Los Angeles Is Having a Loud Economic Boom
Los Angeles Mayor Eric Garcetti is almost 12 months into his second term and the economy of the second-largest city is outperforming No. 1 New York, No. 3 Chicago and the rest of the U.S. Measured by the growth of personal income, gross domestic product per capita, jobs, home prices, global trade and transportation, corporate equity and municipal debt, Los Angeles has become the most productive of the five biggest U.S. cities. 1 Even its perennial calamity of homelessness receded significantly for the first time last year since the city's youngest mayor took office in 2013.
Garcetti didn’t set off the L.A. boom, but there’s no doubt that the city has prospered under his leadership. The 48-year-old Rhodes scholar, former Navy reserves lieutenant and jazz pianist says that Olympic aspirations are a sign of strength for the sunny metropolis of 10 million. In 2028, Los Angeles will host the summer games for the third time, the only U.S. city to do so and a rarity globally in making them a moneymaker.
“In my first hour on the job, the first thing I did was write a letter to the United States Olympic Committee saying we want the Olympics, and L.A. has bid on the Olympics more than any other city in the world,” he said during an interview in his office last month. “When I think about L.A. what we have, of course, is infrastructure. We could do the Olympics every four years and make money off of it, and we expect to net north of a billion dollars.”
More than a decade before his fellow Democrats were proposing a Green New Deal, Garcetti authored L.A.'s clean water bond and municipal green-building ordinances. And at a point when corporate wealth is denounced by many fellow Democrats, Garcetti says, “I never met a CEO I didn't like.”
He embraces public-private partnerships and praises “tremendous corporate leadership” of L.A. companies on transportation, summer youth jobs and programs to reverse homelessness and raise the minimum wage to $15 an hour next year. For the 2028 Olympics, “We raised all private money: $50 million in two weeks from corporate Los Angeles,” he said.
The biggest infrastructure expense is the record $14 billion to increase annual passenger airline traffic to more than 100 million from 87.5 million in 2018. The $4.9 billion contract for Los Angeles International Airport — one of the few in the U.S. with nonstop daily flights to six continents — “was the biggest in city history that was designed, financed, filled, upgraded and maintained by the private sector,” Garcetti said. “It's our asset, but beyond that, why should we be running it?”
That's proving to be a winning message in the bond market, where the City of Los Angeles Department of Airports municipal debt handed investors a 5.6-percent return during the past 12 months. That performance in income plus appreciation easily beat the 4.6 percent average of U.S. issuers, including California, at 4.2 percent. It also exceeded the return on national airport municipal debt, 4.4 percent, and on transportation bonds, 4.3 percent, according to data compiled by Bloomberg.
Rising confidence in the city's finances has coincided with a 19-percent rise in per capita personal income over the past five years, beating New York's 18 percent, Chicago's 17 percent and the U.S. average of 15 percent, according to data compiled by Bloomberg. The L.A. job market also reversed its historic inferiority, erasing the 3.2 percentage point gap with U.S. unemployment prior to 2013 to match the national unemployment rate.
L.A.'s gross domestic product per capita surged 11.8 percent the past five years, dwarfing Chicago's 7.4 percent, almost three times New York's 4.1 percent and twice the average for 383 U.S. metropolitan areas, Bloomberg data show. Some of the gain is attributed to population growth of 2.5 percent as New York grew 2.1 percent and Chicago declined 0.2 percent.
Growth of GDP per capita, percentage change since April, 2002
During the five-year period, home values in Los Angeles increased 49 percent, easily surpassing the U.S. average of 28 percent and more than double New York's 17 percent and Chicago's 14 percent. L.A. also has a near impregnable share of U.S. shipping, with the ports of Los Angeles and Long Beach, representing 35 percent of the market compared to No. 2 Newark-New York, at 17 percent, or No. 3 Savannah, 8 percent.
Percentage change in local home-price indexes since April, 2000
Even in corporate Los Angeles, which has far fewer headquarters than New York or Chicago among the 500 largest U.S. companies, the 78 Los Angeles-based 2companies in the Russell 2000 index have reversed a 10-year disadvantage. They’ve outperformed the benchmark since 2015 led by local health-care companies that appreciated 197 percent, according to data compiled by Bloomberg.
Percentage change, total return, in shares of L.A. and U.S. companies
“We have probably the greatest collection of research institutions in any one city, which supports everyday health-care and biosciences, where we now have more jobs than in either the traditional centers of San Diego or San Francisco,” Garcetti said.
Garcetti said that sustaining the city’s boom will require dealing successfully with “a huge shortage of skilled labor.” He's promoting L.A. College Promise, which boosted first-year community college enrollment 56 percent by making tuition free. He said that community colleges are the place to create a pipeline for “career construction jobs, transportation jobs, tech jobs and green energy installation jobs.”
Since its inception in 1781 as a Spanish colony town, Los Angeles benefited from farming, oil, tourism, real estate, movies and freeways. No mayor can take credit for the city's world-beating aerospace, entertainment and bioscience industries. A dramatic downtown development boom that began with the opening of the Staples Center in 1999 was set off by easing restrictions that year on conversion of old buildings and has been sustained by foreign investment and a nationwide reawakening of urban life.
“The nice thing about being a mayor is you learn how to be a pragmatist and to discard whatever ideology you have or you're fighting against,” Garcetti said. “I lowered business taxes at the same time we raised the minimum wage here — you're not allowed to do both of those in either party.” He added, “L.A. is a place that doesn't say ‘No’ and has more success than not in leading our future.”
(With assistance from Shin Pei)