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Larry Kosmont Questions Non-Profit Economic Development Organization for L.A.

Howard Fine

January 28, 2013

Brad Cox knows first-hand how difficult it is dealing with city agencies to purchase property in the city of Los Angeles.  As senior managing director of Trammell Crow Co.’s L.A. office, Cox spent years negotiating with the now defunct Community Redevelopment Agency and other city departments to purchase a large contaminated industrial tract just south of downtown. Even with the support of Mayor Antonio Villaraigosa, who wanted a home for “clean tech” companies there, the deal  still took years, only closing last fall. That’s one reason why Cox is welcoming a new Villaraigosa administration initiative that would set up a separate non-profit entity run primarily by the private sector to promote economic development in the city. Similar organizations in New York and other major cities have for years been luring businesses, helping existing businesses grow, fast-tracking development projects, and selling or leasing surplus city property to private buyers. “By bringing in the private sector, you take much of the politics out and can be much more aggressive in pursuing economic development,” Cox said. “You’re freer to set up public-private partnerships and to help existing businesses grow.” The non-profit economic development organization is part of a two-pronged approach by the Villaraigosa administration to boost economic development in the wake of last year’s state-mandated dissolution of community redevelopment agencies. The termination of the L.A. CRA deprived the city of its biggest tool for economic development. The other prong involves creating a department within the city that would consolidate economic development functions now carried out by several agencies. This new department represents the latest in a long line of proposals with the elusive goal of setting up a one-stop shop for companies seeking to locate or grow in the city. Taken together, these proposals form a new approach to economic development at City Hall. “This could become a powerful tool to drive smart citywide economic development that many can be proud of,” said Matt Karatz, deputy mayor of the office of economic and business policy.

Tight deadline, little money

But the plan, outlined in a report issued late last month by consulting firm HR&A Advisors Inc., faces daunting obstacles, the biggest of which is time. Karatz said the goal is to set up the basic structure before Villaraigosa leaves office June 30. That would require City Council approval. Previous development and government reform proposals have often taken months to get council approval and even then, most ended up on the shelf due to bureaucratic inertia and infighting. If this plan isn’t approved by June 30, it could be shunted aside by the next mayor if that person has different priorities. There’s also the issue of money. The nonprofit would have an initial budget of $5 million, a drop compared with the gusher of millions of dollars in city subsidies that drive many economic development projects. Continually trying to get more money from a general fund that’s running an annual structural deficit exceeding $200 million would be problematic. “The $5 million will cover the administrative cost of the non-profit, but if someone approaches the city with a $150 million project for one of the city parcels and wants the city to kick in $15 million, where’s the money going to come from to fund that?” asked Larry Kosmont, an L.A. economic development consultant. While some money for the non-profit could come from the sale or lease of surplus city properties,

Kosmont and other business leaders familiar with the plan said that might not be enough. Finally, there’s the prospect of union opposition, particularly if setting up the economic development department results in the loss of positions at other departments.

Nevertheless, business leaders remain cautiously optimistic. “If set up right, this could be a great deal of help for existing businesses and a significant boost for economic development,” said Gary Toebben, chief executive of the Los Angeles Area Chamber of Commerce. “Bringing in the private sector would also add some much needed flexibility to the economic development process.” With the demise of the redevelopment agency, Toebben and other business leaders say the city has few tools with which to attract and retain businesses. One of the only other tools, the state enterprise zone program that grants tax credits to companies if they hire employees from economically disadvantaged areas, is under constant threat of elimination.

‘Game-changer’

Deputy Mayor Karatz described the creation of the non-profit economic development corporation as the centerpiece of the new proposal, with the key being the board of mostly private-sector appointees. “This could be a real game-changer,” he said. “The key is to team local government with a real commitment from the private sector.” The non-profit would have several tasks: figuring out which city properties should be sold or leased to the private sector; expediting major economic development and real estate projects; coming up with economic development strategies targeting key industries, such as technology or entertainment; and conducting economic research tracking business patterns in the city and the effectiveness of the city’s economic development policies. “This non-profit’s job will be to target what the jobs of tomorrow will be and how Los Angeles will compete for those jobs,” Karatz said. “It will look at how we use our city real estate, our transportation infrastructure and relations with academia to create these jobs and promote access to venture capital.” Karatz said some of the biggest successes at other non-profit economic development organizations have been deals involving a city’s real estate assets. He cited the New York non-profit’s strategy of taking an underutilized rail yard in western Manhattan and partnering with Related Cos. And Oxford Properties Group to develop it. But one local land-use attorney said just relying on the city of L.A.’s own real estate assets might not be enough to jump-start economic development throughout the city. “It’s a good start and will provide some economic development opportunities,” said my Freilich, land-use attorney at Armbruster Goldsmith & Delvac LLP in Santa Monica, who represents several clients with projects in Los Angeles. “What’s really needed, though, is a citywide economic development strategy, one that targets specific industries with incentives, then perhaps discounts land for initial projects within those industries,” she said. “Other cities are doing this very effectively; L.A. is falling behind.”

Expediting projects

But one major developer noted that such projects will still need to go through the city’s Planning Department and get City Council approval. Bill Witte, president of Related Cos. California, said that given this, the best role for a non-profit would be to expedite that process. He noted that a non-profit organization was created specifically for the Grand Avenue project that Related is developing in downtown. “That non-profit was tasked with moving the project forward through the entitlement process and negotiating with all the city and county agencies involved,” he said. “That part of the process worked very well.” The part that didn’t work well was the financing, which was delayed after the 2008 economic meltdown. The first phase of the project finally broke ground this month.

Witte, though, said he sees the biggest benefit from the Villaraigosa administration proposal coming from the new economic development department. “A department that can coordinate expeditious action to occur will make a huge difference,” he said. “The day-to-day blocking and tackling to allow small businesses to expand and open in the city will have a greater impact than a few large developments.”

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