Entrepreneur. Builder. Governor? Rick Caruso on LA Fires and Running Government Like a Business

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3:16This episode is a really big one for me. This is the very first interview in my new podcast studio, which I built in the garage of the rental I'm living in because I, like thousands of others, lost my home in the LA fires. It has been seven months of rebuilding and red tape. And while what happened here in Los Angeles is devastating, it is not the first or the last city to burn. Wildfires are becoming more common, more destructive, and more complicated, especially with insurance companies pulling out of the very areas most at risk. We need a blueprint, not just for how we rebuild after disasters, but for how we build stronger, more resilient cities in the first place.

4:00Today's guest is Rick Caruso. He is someone who understands how to do just that. You might know Rick as the real estate mogul behind some of the most iconic properties in L.A., The Grove, the Americana at Brand, Palisades Village, just to name a few. Rick is also a philanthropist who has given millions of dollars to causes ranging from homelessness to education to public safety. And in recent years, he's also stepped into the political arena, most notably as a mayoral candidate for L.A. in 2022. Rick lost the race to L.A.'s sitting mayor, Karen Bass, who has been widely criticized for her handling of the fires from day one.

4:38Baz appointed a chief recovery officer who was later let go, and it was understood that there would be a replacement, but no one was ever appointed. In that gap, Rick has stepped up to be, what feels like to me, the people's chief recovery officer. He started a nonprofit called Steadfast LA dedicated to accelerating the rebuilding of Los Angeles, where he's taking a business person's approach to solving government problems. In today's interview, we talk about exactly what went wrong, how city and state leaders failed us, and who should be held accountable. We also get into the legal and financial black hole left behind and why Rick had to hire a private firefighting force just to protect the village he built.

5:22There's been some headlines questioning whether Rick will throw his hat in another political ring with speculation around the race for mayor and also for governor. So I asked the question, actually, all of the questions. Is he running for mayor again? Is he running for governor? What about president? And finally, we talk about the real price of protection and what families can do right now to make sure they're not left vulnerable in the next disaster.

5:51Rick Caruso, I am so honored to welcome you to Money Rehab. I am thrilled. I really am. I'm honored, too. Thank you. This is so surreal because this is our first interview in our brand new studio. It's beautiful, by the way. Thank you so much. Very impressive. Seven months after our brand new studio across the village was lost in the fire. Sorry about that. Thank you. So I can't think of a better person to have as our very first interview. Appreciate it. I always thought that I would have you on the show, but I felt like I would just walk across the street and then find you with your dog and your whole team.

6:27This is better and worse all at the same time. But good resilience on your part. Congratulations. Thank you. Thank you so much. So much resilience in this community. While I was pregnant, built a brand new studio in walking distance. My whole community, my whole everything. Pediatrician was in walking distance there. Such a strong community. I can't for the life of me, even this many months later, figure out what happened. And if you were mayor, who would have been fired? Well, let me just say it's clear now. It was clear to me then, but it's clear now, I think, to everybody that the city was just not prepared and had more than adequate warnings to be prepared.

7:10But I think you know this because you're very smart in business. And when you have somebody at the top of an organization, a CEO, a mayor, whatever the case may be, that isn't well equipped, isn't qualified for the job, isn't competent, then what happens is that all of the organizational structure below that person will then include appointees that are equally unequipped. unequipped because really good people don't go to work for somebody that they don't look up to, respect, and feel that they can gain from working with them and for them. And so at the very top of the chart is the head of the Department of Water and Power that didn't have the tank filled.

7:59And even as of yesterday, we had massive outages in West LA, rolling outages for two weeks. We've had a situation out in the valley where people had to boil their water. We're not a third world country. This is Los Angeles. But Los Angeles is operating like a third world country. And so the mayor was not equipped. She did not demand a plan. The fire department was not pre-deployed. I really do believe that most of the damage would have been avoided. And most of the people that lost their homes would have still had their homes. And most of the businesses would have still had their businesses, had the city done their job right, and had the mayor done her job right.

8:40So you ran LADWP. Right. You would get rid of who? The head of DWP, the general manager, would have been held accountable and fired immediately. I mean, I would have met with her. I would ask her, you know, what happened, what her thinking was, but there's no excuse that that reservoir that had 7 million gallons of water that was needed to fight the fire that was empty in spite of all the warnings that were coming out. We were prepared. We listened to the warnings. We listened to the wind warnings. Nobody could have missed the wind warnings. I'll never forget the wind the night before. The mayor says she didn't hear them.

9:15I don't know how you could have missed them. But we were prepared, and the city should have been prepared. But I would have absolutely fired the head of the Department of Water and Power. And now they're hiring fancy attorneys, right? Thousands of dollars an hour, which says to me, A, they know they're at fault for something, and B, all of that money that you're spending on fancy attorneys should be going to fixing the system that we as taxpayers paid for. Yeah, to the victims. You know what's an interesting dichotomy here is Edison came out in the Altadena fire and I think pretty clearly admitted fault and is working with all the victims on how you compensate them for the losses.

9:57This may be a place where the city just wants to admit we made a mistake and let's figure out how we're fair with the people that were victimized and lost their homes and lost their businesses because the money, to your point, that's going to be spent on a lawsuit with the lawyers will be tens and tens of millions of dollars that would be much better used to go to help people who lost their homes and businesses. And years. And years. Exactly right. And time. Yep. Is our most valuable asset. You know, what a lot of people don't understand is it's, and you do obviously, and I see it with my kids who lost their homes.

10:36It's one thing and it's heartbreaking to lose your home. Just heartbreaking. But what's even worse than that is the loss of a lifestyle that you loved, whether it was Altadena, Malibu, or the Palisades. It was the loss of walking down the street, seeing your neighbor, walking your kids to school. And it was also the loss of just sort of being settled in life. And now life for so many people, thousands and thousands of people, are unsettled. And it's anxiety provoking. And there's a real mental illness concern that I think so many people have on the pressure that people are going through. So the city, in my opinion, should be doing everything it can to make moving back into their community, rebuilding their home as easy as possible to alleviate the stress and the pressure that people are feeling at no fault to these people.

11:31By the way, nobody did anything wrong who lived there. Everything was done wrong who were entrusted and took an oath to protect them. They failed their duty. So should there be a recall? I remember living through the recall. Yeah. Chaos. Yeah. I don't think, you know, I came out against the recall for the mayor because the timing is just wrong. The city would have had to have spent 20 or 30 million dollars putting it on a ballot. By time it would have gotten on a ballot, even if it would have qualified. And it probably would have because there's so much obviously disappointment in her performance.

12:11But the actual vote would have been very close to a vote that's already going to happen. You know, we're going to vote next June. What, 10, 11 months from now on whether or not she should be reelected or somebody else should be reelected. And so I just felt it was better. Let's wait for the regularly scheduled vote. Let's save the money. The city's already a billion dollars over budget, not add and compound to that problem, and let the people come and vote in June, which I hope they come out in droves. Me too. Yeah. You had to hire private fire to protect the village. That's not something that anyone should have to do with all the millions, I'm assuming, or you can tell me how much in taxes you pay.

12:56That should be taken care of. How much does something like that cost? It's in the millions. It's in the millions to do it. Listen, I think from my standpoint, from the commercial standpoint, and I think the Getty did the same thing also. And thank God the Getty was saved. It was an investment that made a lot of sense. It made a lot of sense because we knew we were in a fire zone. We designed the village with non-combustible materials knowing we were in a fire zone. and we have these plans from an operating standpoint as a company because we need to be prepared for disasters. It's just like we know there's going to be an earthquake.

13:34We can't prevent it. We know there's going to be winds. We know there's going to be fires. We can't prevent it, but we need to be prepared for it. And it's the right thing to do. And also our insurance company is really grateful that we saved them hundreds of millions of dollars. So it's a win-win for them. It's a win-win for us. And by the way, it's a win-win for the city and the community because one is it freed up the city's resources to try to save the residential areas. Our private firefighters not only saved our buildings, but saved all the buildings around us, including across the street.

14:14And so now there is at least a base of a downtown that's going to come back. and we're being very supportive of all of our fellow owners, landowners, and businesses to help them come back. We're going to be investing millions of dollars of our own money in street improvements to make it very charming and beautiful, even more charming and beautiful than it was. And I'm really proud of the fact that our team did a great job saving the village and the buildings around us. Obviously, you can afford it, but that's not the point. We have an agreement with the taxes that we pay with the city. The first thing is that there's gonna be water in the hydrants when we need it.

14:57I think so many people are so fed up with California because of the high taxes that we pay for basic services like that that they've left. For the business community that you're so tapped into, for those who stuck it out and said okay I'll pay the high taxes but now there is no water in the hydrants when we need it most, enough is enough, I'm out. Have you talked to any specific people? We lost Elon, of course, but other business leaders or companies that are leaving because of this? Yeah, many are, unfortunately. I think everybody that I talk to is willing to pay the high taxes, including me, as long as you're getting something back for it.

15:35And I think a lot of people now are very frustrated that they're not, both at a city level and a state level. And there's more and more businesses that are leaving. But even worse than the businesses that are leaving are the businesses that are closing because the business environment is so tough in L.A. City, because the business environment is so expensive in L.A. City and so overregulated in L.A. City. So you have an enormous amount, the highest rate ever of small businesses closing due to a weakness in business. And you see it in the city budget now. For the first time in decades, the revenue into the city is declining.

16:15So you don't have to be a math major to figure out when you have declining revenues and you have increased expenses, a billion dollars of being over budget because you made some really bad decisions in giving people a whole lot of bonuses and raises. You're going to have an implosion that's going to happen. It's unsustainable. And the rate of business is closing. Then on top of it, what worries me is there's not net new investment coming into the city because people are worried about investing in the city. So bankers are concerned about it. Investors are concerned about it. We have the lowest amount of housing starts in L.A.

16:54City in years and years and years. So there's no new building going on in the city, which increases the cost of living for everybody. It's all fixable. and there's a really bright end of the tunnel. We just have to get the right leadership to change the trajectory so we get to where everybody deserves to be. And they don't even know if they can get insurance. Insurance is a real problem. Yeah, it's a serious problem. There's a lot of discussion generally about business people in politics, a la Doge, do business people belong in all aspects of politics? You know, sometimes budget cuts can't be indiscriminate, especially with health and human services.

17:38But when it comes to something like this, what could you as a business person have done to better handle the response in the recovery efforts by the city? I mean, they're spending tons of money on these high paid consultants. All of this stuff is just commonly negotiated in the business world. Right, right. Well, I look at it two ways. One is, and I was really clear on this during my campaign, we should be setting our priorities right in our budget. That number one priority is the safety of our residents so your police are adequately funded and your fire department is adequately funded. Because I was calling out during my campaign that the fire department was completely inadequately funded and was not prepared to respond to a disaster.

18:28we have an enormous amount of equipment that's still sitting in mothballs because they don't have the money to repair these fire engines which is crazy we're one of the wealthiest cities in the world we need to get things underground quickly infrastructure needs to be built for the next hundred years and we need to be tapping into the smartest most innovative people in the world who by the way live here and want to help and that's what we've done at steadfast. I pulled together some of the brightest people and asked them to donate their time and their talent, and they're doing it. And it's incredible what's going on.

19:04But we're fighting the system every day, and we're winning a lot of those fights, but it shouldn't be a fight. The city needs to have the tone and the attitude to all the residents. We've got your back. We are here for you. We want you to reinvest. We want you to rebuild your community. We want you to rebuild your house. We will be here to help you every step of the way to do it. Because now we're asking everybody, invest your time, invest your money, and come back into a community. And the city's got to be shoulder to shoulder with you. And so that's the part that we're trying to do. and I think we're doing a good job at Steadfast LA and Altadena, Palisades and Pasadena is giving people hope and giving people the support that they need and the encouragement as much as we can to rebuild and come back.

20:00You talked about the city, but I'll press you and say it's the county and the state as well. Are there any specific missed opportunities that you saw in the city, the county or the state's efforts that could have been helped by a business person, like negotiating with some of these high-paid consultants? Well, I think the negotiating of, you know, the spending of the millions of dollars on consultants and just bringing in people, the right people, right? It's one thing to say, I'm going to go spend millions of dollars. Are you spending millions of dollars with the right people? The city spent$10 million with Hagerty Consulting, whatever the name of the firm was.

20:38Nobody even knows what they did, right? We need to be outsourcing the undergrounding of the power lines, certainly through DWP, certainly with DWP crews, but there aren't enough DWP crews to take care of the whole city and do the undergrounding. And we need to be doing that now. So you need to negotiate those deals. I mean, I would, which I told the governor and I told the mayor, break Palisades up into different sections and give each company the competition of undergrounding to see who does it the fastest and the least expensive. Create competition, drive the price down. Everybody benefits from it.

21:19But, you know, that's what a business person, if, you know, no different when we build our projects, we watch every dime. You bid it out. We bid it out, but we still watch every dime. And we're pushing the schedule because we want to be ahead of schedule. We want to be below budget. And we're trying to do that, obviously, in these devastated areas. Well, you stepped up in such a generous way to fill a lot of these holes that frankly should have been filled by the government. What's the tally at this point? Are you keeping a budget? That Tina and I are putting into it? Yeah. We're putting in a lot.

21:53We're putting in millions and millions of dollars, but that's okay. Listen, I look at it. This city has given me so much. This region has given me so much. I started my business here. I raised my family here. We've got four incredible kids. We have been beyond blessed and fortunate. it. So I'm, I don't even think about it and neither does Tina, the money that we're giving back and putting back into the community. And we're going to continue to do it. And I'm not leaving this community and I'm not going to turn my back on the Palisades or Malibu or Altadena. And if it's sort of the last capstone I do in my career, that's fine.

22:34I feel very fulfilled. And let me just give you one example. And we're going to be talking more about this at Steadfast, we put together a partnership with Samara, which are the manufactured homes. And with the great generosity of the founder of Samara, Joe Gebi, put together$15 million, and we will be starting to deliver homes to low-income folks who lost their homes in Altadena, Palisades, and Malibu. And I got to tell you something. I've made the first few calls to the people that are getting a home, incredibly emotional, couldn't be more rewarding. To be able to call somebody and say, you know, you're going to have a new home for free.

23:22It's going to be on the lot that you raised your family, back in the community that you're loved. It's not going to cost you a dime. And we're going to do everything we can to get you in there before the holidays. and that is worth, you know, a thousand times the cost of that home and the effort it took to make all of that happen. But a lot of people have leaned in to make that happen. So I feel like I'm really lucky being a part of this. So you and Tina are not late at night saying like, honey, maybe it should be a lower percentage of our net worth. No, never even think about that. Never even think about that.

24:03Is there amount of money that you think the victims should be entitled to? It looks like the victims of the Maui fire are getting$4 billion. The number of structures burned in the L.A. fires were seven times that, so seven times four,$28 billion. Well, listen, I think people should be fairly compensated for losing their homes and businesses, and whether that comes from insurance or it comes from the city or the county or the state yes and i think the federal government needs to step up and i i'm really disappointed we don't see the help coming from the federal government um and we need their money to help with infrastructure and rebuilding and giving life support to a lot of people i don't think that's right and the federal government in many disasters around the country has stepped up but we're living in a world of politics that's unfortunate, but this problem is so much bigger than the politics and the average person should not be paying a price for the politics.

25:07I can attest to that. Right when you were coming in, I just got a text that said I had an SBA notification, still haven't been able to get an SBA loan for the business. That's ridiculous. That's a really good point you raised. That is so ridiculous and such an easy lift, right, for the federal government to easily say, and the president should say, everybody gets an SBA loan approved within 30 days. I mean, come on. What are you worried about? Somebody's going to waste the money? Okay. If somebody wastes the money, shame on them. You'll go figure that out and go, you know, hold them accountable for that.

25:44But 99.9 % of the people, in my opinion, I always look at the world this way, 99.9 % of the people are good people wanting to do the right thing. You know, we've got a state that's$12 billion over budget. Start managing yourself and do the right thing and take excess money and give it back to people that need it. Same in the city of Los Angeles. Well, should LA be doing the Olympics now? I mean, as prestigious as it is when we have an area the size of two Manhattans that were just destroyed, should we be spending all this money on infrastructure that's temporary? Yes. And I tell you why we should do it, but we got to do it right.

26:20We should do it because it will be an economic boon to the city and this region. And so many businesses, so many small businesses, independent businesses will flourish if it's done right. So yes, we want the tourists here. We want the city of Los Angeles on the world stage, but we want to be in the world stage and say, we are the best city in the world. And let's show you why we're the best city in the world, the most beautiful city in the world. right and so we got to do it the right way but you don't want to lose that opportunity it's an incredible opportunity but that would be like saying you've got the ability to have a great podcast but it's going to take an enormous amount of work so do you avoid creating a great podcast or do you lean in and do it you leaned in and did it so you didn't avoid the challenge you rise to the challenge and our mayor and our city council and our leadership needs to rise to the challenge and put this city at the forefront of the world in spite of the disaster and say, look at how strong we are.