Los Angeles

Los Angeles Owes Billions in Pension Debts. Now It's Asking Citizens for Permission to Run a Bank.

What could possibly go wrong?

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L.A. Mayor Eric Garcetti
Ronen Tivony/NurPhoto/Sipa USA/Newscom

How inept is the Los Angeles City Council when it comes to economics?

Well, it cartelized L.A.'s commercial and apartment building trash pick-up, completely and deliberately destroying competition in the process. To the surprise of no one but city council, prices skyrocketed and service declined.

The city's stranglehold on construction keeps housing development far below the community's needs. Instead of loosening its grip, the government blames the city's high rents on insufficient rent control. The City Council and Mayor Eric Garcetti are supporters of Proposition 10, a statewide initiative that will expand the ability of cities to further implement more rent controls if passed.

L.A. owes billions in pension obligations, and its payments to its own employees' retirement funds are consuming more and more of the city's budget—about a fifth of it at the moment. That number is expected to rise to more than $1 billion a year by the next decade.

Now the city government is asking Los Angeles residents for permission to start its own bank. You have to admire the chutzpah!

On the November ballot is Measure B, which simply asks Los Angeles voters, "Shall the City Charter be amended to allow the City to establish a municipal financial institute or bank?"

The good news is that the ballot measure would not actually launch the bank. The city would have to go through a lengthy process to present a plan to city leaders to vote on actually create the institutions.

But look at the city's record when it comes to economic issues. Would you trust your money in a bank put together by these people?

Unfortunately, as a Los Angeles resident, I might not have any choice. If the city gets to build the bank, it will almost certainly have to use taxpayers' dollars (including mine) to create it.

People who support this "public bank" imagine that they're going to be sticking it to Wall Street and using the money for socially conscious investments that serve "the public." (And by "the public," they mean the part of the public that agrees with their priorities and not jerks like me or other Reason writers who like to point out how poorly Los Angeles leaders manage taxpayers' money.)

In reality, Los Angeles, just like most major cities, directs its financial decisions to benefit the connected and the powerful within its borders. That's how that trash cartel that I mentioned came into being. The program included all sorts of financial demands on trash haulers that aligned quite well with what local union leaders wanted.

There's no reason to think a bank operated by the City of Los Angeles would be any different. In fact, as the Los Angeles Times notes, one excellent example of the city's tendency toward cronyism was the now-deceased L.A. Community Development Bank. This wasn't a full bank; it was a loan program. Auditors found that it "distorted decisions to favor politically connected borrowers."

Now seems like a good time to point out that Los Angeles will be hosting the Summer Olympics in 2028, a costly boondoggle of more than $5 billion. The city also wants to spend more on improving its mass transit infrastructure, even though L.A. has stupidly committed to spending hundreds of millions of dollars on bicycle lanes that people are not using. They're also spending hundreds of millions doing an incompetent job of electrifying the city's bus fleet (but much more competently cashing in on it). They're not really "improving mass transit" so much as catering to certain politically connected people's fantasies about what urban transit should be, actual citizen behavior be damned.

The one potential plus side is that a city-owned bank could be a place for people in the cannabis industry to deposit their money. Even though several states have developed a massive legal marijuana economy, the federal government's continued ban makes banking a challenge.

But would you want to put your money in a bank where people are decrying Wall Street for investing in things that actually earn a profit and instead call for catering to various special interests? You might, if there's a chance you could be one of those special interests. No doubt the city would be quite appreciative of those who park their money there to make sure the bank actually works.

The rest of us, as with the city's pensions and infrastructure boondoggles, would be financially on the hook for whatever disaster plays out with this bank. This particular Angeleno will be voting no.

NEXT: 'Do the Rich Capture All the Gains from Economic Growth?' No, He Explains Convincingly.

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  1. Unfortunately, as a Los Angeles resident, I might not have any choice.

    You have a vote, which is almost as good as a choice.

    1. Can’t tell if serious.

      1. Pretty sure Hugh is serious, but amusingly they’re not necessarily wrong.

        If you live in L.A. you have no real right to complain because the citizens have all democratically decided to vote your money into their pockets.

        It’s really that simple, and if you don’t like it you have no one to blame but yourself if you continue to live in California.

        1. I just can’t tell where he’s going half of the time. The level of crazy its beyond my comprehension of crazy.

    2. “Unfortunately, as a Los Angeles resident, I might not have any choice.”

      He can leave.

  2. The important question is how they feel about gay marriage, racism, and the environment.

    Focusing on other issues is homophobic, racist, and ignorant.

    Somewhere out there ice is melting, and you want to talk about ridiculous things like pensions?

    Meanwhile, Trump is making fun of horse-faced women and building a wall to stop a caravan of hope!

  3. “Los Angeles Owes Billions in Pension Debts. Now It’s Asking Citizens for Permission to Run a Bank.”

    Am I the only one who initially read the headline as “Now It’s Asking Citizens for Permission to Ruin a Bank.”?

  4. Why do I get the sense that contracting with the city will eventually require making a sizable deposit into such a bank.

  5. This is a popular thing that has cropped up among some left-leaning politicians. Not sure what it’s about, beyond that they believe that the State Bank will be more fair and produce some kind of equitable outcome. There are a few politicians in my state that are pushing for this as well.

      1. Here it is.

        I know Bob Hasegawa (pictured) has been a major proponent of this. My former better half met with him to discuss mental health funding and she couldn’t get through two sentences before he started trying to tell her about his State Bank. It was like a bizarre tourettes-like obsession with him during the conversation.

        She had to redirect him back to the topic of mental health several times. Then he didn’t know that one of the state’s major hospitals was a non-profit, because he went into a tirade about how they were just corporate shills and his state bank would fix all that. Again, several times she had to carefully man-splain to him that the hospital was a non-profit, 501c3 organization.

        Senate Bill 5464 is modeled after the successful Bank of North Dakota (BND), which has successfully implemented it’s economic development and public support mission for almost a hundred years.

        Did we mention it’s successfully successful?

      2. According to Hasegawa’s announcement, Washington sets aside over $1 billion per year in operating budget for debt service.

        “Instead of paying profits to bankers, we could be borrowing from and repaying ourselves,” Hasegawa said.

        This is a thing.

        1. …so instead of just being retarded, they could go FULL RETARD?

  6. The Bank of Venezuela is probably available for cheap. No experience required.

  7. People who support this “public bank” imagine that they’re going to be sticking it to Wall Street and using the money for socially conscious investments that serve “the public.”

    I wonder if such people know what a bank actually does.

  8. Just let these shitholes like LA and Detroit go bankrupt. No bailouts and when the bankruptcy trustee gets court authority to administer the city, fire them all. Sell all assets and make it so its like the city never existed.

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