City Hall’s gift bonds
‘FLAVOR” IS A WORD that usually evokes pleasure and subtlety. You “flavor” your white sauce with a dash of dill, or your coffee with some vanilla. In City Hall, however, the term has taken on new meaning: using taxpayers’ money to enrich local firms.
That’s what City Councilman Tony Cardenas did last week by insisting that $150 million of a $500-million municipal bond to build an already over-budget police center be underwritten by a handpicked Los Angeles investment bank, instead of bid out in open competition. “I chose to flavor it my way since the city administrative office wasn’t willing to do the work,” he said.
The “work” of which Cardenas spoke was not making sure that the bond sale brings maximum return for the city’s money, but rather that a large percentage be sold by local underwriters. It’s the kind of micro-protectionism you might expect from a desperate town in the hinterlands, not from one of the nation’s leading financial centers. And it came over the loud objections of the official who knows best about selling debt: City Administrative Officer Bill Fujioka, who warned that this sop to locals could cost taxpayers at least $21 million.
Yet no member voted against the measure. (Councilman Jack Weiss objected to the plan but abstained.) Either the culture of consensus has transformed City Hall into a hallelujah chorus, or protecting the public purse simply isn’t a priority there. We hope it’s not both.
The council’s vote may have been foolish, but using bond contracts like patronage is nothing new in this city and state. As long as two decades ago, a Times investigation detailed what it called a “growing link between city politics and the bond business.”
There are times when it makes sense to negotiate a bond deal with underwriters rather than putting it out to bid. If the bonds are going to be harder to sell — perhaps because they’re backed by a single project rather than the full credit of the city, or some other reason that will require more work from the underwriter and more explanation from the issuer — negotiating is the way to go.
But the $150-million sale being handed to E.J. De La Rosa & Co. is the exact type of bid that should be competitive — a fixed-rate, general obligation bond for a deep-pocketed city with a stellar credit rating. The deal should go to the qualified bank that offers the best terms. Period. Full stop.
Instead, the council has voted to benefit local political heavyweights at the expense of taxpayers. The council will face a similar choice today, when it is scheduled to vote on union-supported “living wage” legislation that would impose extraordinary employment restrictions on a handful of hotels near the airport.
This council has been all too willing to substitute its own rules for the market’s. If it insists on picking local winners, perhaps members should spend more time at Hollywood Park.
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