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Goodwill Industries of the East Bay’s executive director John Latchford opposes raising the minimum wage to $12.25 in Oakland by next March. Latchford’s total compensation in 2012 was $311,566.

Nonprofit corporation executives are among of the most adamant opponents of raising the minimum wage in Oakland, California.

A ballot initiative spearheaded by labor unions and community organizations to raise Oakland’s minimum wage from $9 an hour to $12.25 next year was criticized in the San Francisco Chronicle by several nonprofit leaders who fear that the law will cut back the reach of their job training programs. Michelle Clark of the Youth Employment Partnership said the minimum wage increase will force her organization to scale back their job training program by 30 spaces. “That’s going in the wrong direction,” Clark told Will Kane of the Chronicle. Olis Simmons and John Latchford, the leaders of Youth Uprising and Goodwill Industries of the East Bay, respectively, voiced similar concerns.

These nonprofit executives are essentially objecting to raising the pay of their employees from $18,720 in yearly pre-tax earnings to about $25,480, an increase of roughly $6,700 per employee.

But what do Clark, Simmons and Latchford make in a given year? How much does their employment cost their organizations?

In 2012 the Youth Employment Partnership paid Michelle Clark $159,330 in total compensation. That’s equivalent to the pay of 8 minimum wage workers.

Olis Simmons of Youth Uprising had a paycheck and benefits equal to $249,761, or 13 minimum wage workers.

And John Latchford of Goodwill Industries is among the highest paid nonprofit executives, taking home $311,566 in salary and benefits in 2012.

Another way of looking at the math of a minimum wage increase, one that focuses not just on the pay of those at the bottom of the economic hierarchy, but also those at the top, is as follows: Under the current minimum wage of $9 an hour, or $18,720 per year, these three nonprofit executives combined are paid as much as 38 of their lowest wage employees. If Clark, Simmons and Latchford have to raise wages to $12.25 an hour, their compensation would drop to an amount equal to the total pay of about 28 of their minimum wage workers.

I break the math down this way because the debate about the minimum wage is centrally about inequality. Few things are certain about the impact of raising the minimum wage. But one certain impact is that income inequality in Oakland would be significantly reduced.

Under the current minimum wage, the ratio of John Latchford’s compensation to that of a minimum wage worker is 16:1, that is, Latchford makes sixteen times more than a minimum wage worker does. Under a $12.25 minimum wage Latchford’s ratio over the lowest paid workers drops to 12:1. That’s a far from the commanding heights of the U.S. economy where the CEOs of global corporations pay themselves hundreds of times more than their average employee, but it’s still a very unequal economic structure that could be addressed if Oakland passes a significant minimum wage increase.

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Source: IRS Form 990s for 2010, 2011, 2012.

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Power couple, Senator Dianne Feinstein and Richard Blum.

I’ve reported for a while now on the phenomenon of the Wall Street landlord. During the depths of the foreclosure crisis private equity firms and real estate investors bought up thousands of single family homes in Florida, Illinois, Arizona, Georgia, and especially California. These investors did quick rehabs on these properties and then rented them out, often to households that lost their homes between 2008 and 2013 due to the global financial crash. These elite investors bet that housing prices would rebound, and thanks to the actions of the US Federal Reserve and Treasury Department they did. They also bet that there would be a shift in America’s housing market toward more renter demand. Households that lost their savings and jobs have been forced into the rental market, creating an opportunity for those with capital to obtain higher returns on real estate.

One of the biggest investors in foreclosed single family homes has been Colony Capital, the private equity firm controlled by Thomas Barrack, Jr. Colony has purchased thousands of foreclosed houses in California and other states. Colony has also sustained recent complaints from tenants who accuse the company and its rental property managers of running slum housing and charging above-market rents. Activists in Los Angeles and other cities are now pressing local and federal officials to take a closer look at the Wall Street landlord business.

But some Washington D.C. insiders have already done due diligence with respect to the new corporate landlords. A recent financial disclosure filing by Richard C. Blum, husband of California Senator Dianne Feinstein, shows that Blum and Feinstein have made a major investment in Barrack’s Colony American Homes. As a member of the University of California Board of Regents Blum is required to disclose his economic interests each year. In his filing for 2014, Blum listed an investment in Colony American Homes Holdings, LP of over $1,000,000, making Blum and Feinstein major owners of one of the largest Wall Street landlord corporations.

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From Richard C. Blum’s most recent statement of economic interest, filed with the University of California Office of the President.

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Former Department of Homeland Security assistant secretary for Immigration and Customs Enforcement Julie Myers Wood, currently a board member of the Geo Group, smiling for a photo with the winner of an ICE Halloween costume party.

Two weeks ago the private prison corporation Geo Group added yet another former government official to its inner circle. On July 2 Geo Group’s management voted unanimously to expand their board of directors to seven seats, adding Julie Myers Wood. From 2006 to 2008 Wood was the Department of Homeland Security assistant secretary in charge of Immigration and Customs Enforcement, or ICE.

Wood is now the second member of Geo Group’s inner circle to have been employed by ICE. Geo Group’s executive vice president for corporate development, David Venturella, was an executive within ICE for 22 years before joining Geo Group in 2012.

Of course ICE is a major customer of Geo Group. Geo Group’s federal prison contracting began in 1987 when ICE signed a deal with the company to build and operate an immigrant prison in Colorado called the Aurora ICE Processing Center. Later this year Geo Group will open a new 400 bed immigrant “transfer center” in Louisiana. ICE will pay Geo Group $8.5 million a year to hold detainees in this prison.

Some might remember Julie Myers Wood for presiding over an infamous Halloween costume party at ICE’s Washington D.C. headquarters in 2007. Some ICE employees dressed up as immigrant fugitives. Wood awarded the best costume prize to an ICE employee who donned a dread lock wig and blackface paint, explaining to amused colleagues that he was a Jamaican detainee who had escaped from ICE’s Krome prison near Miami. Wood was accused by the House Committee on Homeland Security of exercising “poor judgement” when she rewarded the employee for the costume, and also of covering up the incident afterward when she ordered the deletion of pictures. The pictures included a photo of her smiling next to the make-believe Jamaican immigrant prisoner. (The pictures were later recovered.)

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Network map of the Geo Group’s board of directors and executive officers.

Other top Geo Group managers provide natural links to the other federal branch of government that contracts out prison facility construction and operations work: the Justice Department’s Federal Bureau of Prisons. Geo Group director Norman Carlson was the director of the Federal Bureau of Prisons for 17 years before retiring in 1987. John Hurley, Geo Group’s senior vice president for corrections and detention was a warden in the Federal Bureau of Prisons for 26 years. Today Geo Group operates multiple Department of Justice prisons housing federal inmates.

Julie Myers Wood’s recent appointment to the Geo Group’s board of directors also connects Geo Group to new corners of the private security industry. After her brief and controversial term running ICE, Wood, as is now the custom among top federal officials, set up her own consulting firm in 2012, ICS, LLC. ICS stands for “Immigration and Customs Solutions.” Wood’s consulting shop was then bought by GuidePost Solutions, a large private security consulting firm that was already doing business with the Geo Group through a consulting agreement with B.I., Inc., a Geo Group subsidiary that specializes in providing electronic ankle bracelet monitors and other surveillance equipment to track prisoners and parolees.

GuidePost Solutions has become a repository of revolving door law enforcement figures. Among the influential executives at GuidePost Solutions is former prosecutor and Mayor of New York Rudolph Giuliani. Giuliani is also a named partner at the Bracewell & Giuliani law firm, the same firm where Anne Foreman used to be an attorney. Anne Foreman is currently a director of the Geo Group, and former under secretary and lawyer for the Air Force.

Wood is also a member of the American Bar Association’s Commission on Immigration, and the executive committee chair of the Border Security Technology Consortium. The latter is an industry lobbying group comprised of companies that sell surveillance equipment and weapons to the Department of Homeland Security.

The world of private, for-profit prisons, border security contracting, and surveillance technology is quite small really. If you follow an individual’s professional network out a few degrees, it’s likely your search will boomerang back around to where you started. It’s personal relationships forged on corporate boards, and as government officials, that connect the growing private prison and surveillance industry to the current government officials and lawmakers who are in a position to award contracts.

For Wood, her new spot on Geo Group’s board will provide pay and stock awards valued at about $250,000 a year. Her connections to other private prison and surveillance companies and trade associations will strengthen Geo Group’s already formidable lobbying prowess and help the company to secure a bigger slice of the growing market for privatized prisons.

On December 19, 2013 the Consumer Financial Protection Bureau, 49 state attorneys general, and the District of Columbia reached a settlement agreement with Ocwen to resolve the company’s illegal foreclosure practices. The settlement allowed Ocwen to escape prosecution in return for a promise to cease at least 17 illegal practices it used to over-charge and mislead homeowners, to file false documents, and to wrongfully foreclose.

So has Ocwen lived up to its promise of change?

Data compiled by the CFPB shows that in the months after the settlement was announced there was actually a spike in the number of complaints against Ocwen. So far this month complaints against Ocwen are down, but overall, based on consumer complaint data, it’s hard to see how the settlement has changed Ocwen’s practices.

The following graph shows the number of complains received by the CFPB every day against Ocwen, starting on December 1, 2011 and ending on July 16, 2014. The red arrow points to the day that the Ocwen settlement was announced by authorities. The black trend line shows generally that complaints against Ocwen have continued to rise over time.

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Berkeley and Richmond recently upped their minimum wages, and Oakland and San Francisco are also considering significant lifts for their lowest-wage workers. But each city’s minimum wage plan differs in significant ways. These differences reflect the balances of power between workers and employers, unions and business leagues, in each city.

In Oakland, labor and community organizations banded together as a coalition last year and decided to place an initiative directly on the ballot in time for the elections this November. That decision to circumvent the city council prevented what happened in Richmond and Berkeley. In Oakland’s neighbors to the north initial calls by grassroots activists for a $15 minimum wage were translated into a much smaller increase. Final legislation in these two cities was further watered down. Business lobbyists successfully argued that an immediate and significant hike in the minimum wage for all workers would cause unemployment, business closures, and a drain economic activity from these cities.

Berkeley’s minimum wage therefore isn’t very large, and it isn’t indexed to inflation, so it loses value quickly.

Richmond’s minimum wage, while larger on paper, may not impact very many workers in the city because of complicated exemptions that allow lots of employers to simply not pay the new municipal minimum wage, or to pay a lower “intermediate” amount.

In San Francisco the process has been legislative, like Richmond and Berkeley. But instead of starting from $15 and cutting downward, San Francisco’s board of supervisors appear headed toward $15 by 2018. If they pass the minimum wage legislation that was considered at today’s rules committee, San Francisco’s minimum wage will rise from it’s current $10.75 to $12.25 next year.

That would match the proposed increase that Oakland voters will consider in November. But then San Francisco’s minimum wage would jump another 75 cents in 2016, and then a dollar in 2017 and another dollar in 2018. Those increases significantly outpace the rate of inflation.

Here’s what the different enacted and proposed minimum wage increases in the Bay Area look like compared to one another.

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In Oakland the “Lift Up Oakland” ballot initiative would raise the minimum wage for all employees in March 2015 to $12.25 and then increase this wage each year to prevent it from losing value from inflation. The Oakland Chamber of Commerce is attempting to place a competing measure on the ballot that would phase in a minimum wage increase, but the increases charted below for this proposal would not benefit all workers as the Chamber’s proposal carves out certain categories of employers and employees.

 

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San Francisco’s proposed minimum wage would rise to $15 in 2018, possibly bringing pay just above the bare minimum considered a living wage.

 

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Differences between Berkeley and Richmond’s recently passed minimum wage laws, and San Francisco and Oakland’s proposed minimum wages are larger than this graph would imply. In Richmond the number of workers excluded from the new minimum wage of $13 by 2018 is probably very large due to exemption of “small businesses” from having to comply, and a complicated provision that establishes an “intermediate” minimum wage halfway between the city and state minimum wages, allowing employers who obtain half their income from sales or services provided outside the city to pay this lesser wage.

 

 

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A 2000s housing development adjacent to Stockton’s debt-financed new marina. Stockton over-extended itself by borrowing from banks, the state, and other creditors in the 2000s.

In 2007 the city of Stockton, California was riding the nation’s housing boom. Property tax revenues had more than doubled over the previous seven years, and sales tax receipts were up by 65 percent. Two hours by highway from San Francisco, Stockton’s leaders did not want to become just another bedroom community for commuters, and they rejected their past as a sleepy agricultural town. Flush with cash and an influx of tens of thousands of new residents seeking the more affordable housing going up on the city’s periphery, Stockton’s politicians attempted to remake their city into a destination.

Mimicking the borrowing binge in credit markets of housing developers and home buyers, Stockton’s government issued several major series of bonds to finance what was the most ambitious downtown redevelopment scheme in recent California history. Seven bond issues in the 2000s put Stockton deep in debt to build a downtown arena, a minor league ballpark, a marina, to purchase an eight-story office building to serve as the new city hall, and to build a massive parking garage nearby. And Stockton added to this debt with a pension obligation bond issue that was intended to forward fund the city’s retirement system with $124 million, and to free up cash for other projects.

When the economy crashed in 2008, Stockton became the basement floor to which other distressed California municipalities could look and say, ‘at least we’re not down there.’ Stockton’s lawyers frankly described the crisis in their bankruptcy memo:

“The Great Recession hit Stockton hard. Housing prices plunged, causing property tax revenues to fall, and unemployment has soared during the last five years, resulting in a decline in sales tax revenues. Meanwhile, the City’s expenses have remained the same or increased. Poor decisions, lax management, and bad luck have exacerbated the City’s financial woes.”

As Stockton’s revenues dried up, the city’s financial managers slashed virtually every service and program, including basic vital services. At first the cut to the bare minimum. Then they cut far past levels considered minimal and necessary to keep the city safe and functioning. Stockton depleted its meager reserve funds, transferred funds internally between accounts, and then extracted cuts from its workforce. Labor contracts were renegotiated, and when the city’s two largest unions refused further pay cuts, Stockton unilaterally reduced their compensation by $12.5 million. Employees were unilaterally forced to take furloughs, and then the layoffs began. Between 2008 and 2012 Stockton let go 472 employees, 25 percent of its workforce. Still deficits continued. The city shuttered a fire station. All of this happened just when Stockton needed more resources than ever to deal with a record rate of foreclosures surpassing most other cities. Still revenues declined. In 2011 and 2012 Stockton entirely canceled repair and replacement projects meant to keep city infrastructure and vehicles in working order. The city was allowed to crumble.

All through the carnage of one of the largest municipal financial disasters in American history Stockton continued to make payments on its debt. But in March of 2012, after forcing city workers and residents to shoulder spending reductions, the city finally defaulted on $2 million in bond payments. Three months later Stockton filed a petition for bankruptcy.

Stockton’s bankruptcy process, boiled down to its essentials, is an effort to impose a shared pain among the city’s creditors who are owed hundreds of millions. Some of Stockton’s creditors are contractors that are owed pay for construction projects, or goods and services already provided. Others are workers owed pay and benefits for labor already provided. The other big category of creditors includes financial investors who loaned Stockton capital during the 2000s boom.

Although many of Stockton’s financial lenders gave the municipality money understanding fully that their deal with the city was a speculative investment that carried risks, they now are arguing that the compensation owed to current and former city employees should be cut in order to increase the value of their debt claims on the Stockton. In other words, the financial lenders are arguing that the risk they assumed when they bought Stockton’s bonds should be retroactively transferred to the city’s employees in the form of cuts to their pensions.

Franklin Advisors, Inc., part of the Franklin Resources group, better known as Franklin Templeton Investments, a San Mateo-based financial company that controls about $900 billion in assets, has been most aggressive in pushing this argument. Lawyers representing Franklin Advisers are arguing that U.S. federal bankruptcy laws trump California’s law that says pensions administered by CalPERS cannot be reduced through municipal bankruptcy. If they win, Franklin Advisers will reduce their losses by forcing CalPERS, the administrator of many of the city’s retired workers’ pensions, to pay the costs of some of their losses. This cost ultimately falls on the 1.6 million public employees who collect, or someday will collect a CalPERS pension.

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Annual total returns for investors in Franklin Advisers’ California High Yield Mutual Fund. (Source: Franklin Municipal Securities Trust Prospectus, October 1, 2013.)

Franklin Advisers manages several mutual funds which purchased Stockton’s bonds as speculative investments. If you read the bond prospectuses Stockton provided to investors like Franklin Advisers, there’s extensive disclosure of the various risks including potential default on interest payments and even loss of principal. For example, the disclosure statements for Stockton’s 2007 Pension Obligation Bonds included six pages warning investors about various risk factors that could reduce returns or even wipe out their investment. Redevelopment bonds issued by Stockton in 2006 included the warning that a drop in city revenues could lead to losses for investors. All of Stockton’s borrowing from the capital markets came with these boilerplate warnings.

Furthermore, if you read through the prospectuses that Franklin Advisers provides for investors in its mutual funds, the riskiness of investing in municipal bonds of the quality they aimed for is obvious. “You could lose money by investing in the Fund,” explains Franklin Advisers to its clients. “An issuer of debt securities [like Stockton] may fail to make interest payments and repay principal when due, in whole or in part. Changes in an issuer’s financial strength or in a security’s credit rating may affect a security’s value.” It really couldn’t be clearer than that. Well, maybe it can. Franklin Adviser’s California High Yield Municipal Fund also warns investors that:

“Because the Fund invests predominantly in California municipal securities, events in California are likely to affect the Fund’s investments and its performance. These events may include economic or political policy changes, tax base erosion, state constitutional limits on tax increases, budget deficits and other financial difficulties, and changes in the credit ratings assigned to municipal issuers of California.”

Even so, Franklin Advisers is hoping to recoup some losses that it knew were possible when it purchased Stockton’s bonds.

If Franklin Advisers succeeds, who specifically will benefit? First of all, Franklin Resources benefits, as do financial companies like it. If it can establish the precedent that municipalities must cut pensions in order to pay back bondholders, then the value of many of the bonds of distressed municipalities owned by Franklin will increase in value.

So who is Franklin Templeton?

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Gregory E. Johnson, grandson of the founder of Franklin Resources, Inc., currently the company’s Chairman and CEO, and owner of $4.9 million shares of Franklin Resources worth $336 million.

The real force behind Franklin Resources is the Johnson family, a clan of billionaires who inherited their wealth from Rupert Johnson, Sr., the company’s founder. In 1973 Rupert Sr. moved Frankling Resources from Wall Street to San Mateo, California. The company grew over the next four decades to become one of the largest institutional managers in the world. And Franklin Resources’ ownership remained rather closely held. Although it has 631 million shares of outstanding stock, members of the Johnson family still control close to 230 million shares, 36 percent.

The Johnsons are billionaires. Rupert Johnson, Jr., and Charles B. Johnson (who I’ve mentioned before on this blog), brothers, both own over 100 million shares in their father’s company. Charles B’s children, Charles E. Johnson, Gregory Johnson, and Jennifer Johnson all own slices of the company.

Ironically CalPERS itself owns over 467,000 shares of Franklin Resources, worth about $63 million. But that’s a mere 0.1% of Franklin Resources total market capitalization, and an even more insignificant sum, two hundredths of one percent, of CalPERS total assets under management. So CalPERS and its retirees gain nothing from their little stake in Franklin.

The investors in Franklin Resources who would benefit from a win in court against CalPERS and Stockton would include the wealthy individuals who own shares in Franklin’s municipal bond mutual funds. Municipal bonds have always been a preferred investment of wealthy households because of their federal tax exemption. Wealthy California investors have the added incentive to buy into funds like Franklin Advisers’ California High Yield Municipal Fund because income from it (which flows from the interest payments that Stockton and other cities pay) is exempt from California’s relatively high state income tax. The after tax value of tax-exempt municipal securities to wealthy individuals and couples in the top federal and state tax brackets is often more than double the value of what’s available in the corporate bond market, and the risk of default is generally less. Now it would seem Franklin hopes to reduce that risk to its wealthy clients even further.