On Vote Trading Pacts and Enron Accounting in LA

CORRUPTION WATCH-Some Angelenos are upset over the pay-to-play nature of Los Angeles City Hall, according to a recent article in the LA Times. They have labored under the misapprehension that if reformers spend all their time and energy limiting the money developers may give to the mayor and councilmembers, this will somehow magically fix what’s wrong at City Hall. Wrong! 


The amount of money which anyone may legally give to the Mayor ($1,400) and a Councilmember ($700) is already limited to such a small amount that it is worthless as a bribe. Facts, however, are not allowed to interfere with emotionalism and if people want to deceive themselves into believing nonsense, there is no stopping them. Millions of Americans are convinced that we absolutely, positively must have a 2,000 mile border Wall with Mexico. 

LA corruption is in the hundreds of billions of dollars 

Los Angeles’ corruption runs into hundreds of billions of dollars. Stopping a developer from giving Garcetti $1,400 is not going to stop corruption. The Los Angeles City Hall operates as a criminal enterprise which is not fueled by measly campaign contributions. To get an idea how deeply ingrained the corruption has become and how bold Garcetti and the others are in this enterprise, let’s look at the City’s most recent trouble in the federal courts. 

One small facet of this corruption was reported in the August 1, 2017 LA Business Journal. The scam was this – the City obtained millions of dollars from the federal Department of Housing and Urban Development (HUD) to make CRA housing disabled accessible. The State abolished the Community Redevelopment Agencies, effective February, 1, 2012, due to massive fraud that threatened the solvency of both the City of LA and the state of California. The City gave millions of HUD dollars to developers who then did not make their properties accessible to the disabled, but instead pocketed the money. 

When the federal compliance officers came around to inspect the properties and obtain an accounting, the City did what the Garcetti Administration habitually does: it lied. The City misled, deceived and covered up the theft of millions of dollars of funding for the disabled. These city folk are the same ones who simultaneously destroyed the homes of the poor and disabled to manufacture a homeless crisis that would cajole a naive public into approving another $1.2 billion in housing bonds. 

The duty of the LA District Attorney Office is to stop corruption in Los Angeles. Why? Because “corruption is criminal.” I emphasize that phrase since, apparently, no one has told Jackie Lacey that stealing HUD funds for the disabled was criminal or that Penal Code § 86 criminalizes vote trading.  Nothing prevented the District Attorney from protecting disabled people by charging city officials for their role in stealing the HUD funds or, for that matter, prosecuting violations of Penal Code, § 86. On the other hand, who is it who funds the political campaigns of the District Attorney? Is there no connection between campaign contributions and the years of willful blindness on the part of the DA’s Office? 

The number of ways corrupt politicians can be paid off is close to limitless. The idea that this occurs by way of piddling campaign contributions is quaint. We need to look at off-shore accounts, vacations and undisclosed properties provided to relatives. LLCs and LLPs can also help a lot. When hundreds of billions of dollars ride on getting unanimous City Hall approval, people become very inventive. (Some real estate developers get their money from Russia and then they have to fire the FBI Director. But I digress.) 

How developer corruption loots the public treasury 

The act of looting businesses and cities of their money is called by a boring  name: Accounting Control Fraud. This means that those who are in “control of the accounting” commit fraud. 

With Enron, the accountants hyped the amount of money Enron was making while hiding Enron’s huge losses. By fraudulently aggrandizing profits, the executives kept the stock price high on Wall Street so that when the executives sold their stock, they were vastly overpaid. Another name for Accounting Control Fraud is Enron Accounting. 

Enron accounting runs Los Angeles 

The basic LA scam is simple. The City publishes false data saying that the City needs to construct thousands of apartments and then it provides unanimous approval of developers’ projects no matter how many laws they break. This is where the term “spot zoning” comes into play. It basically means that a developer who is nice to his councilmember and the mayor can build whatever he wants without regard for the law.  

This Enron type scam was revealed in the Hollywood Community Plan litigation where Judge Goodman found that Garcetti’s 2012 Update for the Hollywood Community Plan was based on “fatally flawed data and wishful thinking to the extent that it subverted the law,” i.e., Lies and Myths. The new April 2016 version of the Hollywood Community Plan is likewise based upon Lies and Myths. It is the equivalent of Enron saying it was making a ton of money on its sale of energy, when in reality it was suffering millions of dollars in loses. 

When the housing market is the product of Enron Fraud, the projects are financial losers, which is why Los Angeles is, as reported by Paul Hatfield and Jack Humphreville [[[  http://www.citywatchla.com/index.php/la-watchdog/13705-la-faces-city-services-bankruptcy-where-did-the-money-go ]]]  in CityWatch, suffering from Virtual Bankruptcy. Since 2001 the City has been diverting billions of dollars to developers and this has deprived other city services from receiving proper funding, causing our crumbling infrastructure and impossible pension fund liabilities that run into the tens of billions of dollars. You can rob Peter to pay Paul for only so long before Peter runs out of money. 

The basic fraud that has imperiled Los Angeles’ solvency is developer corruption based on the Lie and Myth that hordes of people want to move into Black Lung Apartments in the Garcetti Transit Oriented Districts (TODs.) This type of fraud dates back more than 100 years to when Los Angeles civil engineers mathematically proved the dire economic and social consequences of allowing a few wealthy landowners to restrict offices, retail and industrial land uses to near transit lines in the Basin.  The CRA did irreparable harm to LA with its Bunker Hill Project that concentrated the towering offices complexes next to DTLA. As a CRA project, none of those high rises paid one cent in incremental property taxes. By concentrating office towers in the Basin, corrupt officials intentionally created Los Angeles’ terrible traffic congestion.   

It is mathematically impossible to construct Bunker Hill, Century City, Westwood, and other concentrations of offices in the Basin without creating terrible traffic congestion. This needless problem gave rise to the fraud’s step two -- the need for fixed rail mass transit, e.g. subways and light rail. Los Angeles voters were recently conned into voting for $102 billion in bonds that will end up costing them $200 billion to pay off, in addition to saddling us with billions of dollars in annual operating and maintenance deficits forever. 

Yes, we have been sold a ton of financial horsepucky 

Construction companies will makes hundreds of billions of dollars installing a mass transit system.  But long before the system is finished, corrupt officials will tell us that we need more TODs along these mass transit routes -- in order to generate enough fares to pay for them. The big lie here is that Supply does not create Demand. If you build it, they will not come. Nonetheless, Angelenos will have to repay Wall Street for all the money that Garcetti has borrowed. 

Demographic evidence proves that Family Millennials shun crowded urban core living; there is no market for Garcetti’s Black Lung Lofts. The criminal Bait and Switch element to this fraud is that the city sees the demand for detached homes, then declares that it is demand for TODs. What the City cannot do is what Enron also could not do – make reality conform to its lies. The City could lie to the federal HUD compliance officers but those lies did not make the promised disabled access units magically appear. Lies about Families Millennials waiting to live in DTLA are not going to stop them from moving to Texas or -- closer to home -- stop them from gentrifying East LA or South LA. They will not raise their families in these freeway apartments. 

The reality no one wants to face 

No one wants to face the reality that LA is doomed to eternal corruption. Judge Richard Fruin ruled that the City’s criminal behavior is non-justifiable. He implicitly rejected the entire area of the law known as “whistle blower litigation” or by the name “Citizens’ Complaint” in which one person can bring unlawful behavior to the court’s attention. Judge Fruin ruled that because all Angelenos are victims of the criminal behavior, the petitioners could not complain. He wrote that the Court agrees with the defendant's analysis to the effect that the Petitioner "is no more interested in the votes and voting behaviors of City Council than any other resident or taxpayer." (12-13-2016 decision SaveValleyVillage v City of LA.) 

So now we have it: when criminal corruption affects everyone, it affects no one! Thus, the courts will look the other way. Judge Fruin did not mention the fact that the State legislature had passed Penal Code § 86, a special anti-bribery statute directed at city councils saying that no councilmember could purchase a vote in return for the promise to sell his vote. Thanks to the Judge, LA’s  criminal vote trading pact has become its own “made man.” Judge Fruin has made LA safe for corruptionism. Each councilmember has agreed to vote Yes on all other Councilmembers’ projects in return for Yes votes on his or her own projects.  

Unless we find another way to stop City Hall’s criminal vote trading, each and every foul mega project will get unanimous approval. When one gives the keys to the bank vault to thieves, one should not be surprised when all the money is gone. Don’t bother to get up a posse to go after the thieves – Judge Fruin said theft is okay.


(Richard Lee Abrams is a Los Angeles attorney and a CityWatch contributor. He can be reached at: Rickleeabrams@Gmail.com. Abrams views are his own and do not necessarily reflect the views of CityWatch.) Edited for CityWatch by Linda Abrams.