With city budget managers intent on limiting new spending and reining in employee benefits, a coalition of union and political groups is fighting back with a report that suggests Los Angeles City Hall is spending too much on Wall Street and not enough on Main Street.
The Fix L.A. Coalition, which is made up of union and liberal political groups, plans to release a report Tuesday that suggests the city could substantially reduce the $204 million in bank and money management fees that it paid last year to Wall Street firms. The activists say the savings could be used to pave streets, pick up debris and improve traffic control, among other things, while restoring the 14% of public-sector jobs that have been cut since the start of the Great Recession.
The report does not specify how much the city might save, but Fix L.A. argues that Los Angeles should be able to negotiate lower financial fees because of the scale of city investments: a total of $106 billion (including from the port, airport, city utility and pension accounts) that is managed by financial institutions.
The "No Small Fees" report serves as a rebuttal to a report last week in which the city's top budget official advised Los Angeles leaders to resist the temptation to expand services. City Administrative Officer Miguel Santana said Mayor Eric Garcetti and the City Council need to work, instead, to eliminate a recurring deficit, in part by freezing pay for three years and getting employees to pay more of the cost of their healthcare.
The timing of the dueling reports is not coincidental, as the city and a coalition of city employee unions begin formal contract talks April 1. Agreements with many of the bargaining units expire June 30.
In their alternative look at municipal finance, the union and political activists said the city should look outside City Hall to save money.
"The city cut debris removal in our communities by 61%, so why don't they cut Wall Street fees by 61%?" said Ian Thompson, spokesman for Service Employees International Union Local 721, which represents 10,000 city employees. "They cut intersection traffic control by 74%, so why not cut Wall Street fees by that amount? It can happen."
SEIU Local 721 is among the city unions that has fought for years against job reductions and attempts to cut pension benefits.
After combing through the city's books for 2013, the coalition said it found many sizable charges from banks and investment companies: $133 million to firms that helped manage the city's three pension funds, $23 million to hedge against fluctuations in gas prices, $18 million to insure rates on bonds and other investments, and $7.9 million in bank management fees.
The report describes some of the city's investment costs — such as interest rate "swaps" to protect returns — as predatory in the same manner as mortgages sold to home buyers during the real estate bubble. It says that New York Mellon Bank is one of those reaping a windfall, $4.8 million a year, under the arrangement and that the bank will let the city out of the deal, which runs through 2028, only for a payment of $24.7 million.
A spokesperson for the bank declined to comment.
The report also suggests Los Angeles should follow the lead of other government agencies that are trying to recover overcharges suffered when banks rigged the rate of one investment index, the London interbank offered rate, or Libor. Los Angeles could recover $1.6 million, the report contends.
Although City Atty. Mike Feuer has not sued banks to recover the Libor overcharges, his office has pursued other big banks, including Bank of America and Wells Fargo, for alleged discriminatory practices, Feuer spokesman Rob Wilcox said.
The "No Small Fees" analysis calls for a broader reexamination of municipal finance, including the effect of property tax-slashing Proposition 13. The closure of a few loopholes, including one that allows many commercial properties to avoid reassessment despite ownership transfers, could itself bring Los Angeles' treasury about $200 million more a year, the report says.
The coalition study cites Brookings Institution research that declared L.A. as one of the metropolitan areas with the greatest income disparity in the U.S. Forty L.A.-area billionaires have a combined net wealth of $120 billion, while the homeless population has hit a peak of 58,000.
"We need to leverage L.A.'s financial and economic power to demand a better deal with Wall Street," the report says, "so that we can invest in our communities."Copyright © 2015, CT Now