LA 2020's Austin Beutner on City's Business Climate & Fiscal Reality

Austin, let’s begin with your political analysis of the just-completed election for Mayor of Los Angeles, an election you actually joined in as an early primary candidate. What do the election results say about voter priorities?

It’s hard to say. A majority didn’t vote; the turnout was something around 20 percent of registered voters, not including in the denominator people who are eligible to vote but aren’t registered. So I’m not sure what the results imply.

The campaign itself didn’t get into many specifics on what either of the candidates would do or what their plans were for the city as a whole, other than the general hortatory “make it all better.” It’s hard, therefore, to view the vote as a referendum on anything.

As a mayoral candidate in the primary who tried to generate an audience for prescriptive solutions to LA challenges, what do the election results portend for your civic work as a co-chair of City Council President Wesson’s LA 2020 Commission?

To put it in context, I was a candidate quite a while ago and dropped out for family reasons, before the action really started. But my observation from the thousands of people I met is there is a real hunger for a candid discussion about where the city is and what has to change to make LA a better place. The campaigns that were run in the primary and runoff may have been different from that, but I found a strong desire in voters to have a real conversation.

Is it fair to describe LA Council President Wesson’s new commission, the LA 2020 Commission, as a group of civic, business, and labor leaders who are charged with addressing Los Angeles’ fiscal challenges and underperforming economy. As an appointed member of that commission, please share with our readers its intended mission, agenda, and your role?

It’s broader than just the fiscal status of the city. We intend to look at the job picture, what investment in LA means, where the jobs and tax base come from, and what can be done to make the city more prosperous and provide better services. Mickey Kantor asked me to help him, and we’re hard at work listening to all sorts of folks from the community about these topics.

Is there something to learn that our elected leaders and the public do not already know about Los Angeles’ business climate or the need to reorient the way the city taxes, regulates, and addresses job growth?

I don’t know that we are going to discover anything new. There are a lot of smart people in the community and a lot of good ideas have surfaced already.

We’ve divided our work into two parts. The first is to see if we can come up with a cogent summary of where we really are, and the second is to try to make recommendations on how things can be made better. Just staying on that first part, it’s surprising to me how many views there are of the current reality. There are some, for example, in city hall who think the hard work is already done and not much more reform is needed (I personally don’t subscribe to that view). There are some who think the city suffers, on the job front, only from a cyclical downturn, and that the economy will rebound in time and things will be just fine—I don’t subscribe to that view either.

You can create sort of a misery index, if you will, if you take the 28 percent of people who have a job but make less than $25,000 a year (below the poverty line), and add to that the ten plus percent of people who are unemployed, which gets you to nearly 40 percent of people living in very difficult circumstances. That is a staggering statistic. If you look back in time in LA, you don’t see 28 percent of people at work in such low-wage jobs. Compare that 28 percent to Chicago’s 19 percent of people earning below $25,000. In Los Angeles, things have gotten worse for a long period of time. It’s been a decades-long decline.

In LA, half of those who are of working age don’t have a high school degree, so you’ve seen the decline and the generational transition as public schools have failed our community. I think we’re looking at a pretty serious situation that hopefully will lead to some engagement in part two which is: what are we going to do to change it? To your point, yes, it has been chronicled and talked about, but I’m not sure how well it has been understood, and we are clearly not making enough progress.

Are California cities well positioned and governmentally capable of meaningfully addressing their local economies? Is job creation best dealt with at the local level? 

Not alone, but certainly that’s part of it. If you look at unemployment in LA, it’s about 50 percent higher than the national average. That was not always the case. Going back through previous cycles, ten or twenty years, LA was sometimes at parity and sometimes had a lower rate of unemployment. That big a difference leads me to believe there are some things of a local nature that must be addressed to change circumstances.

To your point more broadly, sure there’s the Federal Reserve and the printing press they own; there are fiscal policies and Congress—areas where cities have only a minor voice. Cities don’t vote in Congress and aren’t really recognized under the constitution. You have states and counties, but cities are this odd construct that the founding fathers didn’t really contemplate much. But if we have unemployment 50 percent higher than the national average, one has to question whether there are local strategies, and I think there are.

We’ve seen other cities lean forward and work to embrace jobs of the future. For example, what Mayor Bloomberg and his administration are doing on Roosevelt Island in New York is pure genius. They took a little-used piece of city-owned land, decided that bioscience and the jobs created in that industry are part of the future, and in order to attract more bioscientists and all the associated commerce, contributed the land. They then created a worldwide competition to see what university would invest the most and had the greatest ambition. Cornell University won in partnership with an Israeli university. Together they are investing more than half a billion dollars of private money. Partnered with the city, they will create tens of thousands of jobs just to build the complex, and over time, many thousands of bioscientists will go to work there, and many, many businesses will be created around that knowledge. 

The woman recently hired to lead the science effort on the Roosevelt Island project is leaving UCLA to go there. If you look at her resume, she’s clearly a Pied Piper in that field. My guess is there are many people she’s helped mentor and teach in that field; and many of those people will follow her to New York.

So yes, I think there are strategies at a local level that can make a difference.

You were a founding partner of Evercore, a financial advisory firm involved in the global markets. You mentioned earlier in our discussion that LA had a sizable manufacturing base and less unemployment than it has now. Is it not fair to note that what has depressed the aforementioned is, more possibly than local regulations and taxation, an ever-changing digital economy and the globalization of manufacturing jobs? Might not the later be a more significant factor in what shapes the City of LA’s economy going forward—the deconstruction of its manufacturing economy—than anything your commission might advance?

It’s one of the factors, one of many. The economy is changing. When I started in business more than 30 years ago, about one third of the US economy was manufacturing related. Recent figures I’ve seen put that at about 10 percent—that’s a pretty dramatic shift.

The next phenomena I was a witness to was the globalization of the capital markets, which gave businesses around the world access to capital to grow and expand, not just US businesses. We’ve seen a rise in service enterprise, but over the last ten or fifteen years we’ve seen a major transition in where service jobs are, and high-value service jobs have also shifted to different areas around the globe.

Apple is a great example of that—it’s been pretty well chronicled. Apple employs something on the order of 25,000 people in the US, many of whom are in relatively low-wage, low-benefit jobs in their retail stores; the rest, in more highly-compensated engineering and marketing positions. But they employ, directly or indirectly, more than ten times that number overseas, and many of those jobs are engineering jobs. The New York Times had an interesting piece about when President Obama met with Steve Jobs in Silicon Valley to talk abut building the next I-phone in the US. Jobs said, we can’t; we need 3,000 manufacturing engineers in order to design and develop a new model, and that pool of talent doesn’t exist in the US. That’s a pretty big indictment, but it’s also a good description of how the transition has been going on in our economy, and I’m not so sure policies and programs are in place to address that.

Yes, it’s been a big transition. LA suffers from it like many other parts of the country. But if our unemployment is 50 percent higher than the national average, I just don’t buy the premise that we can’t make a difference locally. I think we can make a huge difference locally, but we’re not yet doing enough.  

For 18 months you were in the belly of the beast—the mayor’s office—as first deputy mayor and General Manager of the DWP. What did you learn that’s applicable to your new 2020 Commission responsibilities?

I learned common sense can go a long way. Many of the symptoms we see as residents of Los Angeles—of services not being delivered, of the failure by elected leaders to deliver on promises—goes back to the leadership itself. I found a lot of willing people at every level of the bureaucracy, the civil servants who work there willing to work hard, willing to change, willing to try to do a better job serving constituents. More often than not I found it was the fault of elected leadership more interested in visibility and in taking credit for things, than doing work and lacking the will or the expertise to solve problems, some of which were easily solvable.

Each and every day you’d see areas where common sense could go a long way. In LA, for instance, there are different departments for paving roads and putting lines on them. There are different departments for turning off power to a streetlight and replacing the bulbs. There is insufficient coordination between those who pave the roads and all of the various agencies who at some point have to work under the road, whether it’s DWP, AT&T from the private sector or the gas company. More often than you might expect, a newly-paved road is torn up by utility services doing the work because coordination hadn’t been made ahead of time to do all the work before the road was resealed. There’s a pothole in my neighborhood that was repatched six times during the course of my tenure at city hall. Six times in a year and a half the city was working on the same pothole? One might take a step back and question if you’re using the right tools, or if the process you’re using is the right one.

Common sense would go a long way, but much of what we suffer from is a lack of imagination and will to make change, to make things better. Elected leaders sometimes forget that they are public servants, elected to serve the needs of the public. Politicians—which many of them are—take on this whole different meaning and context. Many of them have good political skills, but this doesn’t necessarily make them good public servants.

The Herb Wesson-appointed LA 2020 Commission includes many, a few critics assert, of the city’s old hands—City of Los Angeles stakeholders.  Given your comments above, how will you convince your colleagues to accept the need for a change in how city hall frames and executes its policies and regulation?  

Well, we’re an independent group, not appointed by the city. We don’t work under The Brown Act, so we’re trying to have a series of candid conversations in private. We will share all of our work once we’ve completed it, but along the way, we’re not going to get into who said what to whom.            

The composition of the group makes a lot of sense to me. They are people who have a lot of experience in the city, who have something at stake, and some with outside experience and some with both. I’d like to dispel the myth that because labor has a seat at the table, the composition of the commission is flawed from the outset, or that including people who have experience inside city hall makes the commission somehow flawed. You are only going to change something as complex as city hall by working from within, and you need some of that relevant experience. Those who actually do the work deserve a seat at the table as well, and I think they are as interested as you and I in seeing things made better. Ron Miller represents private sector workers. If there is anyone in this town that wants to see his membership put back to work, it would be Ron Miller. He’s not a voice of the status quo, he is a voice for making things better and putting people back to work, and I think we all share that common interest.

Fox & Hounds recently carried a post about the appointment of the LA 2020 Commission entitled, “Commission to Address LA’s Pending Insolvency.” It included the projected deficit next year, a cumulative deficit of $1.1 billion over the next four years, a $11.5 billion unfunded pension liability, and the $10 billion in needed infrastructure investment. Are these the type of numbers that you are projecting?

That is Joel Fox’s interpretation. LA 2020 has put out a statement about what we are trying to do.   It’s no secret for anyone who reads the LA Times, your newsletter, or others, that LA has a structural deficit. It has been relieved to a certain degree over the last few years, but there still remains a meaningful structural deficit. Some of the changes in the last few years haven’t addressed that; reducing headcount doesn’t necessarily reduce structural deficit—it reduces services. Going forward, the city is going to have to address that, and whether it’s the CAO’s forecast or anyone else’s, I’ve yet to see a forecast that shows the city with a balanced budget looking out a few years.

Lastly, in 90 days you have a public airing of your deliberations, and then three months after, a final report. If you’re presently sitting in the office of newly elected mayor Eric Garcetti, what are you hoping or fearing the LA 2020 Commission Report will find and advocate? 

Our plan is to share as accurate an assessment as we can, which is always a good place to start. There’s the old adage that more often than not solutions get off track when they start with the wrong set of assumptions. We’re hopefully going to share a few clear-eyed ideas on how to make things better. I don’t think Mayor Garcetti fears the truth, so I’m hopeful he looks forward to seeing an accurate assessment that will help his team inform their own policies. He’s been in city hall a long time; so much of this shouldn’t be a surprise to him or his team.