Tag: Los Angeles

Approaching Peak Transit

“Billions spent, but fewer people are using public transportation,” declares the Los Angeles Times. The headline might have been more accurate if it read, “Billions spent, so therefore fewer are using public transit,” as the billions were spent on the wrong things.

The L.A. Times article focuses on Los Angeles’ Metropolitan Transportation Authority (Metro), though the same story could be written for many other cities. In Los Angeles, ridership peaked in 1985, fell to 1995, then grew again, and now is falling again. Unmentioned in the story, 1985 is just before Los Angeles transit shifted emphasis from providing low-cost bus service to building expensive rail lines, while 1995 is just before an NAACP lawsuit led to a court order to restore bus service lost since 1985 for ten years.

The situation is actually worse than the numbers shown in the article, which are “unlinked trips.” If you take a bus, then transfer to another bus or train, you’ve taken two unlinked trips. Before building rail, more people could get to their destinations in one bus trip; after building rail, many bus lines were rerouted to funnel people to the rail lines. According to California transit expert Tom Rubin, survey data indicate that there were an average of 1.66 unlinked trips per trip in 1985, while today the average is closer to 2.20. That means today’s unlinked trip numbers must be reduced by nearly 25 percent to fairly compare them with 1985 numbers.

Transit ridership is very sensitive to transit vehicle revenue miles. Metro’s predecessor, the Southern California Rapid Transit District, ran buses for 92.6 million revenue miles in 1985. By 1995, to help pay for rail cost overruns, this had fallen to 78.9 million. Thanks to the court order in the NAACP case, this climbed back up to 92.9 million in 2006. But after the court order lapsed, it declined to 75.7 million in 2014. The riders gained on the multi-billion-dollar rail lines don’t come close to making up for this loss in bus service.

The transit agency offers all kinds of excuses for its problems. Just wait until it finishes a “complete buildout” of the rail system, says general manager Phil Washington, a process (the Times observes) that could take decades. In other words, don’t criticize us until we have spent many more billions of your dollars. Besides, agency officials say wistfully, just wait until traffic congestion worsens, gas prices rise, everyone is living in transit-oriented developments, and transit vehicles are hauled by sparkly unicorns.

Los Angeles’ Confused Suit against Mortgage Lenders

Recently the City of Los Angeles filed suit against JP Morgan Chase.  The suit alleges “the bank engaged in discriminatory lending, which the City contends led to a wave of foreclosures that continues to diminish the City’s property tax revenues and increase the need for costly City services.”  So the City’s logic basically goes like this:  the housing market was humming along just fine, kicking off lots of property tax revenue allowing the City to spend like there’s no tomorrow, then evil JP Morgan comes in and lends to borrowers with the intention of pushing those borrowers into default, which pushed down housing prices, reducing property taxes and causing the city to cut “essential services”. 

So let’s start with the facts upon which I assume everyone can agree on.  Los Angeles experienced a massive boom in housing prices starting in the late 1990s (see chart below).  Rather than see this boom as temporary, the City increased property tax revenues as prices soared.  it spent those property tax revenues (have these people never heard of a rainy day fund?).  As the boom was building in 2002, according to the Census Bureau Los Angeles collected about $850 million in property tax revenue.  At the peak of the market in 2006 Los Angeles was collecting over $1 billion in property tax revenue, an increase of around 17% over four years.

Then the market begins to slow in 2006, prices decline and surprise property revenues decline as well.  A central flaw in Los Angeles’ logic is that the inflection point in prices came before that in delinquencies.  Put simply, Los Angeles has their causality wrong.  Price declines drove foreclosures.  Yes, I suspect there was a feedback from foreclosures to prices, but the temporal order of events strongly suggests price declines was the driver here.

Now one could argue that loose lending drove up prices in the first place.  But then that would mean that LA owes mortgages lenders for all that extra property tax revenue it collected during the boom.  Somehow I suspect they aren’t interested in sharing the up-side of boom/busts, just the downside.  And if LA believes that foreclosures drove down prices and hence revenues, why isn’t the city suing all the borrowers who walked away from their homes?  After all, under the City’s theory these delinquent borrowers cost the City tax revenues.  But since some of these borrowers are voters, I doubt we’ll see any consistency from the City there.

At the end of the day this suit appears little more than cheap pandering meant to distract from the dysfunctional governance of Los Angeles.  If mortgage lenders had any sense they’d just cut off lending to LA altogether, but then they’d probably get suited by DOJ for discriminating.  Can’t win either way.

More HUD Community Development Duds

Local officials, like their federal and state counterparts, spend other people’s money. Policymakers are naturally unlikely to spend other people’s money as carefully as they would their own. This situation is exacerbated when local officials spend money obtained from federal taxpayers. At least when local taxpayers foot the bill, they have an incentive to keep an eye on how their money is spent. That incentive is largely nonexistent when the money comes from Washington.

HUD community development programs illustrate what happens when the federal government severs the relationship between local officials and local taxpayers. Originally targeted to large cities in decline, community development funding is spread widely to communities rich and poor, large and small.

Local officials love these programs because they amount to a free lunch. As a result, they lobby Washington hard for these subsidies, which means federal policymakers generally only hear wonderful tales of the “economic growth” and “job creation” fostered by the programs. However, a Cato essay on HUD community development programs explains that in addition to complexity and wasteful bureaucracy, these programs are susceptible to financial abuses.

Recent stories in the news provide further evidence.

First, years of mismanaging federal community development funds have caught up to the City of Buffalo. The Buffalo News reports that a HUD inspector general audit says the city “could not provide assurance that more than $20.1 million in transactions was properly accounted for.” According to the article, the audit findings are not surprising:

An investigation published in The News in 2004 found the city had frittered away much of its block grant money through parochial politics and bureaucratic ineptitude.

More than half the spending went to “soft costs” that include covering bad loans, paying city salaries and subsidizing an overblown network of neighborhood agencies, The News found. Relatively little went to brick-and-mortar projects, and what was spent to revitalize downtown and neighborhoods was haphazard, with money sometimes going to risky and futile projects.

The mayor and Common Council failed to make major reforms in the program in recent years, and problems have persisted. Two years ago, a HUD monitoring report found continued shortcomings that included too much spending on bureaucrats, questionable financing for upscale housing developments and sloppy fiscal management of several programs.

Next, LA Weekly reports that the City of Los Angeles plans to give $1 million in federal community development funds to the global architecture firm designing the downtown’s proposed NFL football stadium:

Gensler plans to move from Santa Monica to downtown L.A., where it will use the $1 million in federal community-development block grant funds to create a hip, new atmosphere for its relocated employees at the “jewel box,” a three-story building nestled between two skyscrapers at City National Plaza.

Unfortunately, the “hip, new atmosphere” paid for by federal taxpayers probably won’t be the “job creator” that city officials are claiming:

[Mayor] Villaraigosa and City Council members since February have claimed that enticing Gensler from Santa Monica to downtown L.A. is a job creator. But that’s debatable. Some temporary jobs will be created for the jewel box renovation, but Gensler is moving its offices just 20 miles. Many economists would describe L.A.’s action as merely shifting jobs within an intricately intertwined economic area.

A HUD official called the situation “entirely healthy.”

Finally, HUD recently informed the City of Montebello (California) that it had uncovered 31 violations regarding the city’s use of HOME program funds, which are to be used for affordable housing. According to the Whittier Daily News, the report “was so damning it brought interim city administrator Peter Cosentini to tears”:

Last year, HUD demanded that Montebello repay $1.3 million because the city gave a developer HOME money to help build a housing project with affordable units and reported to the federal agency the project was complete, but construction hasn’t started. And a key document submitted to HUD appeared to have been forged, according to the report.

In February, HUD notified city officials that Montebello must also repay nearly $900,000 it used to purchase another parcel of land. The city failed to give HUD needed documents on the property acquisition, including an appraisal, documentation of expenditures and current ownership, according to a Feb. 18 letter from [HUD official] Vasquez to the city.

Cosentini responded in writing, saying city staff has been sent to training as recommended by HUD. Montebello is also conducting an internal investigation into the possible document forgery. The city’s internal investigation of the $1.3 million has been slowed because the developer isn’t cooperating and is “stonewalling” city staff, he wrote. Cosentini also asked for more time to repay the money.

But the city missed a March 1 deadline to submit a repayment plan, according to a letter from Vasquez. And HUD will seek an additional repayment of $2.7 million, Cosentini wrote in the memo.

Take heart federal taxpayers – Montebello city bureaucrats are being “sent to training” per HUD’s recommendation!