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iAUDIT! - Many columnists and reporters have written articles about Los Angeles’ Homeless Industrial Complex, the system of interlocking leadership and organizational relationships that funnel money to a few agencies while imposing no performance requirements. While its undeniable leaders habitually defer to the agencies they’re supposed to regulate, I prefer a different, and I believe, more accurate term: The Homelessness Trust.
For those who may be unfamiliar with the word “Trust” in this context, it dates back to the late 19th century, and refers to a mutually beneficial relationship among related businesses with the intent of reducing or eliminating competition and controlling prices. An example familiar to many Angelinos would be the old “studio system”. Until the 1950’s, studios controlled every aspect of filmmaking; they contracted actors, produced the movies, and released them through studio-licensed theaters. Troublesome actors could be controlled by the threat of withholding plum roles or releasing their films in remote areas with no advanced publicity. Theatre owners had to show all the films studios produced, no matter how bad, if they wanted to show the blockbusters as well. The entire filmmaking revenue stream was controlled by and benefited the studios. The studio system wasn’t dismantled till the mid-1950’s, when the federal government declared it a monopoly and the courts broke it into its constituent parts.
The reason I prefer “Homelessness Trust” to Homeless Industrial Complex is because a trust exists solely to benefit the people at the top of the organizational chain. Despite the wastefulness and ultimately futile aims of the original military-industrial complex, one could argue it benefited a wide swath of American society; besides business leaders, the military-industrial complex provided millions of working people with well-paid jobs. Those people, in turn, bought homes and cars, supporting a huge manufacturing and building sector. Research sparked by the defense industry led to many technological innovations in the civilian world, like the microwave oven. Of course, it could be argued—correctly—that excessive defense spending starved social programs of funding, but one of the problems with dismantling the military-industrial complex was the negative impact it had on employment and the economic vitality of many communities. It was in the complex’s best interests to economically benefit as many people and communities as possible, so they would continue to support lavish defense spending.
The Homelessness Trust, on the other hand, exists primarily to pump money towards the top of the homelessness economic chain, regardless of the economic or human cost. A 19th century railroad baron famously replied “all the traffic will bear” when asked if there was as limit to what he would charge for moving goods cross-country. Since trusts are de facto monopolies, they can dictate costs and prices to the rest of the market. This is evident with the Homelessness Trust. A recent LA Times article detailed homelessness providers’ demands to increase the bed rate for interim housing facilities, from $89 to $139 per night, (a 56 percent increase), or they will be “forced” to close their shelters. As Christoper LeGras explains in the All Aspect Report, this is little more than extortion. Most interim housing is managed by a few large corporate nonprofits who know the City has little recourse should they pull out of the shelter business; few other organizations can quickly take over the City’s shelter network.
A key trait of a Trust is the existence of an umbrella organization that coordinates the efforts of supposedly separate businesses. In the 1890’s, the American Sugar Refining Company (ASR) was one such organization. Through a web of related companies, ASR controlled nearly all sugar harvesting, refining, and sales in the United States. It could set prices at whatever level it chose, since there was no other source for sugar. The homelessness version of ASR is an obscure organization called the Greater Los Angeles Coalition on Homelessness, (GLACH), a conglomerate of 55 homelessness agencies in LA, including some of the largest, like PATH, St. Joseph’s Center, the Weingart Center, and Venice Family Clinic. Combined, these nonprofits spend billions of taxpayer dollars. GLACH spearheaded the demand the City increase the bed rate; in other words, it was a coordinated, concerted effort to bully the Council into paying more, by threatening a universal pull-out of providers at interim housing facilities.
Before they were broken up in the early 20th century, railroad trusts routinely bankrupted farmers who could not afford the exorbitant fees they charged for shipping crops to urban markets. The Homeless Trust thinks nothing of bankrupting the City to increase its revenue. As both LeGras and I have reported, some of the nonprofits pleading poverty have more than doubled their revenues in the past five years. As the Times article shows, acquiescing to the nonprofits’ demands would add $186 million to the City’s expenses this year, when the City is already dealing with a huge and growing deficit.
One major difference between 19th century robber barons and the Homelessness Trust is that at least the government was on the right side of the fight in the 1890’s. President Theodore Roosevelt built his reputation as a “trustbuster” by breaking up the conglomerates controlling everything from the sugar market to railroads. Our leaders, on the other hand, see no problem barreling headlong into insolvency to pay nonprofits “all the traffic will bear”. The Times article quoted Mayor Bass as saying, “I will tell you one thing: We have no intention of closing facilities and putting people out on the street…Fortunately, with Measure A, we are not going to have to put people out on the street.” Even Councilmember Blumenfield, normally skeptical of nonprofit performance, rushed to their defense, proclaiming, “If the council doesn’t provide nonprofits with the increases they’ve been demanding, those organizations could end up running “unsustainable deficits” — and closing interim housing sites”.
Significantly, Mayor Bass mentioned Measure A, the recently passed proposition to increase homelessness program revenue by perpetually doubling Measure H’s quarter-cent sales tax to a half-cent. Supporters touted the strict oversight and performance-based measures recipients will have to meet if they receive funds. And yet Mayor Bass, even before the tax has been implemented, is offering up its revenues to the same nonprofits who, as of today, can show scant results for the billions they’ve already received.
What seems to be missing from the conversation is what the City—and the homeless themselves—are getting for the current and proposed expenditures. As I have reported several times, most recently here, neither the City, County, nor nonprofits, can show any reliable empirical evidence the money spent on homelessness has had any discernable effect on homelessness. Inside Safe may have resulted in a small reduction in unsheltered homelessness, but at a cost of more than $340 million, an amount that is unsustainable in the long run. Court-appointed auditors have described a system ripe for fraud, with a billing and payment system so dysfunctional, they referred to it as “untangling spaghetti”. The interim housing over which the nonprofits are agonizing is run so badly, some people choose life on the streets. And yet City leaders seemingly can’t wait to pour money into a broken system.
When I worked full-time, I managed many contracts. I heard “we’re losing money on this contract” so many times, I developed a standard response: “If you’re losing money, you’re a lousy businessperson. You bid the contract at the price you stated. If you made a mistake, that’s on you. If you’d like to pull out, please do, but be prepared to pay the nonperformance penalty and have me tell my City Council in a public hearing you cannot meet the requirements for which you contracted”. Miraculously, contractors found a way to make it work. Perhaps the City of Los Angeles needs to take GLACH at its word, that some of the largest and wealthiest nonprofits in the state cannot operate the interim housing system at the current rate. Maybe the best thing to do is cite each provider for noncompliance and competitively bid shelter management—with the nonperforming providers automatically excluded from consideration. The response from GLACH and its Homeless Trust members would certainly be interesting.
(Tim Campbell is a resident of Westchester who spent a career in the public service and managed a municipal performance audit program. He focuses on outcomes instead of process.)
