Explanations *Updated*

I owe a little backstory considering the technical nature of the last few posts and the why.

Daily readers are noticing a deliberate push for explaining disaster funding, how to structure it. Why is there a discussion about it at this particular juncture which turned more technical than explanative?

It is crunch time.

I am in DC. I have been meeting on the Hill. I am coming back to the sunshine of California. It is cold here, and it is not just the weather- the response from certain corners echoes the environment. Things are real.

Pressure is being applied by the Administration to get things moving in CA. It started on January 23, when the Executive Order was written. The purpose was to mark the 365 day anniversary of the President coming to California, meeting with the Governor on the tarmac, and to mark the fact little, if anything, has been done from a disaster recovery perspective.

Since then, Lee Zeldin has been designated the “point person” for the Administration. He has flown to LA to meet with our electeds, including Kathryn Barger, Lindsay Horvath, and Karen Bass. He has also met with community groups. The goal I was told when he came out with great fanfare (in the California Post) was to get everyone in line and get their “asks” clarified.

The County scrambled thereafter to justify “their asks.” I presume the same happened in the City. It was about the Community Development Block Grant- Disaster Relief (CDBG-DR). A bill (HR 6644) was winding through Congress to create a permanent authority to get CDBG-DR funds and the goal was to get everything in alignment. Those additions would happen on the Senate side.

It passed the House on February 9, four days after Zeldin was in LA. Kathryn Barger got her Motion passed on February 10, the day after HR 6644 left the House. The plan was moving. The County/City would take control. CDBG-DR funds will be authorized in the Senate version of the bill. I know, it is confusing.

Then the AG launched his “investigation” of a civil rights case into the County and their response to the fires on February 12. If the case turns to a lawsuit, that lawsuit brings the Department of Justice (federal) into the equation and could remove the County’s discretion as a counterparty to any CDBG-DR funds, potentially inserting the State back into the equation. Zeldin’s visit was to send a message to the State as much as anyone- they would be cut out of the discussion.

Then a week after the State’s Investigation, the County launched its own “criminal investigation” into Southern California Edison a week after Bonta’s announcement on February 19. What does a criminal investigation potentially lead to? Bankruptcy of a utility closely tied to the State, particularly the Governor.

Billions of dollars are at stake here and control is what matters. Knives come out and moves get made. More than a few careers are made or broken by what is about to happen here. Year of the lawsuit indeed.

Realizing the mess we had and the lack of a reliable counterparty for the feds, I wondered if we could bypass the entire CDBG-DR method.

I found a different way- the old, almost shuttered Economic Development Agency.

Much of what EDA did was similar to the CDBG-DR, but the statute was more flexible in terms of how the grants were allocated and structured.

Where gaps existed, you could fill them by “stacking” the capital and leveraging other incentives (i.e. Philanthropy, Opportunity Zones and Low Income Housing Tax Credits), as the Administration has asked us to do. The upshot is we can bypass the potential legal drama engulfing the County, City, and State and the “daggers hanging over the heads” of our public figures related to the first year’s responses. It was “is there a different way?”

The result of the EDA idea has been to “rock some people back” here.

Meetings on the Hill were informative.

There were those who were very pleased by the concepts being proposed, using EDA and creating an “investment fund” to help “rebuild.” It was what they asked for. I said it last summer when I was here. I said it last fall as we went through the process. The goal has not changed.

What changed is the timing. The fuse was lit by the EO. The time has come to do something and I do not think there is a resident of Altadena or the Palisades who would not agree (maybe one or two but they are not electeds because none of them live in the neighborhoods affected).

As was said to me here, “people are now having to show their hands, finally.”

Discussions came from multiple sources just before I left saying “it is time for your capital stack” to be fleshed out. They thought the money was coming and now the gaps needed to be filled.

As I arrived here, CDBG-DR was winding through the Senate. It will likely pass with some amendments to go back to the House. Will the House take the Senate Amendments? Not sure. Then there is now the complication of the EDA and an option to do “disaster finance” without a CDBG-DR.

Could CDBG-DR get stripped out during Amendments? It is not the purpose of the bill, it was a “rider” hitched onto a housing bill. If the Administration said, “nope,” does the calculus change?

It reminded me a lot of 2019 and a bill I was dealing with numbered HR 4920.

HR 4920 was a “messy” bill. Vested interests “needed it” to go through as a Power move. They vested a lot of time and energy to get the bill in place, but it was unnecessary. Same here.

The lobbyists of the State and the County worked to get the CDBG-DR attached. It needed to be there. It would top up budgets. It would give control to entities which traditionally had it. With the CDBG-DR spigot opened, even fractionally, the money could start to flow. If they fail, then what?

Like HR 4920, it was a beginning, a compromise, not how they wanted it, but enough that proponents could “change things” as times change. 2026 looms. The House is looking like it is going to flip. The Senate may too (though that is a longer shot).

You could ride out the Administration as was the plan back at the outset as we saw with the AB 797 opposition. Disaster is big money.

LA is preparing its documentation. It is getting ready to ask. The Administration is “hearing.” Hearing is not listening however.

The “wish list” is being pared back, but it is not being done in the way the Administration asked for. More wasted time. There is a Plan. The Plan is not public, but it is in motion. I saw it here. It is what “LA wants,” not what the Administration wants. The Administration can still stop things. Again, is it about the victims? Not so much anymore based on what I heard. Power Politics folks.

Then the knives came out for the EDA push which solved a lot of the impasses without hair you would find on CDBG-DR.

It was subtle, but it was enough someone attuned with how these things work to notice.

Faces were recognized in the halls. I know the faces, they know mine. They knew who I was meeting with, they know friendlies back in LA. They could put two and two together. Random, serendipitous meetings took place in the halls too, seeing people you never thought you would see from LA in DC. It is how it works.

So, as we reach the crescendo of the back and forth for the last year, the plans laid out here in this Substack are what have been asked for, whereas in CA, we have offered more of the same.

We offered multipliers, different sources, creative thinking, finance tools, and most important, options.

Those are the goals people have wanted.

Specifics cannot be filled until the structure is known. CDBG-DR has a structure, somewhat, but not the right one for the moment. It will not be the “old” with limited dollars. So, is it really the same model? It is grant based. We are moving into a post-grant-based model.

What do you do when you have to stack capital never done in the way, or on a scale, being anticipated here?

Are the counterparties for the grant the right counterparties? Can they do the creative, out of the box thinking needed to get this project across the finish line or will they just wait it out, failing to get a “bail out” down the road?

It is why I wanted to explain what was going on. The structures posted lately are the refinements based on conversations.

The history, the back story, is here. It is to explain what has been more technical, quick, and direct because it has happening in real time with engagement at multiple levels.

Is the engagement designed to push through the bill through the Senate to keep amendments out which the Senate wants and the House does not? I got it wrong in the original. I thought the House bill had CDBG-DR. It is the Senate.

Is it designed to truly execute something from the Administration?

It is designed to push the negotiation to a different direction?

I don’t know. I am a pawn, but on the chess board once again, 6 years after the last time.

I promised to tell you how it would work when I started this Substack. I promised to take readers through the process, including the writing of bills, the back and forth, the trials and tribulations. We are at an inflection point, perhaps legislatively the biggest inflection point because this is what the veto in October was all about. We are on the biggest stage in politics in the world.

I hope this piece helps contextualize all the crazy. We are at the table. Altadena and the Palisades deserve options. At least we have some whisper of a voice in this meat grinder known as Washington.

Please no more “failing up” for those who have failed us in LA over the last year.