Why does a thriving business need a $1-million handout?
In tough times, with stiff competition for scarce public money, how did a thriving multinational company manage to win more than $1 million in tax dollars to move its local headquarters from Santa Monica to downtown Los Angeles?
It was a piece of cake, thanks to the help of Mayor Antonio Villaraigosa and two people who’d like to be the next mayor — Councilwoman Jan Perry and former jobs czar Austin Beutner.
The contract is now being completed by city officials, and the high-powered Gensler architecture firm — which designed L.A. Live and the proposed downtown football stadium and is a partner in the design of the new Broad Museum — is preparing to load up the trucks and move east on the 10 Freeway.
The public handout will include a three-year holiday from the city’s gross revenue taxes — a deal the city offers to relocating companies, and one that could save Gensler hundreds of thousands of dollars.
That would have been enough, you’d think, and hard to argue with. But city officials also paved the way for Gensler to receive a $1-million Community Development Block Grant, a federal program that historically has focused on stimulating economic growth and housing in low-income communities.
Gensler, with headquarters in San Francisco and hundreds of millions of dollars in annual revenues, will use the $1 million to reconfigure its cushy new digs in a building on Flower Street known as the “Jewel Box.” The space sits above Drago Centro and Chaya Downtown, two of the swankiest restaurants in the city.
Finally, an economic stimulus package to encourage $50 lunches and $100 bottles of wine.
To qualify for the grant, all Gensler had to do was promise city officials and the federal Department of Housing and Urban Development that it would create new jobs, with 51% of them going to people currently defined as low- to moderate-income.
Thousands of jobs? No.
Hundreds of jobs? Not exactly.
Gensler said it hoped to add 110 new jobs to the 300-plus that it’s moving downtown. But the program requires only one job per $35,000 of public money. That works out to just 29 jobs, and only 15 of them have to go to low-income people.
Is that a good use of your tax dollars — a million bucks for fewer than three dozen jobs?
Absolutely, Villaraigosa, Perry and Beutner say. Villaraigosa said he would have preferred to limit the grant to $700,000, but he isn’t bashful about taking credit for poaching Gensler, claiming the company will create millions in revenues.
Let’s back up, though, and take a look inside the sausage factory, something that is possible thanks to strings of emails and other documents dug up by the Legal Aid Foundation, which tried unsuccessfully to derail the grant. The law firm, acting on behalf of L.A. Can, a skid row nonprofit, argued that there are far greater needs in the homeless capital of the United States than remodeling prime real estate for one of the country’s most prosperous architecture firms.
Our story starts with the Thomas Properties Group, a major downtown player, which owns and manages a ton of property. Including the Jewel Box.
Late on the evening of Nov. 17 last year, Thomas executive Ayahlushim Getachew sent the following email to Marie Rumsey, an aide in Perry’s council office.
“Do you have any available block grant available at CDD for a really great opportunity in the 9th? What do you think?” said the email, referring to the city’s Community Development Department and the 9th Council District.
Rumsey responded early the next morning.
“It is a bit of a longshot but possible,” she wrote. “What do you have in mind?”
“Confidentially,” Getachew replied, “Gensler just agreed to move their corporate headquarters to our building. We are quickly and quietly working to make this a good move for everyone.”
But there was a caveat:
“I need about $1 million or more for tenant improvements and about $600,000 from DOT or Metro for transportation incentives … transit passes, etc…. Do you think that is doable? Can we work together on this?”
Is that the way it works? A private company contacts a council office and matter-of-factly asks for a $1.6-million handout, as if City Hall is a giant ATM for corporate welfare?
Apparently so (although the transit passes never came through), and Perry’s aide was more than happy to oblige. So, it turns out were the mayor and his then jobs-czar Beutner, who says he was trying to lure the company even before Perry got involved.
“Yes!” Rumsey responded to Getachew. “I think we can cobble something together. What is the timing? When do you need the funds?”
I would have had a few different questions, including:
If Gensler had “just agreed to move,” why did the city need to offer sweeteners?
Perry — whose mayoral campaign has received $4,000 from Thomas Properties employees and $2,500 from Gensler employees this year — told me the move downtown was not a certainty and that Gensler made clear it needed help.
So the city is practically broke, Gensler is prospering and it’s Gensler that needs help?
Gensler managing director Rob Jernigan told me his company was considering several new locations, but relocating costs were prohibitive and the $1-million grant was “one of several important factors that made the move a reality for us.”
He said Gensler has signed a 12-year lease downtown, the staff has grown to 300 and he expects continued growth.
Good for Gensler, and it may be good for Los Angeles in the end too. But as jilted Santa Monica City Manager Rod Gould put it, the poaching of companies is a risky use of scarce public money, and it’s “a zero sum game” with no net gain for the regional economy.
The way this one was cooked up, it doesn’t smell too good, either.