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iAUDIT! - For all its progressive credentials, San Francisco is very much connected to its Gold Rush roots. Its street and place names abound with references to people and events from the era of the 49’ers. Wells Fargo’s corporate headquarters is just a few yards from where its first express office opened in the 1850’s. Tadich Grill, which bills itself as the oldest continuously operating restaurant in California, got its start as a tent eatery on the city’s waterfront in 1849. Even the city’s geography owes its character to the Gold Rush. Much of the city’s northeast quadrant is built on land reclaimed from San Francisco Bay as the population exploded; had the city retained its original shoreline, the bay’s waters would be lapping at the foundations of the Transamerica Pyramid.
Interestingly, few of the famous people we associate with the Gold Rush made their money in the mines. Wells Fargo built a banking empire shipping gold and goods back and forth between California and the Eastern US. Nob Hill’s famous hotels—the Mark Hopkins, Standford Court, and the Huntington—are named after railroad barons who made their fortunes bringing rail service to a growing city and state. Levi Strauss, whose company is still headquartered at the base of Telegraph Hill, sold his riveted denim jeans to miners on their way to the gold fields. In other words, the real riches weren’t in gold mining, but in making money from the Gold Rush’s tidal wave of people willing to pay whatever it cost for what they needed.
Unsurprisingly, along with a flood of money, San Francisco had a well-earned reputation for corruption (some would say the tradition continues to this day). Crime was so pervasive at least two “Committees of Vigilance”—vigilantes—took control of city government in the mid-19th century. It is said the railroad barons and others bribed government officials to blame the vast majority of destruction from the 1906 earthquake on the fire that followed, rather than the earthquake itself. This forced insurance companies, who would not pay for earthquake damage, to finance much of the city’s rebuilding, and it avoided branding the city as a dangerous place to do business. As much as some people may romanticize the Gold Rush as an era when anyone could strike it rich, in reality, it gave rise to a wealthy class who made their money from working people and ensured government policy favored their interests.
We could say L.A. is experiencing a second gold rush, except this time the riches are to be found in homelessness instead of distant gold fields. Billions of dollars are circulating in an industry built around serving the homeless and the agencies that are supposed to help them. Like the first gold rush, much of the money seems to go to a small group of privileged organizations, rather than those who should benefit from it. As I detailed in a previous column, large nonprofit organizations have seen their budgets balloon by more than 100 percent in the last few years, while executive compensation has risen precipitously. Most of that money comes from taxpayers. In 2016, the City of LA’s homelessness budget was about $138 million; it is now $1.3 billion. In the same year, LA’s voters approved a $1.2 billion bond for homeless and affordable housing construction. A year later, the county’s voters approved Measure H, a quarter cent sales tax to fund homelessness programs, bringing in about $500 million per year. The City’s Measure ULA, approved in 2022, was supposed to generate another $500 million but has underperformed. These amounts don’t include hundreds of millions each year from the state (Mental Health Services Act and Homelessness and Housing Assistance Program money) and the federal government in the form of HUD grants.
Just like the original Gold Rush, the people making money aren’t at the working end of the system, they’re the middlemen. For the billions invested in homelessness, remarkably few people have been permanently housed. Hearings in federal court on August 29 and October 2 exposed a homelessness intervention system so broken, thousands of people are simply lost between outreach, shelter, and housing. The same people may be counted multiple times as the recycle through the system, only to fall back into homelessness and start the shelter process again. Its little wonder LA Councilmember Monica Rodriguez calls the system “the merry-go-round from hell”. Likewise, developers have benefitted from measures advertised to ease the housing crisis, but as fellow CityWatch columnist Dick Platkin points out, few truly affordable units have been built.
In 1849, San Francisco was filled with huge tent encampments where would-be miners heading to the Sierras paid exorbitant prices for everything from eggs to the pans they needed to fry them. Epidemic diseases spread in camps with no sanitary facilities while crime was as pervasive as the fog rolling through the Golden Gate. Meanwhile, the political and social elite grew rich from the misery of others. In 1879, Robert Louis Stevenson described the city’s economic structure in poetic terms: “From Nob Hill, looking down upon the business wards of the city, we can decry a building with a little belfry, and that is the stock exchange, the heart of San Francisco; a great pump we might call it, continually pumping up the savings of the lower quarters into the pockets of the millionaires upon the hill.”
How little has changed since the 19th century. Instead of raking money from itinerant miners moving to and from the gold fields, California’s modern-day robber barons have turned homelessness programs into an industry every bit as profitable as the Comstock Lode. Their targets are no longer naïve miners; they are the state’s taxpayers, most of them middle- and lower-class working people who don’t benefit from the tax shelters reserved for the wealthy. In five years, the state has spent $24 billion with nothing to show for it, as homelessness mercilessly increased. At the hearings in federal court, auditors described a system where payments are made without proof of service, where performance reports contain unverifiable and unrealistic numbers, and human suffering has reached epic proportions. At the October 2 hearing, the lead auditor described a conversation with a shelter occupant: “Auditor Diane Rafferty recounted how a woman with a traumatic brain injury prostitutes herself so she could afford food. "It's heartbreaking, your honor,” she told U.S. District Judge David O. Carter. “It is heartbreaking.” LAHSA, which is supposed to oversee shelter operations, has no standards for what defines a hot meal or sufficient storage for personal items. The City Controller is investigating an unnamed nonprofit for serving cheap instant ramen meals at an Inside Safe facility. Six people die on LA’s streets every night.
In Gold Rush San Francisco, most miners spent what little wealth they gained on gambling, drinking, and other activities that had no value other than what it earned the owners of the saloons crowding every street. Similarly, Los Angeles spends lavishly on programs that superficially help the unhoused but do nothing to reduce homelessness. Along with its budget summary, the City publishes two thick volumes of financial details. Volume II incudes the budget for homelessness and shows a fiscal year 2024-25 budget of $960 million (page 985). The City spends about $50 million on CARE and CARE+ encampment clean-ups, which do little more than temporarily clean an area, only to have people move back, sometimes on the same day. In addition, the homelessness budget includes:
- $300,000 for extra custodial services in and around City Hall and other municipal buildings in DTLA to clean trash left by urban campers
- At least $2.2 million for street medicine services
- $8.36 million for LAPD overtime needed to add extra patrols around shelter facilities
- $4 million to provide hygiene facilities to unsheltered people
- Another $1.4 million for special clean-ups of hazardous waste in encampments
- $67,000 for a mobile laundry truck.
While these services may seem beneficial and compassionate, and they certainly ease the suffering of the unsheltered on the street, they do little or nothing to get people into shelters or reduce homelessness. It may appear to be compassionate to provide showers and laundry services, but it would be far more cost-efficient and effective if those services were provided in shelters, where they could be offered to more people in a centralized setting. Of course, that assumes shelters are properly run, which we already know isn’t happening. The primary accomplishment of these programs is to add to their providers’ revenue.
Meanwhile, those who should be holding providers accountable look the other way, or openly support a broken system. At news conferences, leaders heap praise on nonprofits and boast of “locking arms” with organizations that vacuum up public money for almost no benefit. While nonprofits fatten their bank accounts, and developers benefit from relaxed zoning, government agencies generate a flood of meaningless and unverifiable data. Performance reports count the number of referrals or “housing actions”, but not the number of people actually housed. Support services, when they are provided at all, are so sporadic, anywhere between 25 and 50 percent more people fall back into homelessness than remain housed. As I detailed in an August 19 column, interim housing programs, with budgets well over $100 million, have transferred no one to permanent housing. Or maybe 135 people, depending on which report you choose to believe. And yet leaders continue to grant no-bid contracts to the same cadre of large corporate nonprofits, and rubber stamp any development that offers even minimal affordable housing units.
By the early 1900’s, ordinary Californians had enough of San Francisco-style corruption, and elected Hiram Johnson as governor on a reformist ticket. It took decades, but California cleaned up its government and reined in the power of wealthy special interests, starting with the railroad barons. Unfortunately, we are now slipping backwards, where once again, powerful special interests, in the guise of builders, nonprofits and the public agencies that support them, control the narrative to the degree anyone who opposes them are labeled as “hating the homeless.” Perhaps a new reform movement will take hold. A reckoning may be coming due, and it may begin at the ballot box.
(Tim Campbell is a resident of Westchester who spent a career in the public service and managed a municipal performance audit program. He focuses on outcomes instead of process.)
