I was absolutely outraged by this example of what I believe amounts to demonstration of the self-serving nature of politicians as they pander to their wealthy and powerful political patrons. In these fiscally desperate times, with all of the job losses and home foreclosures in Los Angeles County, how could politicians, in good conscience, participate as a middleman to facilitate a no-risk deal to provide the Bank of America with what amounts to a taxpayer-guaranteed loan.
The situation …
Whether by mismanagement or other economic reasons, the Los Angeles Opera has lost millions of dollars. Unfortunately, there are those social and political elites who believe that it is that taxpayer who should facilitate the continued functioning of the opera in these financial perilous times.
The way it reportedly works is simple ...
“On Friday, the Los Angeles County Public Works Financing Authority will issue the bonds. Banc of America Leasing & Capital LLC, will buy them all for $14 million, and the county will pass the bank’s cash along to the opera on the same day.”
“Twice a year for the bonds’ three-year term, the opera will fork over interest at a pre-arranged rate of 4.7%, and the county will pass it along to Banc of America. The interest will total a tad less than $2 million. The principal will be paid in a single lump sum at the beginning of 2013.”
Three things make this an especially egregious situation:
One: the Los Angeles County Public Works Financing Authority seems to be telling those in Los Angeles County that there is no better or higher use for this money … like repairing or replacing Los Angeles County’s crumbling infrastructure.
Two: the Bank of America can obtain millions of dollars at very low interest rates from the Federal Reserve and pays its own depositors abysmal interest rates – ranging from .15% to just three quarters of one percent (.75%) for those with more than $2,500,000 in savings.
Three: there is absolutely no risk assumed by the bank since the taxpayers will be responsible to pay back the loan. It’s not the bank’s money that is at risk – it’s the taxpayer that bears the brunt of any default by the opera.
The political spin …
“Supervisor Zev Yaroslavsky said at Tuesday’s board meeting that the county will ‘make money on this through the interest rate, and we’ll save the opera.’”
Which is bullshit …
“But he was mistaken: As county chief executive William T Fujioka noted later in the meeting, the bank will pocket all of the interest. The county is acting as an unpaid middleman, needed for the deal because it has the legal authority to issue bonds in the public’s interest. The county would be on the hook if the opera defaults, Doug Baron, director of public finance for the county Treasurer/Tax Collector’s office, said Wednesday.”
Why does the Opera even need public money?
“But Baron and other county officials consider the likelihood of that to be negligible, because 23 members of the opera’s board already have pledged $30 million that would retire the principal and interest nearly twice over.”
If it is true that 23 members of the Opera’s Board have pledged $30 million, one might ask why these people do not simply co-sign a bank loan at a similar interest rate? If the Opera’s plans work out, then the bank receives their money back plus interest and the co-signers are off the hook.
Bottom line …
It is this type of manipulation and misuse of public funding authority in desperate times --by politicians acting only to be of service to the wealthy elites who often dominate the political and social scene – that annoys the hell out of me. Especially when the sale of these bonds may further reduce the County’s ability to seek financing to be spent on truly important projects.
While the general public may enjoy the Opera and the Opera may bring a certain amount of social cachet to Los Angeles, it is far from a necessity that mandates public action. And considering the problems with Bank of America’s acquisition of Countrywide Funding and Merrill Lynch – perhaps they should be doing something to aid distressed homeowners instead of financing the Opera.
-- steve
Research links …
You might want to check out what happens if the L.A. Opera's ticket sales for the Ring operas fall short (which I think may be happening since it is very easy to get tix for most of the upcoming performances), and they can't repay the loan.
Hal Goldberg
Laguna Woods, CA
Posted by: Hal Goldberg | January 24, 2010 at 04:15 PM