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Stop the Bank Robbery of Los Angeles

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Today, Mayor Garcetti will deliver his first State of the City address to outline his goals and vision for the coming year. One can expect a focus on his “back to basics” message of creating a stronger economy and more efficient and effective city government. As he delineates those “basics” and how he hopes to achieve them and pay for them, the Mayor needs to make sure he is taking a full accounting of what’s happening in his own City Hall backyard – ensuring that the fulfillment of his vision doesn’t come at the expense of our streets, communities or workers. An item that requires his immediate attention is the draining of hundreds of millions of dollars from city taxpayers each year.

It turns out that the city of Los Angeles spends more than $200 million on annual fees to Wall Street banks and other financial institutions. This eye-popping figure is detailed in a new research report released by Fix LA, a growing coalition of progressive activists, labor unions and clergy. The report, No Small Fees, shows that the city pays Wall Street millions of dollars yearly in a variety of fees and payments, including bank service fees, investor management fees and interest swap fees.

Among the most shocking parts of this rip-off scenario are the interest rate “swap” deals that the city bought from Wall Street. Years ago, before the economy crashed, Los Angeles paid millions of dollars in exchange for reduced interest rates. It seemed like a good idea at the time. But then the banks crashed the economy and the federal government lowered interest rates as part of the bank bailout. Because of the swap deal, Los Angeles has found itself trapped into paying an inflated interest rate and the banks are reaping a windfall at L.A. taxpayers’ expense.

Los Angeles is being held hostage by the banks, which won’t let the city out of the deals unless it pays tens of millions of dollars in penalties. Los Angeles already paid $26.1 million to BNY Mellon to terminate one bad swap, even though several public agencies and municipalities in California have successfully renegotiated their swaps. Los Angeles should do the same and the city Attorney should instigate lawsuits against the banks if necessary.

seal2These fees may be just the tip of the iceberg. Their numbers only came to light because the report’s authors, who have some background in finance and had a hunch what to look for, were able to penetrate buried records and obscure data from many different city departments. There may be many more instances of corporate giveaways of our city tax dollars that are still unknown to the public.

When you add up all of the money the city has flowing through financial institutions, you get a whopping $106 billion. That should constitute sufficient heft for the city to be able to negotiate a reduction in its fees to Wall Street. What’s more, the city’s financial dealings with these Wall Street companies are spread out and decentralized across multiple departments. City Hall would have even more leverage to renegotiate its bad deals and demand a reduction in fees on behalf of taxpayers if the city were to consolidate these transactions in one department.

These bad banking deals are draining city coffers. Yet officials have sought only to blame city “budget shortfalls” on the pension and payroll costs of workers employed in one of the last sectors of the American workforce who continue to earn a decent middle class living.

The result has been the decimation of our service infrastructure. The city has eliminated 5,000 jobs over the last five years and cut the hours of its part-time workforce, leading to drastic cuts to vital neighborhood programs.

It is time for the city to change its course of cutting from the bottom at the taxpayers’ expense. It’s time for Los Angeles to use its full abilities to start cutting better deals with Wall Street.

(Fix LA‘s mission “is to call on city leaders to restore vital city programs and services that have been cut, create and preserve good jobs that can support a family, hold Wall Street accountable for gouging the city with excessive fees and make big banks and big corporations pay their fair share.” )

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