways, $1.8 billion for local roads, $750 million for transit agencies, $310 million for trade corridor improvements, $250 million for anti-congestion measures and $100 million for bike and pedestrian programs. A successful June ballot measure further locked up SB1 funding to guarantee it goes to transportation.

These projects equal jobs: The Council of Economic Advisers estimated in 2011 that every $1 billion in highway and transit investment supports 13,000 jobs for one year. By that estimate, SB1 would lead to at least 66,300 jobs per year on an ongoing basis. Because those workers will earn money and pay state taxes, the ensuing economic growth will replenish public coffers and reduce the real price tag for the projects. And given California’s famously substandard streets, massive congestion and inadequate transit infrastructure, it’s not like the state will run out of projects anytime soon.

“We’re not talking about an unreasonable set of expectations about what California should be paying for infrastructure,” said the Budget & Policy Center’s Hoene. “The package is correcting for the lack of decision-making on infrastructure in the past.”

If this money goes away, transportation funds will still be required. A growing population needs to move around the state. Also, “costs go up because the worse the infrastructure gets, the more significantly it has to be repaired,” said Hoene. If fuel or vehicle taxes cannot be raised, the money would have to get pulled from elsewhere, like education or health care or public assistance for low-income residents.

The not-so-secret agenda of Prop. 6’s proponents was revealed last month, when they released a proposed 2020 ballot measure to ensure that all gas and vehicle taxes can only fund highways and roads, not mass transit. That would divert more benefits to frontier cities that heavily use freeways, rather than large metro areas with diverse transportation needs. This measure attempts to pit urban residents versus suburban, and roads versus transit. It misunderstands how workers in far-flung areas use buses and trains to get around as much as highways.

But the threat to the mechanisms of governing also looms over the current race. Four prominent Democratic U.S. House candidates in swing districts announced their support for Prop. 6, in an attempt to project a moderate image (this cost at least one hopeful a labor endorsement). But they’re running for Congress; they won’t have to govern in Sacramento with one hand tied behind their backs.

Between the recall of Democratic state senator Josh Newman over his support for SB1 and a potentially successful Prop. 6, it would be unlikely for legislators to propose tax increases in the future, regardless of state needs. So when there’s a budget shortfall, the path of least resistance would be cuts and more cuts.

That just handicaps sound budgeting, according to Hoene. “All tax policy is something you’d like to consider in a broader context,” he says. “How does it fit within the broader tax structure and how does it balance it out? But we’ve made that impossible.”

Three other states are considering ballot measures this November that would mandate supermajority requirements for tax increases. Prop. 6 takes it a step further, saying that even taxes that clear such a large hurdle shouldn’t be allowed. The initiative is struggling in polling; its failure would give California’s government at least a little leeway to actually govern.

Update: An earlier version of this story stated that the California Budget & Policy Center is opposed to Proposition 6. In fact, the group does not take positions on ballot measures, including Prop. 6.


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Election 2018

California Workers, Retirees Are Unwittingly Financing an Anti-Proposition 10 Campaign

Co-Published by The Guardian and MapLight
Blackstone is quietly funneling investors’ money into its campaign against Proposition 10.

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Blackstone's Stephen Schwarzman (Photo by Alex Wong/Getty Images)

Blackstone contributions did not come from the firm’s corporate treasury, but from investors: Dozens of state and local pension systems, and public university endowments.


 

Co-Published by The Guardian and MapLight

When San Francisco’s local government endorsed a state ballot initiative to permit rent control measures earlier this month, it appeared to be a victory for housing rights advocates in a city where stratospheric prices have sown social unrest and class animosity. The measure has found similar support from other California cities and unions representing public employees who can’t afford to live in cities where they work.

Those advocates, however, may be unwittingly financing the opposition to the rent control measure. Documents reviewed by Capital & Main and MapLight reveal that a private equity giant with ties to President Donald Trump has boosted the campaign to defeat Proposition 10 with money taken from real estate investments funded by California public employees and the state university system.

Campaign finance records show entities controlled by private equity giant Blackstone have been among the biggest sources of cash for opponents of the ballot measure. More than $5.6 million has come from a Blackstone holding company and four of its  investment funds.

Also Read “Are Prop. 10’s Big-Money Foes Making California’s Housing Problem Worse?”

But unlike typical corporate political donations, the Blackstone contributions didn’t come from the firm’s executives or its corporate treasury. Instead, they came from pools of capital from investors, which include dozens of state and local pension systems, as well as public university endowments. The move has been described as the equivalent of mutual fund executives taking money out of customers’ accounts to make political contributions.

In effect, Blackstone’s maneuver means the opposition to the rent control initiative is being bankrolled by everyone from San Francisco municipal workers to university employees to public school teachers — all of whose retirement savings are in the Blackstone funds that have been tapped for the Proposition 10 fight.

“What we have is the largest Wall Street landlords in the country who are the very people profiting off of the housing crisis leading the opposition to Proposition 10,” said Amy Schur, the campaign director for the Alliance of Californians for Community Empowerment, which supports the ballot measure. “It’s adding insult to injury that they’re using the pension funds’ dollars of hard-working families to beat back an essential policy to provide relief to working families.”

Michael Bustamante, a spokesman for a committee opposing Proposition 10, didn’t answer questions about Blackstone’s contributions. He said the measure is a “bad public policy that will make it harder for those looking for a safe, affordable place to live and is a perfect example of a well-intentioned law with disastrous consequences.”

Blackstone didn’t respond to a request for comment.

Can’t Afford a Place to Live”

The rent control initiative was prompted by anger over California’s housing costs. The median home price in the state  has topped $600,000, double the national median. Californians pay some of the highest rents in the nation, and retirees have been hit hard.

A coalition of community organizations, tenants rights groups and unions have lined up behind Proposition 10, which would repeal a 1995 state law that blocks municipalities from imposing rent controls on new apartment units or single-family homes.

“In my district, teachers, firefighters and nurses often can’t afford a place to live,” said U.S. Rep. Ro Khanna (D-CA). “Cities should have the right to provide apartments at affordable rents. Any effort to kill Proposition 10 hurts not just the working class but also undermines the ability of local communities to determine their own destiny.”

Opponents of Proposition 10 have cited an analysis from state legislative auditors that said the measure would likely reduce state and local revenues in the long term. The auditors estimated that revenue losses could be “in the hundreds of millions of dollars per year.” Critics have also argued that reduced profitability would deter developers from building more housing.

“There is no doubt we need to make housing more affordable for Californians, but Proposition 10 will make our current situation worse, not better, by constricting future development of affordable units,” former Los Angeles Mayor Antonio Villaraigosa said last month.

The Investors Would Have No Idea”

More than $60 million has been donated for the Proposition 10 fight, with most of the money coming from landlords opposed to the measure. Blackstone and its affiliates have donated more than $6.8 million to two organizations opposing the initiative.

Almost $1.3 million has come from Invitation Homes, a Blackstone subsidiary that bought foreclosed single-family homes in the wake of the 2008 financial crisis and converted them to rental properties. Invitation now owns about 13,000 rental homes in California. Invitation tenants have complained of toxic mold, leaks and black widow spider infestations, and some have alleged they’re victims of excessive and illegal late payment fees.

Another $5.6 million has come from Blackstone Property Partners, LP; Blackstone Real Estate Partners (VI-VIII); and BREIT MF Holdings LLC. Government records show that the four Blackstone investment funds are controlled by company CEO Stephen Schwarzman, a billionaire Trump ally. The funds have received investments from dozens of state pension systems, local pension funds and public university endowments.


Blackstone has used a complex network of LLCs to funnel $5.6 million from investor funds into an effort to defeat Proposition 10, California’s affordable housing initiative on the November ballot. (Chart: Andrew Perez)


Real estate funds typically pool institutional investors’ cash, use it to buy properties, and return profits from rents and asset sales to the investors. The agreements governing public pension investments — which are usually exempted from open records laws — typically give Wall Street managers wide discretion over investor money. Blackstone appears to be using that latitude to direct investors cash into an election battle.

“Private equity fund investors — pension funds, endowments and others — are limited partners, and these private equity funds are in effect ‘blind pools’ which afford investors with very proscribed legal rights and with surprisingly little insight into and information about the funds’ investments,” said Leo Hindery, a New York-based private equity executive. “The investors would have no idea, if some of their money is going into partisan or activist political campaigns.”

Blackstone has warned investors they could face losses from “fluctuations in occupancy, rental rates, operating income and expenses” as well as from “changes in legal, fiscal and regulatory regimes,” corporate documents show.

Eileen Appelbaum, co-director of the Washington, DC-based Center for Economic and Policy Research, said the donations are likely legal, but she argued that pension managers should steer clear of private equity firms that use retirees’ money for political causes.

“It would be bad enough if Stephen Schwarzman and [executive vice chairman] Tony James of Blackstone were spending some of their own billions to oppose legislation that will put a brake on their ability to drive sky-high rents even higher in the Bay Area,” Appelbaum said. “But it is unconscionable for them to use millions of dollars taken from properties in which they have invested the retirement savings of police, firefighters, teachers and other public employees to deprive these workers of affordable rents in the communities in which they work.”

There Can Be Some Tension”

Alex Caputo-Pearl, president of United Teachers Los Angeles, said last month that teachers spend as much as half of their salaries on rent. “We need to say enough is enough and implement measures that better protect students, teachers and families. Implementing rent control is a strong first step,” he said.

Even so, some of the retirement money those teachers contribute monthly to the California State Teachers’ Retirement System (CalSTRS) is invested in the Blackstone funds that are financing the campaign against Proposition 10. Those investments were valued at more than $715 million last year, according to the CalSTRS website.

“As a public entity, CalSTRS does not participate directly in electoral politics,” said a CalSTRS spokesperson.

Similarly, San Francisco’s board of supervisors last month voted to endorse Proposition 10. But in 2015, the city employees’ pension system committed $150 million to a Blackstone fund that has donated to the measure’s opponents.

Then there is the University of California system. Proposition 10 was endorsed by the University of California Student Association, which represents student governments at schools throughout the UC system, and by the city government of Berkeley, which is home to one of the largest branches of the UC system.

At the same time, though, the UC Retirement Plan, which provides benefits for university employees, has invested $35 million in the Blackstone funds used to finance the Proposition 10 opposition.

“The University of California does not make donations to political campaigns,” said UC spokesperson Dianne Klein. She added that the UC system’s Blackstone investments only include a small amount of California real estate.


Blackstone’s investment funds are tied to apartment complexes in California. (Chart: Andrew Perez)


In recent years, pension overseers have faced increasing pressure to generate solid returns for retirees while ensuring their investments reflect environmental, human rights and other social values. For example, pension fund managers in New York and Chicago have announced plans to pull investments from private prison companies, citing their impact on poor and minority neighborhoods. New York City pension officials are also attempting to divest from fossil fuels.

Lou Barberini, a former San Francisco police officer whose retirement system has invested in the Blackstone funds, said his fellow retirees should be concerned that Blackstone’s move will set a precedent that allows Wall Street firms to use pension money for pet political causes.

“It is morally wrong that they are using our retirement money to fund a political campaign,” Barberini said. “It is also a slippery slope. Where does this stop? What if a money manager wants to take our retirement savings and give it to a candidate?

“Once you start taking money out of pensions to fund political campaigns, where do you draw the line?”


This story was reported by David Sirota of Capital & Main and Andrew Perez of MapLight. Amari Cowan contributed reporting.

MapLight and Capital & Main’s funders include some non-profit groups that have declared their support for Proposition 10. Neither organization has received any funding from any for-profit entities that have a commercial interest in the outcome of the ballot measure.

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