It’s high time to be paying closer attention to the $14.7b (p. 31) of taxpayer’s money that Covid19 has left in essentially the sole charge of our LAUSD Superintendent, Austin Beutner.
On March 10, 2020 under Covid19, the LAUSD’s publicly elected school board signed over sweeping authority for fiscal and management decisions to Superintendent Beutner, a former investment banker who remarks that the “guiding principle in my career, … is to put myself in uncomfortable positions and take risks.”
The emergency powers relinquished the board’s fiduciary responsibility to stakeholders regarding oversight and regulation, policy and budget, with no sunset date attached. The breathtaking subrogation was to a Superintendent appointed by a former board, chaired at the time by a member charged with and subsequently convicted of felony campaign misconduct, indebted to a different, neoliberal and privatizing ideology of public education.
At next Tuesday’s LAUSD board meeting some more fallout from this power shift will become evident. To date a tremendous amount of emergency spending has been brought to the board as simply courtesy, for ratification rather than actual approval. And the circumstances of this spending is fraught; criticism – even questioning – is awkward at best, difficult in practice. Feeding the hungry during this health and economic emergency is crucial; keeping our community safe is vital. But what happens in the long term? Should permissions for emergency operations be extended to systemic operations?
On the docket (tab 6) for discussion and for waivers of important public-interest oversight mechanisms, is the sale of LAUSD’s central administrative headquarters downtown. Known eponymously for its location at 333 S. Beaudry Ave, “Beaudry” is a building with a history of construction defects and shady real estate deals. LAUSD purchased the building in 2001 under circumstances so fraught as to attract investigation by then-District Attorney Cooley. And in 2017 District staff found “there would be no financial benefit to selling the… building at this time.” The real estate market under Covid19 is uncertain, and downtown office vacancies are climbing. It is hard to envision how the sale or lease-back of this vexed building could be in the best interests of the taxpayer. But under cover of Covid19, the taxpayer has been disenfranchised, represented instead by the former hedge fund manager of distressed assets.
What are distressed assets?
Simply something on the market for below its estimated value. If the seller is under pressure for any of a number of reasons – say, poor cash flow, inability to maintain or repair a property, bankruptcy, or market bubble – a seller might offset a low sale price in exchange for mitigating this pressure – say, via liquid cash, indemnity from repairs, etc.
And the proffering of Beaudry at firesale prices not only follows from complicated current finances resulting in budgets which are good and full even while feeling so fragile as to be on the verge of collapse, but also from an insidious, long-term narration that erroneously undervalues the commodity.
This world of distressed asset (and debt) management is the world orbiting our LAUSD.
This world of distressed asset (and debt) management is the world orbiting our LAUSD. It is the true major business of local education “philanthropist” Eli Broad (not merely home-building), and it is the world of his favored acolyte, Austin Beutner. It is the world of many of the plutocrats surrounding our District – e.g., Howard Marks and Bruce Karsh and so many other investors from the private distressed assets venture fund, Oaktree Capital, run by the former personal assistant of Eli Broad.
These so-called “vulture capitalists” encircle LAUSD serially. While we arrive at the present day where the curiously-installed Superintendent with zero education experience, now moves to enact the “portfolio plan” long-signaled by Beutner.
As it happens, offering sales and distressed sales of public goods is a well-worn stratagem of Beutner’s. In approximate reverse order there was:
- “Accreting” Southern California news outlets for intended privatization and sale (2015). Beutner was fired from his publishing post for this impertinence.
- More market softening via the City of Los Angeles’ (CoLA) 2020 Commission (2014) cultivating a landscape of doom and distressed selling. A conceptual trap of disruption without solution.
- Partnering with Eli Broad to purchase and reorganize (2013) the LATimes as a private company. Beutner was promoted following the unsuccessful purchase to Publisher, a job for which he was as supremely unqualified as his subsequent recent appointment to Superintendent.
- Selling the public LADWP headquarters (2010), another distressed sale proposal quashed by considerable public concern and absence of appropriate conditions.
- Softening the LA market for development, height and density through forced updating of CoLA’s “Community Plans” (2010). Such atmospherics were enabled through former mayor Riordan’s and then-mayor Villaraigosa’s engineering of a position crafted expressly for Beutner: first deputy mayor of CoLA’s economic and business policy.
- Partnering with longtime Clinton associate Mickey Kantor and deputy treasury secretary Roger Altman to co-launch the private hedge fund, Evercore (1996), specializing in leveraged buyouts (distressed assets) from out of the personal ash-proceeds of privatizing Russia (below).
- Participating in the privatization of Russia (1994-96), eventually leading the US Russia Investment Fund, a private investment vehicle backed by the US government – the acme of distressed assets markets.
- Conducting 16 leveraged buyouts of distressed assets as a 20-something trader at Blackstone Group (1980’s).
- Meanwhile as prelude to Mr. Beutner’s subsequent mono-focus on the sale of distressed assets he was mandated to protect, was Eli Broad’s own first repeated attempts at a “public” leveraged buyout of the LATimes (2007).
It’s not clear that decentralizing LAUSD’s administration and selling Beaudry is a poor plan. That it was not cost-effective three years past does not make it so today. For example it is now just one year from the time when tax limitations on rental of the building sunset. Cost::benefit analyses change with time.
But along with the proposal is a suggested waiver of public sector rules convening a committee to advise on the use or disposition of District “surplus property”. These are rules meant to protect the public, its money and its trust. It doesn’t help that an additional waiver is requested for a private real estate professional. Public asset management employees are evidently incapable of such a sale in the public’s interest.
Or has a combination of inestimable corporate campaign funds, the undue tacit influence of corporatists, and unmitigated emergency powers rewritten some power imbalance on the board irreversibly?
LA Education Exchange
Watch Tuesday’s BOE meeting live at 1pm, 11/10/20, here.