As this series has made clear, “The California Chasm” is a challenge that threatens to transform the state into a shadow of its former self. Once a place where people came together to realize fortunes, remake their lives and attain their piece of the American Dream, we have become a state saddled with sharp differences in social, economic and health outcomes due to race, place and class.
This is an encore posting from our State of Inequality series
The resulting division is damaging to our sense of community but it also leaves the potential of our residents untapped. With research increasingly demonstrating that more equitable strategies can produce more sustainable growth, we need to create a conversation about how California can lead the nation not in inequality but in opportunity.
We have the know-how — remarkable achievements and ideas by activists, elected leaders and forward-looking business leaders provide evidence of this every day. We can move from being a state divided to one where people come together across generations and geographies. But we need to act now to tip the balance and reverse the dramatic impacts of economic inequality.
Here is a set of bold recommendations for how California can rebuild its middle class and lay the foundation for a future that reclaims the bright promise of the Golden State. We organize it around three basic concepts: raising the floor, growing the economy and creating pathways to the middle. In our view, we must do all three – and it is at the intersection that we can create new partnerships between business, labor, community and government.
And knowing how short attention spans can be (and how wordy academics can be), we offer our recommendations in the form of a list. For the curious, each item on the list is hyperlinked to longer explanations and ideas.
Raise the Floor
1. Raise the Minimum Wage, Stop Wage Theft and Expand the Right to Sick Days: These measures are not sufficient to rebuild our middle class, but they are absolutely necessary as first steps.
2. Encourage Employment for the Formerly Incarcerated: To reflect our state’s values of opportunity and reinvention, we must ease market reentry for those who have been convicted and served their time.
3. Expand the Rights of Immigrants: We cannot wait for reform from Washington – the health of our economy and communities requires us to act now.
4. Crack Down on the Misclassification of Workers: The law-breaking by employers is undermining our system of justice while also leaving millions of workers behind.
Grow the Economy Together
5. Fight Climate Change With Good Green Jobs: The two greatest challenges of our time – global warming and economic inequality – can and must be addressed together.
6. Close Proposition 13’s Corporate Loopholes: It’s time to ride the third rail of California politics and restore fairness to our tax system.
7. Promote Affordable Housing: California’s rising rents and home prices must be met with rigorous legislation as well as major investment.
8. Invest Big in Public Transit: Large-scale, sustained investment in clean public transit is essential for creating livable communities and can generate a number of high-quality jobs.
Create a Path to the Middle
9. Provide Free Community College Education: California should take a page from President Obama’s playbook and open up our most important higher education institutions to everyone in a way that removes financial barriers.
10. Close the Wealth Gap: It’s not enough to raise wages – we need to enable Californians to build their wealth and their personal safety nets.
11. Strengthen Retirement Benefits: With nearly half of Californians set to retire into economic hardship, we need bold action, including contributions from a much broader set of employers.
12. Renew Our Democracy: We need a thriving democracy to ensure broadly shared economic prosperity, and in California that means fostering civic engagement and finding creative solutions that remove barriers to participating in the political process.
We hope this list is inclusive but we know it is not exhaustive. Every day, the creativity of Californians is demonstrated as they open new businesses, devise new technologies and experiment with new ways to engage the public and shift public policy. And so we see this as an invitation to readers and leaders to comment, discuss and offer new approaches to rebuilding California’s economy.
Such a conversation is essential not only for our future prosperity but also for our democracy. After all, one of the most serious threats inequality poses is to our political system. When wealth rather than voice determines the directions our government will take, when policies tilt the playing field to reproduce disadvantage rather than to spread opportunity, that is a recipe for the erosion not just of the middle class but of our hard-won democratic rights.
And the only antidote is more debate, more organizing and more participation. Indeed, civic engagement is the lifeblood of any effort to restore shared prosperity – and we hope that this series on inequality, by raising tough issues, offering compelling stories and proposing real solutions, can jumpstart the civic conversation and action we need to restore the luster of the Golden State.
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1. Raise the Minimum Wage, Stop Wage Theft and Expand the Right to Sick Days
A critical step in addressing inequality is setting a sturdy floor to keep those at the bottom from falling further. Such a floor will include a minimum wage that brings a full-time worker closer to self-sufficiency, along with paid sick days and protection from wage theft (the surprisingly widespread withholding of wages or benefits). California currently has a minimum wage of $9 an hour, scheduled to increase to $10 an hour on January 1, 2016. However, this is far less than the amount necessary for a Californian working full time to support him or herself, let alone any family members.
Minimum wage increases have gained momentum in recent years. Since 2012, 18 cities and counties around the country have passed their own minimum wages. San Jose was among the first in this new wave of minimum wage laws, passing a $10.15 standard in 2012, followed by a handful of other Bay Area cities and San Diego (whose City Council-approved raise will go before voters in 2016). The City of Los Angeles looks set to increase its minimum wage as well, with a vote expected this spring.
With this new wave, municipal minimum wages aren’t only more common, they are also higher. A community-labor coalition in L.A. is pushing for $15 an hour (with a gradual phase-in), a level which only a few years ago would have been unthinkable, but has already been adopted in Seattle. Even an alternative proposal of $13.25 per hour by 2017 would still be one of the most significant minimum wage increases because of the sheer number of low-wage workers in Los Angeles.
Statewide minimum wage proposals have been made; a proposal to increase it to $13 an hour passed the Senate but died in the Assembly last year. However, there are also benefits to setting the floor on a city and county basis. Cost of living varies greatly, and the structure of local economies differs as well. Moreover, these sorts of local changes have provided evidence for further action.
Studies of such early adopters as San Francisco, San Jose and Santa Fe, NM have shown local minimum wages to be effective in raising incomes and decreasing poverty without much, if any, job loss. A December headline in the Puget Sound Business Journal read, “Once controversial $15-an-hour minimum wage now a shoulder shrug in SeaTac.”
Oakland’s Measure FF goes into effect March 2 and will be adjusted annually for inflation. Workers will earn $12.25 an hour and be guaranteed five to nine sick days, depending on business size; the law also contains provisions protecting workers from wage theft. The majority of those affected will be people of color. Finally, Measure FF contains a provision against wage theft for hotel and restaurant workers, ensuring that any service charges and tips are fully paid out to workers – a common-sense rule.
Sick days are important for a worker’s economic and job security as well as public health.
California passed Assembly Bill 1522 last year, establishing a minimum level of paid sick leave. Beginning in July, workers will earn at least one hour of leave for every 30 hours worked and can take at least three paid sick days per year. However, this is clearly a minimal level and municipalities would do well by everyone who works, eats or stays in their city to set a higher standard.
Shoring up the bottom of the labor market cannot be the only strategy – one must grow the economy as well – and minimum wage increases need to be studied for their projected effects on overall employment, small business growth and other factors. Nonetheless, this is one important step in the right direction: California is among many states leading the way and we can do more.
Berkeley Labor Center: http://irle.berkeley.edu/workingpapers/104-14.pdf
Lift Up Oakland (FF campaign): http://www.liftupoakland.org/about
Center for Economic and Policy Research (“Why Does the Minimum Wage Have No Discernible Effect on Employment?”): http://www.cepr.net/documents/publications/min-wage-2013-02.pdf
2. Encourage Employment for the Formerly Incarcerated
Incarceration rates in California are staggering, with nearly one in four residents having a conviction on their record. The rates are especially high among Latino and African-American men — the latter are incarcerated at an astounding nine times the rate of white men, prompting author Michelle Alexander to dub the phenomenon “the new Jim Crow” — with impacts to the individual and community greatly exacerbating inequality. Both crime prevention and rehabilitation are intimately connected with access to decent jobs. It’s nearly impossible for those with criminal records to get on the right path without access to jobs, yet it is much harder to secure a job with a criminal record.
California passed Proposition 47 in 2015, reclassifying seven nonviolent crimes from felonies to misdemeanors, with some possibility of expunging old records. The initiative will save an estimated $150-$250 million a year – savings which are slated to fund educations, victim services, and mental health and substance abuse treatment. The change in law is significant and those with criminal records should be supported, as it will make a difference in their ability to enter the workforce. Many organizations under the California Endowment-funded Alliance for Boys and Men of Color will continue to play an important role in this work, in combination with the My Brother’s Keeper’s initiative at the federal level.
At the local level, the so-called “ban the box” or “fair chance” policies prohibit job applications from having a box asking if an applicant has ever been convicted of a felony, ensuring that only recent convictions that are relevant to the job are considered. Studies have shown that without such a rule, many formerly incarcerated people never make it far enough in the application process to demonstrate their skills and have a fair shot at landing the job. Such rules have been shown to be effective in increasing earnings among the formerly incarcerated, increasing tax revenues to local governments and significantly reducing costs by keeping individuals from returning to the criminal justice system.
California passed AB 218 in 2013, removing the question asking about convictions from state and local government job applications, while a few cities and counties have passed or are considering applying ban-the-box rules to private employers. San Francisco has a strong policy, which applies to all employers with more than 20 employees as well as nearly all government contractors. The law prohibits asking about criminal history until the first job interview, and sets rules about exactly what can be asked when it does come up. San Francisco’s ordinance serves as an excellent model for other cities and counties to consider. Los Angeles is currently considering such a rule.
Education, youth development and access to jobs for young adults can be effective in getting youth onto career paths rather than criminal paths, lowering arrest rates and addressing inequality. The L.A. for Youth coalition is advocating for the City and County of Los Angeles to redirect one percent of law enforcement dollars into investment in youth programs.
All these efforts are important for California’s future. It is clear that the state has tired of the excess costs of incarceration and begun to realize the damage it does to our economy to have a large section of the workforce marginalized because of what happened in the past. There is a moral and civil rights case to be made – we should be a more forgiving state and the clearly racially disparate pattern of who is incarcerated should give us concern. But addressing the incarceration crisis is also a key feature of any real program to address inequality and stir economic growth in the Golden State.
California Sentencing Institute: http://casi.cjcj.org/
National Employment Law Project: http://www.nelp.org/page/content/banthebox/
Ban the Box campaign: http://bantheboxcampaign.org/
3. Expand the Rights of Immigrants
Immigrants make up 27 percent of California and provide labor and talent in all of our industries. Immigrant mobility is critical to the state’s progress and certain regions seem to do a better job, with a combination of a more welcoming attitude and supportive programs, such as Santa Clara County and its Children’s Health Initiative, highlighted in the California Immigrant Integration Scorecard.
In particular, the Golden State relies on our undocumented Californians for economic strength and their status is a key issue for the state. Statewide, undocumented immigrants are seven percent of our population and nine percent of our workforce — and make up large shares of our agricultural (37 percent) and construction (16 percent) industries, among other sectors. The lack of legal status makes these workers susceptible to exploitation, depresses their wages and thus creates a drag on the whole economy.
Securing a path to citizenship would be the best approach to economic improvement– but Congress is stalled on reform. In the meanwhile, the President has proposed to expand Deferred Action for Childhood Arrivals (DACA) as well as to create, for undocumented Californians who are longer-term residents in the country and have U.S. citizen children, a new program called Deferred Action for Parents of Americans (DAPA). Philanthropic and legal support, in particular, is needed to support the grassroots organizations processing these applications.
DACA and DAPA will not cover everyone; more than half of the undocumented population will not meet the various criteria. For those remaining undocumented (either because they do not qualify or because they are afraid of the process), the lack of medical insurance coverage remains a threat to their security and that of our state. In 2008-2012, 58 percent of working-age undocumented Californians were without coverage; the average for all Californians statewide is 23 percent. This particular vulnerability leaves these Californians susceptible to grave illness and financial ruin. California State Senator Ricardo Lara has introduced a bill, in response, and grassroots organizations across the state are engaged in the Health4All campaign.
DACA and DAPA: http://www.uscis.gov/immigrationaction
Health4All campaign: http://www.calendow.org/with_prevention/health4all.aspx
Estimates of the Costs for Health for All legislation: http://laborcenter.berkeley.edu/topic/health-care/
4. Crack Down on the Misclassification of Workers
We have protections for employees built into law: minimum wages, standards for working hours, overtime pay, workers’ compensation, safety regulations and others. Some employers, however, hire workers as independent contractors rather than as employees, thereby skirting regulations, shifting risk and avoiding costs (including payroll taxes) by passing them onto workers.
This is “misclassification” and it has been a rampant problem in industries from port truck driving to newspaper delivery. Uber and Lyft have brought the issue into the public narrative and lawsuits are proceeding against both companies. In general, this highlights the growing prevalence of using contingent labor, sometimes under the guise of the “sharing economy.”
While there is no black-and-white test for employee status, under the legal definition in the Fair Labor Standards Act, “workers who are economically dependent on the business of the employer, regardless of skill level, are considered to be employees, and most workers are employees.”
Let’s take the example of port truck drivers: Drivers are often beholden to a company for work yet are left to shoulder all of the expenses and risks inherent in truck ownership. The port truck drivers have been working along a number of fronts to correct this, including policy (the Port of Los Angeles passed a policy requiring companies to be responsible for the trucks, though the provision mandating that companies make drivers employees rather than independent contractors was overturned in court), legal (with cases in state and federal Court), enforcement (engaging the National Labor Relations Board and the California Department of Industrial Relations) and workplace organizing (engaging in strikes and other actions to put pressure on trucking companies).
While much of the law concerning ports takes place at the federal level, there is room for California to take on the problem of misclassification. Governor Jerry Brown signed a law in 2011 adding new penalties for companies that misclassify workers, and the state has increased enforcement. California could pass further legislation holding platform companies responsible as employers if they dictate the terms of pay and employment for workers. For example, in the case of the car service companies, the State has adopted laws addressing workplace injury and driver liability but has not solidified employees’ rights or job standards. California has stepped up its enforcement but needs to ensure that it has expanded funding to investigate the large volume of cases.
Another important step would be passage of AB 621, which would provide a limited opportunity for amnesty to motor carriers that correctly classify their drivers as employees rather than as independent contractors.
Department of Labor on Misclassification: http://www.dol.gov/whd/workers/misclassification/#stateDetails
National Employment Law Project on Misclassification: http://www.nelp.org/content/content_issues/category/independent_contractor_misclassification_and_subcontracting
5. Fight Climate Change With Good Green Jobs
California has been a national leader in the effort to combat climate change. The Golden State has also set the pace when it comes to pairing the fight against global warming with the movement to create good green jobs. With the passage in 2012 of SB 535 – a law designed to direct money from the state’s cap-and-trade program to communities most in need of economic investment, good jobs and clean air – there is a huge opportunity to expand projects and policies that have been tested at the local level.
Activists in L.A. have pioneered several paradigm-shifting programs that can and should be replicated across the state (and country). The Zero Waste LA Ordinance, passed in 2014 and set to take effect in 2017, will dramatically increase recycling in the country’s second-largest city, reduce methane gas emissions from landfills and lay the foundation for the birth of an environmentally friendly remanufacturing sector that could create thousands of high-wage jobs. L.A.’s example is already inspiring New York and other cities to rethink their waste and recycling systems, and municipalities across California should follow suit.
The RePower LA Coalition worked with the L.A. Department of Water and Power — the nation’s largest publicly owned utility — to embrace a far-reaching energy efficiency program, which is significantly reducing carbon emissions and producing good green retrofitting jobs for disadvantaged communities. These efforts, as well as the emerging community solar initiatives in L.A. and elsewhere, offer another blueprint that California cities should look to replicate. Solar initiatives in L.A. have enjoyed considerable support from the business community.
Los Angeles has also incubated a national model for wedding clean transit to middle-class careers with its Jobs to Move America project, which has won landmark agreements with transit agencies both in L.A. and other cities around the country. And L.A. has been in the forefront of the effort to transform the huge port trucking industry by simultaneously reducing toxic diesel emissions through the introduction of clean-burning trucks and improving job quality for thousands of port truck drivers. California’s other major ports, including those in Oakland, San Francisco and San Diego, should adopt a similar approach to reducing pollution and creating good jobs.
Green for All: http://greenforall.org/
Partnership for Working Families: http://www.forworkingfamilies.org/campaigns/transforming-trash
Greenlining Institute: http://greenlining.org/issues-impact/environmental-equity/cap-and-trade/senate-bill-535/
6. Close Proposition 13’s Corporate Loopholes
Faced with the threat of budget deficits, local governments throughout the state have been struggling to provide resources – safety-net programs, public schools, parks, infrastructure and health care – to residents. California’s municipalities are financially strained, partly because of tax reforms resulting from Proposition 13, passed in 1978. Prop. 13 placed a cap on property taxes and made it more challenging to increase taxes in the legislature. (Since its passage, based on figures from Prop. 13’s main backer, it is estimated that more than $528 billion have been lost in potential revenue.)
2012 saw the passage of Proposition 30 – a measure that helped to secure state finances through a slight uptick in the sales tax and a temporary tax increase on those with incomes over $250,000 a year. Partly as a result, the state did not face the threat of a deficit for the first time in 10 years. However, a longer-term solution involves tackling the underlying problems so that we can shore up our capacity to invest in the educational and infrastructure strategies that can promote economic growth and social mobility.
The passage of Proposition 30 suggests that it may be possible to touch the “third rail” of California politics – reform of Proposition 13. Many seniors have benefited from the cap on the rise in residential property taxes and remain committed to that part of the tax structure. However, one solution that is gaining momentum is to remove the cap on property taxes established by Prop. 13, but only on commercial properties.
One reason this is gaining ground: Between around 1975 and 2009, the share of property tax revenues paid by commercial and industrial property has declined sharply, shifting from 47 to 31 percent in Los Angeles County and 50 to 36 percent in Santa Clara County. The reasons are complex: Commercial and industrial property turns over less often and there are legal ways to avoid an official shift in ownership. But the pattern suggests that the real winners from Proposition 13 are not the seniors it was meant to protect. Early estimates suggest that even with the restriction to just commercial properties, this reform could gain the state $8-$10 billion in revenues annually.
CA Education Funding: http://www.cbp.org/pdfs/2010/1006_SFF_how_does_ca_compare.pdf
CA Calls – Prop 13 reform: http://www.cacalls.org/why-taxes-matter/the-problem-prop-13/
7. Promote Affordable Housing
California has some of the most expensive housing in the country and by many measures one of the worst imbalances in housing costs versus income. For example, according to a UCLA study, the average renter in Los Angeles devotes 47 percent of his or her paycheck to rent – a huge drag on rebuilding the middle-class. A successful housing strategy will create and preserve affordable housing.
Affordable housing programs were shaken up in 2011 when the state ended its redevelopment program since most of the funding for affordable housing creation had been supplied through local redevelopment agencies. Figuring out what to do in the wake of that decision has been a preoccupation of developers and affordable housing advocates.
One strategy that has gained momentum lately is housing impact fees, or “linkage fees,” which generate funds from new market-rate residential development and direct them to affordable housing. Santa Monica, San Jose, Sunnyvale and Mountain View are among those to recently pass such an ordinance. The fees will be charged per square foot and indexed to inflation to create a reliable funding stream. San Jose estimates its housing impact fees will help create 10,000 units over the next 20 to 25 years. Such programs can support creation of affordable housing by directing revenue from housing impact fees into affordable housing subsidies, and by incentivizing developers to include affordable units in order to mitigate the fees.
Impact fees are an example of local revenue that could be funneled into affordable housing trust funds. The City of Los Angeles established a $100 million affordable housing trust fund, which finances loans to rehabilitate affordable units – as many as 1,200 a year before the economic downturn cut into funding. The key here is creating sustainable funding streams. Where the former redevelopment program required 20 percent of funds to be used towards affordable housing, there are no such requirements in the much-smaller system of grants left in its wake. State legislators are considering some new programs, such as a statewide development fee that would explicitly support affordable housing. In the meantime, it is incumbent on California’s cities and counties to decide to support affordable housing from a series of smaller pies, and not many have made adequate investments in the area.
There are non-financial incentives as well and one of the best strategies here is “density bonuses.” California’s Senate Bill 1818 allows local jurisdictions to grant zoning and development concessions to projects, including a significant amount of affordable units. Concessions could include easing rules on height, density and parking. Such bonuses are win-win because they are a give-and-take that work with developers towards their goals, too. This strategy should be expanded. Similarly, value-capture ordinances can add incentives near public infrastructure like transit stations, where properties can be “upzoned” into denser zoning categories, with developers agreeing to include affordable housing in the new denser developments. In Los Angeles, affordable housing advocates are looking into the opportunities provided by transit build-out and new priorities around transit-oriented development.
Strong mixed-income housing policies, which require market-rate developers to include some affordable units in their developments—or pay a fee in lieu of building the units on-site (appropriately called an “in-lieu fee”) that feeds into affordable housing trust funds—can also make a big difference. There are more than 100 jurisdictions across the state with such policies and they are especially effective in maintaining affordability in particularly hot development markets.Unfortunately, a recent lawsuit has thrown the legality of such policies into question. The state should enact legislation clarifying that mixed-income ordinances are permissible. Such a bill was passed by the legislature in 2013, but vetoed by Governor Brown.
A new challenge to affordability has arisen from some “sharing economy” companies such as Airbnb. In larger cities, thousands of units are now being offered to tourists for daily and short-term rental. By orienting units to tourists and visitors rather than residents, Airbnb-type systems are taking a significant number of units that would otherwise be up for rent off the already tight market. This puts upward pressure on rents. Limiting the commercial conversion of apartments to hotels facilitated by companies like Airbnb is a key way to protect affordable housing.
Finally, rent control can make a big difference in preserving affordable housing when adequately enforced, by keeping rent increases to a reasonable level and limiting evictions. Cities and counties should enact rent control where it doesn’t exist, and those that have it should explore ways to expand coverage to more units, while balancing the interests of both landlords and renters.
City of San Jose: http://www.sanjoseca.gov/index.aspx?nid=3979
LA City Housing & Community Investment Department: http://lahd.lacity.org/lahdinternet/AffordableHousingTrustFund/tabid/126/Default.aspx
8. Invest Big in Public Transit
With the passage of the Sustainable Communities and Climate Protection Act of 2008 (Senate Bill 375) – a state policy to reduce greenhouse gas emissions by linking regional transportation and land-use planning – California is investing in transportation for the 21st century. At the same time, such regional transportation bodies as L.A. Metro have designated regional tax revenue to build out regional transportation infrastructure. Infrastructure is expensive, long-lasting and can tangibly change the lives of people throughout the state. It is a sweet spot for equitable investment: About eight percent of households in the state are carless and about five percent of workers are reliant on public transportation for their commutes. Better transportation would help them, would help those with cars but stressed by commutes and the cost of commuting, and would bring our diverse communities together.
Planners and state agencies have the opportunity to implement an equity framework that recognizes the role of social inclusion in achieving economic growth and sustainability. There is a need for reliable and affordable transportation options across income spectrums now – about nine percent of workers earning less than $15,000 a year take public transit to work compared to just four percent of workers earning more than $65,000.  An equity framework would prioritize their access and use – linking residents most in need of good jobs to job opportunities.
Moreover, there should be a keen awareness of how resources are allocated, not just toward rail but also to buses, bicycle infrastructure and the needs of pedestrians – modes most often utilized by low-income communities. The build-out and repair of transportation infrastructure is also an opportunity to connect disadvantaged communities to career track jobs and to spur domestic manufacturing. California’s Strategic Growth Council, created by SB375, is one place to bring this all together; the Council has a specific emphasis on economic growth, social equity and environmental sustainability. Regional transportation bodies are other institutions with the authority to coordinate and enact a transportation equity framework.
Strategic Growth Council: http://sgc.ca.gov/
SB 375 – Sustainable Communities: http://www.arb.ca.gov/cc/sb375/sb375.htm
Move LA: http://www.movela.org/
Bus Riders Union: http://www.thestrategycenter.org/project/bus-riders-union
Safe Routes to School National Partnership: http://saferoutespartnership.org/ 2012 five-year IPUMS data tabulated by USC PERE.
9. Provide Free Community College Education
Education is a critical part in ensuring economic sustainability and growth in California, as it is a key factor in preparing the state’s youth to be a part of the workforce. But there are gaps in educational attainment – particularly racial gaps – that threaten the viability of the state’s economy. Jobs of the future will require higher levels of education but the gaps in educational attainment between whites and people of color are persistent. In 2012, only 11 percent of Latinos and 23 percent of African Americans had a bachelor’s degree or higher, compared to 41 percent of whites.
Nearly three-quarters of California’s youth are people of color, making the impetus for closing educational gaps more pressing. But California faces the challenge of a large racial generation gap: The senior population is majority white – a population that has developed a pattern of not investing in public services to support youth. We stress in our list how a key ingredient must be restoring civic life and civic connections to improve the willingness to invest.
With that in place, viable solutions to closing educational gaps should start early with universal preschool and extend through post-secondary education. Recently, President Obama proposed a plan for free community college, ensuring that qualifying students could either obtain an associate’s degree in a viable field or significantly reduce the cost of a four-year degree. These are the types of solutions we need, particularly the key role of community colleges for populations of color. In the Golden State we should also work to bring our state university and college tuitions back down, so that they are affordable to everyday Californians.
Obama’s free community college: http://www.whitehouse.gov/the-press-office/2015/01/09/fact-sheet-white-house-unveils-america-s-college-promise-proposal-tuitio
Racial generation gap: http://www.policylink.org/sites/default/files/SUMMIT_FRAMING_WEB_20120110.PDF
Brookings on Labor Market Prospects of Young Workers: http://www.brookings.edu/research/interactives/2014/labor-market-metro-areas-teens-young-adults
10. Close the Wealth Gap
While the 2008 Great Recession affected everyone, communities of color were hit the hardest. In 2007, the homeownership rate for non-Hispanic white households in California was 1.33 times higher than for households of color. That same ratio was 1.44 in 2013, with a jump in the data corresponding with the 2008 recession. While homeownership is a main contributor towards wealth, it is not the only one. In 2010, the median value of assets for households across the U.S. was $110,729 for non-Hispanic whites; $69,590 for Asians; $7,424 for Latinos, and $4,955 for blacks. While these are current trends, wealth has historically been racialized.
Wealth is an important cushion to buoy hard times (i.e., covering emergency medical bills) and to create a brighter future (i.e., sending children to college or starting a business). So part of the solution is higher-paying jobs, as described earlier. Another part is reforming Freddie Mac and Fannie Mae as well as ensuring that the Consumer Financial Protection Bureau has teeth. The Urban Institute has also suggested the need for improving retirement plans, matching savings for children (to help decrease student debt, for example) and reforming federal asset tests (which can de-incentivize saving among those with lower-incomes). These are some of a handful of federal strategies.
Locally, we need to reform banking. Low-income residents rely on the informal banking system – that is, institutions like cash checkers, payday lenders and other high-cost financial services that deplete income and sap wealth. Traditional financial services have not usually seen the market potential in low-income neighborhoods and residents are often wary of banks. San Francisco, Los Angeles and other cities – and the State of California – have adopted “Bank On” programs to encourage expanded banking. They are often coupled with “neighborhood delivery systems” to build trust between banks and new customers. Bank On programs need to be nurtured and expanded throughout the state and attention needs to be paid to the general issue of asset accumulation.
Assets & Opportunities Initiative: http://assetsandopportunity.org/
Consumer Financial Protection Bureau: http://www.consumerfinance.gov/the-bureau/
Bank on California: http://www.bankoncalifornia.ca.gov/
Emerging Markets’ Banking Resources: http://emergingmarkets.us/insights/ Note that Asian and Black figure are inclusive of those who identify as Hispanic/Latino.
11. Strengthen Retirement Benefits
Retirement is one of the starkest demonstrations of inequality. A report by the University of California, Berkeley’s Labor Center found that California’s “low- and middle-income retirees—the bottom 25 percent and the middle 50 percent—rely overwhelmingly on the single pillar of Social Security, in contrast to upper-income retirees who have a variety of income sources.” As a result, the report finds that nearly half of California’s workers are heading towards economic hardship in retirement, and those under 45 are especially at risk. For previous generations, employer-sponsored retirement plans were the norm, often of the defined-benefit pension variety. However, the last few decades have seen employers offload this responsibility, with some offering nominal matching plans for 401(k)s, but many shirking any involvement whatsoever.
As national advocacy group Retirement USA outlines it, a successful retirement system must provide universal coverage, secure retirement that isn’t at risk, and adequate income for a decent standard of living in retirement. Unfortunately, a good deal of public debate around retirement issues actually threatens to take us in the wrong direction. Social Security and public sector workers’ pensions have been under repeated attacks in recent years, especially as the economy has put pressure on government budgets. However, the criticisms are often overblown and the solutions typically call for slashing benefits and leaving retirement up to the individuals. There is no question that we need to strengthen our public programs like Social Security and protect decent pensions for those that have them, while we look to expand secure retirement to the many who do not.
Establishing a comprehensive solution that expands retirement security to all Californians will be a huge challenge. The state took a big step in 2012, passing SB 1234, the California Secure Choice Retirement Savings Trust Act. The act creates a new retirement system, in which workers will be automatically enrolled, with employers required to help facilitate contributions into the system. If implemented well, it will be much closer to universal (though it would only apply to formally-employed workers), but not necessarily secure, and in many cases far from adequate.
Any successful plan will have to re-engage employers as part of the solution, either as direct partners in a retirement plan, or as funders on workers’ behalf (or both, much as the Affordable Care Act gives employers the option to take either role with respect to health coverage). A good step would be a system similar to SB 1234 – even making use of its architecture – but which requires employers to contribute and provides some type of state support for savings from those outside formal employee-employer relationships. Teresa Ghilarducci of The New School outlines such a system, which would invest worker contributions (five percent by default) into a managed system with a “credible and affordable guarantee” for investment returns.
A universal retirement plan will be expensive, but it should be noted that Californians have been underinvesting in retirement for years, regardless of the system in place. Additionally, we are already putting a large share of resources into expensively managed retirement plans and into safety-net programs for retirees.
Labor Center on California’s Retirement Challenge: http://laborcenter.berkeley.edu/pdf/2011/CAretirement_challenge_1011.pdf
New America Foundation on SB 1234: http://assets.newamerica.net/blogposts/2012/california_s_universal_retirement_saving_plan_a_key_precedent-72484
12. Renew Our Democracy
Civic engagement is the glue of equity. A forthcoming book, Knowing Together, Growing Together, explores how building community across race and place can lead to more sustained and more equitable growth. Having a thriving democracy is not just good for our political health, it’s good for our economic health.
Social movement organizing is central to rebuilding our democracy – it is grassroots organizations that have raised key issues having to do with wages, affordability and quality of life – but our electoral system needs work as well. For example, consolidating elections could go a long way to improving turnout. Voting rates tend to be microscopic in local elections, absent presidential, congressional and gubernatorial choices. And voters can become fatigued when primaries, runoffs and separate local election dates result in four or more trips to the voting booth in some years. By consolidating local elections with big-ticket elections for president or governor, voters will be more likely to go to the polls.
Of course, the first barrier to voting is registration. While the rate has improved somewhat from a low point two decades ago (43.5 percent in 1992) before the National Voter Registration Act was passed in 1993, eligible low-income voters are only registered at slightly more than 50 percent in 2012, while upper-income voters are registered at more than 80 percent. A key part of NVRA was promoting voter registration at public agencies (like the DMV, hence the nickname “motor voter act”).
With the Affordable Care Act, Covered California is now a point of engagement for millions of Californians, and so offers a great opportunity to reach unregistered voters. A voter registration link is on the website, but could stand to be more prominent. Automatic voter registration would take the “motor voter” concept even further by generating a voter registration by default whenever an unregistered but eligible resident submits the relevant information to a state agency. Once someone is registered, they are much more likely to be engaged in elections, as they receive sample ballot information in the mail and become part of the voter file used by campaigns.
One key way to expand participation is to encourage naturalization of Lawful Permanent Residents (LPRs). Immigrant LPRs can become citizens after five years living in the U.S. (and three years if married to a U.S. citizen). However, many do not, partly because of high fees as well as factors such as worries about preparing for the citizenship test. The upshot is that there are 2.5 million Californians eligible to naturalize who have not yet done so – and one can imagine the impacts on improving our democracy if they were full participants. Much of the effort to expand this part of the electorate is federal but the state can help by making information about citizenship available in multiple locations, facilitating micro-loan programs for the fees and lobbying the federal government to step up its efforts to reach new Americans.
Californians will be more likely to participate if they see the offices on which they vote being more responsive and representative. Voters in Anaheim recently passed Measures L and M, implementing district elections in place of the previous at-large system and increasing the size of the City Council from five, including the mayor, to seven. Supporters of the measures expect that these changes will enhance accountability, access and participation.
Even having districts and a reasonably-sized elected body isn’t enough if the districts aren’t drawn to the benefit of the broad electorate. Last November Oakland passed Measure DD, which took redistricting for city and school board elections out of the hands of the City Council and placed it with a new 13-person commission, ensuring that the pool of candidates for the redistricting commission reflects the demographics of Oakland. The hope is that this system will result in more competitive and representative districting. This in turn should make elections more engaging for voters.
Office of Immigration Statistics (Eligible to Naturalize): http://www.dhs.gov/publication/estimates-legal-permanent-resident-population-2012
OCCORD (Anaheim campaign): http://www.occord.org/downloads/Full and Fair policy brief.pdf
Measure DD campaign: http://measuredd2014.org/
National Partnership for New Americans on Naturalization: http://www.partnershipfornewamericans.org/partial-fee-waiver
Dr. Manuel Pastor is Professor of Sociology and American Studies & Ethnicity at the University of Southern California, where he also serves as Director of USC’s Program for Environmental and Regional Equity (PERE) and Co-Director of USC’s Center for the Study of Immigrant Integration (CSII).
Dan Braun works with unions, social justice groups and others engaged in creative change campaigns. He lives in Echo Park, Los Angeles.
Los Angeles’ Burdened Renters
For more information, read Jessica Goodheart’s story on squeezed Los Angeles tenants, “The Rent’s Getting Too Damn High!”
Do Incarcerated Firefighters Deserve a Path to Employment?
Since 1983 six inmate firefighters have died while working on fire containment. Today they are paid $2 per day — and an extra $1 when fighting active fires.
California estimates that the Conservation Camp inmate-training program saves state taxpayers up to $100 million per year through firefighting and responses to other emergencies.
As California’s wildfire season grows ever longer and more intense, the state has relied heavily on thousands of prisoners, including women, to battle blazes alongside approximately 6,000 professional full-time and seasonal firefighters. Prisoner advocates, however, point out that these inmates’ criminal records prevent them from working as firefighters almost anywhere in California after their release.
Critics of the inmate program also say prisoners risking their lives to battle dozens of fires every year should get more out of the program than their current $2 per day and the additional $1 they receive whenever fighting active fires. The state’s Cal Fire firefighters earn between $3,273 and $4,137 per month, plus benefits, not counting overtime, according to a Cal Fire spokesperson. California has been using inmate firefighters since World War II, when the workforce for Cal Fire was depleted.
Approximately 3,700 inmates work at fire camps and about 2,600 of those are qualified to work on the front lines of active fires.
When Laura Weigand applied to California’s Conservation Camp, the program that trains inmates to fight wildfires, she knew it would be an uphill battle, literally. She was 43 when she joined the camp in 2009, twice the age of most of the women in pre-camp endurance trainings. One endurance test – hiking two miles straight uphill in 45 minutes – felled plenty of younger women, but Weigand was the first to the top of the hill, which meant she had her choice of camps to complete her trainings. She picked Malibu.
Two weeks after she completed training, she was working alongside Cal Fire firefighters to put out the Crown Fire, earning a fraction of what professional firefighters made for the same amount of risk. But she said she didn’t feel exploited because she went into the program to get away from the prison grounds.
“The days flew by, because there were different experiences. Even though it was not good pay it was better than you get in prison,” she said. But a foot injury threatened her limited freedom.
“I was hiking on a broken metatarsal bone for two years and was afraid to tell them about it because I didn’t want to get kicked out of the program.”
Weigand eventually became a “swamper” or trainer of other incarcerated firefighters. She estimated that she trained about 300 women before she left prison in 2012.
The California Department of Corrections and Rehabilitation (CDCR), cooperating with the California Department of Forestry and Fire Protection (Cal Fire) and the Los Angeles County Fire Department, operate 44 conservation camps across the state, including three female camps. Camp populations range from 80 to 160 inmates working and learning in minimum-security facilities, supervised by correctional staff. When they’re working on an active fire, Cal Fire staff supervise them.
CDCR says approximately 30 percent of applicants who volunteer for the program successfully complete the curriculum. Not all inmates are eligible. Those who have committed more serious crimes, such as arson, rape or other sex offenses are disqualified.
Overall, there are approximately 3,700 inmates working at fire camps and approximately 2,600 of those are qualified to work on the front lines of active fires, according to CDCR. As of August 31 there were just over 1,100 inmate firefighters across 123 crews deployed to the Carr, Mendocino Complex, Hirz, Cooks, Cherae, Stone, Cache and Holy Fires.
After being released in 2011, Weigand didn’t apply to be a professional firefighter because she was above most fire departments’ threshold age. But Weigand, who now works at Social Model Recovery Systems, a substance abuse and mental health nonprofit, says even if she were younger, she probably couldn’t have gotten such a job, because most local and county firefighting jobs require an emergency medical technician (EMT) license, and most former inmates, even those convicted of lower level felonies, can’t obtain that.
In an email, a Cal Fire spokesperson said the department doesn’t require an EMT license for employment, but admitted that many fire departments throughout the state have at least the expectation of an EMT license for employment.
Such a barrier doesn’t make sense to Romarilyn Ralston, who was imprisoned 23 years and served as a fire camp swamper and clerk for Cal Fire while incarcerated. Now, as a member of the Los Angeles chapter of the California Coalition for Women Prisoners, and program coordinator for Project Rebound at California State University, Fullerton, she’s advocating for raising state employment opportunities for former inmates who made it through the Conservation Camp program.
Ralston told Capital & Main that, even though the program offers valuable training, the lack of EMT training at the camps, as well as the seeming prohibition against hiring former felons for many firefighting jobs statewide, amounts to “an exploitation of prison labor.”
“They should be paid at least the minimum wage, which is $15 in L.A. County,” Ralston added. “They’re putting their lives on the line and saving California hundreds of millions a year.”
The CDCR has estimated that the Conservation Camp program saves California taxpayers between $90 million and $100 million per year through firefighting and responses to other emergencies. Those who make it through the program, when not fighting active fires, may also be asked to clear firebreaks, maintain parks and clear fallen trees and debris. Since 1983 six inmate firefighters have died while working on fire containment, according to CDCR.
Recently California has taken steps to ease restrictions on former felons, though none of the measures would mandate local emergency medical services authorities to allow them to earn EMT licenses.
As part of the 2018 budget bill, Governor Jerry Brown expanded employment opportunities for former inmate firefighters through the Ventura Conservation Camp (VCC), in Ventura County. The program is for parolees only, and the first group of 20 is set to begin training this fall.
An omnibus safety bill, AB 1812, approved by Governor Brown in June, would allow graduates of approved fire camp training to apply for lower-level emergency medical responder (EMR) licenses, though not for EMT licenses.
California’s legislature is taking other small steps toward lowering the employment bar for incarcerated firefighters and other ex-cons seeking professional employment.
Assembly Bill 2293, in its original version would have, with certain conditions, prevented the authority licensing paramedics and EMTs from denying certification to anyone with a criminal record. But faced with strong opposition from the Emergency Medical Services Administrators Association of California, and the National Association of Emergency Medical Technicians, who said hiring those with criminal histories could pose a public safety risk, AB 2293 was amended down to a data reporting bill, according to California Assemblywoman Eloise Gómez Reyes (D-San Bernardino), who assisted in crafting both versions of the bill.
“We decided to address a glaring deficiency, which is the lack of data [on who is being denied jobs],” Gómez Reyes said of AB 2293, which now heads to an uncertain future on the governor’s desk.
Today, Gómez Reyes added, the state only has anecdotal data on many former prisoners being denied EMT certification or jobs based on their criminal past, but no hard numbers yet. “We’re trying to see in what circumstances are people being given these licenses, and what we suspect are the majority of circumstances of people being denied because of past offenses. Whatever decision we make in the future is going to be based on accurate data.”
Another bill, AB 2138, authored by Assemblymen Evan Low (D-San Jose) and David Chiu (D-San Francisco), would ease licensing restrictions for former inmates in a variety of occupations, but not firefighters. That’s still an important step, according to David Fathi, director of the American Civil Liberties Union National Prison Project, because its passage could remove some “arbitrary” barriers to employment.
“In many states there are over 100 occupations that former prisoners can’t pursue,” Fathi said. “One of the best predictors of successful reentry is securing and keeping stable employment. And yet as a society we go out of our way to make it difficult for prisoners to get a job when they get out. This is especially absurd when the prisoner has learned the skill in prison.”
Fathi points to a neighboring state, Arizona, which last year eased restrictions on ex-cons from becoming professional firefighters, as well as to a study from Arizona State University, which showed that states with larger employment barriers for felons have higher recidivism rates.
“Employment disqualification for former prisoners should be the rare exception,” Fathi said, “and it should be based on an individualized assessment of the risk posed by the particular person — not simply upon a criminal conviction.”
Copyright Capital & Main
Ohio, NJ and California Pension Funds Invested $885 Million in Hedge Fund That Controls National Enquirer Parent
Co-published by MapLight and Fast Company
Under Republican governors, two states pumped hundreds of millions of dollars of pension cash into a high-risk hedge fund that took control of the National Enquirer’s parent company, American Media Inc.
During the last five years, taxpayers in New Jersey, Ohio and California have owned large financial stakes in the owner of the media company that allegedly helped the Trump campaign bury negative stories, according to documents reviewed by Capital & Main and MapLight.
Under Republican governors, New Jersey and Ohio committed at least $650 million of pension cash into Chatham Asset Management, a high-risk hedge fund that has taken control of the National Enquirer’s parent company, American Media Inc., which is at the center of the federal investigation into President Donald Trump’s 2016 campaign. California’s pension fund also has a $235 million stake in a Chatham fund.
The hedge fund is run by Anthony Melchiorre, a GOP donor who reportedly met with the president and AMI CEO David Pecker at the White House soon after Trump took office. Melchiorre and his wife have donated more than $100,000 to Republican candidates and party committees since 2010.
Trump’s former attorney, Michael Cohen, recently pleaded guilty to breaking campaign finance laws stemming from payments he made to women to hide affairs with the former reality TV star and real estate magnate. AMI executives helped Cohen purchase stories that could have hurt Trump’s presidential bid, according to the Wall Street Journal.
AMI has denied it helped Trump’s campaign, although Pecker was recently granted immunity as part of the Cohen probe. Former FEC commissioner Trevor Potter, the head of the nonprofit Campaign Legal Center, last week said the situation “presents a serious legal problem for AMI.” If those legal troubles end up depressing the market value of AMI, teachers, firefighters, cops and other public employees also could potentially suffer losses at a time when their pension funds are already facing shortfalls.
A New Jersey Treasury Department spokesperson said in an email that its Division of Investment “is in regular contact with its investment partners regarding underlying portfolio companies and provides feedback when appropriate. While DOI plays no role in the management of a fund’s portfolio companies, it expects the funds to invest in good businesses with strong management teams that follow all applicable laws.”
“I am personally appalled by the Enquirer being an accessory to Cohen’s criminal behavior on behalf of the candidate,” said Tom Bruno, a state union representative who is the chairman of the pension’s board of trustees and serves on New Jersey’s State Investment Council, which oversees the pension system’s investments.
“If the allegations are true, I would vote and argue for full divestiture,” he said. “I cannot talk on behalf of the entire SIC, but I will be doing everything in my power to convince a majority to vote the same way.”
Chatham did not respond to questions about how exposed taxpayers and pension systems might be to AMI and any financial consequences of its legal entanglements. A spokesman for the Ohio pension system said Thursday that the state asked for its money to be withdrawn from the Chatham fund in 2015; the money was redeemed in 2017.
“State officials are well-positioned and duty-bound to investigate allegations of potential wrongdoing in hedge fund portfolios,” said former Securities and Exchange Commission attorney Edward Siedle.
In 2013, former New Jersey Gov. Chris Christie’s administration moved $300 million of pension cash into the Chatham Fund, LP, which has owned a stake in AMI, according to SEC records. Last year, barely three months before Christie left office, his administration steered another $200 million to another Chatham vehicle.
In 2013 and 2014, an Ohio pension system partially controlled by Gov. John Kasich’s appointees committed $150 million to Chatham. The hedge fund finalized its deal to buy an ownership stake in AMI in the summer of 2014.
The Christie administration’s shift of $500 million into Chatham makes New Jersey retirees a substantial investor in the hedge fund, which manages $3.2 billion in assets, according to state records. Those records show the original $500 million investments are now worth as much as $692 million.
Best known for its lurid Enquirer headlines (“Aliens Are Living in My Toilet”), AMI has been beset by a difficult environment for print publications. Chatham has warned that its investments are risky and that a client “may lose its entire investment in a troubled company.” In early 2018, private equity giant Blackstone removed Chatham from one of its major investment funds.
Along with the public pension funds, four other private pension funds — including those for Ford and Toyota Motors employees — have had investments with Chatham, according to financial research firm Preqin.
AMI represents a large portion of Chatham’s portfolio. Internal hedge fund records from late 2017 show that AMI investments comprised 23 percent of the Chatham Asset Partners High Yield Fund’s portfolio. The hedge fund also has officials who serve as directors at AMI.
Attorney Jay Youngdahl, a former Harvard researcher who has served as a steelworkers pension trustee, said state officials may be able to take action to try to protect retiree investments.
“There are often clauses in agreements between pension funds and hedge funds that give states certain rights and recourse if they believe retirees’ money has been invested in companies engaging in criminal activity,” he said.
This story has been updated from its original version.
Los Angeles Tenants: The Rent’s Getting Too Damn High!
A local dispute over evictions highlights the emergence of a tenants movement that is pushing back against rapacious landlords and a nationwide housing affordability crisis.
California tenants are taking their grievances to local governments, to courtrooms
and to the ballot box.
The ad on Redfin
The ad on Redfin’s website suggested a “wonderful” opportunity for an investor: a 25-unit building in a “NO RENT CONTROL AREA” of Los Angeles County. But it also obliquely warned of impending peril for the inhabitants: “[D]rive by only, tenants are unaware of the sale.”
On October 2016, the tenants of a complex on East 61st Street, in an unincorporated area of South Los Angeles County, received a letter informing them that the two-story stucco building, built in 1925, had a new owner.
What happened next suggests the lack of protections afforded the state’s low-income renters, particularly those residing in neglected and deteriorating housing. But the tenants’ response also highlights the emergence of a movement that is pushing back against rapacious landlords and a nationwide housing affordability crisis that cuts across income levels, but hits the country’s poorest residents hardest.
In California, tenants are taking their grievances to local governments, to courtrooms and, in November, to the ballot box, where voters will decide a controversial measure that could give municipalities more latitude to regulate rents.
Jose Nuñez, 62, was one of about a dozen tenants in the 61st St. building in Florence-Firestone—one of the county’s most densely populated neighborhoods—to receive an eviction notice, according to Silvia Marroquin, an organizer with Strategic Actions for a Just Economy (SAJE), a Los Angeles-based non-profit that is working with the tenants.
At one property, a desiccated rat was visible in the exposed laths of one of the building’s archways. Water dripped from the ceiling of an empty apartment that had been gutted.
Nuñez says he was puzzled to be given 60 days to vacate the apartment he has lived in with his wife, Juanita Rodriguez, for 20 years. “I was asking myself Why? because I always paid my rent on time,” he says.
Nuñez suspects that the building’s owner was unhappy that tenants had begun to demand repairs in response to being asked to pay for parking and utilities. “The owner shouldn’t have been so unfair with us. He should have come to us and let us know that he wanted to raise rents,” said Nuñez through an interpreter. He added that he would have kept quiet about repairs and agreed to modest rent increases.
Marroquin thinks the owner has other motives, as well: finding new tenants who will pay higher rents.
On a mid-August visit to the property, a desiccated rat was visible in the exposed laths of one of the building’s archways. Water dripped from the ceiling of an empty apartment that had been gutted. The unit’s former tenant, Monica Gomez, a 49-year-old seamstress, remembered being woken in the middle of the night more than a year ago by water dripping on her head. (She and her two sons have since moved out of the apartment and in with a friend.)
Los Angeles County has not had a rent control policy for its unincorporated areas since Ronald Reagan was president.
The building’s owner, 3 Peacocks, is a limited partnership with ties to Swami International, a 40-year-old property management company with which it shares the same address in the city of Gardena. As of September 2017, the building was being managed by Torrance-based Crystal Property Management, according to a letter sent to tenants.
A group of about 20 tenants plan to file a lawsuit in Los Angeles County Superior Court early this week and will name all three entities as defendants, according to Grant Riley, the tenants’ attorney, who claims the owner and property managers have been negligent in maintaining the building.
Monica Mittal, who works for Swami International and is listed as a signatory for the corporate general partner of 3 Peacocks LP, did not respond to a request for comment, nor did Crystal Property Management.
Several tenants have left in response to the eviction notice, but others – like Nuñez – have remained, turning down $1,500 if they agree to vacate the building by the end of July, according to Marroquin, who says it is not enough money to allow them to find housing in the area.
L.A. County supervisors are getting pressure from landlords, who argue that rent control will make the housing crisis worse by providing a disincentive for new investment in housing.
Jose Nuñez is in visible pain as he paces an immaculate room that holds the couple’s bed, couch and a folding table. He left his job at a plastics factory five years ago after injuring his back. He’s looked at apartments in the area and has been dismayed by rents that range from $1,000 to $1,200 per month. The $668 monthly rent he says he now pays eats up a sizable chunk of his $975 monthly disability payment.
But even as Nuñez gets ready to do battle in court, he has joined an effort to affect policy at the local level. His eyes light up as he shows me a hand-made sign. In Spanish, it reads, “Here in the County of L.A. Firestone and Florence: We want a stop to the high rents. Now!”
Stopping or slowing Los Angeles County’s rising rents will take some work. The county has not had a rent control policy for its unincorporated areas since Ronald Reagan was president. But Los Angeles County Board of Supervisors members Sheila Kuehl and Hilda Solis moved the ball forward on rent regulation in May of last year, the same month that a group of tenants from gentrifying East Los Angeles marched to the board’s Kenneth Hahn Hall of Administration auditorium in support of rent control. The supervisors voted to establish a “Tenant Protection Working Group” of real estate professionals, tenant lawyers and social service providers, which has been meeting since early January to hammer out recommendations.
In its final report, dated August 15, the working group recommended by a 7 to 2 vote (with one abstention) that the county adopt a rent stabilization policy that would limit allowable rent increases for certain multifamily apartment buildings in unincorporated parts of the county. There are more than 93,000 rental units in unincorporated Los Angeles County, according to a report by the county’s chief executive office.
The working group also recommended the establishment of “Just Cause” eviction protections, which limit the reasons tenants can be evicted from their apartments. Such a policy would be most applicable to the predicament that the East 61st Street tenants now face, says Dagan Bayliss, SAJE’s organizing director.
If supervisors are feeling the heat from tenant groups in East and South Los Angeles, they are also getting pressure from landlords, who argue that rent control will make the housing crisis worse by providing a disincentive for new investment in housing. (Rent control proponents counter that there is no evidence that rent stabilization laws—which typically exempt new construction—have that effect.)
A sign of the landlords’ sway might be found in the board’s recent decision to delay a vote on an interim rent cap proposed by Kuehl and Solis. Concerned that rents were beginning to “spiral upward” while the working group met over a period of months, the two county supervisors had introduced a stop-gap motion in late June to direct staff to draft a six-month ordinance to limit rent hikes to three percent. That vote was scheduled for late July but never took place, to the disappointment of East 61st Street tenants who staged a brief protest in the supervisors’ auditorium. The California Apartment Association had put out a call to action on its website in late June to rally opposition to the proposal.
When asked in mid-August about the temporary rent cap, supervisor Mark Ridley-Thomas, who represents the Florence-Firestone neighborhood, told Capital & Main in an email that, while he understood “the pressures are particularly acute for tenants,” he “would like the opportunity to be informed by the working group’s perspective before taking up any elements of this agenda.” Board meetings will resume after Labor Day.
This local activity is part of a larger battle swirling around a state ballot measure, Proposition 10, which would repeal the Costa-Hawkins Act, a 23-year-old law that restricts rent control policies from being applied to buildings constructed after 1995, and to multifamily dwellings.
That ballot initiative has also drawn opposition from real estate interests, which have raised more than $20 million to defeat the measure, and more than $12 million in support — the vast majority from the AIDS Healthcare Foundation.
Not all the East 61st Street tenants are joining the lawsuit or activities surrounding a proposed county rent stabilization ordinance.
Less than a year ago Judien Langshaw, who is 33, moved into one of the building’s remodeled apartments that includes a fresh coat of paint and new-looking countertops, although a flimsily constructed sink cabinet door hangs on by a single hinge.
Langshaw squats down to show me how she’s fending off rodents with glue traps and an empty water bottle wrapped in duct tape that she uses to plug a hole under her sink. Her 4-year-old daughter is absorbed in play with two action figures from the Incredibles movie.
She pays a monthly rent of $983, significantly more than Nuñez. But the owner, after all, operates “like any business,” she says.
Langshaw recognizes her luck at having housing at all. “From here, you’re going into homelessness,” she says.
Copyright Capital & Main
Home, Shared Home: Renters Watch as Their Buildings Become Apartels
The displacement of renters by large-scale operators who turn apartment buildings into de facto hotels has hit urban areas like Greater Los Angeles hard.
Apartment Renter: Short-term guests begin lining up around 11 a.m., spilling out onto the street as other guests check out.
Home-sharing. This cozy phrase once conjured images of a homeowner generously opening up a room to out-of-towners—while the fee charged by the owner helped him with mortgage payments. Or perhaps we pictured an apartment dweller who left for the weekend and made a little extra cash letting someone else use the premises.
But the present reality of home-sharing is not so cozy for single-family residential neighborhoods, where out-of-town guests may feel no social pressure to allow the neighbors a peaceful night’s sleep or to not trash the rental home.
To see today’s home-sharing up close, visit the Ellison Suites in coastal Venice, just a block from the famed Venice Boardwalk. Built in 1913 and covered with gigantic murals of Jim Morrison, Marilyn Monroe, John Hurt and Lana Del Rey, it boasts 58 units—but only 12 apartments are occupied by permanent tenants, according to one resident.
“We used to have neighbors for 20 years—now we have them for 20 hours.”
Beyond the Ellison’s courtyard, people bump wheeled suitcases up the building’s front steps and, on Fridays, signs advertise the night’s upcoming party. It might offer a fire dancer, but most parties will at least include free beer and wine — and music that reverberates up through the courtyard.
“We used to have neighbors for 20 years—now we have them for 20 hours,” said Bruce Kijewski, one of the remaining tenants, who has lived here since 1977. In the summer, he said, guests begin lining up around 11 a.m., spilling out onto Paloma Avenue as other guests check out.
An online search for The Ellison Suites yields a number of home-sharing and lodging platforms—Booking.com and Expedia among them–advertising its amenities as a short-term beachside rental. The building’s own website promotes it as a vacation destination, extolling Jonas Never’s murals as “Venice Masterpieces.”
The displacement of tenants by large-scale operators who turn their buildings into de facto hotels hit hard in urban areas like Greater Los Angeles, which is plagued by a nearly three percent rental vacancy rate.
While mom and pop are in on some of the home-sharing, today its booming business model most benefits commercial operators who can make more on short-term rentals (STRs) than on permanent residents.
STRs are promoted by a slew of home-sharing platforms, including Airbnb, now valued at $31 billion as it moves toward being publicly traded; and HomeAway and subsidiary VRBO, valued around $3 billion in 2015. The platforms profit by collecting a percentage on every rental offered on their sites by home-sharers.
Local municipalities are scrambling to figure out and ameliorate STR impacts on their neighborhoods and housing stock. In May, a Los Angeles City Council measure was sent to the city attorney’s office for language changes and is expected to go before the city planning commission in September. The proposed ordinance would set up a permitting system for short-term rentals and establish a 120-day yearly limit for home-sharing. Two nuisance violations—enforced by a city agency—could get an operator’s permit revoked.
The Ellison Suites, zoned as a rent-stabilized apartment building, in effect operates as a hotel.
The lowest nightly rate listed on the website is $149. That apartment, when rented to vacationers, could yield $4,470 monthly.
With the Ellison’s current rent-stabilized protections, it’s hard to straight-up evict someone, but there are ways of persuading them to flee their apartments to make them available for tourists and other visitors.
Michael and Susanne Detto, Ellison residents for 14 years, rented their apartment for $2,000 a month before they moved out in May. All-night parties in the courtyard below their apartment made it impossible to sleep—both work 12-hour shifts as nurses. “It was so loud we couldn’t even talk to each other,” Susanne Detto said.
Breakdowns in maintenance–power outages, faulty plumbing, leaking ceilings—plus an altercation with management during one of the raucous parties were all part of what the Dettos claim drove them out.
“Especially in summer, he makes three times the money if he rents out every day,” Michael Detto said of the Ellison’s landlord.
Kijewski and other Ellison tenants say landlord investment goes into creating a hotel entertainment experience rather than supporting habitable apartments. Residents have filed dozens of complaints with the city against building owner Lance Jay Robbins’ Paloma Partnership LLC, citing bad plumbing, inadequate water supply, construction without permits and change of use/occupancy without a building permit. (Multiple attempts to get a response from Robbins for this story were unsuccessful.)
Michael spoke wistfully of a community where neighbors once shared poetry readings, art discussions and fundraisers in the courtyard now occupied by high-octane weekend parties.
The company appealed the building’s status to Los Angeles’ Building and Safety Commission, arguing that short-term rentals should be allowed because the city’s initial certificate of occupancy designating the Ellison a residential apartment was in error and that the building is a hotel.
The company lost. Another appeal is headed for the city planning department.
Meanwhile the Ellison continues to advertise online as a hotel.
With today’s lucrative rates of return, it’s easy to see why, for large-scale operators, short-term stays make for a more attractive business model than permanent housing. Customers staying for a few nights might do some hating online, but won’t be there to press on long-playing maintenance issues.
Tenants at the Metropolitan in Hollywood experience the same push-out climate as Ellison residents, according to Susan Hunter, a case worker with the LA Tenants Union, which is part of a coalition that includes representatives from Los Angeles’ hotel industry, labor unions and community groups.
Hunter counts a dozen permanent residents remaining in the sleek, 12-story high-rise that boasts sweeping views of Hollywood and sits within walking distance of Hollywood Boulevard sites.
The website for Apartments.com says there are no apartments presently available.
Zoned as a residential building, the 52-unit Sunset Boulevard property owned by the Harridge Development Group is advertised online as an “apartel.” Tenants approached for this story didn’t want to speak, they said, for fear of retaliation, but they have complained to Hunter of loud parties, with fighting in the halls and kicked-in doors.
Apart from creating chaotic conditions for tenants sharing space with STRs, the home-sharing model leaves an even larger social footprint. The incentive for large-scale operators everywhere to acquire units—including entire homes — and move them off the permanent housing market places upward price pressure on housing.
From Seattle to New Orleans to Barcelona and beyond, housing advocates are assessing the effects of short-term rentals on housing markets and figuring out how to respond.
In New York City, short-term rentals have resulted in a loss of as many as 13,500 rental housing units, according to a January 2018 report from the School of Urban Planning at McGill University. (The study was commissioned by a labor group opposed to home-sharing.) New York has passed legislation requiring registration and other monitoring measures.
A 2015 San Francisco Board of Supervisors Budget and Legislative Analyst report estimated that Airbnb short-term rentals alone had removed between 925 and 1,960 units from the city’s housing market. These, along with 8,000 units already being used for short-term rentals, add up to an 11 percent reduction in rental housing.
Like other cities, San Francisco has aimed to define and enforce the number of nights STRs are permitted. Studies based on data from insideairbnb.com show that, in Los Angeles, renting out a property as a short-term rental for 83 nights or more annually produces more profit than the property could earn as a long-term rental.
In San Francisco, the cradle of Airbnb and adjacent to tech hubs, municipal leaders face an affordable housing shortage and a vacancy rate below three percent, and have established a registration process for short-term rental hosts. Regulations set a cap of 90 days per year for hosts that don’t live on the property. Violators are subject to stiff fines.
Seattle, headquarters of several tech giants, took an approach that attacks the short-term rental issue as part of the affordable housing problem. The city defines a short-term rental as a maximum stay of 29 nights and sets up a licensing system.
Using a wider lens on the affordable housing crunch, the city council in May approved an “Amazon tax” that charges the larger employers such as Groupon and Amazon $275 per worker annually to support housing and homeless services. (The city council repealed the tax in August.) Seattle comes in third, behind only New York and Los Angeles, in the numbers of homeless, while boasting only a fraction of those cities’ total populations.
Joan Ling, an urban policy analyst who has worked in affordable housing and mixed-use development for over 30 years, supports short-term rental regulation but sees it as only a piece of the larger question of creating affordable housing to support working families. Los Angeles, she said, “has a ways to go . . . Anything is better than nothing. What [regulation] can do is reduce the harm that can be done [by] removing units. The affordability crisis is so pervasive, so deep—we need a huge number of policies to address the crisis.”
Michael and Susanne Detto are happy living in their new apartment in Santa Monica—no all-night parties, the plumbing works and it’s a 10-minute walk to work. But before the Ellison got pieced out for short term-rentals, the couple also liked their Venice home.
Michael spoke wistfully of the community where neighbors once shared poetry readings, art discussions and fundraisers in the courtyard now occupied by high-octane weekend parties.
Susanne likes where the couple landed, but reflected on the overall cost as tenants got pushed out by the STR model.
“We lost a lot. We lost a lot of our neighbors. We’re still kind of recovering.”
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California Protects Low-Income Access to Farmers Markets
Food deserts and food swamps have limited poor people’s ability to obtain fresh produce. Allowing SNAP use at farmers markets ensures that the markets are accessible to low-income people and are not the sole domain of the rich and well-off suburbanites.
This story first appeared in The American Prospect. Capital & Main is co-publishing it in partnership with the Prospect.
Last month, a complex government contracting decision created tumult in the farmers market world by threatening the ability of nearly 2,000 markets across the country to accept Supplemental Nutrition Assistance Program (SNAP) benefits, formerly known as food stamps. However, thanks to a resilient state program, only one of those markets was in California.
The U.S. Department of Agriculture runs a program in which private contractors provide software and Electronic Benefit Transfer (EBT) processing equipment to farmers markets. But as the Prospect reported last month, the federal government abruptly changed its contract, forcing one major software company to announce it was going out of business during prime market season. The nonprofit Farmers Market Coalition began to crowdfund for markets to buy new equipment, and the National Association of Farmers Market Nutrition Programs and the state of New York hashed out plans to fund the software company, Novo Dia, so it could continue to operate for the rest of the summer season.
Through it all, however, farmers markets in California remained almost entirely insulated from this problem. In some states, farmers markets can choose a state program instead of the federal one to help pay for SNAP/EBT processing equipment, as this equipment can be expensive for farmers markets that often operate on slim budgets. While some states with their own equipment programs provide a limited amount of funding, California’s program pays all associated costs and fees for such transactions and provides free equipment to all approved markets. Nearly all of the state’s markets choose to work with the state program, which is run by the California Department of Social Services (CDSS).
Ever since EBT gained popularity two decades ago, California has been committed to making farmers markets accessible to people who use SNAP benefits to buy groceries, says Carle Brinkman, the food and farming program director at the Ecology Center, a sustainability nonprofit in Berkeley. In 2003, as paper food stamps were becoming obsolete in favor of EBT software, CDSS funded a project with the Ecology Center to pilot wireless point-of-sale devices that helped cement SNAP/EBT access at farmers markets. Since 2008, California has negotiated with its statewide EBT-processing vendor to include such equipment in the vendor contract itself.
“This mean[s] that the individual farmers market vendors or managers [do] not have to research which terminal to purchase, worry about coming up with the money for the terminal, or have to learn how to set it up on their own,” Michael Weston, CDSS’s deputy director of public affairs and outreach, told The American Prospect in an email. “The free wireless terminals have supported the farmers markets and direct farmers and have proven to be a real success in California,” he says.
There are 588 farmers markets, individual farmers and community-supported agriculture projects that accept California’s SNAP benefit, CalFresh. In 2017 alone, more than $4 million in CalFresh benefits were redeemed through farmers and farmers markets.
The free equipment, says Brinkman, is just a “regular old card reader” that she and colleagues refer to as “the brick” because of its clunkiness and its durability. Brinkman and the Ecology Center provide guidance and resources to farmers markets, such as assistance in applying for approval to accept SNAP, as well as connecting them with CDSS’s equipment program.
A history of crop subsidies for the ingredients in processed food has long made unhealthy foods both cheap and widely available, and food deserts and food swamps have limited poor people’s access to fresh produce. Allowing SNAP use at markets is key to ensuring that markets are accessible to low-income people and are not bastions of the rich and well-off suburbanites, as is commonly perceived.
California’s state equipment program “has been incredibly successful in taking a major step to make sure that farmers markets are for all people,” says Brinkman. Many markets nationwide, including hundreds in California, offer incentive programs that can double the value of a shopper’s SNAP benefit at the market, increasing the amount of produce they can put in their shopping bags. California’s Market Match program, which the Ecology Center manages, has served hundreds of thousands of shoppers since it began in 2009. According to a 2013 survey, the vast majority of low-income people reported that such incentive programs helped draw them to their farmers market. Brinkman says that these programs are one way to draw farmers markets to low-income communities, too.
California’s program is “allowing greater access to the farmers markets as a community resource,” says Brinkman. Entire communities can participate in “a sort of alternative local food system” where both farmers and the local community benefit. Many markets offer activities, Brinkman points out, like Zumba or reading programs for kids. More than a collection of healthy food stands, they can become community gathering spaces. But for that to happen, markets need to be supported with the resources to operate.
Trump’s Treasury Department Hands Banks a Windfall
Co-published by Splinter
The Treasury Department not only sided with banking lobbyists’ definition of “financial services,” but its new rule’s fine print echoed their interpretations of the 2017 federal tax law.
Co-published by Splinter
Do “financial services” include banking? Not according to the Trump administration, whose new rule, issued Wednesday by the Treasury Department, argues there is a difference — and then cites the alleged difference as a means of extending lucrative tax breaks to the banking industry. The new rule represents more than semantic hairsplitting and hands a huge windfall to the banking industry.
At issue is the Trump tax bill’s treatment of so-called pass-through income — or income that is gleaned from partnerships, LLCs and S corporations. The 2017 Republican tax legislation dramatically slashed tax rates on income from such entities, generating a firestorm of criticism that it was a giveaway to real estate moguls like Trump, U.S. Senator Bob Corker (R-TN) and other Republican backers of the legislation who have such entities in their personal portfolios. (The criticism became known as the “Corker Kickback” scandal.)
To reduce some of the cost of the overall tax cut bill — and to mute some of the specific criticism of the pass-through sections — GOP lawmakers included provisions prohibiting certain kinds of businesses from qualifying for the pass-through tax cut. One such business was “financial services,” and its removal countered assertions that the bill could enrich big banks.
However, less than a year after passage of the tax legislation, the Treasury Department, headed by former banker Steve Mnuchin, issued the proposed rule whose fine print asserts that “financial services” actually do not include banking. If that interpretation of the tax bill stands, hundreds of banks operating as S corporations — as well as their owners — could claim the tax cut.
“This is illustrative of the rigged process behind the bill, which was rushed through Congress without a single public hearing,” the Center for American Progress’ Seth Hanlon told Capital & Main. Hanlon served on President Obama’s National Economic Council. “How many members of Congress, let alone members of the public, understood that ‘financial services’ didn’t mean banking, and therefore that bankers would get a massive tax cut? This is the opposite of real tax reform.”
Banking industry lobbyists pushed for the interpretation — acknowledging that the bill generally blocked pass-through tax cuts for businesses in financial services, but arguing that “financial services are, however, clearly something other than banking.”
“We had extensive discussions with Congressional staff and various members in both the House and Senate,” wrote the American Bankers Association, Independent Community Bankers of America and Subchapter S Bank Association in a letter to the Treasury Department. “In the course of these discussions, we were assured repeatedly that S Banks would qualify for the lower tax rate for pass-through businesses.”
The Trump Treasury Department not only sided with the lobbyists, but in the fine print of its new rule, which is now subject to a public comment period before it goes into force, echoed their views.
“Commenters requested guidance as to whether financial services includes banking,” the Treasury Department said, referring to the banking industry. “The Treasury Department and the IRS agree with such commenters [that] financial services should be more narrowly interpreted here.”
The department then concluded that its interpretation “limits the definition of financial services to services typically performed by financial advisers and investment bankers…This includes services provided by financial advisers, investment bankers, wealth planners, and retirement advisers and other similar professionals, but does not include taking deposits or making loans.”
Tax attorney David Miller of the Proskauer law firm told Capital & Main: “The interpretation is consistent with denying the flow-through deduction only to labor-intensive industries. Banks tend to be capital, and not labor, intensive.”
“Treasury’s decision delivers a benefit to roughly 2,000 banks around the country that qualify as S corporations,” said University of Chicago tax law professor Daniel Hemel. “It’s a safe bet that most of the S corporation shareholders benefited by today’s decision will fall into the upper reaches of the top one percent — not many middle-class folks own a bank. The notion that ‘financial services’ excludes banking should be quite a surprise to members of the House Financial Services Committee, which thought that it had jurisdiction over banking.”
Hemel calculated that banks would end up reaping a big payout from the interpretation.
“If you assume a return on assets of around one percent and S corporation bank assets in the range of $400 billion, then the move reduces the total tax liability of S corporation bank shareholders by $300 million per year for 2018 through 2025,” he said. “We’re talking about something like $2.5 billion total. Small in comparison to the magnitude of the rest of the December 2017 giveaway, but $2.5 billion isn’t chump change.”
Steve Rosenthal of the Urban Institute said that while the Treasury Department fine print explicitly solidifies the tax cut for bankers, he said he believes the interpretation does not contradict congressional intent.
“I thought Congress gave away the house in the legislation, and I spoke to Hill staffers who said subchapter S banks are going to get a 20 percent deduction, and so I don’t think the new Treasury rule runs contrary to what Congress wanted,” he told Capital & Main. “This is definitely a huge giveaway — I just think it was Congress that did the original giveaway.”
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Forget Old Glory — Why Betsy DeVos’s Family Yacht and Others Fly Foreign Flags
Co-published by Newsweek
When the DeVoses’ 164-foot yacht was untied from a Huron, Ohio dock, it was flying a flag of the Cayman Islands.
Why would an American billionaire’s floating mansion moored at a northern Ohio dock be registered in an exotic Caribbean archipelago?
Co-published by Newsweek
When someone untied a yacht owned by U.S. Secretary of Education Betsy DeVos’s family, Fox News portrayed the episode as an illustration of uncouth anti-Trump sentiment. The yacht’s foreign flag, though, was an illustration of how an allegedly “America First” administration is chock-full of moguls who have eagerly stashed their wealth offshore — as long as doing so means avoiding taxes, regulations, transparency requirements and domestic employment laws.
We already know that Transportation Secretary Elaine Chao’s family shipping consortium routes its business through the Marshall Islands — a notoriously secretive tax haven. Federal records also detail how Trump’s Commerce Secretary Wilbur Ross, Securities and Exchange Commission Chairman Jay Clayton and Federal Reserve board appointee Randal Quarles held parts of their personal fortunes in investments based in the Cayman Islands, which are not necessarily required to adhere to America’s domestic financial regulations.
Now there’s Betsy DeVos, one of the heirs of Amway’s multi-level marketing empire. When her family’s 164-foot yacht was untied from a Huron, Ohio dock, it was flying a flag of the Cayman Islands, where VesselTracker says the yacht is registered. According to federal records, the yacht is owned by RDV International Marine, which is an affiliate of the company that controls the DeVos family’s fortune.
A “flag of convenience” allows American yacht owners to effectively characterize themselves as foreigners for tax purposes.
Betsy DeVos did not respond to Capital & Main’s questions about her family’s Cayman-registered yacht — and the larger question about foreign yachts was never deeply explored during the 2012 kerfuffle over the foreign flags on Mitt Romney’s boat. Interviews with maritime attorneys suggest it is a scheme that allows wealthy Americans to feign foreign status — and glean the lucrative benefits offered by offshore tax havens.
When buying a vessel or cruising in U.S. waters, American yacht owners like the DeVoses could face state sales or use taxes. However, registering a yacht in a locale like the Caymans — under what has come to be known as a “flag of convenience” — allows those American yacht owners to effectively characterize themselves as foreigners for tax purposes, thereby avoiding the obligation of paying the standard sales and use levies, while enjoying police and Coast Guard services during times their vessels are untied.
“If you want to come in and use the waters of a given state of the United States, the question is, how can you insulate yourself from getting hit for the use tax?” maritime attorney Michael T. Moore told Capital & Main. “The answer is close and register offshore. If you close and register offshore, you aren’t subject to either a sales or a use tax. You are simply visiting the United States, and you are visiting under a privilege that is granted to certain countries in the world under what is called a cruising permit. Those countries grant the privilege to U.S. flagged vessels, and the United States offers that reciprocal right to vessels flagged by those countries. In practice, it means the permit allows you to go from port to port in different states without having to officially make entry and pay taxes to the states of the ports you visit.”
Other incentives for yacht owners to register offshore include lower labor costs and the potential to avoid stricter inspection and safety standards required for U.S.-registered vessels.
DeVos’s yacht, the SeaQuest, is reportedly one of 10 in the family’s fleet and worth $40 million. If the vessel were registered in, say, Grand Rapids, Michigan — the state where RDV is located and that has in the past made an effort to compel yacht owners to pay use taxes — the SeaQuest would likely be subject to Michigan’s six percent use tax. That would require the DeVos empire to cough up about $2.4 million — public revenues that help finance the kind of police services that the DeVos yacht crew called when the boat was untied. And yet with the Cayman flag fluttering on its deck, the family can avoid the levy even as it cruises the Great Lakes.
Another incentive for yacht owners to register offshore is the potential to avoid stricter inspection and safety standards required for U.S.-registered vessels of a certain size.
“If someone is buying a boat that is above 300 gross tons but below 500 gross tons, getting registered offshore means they can avoid being subject to U.S. Coast Guard inspection and certification requirements as either a ‘seagoing motor vessel’ or a ‘passenger vessel,’” said maritime attorney Mark J. Buhler. “The most commonly used offshore yacht registries have comprehensive large yacht safety codes that were specifically developed for large yachts, whereas the U.S. Coast Guard regulations and inspection requirements applicable to ‘seagoing motor vessels’ or ‘passenger vessels’ were created many years ago, principally for vessels engaged in trade, and not really having large yachts in mind. Those requirements do not translate well to yachts, and most yachts are simply not designed or built to those particular standards.”
The DeVos yacht is 492 gross tons, according to MarineTraffic.
In a 2009 presentation to the American Bar Association, Buhler said that yacht owners who register their vessels offshore may also be seeking “a level of anonymity not available in the U.S.” — a reference to how offshore jurisdictions like the Caymans require less transparency in their corporate disclosures. Buhler noted that “some tax-free countries do not require any financial reporting” and added that such owners may also be aiming “to avoid liability for certain U.S. legal obligations to crew members.”
Offshore registration can also reduce labor costs.
“The reason otherwise red-blooded American yachts fly non-American flags has little to do with political sentiment, and a whole lot to do with tax and employment laws,” wrote Kevin Koenig, a former Goldman Sachs analyst, in a 2011 issue of Power & Motoryacht magazine. “From a tax perspective, the U.S. government views an American working as a deckhand on a U.S.-flagged megayacht cruising off of St. Tropez no differently than it views an insurance salesman plying his trade in Topeka—that is to say, a yacht flying the American flag is, essentially, U.S. soil no matter where she is located.”
Koenig added: “The financial consequences of this view can be major for owners who choose to register in America because they are constrained to account for U.S. taxes when paying the crewmember. With Social Security and unemployment taxes what they are, this often means paying an American crewmember twice as much as say, an equally qualified Australian who is exempt from U.S. taxes but who the owner could only hire were his boat registered in a more lenient, foreign-flag state.”
That sentiment was echoed by Miami maritime lawyer David Neblett.
“If you have a U.S. flag vessel, you fall under U.S. law in crewing it,” Neblett told Grand Cayman Magazine in 2015. “You have to have workers’ compensation insurance for each of them. There’s a big savings to hiring your crew outside the U.S…Tax benefits, privacy, liability, crewing requirements, all these are good reasons for our high-net-worth clients to register offshore.”
The Cayman Islands in particular is well positioned to exploit these loopholes. A 2008 Government Accountability Office report found that wealthy Americans “can minimize their U.S. tax obligations by using Cayman Islands entities to defer U.S. taxes on foreign income,” and also warned that some conduct “financial activity in the Cayman Islands in an attempt to avoid discovery and prosecution of illegal activity by the United States.”
Boosters of the Caymans have boasted that such qualities could extend to yacht owners. As Grand Cayman Magazine explained: “Being a place where wealthy foreign yacht owners register their sea-going palaces offers many of the same economic advantages to the Cayman Islands as the presence of offshore banking facilities do.”
Not surprisingly, the International Consortium of Investigative Journalists last year found, the law firm at the center of the Paradise Papers scandal “has a big business in registering yachts, particularly in the Cayman Islands, where it has set up offshore companies that claim ownership of dozens of yachts and ships.”
A case in Europe spotlighted how places like the Caymans can be used to avoid taxes: In 2012, Italian authorities charged a Formula One racing mogul for allegedly using a Cayman-based shell company and yacht as a vehicle to avoid paying required taxes.
While there hasn’t been any move in Congress to try to crack down on offshore yacht tax schemes, states have been racing to throw more money at yacht owners: In recent years New York, New Jersey and Florida have been competing to slash taxes on yacht purchases, and to incentivize purchasers to register their yachts in-state.
Proponents theorize that the benefits will ultimately trickle down to workers in the boat manufacturing industry — but considering the tax shenanigans surrounding yachts, that’s no sure thing. The only ironclad guarantee is that the big winners in a race to cut taxes will be magnates like the DeVoses, who have the financial wherewithal to buy the luxury vessels in the first place.
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Hotel Workers Back New Law Ending Secrecy in Harassment Cases
Non-disclosure agreements have become a target for #MeToo advocates, since they bar women from discussing their stories of workplace sexual harassment. Proposed California legislation could change that.
Non-disclosure agreements ensure silence at the settlement stage of litigation, but mandatory arbitration agreements black out news of workplace disputes from the get-go.
More than a year after the settlement of a sexual harassment case against the Long Beach Renaissance Hotel, the alleged harasser, a banquet supervisor, is reportedly still employed at the 374-room downtown hotel — while the two women who brought the suit are gone, according to sources familiar with the hotel’s staffing.
It’s hard to know what caused the two women—a lobby attendant and a banquet server—to leave their jobs because they aren’t talking about it. Worker advocates believe a non-disclosure agreement is keeping them silent, and have set their sights on state legislation that would prevent employees who experience workplace harassment from having to keep quiet about their experience.
One of the two women who filed the lawsuit, Teresa Evangelista, stood mutely before a panel of lawmakers during the public comment period at a recent legislative hearing on sexual harassment held in Los Angeles. Her former co-worker, Guadalupe King, who still works as a banquet server at the hotel, appeared by her side and speculated as to the reason for her silence.
“I have to assume that there is a silence clause in the settlement agreement” [between Evangelista and the Renaissance], said King, 55, who has worked at the hotel for 19 years. King said she would like to see a ban on such clauses.
King is not alone. Non-disclosure agreements have become a target for #MeToo advocates, including former Fox News anchor Gretchen Carlson, who settled confidentially with the network’s parent company after accusing the cable news channel’s late chair and CEO, Roger Ailes, of sexual harassment.
While much of the media attention has been focused on the Weinsteins, Moonveses and others who allegedly preyed on professional women, low-wage service workers like Evangelista are especially vulnerable to harassment, say advocates. Many hospitality workers are immigrants and have limited English, and they often work in isolation cleaning hotel rooms. Indeed, almost 60 percent say they have experienced harassment by hotel guests, according to a 2016 survey of about 500 hotel and casino workers, conducted by UNITE-HERE Local 1, a large Chicago hospitality union.
Michael Morrison, Evangelista’s attorney, would not confirm whether his client had signed a non-disclosure agreement. But he said he supports a bill, sponsored by California state Senator Connie Leyva (D-Chino), which would ban non-disclosure agreements that prevent harassment victims from talking about the facts of their case. Senate Bill 820, which passed through the State Assembly’s judiciary committee in early July, would apply to cases of sexual assault, sex discrimination and sexual harassment. The bill requires approval by the full Assembly and Senate, along with the governor’s signature, according to an aide to Leyva.
Jeffrey W. Cowan, a Los Angeles attorney who represents plaintiffs in sexual harassment cases, calls non-disclosure agreements that gag harassment victims “a blight on the legal system” that often interferes with his ability to gather evidence for cases.
Such a bill “will go a long way toward ensuring that trials and discrimination claims are an effective search for truth, and that there is accountability for victims of unlawful discrimination in the workplace,” he said. The law would allow settlement amounts to remain confidential.
The California Chamber of Commerce sees the law differently. Removing confidentiality provisions from settlement agreements will “expose employers to a public presumption of guilt” regardless of the merits of a particular case, according to a letter the Chamber and nine other employer organizations sent to the Assembly judiciary committee on June 26. “SB 820 will drive employers to fight these cases in court instead of resulting in an early resolution.” The League of California Cities also signed the letter opposing the law, which would cover public employers, as well as private ones.
While non-disclosure agreements ensure silence at the settlement stage, mandatory arbitration agreements guarantee confidentiality about workplace disputes from the get-go, and are consequently even more problematic, according to Morrison.
“In terms of sexual harassment, nothing has been more devastating to getting information out about harassers than arbitration clauses,” Morrison said. (Another measure under consideration by the California legislature, Assembly Bill 3080, would prohibit employers altogether from requiring workers to sign agreements that force employment disputes into private arbitration proceedings.)
Neither Evangelista, nor her co-plaintiff in the case, Luz Cuevas, signed arbitration agreements and, for that reason, the details of their complaint against the hotel are in the public court documents; some were reported on in the Long Beach Post when the suit was filed two years ago.
In that complaint, Evangelista alleges banquet supervisor David Flores pestered her for dates and subjected her to such demeaning remarks as, “When are we going to go out so I can remove those ‘cobwebs’ that your husband doesn’t remove for you?” She found her sweater on the floor of the men’s restroom covered with semen and was met with laughter and told to forget about it when she told a supervisor, according to the lawsuit.
The case was settled last march and the allegations against Flores and the hotel were never tried in court. The attorneys for the Renaissance, and for Flores, were both reached for this story but declined to comment on behalf of their clients. Flores could not be reached for comment.
Evangelista, a former lobby attendant, also reported being assaulted in 2012, by a hotel engineer who lured her into a remote storage room “by pretending that he needed help retrieving furniture,” according to the complaint. After she reported the incident to a human resources representative, she was told to stay away from her alleged assailant, according to the complaint.
Co-plaintiff Luz Cuevas – also known as Maria Ruiz – accuses Flores in the lawsuit of having repeatedly pressured her for sex. Cuevas reported Flores’ actions to human resources but, according to the complaint filed with the court, no action was taken against him.
Both women obtained temporary restraining orders against Flores several months prior to filing the 2016 lawsuit in court. “The fact that our legal action may embarrass him and may end up costing him his job could bring him to rage. I fear for my personal safety,” Cuevas stated in a request for a restraining order that was filed with the Los Angeles Superior Court in 2016.
The Renaissance is owned by Sunstone Hotel Investors Inc., a Maryland-based real estate investment trust, and managed by Marriott International Inc.
Last week, after working a brunch at the hotel and still in her black uniform, Guadalupe King sat down in a union hall to talk about why she decided to speak about the settled lawsuit at the Renaissance, which is the target of a union organizing drive by UNITE HERE. (Disclosure: The union local is a financial supporter of this website.) She said she was upset that her former co-workers had left the hotel while the alleged harasser—who sometimes acts as her supervisor—remains.
She also wanted to see policy changes that would affect hotel workers more broadly. King compared the imposition of non-disclosure agreements on sexual harassment victims to a parent’s silencing of a child with a piece of candy after she has been sexually assaulted by a family member. “Everybody should be free to speak about their experience,” she said.
Research assistance provided by Jake Conran
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Hearing Shines a Light on Sexual Harassment in the Service Industry
The recent media spotlight on sexual harassment in Sacramento and Hollywood has created an opportunity to address the plight of low-wage workers.
Assembly Bill 3081 is one of several #MeToo-inspired laws proposed by California legislators.
Sandra Pezqueda has racked up some victories recently, but she is not resting easy.
She made the unlikely journey from dishwasher to Time magazine cover story, which featured Pezqueda in Time‘s 2017 Person of the Year issue for her role in fighting sexual harassment at the Terranea Resort, a luxury seaside hotel in Rancho Palos Verdes. In April she settled a lawsuit for $250,000 against Excellent Maintenance Service, the staffing agency that placed her in the Terranea’s kitchen.
Pezqueda, who is 38 and a native of Mexico, spent Monday evening at a legislative committee hearing in Los Angeles, advocating for a law that would hold companies like the Terranea accountable for the actions of their contractors and temporary workers.
“Many women who work in the hotel industry do not have a voice at all. When they experience something bad, they are afraid to speak up because they might be blamed.”
“I am proud that I can continue to advocate on behalf of other women,” said the poised Pezqueda in Spanish through an interpreter. She described “one of the worst experiences of her life” – a male supervisor who worked for the staffing agency tried to kiss Pezqueda and pressure her for sex. Unlike the vast majority of women who face harassment in the workplace, Pezqueda took action. But her complaint to hotel management led to her firing in 2016, she said.
A sympathetic group of seven California state Assembly members listened to Pezqueda’s testimony and that of three other service industry workers who spoke about some of the barriers that keep many sexual harassment victims in an industry largely staffed by immigrant workers from speaking out.
The chair of the California State Select Committee on Women in the Workforce, Assemblywoman Lorena Gonzalez Fletcher, has been combating sexual harassment since long before the #MeToo movement gained steam. The San Diego-based legislator spearheaded a 2016 bill to address sexual violence against janitorial workers after viewing a 2015 Frontline documentary, “Rape on the Night Shift,” that she says shocked her into action.
The recent media spotlight on harassment in Sacramento and Hollywood has created an opportunity to address “what happens every single day for low-wage workers who, in many ways, are in a more precarious situation” than their counterparts in higher-paid occupations, Gonzalez Fletcher said after the packed hearing, which was held in the basement of the union hall belonging to UNITE HERE Local 11. (Disclosure: The union is a financial supporter of this website.)
Assembly Bill 3081, sponsored by Fletcher Gonzalez, would hold companies like the Terranea responsible for sexual harassment of contract workers, and is one of a series of #MeToo-inspired bills in the California legislature this year, some of which have drawn strong opposition from business groups.
The Terranea’s management told the Los Angeles Times that Pezqueda’s lawsuit and allegations “have nothing to do with” the resort. Excellent Maintenance Service reached a settlement with Pezqueda, but has denied wrongdoing.
Gonzalez Fletcher, the daughter of a former farmworker and a nurse, introduced another controversial bill earlier this year, Assembly Bill 3080, which would prohibit employers from requiring workers to sign agreements that force employment disputes into private arbitration proceedings. Mandatory arbitration agreements have proliferated over the last two decades and now cover 60 million workers nationwide, according to a study by the Economic Policy Institute.
The California Chamber of Commerce has labeled the bill banning forced arbitration a “job killer” that could “significantly expand employment litigation.”
The Chamber has also opposed AB 3081, which labor advocates are calling “Sandra’s Law,” arguing that the liability for sexual harassment should rest with the contractor and not with the employer.
Companies already share in civil liability when their labor contractors fail to compensate workers or provide workers’ compensation insurance.
A larger theme underscored the two-hour Monday hearing, which is the powerlessness of women workers in the service industry that, the hearing’s participants said, could be remedied by unionization and diversity in hiring at all levels of companies.
“Only when we have gender balance at every level with every organization will we see sexual harassment really begin to disappear,” said the Feminist Majority Foundation’s executive director, Kathy Spillar, who was one of several experts to speak at the hearing.
Juana Melara, a Westin Long Beach housekeeper who was also featured in the Time magazine 2017 Person of the Year issue for speaking up about sexual harassment, addressed a similar issue. “Many women who work in the hotel industry do not have a voice at all,” she said. “When they experience something bad, they are afraid to speak up because they might be blamed.”
Melara recently helped negotiate a yet-to-be-ratified, first union contract with the Westin Long Beach that will provide “panic buttons” to housekeepers who often work in isolation while cleaning rooms. A legislative requirement that hotels throughout the state provide such buttons to their housekeeping staff members to protect them from sexual assault was also the subject of discussion on Monday.
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Saving Private Enterprise: Director Jacob Kornbluth on His New Robert Reich Film
- Labor & EconomySeptember 25, 2017
Kicked to the Curb: How USC Drove a Bicycle Repairman Into the Street
- Labor & EconomyOctober 26, 2017
Auto Union Files Complaint Against Tesla
- Judging JanusNovember 14, 2017
Can Unions — and the American Middle Class — Survive the Supreme Court’s Janus Decision?
- Judging JanusNovember 16, 2017
Judging Janus: Organizing 79 Million Millennials
- Labor & EconomySeptember 20, 2017
Jared Bernstein on the Best Thing Trump Can Do for the Economy – And One Thing He Will Never Do
- ImmigrationOctober 30, 2017
After the Inferno, Undocumented Workers Find Themselves Without Federal Help