Moving to a new blog

I've been blogging from this address since 2006, but am changing sites.

You can now follow my research and writing on Pueblo Lands, a blog that will be much more focused on politics and economics in California's Bay Area. Stay tuned by following me on Twitter where I'll post updates.

"Pueblo lands" refers to one of the earliest and most formative political struggles in California's history when the state's existing urban commons, organized by the Spanish and later Mexican governments and protected by the Treaty of Guadalupe Hidalgo, were illegally sold off to a handful of wealthy Anglo speculators. Los Angeles, San Diego, and most of all San Francisco lost an immense opportunity to found themselves on common wealth in public land, to provide housing security for their residents, and develop cities to benefit workers rather than real estate capital. Instead an injustice was perpetuated, albeit in a new form, upon the genocide of California's native peoples.

My renewed focus on the San Francisco Bay Area is motivated by a desire to critique the existing political economy, and to hint at what's still possible.

The Great Swaparoo

Remember that wacky "free money" guy with the question mark suits?

Matthew Lesko's infomercials became infamous in the 1990s because he offered something seemingly impossible - a free source of income that could be tapped by even the stupidest person. In pop culture he's now basically synonymous with fishy scams and dangerous financial schemes (even though his shtick was simply to point out various government grants and assistance programs).

Lesko's basic sales pitch - "FREE MONEY!" - was pretty effective when used by bankers on public officials and civil servants in local governments across the US over the last decade and a half. Cities, counties, and local agencies staked huge sums of public revenue on the idea that they could generate free money by entering into complex financial deals called interest rate swaps with Wall Street. It was supposed to be a win-win game. Instead the deals have gone toxic for local governments.

I've been writing about IR swaps lately for some local publications in the Bay Area. The gist of it is that, as bloomberg reporters pointed out recently, local governments across America have been drained of upwards of $20 billion in revenues by Wall Street's titans. Meanwhile the Obama administration, Congress, and federal regulators in the Federal Reserve Bank and US Comptroller's Office sit idly by, offering no plans to bail out local communities.


Oakland's Toxic Deal With Wall Street - How Goldman Sachs is Taking Millions from Oakland Taxpayers While the City Guts Services

The Losing Bets - San Francisco and Bay Area Public Agencies Are on the Hook for Millions in IR Swap Payments to JP Morgan, Morgan Stanley, Wells Fargo, Goldman Sachs, and other Wall Street Titans.

SMS Holdings: The "Faith-Based," Anti-Labor Company Behind Oakland's Private Cops

Even as Oakland prepares to lay off 200 workers due to its shrinking budget and loss of Redevelopment Agency funds, the city will continue to pay $197,000 in property assessments to the Downtown Oakland Association, and Lake Merritt Uptown District Association, the two non-profits that manage the downtown business improvement districts. In turn, much of this money will be paid to Block By Block, a Louisville, Kentucky company that specializes in providing security for business improvement districts. Block By Block is a subsidiary of the Nashville, Tennessee headquartered SMS Holdings, a powerful, politically connected private corporation with a shady record of attacking unions and relentlessly hollowing out the pay and benefits of its employees.

SMS Holdings describes itself in company literature as a "God-centered, faith based" business. Its seven subsidiaries (Valor Security, Service Management Systems, PrimeFlight, FirstLine, Brantley Security, ServiceWear, and Block By Block) have attacked unions attempting to organize workers in airports, shopping malls, and business districts across the country. On the web sites of various anti-union consulting firms, SMS Holdings is listed as a satisfied customer, employing these modern-day Pinkertons to derail unionization drives and negotiations. Executives of SMS Holdings, however, are by no means critics of big government. Over the last decade they have cultivated strong —some might even say corrupting— ties to members of Congress in order to win lucrative, multi-million dollar security contracts at airports and other federal facilities where its holds lucrative contracts.

SMS Holdings' presence in Oakland, and the money it receives from the city's share of business improvement district assessments, raises important questions about the continuing privatization of city services, and subsidies Oakland is paying to security firms and real estate corporations, even while schools are closed and city services are axed.

Oakland's Costly BID Assessments

Oakland's contributions of public revenues to the DOA and LMUDA districts are significant commitments for the cash strapped city. This year Oakland taxpayers must provide the DOA with $109,904 because of assessments on five city-owned properties in the district's boundaries, including City Hall. Unlike most other taxes, public properties are not exempt from BID assessments.

According to the DOA's own assessment records the City of Oakland is by far the largest single contributor to the district's budget, a fact that somewhat undermines claims made by business leaders who say the advantage of the BIDs is that they provide special benefits through the assessment of private property owners.

The city is paying the Lake Merritt Uptown District Association another $52,068 this year. According to the LMUDA's records, the City of Oakland is the sixth largest funder of the district. What's more is that these assessments will increase five percent next year, and each year after.

When the City Council approved of creating the DOA and LMUDA in 2008, staff members of the Community Economic Development Agency noted that fiscal commitments over the 10-year lifespan of each district would be $1.58 million and $566,000 respectively. CEDA staff characterized these obligations of public dollars as "strategic and productive investment of public funds." Alternatively, one could just as easily frame the city's payments as a multi-million dollar subsidy for the large real estate companies who reap the benefits from these special assessments in the form of extra security, cleaning, landscaping services, public relations, lobbying, and special events that they pay far less for because of the city's contributions.

Adding further costs to Oakland's financing of these special districts is the elimination of the Redevelopment Agency. Losing these state-provided funds, the City of Oakland must now pay out of the General Pool Fund for the assessments of the four former Redevelopment Agency owned properties in the DOA. These properties were assessed at $30,438 in 2008. That means that this year the City will likely have to pay about $35,235, and this sum will increase 5% each year after.

Block By Block's contract with the business districts is one of the largest single expenses. According to the DOA and LMUDA's joint 2009-2010 Annual Report to the City Council, "Block By Block receives approximately $60,000 per month from both organizations...." That's roughly $720,000 per year of Oakland tax dollars being paid to SMS Holdings. This includes both assessments on private property that fund the DOA and LMUDA, and the city's $197,000 or so in funding for the district's.

The SMS Holdings Way

SMS Holdings was founded in 1988 as a janitorial services company in Nashville, Tennessee. It quickly grew into a multi-million dollar corporation through large service contracts cleaning office buildings. In the late 2000s SMS Holdings went on a growth spurt, buying up security companies. Among these was Block By Block, the Louisville, Kentucky firm that controls a large share of the market for "security ambassadors" and cleaning services provided to business improvement districts. Block By Block contracts with forty-two BIDs across the United States, including Oakland and Berkeley. By 2008 SMS Holdings posted revenues upwards of $300 million. The company's vice president predicted then that it would surpass a half-billion by 2011.

Image from "The SMS Holdings Way," company pamphlet.

A document entitled "The SMS Holdings Way," available on the company's web site, reveals the religious beliefs of its owners and executives: "from our company’s beginning, our business philosophy has been God-centered and faith-based. While we will always show tolerance and acceptance of the personal beliefs of others, we recognize that there is a higher order that provides a basis for all of our core values."

It's unclear just how deeply the Christian faith and beliefs of SMS Holdings' owners and executives shapes company policy, but in another area the results are much clearer. Block By Block and other SMS subsidiaries maintain low-wage, anti-union workplaces, and have been very aggressive over the past decade in lobbying federal legislators to privatize thousands of government jobs. Block By Block in particular has been criticized in several cities for privatizing services and opposing unionization drives among its employees. SMS Holdings' other subsidiaries have worse records. Paying minimum wages-levels (and in some workplaces even less), SMS Holdings has been able to skim enormous profit margins off of government outsourced jobs.

Block by Block employees are paid much less than municipal employees, especially unionized city workers. In Minneapolis the company's "Clean and Safety Ambassadors" were initially paid $11.50 an hour. Guards Valor Security Services are paid about $10.25 an hour, according to job listings in different states, while workers with PrimeFlight Services rarely make more than state minimum wages (including tips), and in some cases less. When Block By Block's workers successfully unionized with SEIU Local 26 in Minneapolis their wages were boosted to $13.22, levels still far below the living wages municipal public works employees are paid there and elsewhere.

In Pittsburgh Block By Block's security ambassador employees faced a different situation. When they attempted to unionize through the SEIULocal 32BJ, Block By Block managers opposed the simpler card check process, pressing instead for a secret ballot election, a union formation method that gives employers more tools to scuttle pro-union outcomes. Block By Block management barred employees from wearing union buttons or talking to the media, and according to reports in the Pittsburgh Gazette even conducted surveillance and called the police when some of their ambassadors passed out pro-union literature in front of the Pittsburgh Downtown Partnership's offices.

In a Nashville Business Journal article last year the chief development officer of SMS Holdings, Jim Burnett, told a reporter that for cities, "there’s a need to conserve, and so the private sector is an option that’s available to them." The article continued: "Burnett believes business opportunities through privatization are 'imminent.' SMS and other local companies — including Nashville prison operator Corrections Corp. of America and inmate health care provider America Service Group of Brentwood — acknowledge the heightened opportunities while saying they find interest in their services regardless of which party is in power." (More about Burnett below.)

In Oakland, where Democrats and "progressives" have a virtual monopoly on government, the city's chronic budget crunch has created favorable conditions for the formation of the publicly subsidized, privately managed business improvement districts that have hired Block By Block to patrol the downtown. Burnett's company is doing quite well here.

A Tangled Web of Political Connections

Block By Block appears to be a relatively small, but growing, segment of SMS Holdings. The company's most profitable ventures in recent years instead have been private security and aviation service workers whose ranks were greatly expanded with the creation of the Department of Homeland Security, and then privatized en masse by the Bush administration. These SMS Holdings companies reveal not only the extensive political connections the company has cultivated to obtain contracts and shape federal policies, they also provide a window into its extremely anti-union practices.

SMS Holdings owns two private security corporations, Valor and Brantley. Brantley specializes in guarding corporate and government campuses, schools, and residential communities. Valor's business is mostly with large shopping malls and hotels. 

Valor's own employees have attempted to unionize before in several locations, but the company's managers have strongly opposed these efforts. A search of job listing posted by Valor on different web sites reveals universally low pay, rarely greater than $11 an hour. Anti-union shopping mall owners such as General Growth Properties —which has been embroiled in a battle with the SEIU for years over unionization attempts among its janitorial staff— is a major employer of Valor guards. Valor Security guards have been criticized for harassing other mall workers who have attempted to organize. One alleged incident in Heyward, California Valor guards were said to have assaulted janitors during a union drive in 2007.

Michael Rosado, an anti-union consultant, mentions SMS Holdings on his web site as a customer. Under the heading "Union Avoidance Campaign Victories/Withdrawals," Rosado includes SMS Holdings, explaining that his firm helped SMS avoid unionization attempts by employees seeking to join the UFCW at two Kentucky shopping malls. Rosado's web site doesn't explain anything further about this episode, but strangely his company uses the same image of the interior of a shopping mall that appears on Valor Security's website describing its "shopping center marketplace" services. In an October, 2011 blog post on his company web site, Rosado warns corporate managers "don't be fooled." He claims, "unions are out in full force, taking advantage of and positioning themselves at the OWS [Occupy Wall Street] rallies."

PTI Labor Research's web site, including testimonial from SMS Holdings.

Another anti-union consulting company's web site mentions SMS Holdings as a customer. PTI Labor Research features Bill Stejskal, vice president of human relations for SMS, among its client testimonials. “To defeat your opposition," Stejskal is quoted as saying, "it is best to know your opposition. PTI has assisted us by providing hard facts about our opponent labor unions that the unions would have preferred to have kept hidden from our employees. The great difficulty the unions had trying to explain away their unflattering pasts and their questionable current practices made a great impact on our employees."

SMS Holdings' aviation services companies by far have the worst labor records. Primeflight specializes in providing service workers to airports and airlines. At the George Bush Intercontinental Airport in Houston where Primeflight workers drive passengers through terminals, company managers have pressured less-than-minimum-wage employees to over-report tips in order to qualify SMS Holdings for lucrative state subsidies, and to justify extremely low wages. The Houston Chronicle reported on November 1, 2011 that Primeflight's participation in the state subsidization program have been suspended, and that the company is being investigated.

The most profitable anti-union activities of SMS Holdings have been directed at workers employed by its FirstLine Transportation Security subsidiary. Firstline contracts with the Department of Homeland Security to provide airport security screeners at eight locations including Roswell, New Mexico and Kansas City, Missouri.

In 2003 the federal Department of Transportation determined that TSA screeners in airports could not legally form unions, ostensibly because of national security concerns. The ruling was highly profitable for FirstLine which was already contracting in several US airports, and working to vastly expand its ranks of screeners.

That ruling did not hold for long. Firstline employees at the Kansas City International Airport began to organize, seeking representation through the International Union, Security, Police and Fire Professionals of America. SHS Holdings attacked the union and its employees by appealing an election through the National Labor Relations Board. The company was backed by the National Right to Work Legal Defense Foundation, among other conservative, anti-labor organizations.

SMS Holdings' power to combat the unionization of its workforce was greatly enhanced by the political ties the company's executives had cultivated since the early 2000s. According to Federal Elections Commission data, executives of SMS Holdings contributed over $100,000 to the campaigns of congressional representatives since 2003. Much of this money was funneled through the FirstLine Transportation Security PAC.

This flow of campaign cash was focused largely on a few legislators whose powerful appointments on several congressional committees gave them oversight powers over TSA contracts sought by SMS Holdings. Among those who benefited from SMS Holdings contributions were House members John Mica (R-FL) and Dan Lungren (R-CA).

Rep. Mica is the current Chairman of the House Transportation and Infrastructure Committee. Rep. Lungren holds a seat on the House Subcommittee on Transportation Security. Both positions allow them to shape legislation impacting contracts held by SMS Holdings.

In the Senate John Thune, Jim DeMint, members of the Aviation Operations, Safety, and Security Subcommittee have been recipients of Firstline PAC money as well as contributions directly from SMS Holdings' executives.

Tight political connections that have allowed SMS Holdings to fight unions and obtain lucrative government contracts don't stop there. In 2003 the company hired Jim Burnett (quoted above on privatization as a business opportunity) to be its vice president of business development. Burnett previously was chief of staff to Van Hilleary, a US House member representing suburbs of Nashville.

When Rep. Hilleary quit his seat in 2004 he moved to Washington, D.C., working as a consultant at the powerful SNR Denton lobbying firm. Among his clients was SMS Holdings. In 2006 Van Hilleary ran for Senate. Financial disclosures filed then revealed he had lobbied extensively for SMS Holdings with his former congressional colleagues. Among the largest funders of his senatorial campaign were SMS Holdings executives.

These political connections continue to work for FirstLine and SMS Holdings. As recently as November of 2011 Rep. John Mica was arguing still for privatizing all TSA screening jobs.

...And Oakland is paying these people for private security guards.