Weekly Report – February 9, 2015

Invest in and Maintain a World Class Transportation System 

Los Angeles World Airports (LAWA): Global investors continue to look for opportunities to privately manage large public assets such as mid-size airports in the United States. They see numerous possibilities to secure a great return on their investment because passenger and commercial air travel are increasing and metropolitan regions in the U.S. are having difficulty in building or expanding airports and runways. The Ontario International Airport (OIA) which resides about 60 miles east of LAX is owned and operated by LAWA and it has been in the sites of private investors for a number of years. But they have to wait in line as the City of Ontario wants to wrestle control and management of the OIA from LAWA. Ontario officials have long argued that L.A. has a conflict of interest because it has its own airport, LAX, which needs to increase flights and passengers traffic to fund billions of dollars in improvements at the airport. This led to a lawsuit filed by the city of Ontario in June 2013, claiming that LAWA and its Board of Airport Commissioners had intentionally allowed flights and passengers at OIA to slip after 2007, with travelers at OIA falling 43 percent, from 7.2 million to 3.9 million in 2013. LAWA has discussed selling OIA but both parties cannot reach an agreement on a sale price. LAWA wants around $400 million for OIA and Ontario officials want to pay considerably less. Ontario officials believe they can better align the interests of airline tenants, travelers, employees and businesses in the Inland Empire that are dependent on the airport as its primary economic engine. Ontario officials have stated in the past that they are willing to examine whether a private company should manage Ontario airport only after the facility is placed under the City’s direct control. Midway Airport in Chicago is one example of the difficulty of privatizing the management of public assets. Both Mayors Daley and Emanuel attempted to attract multiple bidders to manage the airport but the economic downturn in 2007 and limited bidders in 2013 scuttled the initiative. I am involved in facilitating a conversation between a large fund and regional leaders to help advance the OIA discussion.

Ports of L.A. and L.B.: In light of the slow moving labor negotiations at the ports of L.A. and Long Beach and the negative economic impact this has brought on the region’s and state’s economy maybe it is time to elevate the recommendation of the L.A. 2020 Commission focusing on the idea to combine the operations of the ports of L.A. and Long Beach. Combining both Ports would make them the fifth busiest port facility in the world (busiest in the Western Hemisphere), and the first and second busiest container ports in the U.S., respectively. The goal of this effort should be to parlay each Port’s individual successes into a combined port that enhances their overall competitive position. The recommendation further suggests the creation of a joint port authority similar to the New York-New Jersey model where both cities have an equal say in future development of the two facilities. The recommendation also cited other examples, including the 2008 formation of Port Metro Vancouver and the decision in January by the ports of Seattle and Tacoma to share information about operations, facilities and rates. Supporters argue that maritime trade is about to get a lot more complex and competitive and the L.A. region should be competing with ports in other regions, not with each other. The share of the nation’s goods handled by the L.A. region has dropped more than five percentage points in the past 10 years negatively impacting our region’s tax revenues and jobs. That drop in market share alone is the size of the fifth biggest port in the country, Seattle-Tacoma, which accounts for more than 60,000 jobs and has in excess of $100 million in revenue.

LA Metro: The White House released President Obama’s Federal Fiscal Year 2016 Budget and it recommended a sharp increase in New Starts funding for L.A. Metro. It recommends that funding for L.A. Metro’s existing New Starts projects – the Regional Connector and Westside Subway Extension be increased from $100 million annually for each project to $115 million annually for each project for FY 2016. The budget also recommends a Full Funding Grant Agreement for the Westside Subway Extension, with a funding recommendation of $100 million for FY 2016. It also recommends a host of innovative transportation financing initiatives, including an America Fast Forward bond proposal. The President’s America Fast Forward Bonds proposal is similar, but not identical, to L.A. Metro’s America Fast Forward Transportation Bond initiative that has been endorsed by over 200 mayors nationwide and over 35 chambers of commerce across the nation. Specifically, the Obama Administration’s America Fast Forward bond proposal has a reduced rate of interest subsidy, which makes them much like the Build America Bond program that was initially authorized under the American Recovery and Reinvestment Act of 2009.

Partner with Government to Foster Economic and Job Growth

The L.A. Coalition Partnership with the Mayor’s Operations Innovation Team: Mayor Garcetti and the L.A. Coalition for the Economy & Jobs have formed a public/private partnership in order to create an “Operations Innovation Team” that will bring together skilled talent from the private and public sectors to design and implement innovative solutions that will improve city government’s business systems: procurement and contracting practices, technology and real estate management.

Below are summaries of how these initiatives are taking shape:

  • Maximize Value of City-Owned Real Estate:One of the City’s best opportunities to produce cost savings and generate new revenues is to better manage and utilize the 3 billion plus real estate portfolio owned by the city and controlled by city government officials. Numerous opportunities exist in which L.A. city government can set the right conditions to incentivize the private sector to invest in properties that the City has under their control. City government can make investments that are directly economic and help to stimulate commerce and job creation: roads, bridges, trains, port facilities to move goods and people more efficiently and the City can make other economic development and quality of life investments: parks, squares, bike paths, waterfront promenades, pedestrian-oriented street, live-work housing and high-density living.
  • Procurement & Contracting:Why this initiative? Purchasing departments in local governments around the United States are finding ways to stretch government dollars further than ever, and many are finding useful tools in strategic sourcing and cooperative purchasing. Procurement departments are too often not recognized for their ability to generate dramatic savings, despite the fact that spending on goods and services often equals roughly 15 to 20 percent of a government’s total budget. State and local government procurement offices have delivered tens of millions of dollars in savings by better leveraging their buying power using private sector best practices like strategic sourcing, streamlining internal processes and employing eProcurement technologies. Unlike layoffs, pay freezes or cutting services, procurement savings do not imperil the livelihood of the government workforce, nor do they negatively affect residents. While procurement savings alone are not a panacea to budget shortfalls, they can lessen painful service cuts or tax increases.

Taxes: The impact of California’s unstable public revenue flows continues to be felt at the state and local levels, even as the rainy day fund mitigates the worst effects. Furthermore, the system imposes a disproportionately high tax burden on small businesses without providing sufficient tax or structural incentives to invest in the state. I have become part of a group that will examine the limitations of the system and tradeoffs that could bring significant change. This comes as state leaders consider what comes next after Proposition 30, the temporary tax increase measure that begins to expire in 2016. Most business and civic leaders would agree that CA’s tax structure is misaligned with a 21st century economy and it continues to impact growth opportunities tied to CA’s most promising industries in innovation and light manufacturing. California’s $2 trillion economy has shifted from being mainly agricultural and manufacturing during the 1950s and 1960s, when the framework of today’s tax system was set, to one based on information and services, which now account for 80 percent of all economic activity in the state. Senate Bill 8, the Upward Mobility Act proposed by Sen. Bob Hertzberg would broaden the tax base by imposing a tax on services, exempting health care and education; alter the corporate tax structure to provide incentives for business investment; and reduce personal income taxes across the board while retaining its progressive structure. The argument is that with this kind of tax reform, the public sector would have greater stability and revenue growth to invest in education and infrastructure to support a growing population, while the private sector would have greater incentive to invest in people, research and equipment essential for an innovation economy.

Promote L.A. as a Leading Hub for Technology, Entertainment and Creative Talent & Develop L.A. as a Top Tourism and Convention Center  

Tech Community: City National Bank’s most recent Venture Capital Quarterly report showed that L.A. County saw a new high in venture capital funding in the fourth quarter of 2014, inflated by a huge cash infusion for ephemeral-messaging application Snapchat. Venture investors put a record $765 million to work in 28 L.A.-area companies in the quarter ended Dec. 31, according to data firm CB Insights. Venice, Calif.-based Snapchat, however, accounted for $485.6 million of the latest total, or 64%. It was the three-year-old firm’s fourth financing round and one of the largest in venture capital history. Snapchat, whose technology allows users to share photos and other content that disappears after a set period of time, has exploded in popularity. Venture investors led by Kleiner, Perkins are betting that Snapchat’s app will eventually produce a bonanza via advertising or pay services. But while Snapchat reaped a funding windfall last quarter, money was relatively scarce for other startups in “Silicon Beach,” which encompasses Santa Monica, Venice and Marina del Rey. Apart from Snapchat, just seven Silicon Beach companies shared $67.4 million in financing, compared with 13 deals worth $184.2 million in the summer quarter and 13 deals worth $92.3 million in the fourth quarter of 2013. For all of L.A. County, funding totaled $280 million last quarter (excluding Snapchat), down from $342 million in the third quarter though up slightly from $270.5 million in the final quarter of 2013.

Full Report: http://newsroom.cnb.com/venture-capital-report-los-angeles-q4-2014

Rebrand L.A.: Jon Vein a member of the L.A. Coalition and the co-Founder and CEO of Market Share is leading an effort to help the Mayor Rebrand L.A. to help improve perceptions of L.A. around the world and locally, and more importantly to drive substantial economic and job growth for the City. As we all know the City needs to continue to develop an identity and image that encompasses the full breadth of its diverse assets. L.A. has been known for its amazing beaches, weather and “Hollywood” culture, but over the past decade, L.A. has evolved in numerous dimensions, across art, culture, food, fashion, technology, entrepreneurialism and venture capital to name a few. Jon’s and the Mayor’s branding efforts will be as much about education as promotion and they want to embrace what we are known for and expand the lens to showcase all that L.A. has to offer. They are working closely with partners like L.A. Tourism and Convention Board’s experts. For residents, Jon and his team want to foster greater civic pride while encouraging residents and visitors and investors to experience all that the City has to offer by developing programs that highlight local gems across the City. For L.A.’s business community they want to help promote LA a more pro business City. Please let me know if you or a member of your team would like to support this effort.

Foster the Development of a Skilled and Quality Workforce for the Region

Workforce Data: Joel Kotkin a internationally-recognized authority on global, economic, political and social trends just authored a piece called The U.S. Cities where Hispanics are Doing the Best Economically. Below is a interesting excerpt from the piece:

  • The prime U.S. cities for Latinos have long been New York, Miami, Chicago and Los Angeles. The Los Angeles metropolitan area alone has more than 5 million Latinos, including an estimated 1 million undocumented immigrants. Yet it no longer is necessarily the best place for them, ranking only a middling 32nd in our survey. L.A.’s once thriving industrial economy has been in a secular decline, and in the process thousands have lost employment. At the same time, construction work has been slow, another traditional source of employment. High housing costs have also put homeownership out of reach. A 2013 Fannie Mae study found that Latinos place greater emphasis on homeownership than the rest of the population. Given the diminished possibilities of buying a home or finding a decent job in the Los Angeles metropolitan area, Latinos have been flocking to the suburban periphery that encompasses much of adjacent Riverside and San Bernardino counties, also known as the Inland Empire, which ranks second in our survey. From 2000 through 2013, the Latino population in the area soared 74%, compared to a 15% population gain for Los Angeles. Not surprisingly, given its substantially lower home costs, roughly half those of Los Angeles, the Inland region has a relatively high Latino homeownership rate of 55.3%, compared to 37.7% in Los Angeles. Rates of self-employment are also higher than in L.A. (23.5% to 21.3%) and so too are median household incomes ($47,200 vs. $45,200). The metro area was devastated in the housing bust, but it’s coming back faster than the coastal economy. Although total employment is some 30,000 jobs below its 2007 level, California Lutheran University economist Dan Hamilton notes that Riverside-San Bernardino’s 2.2% job growth over the past year compares well with the 2.0% increase in Orange County and 1.3% in L.A.
  • Full article: http://www.joelkotkin.com/content/001042-us-cities-where-hispanics-are-doing-best-economically.