SUMMARY:The pitches have been quirky, some might even say desperate. City officials across North America are trying to get Amazon's attention in hopes that the fourth-largest company in the U.S. will build its next big tech hub in their community. Economics correspondent Paul Solman reports on what they stand to gain -- and pay -- for the chance.
Judy Woodruff (NewsHour): But first, Amazon is searching for a place to build a second headquarters.
The scale of the project is massive. It comes with a proposed eight-million-square-foot campus that would cost $5 billion, and promise up to 50,000 new jobs.
As economics correspondent Paul Solman reports, that’s created an unprecedented bidding war between cities and states.
SUMMARY: An internationally recognized artist, Theaster Gates is well versed on how to shape materials into meaningful forms. But Gates applies those principles to more than just art -- he’s also a renowned urban developer who shapes downtrodden neighborhoods into community gathering places and low-cost housing. Gates joins Jeffrey Brown to explore the intersection of art and activism.
JEFFREY BROWN (NewsHour): So, what is this?
THEASTER GATES, Artist: So, this is the ceramics studio.
JEFFREY BROWN: When you make a pot, the artist Theaster Gates told me recently in his studio, you think about the material and how to shape it.
THEASTER GATES: If it’s clay, then I have to learn a lot about the minerals that are in the earth. And what happens when two chemicals work together in relationship to heat? How does heat work in relationship to time?
JEFFREY BROWN:But, unlike most artists, Gates goes further, into a whole other realm. Just as we learn to reshape clay into pots, he says, we might learn to reshape buildings and neighborhoods into a revitalized urban life.
THEASTER GATES: If you were to apply that to a city, you would say, what’s the relationship between a commercial district and a residential area? And how might those things be a collision at first? But they need to slowly cool.
JEFFREY BROWN: Same processes, but different material?
THEASTER GATES: I think so, in that it implies that one has to also continue to get to know a thing by being directly engaged with the thing.
JEFFREY BROWN:Gates is a successful commercial artist on the international gallery scene. But much of the focus of his work is here, on Chicago’s South Side, in neighborhoods filled with vacant lots, abandoned buildings, poor and dangerous streets.
Gates has bought buildings, like these on Dorchester Avenue, refurbished and turned them into community gathering places for music, films, talk. He’s also developed low-cost housing, including for artists, who contribute hours of community service in return.
JUDY WOODRUFF (NewsHour): The first half of this year has been a more violent and tragic one in many cities, leading police, community leaders, families and friends of victims to ask, what’s happening?
Across the country, scenes like these are playing out, at an escalating pace. The Major Cities Police Chiefs Association reports homicides have spiked this year after hitting 50-year lows in 2013. Members of the group voiced alarm at a Washington meeting on Monday.
J. THOMAS MANGER, President, Major Cities Chiefs Association: What we focused on was the fact that we’re going to shooting scenes now where you have got more and more victims being shot, you have got more spent rounds being collected as evidence, and we’re finding more and more high-capacity magazines involved in these shootings.
JUDY WOODRUFF:The association reports homicides are up an average of 19 percent in 35 big cities. Chicago has the dubious distinction of leading the list, with 252 killings, up 20 percent. But Saint Louis and Milwaukee have seen increases of 64 to 88 percent. The city of Baltimore had 45 homicides in July alone, the most since 1972.
That followed the death of Freddie Gray in police custody last April, and the resulting riots. Yesterday, Baltimore leaders announced federal agencies will embed special agents with city detectives.
Democratic Congressman Elijah Cummings:
REP. ELIJAH CUMMINGS (D), Maryland: The only people who are getting — making — doing pretty good now are the morticians. They’re the only ones. And I say that we are a city that is better than that. And so to all of our — all those folks who think that you have got to — you get your power from carrying a gun and shooting somebody and hurting somebody, I’m begging you, put your guns down.
JUDY WOODRUFF: Meanwhile, police chiefs say they are still trying to fully understand what’s behind the surge in killings.
SUMMARY: Why has there been a dramatic spike in homicides this year? Judy Woodruff speaks to Col. Sam Dotson, chief of the St. Louis Metropolitan Police Department, and Edward Flynn, chief of the Milwaukee Police Department, two cities that have seen a substantial rise in murders, about the wide availability of guns, scrutiny of the criminal justice system, an increase in heroin use and systemic poverty.
When Detroit became the largest city in the history of the United States to file bankruptcy in 2013, a question quickly emerged: Which city would be next?
Because conventional wisdom held that bloated pensions had bankrupted Detroit, the conversation revolved around other cities with large pension shortfalls, such as New York, Philadelphia and Jacksonville, Florida. Anti-union politicians used the opportunity to hold up Detroit as a boogeyman. Bruce Rauner, then a Republican candidate for Illinois governor, ran a campaign ad in 2013 that said, “Detroit just declared bankruptcy, and if we don’t change direction, Illinois is next,” explicitly invoking the state’s unfunded pension liability as the reason (it should be noted that this claim was untrue, as federal law bars states from filing bankruptcy).
All of this uproar rested on a basic falsehood in the dominant public narrative around Detroit, that pensions played a key role in driving the city bankrupt. But those who studied the bankruptcy closely know that the reverse is true: The city filed bankruptcy so that it could cut pensions.
Detroit’s bankruptcy was not borne out of financial necessity and was not a foregone conclusion. It was a political decision made by state officials. Gov. Rick Snyder and the Michigan Legislature chose to push the distressed city over the edge in order to accomplish two otherwise difficult political goals: slashing pensions and regionalizing the Detroit Water and Sewerage Department. It was disaster capitalism at its finest.
Austerity hawks are now hoping to use the Detroit playbook in other cities to force the public to accept extreme measures to fix budget crises. And the bond markets seem to have finally settled on an answer to that question about which city will be the next Detroit: Chicago. Moody’s Investor Service, one of the three major credit rating agencies, just downgraded Chicago’s credit rating to junk level—the municipal equivalent of a subprime credit score, cautioning potential lenders that the city may not be able to pay them back—making it the lowest-rated major city in the country after Detroit.
Chicago is not an obvious choice. It remains the third largest city in the country, has a thriving downtown and is home to some of the largest and most profitable corporations and wealthiest people in the world. Chicago clearly has money, even though its distribution is wildly unequal.
But as was the case in Detroit, the talk of a Chicago bankruptcy has little to do with the city’s financial health and much to do with a broader political agenda to obliterate the social safety net and slash pensions. Even though there are numerous reasons why Chicago is not going bankrupt, the fact is that there has been a sustained effort by politicians like Mayor Rahm Emanuel to create a financial crisis and then use the threat of bankruptcy in order to usher in deep and painful cuts, just as the Right was able to do in Detroit.
Chicago is the test case for whether the Detroit playbook can be run in other, more prosperous cities. If it succeeds there, cities across the country will likely emulate this strategy to balance budgets on the backs of working-class communities while letting banks, big corporations and the rich off the hook.
The Detroit playbook
Most of us learn about bankruptcy through games like Monopoly or Wheel of Fortune, where being bankrupt is synonymous with being broke. But when it comes to municipalities, not only is bankruptcy a choice, it is a political choice. Elected officials decide whether to do it, when to do it and how to do it, and their primary reasons for doing it do not even have to be financial.
Municipal bankruptcy is also unique in other ways. In a corporate bankruptcy, for example, a company can be liquidated and all of its assets can be sold off to pay its creditors. However, as a matter of practicality, a city cannot be liquidated. Detroit is not Circuit City. If all its assets were sold off—streets, buses, police and fire stations—what would happen to the people who continued to live there post-bankruptcy? Because municipal bankruptcies are premised on the notion that cities should survive their bankruptcy and one day even thrive, the goal is not to obliterate a city in order to pay down its outstanding debt.
Under Chapter 9 of the United States Bankruptcy Code, municipalities may file bankruptcy if they are unable to pay their debts as they come due. In order to emerge from bankruptcy, they don’t need to be able to pay all of their outstanding debts right away, but rather to pay their bills on time. Just as a homeowner with a 30-year mortgage only needs enough money to make each monthly payment, cities similarly just need to be able to pay their bills, one bill at a time.
During Detroit’s bankruptcy proceedings, Emergency Manager Kevyn Orr, who had been appointed by Snyder to run the city during its fiscal crisis, repeatedly asserted that the city had $18 billion in outstanding debt, so as to imply that the city had to come up with $18 billion in savings to get out of bankruptcy. This was not true.
First of all, that $18 billion number itself was inflated using non-standard accounting assumptions and by including debt that did not actually belong to the city itself, such as the debt of the Detroit Water and Sewerage Department. But more importantly, the $18 billion figure was irrelevant for the purposes of Chapter 9 bankruptcy, since there was never any expectation that the city pay all of its long-term debts immediately. What mattered, according to an analysis by the think-tank Demos, was the $198 million cash flow shortfall that the city faced that fiscal year. Detroit’s expenses were $198 million more than its revenues, so it could not pay its bills as they came due.
The $198 million shortfall could have been addressed fairly easily—in part, simply by undoing state actions that had pushed Detroit into bad financial straits in the first place. For example, Detroit had taken a major financial hit over the course of 2011 and 2012, when Snyder and the Michigan Legislature decided to cut annual state revenue sharing with the city by $67 million. Restoring that funding would have filled one-third of the city’s shortfall. Second, there were state-imposed restrictions on the city’s ability to raise local taxes, dating back to the 1990s. Lifting those restrictions would have allowed the city to raise taxes and bring in new revenue.
Or the legislature could have passed a law requiring suburban employers to automatically deduct city income tax for reverse commuters who lived in Detroit. The city instead had to rely on reverse commuters to voluntarily pay their taxes. According to a study commissioned by the Mayor’s Office, in 2009 alone, Detroit lost $142 million as a result of this loophole. But instead, the $18 billion figure was held up to create a greater sense of urgency in order to justify drastic cuts at the expense of public employees and wrest control of the water department from the city.
Conservatives in Michigan had long been scapegoating Detroit’s pension obligations as the source of its fiscal problems, and Snyder began enacting policies to undermine pensions his first year in office. However, the Michigan Constitution, like that of many other states, protects government workers’ pensions from cuts—since pensions are, after all, deferred wages for work that has already been done. Federal bankruptcy law, however, does not protect pensioners when a city declares bankruptcy. Detroit was a test case for whether municipalities could get around their state constitutions by filing bankruptcy under Chapter 9. In 2013, during Detroit’s bankruptcy proceedings, a federal judge ruled that they can, because federal law trumps state law.
Then there was the Detroit Water and Sewerage Department (DWSD), a source of political power for the majority African-American city, which many white suburban residents had grown to resent. White suburban voters are an important constituency for Snyder, who needs them to make up for his low approval rating in Detroit, Michigan’s largest city.
The election of Coleman Young as Detroit’s first African-American mayor in 1973 accelerated white flight out of the city. Even though most of Detroit’s white families moved to the suburbs, they were still dependent on the city-run water department, which serves most of southeastern Michigan and 40 percent of the state’s population. This created a lot of tension. Whenever there were service problems or rate hikes, suburban residents blamed it on the mismanagement by what they believed to be corrupt and incompetent city officials. While corruption was a real problem in Detroit, including in the DWSD, these charges often fed off racial tensions.
Through bankruptcy, the state was finally able to take control of the water department out of Detroit’s hands and regionalize it. In one stroke, Snyder had achieved two long-sought political goals.
The next Detroit?
Politicians have been raising the specter of a Detroit-style bankruptcy in Chicago for a couple of years now— most recently in the mayoral runoff election this spring, when Sen. Mark Kirk commented that Chicago could end up like Detroit if Mayor Emanuel lost. But the threat never seemed credible to most people who were actually familiar with Chicago, because Chicago appears to be a fundamentally prosperous city. Then, in May, Moody’s Investor Service downgraded the credit ratings of both the City of Chicago and Chicago Public Schools to junk level. Suddenly, the threat seemed much more real.
The downgrades could force the city and the school district to hand over as much as $2.5 billion in early payments and penalties to banks on various financial deals. The city was forced to pay penalty interest rates on a $674 million bond offering, which will cost taxpayers an extra $70 million. The downgrades themselves were a direct response to an Illinois Supreme Court decision affirming the state constitution’s protection of government workers’ pensions, effectively prohibiting the state and local governments from slashing pensions to balance their budget. Mayor Rahm Emanuel would not be allowed to cut pensions and pay debts. Chicago seemed to be running out of options. Talk of a bankruptcy suddenly no longer seemed so farfetched.
Except that it is, because the political will is not there. Emanuel does not want his legacy to be that he bankrupted the third largest city in the country. Even though wealth and income are very unequally distributed across the city, Chicago still enjoys a healthy tax base and, unlike Detroit, has no statutory limits on its ability to raise local taxes (although it cannot implement a city income tax without state authorization). Chicago will not go bankrupt because the mayor will raise taxes if necessary to avoid that fate.
There is one other big reason why Chicago will not go bankrupt: It can’t. Under Illinois state law, municipalities are not allowed to file bankruptcy. Chapter 9 delineates the process for municipal bankruptcy, but it is up to each individual state whether to let cities use that process. Michigan does. Illinois, like 25 other states, does not.
As was the case in Detroit, politicians are invoking bankruptcy in Chicago to create public support for slashing pensions. Like Michigan’s, the Illinois Constitution also protects government workers’ pensions. There was a bill in the Illinois Legislature this session to allow municipal bankruptcies, and its chief proponents made no secret of the fact that their goal was to let cities use bankruptcy to get around the state constitution’s pension protections. Elected officials from smaller cities, such as Rockford Mayor Larry Morrissey, heralded the municipal bankruptcy bill as a godsend that would allow them to “set aside the unmanageable and unsustainable labor contracts and pension agreements with which local taxpayers have been saddled across the state.”
The bill was supported by Illinois Republican Gov. Bruce Rauner, who advocated the use of bankruptcy to help municipalities deal with their budget woes. Of course, he, too, was taking a page out of the Detroit playbook. He created a financial crisis for cities across the state by proposing a 50 percent reduction in municipalities’ share of state income tax revenue. Like state officials did to Detroit, Rauner inflicted financial hardship on cities and then dangled bankruptcy in front of them as the solution.
The municipal bankruptcy bill did not pass before the end of the session on May 31, but even the threat of such legislation can be a powerful tool for officials to strengthen their hand in contract negotiations with public sector unions and convince the broader public to accept an austerity agenda.
The predatory lending crisis no one talks about
Austerity hawks have done a great job of selling budget shortfalls as the result of reckless overspending by incompetent and corrupt government officials. As a result, the solution gets framed as a choice between cutting pensions or slashing the social safety net. Working-class communities lose either way, while the 1% remains untouched.
But the real problem with public budgets is that there is not enough revenue coming into public coffers. Since the Reagan Revolution, there has been a sustained effort to delegitimize government and suppress taxes. Tax rates for corporations and top income-earners have declined at precisely the moment that the United States has seen the most explosive population growth, leaving all levels of government unable to afford to pay for the basic services that communities need to function. As a result, government borrowing has skyrocketed.
While it is sound public policy to use debt to fund long-term capital projects, it is deeply problematic when governments are forced to borrow money to deal with revenue shortfalls. It is even more problematic when they are doing so as a result of a concerted effort to suppress taxes by the same banks and people they are borrowing from. Banks and the wealthy created a crisis by lobbying hard to suppress taxes, and then they use that crisis to enrich themselves—a page right out of the Detroit playbook.
When cities and states borrow money by issuing bonds, the lenders are typically high-wealth individuals, who purchase the bonds to get a tax break. It is a perverse system through which, rather than paying their fair share in taxes, the wealthy are instead able to lend that money to us, charge us interest for it, and then claim a further tax break on it.
The banks that underwrite municipal bonds also profit by selling cities addon products like interest rate swaps. As municipal debt exploded, from $361 billion in 1981 (about $940 billion in today’s dollars) to $3.7 trillion in 2012, banks started targeting cash-strapped cities with more and more of these add-ons, which had high costs and hidden risks, were overly complex and were often designed to fail. They were predatory finance deals, much like the predatory mortgages targeted at cash-strapped homeowners. Some of these practices were illegal, while others were merely unethical. The effect was that banks collected billions in fees from borrowing that was necessitated in the first place by their refusal to pay their fair share in taxes.
At the same time that this was happening, anti-government conservatives started sounding the alarm over rising government debt in order to make the case for privatizing services. This allowed many of the same corporations that had lobbied for lower taxes to then profit off the revenue crisis they had helped create by literally buying up public assets, such as tollways and parking meters, and then charging us to use them.
Because state and local governments did not have enough tax revenue coming in, they often opted for “pension holidays” to make ends meet, skipping payments to the pension fund. Over time, this created large unfunded pension liabilities. In effect, cities and states borrowed money from pensioners to make up for revenue shortfalls. Now austerity hawks are using these unfunded liabilities to argue for slashing pensions, even though it was their own anti-tax policies that caused the problem.
A progressive playbook
We need to flip the Detroit playbook on its head to create a new class of winners, working class communities. We must reject the paradigm in which Moody’s points a gun to our head and forces us to choose between closing schools and throwing seniors under the bus. We cannot allow austerity hawks to manufacture crises in order to push radically regressive agendas that balance the budgets on the backs of those who can least afford it.
We need to define the “austerity” problem as what it is—a lack of revenue caused by the refusal of Wall Street banks, big corporations and millionaires to pay their fair share in taxes— and put forth solutions to make them pay. This includes progressive revenue measures: We can pass a millionaires tax and a financial transactions tax, close corporate tax loopholes and end subsidies for profitable companies. It also includes policies to stop Wall Street from gouging taxpayers, like renegotiating predatory banking fees and toxic financial deals, and creating public banks to cut out Wall Street altogether.
We must reframe the choice for elected officials as one between the 99% and the 1%. Will Chicago’s Mayor Emanuel close another 50 schools to balance the Chicago Public Schools budget, or will he sue the banks that likely broke federal law by selling the school district predatory interest rate swaps that have cost hundreds of millions of dollars? Will Rauner cut state aid to cities in half and force them to slash essential public services, or will he fight for a millionaires tax? Whose side is he on?
A quick Google search shows that nearly every major city in America has been called “the next Detroit” at some point in the last two years. The Right plans to use the Detroit playbook across the country to force the general public to accept unconscionable cuts to public works while letting the true culprits off the hook. We need to expose the people and corporations who are profiting from the crises that they created, and force them to pay their fair share.
North Carolina and Tennessee are the latest states to side with telecoms, which have long lobbied against allowing cities to become Internet providers.
Earlier this year, the Federal Communications Commission voted to ease the way for cities to become Internet service providers. So-called municipal broadband is already a reality in a few towns, often providing Internet access and faster service to rural communities that cable companies don’t serve.
The cable and telecommunications industry have long lobbied against city-run broadband, arguing that taxpayer money should not fund potential competitors to private companies.
The telecom companies have what may seem like an unlikely ally: states. Roughly 20 states have restrictions against municipal broadband.
And the attorneys general in North Carolina and Tennessee have recently filed lawsuits in an attempt to overrule the FCC and block towns in these states from expanding publicly funded Internet service.
North Carolina’s attorney general argued in a suit filed last month that the “FCC unlawfully inserted itself between the State and the State’s political subdivisions.” Tennessee’s attorney general filed a similar suit in March.
Tennessee has hired one of the country’s largest telecom lobbying and law firms, Wiley Rein, to represent the state in its suit. The firm, founded by a former FCC chairman, has represented AT&T, Verizon and Qwest, among others.
James Tierney, director of the National State Attorneys General Program at Columbia Law School, said it is not unusual for attorneys general to seek outside counsel for specialized cases that they view as a priority.
Asked about the suit, the Tennessee attorney general’s office told ProPublica, “This is a question of the state’s sovereign ability to define the role of its local governmental units.” North Carolina Attorney General’s office said in a statement that the “legal defense of state laws by the Attorney General’s office is a statutory requirement.”
As the New York Times detailed last year, state attorneys general have become a major target of corporate lobbyists and contributors including AT&T, Comcast and T-Mobile.
North Carolina is no exception. The state’s Attorney General Roy Cooper received roughly $35,000 from the telecommunications industry in his 2012 run for office. Only the state’s retail industry gave more.
The donations are just a small part of contributions the industry has made in the states. In North Carolina’s 2014 elections, the telecommunications industry gave a combined $870,000 to candidates in both parties, which made it one of the top industries to contribute that year. Candidates in Tennessee received nearly $921,000 from AT&T and other industry players in 2014.
The FCC’s decision came after two towns – City of Wilson in North Carolina and Chattanooga in Tennessee – appealed to the agency to be able to expand their networks.
The vote has rattled some companies. In a government filing earlier this year, Comcast cited the FCC’s decision as a risk to the company’s business: “Any changes to the regulatory framework applicable to any of our services or businesses could have a negative impact on our businesses and results of operations.”
If the court upholds the FCC’s authority to preempt restrictions in North Carolina and Tennessee, it may embolden other cities to file petitions with the agency, according to lawyer Jim Baller, who represents Wilson and the Chattanooga Electric Power Board. “A victory by the FCC would be a very welcome result for many communities across America,” said Baller.
For some residents in and outside of Chattanooga, clearing the way to city-run broadband would mean the sort of faster Internet access that others might take for granted.
For 12 years, Eva VanHook, 39, of Georgetown, Tennessee, lived with a satellite broadband connection so slow that she’d read a book while waiting for a web page to load. In order for her son to access online materials for his school assignments, she’d drive him 12 miles to their church parking lot, where he could access faster WiFi.
Charter, the local Internet service provider, declined several requests by her husband to build lines out to her home. Only last month did Charter connect her home to the Internet. “Even the possibility to jump on [the local utility’s] gigabit network would blow our minds right now,” VanHook said. “There is nothing faster than Chattanooga. Just through meeting them and hearing them speak and having them understand what’s going on, that’s the kind of place I want to do business.”
On Friday, the embattled mayor of San Diego officially steps down. Allegations of sexual harassment against Bob Filner have rocked the eighth-largest American city, which now has to pick up the pieces and elect a new mayor.
The announcement last week that Filner would leave office was greeted with cheers, boos and a flurry of activity from the press — but it all went quiet when the soon-to-be ex-mayor emerged from a swell of bodyguards to speak at the podium.
"I take responsibility for putting the city through a very bad time," Filner said. "Again, I apologize to all of you. Certainly it was never my intention to be a mayor who went out like this."
Then the cracked voice and tone of apology gave way to indignation — and blame: "I started my political career facing lynch mobs," Filner said, "and I think we have just faced one here in San Diego."
That tone of persecution isn't completely misplaced, says University of California political scientist Steve Erie. As the first Democratic mayor in San Diego in 20 years, Filner went into office with a target on his back, Erie says.
"He was always a fighter for the little person. And his campaign was one of putting not only neighborhoods, but putting people of color, community activists, environmental and neighborhood activists first. They have not had a voice," Erie says. "This is a town that has been run by the downtown corporate welfare crowd for years."
Erie says the terrible irony is the guy who was supposed to stand up for the little person was going around making women feel small. Women like Laura Fink, the second to publicly accuse Filner.
Fink, who is also a Democrat, says a true progressive vision involves ending a culture of sexual harassment across the board.
"With more people coming forward, with more people reporting it, the less impact it will have and the stronger each workplace will be," Fink says. "And the more accountable these men in power will be."
So far, no woman has entered the race to replace Filner. A special election has been set for Nov. 19. It is unclear what party might have the upper hand.
Until then, City Council President Todd Gloria will serve as interim mayor. Gloria was one of the many members of Filner's own party who called for the mayor to step down.
"My hope is that we can show that Democrats can run this city and run it effectively and competently," he says. "I don't know that we've really seen that for the last number of months, but I know that we can see that in the next few months."
Gloria won't say yet if he is running to replace Filner permanently. But as he packs to make the move eight floors up to the mayor's office, he says the city needs to heal.
"When the average San Diegan can go about their day not wondering what horrible new story is going to come out of this building, I think that heals the city," Gloria says.
Another possible contender in the special election is longtime Republican council member Kevin Faulconer. Despite being on different sides of the political aisle, he and Gloria have been pretty inseparable as of late.
"Now we have an opportunity as a city to come together, to heal," he says, "particularly in the next several months."
But those next several months will also serve as the staging grounds for what could be a very contentious election.
SUMMARY: A lack of basic social services and abandoned blocks are just a few of the side effects Detroit citizens face due to their city's financial woes. But in some neighborhoods, Motor City residents are taking revitalization efforts into their own hands. Hari Sreenivasan reports on the resilience of the people who call Detroit home.
One needs to remember that this issue is a confluence of our recession (which we are NOT fully recovered from) and the very human error of expecting that the 'good times' would go on forever. Some cities did not hedge 'their bets' when it came to their budgetary decisions in the past.
JEFFREY BROWN (Newshour): To what degree is Detroit a special case? In what ways is it representative of problems in other cities? Those and other questions have been much in the air since the bankruptcy filing.
For some answers, we turn to Kathy Wylde, president and CEO of the Partnership for New York City, a nonprofit focused on the city's economy, infrastructure, and education system, author and urban studies theorist Richard Florida, director of the Martin Prosperity Institute at the University of Toronto. His books include "The Rise of the Creative Class" and "The Great Reset." And Bruce Katz of the Brookings Institution, co-author of "The Metropolitan Revolution: How Cities and Metros Are Fixing Our Broken Politics and Fragile Economy."
A former Fairfield transit manager says MV Transportation, which was based in the suburban city halfway between Sacramento and San Francisco, didn’t deliver what it promised in its contract.
Cash-strapped cities embracing private contractors as saviors of their public transportation systems may find a cautionary tale in Fairfield.
The suburban city halfway between Sacramento and San Francisco was the headquarters of MV Transportation, a rising star in public transit outsourcing. But the company failed to deliver the bus service it promised its hometown, emails, documents and interviews show.
Between 2008 and 2010, the company was fined 295 times by local transit officials for poor performance, including too many accidents, missed bus runs and late buses.
The use of private contractors has grown dramatically in California. Contractors ran 223 million miles of bus and train service in the state in 2011, a 42 percent increase in a decade, according to the National Transit Database. Last year, they picked up 166 million riders in California, up 29 percent. Government-run public transit systems still carried far more riders last year with 1.2 billion, a slight dip from a decade ago.
Even in the Bay Area, a stronghold of public employee unions, officials are more eagerly considering outsourcing public transit to save money. Alameda County is mulling contracting out bus routes in the growing suburbs of Fremont and Newark, managed for decades by AC Transit. Last summer, Marin County officials considered outsourcing bus service to a private company, deciding against it only when the public agency cut its price to compete.
But the arrangements are not all unmitigated successes. Some fall short of heralded savings. Others bring lower wages and less bus service. In Fairfield, then-Transit Manager George Fink said he couldn’t hold politically connected MV Transportation to the contract, calling it a wake-up call to transit agencies thinking about outsourcing.
Riders like retiree Albert Sanchez are the collateral damage. One sunny afternoon, Sanchez and his wife waited for a bus from the mall in Fairfield to their home a few miles away, in Suisun City. Sanchez said the outsourced Fairfield and Suisun Transit – known as FAST – has failed to live up to its optimistic acronym.
“The bus is always late. It’s always late,” said Sanchez, an inveterate public transit user who moved from San Francisco eight years ago.
Sanchez said that the previous week, he’d waited at the stop for two hours. One Friday, he walked four miles home because buses stop running at 8:30 p.m.
Documents and interviews reinforce Fink’s allegations that the Fairfield City Council and his bosses frequently intervened. Once, Fink said, he clocked the time between his criticism of MV Transportation and a call from his boss, Assistant Public Works Director Wayne Lewis, at 32 minutes.
Lewis, who now leads FAST, said Fink was a rigid manager who always stuck to the “letter of the law.” Lewis added, however, that he understood the frustration city employees feel when contractors “have access to elected officials and staff doesn’t.”
MV Transportation has been a generous donor to local charities and pumped tens of thousands into low-dollar Fairfield City Council races.
“Anything that was critical, 89 percent of the time, it would circle back to us,” Fink said. “They would engage the City Council, and they would call the city manager and then he would talk to me and tell me to back off.”
During Fink’s five-year tenure in Fairfield, which ended in 2010, records and interviews show he was ordered not to issue an audit critical of MV Transportation and to stop penalizing the company for poor performance, and his staff was ordered to halt regular bus inspections.
Chuck Timm, a city councilman until 2011, said the company gained no special access to city leaders and praised its performance.
“As a council member and as a citizen, they were great community partners, and they did an excellent job,” Timm said.
Timm prefaced his comments by noting that he was “friends with the boss,” former MV Transportation CEO Jon Monson. Timm also received a $10,000 campaign donation from the company in 2007, according to state campaign finance filings.
Cristina Russell, an MV Transportation spokeswoman, declined to comment, saying, “A response would unnecessarily cast a negative light on a positive relationship.”
Other agencies consider contracting
In Alameda County, even the possibility of contracting out some bus routes in Fremont and Newark worries AC Transit Director Chris Peeples.
“Mainly what it would do is screw the union,” Peeples said. “The contracted-out systems are a whole lot cheaper because of less compensation per hour and dramatically less in benefits.”
Scott Haggerty, an Alameda County supervisor leading a policy advisory committee to study “Tri-City and Tri-Valley Transit” for the Metropolitan Transportation Commission, said transit agencies that use private companies have done a better job than AC Transit at keeping costs down. But Haggerty emphasized that no decision has been made and talks are ongoing.
Last summer, David Rzepinski, general manager of the Marin County Transit District, which serves the scenic county’s 255,000 residents, went shopping for a company to run the district’s buses. Rzepinski had been paying Golden Gate Transit $133 an hour. He found that private companies would do the work for between $92 and $115 an hour.
The bus drivers union protested. With the threat of contracting hanging over the negotiations, Golden Gate lowered its rate to $120 an hour, so Marin Transit ended up sticking with the incumbent. The new deal will help balance the budget, Rzepinski said.
Friction with transit staff
With public transportation in the suburbs, some problems are embedded in city planning, or lack thereof. Cities like Fairfield are built for cars and often are too spread out to justify extended hours or more regular service. But problems such as late buses and accidents are more closely related to management and oversight.
When Fink arrived in Fairfield in 2005, MV Transportation already was running the bus system, which carries about 1 million passengers a year. When the city put the contract out to bid again, he and other city officials added penalties for poor service. MV won an $18.2 million, four-year contract. Soon after, the fines started rolling in.
Over a two-year period beginning in 2008, the company was fined 295 times for a total of $164,000, according to a 2010 city audit, released in place of the one Fink sought to issue. MV was fined for the 14 months when the preventable accident rate exceeded the allowed 1 per 100,000 miles. FAST officials fined MV nine times for not meeting the agreed-upon 90 percent on-time arrival rate and 18 times for buses that never showed at all. The company was penalized twice for drivers using cellphones while driving, six times for drivers speeding and 13 times for drivers being out of uniform.
MV executives were furious about the fines. In meetings with the FAST staff, they complained they were “losing money” and the deal they signed was too punitive, according to meeting notes and internal memos.
As the friction between Fink and the company peaked in the summer of 2009, Monson, then MV’s board chairman, made $10,000 campaign donations to City Councilman John Mraz and City Councilwoman Catherine Moy. Those were hefty sums, even in a city with no campaign contribution limits. When contacted for comment, Mraz called Fink an expletive and hung up the phone. Moy did not return emails or phone calls.
Fines, inspections put aside
Monson and other executives began to meet directly with the City Council instead of city transit staff. In a 2010 memo, Lewis – the assistant public works director – complained that the “city has allowed MV to circumvent the normal management chain. Often, local issues are discussed and resolved without the input of transit staff by the City Manager’s office, City Council, and MV executives.”
Fines against MV were halted by the city for months, and old ones weren’t paid as the city manager overruled some on appeal. Bus inspections that had been yielding fines also were stopped.
In an interview, Lewis said he killed an audit of MV ordered by Fink because it was too punitive. He said that while many of the fines were valid, “there were enough of them that … would seem like they were frivolous,” such as one for a bus driver’s untucked shirttail.
Lewis added that Fairfield and Suisun Transit and MV Transportation are “in a good place now.”
But problems persisted after Fink left in 2010. The bus service performance “exhibited mostly negative trends in all areas” related to efficiency and productivity, according to a 2010 audit by the Metropolitan Transportation Commission, which oversees transit funding in the Bay Area. An MV spokeswoman declined to comment, and Lewis did not return calls seeking comment on the audit.
And in June 2011, an MV Transportation bus operator was involved in a fatal collision. The bus driver, identified as Dale Lee Karuza in multiple lawsuits, was turning left across a Suisun City street when he collided with an oncoming car, killing a passenger. Police cited the primary cause of the collision as the bus failing to yield right of way, according to the California Highway Patrol’s summary. Investigators also concluded that the car was speeding.
Fink now works at the San Joaquin Regional Rail Commission in Stockton. Reflecting back on his time in Fairfield, he said it taught him a lesson about outsourcing public transit.
“If you had a contractor that wanted to run the business and not maximize their profit at every turn, then it would be fine,” Fink said. “As it tends to work out, you’re spending 85 percent of the time making sure that they’re doing everything in the contract instead of doing the things you need to be doing, like getting grant money doing transit planning.”
JUDY WOODRUFF (Newshour): And we take up a question that is being discussed in the wake of the hurricane. Should cities and states start making bigger changes to prepare for the consequences of natural disasters and severe weather?
RAY SUAREZ (Newshour): A hurricane in the final days of October fed by warm ocean water slams the Eastern Seaboard. It's a reminder of how often extreme weather events have been in the news.
Superstorm Sandy battered the coastline, and a record 14-foot storm surge brought New York City to a standstill, leaving the city with potentially staggering repair costs.
All this came just months after the summer heat wave caused harsh droughts throughout the Midwest, and wildfires engulfed entire swathes of Colorado.
According to the National Oceanic and Atmospheric Administration, the last year, from June of 2011 to July of 2012, was the nation's warmest year since record-keeping began in 1895. And it's just over a year ago that Hurricane Irene caused record flooding in the Northeast.
But with Sandy came new records and, according to New York Governor Andrew Cuomo, more pressure for governments to act.
RAY SUAREZ (Newshour): President Obama won't submit his new budget blueprint to Congress until next month, but local officials across the country are already bracing for bad news.
As part of the deal to raise the debt ceiling, spending must be capped at $1 trillion. And with the money from the federal stimulus programs drying up, local governments are worried they won't get the help they need.
For a closer look at the challenges being faced in two different cities, we are joined by Antonio Villaraigosa, the Democratic mayor of Los Angeles, and Danny Jones, the Republican mayor of Charleston, W.Va.
More excerpts
DANNY JONES (R), mayor of Charleston, W.Va.: I -- speaking only for myself, I think that the if the federal government is going to share money with cities and different political subdivisions around the country, we ought to go back to the way it was done in the '70s, through revenue sharing, and do it equally according to population all throughout the country, and do away with all the specific winner and loser projects, you get this, you get that. ---- ANTONIO VILLARAIGOSA (D), mayor of Los Angeles: What we'd like to see the federal government do is not just cut, however. They have got to invest as well. So they have got to invest in making sure that our roads, our bridges, our ports, our airports are competing with roads, bridges, airports and ports around the world.
They've to make the investments that the federal government has always made. You know, every president since Eisenhower, Democratic and Republican both, have supported investing in the highway system, in our infrastructure system. So those are the kinds of investments that they can make while they're also having to make the cuts that they're going to have to do at a time of high deficits and debt. ---- ANTONIO VILLARAIGOSA: You know, the Republican mayor of Mesa, Ariz. -- or second vice president said yesterday, there are smart cuts and there are dumb cuts.
When you cut infrastructure spending that can create millions of jobs, if we don't pass the surface transportation bill, as an example, we're cutting our nose to spite our face. If you cut our schools and our work force development programs that can retrain our workers for the jobs in the new economy, those are dumb cuts.
So we believe that the federal government has to be smart about the cuts that they make and smart about the investments that we need to make to make America competitive around the world. That's what it's about.
You go to China, Japan, Korea, you go to Western Europe, you go to the developing world, and they're making those investments in their ports, in their airports, in their bridges, in their roads. We have to continue to do the same thing if we want to compete around the world. ---- ANTONIO VILLARAIGOSA: Well, I think, though, in the case of both West Virginia and California and virtually every state in the United States, we always say that the difference between a state, the city and the federal government is, the federal government can print money.
That's why we're in -- an unlimited fashion -- and that is why we are in the problems that we are in. State governments balance their backs -- balance their budget on the backs of cities, counties and school districts. We're the only ones that can't pass the buck. We actually have to make those really tough choices.
We want Congress to make an easy choice, and that's invest in job creation, invest in America's workers again.
COMMENT:Most Americans are in debt because we spend more than our income. Most of us have some sort of big loan (mortgage or car loan), then you add those who have more than 2 or 3 credit cards that are ALWAYS maxed-out. This is our own behavior.
So, why would we expect governments (local, state, federal) to behave differently? They are run by human beings, after all, that tend to behave the way we do.
We should not expect governments to behave differently until we citizens change our own behavior.
Also, government income is from taxes, so JUST cutting taxes is never a good idea.
I am Retired U.S. Navy (22yrs) and a Vietnam Veteran. After my Navy retirement I was in the computer related industry, now retired. In 2000 I was a registered Republican and voted for George W. Bush. Six months of having Bush in the Whitehouse forced me to re-evaluate my political stance. I had always thought of myself as a Moderate Republican, but was a Republican by "default" NOT because of close examination of the GOP. Due to what has happened in America since 2000, I now consider myself a progressive, and registered as a Non-Affiliated voter.
*Anti-First Amendment policies that attempt to turn America into a theocracy by enshrining ANY religious belief as law.
* Any attempt to suppress human or Constitutional rights.
* Any law or policy that supports discrimination based on religion, ethnicity, race/color, gender, sexual orientation, or any law that does NOT support Equal Treatment under the law.
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