New Mayor, but It’s the Same Old Mess

Having just elected a business-oriented mayor, this is probably a good time for Los Angeles to take stock of its economy. After all, Richard Riordan is a businessman, and whatever he tries to do as mayor will be colored, if not constrained, by the state of local business.

Unfortunately, if that is true, the new mayor will be seriously constrained indeed, for an assessment of the local economy presents a grim inventory.

Unemployment in Los Angeles through April has averaged 11.7% this year, more than double what it was in 1989. Although the city has been losing jobs, its civilian labor force has actually grown since then, thanks to immigration.

Many of the major local employment sectors remain under pressure. Cutbacks in aerospace and defense have cost thousands of jobs, and not just because the Cold War is over. The troubles of American commercial aviation also hurt: “People don’t realize how exposed we are to the commercial aircraft industry,” says Jack Kyser, who follows the local economy at the private Economic Development Corp. of Los Angeles County.

The same is true of government employment, a hugely important if often overlooked category locally. It faces further shrinkage because local, county and state governments are so short of revenue. Even Uncle Sam is strapped.

The dismal Los Angeles economy that will greet the new mayor is amply reflected in the number of residents getting welfare, food stamps or MediCal benefits: about 700,000 as of December, up 46% in just two years. In Los Angeles County as a whole, the figure exceeds 1 million.

Construction remains virtually moribund. A recent report by Wells Fargo cited an office vacancy rate of 19.8% in metropolitan Los Angeles, where there’s so much space it will probably take until the year 2000 to absorb it all. Rents have plummeted. Some downtown office buildings stand shuttered, too decrepit to compete in the current market but too costly to bring up to date.

Residential real estate has fared little better. A San Fernando Valley home used in a periodic sampling conducted by the Real Estate Research Council of Southern California, which is associated with Cal Poly-Pomona, was valued at $222,250 in April, down from $270,133 in October, 1989.

The diabolical thing about an economic downturn, for those attempting to govern, is that the demand for government services is at its height when public resources are at their nadir. Thus, hotel occupancy in downtown Los Angeles stands at just 53%, pinching hotel-tax revenue.

Taxable sales generally, an important indicator of economic health and a key source of revenue for the city, are off too. The Los Angeles figure for the third quarter of 1992, for example, was $5.9 billion, down from $6.5 billion in the third quarter of 1989.

Two factors about the city’s situation are especially troubling to many local economists. First, the current downturn appears structural. Large numbers of high-paying jobs are disappearing or moving away, and no replacements are on the horizon. That means a real turnaround could take years.

Second, these structural changes are occurring at the same time as changes in the quality of life, changes of a kind that will be even harder to reverse. Markets are markets; real estate prices, for example, should fall until buyers find properties irresistible. But if buyers--and renters--find Los Angeles undesirable at some absolute level, those prices will have to fall awfully far.

“Crime is the No. 1 concern,” says Lynn Reaser, chief economist at First Interstate Bank in Los Angeles. Education, she says, is second.

The really difficult news is how little any new mayor can help. No matter how good his intentions or experience, Riordan will find it impossible to reverse the basic changes taking place in the Southern California economy. Declines in defense spending will continue. New technologies will make it even easier for work to be done someplace cheaper. Even President Clinton has found the economy a stubborn adversary.

Education? The mayor’s power over the Los Angeles Unified School District is limited to moral suasion. Riordan could advocate the school-choice proposal that will be on the November ballot, but otherwise it will be hard for him to improve the quality of schooling in his city.

As for crime, “we don’t really know the marginal utility of an extra police officer,” observes Jerome Skolnick, a UC Berkeley professor of law and sociology who has spent years studying crime. In plain English, that means hiring more police may not help. What we do know, Skolnick says, is that a few more cops can’t help more than a little, and that the number of police is the least significant factor in the amount of lawlessness.

“The economy is going to do a lot more about crime than anything else,” he says.

So what can the mayor do? Lots, probably, but much of it in the way of making people--and businesses--feel better. This doesn’t mean boosterish doublespeak. He can speak the truth even as he nurtures the city’s energetic entrepreneurs, lets the middle class know it is wanted, and calls upon companies to commit themselves to this city.

He can try to make the government a model of efficiency, making the market his friend and streamlining bureaucracy so businesses don’t feel oppressed by red tape. He can endeavor, against the odds, to maintain the level of public investment needed to keep Los Angeles from falling apart.

Above all, he can battle the sense of helplessness that I have seen descend on other cities. Nothing saps civic spirits faster than the feeling that no one is in charge, which is exactly why we have a new mayor.

Los Angeles has a lot going for it: the entertainment industry, the weather and a lot of talented people. If the new mayor can keep the social fabric intact, sooner or later the business recovery will take care of itself.

Hard Times in L.A.

The unemployment rate in Los Angeles has more than doubled since 1989.

1989: 5.2%

1993*: 11.7%

Source: Economic Development Corp. of Los Angeles; California Economic Development Dept.