Lehman Brothers

On Tuesday, Ventura joined the Counties of San Mateo and Monterey in suing Lehman Brothers in San Francisco Superior Court for "fraud," "negligent misrepresentation" and "breach of fiduciary responsibility" under various provisions of California law.

The nationally-renowned litigators, Cotchett, Pietre & McCarthy are representing the public agencies on a contingency basis (there will be no cost to the city unless there is a recovery.)

When Lehman Brothers collapsed, Ventura's formerly AAA-rated $5 million investment with Lehman Brothers was swept up in their bankruptcy. Ventura was hardly alone: at the time, public agencies in California held a quarter of a billion dollars in Lehman investments. U.S. Rep. Anna Eshoo, D-Palo Alto headed a bipartisan group of Senators and Congressional representatives who appealed last fall to Treasury Secretary Henry Paulson to use his authority under the Emergency Economic Stabilization Act of 2008 to step in to purchase the assets owned by public agencies. That call has been renewed with the new Treasury Secretary in the Obama Administration.

Lehman's dramatic crash on September 15, 2008 sent the Dow down 500 points and shook the financial markets worldwide. It was the time, the largest bankruptcy in the history of the United States. It marked a turning point in both the global credit crisis and the United States presidential election.

The principle reason that Lehman Brothers swift demise was so unexpected was the Enron-like deceit with which its top executives sought to conceal the size of the problems on their balance sheet. Where other investment banks and financial institutions publicly wrote off billions in "sub-prime" holdings, Lehman executives sought to inflate the firm's value in a merger or sale by negligently misrepresenting the depth of the firm's problems. Instead of protecting their shareholders and public and private bond holders, the Lehman executives personally profited from the fraud -- and left everyone else with the smoking ruins of a fabled firm that had ridden out more than a century of economic cycles.

At a Congressional hearing on the causes of the Lehman Brother's collapse, California Congressman Henry Waxman asked Lehman CEO Dick Fuld: "Your company is now bankrupt, our economy is in crisis, but you get to keep $480 million . I have a very basic question for you, is this fair?"

Fuld's response was that he had only been paid $300 million in pay and bonuses during eight years as Lehman's CEO. With that, however, he was able to buy a 10,000 square foot mansion in Greenwich, Connecticut, a $21 million Park Avenue home in New York City, a $13 million beachfront vacation home in Florida and a million dollar condo for ski vacations in Idaho.

The lawsuit seeks to recover ill-gotten gains from Lehman executives (and their auditing firm) for their flagrant breach of fiduciary responsibility for other people's money.

Obama: The days of building sprawl forever are over

Three years ago, some warned that the "housing bubble" would burst and the absurd prices for homes were not sustainable. But still, prices marched upwards for both homes and buildable land. The frenzied real estate market churned out new subdivisions to meet market "demand" that was fueled by cheap money and loose credit.

That's all gone now.

Many wonder when the housing market will "come back." But the market for suburban subdivisions may never come back, like the factory jobs in Bruce Springsteen's haunting song, "My Hometown":

"Now Main Street's whitewashed windows and vacant stores
Seems like there ain't nobody wants to come down here no more
They're closing down the textile mill across the railroad tracks
Foreman says these jobs are going boys and they ain't coming back to your hometown"

Answering questions in Florida last week, President Obama talked about the need to invest in new transportation alternatives because, he stated: "The days where we’re just building sprawl forever, those days are over. I think that Republicans, Democrats, everybody… recognizes that’s not a smart way to design communities. So we should be using this money to help spur this sort of innovative thinking when it comes to transportation.

(For the context, see the question and answer exchange, which comes about 58 minutes into this video on CNN.)

Ventura had already made the shift with our 2005 General Plan. Recognizing repeated voter decisions to halt sprawl on our hillsides and surrounding farmland, the new vision for Ventura's future focused on "infill first." It didn't say Ventura would never expand, only that the focus would first be on mixed-use development in Downtown, along transit corridors in Midtown and the Westside and in other specific areas where new investment would breath new vitality into older neighborhoods.

The City Council also directed that new subdivisions at the city's eastern edge be coordinated to ensure that the remaining development there be well-planned and designed, in contrast to the haphazard sprawl of earlier projects.

The damage to the real estate industry and credit markets is so deep that it will be years before we see new substantial new construction. But there is a real opportunity to prepare now for a healthier, more sustainable pattern of new development. That's been the focus in Ventura for the past four years -- and it will serve us well in the challenging years ahead.

Retail prospects

With retail sales plunging across the nation, the decline in local sales tax revenue has dramatically altered our local budget forecast. Our very preliminary estimates about the upcoming fiscal year (which starts in July) were that this year's $4 million budget gap would rise to $5-8 million in the budget year ahead. Our budget team has just finished the detailed forecast they do each year at this time and the range has risen. With sales taxes, building permits and other revenue down sharply, we are now looking at closing a budget gap of $8-12 million.

We are proceeding with our effort to redesign city government to reduce expenses and programs by 10% (on top of the cuts that have already taken place.) But the reaction to the County's proposal to close Wright Library illustrates how tough the choices will be.

One "easy way out" that is often cited is "increasing economic development" which is almost always focused on retail stores. Critics accuse Ventura of being "anti-business," usually citing Walmart as an example of how we could quickly bring more tax revenue to the city.

These critics, of course, ignore the fact that Ventura outperforms every other city in Ventura County, except Thousand Oaks, in per capita sales tax revenue. Despite the splashy subsidies and real estate developments in Camarillo and Oxnard, Ventura's more cautious approach has stood the test of time and performance.

It now appears that Walmart will finally be applying to occupy the vacant K-Mart they leased on Victoria. Ventura oters will have a chance to vote on banning big box stores that offer groceries in November. But although the initiative would be retroactive, it will be interesting to see how the courts interpret that if Walmart goes ahead and simply occupies the existing empty store.

Walmart, by itself, will only add 2-5% in additional sales tax revenue, the former being the more realistic net number, the latter being the more misleading gross number since much of the "new" sales will be diverted from other retailers.) That's not insignificant, of course. But we will see how voters weigh the net gain in the balance of the emotional arguments on both sides.

More significant, however, are the prospects for our existing retailers, particularly the Pacific View Mall, downtown merchants and the Auto Center -- and the potential for stores to fill the increasing vacancies as well as occupy any new development. Behind the Auto Center, for example, a major developer is working with property owners on regional destination tenants as part of a development timed to completion of the Olivas Park Drive extension by the City. The City is also considering a proposal for new development between the beachfront Crowne Plaza and the historic pier.

A recent headline story in the Ventura County Star quoted David Rush, senior vice president of retail properties at CB Richard Ellis. Noting 38 recent retail chain bankruptcies and more than 200 additional retailers on Wall Street's "watch list," the Star said Rush believes retail is reinventing itself and will become smaller, more service-oriented, and look nothing like it does today in 10 years.

Right now, it is virtually impossible to finance any real estate development that hasn't already broken ground -- and the story notes the ones under construction are likely to open with substantial vacancies.

No one, of course, knows how long the current economic crisis will last -- or how deep it will go -- or how quickly the economy will rebound once things turn around.

But under the most optomistic estimates, major new retail expansion is not likely to fix our budget challenges anytime soon. Regardless of political debates or ranting by certain commenters on the Star's web site, Ventura's commitment to planned growth has served the community well. The City has partnered successfully with private investors and merchants to revive Downtown, to shore up the Mall and to ensure the competitiveness of the Auto Center while at the same time resisting over-building that cannibalizes existing local and national retailers.

We have opportunities and they deserve even more focus and energy in this economic crisis. But new retail development is no panacea. It's important to note that economic development is much broader than bringing in new stores and shopping centers. While that provides the most direct boost to city revenue, in the long run it is jobs and the businesses that employ people that count in generating wealth.

Clearly the City can and should be more active on this front -- in partnership with the Chamber of Commerce, existing businesses and other civic groups. In this economic crisis, there can be no higher priority than building a sustainable economy, one not dependent on consumption, but on the generation of wealth in our community.