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Twelve Ways to Reverse Inequality and Close the "California Chasm"

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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.

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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.

Resources

Berkeley Labor Center: http://irle.berkeley.edu/workingpapers/104-14.pdf

NELP: http://www.nelp.org/page/-/rtmw/City-Minimum-Wage-Laws-Recent-Trends-Economic-Evidence.pdf?nocdn=1

L.A. Economic Roundtable: http://economicrt.org/publication/effects-of-a-fifteen-dollar-an-hour-minimum-wage-in-the-city-of-los-angeles/

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.

Resources

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.

Resources

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.

Resources

Department of Labor on Misclassification: http://www.dol.gov/whd/workers/misclassification/#stateDetails

AFL-CIO: http://dpeaflcio.org/programs-publications/issue-fact-sheets/misclassification-of-

employees-as-independent-contractors/

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.

Resources

Green for All: http://greenforall.org/

Don’t Waste LA: http://www.dontwastela.com/wp-content/uploads/2014/08/DWLAFactsandImpacts.pdf

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.

Resources

Prop 13: http://www.californiataxdata.com/pdf/Prop13.pdf

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.

Resources

City of San Jose: http://www.sanjoseca.gov/index.aspx?nid=3979

SCANPH: http://scanph.org/policy

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. [1] 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.

Resources

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/

[1] 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.

Resources:

Universal pre-k: http://www.huffingtonpost.com/elaine-weiss/preks-potential-as-part-o_b_5902318.html

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.

Resources

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/

[1] 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.

Resources

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.

Resources

Demos: http://www.demos.org/millions-polls

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.

Labor & Economy

Report: IRS Enforcement Could Reap Billions in Unpaid Revenue

Audits of the wealthy and corporations have steeply declined at the same time the agency has begun withholding tax refunds for low-income recipients of the Earned Income Tax Credit.

David Sirota

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IRS headquarters, Washington, DC. (Photo: Joshua Doubek)

Congressional analysts say that for every $2 spent on tax enforcement, the government could expect to reclaim more than $5 in unpaid taxes.


The federal government could raise more than $1 trillion in new revenue by beefing up tax enforcement and by cracking down on carbon emissions, according to congressional budget analysts. Those two moves alone could help finance progressive lawmakers’ Green New Deal, or they could cover the lion’s share of the cost of the massive infrastructure investment package proposed by President Donald Trump.

The data was included in a new report by the Congressional Budget Office released Thursday.

The study found that if lawmakers reversed recent budget cuts to the Internal Revenue Service, the agency could recover tens of billions of dollars in revenue that is owed to the government — but that is not being paid. If the agency’s budget were increased by $20 billion over the next 10 years, the CBO says auditors would be able to reclaim more than $55 billion that could be used to shore up federal programs or reduce the deficit. Put another way, the analysts said that for every $2 spent on tax enforcement, the government could expect to reclaim more than $5 in unpaid taxes.

“Many taxpayers who are not compliant under the current tax system would pay the taxes they owe” if the enforcement budget is increased, the CBO said.

A recent ProPublica investigation found that as lawmakers have slashed the IRS enforcement budget in recent years, the agency has had far fewer resources with which to scrutinize the tax returns of corporations and high-income individuals. In all, the news organization estimated the IRS has not collected $95 billion in taxes that it may have otherwise collected, had Congress given it its previous level of enforcement resources.

Audits of the wealthy and corporations have steeply declined at the same time the agency has begun withholding tax refunds for recipients of the Earned Income Tax Credit. The decreased scrutiny of the wealthy and tougher posture toward the poor has occurred even though CBO notes that “the amounts collected from audits of higher-income taxpayers are, on average, much larger than collections from audits of taxpayers with lower income.”

A 2015 Inspector General report urged the IRS to focus more of its limited enforcement resources on high-income filers.

“It appears that the IRS is spending most of its audit resources on auditing tax returns with potentially lower productivity,” the report concluded.

The CBO noted that stronger enforcement would not necessarily halt tax cheating over the long haul.

“Taxpayers would gradually become aware of some of the changes in the IRS’s enforcement techniques associated with the initiatives,” the analysts wrote. “In response, they would shift to other, less detectible forms of tax evasion.”

In a separate part of the report, the CBO says a $25 per metric ton tax on carbon emissions would raise roughly $1.1 trillion over the next 10 years. That calculation factors in both the possible costs of the tax from potentially reduced economic activity and higher fossil fuel prices, as well as positive economic effects of the tax. In the first year alone, such a tax would raise $66 billion — or more than the budget of the entire U.S. Department of Education over the same time period.

“To simplify implementation, as well as to provide incentives to deploy technologies that capture emissions generated in the production of electricity, the tax could be levied on oil producers, natural gas refiners (for sales outside the electricity sector), and electricity generators,” CBO analysts wrote. “A well-designed tax that covered most energy-related emissions would be expected to reduce emissions.”

In October, ExxonMobil announced that it will spend $1 million to support an advocacy group that is pushing for a carbon tax.


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Labor & Economy

Behind Kaiser’s Mental Health Breakdown

“The best practices of psychotherapy state that patients should be seen weekly or every other week,” says one clinical psychologist. But at Kaiser, his average patient must wait five weeks between appointments.

Gabriel Thompson

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A strike by mental health professionals is impacting more than 100 Kaiser clinics and medical facilities.  The union has proposed that Kaiser increase staffing and cut patient wait times.


 

When clinical psychologist Mickey Fitzpatrick thinks about his job, the image that comes to mind is not of a hospital or a doctor’s office, but that of a conveyor belt. Since 2015, the 45-year-old has worked at a Kaiser Permanente hospital in the Northern California city of Pleasanton, where he sees an endless stream of patients dealing with serious mental illnesses: post-traumatic stress disorder, depression, bipolar disorder and anxiety. Each week he sees four to five new patients, and estimates that last year he counseled between 800 and 900 people, who represented a blur of needs that weren’t always easy to keep straight.

“The best practices of psychotherapy state that patients should be seen weekly or every other week,” Fitzpatrick told me. But at Kaiser, he’s never been able to get anywhere near that goal. With his heavy caseload, the average patient must wait five weeks between appointments, a figure that is consistent with other Kaiser therapists I spoke to. “We’re giving them the care that we can with the resources that we can, but we’re not able to do what we’re trained to do.”

This isn’t a new problem for Kaiser. In 2013, the California Department of Managed Healthcare (DMHC) fined the nonprofit medical-care giant $4 million after completing a routine medical survey and discovering what it called “serious deficiencies in providing access to mental health services” and the company’s failure to promptly correct the problems. The survey found that patients often did not have timely access to appointments and that their educational materials “included inaccurate information that could dissuade an enrollee from pursuing medically necessary care.”

In 2015, a follow-up report by DMHC revealed that Kaiser still regularly failed to provide mental health services as required by state law, which mandates that patients with urgent problems receive an appointment within 48 hours; those with non-urgent issues should be seen within 10 business days (or 15 business days if the appointment is with a specialist physician, such as a psychiatrist).

In a review of nearly 300 patient records, the agency found that 22 percent of cases in Kaiser’s northern region failed to meet the state’s requirements, along with nine percent in the southern region. Among the randomly selected files was a patient with suicidal ideation who waited 16 days for an appointment, and a therapist for another individual who wrote in their notes, “patient wants regular ongoing treatment so may look outside Kaiser.”

The goal of providing “regular ongoing treatment” for Kaiser patients by hiring new therapists is one of the principal demands of mental health care professionals like Fitzpatrick, who has joined 4,000 of his colleagues this week in a five-day strike. The strike, organized by the National Union of Healthcare Workers, is impacting more than 100 Kaiser clinics and medical facilities, and comes amidst contract negotiations that began in June but have stalled. During those negotiations, the union has proposed that Kaiser increase staffing with the goal of eventually seeing returning patients within two weeks, as opposed to over stretches of time that now routinely exceed one month.

Kaiser Permanente disputes the claims that it hasn’t made significant strides in providing timely access to mental health care. “We have been hiring therapists, increasing our staff by 30 percent since 2015 – that’s more than 500 new therapists in California – even though there’s a national shortage,” said John Nelson, the vice president of communications for Kaiser Permanente, in a prepared remark. Nelson also challenged the union’s assertion that the strike had anything to do with patient care, stating that one of the union’s demands was to reduce the amount of time therapists spend seeing patients, which now averages 75 percent of their days.

For Clement Papazian, a licensed social worker at Kaiser for 30 years who works in Oakland, reducing the time spent seeing patients would dramatically improve the quality of care given to patients, by allowing therapists to check in on family members by phone, write up more thorough notes and create a work environment that didn’t feel like a “patient mill.” Papazian said that he has seen many dedicated therapists drop out due to the “relentless pressure to see more patients” — what he describes as “rapid access to no care.”

Papazian acknowledges that Kaiser has hired new therapists, but argues that those new hires haven’t impacted the workload, due to Kaiser’s rapid growth — its number of enrolled patients in California has increased by nearly 11 percent since 2015. He also argues that Kaiser is well positioned to staff-up its mental health department, as the company made $3.8 billion in profit last year. “Kaiser is a big player that can really shape the industry,” he said. “What we want is to deliver on the care that Kaiser members deserve.”


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Labor & Economy

Lights Out, Clean Green: How Janitors Are Boosting High-Rises’ Sustainability

A Los Angeles-based program—the only one like it for janitors in the country—has helped align janitorial staffs with the sustainability goals of office building owners.

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Casilda De Jesus at work. (Photo: Joanne Kim)

“Janitors can tell you down to the tenant – to the desk – who doesn’t care and just throws everything in the trash or contaminates the recycle bin.”


 

Janitors, who are often the unseen eyes and ears of the commercial office buildings they clean, are on the front lines of an innovative effort to turn their workplaces green.

Aida Cardenas, director of the Building Skills Partnership, a labor-management funded initiative, launched the Green Janitor Education Program in 2014 at a time when building owners were increasingly seeking Leadership in Energy and Environmental Design (LEED) certification for their properties. The widely-used LEED rating system lets owners put a green stamp of approval that indicates a building’s level of conformity to green operation and maintenance standards. “Janitors weren’t really part of that conversation,” even though the kinds of chemicals and equipment they used were important in determining whether a building received a certification, Cardenas said.

The program began in Los Angeles with a pilot of about 120 workers in seven buildings as a collaboration between the Service Employees International Union-United Service Workers West, the Building Owners and Management Association (BOMA) of Greater Los Angeles, the U.S. Green Building Council (which developed the LEED system) and the Building Skills Partnership. (Disclosure: Several SEIU locals are financial supporters of this website.) Since then, more than 1,000 janitors have graduated from the program and are working in 65 buildings across the state.


Casilda De Jesus now unplugs her TV, radio and other appliances when she’s not using them, knowing that as, “energy vampires,” they are still draining power.


Janitors participate in 30 hours of classroom training, which takes place during their shifts over a 15-week period. One focus of the training is the purpose of environmental sustainability efforts, which can sometimes make work harder for janitors who must contend with “thinner trash bags that rip” and cleaning chemicals that they may not view as effective, said Cardenas.

The program—the only one like it for janitors in the country—has helped align the janitorial staff with a building owner’s sustainability goals. For example, some janitors had resisted using green chemicals that did not tackle dirt as quickly as other products.

Casilda De Jesus, who graduated from the program in August, recalled co-workers sneaking Ajax to the worksite until they were discovered by supervisors. “Having a better understanding of green concepts” helps janitors buy into green practices, De Jesus said through an interpreter. The use of cleaning products that have a recognized environmental seal helps buildings receive points toward their LEED certification. De Jesus claims the switch to green cleaning detergents, made several years ago by her building, has alleviated her asthma symptoms.


Buildings that participated in the Green Janitors program used 5.6 percent less energy on average in 2016 than buildings that did not, one study found.


The janitors are “turning off the lights that people leave on,” according to Cardenas. “They’re sorting through bins to divert as much waste as they can. They’re reporting leaks and [they] understand the urgency because they’re conserving water.”

The training has contributed to energy savings, said a pro-bono study conducted by seedLA, an environmental consulting group. Buildings that participated in the Green Janitors program used 5.6 percent less energy on average in 2016 than buildings that did not, the study found. The authors attribute those savings to green building maintenance practices, as well as to physical changes to the building due to energy efficiency upgrades.

“Building a low carbon economy takes workers and an awful lot of those workers are blue collar workers. They are not just engineers and highly technical professionals,” points out Carol Zabin, director of the Green Economy Program, at the University of California, Berkeley Center for Labor Research and Education.

The Building Skills Partnership’s programs—which also include English as a Second Language and digital literacy classes – are paid for by a fund created through collective bargaining between the janitors’ union and janitorial firms that contract with building owners. Last year, the Green Janitors program received a $520,000 grant from a state training fund, administered by the California Workforce Development Board, intended for sectors of the economy that must undergo transformation to combat global warming.

De Jesus and other janitors have brought what they learned home about composting, energy and water conservation. De Jesus now unplugs her TV, radio and other appliances when she’s not using them, recognizing that as, “energy vampires,” they are still draining power. She urges her neighbors to report water leaks to their apartment manager.

De Jesus would like to see her office building’s tenants benefit from the kind of training the janitors received. “I think it’s really important that the tenants in the building go through this program, so that they are sharing the same practices,” De Jesus said.

“Janitors can tell you down to the tenant – to the desk – who doesn’t care and just throws everything in the trash or contaminates the recycle bin,” noted Cardenas.

Building managers do not typically authorize janitors to talk to office tenants about profligate energy use or subpar recycling habits. But last Earth Day, the Building Skills Partnership released a video – introduced by Mayor Eric Garcetti — that educated property managers and janitorial companies about the program. It includes janitors delivering gentle reminders about how to be better environmental stewards by using public transportation, bicycling and recycling.

Rising Realty Partners owns and manages the Garland Center, the West Seventh Street building where De Jesus works, as well as several other downtown L.A. buildings whose janitorial staff are participating in the Green Janitors program. The company opted into the program so as to invest in the staff that maintains its buildings while also contributing to “building wellness,” said Kayce Hawk, senior vice president of property services for the company. The janitors have only recently graduated from the program, but the reports from the building staff have all been positive, she added. “It’s empowering for them to get free continuing education that benefits them in their job and in their home life.”


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Labor & Economy

Randy Shaw on Los Angeles’ Lost Housing Generation

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What: Randy Shaw discusses his book, Generation Priced Out.
When/Where:  Skylight Books, Los Angeles; Saturday, Nov. 17, 5 p.m.


 

When I began writing my new book on the pricing out of the working and middle class from urban AmericaGeneration Priced Out: Who Gets to Live in the New Urban America — the first place I turned to after the Bay Area was Los Angeles. I grew up in Los Angeles. I try to closely follow its land-use politics but was shocked to see how even neighborhoods like Boyle Heights faced displacement and gentrification. I also learned that Venice, which I always thought of as a progressive bastion, was filled with homeowners opposed to affordable housing in their neighborhood. The deeper I looked, the more I found the reasons for Los Angeles’ worsening housing and homelessness crisis: The city was not effectively protecting tenants and its rent-controlled units, nor was it building enough new housing.

Generation Priced Out tells the stories of those on the front lines of the Los Angeles housing crisis. Mariachis facing eviction from Boyle Heights describe their struggle to stay in their homes, and I defend the “by all means necessary” tactics of tenant groups battling displacement. I describe the struggle by Venice Community Housing to build housing for the homeless on a parking lot, a plan vigorously resisted by homeowners. I discuss the enormous power of the city’s affluent homeowner groups, and how they aggressively stop the building of new apartments. I also assess how Mayor Eric Garcetti and other city officials have responded to the crisis and explain why they must do more.

I’ll be talking about my book and the L.A. housing crisis at Skylight Books, Saturday, November 17 at 5 p.m. I look forward to a great discussion and hope to see you there.

Randy Shaw is director of San Francisco’s Tenderloin Housing Clinic and the editor of BeyondChron.org. His prior books include The Activist’s Handbook: Winning Social Change in the 21st Century and The Tenderloin: Sex, Crime and Resistance in the Heart of San Francisco.


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Election 2018

Los Angeles’ Measure B Is a Moonshot Aimed at Creating a Public Bank

A baby step toward establishing municipal banking in America’s second-largest city would be a giant leap for this national movement.

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Photo by Jonathunder

A ballot measure in support of creating a public bank in Los Angeles could serve as a referendum on an idea that has gained traction in cities and states across the country since the 2008 financial crisis.

“To have a resounding ‘Yes’ vote from Los Angeles, which is one of the most powerful opinion centers of the world, would be tremendously historic,” says Trinity Tran, co-founder of Public Bank LA, an advocate for Measure B, which would amend the city charter to allow the city to establish a municipal bank.

But Measure B is a baby step in what promises to be a lengthy process to set up a municipal bank whose stated purpose is to provide the nation’s second-largest city with a socially responsible and cost-effective alternative to Wall Street banks.

More Ballot Measure Stories Here

The movement for public banks draws inspiration from the success of a 99-year-old public bank in the red state of North Dakota and from Germany’s network of over 400 regional public banks (or Sparkassen), which advocates say provided significant funds for the development of that country’s renewable energy sector.

Since the Great Recession, over 20 U.S. states have introduced bills to establish state-owned banks or to study their economic feasibility. New Jersey Democratic Governor Phil Murphy, a former Goldman Sachs executive, successfully campaigned for his current job on the promise of creating a state-owned bank. And California’s gubernatorial frontrunner Gavin Newsom has made the formation of a state bank that would fund infrastructure, student loans and housing part of his platform as well.

Pot profits for deposit? (Photo: Pandora Young)

A lack of resources is one motivation for city and state leaders’ interest in public banking, said Deborah Figart, a distinguished professor of economics at Stockton University in New Jersey.

After the Great Recession, “we really became much more aware of unmet infrastructure needs,” said Figart, who conducted an economic impact study for the proposed New Jersey bank. The American Society of Civil Engineers gives the U.S. a D+ grade for the state of its roads, bridges and other infrastructure — “practically a failing grade,” she noted. Meanwhile, local governments devote a significant portion of their budgets to paying interest on bonds that go to Wall Street banks and finance companies at a time when interest rates are on the rise.

In Los Angeles, the push for the bank emerged from grassroots activists who demanded that the city divest from San Francisco-based Wells Fargo, whose aggressive sales practices resulted in more than three million deposit and credit card accounts being opened without customers’ knowledge.

“We knew that it wasn’t really divesting if we were going to move our money to another predatory extractive bank,” said Tran. “So we introduced public banking early on in the campaign as a permanent solution to housing the city’s public finances.”

Last year, the city paid $1.1 billion in interest to bondholders, which in turn funds “wars and pipelines and private prisons,” said Tran, who would rather see tax money put to work to address city needs like housing and clean energy. Her banking advocacy began four years ago when she started meeting with fellow activists in Koreatown coffee shops. As of October 20, “Yes on B” supporters had raised $10,128 for the measure, according to the Los Angeles City Ethics Commission. No committee has been formed to oppose the measure.

There are critics, however. Rob Nichols, president and CEO of the American Bankers Association, writing in The Hill, fears that the public bank proposal would suffer from a “scattered business focus” and fall under “undue political influence” that would result in risky loans that would damage the public purse.

“It’s easy to make the banks the bad guy,” said Stuart Waldman, president of the Valley Industry and Commerce Association. But “it’s not easy to run a bank,” and a municipal bank would require significant start-up capital. “This is public money, so if they lose public money, if they realize that it doesn’t work, that hurts every person in L.A.”

The Los Angeles Times editorialized that the measure was one of “the most ill-conceived, half-baked ballot measures in years” and urged a no vote, in part, because the measure does not articulate a vision or plan for the bank.

But if the proposal on the ballot lacks detail, it’s because city officials have not wanted to invest in a business plan and feasibility study while the city is still prohibited by its charter from operating a bank, City Council President Herb Wesson told a news conference in October.

Wesson assured reporters that there was “no way on God’s green earth” the city would move to create a municipal bank without a subsequent citywide vote on a more detailed plan, and the ballot argument in favor of the measure that goes to every city voter says as much. For now, voters are only being asked to remove a legal hurdle in the charter that prevents the city from establishing a municipal financial institution.

Proponents of public banking regularly point to the Bank of North Dakota as a model. The Progressive-era institution was created in 1919 out of frustration with a banking system that was putting the squeeze on farmers. The bank was initially greeted with suspicion by a national press corps anxious about a Bolshevik incursion into the finance sector. But the bank, now very much part of the state’s business establishment, has seen record profits for 14 consecutive years. Because it steered clear of the volatile derivatives market, the Bank of North Dakota avoided the upheaval many financial institutions suffered when the housing market tanked in 2008.

“It’s partly because you have civil servants in charge rather than folks whose paychecks depend on how much money the bank makes in a quarter,” Sam Munger, director of external affairs for the State Innovation Exchange, told The American Prospect.

Considered a “banker’s bank” with a $4.9 billion loan portfolio that supports agriculture, business, homeownership and higher education, the Bank of North Dakota does not compete with other financial institutions.

“It’s not a bank for regular household customers, for car loans, credit cards and mortgages,” said Figart. “It is a bank for accepting public deposits and lending mostly to the public sector or public-private partnerships.”

Wesson has talked about L.A.’s municipal bank as a place where the cannabis industry could park its cash since pot is illegal under federal law. Such a move could restrict the bank’s ability to make federal wire transfers, but the L.A. activists who back the initiative see other uses for the bank.

“For our organization, it was never about cannabis; it was always about neighborhood issues,” says Gisele Mata, housing organizer of Alliance for Californians for Community Empowerment, a community-based non-profit that has been part of the coalition advocating the bank.

Public Bank LA leaders envision Los Angeles’s municipal bank playing a similar role to that of the Bank of North Dakota, but focusing on the city’s priorities. “It would start as a banker’s bank for the city, refinancing city debt and trying to consolidate the investment away from Wall Street and harmful extractive industries,” co-legislative director David Jette told KPCC-FM in October.

Public Bank LA, he added, also envisions the municipal bank “partnering with local credit unions and community banks” to fund housing, small businesses, low-interest student loans, renewable energy projects and, eventually, credit for the underbanked. The bank could also fund infrastructure projects more cheaply than commercial banks by avoiding the interest and fees that go to commercial banks, according to advocates.

Many hurdles remain before an L.A. bank could become operational. State and federal laws do not currently provide a regulatory framework for the formation of public banks, according to an August report by the city’s Chief Legislative Analyst’s office. The city must come up with a source of collateral for the bank and an oversight structure, and receive approval from the California Department of Business Oversight.

But a modern public bank can be made from scratch. In April, the Federal Reserve approved a public bank for American Samoa in the South Pacific, after the Bank of Hawaii abandoned the geographically remote U.S. Territory.

The North Dakota and American Samoan banks may be rare cases for now, but Figart believes that “in the next five years, there will be” more public banks, and “in the next 10 years, there certainly will be more.”


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Election 2018

Will Proposition 11 Mean Less Rest for Ambulance Crews?

Supporters describe Proposition 11 as necessary to ensure public safety, but EMT workers describe grueling 12-hour shifts in which crew members can often go eight hours without having a chance to stop for food.

Gabriel Thompson

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California’s Proposition 11, which seeks to rewrite California’s Labor Code as it relates to rest and meal breaks for private-sector ambulance employees, might appear to be a strange ballot measure, even for a state that has seen its share of odd propositions. It has no opponent listed on the state’s official voter guide, and the only backer of the proposition, American Medical Response, is a company headquartered in Colorado, which has spent $22 million to secure the bill’s passage. Prop. 11 seems like it must have an interesting backstory, and it does.

More Ballot Measure Stories Here

That story begins with a California Supreme Court ruling in 2016, Augustus v. ABM Security, which found that private security guards were required to be given uninterrupted rest breaks by their employer. Guards for ABM had been instructed to keep their pagers on during breaks and to respond to calls for assistance, a practice that the court ruled was in violation of state labor law.

Like security guards, the state’s private sector emergency medical technicians (EMTs) and paramedics are on call during breaks — and they have filed lawsuits against private companies, including American Medical Response, over the practice. According to the California Legislative Analyst, those suits, after Augustus, are likely to be successful. The analyst’s report estimates that to be in compliance with Augustus and offer uninterrupted breaks to their employees, companies would need to hire about 25 percent more ambulance crews, at a potential cost of more than $100 million per year. Then there’s the class action lawsuit against AMR, which is the largest private ambulance company in California. Prop. 11 seeks to nullify the lawsuit.

Prop. 11 comes after last year’s failure of Assembly Bill 263, which sought a solution to emergency workforce staffing. The bill, which was supported by the union that represents emergency medical services (EMS) workers, and opposed by AMR, would have created a carve-out in the labor code for private ambulance companies, allowing them to require workers to be on call during breaks and respond to emergencies that demand the use of sirens and emergency lights. “We wanted to create a policy that protects workers’ rights, allows a little bit of [time] to get meals, but still protects public safety,” said Jason Brollini, the president-executive director of United EMS Workers, a local of the American Federation of State, County and Municipal Employees. (Disclosure: AFSCME is a financial supporter of this website.)

What the proposed bill wouldn’t have done was shield AMR from previously filed lawsuits now before the court. “We weren’t willing, through the stroke of the pen, to take away the ability of workers to seek redress in court,” Brollini said.

Supporters describe Proposition 11 as necessary to ensure public safety and provide lifesaving assistance. “If Prop. 11 does not pass, first responders will not be able to keep their radios on during breaks, putting patient care at risk,” said Marie Brichetto, a Yes on Prop. 11 spokesperson. “Prop. 11 would simply continue the longstanding practice of paying private EMTs and paramedics to be on-call during breaks — just like other first responders, including police and fire.”

Brollini disputed the notion that response times will increase if Prop. 11 fails, noting that such times are mandated by contracts between private companies and the counties they serve. “There is not a provider in the state that is going to turn their radios off,” he said. “What we do need is some kind of relief.”

Although his union didn’t file paperwork in time for its opposition to Prop. 11 to be included in the state’s voter guide, Brollini says his own opposition is grounded in his 25-year career as an EMT worker, most of it spent working in an AMR ambulance. He described grueling 12-hour shifts in which workers can often go eight hours without having a chance to stop for food. Unlike police or firefighters, he said, they frequently don’t have stations at which to recuperate, exacerbating an already heavy workload.

In 2015, a survey published in the Journal of Emergency Medical Service found that first responders are 10 times more likely to attempt suicide than the general public. And a joint report in 2017 by the University of California, Berkeley and UCLA’s Labor Center reported that one-third of California’s EMTs and paramedics are low-wage workers, defined as earning less than $13.63 an hour, or two-thirds of the state median.

“We want to see our companies profitable,” Brollini said, “but we don’t want it to be at the expense of the worker’s mental and physical health.”


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Election 2018

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

Co-published by The American Prospect
Topping the list of corporate anti-rent control donors are some of the country’s largest landlords — many funded by Wall Street investment dollars — whose bottom lines could be negatively affected by Prop. 10’s passage.

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All photos by Jessica Goodheart.

A significant amount of No on Prop. 10’s $65 million war chest comes from large, publicly traded real estate investment trusts.


 

Co-published by The American Prospect

One of California’s most hotly contested ballot measures, Proposition 10, would repeal the 23-year-old Costa-Hawkins Rental Housing Act that restricts a city’s ability to apply rent control to post-1995 construction and exempts single-family homes from regulation. Proposition 10’s opponents claim it will worsen the state’s housing crisis, which has left teachers, blue-collar workers and retirees struggling to keep roofs over their heads. To that end, the No on Prop. 10 campaign has deployed an ensemble of small property owners, non-profit housing developers and veterans as spokespeople against the measure.

More Ballot Measure Stories Here

However, topping the list of No on Prop. 10’s big donors are some of the country’s largest landlords — many funded by Wall Street investment dollars — whose bottom lines could be negatively affected by Prop. 10’s passage. The No campaign’s $65 million war chest is more than two-and-a-half times as much as the $25 million raised by Prop. 10 supporters, according to the California Secretary of State’s office. A significant amount of the No funding comes from large, publicly traded real estate investment trusts like the ones highlighted on a recent tour held by tenant activists in downtown Los Angeles.


Despite their affordable housing message, some No on Prop. 10 donors have long records of opposing efforts to include affordable housing in their developments.


New York-based Blackstone Group heads the list of these donors, contributing $5.6 million to defeat the measure which, if passed, would let cities enact laws to stabilize rent increases on a broader range of buildings and limit how much a landlord could increase rents when a new tenant moves in. Invitation Homes Inc., the investment vehicle created by Blackstone in 2016, owns more than 80,000 single-family homes nationwide and kicked in almost $1.3 million.

Despite their affordable housing message, these and some other No on Prop. 10 donors have long records of opposing efforts to include affordable housing in their developments, or employ business models that critics claim exacerbate the housing crisis. Some focus on high-end rentals that tenant advocates say do little to address the affordability crisis plaguing California’s job-rich urban areas. Others have been criticized for raising rents on the properties they acquire in an effort to pump up hefty returns for investors.

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

Steven Maviglio, a spokesperson for the campaign to defeat Proposition 10, claims that real estate investment trusts (REITs), which earn money for their shareholders through rental income and property value increases, only account for a tiny percentage of the state’s residential rental market. “REITs own .004 percent of California’s rental housing,” he wrote in an email, a statistic he attributes to the California Apartment Association.

On an August call with investors, Invitation Homes CEO Fred Tuomi argued that increasing housing supply — as opposed to regulating rents — was the answer to the affordability crisis facing California, where more than half of renter households pay more than a third of their incomes toward housing. “We just need more supply when it’s needed and, most importantly, where it’s needed and [at] the price points that it’s needed,” Tuomi said.


Equity Residential CEO: “Regardless of [Proposition 10’s] outcome, we will continue to fight attempts at the local level to enact rent control.”


But increasing the supply is not part of the business model of Invitation Homes, which focuses on property management and acquisition. In the aftermath of the 2008 housing collapse, the company scooped up tens of thousands of foreclosed single-family homes, mainly near Sunbelt cities, crowding out mom and pop landlords, imposing steep rent increases on tenants, and skimping on maintenance in order to generate large returns for investors, according to a report released early this year by the Alliance of Californians for Community Empowerment (ACCE) and two other advocacy organizations, and a separate Reuters investigation published in July.

In a written statement to Capital & Main, Invitation Homes countered that its residents “give us high ratings for customer service” and “stay 50 percent longer compared to the apartment industry,” adding that the company invests $22,000 per home in renovations. (Maviglio said that No on Prop. 10’s other corporate donors had no comment for this story.)

On October 10 in downtown Los Angeles, about 60 housing activists, replete with colorful T-shirts and noisemakers, held a “tour of the housing tyrants” that included stops at luxury apartments they said were owned in whole or in part by Blackstone Group and Essex Property Trust — two companies that are helping to fund the effort to defeat the rent control measure. The marchers’ “The rent is too damn high” chant attracted the attention of office workers and drivers stuck in lunchtime traffic.

Sheri Eddings, who is 55, joined the battle for rent control in response to letters she received from Invitation Homes demanding $500 rent increases after her two-year leases expired, first in 2015 and then in 2017. Each time, Invitation Homes has been willing to negotiate with her to reduce the increase, she says. But she would like to be able to count on staying in the South Los Angeles County neighborhood where her grandchildren live. “I don’t know what’s going to happen in 2019,” she said at the tenant action.

One stop on the activists’ tour was Essex Property Trust’s owned Gas Company Lofts, which offers studios for about $2,000 per month and two-bedroom apartments for more than $3,500. To date, the San Mateo-based real estate investment trust has donated $4.8 million to defeat Proposition 10.

The vast majority of the company’s more than 60,000 apartment units are located in the Bay Area and Southern California. During an August 2 quarterly earnings call, Essex CEO Michael Schall told investors that the company would be “favoring market rents instead of favoring occupancy” for the next year, suggesting the company is choosing to leave units vacant in the hope of locking in higher rents.

Public policies, says ACCE’s Amy Schur, are only encouraging high-end housing where developers “can make the most money” instead of “ensuring that they contribute toward addressing housing needs of the state, which include housing that average working families can afford.” ACCE is part of the coalition advocating for passage of the ballot measure and was an organizer of the October 10 tour.

Another big Wall Street donor, Chicago-based Equity Residential, has so far invested more than $3.7 million to the No on Proposition 10 campaign. The REIT is focused on acquiring, managing—and, to a lesser extent, developing — housing in walkable urban markets favored by millennials, according to its filings with the Securities and Exchange Commission.

The company’s leadership has engaged in local and statewide rent control battles before. Equity Residential’s board chair is billionaire Sam Zell, whose heavily leveraged acquisition of the Tribune Co. was followed by bankruptcy and mass layoffs. His Equity LifeStyle Properties, another real estate investment trust (formerly Manufactured Home Communities), began to acquire mobile home parks across California more than two decades ago, and proceeded to bring costly legal actions against small cities that housed the parks in an effort to do away with local rent control laws. The leadership of its sister company, Equity Residential, apparently shares that combative spirit.

These Corporate Landlords Have Each Donated
More than $2 Million to Defeat Proposition 10

ContributionContribution
Blackstone Group*$5,575,497
Essex Property Trust$4,816,200
Michael K. Hayde, including Western National Group & Affiliated Entities$4,761,840
Equity Residential$3,724,900
AvalonBay Communities Inc.$3,006,100
Geoffrey H. Palmer, owner of G.H. Palmer and Associates$2,000,000

Source: California Secretary of State, downloaded October 22.

*Invitation Homes Inc., created by and partially owned by Blackstone Group, contributed another $1,286,250 to the effort to defeat Proposition 10.

“Regardless of the outcome [of Proposition 10], we will continue to fight attempts at the local level to enact rent control,” president and CEO David Neithercut told investors on a call this past July, during a discussion about Costa-Hawkins. About 45 percent of the company’s 79,000 apartments are located in California.

Interestingly, on that same call Neithercut proposed “inclusionary zoning” as part of an alternative “basket of solutions” to the state’s affordable housing crisis. Such zoning requires developers to set aside a certain number of units in their projects for low-income tenants.

Neithercut’s endorsement of inclusionary zoning might signal a shift for Equity Residential, which sought to wriggle out of a requirement that it keep a portion of a downtown San Francisco building’s units affordable five years ago. The company attempted to raise the rents on 33 low-income occupants of apartments on Geary Street, a move that would “almost certainly have forced many tenants from their homes,” had not the city of San Francisco sued, according to a statement issued at the time by city attorney Dennis Herrera, who settled with Equity for $95,000. (The company had reneged on an agreement with the city to keep a percentage of units affordable when the complex was built in exchange for tax-exempt bond financing for the project.)

Meanwhile, No on Prop. 10 donor Geoffrey Palmer’s hardball lawsuit against the city of Los Angeles resulted in a 2009 court ruling that for eight years discouraged cities from adopting inclusionary zoning laws. That prohibition ended with the so-called Palmer fix last year, a state bill that restored cities’ ability to require set-asides if they also offered developers alternative ways to comply with the law. (Palmer, who is well known in Southern California for his fortress-like apartment complexes with Italianate names like the Medici and the Lorenzo, is an avid Donald Trump supporter and has given $2 million to defeat Proposition 10.)

Perhaps it’s not surprising to find major landlords opposing Proposition 10. But will the ballot measure upend the housing market as they contend?

Anya Lawler, policy advocate for the Western Center on Law & Poverty, a Proposition 10 supporter, says rent control is an important tool for tenants but downplays any disruptive impact the repeal of Costa-Hawkins would immediately have in California. Proposition 10’s passage won’t guarantee the enactment of any local law, she says, nor will it be a cure-all for California’s housing woes, which have been decades in the making.

“Rent control ordinances need to be negotiated locally because every housing market is different, and communities have different needs,” says Lawler, who adds that stakeholders, including property owners, will need to be consulted. The idea that the repeal of the Costa-Hawkins law will lead to “draconian rent control policies” is not rooted in “political reality.”

Lawler’s sentiments are echoed by corporate housing executives, at least in their conversations with their own investors. Asked if his company would redline cities due to a rent control, Essex’s Schall stressed, during his August 2 call, that “rent control is only one factor” that the company considers when making investment decisions.

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


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

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Labor & Economy

Video: Rising Rents Force a Choice Between Eating or Shelter

According to the U.S. Department of Agriculture, 15 million American households experienced food insecurity at some point in 2017.

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Labor & Economy

Why Many Millennials Still Live at Home

For in-depth analysis of millennials’ economic dilemma, read Eric Pape’s latest “Priced Out” report.

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Infographic: Marco Amador

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Labor & Economy

Is Goldman Sachs’ New Fund Really Just Greenwashing Stocks?

Critics are questioning the motives behind a banking giant’s socially responsible investment strategy.

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Photo by Chris Hondros/Getty Images

Even as Goldman Sachs markets itself as a champion of social responsibility, it is helping CEOs block key environmental and social justice reforms proposed by their shareholders.


 

Co-published by The Guardian

When Goldman Sachs and billionaire Paul Tudor Jones announced a partnership three months ago to help socially conscious investors support “just business behavior,” they promised that their new index fund would generate solid returns for savers while directing their investment dollars towards truly humane companies.

“Capitalism should be a positive force for change,” said Jones in a press release announcing the fund, which is designed to track an index of socially responsible companies identified by his nonprofit JUST Capital. “Its future will be driven by a new definition of corporate success that is aligned with the values and priorities of the public.”


 Socially responsible investing (SRI) offers
Wall Street an image makeover in a time of growing public distrust in the financial system.


The partnership comes as pension funds, university endowments and other institutional investors increasingly seek to put their financial weight behind ethical and sustainable corporate behavior — and as Goldman Sachs tries to shed its reputation as a “vampire squid.” So far, the rebrand seems to be working: The JUST fund debuted in June to rave reviews from the financial press and ended its first day of trading with over $250 million in assets, making its launch one of the most successful in recent history.

However, a Capital & Main review of corporate documents shows that some of JUST’s largest investments are in fossil fuel firms that have been sued for suppressing global climate research, Wall Street behemoths fined for defrauding investors, a social media platform accused of helping rig elections and a tech industry giant criticized for paying its workers starvation wages.

Table Graphic: Chase Woodruff

Moreover, proxy voting records reveal that even as Goldman Sachs now markets itself as a champion of social responsibility, the firm has been using its existing stakes in many JUST fund companies to help CEOs block key environmental and social justice reforms proposed by their shareholders. Those initiatives range from gender pay gap and diversity initiatives to corporate governance reforms; from efforts to increase lobbying transparency to prohibitions on doing business with companies tied to genocide and other human rights violations.

Meanwhile, in the months before JUST fund’s launch, Goldman was slammed for blocking a human rights resolution at its own company — and one of Goldman’s key lobbying groups in Washington was working to shape Republican legislation that would make it far more difficult for shareholders to file environmental, human rights and other socially minded initiatives in the future.

“You shouldn’t be able to, with a straight face, invest in the Dakota Access Pipeline with your left hand, and with your right hand tell people that you’re doing responsible investing,” Lisa Lindsley, Capital Markets Advisor for the shareholder advocacy group SumOfUs, told Capital & Main. “The compartmentalization is very hypocritical.”

Through a spokesperson, Goldman Sachs declined to comment on the process by which its equity funds vote on shareholder proposals, and how that process may differ with the JUST fund — which, as a newly launched fund, has not yet participated in proxy voting for any of the companies in which it holds stock.

“Ethically Motivated Versus a More Greenwashing Approach”

Goldman’s new fund spotlights socially responsible investing (SRI) — a financial strategy that represents Wall Street’s more affirmative answer to negative or exclusionary “screening” tactics like divestment from fossil fuel producers and tobacco firms.

While a recent directive by the Trump administration has been viewed by some experts as an effort to limit SRI strategies, the market for such investments remains strong. According to the Forum for Sustainable and Responsible Investment, U.S.-based assets managed using SRI strategies more than doubled to $8.7 trillion between 2012 and 2016, and now account for more than one in five dollars under professional management in the country.


Goldman’s hostility toward many SRI initiatives is illustrated by its votes on resolutions at the companies now in its JUST fund.


The rise in SRI investment comes amid questions about whether corporate boards are adequately evaluating environmental and social justice concerns when they look at their company’s long-term financial prospects. PwC’s 2017 survey of corporate officials found “that directors are clearly out of step with investor priorities in some critical areas” and the report added that “one of these areas is environmental issues.”

High-profile initiatives like the JUST fund are a chance for the industry to tout its eagerness, as Goldman Sachs executive Timothy O’Neill put it in a press release, to “[allow] investment to flow toward a more sustainable and equitable future, while seeking to generate attractive returns for investors.”

The trend has given Wall Street an opportunity for an image makeover in a time of growing public distrust in the financial system: According to a Gallup poll conducted last month, fewer than half of Americans under 30 report having a positive view of capitalism, a 12-point drop in just the past two years.

For some activists and investors, though, the rapid expansion of the market for SRI-branded financial products has raised concerns about greenwashing — the practice by which companies market themselves as socially or environmentally responsible without actually adopting business practices that meet those goals.

“Putting the word ‘ethical’ or ‘sustainable’ in the name of a fund does not make it so,” said a report by British investment advisory firm Castlefield, whose recent reports documented how some environmental funds include investments in fossil fuel firms. “It is increasingly important to differentiate between those funds genuinely responding to customer demand for a sustainable approach and those which use terms like ethical, Socially Responsible Investment or stewardship in their name but include companies such as British American Tobacco or Shell in their key holdings.”

Goldman’s Record on Socially Responsible Investing

Amid surging interest in SRI funds, Goldman’s JUST U.S. Large Cap Equity ETF aims to convince investors that the company is serious about injecting a spirit of ethics and morality into its financial strategies. To that end, the fund says it directs money only into companies that are ranked highly by JUST Capital.

The 426 companies featured in the JUST index were selected on the basis of their performance across seven different criteria, including labor practices, customer service and environmental impacts. Goldman itself ranks in the top tenth of the JUST rankings, despite the company being attacked for supporting the fossil fuel industry and also being fined $5 billion in 2016 by the Department of Justice for “serious misconduct in falsely assuring investors that securities it sold were backed by sound mortgages, when it knew that they were full of mortgages that were likely to fail.”

Whether Goldman’s new JUST fund represents a step in a larger shift towards socially responsible investment remains to be seen. Baruch College’s Jared Peifer says that one way to judge a firm’s commitment to social responsibility is to watch how it deals with resolutions brought by shareholders, whereby investors attempt to force management to adopt socially responsible policies.

“There is variance to the degree that SRI funds are ethically motivated versus a more greenwashing approach,” Peifer told Capital & Main. “Is the fund dialoguing with management? Issuing shareholder proxy votes, voting on others? If so, that seems like a more ethically motivated fund to me, because they are exerting additional effort many other funds do not bother with.”

In recent years, Goldman executives have been fighting off SRI resolutions at their own company, including initiatives that have asked management to more transparently disclose their political lobbying and create a human rights committee to review the company’s policies regarding doing business with governments engaged in censorship and repression. Only three months before Goldman announced the JUST fund, Goldman successfully pressed the Securities and Exchange Commission to bless its move to block shareholders from voting on a resolution asking the company to honor indigenous peoples’ rights.

“The company’s extraordinary no action request shows the notable lengths that the Company is willing to go, and to stretch credulity, in order to prevent its directors from shouldering fiduciary obligations on indigenous and human rights,” wrote shareholder proponents at the time.

Last year, Goldman was lauded by Share Action, an SRI activist group, for switching its position and using its holdings to support a series of climate-change-related shareholder initiatives. In its proxy voting guidelines, Goldman says it will generally vote for proposals asking companies to report on “policies, initiatives and oversight mechanisms related to environmental sustainability, or how the company may be impacted by climate change.”

However, those guidelines do not make the same commitment when it comes to initiatives requiring companies to actually reduce their carbon emissions. The guidelines also say the company will generally vote against “proposals requesting increased disclosure of a company’s policies with respect to political contributions.” The company further says it will vote to remove representatives of employees or organized labor from a company’s board if they are overseeing company audits or executive compensation, and if there is no legal requirement for them to be in that position.

Goldman Votes Against Resolutions at JUST Fund Companies

Goldman’s hostility toward many SRI initiatives is illustrated by its votes on resolutions at the companies now in its JUST fund.

For example, there is Chevron Corporation, which ranks as the JUST fund’s 17th-largest holding as it faces accusations that it is trying to intimidate environmentalists and avoid cleaning up pollution in the Amazon rainforest.

In May, the oil giant’s shareholders were asked to vote on a slate of seven proposals, including a requirement for the company’s board to nominate a director with environmental experience; the preparation of a report on transitioning to a low-carbon business model; increased transparency relating to lobbying activities; and stronger prohibitions on Chevron’s interests overseas from doing business with governments that are complicit in genocide or crimes against humanity.

As shareholders in Chevron, 14 different Goldman Sachs Asset Management (GSAM) funds voted on these proposals. The majority of funds voted in support of just one, a request for the company to prepare a report on its efforts to minimize methane emissions. In every other case, the funds unanimously or overwhelmingly opposed the proposals.

Proxy-voting records from dozens of shareholder meetings reviewed by Capital & Main show a similar pattern. In rare cases, Goldman funds did vote in favor of some shareholder reforms, including the preparation of a report on the gender pay gap at Facebook and Google. At several pharmaceutical companies, including AbbVie, Amgen and Eli Lilly, Goldman funds supported increased accountability for executives regarding high drug prices.

Such votes, however, were few and far between. Of the 10 companies that make up the largest share of Goldman’s JUST fund, eight considered shareholder-proposed reforms that were overwhelmingly opposed by Goldman-managed funds at their most recent annual meetings. The proposals included prohibitions on offshore tax avoidance schemes, increased transparency on lobbying activities and requirements that companies appoint an independent board chair — a governance model that advocates say leads to more responsible corporate behavior. The remaining two companies, Microsoft and Visa, did not consider any shareholder proposals.

At JPMorgan, the recipient of JUST’s fourth-largest investment, Goldman funds voted unanimously against a requirement for the company to release a report on its investments in PetroChina, a firm that activists accuse of helping to fund crimes against humanity due to its ongoing business relationships with oppressive regimes in Syria and Sudan. Goldman made that move despite its own proxy voting guidelines saying the company would “generally vote for proposals requesting a report on company or company supplier labor and/or human rights standards and policies, or on the impact of its operations on society.”

Eighteen of the 19 Goldman funds with shares in JPMorgan also voted against an effort to prohibit the accelerated vesting of awards for executives who enter government service, a practice often criticized for fueling the revolving door between Wall Street and financial regulators.

A shareholder proposal to the board of pharmaceutical manufacturer Johnson & Johnson, expressing concern that the company’s compensation practices “may insulate senior executives from legal risks” relating to the opioids crisis, recommended that opioid-related litigation costs be factored into executive pay. All 16 Goldman funds with stock in Johnson & Johnson voted to defeat the proposal.

Goldman asserts that its fund is designed to invest in firms that rank well in JUST Capital’s ratings. But even that assertion is not what it seems.

Because the index features companies ranked in the top half of their respective industries, it includes dozens of firms in sectors like energy and financial services that score poorly overall. For example, the fund invests in both National Oilwell Varco, a drilling equipment firm, and Entergy, a Louisiana utility, despite the fact that the companies rank 626th and 676th, respectively, among the 875 companies evaluated by JUST Capital.

“Every industry is represented at approximately the same weight as [in] the Russell 1000,” said JUST Capital’s Hernando Cortina, referring to the best-known index fund tracking the largest publicly traded companies. Cortina added that the JUST fund is designed to feature responsible companies “while providing diversified equity exposure to every industry.”

Lisa Lindsley of SumOfUs said the situation spotlights how socially responsible investing is seen on Wall Street not as a values-based cause, but as yet another way to trick investors into believing that the investment industry has reformed itself a decade after the financial crisis.

“The reason they’re going into this is that there’s money there. It’s all driven by greed,” she said. “It’s pretty easy to do some greenwashing and call yourself a responsible investment manager.”

As Goldman now markets its JUST fund, it remains unclear whether the company will change its proxy voting or its posture towards shareholder resolutions in general. Those resolutions, though, could be more rare, if congressional Republicans pass their legislation that would make it more difficult for shareholder resolutions to qualify for a vote. Federal records show that the American Bankers Association — which lists Goldman Sachs as a member — has been lobbying on that bill, which critics say could undermine the SRI movement.

“Shareholder proposals play an important role in ensuring that owners get a say in how their companies are run, and in setting the broader agenda across the market,” wrote Dimitri Zagoroff of the shareholder advisory firm Glass Lewis. “Making it harder for shareholder proposals to be resubmitted from year to year would make it that much harder for proponents to refine their ideas and build a coalition of support. This often takes several years, both to generate interest in the underlying topic, and to convince other shareholders that the specific proposal offers the appropriate means of addressing the topic.”


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