Weekly Report – November 30, 2015

L.A.’s economy can and should do better for the middle class. The solution starts with a continued focus on what is working and a diagnosis of some of the problems holding back productivity growth and the income gains that come with it.

One could argue that L.A.’s most significant economic engine in the past four years has been the investment of $4 billion in LAX and $1.2 billion in the port of L.A.; along with the $14 billion it is currently spending on a $35 billion investment in new public transit lines throughout the region. These projects are creating tens of thousands of middle-class jobs and the right steps needed to attract more private sector investment to the region.

Continuing on that path, the L.A. Board of Airport Commissioners recently announced a new procurement program to advance a $5 billion Landside Access Modernization Program that will include an Automated People Mover that will connect the Central Terminal Area with a new Consolidated Rent-A-Car facility, with stops in-between at new airport parking facilities and a station connecting to the L.A. Metro regional transit system. The People Mover will be free of charge to all users and it will be privately financed, built and operated. The completion goal of the program is no later than 2023.

These projects, along with the minimum wage increase, will not produce enough opportunities for Angelenos to attain middle-class status. At the federal level policymakers should look to expand tax credits for low-income workers, implement immigration reform and develop a fairer tax system overall to boost productivity growth over time.

At the local level policymakers need to pay attention to new research that shows how restrictive land-use regulations can have a negative impact on a region’s productivity and middle-class incomes.

The most illustrative example is L.A.’s inability to foster much needed development of affordable housing units and more higher-density housing near transportation and employment hubs. According to the California Housing Partnership Corp., L.A. County needs almost 500,000 more units that are affordable to households earning less than 50% of the area median income. Developers build less than 3% of this number annually. An Op-ed in the L.A. Times last August – http://goo.gl/SIo4Uh – provides additional insight and recommendations on this issue.

There are two papers that tie declining geographic mobility to land-use regulations. The first, by Federal Reserve economist Raven Molloy, shows how an increase in labor demand in cities with greater land-use restrictions results in less new housing construction, higher home prices, and lower long-run employment.

The second paper, by Peter Ganong and Daniel Shoag of Harvard University, examines the slowdown in income convergence—that is, the rate at which incomes in places with lower incomes catch up with those in places with higher incomes. The paper found that income convergence was more common in states during the 1960s and 1970s regardless of constraints on housing supply. By the 1990s, states with more constrained housing supplies saw far less income convergence than those with less constrained housing supplies.

The key takeaway – these “artificial constraints” on housing supply hinders mobility, and increasing mobility is going to be an important part of the solution of increasing incomes and increasing incomes across generations.

With this in mind – we need to pay attention to the following three initiatives that have an impact of L.A.’s ability to develop a larger middle-class:

  • Last week the Coalition to Preserve L.A. proposed a ballot measure that, if passed, would establish a moratorium of up to two years for any development project that requires a City Council vote to increase the number of housing units allowed on a particular site. The proposal also would make it more difficult for local politicians to amend the city’s general plan, which spells out the city’s policies on growth, for individual development projects. The measure, called the Neighborhood Integrity Initiative, is being targeted for the November 2016 election. Successful passage of this initiative would curb Mayor Garcetti’s attempt to mitigate the rising cost of rents for Angelenos, by promising to add 100,000 housing units by 2021. Backers will need 61,486 valid signatures to qualify the proposal for the ballot, according to an official in the City Clerk’s office. If they prevail, the council would need to decide whether to adopt the proposal as an ordinance or put it on a future ballot.
  • A coalition of environmental and community groups and Long Beach officials is seeking a court order to halt construction of the construction of the $500 million (private investment) Southern California International Gateway (SCIG) railyard project. They cite the project’s impacts on the local communities of Carson, West Long Beach and Wilmington. SCIG would be located four miles from the Port of L.A. to help reduce the distance trucks would need to travel to deliver cargo containers to railway facilities. Opponents are maintaining the City of L.A’s environmental impact report for the Gateway understates the impact of the project on the local environment and on public health. Port and railroad attorneys contend that a 10-year effort to study the environmental impact of the project shows that the planned mitigation measures will reduce the current high levels of pollution. Overall, the defense points to a 200,000-page record of evidence that supports the impact report’s conclusions and refutes the allegations leveled against the project. The judge has 90 days to rule on the environmental portion of the case. This proposed facility is adjacent to the Intermodal Container Transfer Facility which was established in 1986 in a largely industrial area containing refineries, warehouses, trucking facilities, railroads and major highways, etc. SCIG is a well planned proposal, unlike Long Beach’s urban development adjacent to the Ports. Today there are seven Long Beach K-12 schools and numerous parks located just south of this industrial area, a majority of which where built after ICTF existed.
  • Reacting to concerns from a coalition of neighborhood groups called Citizens Against the Double Track, L.A. Metro stopped work on a $104 million proposal to add a second track to a key railroad line through Northridge. Plans call for the addition of a second track along 6.4 miles of railroad right-of-way from Woodley Avenue east of Van Nuys Airport to De Soto Avenue just north of Nordhoff Street in Chatsworth. The route is used by Union Pacific freight trains, Amtrak and the Ventura County Line of the Metrolink commuter railroad. Union Pacific owns 60% of the right of way in the project area, and 40% belongs to Metro. The work includes replacing and realigning the existing track as well as improvements to both the Northridge Metrolink station and nine railroad crossings. Metro officials say the project will improve safety, reduce air pollution and speed the movement of freight and passengers by reducing the need to hold trains at one end to let another train pass on the single track. The area along the rail line is largely industrial and commercial, except for roughly 1.5 miles of right of way that passes residential areas containing an estimated 700 homes. About 130 homes are immediately adjacent to the tracks. At a minimum, the coalition wants to see a full and transparent evaluation of the potential noise, vibration and safety effects before a final decision is made to proceed. This project is significant to helping this region of the valley, which is home to Cal State Northridge, increase mobility options. As an anchor tenant, CSUN is responsible for the flow of 47,000 people each day in and around campus.