Following consulting firm Capital Partner’s recommendation for a major overhaul of the City of Los Angeles’ Public Works Department, including replacing its full-time governing board with a part-time policy-setting commission, a recommendation of the consulting firm Capital Partners, the City Council in late December 1995 referred the proposal back to the ad hoc restructuring committee, requesting more input from both the department and from labor organizations.
Frustration with the pace and quality of public facilities construction has been expressed recently by councilmembers Ruth Galanter and Mike Feuer, especially in response to delays in completing bond-funded law enforcement projects such as the 911 communications centers. Public Works reform is also a major focus Stuart Ketchum’s “Blue Ribbon Panel” reviewing the seismic rehabilitation of Los Angeles City Hall.
Daniel Rosenfeld, assistant general manager for Asset Management in the Department of General Services, was asked by the Mayor’s office to review recommendations for reorganization of the Department of Public Works.
He presents an innovative solution to address a long-standing problem: “No matter how you rearrange the desk chairs,” government is not very good at the real estate business.
Dan Rosenfeld
"In conclusion, let's get real estate out of government."
Studies of government facilities organizations, including the State of California's recent Little Hoover Commission report, have arrived at two conclusions:
- Government is not very good at the real estate business, and
- The best organization for a private-sector marketplace is a private-sector organization. Adapted to government, this type of arrangement is best exemplified by the real estate organization of the Canadian province of British Columbia.
Almost twenty years ago, British Columbia disbanded its Department of Public Works and created a "for profit" corporation called the British Columbia Building Corporation (BCBC), owned and controlled 100 percent by the provincial government.
The British Columbia Buildings Corporation operates under a board of directors consisting of government leaders and private sector experts in design, construction, leasing and property management. The board hires a president and senior officers who are compensated under private sector terms, that is, with competitive levels of salary, bonus and benefits as established by the board. They are held accountable to private sector standards of performance—or face private sector consequences.
When the BCBC was established, selected members of the former staff of the Department of Public Works were invited to join the new corporation and were given a choice: they could either maintain their civil service status or they could elect to join under private sector terms and conditions which might allow for faster promotion and bonus compensation, but would also expose them to demotion or termination if warranted.
The British Columbia experiment has been a complete success, and I would suggest it be replicated in Los Angeles.
The fundamental mission of a Los Angeles Buildings Corporation would be to procure and operate government facilities. The corporation would be authorized to pursue its business in the private sector marketplace, but would be instructed to follow City policies with regard to minority hiring, code compliance and other priorities established by the Mayor and City Council.
The corporation would operate on a for-profit basis. Its revenues would be obtained from charging market rental rates and market fees to its customers, that is, to the city agencies which it serves. All fees would be benchmarked to the marketplace, approved by the board of directors. and subject to arbitration if disputed by the customers.
The corporation would incur normal business expenses and, if operated efficiently, should show a profit. This profit would be payable to the stockholders, that is, to the citizens of Los Angeles. British Columbia's Building Corporation routinely makes such a profit and proudly presents a dividend check to the Parliament each year.
The corporation could raise equity and debt capital independently in the conventional marketplace, or it could have access to tax-exempt debt. It could also be required, as is the case in British Columbia, to invest a minimum amount of its own equity in its major projects.
An additional benefit of this organizational structure, again following the example of British Columbia, is that the corporation could market its services to other governments including Los Angeles County and smaller cities in the region. Profits generated from these activities would further reduce the cost of facilities to the City of Los Angeles. In fact, the City and County could even merge their facilities' functions—and save a bundle of money.
We would not need to lay people off or "bust" a union to do this. If British Columbia, with its left-leaning pro-labor tradition can do it, I’d like to think that L.A. can too. The real winners, after all, will be an emancipated city staff.
The British Columbia Building Corporation has performed brilliantly for almost two decades. It has developed a highly qualified and highly motivated staff with tremendous esprit de corps. The staff, in turn, plans, procures and manages first class facilities for its government clients at "below market" costs and regularly posts a profit for the benefit of the public. Other governments in Canada, Europe and Australia are beginning to copy the British Columbia approach.
Adopting such an organization here would enable the City of Los Angeles to maximize the value of its real estate holdings and to provide decent operating facilities at the lowest possible cost. I suggest that your office and the Public Works Committee of the City Council review the British Columbia experience and consider it as a feasible, and perhaps desirable, solution for the reorganization of the Department of Public Works.
In conclusion, let's get real estate out of government.
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