Miguel Santana, Former LA City CAO, Reflects on Never-Before-Experienced Fiscal Challenges

Miguel, as former Chief Administrative Officer for the City of LA during the last recession, please comment on Mayor Garcetti’s most recent State of the City address 'City Under Attack,’ which dramatically confirms that public revenues have cratered while demand for critical city services have grown exponentially.

Well, I think what the mayor said is true. I was there, as he was, for the last recession. It was the worst financial crisis that the city had experienced since the Great Depression. Last night he said that this is actually worse.

The mayor is absolutely correct that what the city is facing, and what the world is facing, is actually the worst crisis that any of us will ever experience in our lifetimes. The city is under attack, but I would say everybody is under attack: every person, every business big and small, the nonprofit sector, every level of government, everyone is under attack. There is no clarity or pathway on how to proceed.

What this presents in every city hall around the country is really three different approaches. The first one that deals with the immediate crisis. We’ve seen the mayor report every day on what the city is doing to respond to the unknown as it evolves. We've seen that from the county and from our governor. It's unprecedented that we can basically spend the day watching television and get briefed from the president, the governor, the Chair of county board of supervisors and the mayor all in the same day, within a few hours. On the best days, they're singing from the same songbook. On some days, they’re not. Every business and every family is trying to sort out what it means for them.

What the Mayor is doing in real time is to respond to a threshold question, which is: what can he do to save lives? Decisions are being made under that lens—including financial decisions. He made very clear in the State of the City address that the city is burning revenues faster than the revenues it’s receiving. Understanding the consequences of that, he's prioritizing what's most important, which is saving lives.  We’re seeing that happen at the county and at the state as well.

The second approach is keeping an eye on what this will look like in the weeks and months ahead. It starts, again, with the lens of keeping people alive, keeping them healthy and prioritizing that above everything else. But then again, there's no playbook; there's no secret sauce. It requires taking the best information you have, and the most informed experts, to determine how to restart the economy.

How is today’s fiscal crisis—induced by policies such as shelter-in-place—different from past economic recessions? Is there a playbook from past economic meltdowns that cities ought to rely upon?

You have the benefit of the tools from the last crisis and knowledge of what worked and what didn't work. That's a difference between being here today versus having been there in 2009. 

At that time, the tools that were developed were new, and they hadn't been tested. Today we know what withstood legal challenge, and now we know which tools generate the most revenue. We also have a sense of how long it took and have a framework to operate from.

Once you're done dealing with the day-to-day crisis, and once you've established and implemented a strategy for reopening the economy, the third step is to establish a multi-year plan that looks out as far out as possible. Five years is a good framework to work from in thinking about how our community and economy is going to be dramatically shifted as a result of this crisis. And, what that does to revenue, to poverty and the inequities that exist in the community, and on the demand for the services that people rely on and that cities provide.

We could essentially start seeing what that looks like based on those industries that were already teetering and were challenged in adapting to the new economy. Retail has been struggling. If you're in the retail business and you haven't adapted to the fact that people can buy everything, purchase food, and be entertained all without leaving their home— you're very likely not going to survive this transition.

The impact on sales tax will be significant as a result. When you combine that with the fact that the unemployment rate will be significantly higher than it was even just a few weeks ago— people will have even less money to spend. Sales tax is going to continue to become less and less significant in the overall revenue mix. 

Property tax has always been the most stable in California, in part because of Prop 13. There's always a gap between the market value of a property and the assessed value of the property.

Given the cap that Prop 13 creates, those revenues may for the first time actually be impacted in a way that we didn't see in the last recession. That’s yet to be determined. As people lose the ability to pay the rent or the mortgage—as the economy slows down even more— the impacts on property values may result in a reduction that's below even today's assessed values, which would be, in many ways, unprecedented. Certainly, property taxes are enhanced when property changes ownership but that's going to stop, essentially. The selling of property is going to quickly end, and we'll start seeing that in this quarter. That will probably get worse moving forward.

What I'm sure my former colleagues in the CAO’s office and the mayor's office are doing is trying to gather the most information they can and forecasting it moving forward for the next year. I would urge them to forecast beyond that, for the next five years—looking at it from the worst-case to the best-case scenario, but all based on actual data and analysis, not on a desire for what we would all want it to be.

Share how City Leadership should contend with the understandable pleas for privilege from those who are asked to sacrifice as a result of the city’s need to reduce expenditures?

The most important thing is to be transparent—to be as transparent as possible on the facts, on revenue projections, and allow every question and every criticism of those projections to be made by anyone, particularly stakeholders, who will be impacted by the consequences of decisions later.

Once there's a baseline, a common understanding of the facts, then the city's most important role is deciding what is most critical, as the mayor has demonstrated so far, in deciding that saving lives has been so far during this crisis, the most essential priority. Based on this focus, what are the costs to do what's most important and at what level? Being straightforward on what is most important is, in fact, a statement of values. The city should be clear that among all the things the city does, this is the most important that they do. They will do everything they can to protect this priority. The budget process is about getting to a collective decision of the priority by the mayor and the Council.

The mayor will propose his priorities. The council will discuss it and act on it. Together, the budget becomes a reflection of those priorities. It’s impossible to create a scenario where there's equitable shared sacrifice, where there's a sense of fairness. Because the point of deciding what's most important is that you are actually making the choice that one thing is more important than something else. That's a hard thing to do. But it's the foundation of the path forward. If you can't be clear as to what's most important, you sacrifice everything. And when you treat everything as important, then nothing's important.

TPR published this week the resignation letter of Santa Monica’s city manager, Rick Cole—a former LA Deputy Mayor for Budget. He asserts that there's no amount of state or federal aid that will make-up for his City’s almost 40 percent reduction in revenues this quarter. No doubt, the fiscal and intergovernmental challenges will be ongoing. Is Rick Cole the personification of the ‘canary in the coal mine’ in terms of the political degree of difficulty today to address the budgetary challenges by necessarily cutting local spending and thoughtfully allocating scarce public resources to address the health and safety crisis?

I think Rick's point that there will be no bailout at the federal or state level is correct. There will be support for expenditures that are related to the crisis, which go beyond the day to day expenditures and are one-time. Ideally, there will be an investment towards infrastructure to help create jobs, respond to the decaying infrastructure across the country, and build things for the next generation in the process.

But for the day-to-day running the government, for the things that we all rely on day-in and day-out, it's going to be very difficult to provide a universal bailout of government as a whole.

During the last crisis, we were asked to request a bailout from the federal government. This wasn't the panacea. Lobbying Congress didn't take away from the work that had to be done to prioritize and to reduce the size of government to get to a balanced budget while protecting the city's essential services.

It's always important to be a strong advocate and to pursue those opportunities, but federal support rarely pans out to be what is promised and rarely serves to replace revenue that you lost. It has to be a much more specific target, which is still important and really goes to my last point: In the same way that the private sector will have to reinvent itself and adapt to this new reality that was emerging as a result of COVID-19, government will have to do the same in very bold ways we hadn't thought about before.

There's no roadmap. What I see happening is as significant as the reform movement of the 1920s, one hundred years ago. Most cities are grounded in that reform movement, which created the systems that now we all recognize as mainstays of government: civil service, balanced governance, professional administration, transparency, and accountability. Some of those structures will continue and some of them may not, in order to survive. 

I would urge not only this mayor, but any mayor of any city or any elected official, to really start thinking about what this looks like 20 years from now and beyond.

This is creating a seismic shift in everything. It creates an opportunity, as well, to rethink the role of government. For example, civil service employees are working from home delivering critical services at a call center from their living rooms, their bedrooms, or their kitchen tables. Every business is thinking about this new normal.

No one ever thought civil service would become a call center distributed across the region. In education, in health care, and even this conversation, is being delivered through technology that we’d not used before. There are lessons we're learning in this process that we had to learn in a matter of days. We have to adjust our habits and behaviors. Our thinking of what work looks like that may be worth building upon as we rethink the role of government, the role of education, the role of healthcare, the role of the economy, moving forward. It would be a shame if what we returned to was the status quo but just smaller. That we haven't adapted or we haven't grown in our capacity as a result of this crisis: This is what could be the one unanticipated lesson that we've learned that needs to needs to be analyzed, and strategically thought through.

TPR also recently interviewed both UC Regent Chair, John A. Perez, and Superintendent of LAUSD, Austin Beutner. Both spoke to the degree of difficulty of pivoting their public educational institutions to: a yet to be defined new normal; the budgetary deficits run-up as result of responding to COVID-19; and, the devastating impacts of the pandemic on students without economic means. Are these the same challenges city leadership faces? 

Inequities in our community existed prior to the crisis. These inequities will get significantly worse. You and I have the luxury of being able to work from home, many people don't. That has implications for their health. It adds implications for their families. And those who are working—a number which is getting smaller every day—are entering jobs that may not exist six months or a year from now, because the economy has shifted so much. And for those who have lost their jobs, once we get out of the immediate crisis, not all of them will be asked to come back or return to the jobs they had in the past.

What is likely to occur is that the inequities that existed will get greater. There are real implications to that, as we're seeing play out today. If you're African American, you have a higher chance of not surviving this disease. If you're Latino, you have a higher probability of having lost your job. If you're a child of color—which most children are in this state—you're not receiving an adequate education, and that was already a challenge before the crisis.

If you're a young person, I think about the optimism that a senior in college had entering their first semester and the dire situation they are today, just in a matter of weeks. They were entering the most robust economy with the lowest unemployment rate, and now they’re in a place where they won't be able to walk to receive their degree, and will have difficulty finding any kind of job, let alone one that they were trained for.

That's going to create generational inequities. There are many studies that show that a first-generation college kid will likely make less money in their lifetime than a child whose parents went to college, because of the first job that they get, which is often tied to who their parents know. If you're a first-generation college graduate, the pioneer in your family and now entering this economy, you will be lucky to get a job that you were for qualified for before you had that college degree.  That's going to create a generational inequity. Not just for that person but for their families, for generations.

We should all be concerned about that, so the interventions that we identify need to get to the heart of that. This is the federal government’s opportunity to mitigate what could be an impact that will be felt for the rest of the century, so our collective efforts should be to see that happen. 

TPR published an interview of Joel Fox this past week, as well It focused on the question: to tax or not to tax. What, in your opinion, should be the future mix of revenues to support the in demand public services going forward? And, do you envision an effort to quickly reform the economic tax base of local government?

There should be a focused effort to receive as much additional revenues as possible from the federal government. The state government is not going to be too different from where local government is.

You're talking to someone who proposed an increase in the sales tax unsuccessfully, and we intentionally proposed it after we did everything we could to reform government to live within our means. The proposal was about maintaining what we had built and being able to restore. Every tax has to be voted on. The government doesn’t have any authority to impose a new tax. The conversation itself is a distraction from the real work that needs to happen. I do think there is a way that government can strengthen the existing revenues by allowing for reforms in the way jobs are created.

For example—in the area of housing—when I served as chair of the HHH committee, for the first projects supported, the average cost per unit was about $350,000. By the time I left, three years later, it was more than double that. There are a lot of reasons why that happened, some outside of the city's control and some within the city's control. Streamlining processes, making it easier to develop in the city and in the state, and generating a new market of developers in the business of building affordable housing without subsidy, is possible—if we make it a priority and create predictability in development.

Many of the regulations and cumbersome processes that have been created not only delay time, but allow for too much discretion to block the development of these projects, resulting in an increase in costs. Within weeks, the city and the state can adopt a series of reforms to create a new market of development—not subsidized by taxpayers—below market rate as it was prior to the crisis.

Will the residents of Boyle Heights, for example, support a deregulated regime for neighborhood development?

I think in the context of high unemployment and lack of affordability, they may or may not. The question is, what's  the better for the greater good? And, whether it's the residents of Boyle Heights, Koreatown, or Bel Air, the greater good is to create jobs and housing that's affordable, there is no money to subsidize it.

When you're not advising Mayor Garcetti on his budget, your full-time job is being the CEO of the Fairplex. How has the COVID-19 pandemic impacted FairPlex’s operations and aspirational plans?

Everything that we do has more than 10 people. In May, we canceled or postponed 30 events, ranging from gem shows to car shows. In September, we become the densest part of the county. We have over 1 million people come to our campus over 19 days. We're denser than Dodger Stadium.

We own a hotel that directly benefits from the events that we have, so every aspect of our work has been dramatically impacted. As a result, we have had to furlough 80 percent of our staff; they're still tethered to our organization, but they're not working so they’re not getting paid.

We made a commitment to continue paying for their health care benefits. We are seeking relief, like any other business, from the various programs that have been adopted at the federal level. Unfortunately, we're one of those businesses that have a big bank who have failed in this process, and so we're not certain that we're going to receive those funds, but we're hopeful that Congress will act.

And how have you shifted—or repurposed—Fairplex’s operations?

As a nonprofit community benefit organization, we pivoted our role to serve the community. Today, our 244-suite hotel is a quarantine center serving those who've been exposed to COVID-19 and cannot go home. A typical guest is a firefighter who's been exposed and can't go back to the station or home. We made the decision to keep our 200-seat childcare center open. Most parents decided to keep their children at home; this allowed for 100 seats to open up. We're making them available for first responders and other essential workers at no cost. We were able to raise enough money from philanthropy and local donors to do so, and we will continue to do so until this crisis is over.

Our vast property of 500 acres is now a testing site. We are testing 350 people a day, including weekends, in partnership with the local medical school Western University here in Pomona and Casa Colina Rehabilitation Hospital. The world-famous Pomona Dragstrip—home to  the National Hot Rod Association where the winter nationals begin and end—is now a drive-thru food pantry. Last week, we served 2,100 families, but had to turn down 1,000 families because we ran out of food. We're going to be doing that again next week, we’re hoping every week, until this crisis is over. 

From a business standpoint, this crisis has been devastating to Fairplex. Our plans to develop the campus are being re-evaluated, and obviously development is going to be challenged at this time. We're still working on a specific plan with the City of Pomona and the County of Los Angeles to develop a master plan of the campus. Yet, our mission and purpose has never been stronger as a community benefit organization. It’s the strongest it’s been in our near 100-year history. Our team continues to be proud to be here, even though we’ve had to furlough our associates. This is what we—and every other organization—should be doing at this time, to prioritize saving lives and ask themselves what role can we play in the effort.

We’re fortunate that we have 500 acres to play that role in different ways. What that looks like a year from now is going to be very difficult, and we’re starting to make those plans, too. But we’re no different from any other business or organization today, and we to have to ask what a fair looks like in this new normal, and develop and adapt in ways we never thought we would have to.

Lastly, the coronavirus clearly has challenged all leadership – most especially public leadership; and exposed strengths and deficiencies in public services and programs.  Which raises an evaluation question:  How should- by what yardstick-  the public measure and judge its leadership going forward?

It’s important to evaluate the clarity of decision-making. The basis and prioritization of decisions is all you can really count on. What decisions are you making? What are they based on? How are you adapting as new information surfaces? And lastly, are you being transparent and placing the public’s interests ahead of your own politically?

Those things are hard to measure, they’re more of a feeling. That’s why it’s important for mayors and the President to go on TV every day to give the public updates. This is not the time to give promises, because it’s impossible to predict. People will listen and they will respond as they have. There’s a reason why it only takes ten minutes to get from the Westside to City Hall today, it’s because people are listening.

Also, recognize the frustration that is being experienced, don’t dismiss it or give false hope. This is going to be very difficult like it has been, and in some ways, this is going to be the easiest part, because we have a collective goal—to save lives. We know what that looks like now, but in six months or a year from now on our goal won’t be as clear. And those questions are as relevant in those times as they are today.