It’s déjà vu all over again

Physician and Health Care Industry Executive and Former California State Assemblyman

To paraphrase Yogi Berra, "It’s déjà vu all over again". It was just a little over four years ago, in March 2004, that the legislature placed on the ballot and the voters approved Propositions 57 and 58. Proposition 57 authorized $15 billion in bond financing for the deficit at that time and Proposition 58 was supposed to end deficit spending "forever".

But here we are today, again faced with a budget deficit of at least $15 billion. Many in the legislature during the budget debate two years ago warned that the housing market was going to bust, the economy was going to slow, and that state revenues were going to drop. In fact, clearly prescient predictions of $15-20 billion deficits were made, but little attention was paid to the warnings. This year’s budget deficit should not have been a surprise to anyone.

In a bit of irony, the Governor is once again proposing $15 billion in borrowing by securitizing future income from the State Lottery and other one time fixes. These one time fixes are just a continuation of business as usual for Sacramento and are certainly not the needed fundamental fixes to the budget’s structural gap between revenues and spending.

It is time for the Governor and the Legislature to get our State’s fiscal house in order. One time fixes and accounting "gimmicks" are no longer going to suffice for our State’s future, and it is time for our leaders in Sacramento to face the fiscal reckoning and tackle the difficult issues.

Long term budget reform, reform of our State’s tax system, public employee pension reform, business reforms, and infrastructure investment should all be on the agenda for the upcoming budget debate.

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We have a Tax and Spending Problem

Bonnie Reiss
Director of the University of Southern California's Schwarzenegger Institute

"We don’t have a tax problem , we have a spending problem!" We in California have heard this sold brilliantly from our Governor and economic and business leaders for 4 years. It makes a great "sound byte", but hoping those visiting Fox & Hounds have slightly more depth than viewers of Fox or CNN,

I would like to say that this is both wrong and wildly simplistic.

We have BOTH a tax and a spending problem. We rely on tax revenues that fluctuate and are unfair to the middle class. Yeah, remember the middle class, the largest group of working Americans neither dems or repubs seem to champion?

We offer some truly unfair tax breaks, like the yacht tax credit — other than Senator Dick Ackerman and a few hundred yacht owners, who cares! We don’t put enough revenue aside each year in our "rainy day fund", so on a big declining revenue year like now, we are royally screwed.

And our spending formulas and spend happy legislators insure ever increasing budgets with little oversight that any of these billions are going to be used effectively.

Since its budget time in Sacramento now, its hard to resist this topic. I have little hope the political system will allow true and fair reform, but maybe crisis will create opportunity for modest reform.

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Can the Democrats Achieve a Veto-proof Senate or Assembly in November?

Allan Hoffenblum
Publisher of the California Target Book and owner of Allan Hoffenblum & Associates

Nothing gives the state legislature’s Democratic leadership — and the Republican governor — more headaches than the constitutional requirement for a two-thirds vote to pass a state budget or any tax increases.

To achieve a two-thirds vote requires the unanimous support of the Democratic members of both houses plus two additional Republican votes on the senate side and six additional Republican votes on the assembly side.

The budget battle in the state Senate last year so infuriated Senate Pro Tem Don Perata that he spent over $1 million to qualify and fund a June 3rd recall campaign against Republican Senator Jeff Denham.

But, for whatever reason, Perata abruptly announced last week that he is abandoning any further funding of that effort, making it highly unlikely that the Denham recall will be successful.

The California Target Book, which I publish, is a publication that tracks and handicaps congressional and state legislative races in California. Looking at the 20 odd-numbered senate districts up for election in 2008, we initially labeled only two as being competitive: the 15th Senate District represented by Republican Abel Maldonado, and the 19th Senate District, an open seat due to Republican Senator Tom McClintock being termed out.

There is little doubt that the race between former Democratic Assemblywoman Hannah-Beth Jackson and former Republican Assemblyman Tony Strickland in SD19 – both unopposed in the June Primary – will be a top November target.

But to the surprise of many – particularly among many Democratic Party activists – no Democrat or third party candidates filed to run against Maldonado, allowing him to run unopposed in both the June Primary and November General Election.

Therefore, with Perata throwing in the towel in the Denham recall election, he all but threw in the towel for Democrats being able to pick up the two seats needed to reach a two-thirds level.

Can Assembly Democrats pick up the six addition seats needed to reach a two-thirds level?

There are three Republican-held seats that are at the top of our Democrat target list, and all are open seats due to the GOP incumbents being termed out this year.

The top two of the three are AD 78 (Shirley Horton) and AD80 (Bonnie Garcia). These are two districts that the 2001 redistricting mapmakers purposely drew to favor a Democrat — Democrats have a significant registration advantage in both — but the Republicans won in 2002 due to fielding a superior candidate in both races and, with the power of incumbency, held them in 2004 and 2006. Now open seats, the Democratic leadership will spend big bucks to get them into the Democratic column.

The third is AD15 (Guy Houston), the last remaining Republican-held district in the San Francisco Bay Area. The Republicans are currently in a four-candidate June Primary battle, with no clear favorite. On the Democratic side, San Ramon Valley school board member Joan Buchanan is facing no more than a token Primary opponent and is expected to handily win the Democratic nomination, and she is perceived as a strong candidate. Party registration is 39 percent Republican, 39 percent Democratic, 19 percent independent.

Number four on our Democratic target list is AD26, currently represented by Republican Greg Aghazarian, who is termed out this year and is running for the state senate. On the Democratic side this year is John Eisenhut, a Merced County farmer, former school board member and self-described "Valleycrat," meaning political conservative. Unopposed in the June Primary, he has an impressive resume and it is highly unlikely he would have entered the race without strong encouragement from the Democratic leadership. On the GOP side is Bill Berryhill, also unopposed in the June Primary. He is the brother of GOP Assemblyman Tom Berryhill, who represents an adjourning assembly district. The registration in this district is 41 percent Republican, 41 percent Democratic, 14 percent independent.

Democratic wins in the above four districts would make it a very good year for them, but can they get to plus six?

This would require two major upset wins, and the Target Book is looking at two seats: AD10, represented by Republican Alan Nakanishi who is termed out, and AD37, represented by Republican Assemblywoman Audra Strickland, who is seeking re-election.

The powerful public employees unions have always had their eye on AD10, a suburban Sacramento area assembly district with a large number of public employees residents. Senator Dianne Feinstein carried the district over Dick Mountjoy 51%-41%. But this would be a major upset and the Republicans have strong candidates currently running in the June Primary. Party registration is 41 percent Republican, 38 percent Democratic, 17 percent independent.

As mentioned at the top of this article, a multi-million dollar campaign will be raged in SD19 this fall between Democrat Hannah-Beth Jackson and Republican Tony Strickland. Democrats may look at Audra Strickland’s assembly district and see the opportunity of a "two-fer."

Can the Democrats do it?

First, it truly would have to be a Democratic landslide year. But equally important, they will need to hold on to the sole Democratic-held seat that is competitive this year: AD30, the conservative Central Valley seat held by Assemblywoman Nicole Parra, who is termed out this year.

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Time for California Government to Ride into the Sunset

Patrick Dorinson
Host of The Cowboy Libertarian Radio Talk Show in Sacramento

With the preliminaries now over, the annual California Budget Goat Rodeo will kick-off this week with the unveiling of the fabled and eagerly awaited Governor’s May Revise. I don’t know about you but I’m as nervous as a long-tailed cat in a room full of rocking chairs in anticipation of what the new deficit number will be. $10 billion? $15 billion? $20 billion?

We will soon hear the cries against cuts to programs grow louder from one side of the Building and the line in the sand statements of "no new taxes" from the other side.

But the one thing you probably won’t hear is "how about eliminating some programs?" That is a concept that seems to be foreign to the Legislature.

I don’t mean indiscriminately taking the budget ax to a particular program or agency, but review the program to see if it is still effective and necessary. You can’t tell me there are not things we are currently funding that don’t need close scrutiny and could be eliminated.
Enter the Sunset Commission.

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Study: California Recession More Severe than Rest of U.S.

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

California will suffer a more severe recession than the rest of the U.S. economy according to a report issued by the Milken Institute. The report, The Economic Outlook for the United States and California, Slow Growth or Recession?, by Ross DeVol, director of regional economics at the Milken Institute with assistance from Armen Bedroussian, summed up its analysis this way: "If the U.S economy has the sniffles, California’s economy has a full-blown cold-with all the associated aches and pains."

However, DeVol points out the recession will be mild by historical standards.

The report says California’s economy will be hit harder by the housing market correction, depressed consumer spending, and slowing imports. Also, California’s economy, especially in the L.A. area still feels the effects of the Hollywood writers’ strike. The report claims that California will face a net job loss in 2008 with the unemployment rating hitting 6.6 percent in the fourth quarter.

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Exclusive: LA Mayor Villaraigosa Talks to F&HD About the State Budget; LA’s Bad Business Rep

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

Los Angeles
Mayor Antonio Villaraigosa spoke at a meeting of the Valley Vote organization last
night in the San Fernando Valley. He’s not the
governor and I didn’t ask him if he was running for the job, but as we walked
out of the meeting I did ask him how he would handle the current state budget mess.

Villaraigosa responded: "I’ve said
for some time the state budget deficit is a spending problem but it’s also a
revenue problem. There are very real structural elements to it. The only way to
resolve this budget deficit is to cut some spending and also to raise revenues
and that’s what we’re doing here with the city budget. We’re saying for every $1.50
in cuts we are going to raise a dollar in revenue."

My thoughts: Using that formula on a
$20 billion state budget deficit problem would mean a combination of $12
billion in cuts and $8 billion in tax increases. Scary numbers. Yes, I know
that is a static calculation and that’s not what the final numbers would be, but
a one-and-a-half to one ratio still means a large tax increase in a tough
economy. I don’t think the voters buy it and we know the Republicans in the
legislature won’t. The economic ripples from a large tax increase would not be
good for the state economy.

I also asked the mayor about Los Angeles’ reputation
for being bad for business.

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The State Infrastructure Shortfall

David Crane
Lecturer and Research Scholar at Stanford University and President of Govern for California

California is the richest state in the richest country in the world and we lead the world in entrepreneurship and innovation.

But when it comes to infrastructure, we are neither rich, entrepreneurial nor innovative.  States and countries with a fraction of our wealth provide their citizens with far superior infrastructure services. People elsewhere travel on more convenient and comfortable transportation systems, study in better school facilities, live behind more secure levees, drink from more secure water systems, and more. California’s environment, quality of life, workers, students and innovators all suffer as a result of our infrastructure deficit.  

California’s failure has been well documented.  According to the Keston Institute at the University of Southern California, our state faces "precarious earthen levees … steady disintegration of schools, hospitals, and prisons … limits to our water supplies, and waste treatment and water reclamation systems that fall far short of their potential …and increasing congestion and air pollution symptomatic of outdated transportation systems based on technologies and plans developed more than two generations ago."  

And a recent study by the Bay Area Economic Institute reported that California devotes only 1 percent of Gross State Product to infrastructure.  The historical norm, and the level believed to be necessary to maintain our standard of living, is closer to 2.5 percent.  

What accounts for this serious shortfall in infrastructure investment? There are three principal factors:

First, until the Schwarzenegger Administration, the state had not seriously invested in infrastructure since the Pat Brown era.  As a result, we have been living off the investments of the past without making the re-investments necessary to  preserve living standards for future generations.  

Second, the federal government, the single largest source of infrastructure financing, has reduced its contribution by half over the past two decades when measured as a percentage of Gross Domestic Product.

And third, the state has not allowed private sector participation.  There are over $1 trillion in infrastructure funds that provide capital, services and innovation to governments around the world, but because of limitations imposed by California, these funds are largely unavailable to help meet our needs.

To renew California’s infrastructure, the Governor believes we need the robust participation of all three of these components, plus ongoing investment by local governments.

That is why in 2006 he asked the voters to emulate the Pat Brown era and approve more than $40 billion of bonds to improve transportation, housing and other infrastructure.  They did so, and those funds are quickly being put to work.  More recently he has asked the Legislature to approve another $48 billion of infrastructure bonds for the ballot.

And, in January of this year, the Governor joined New York Mayor Michael Bloomberg and Pennsylvania Governor Ed Rendell in forming the Building America’s Future Coalition, whose aim is to boost federal financing and to pressure the presidential candidates to close America’s infrastructure gap.  Already 15 more governors have joined and more are expected in the coming months.  

Also in January, the Governor used his State of the State address to call for more private participation in infrastructure services by proposing the adoption of his Performance-Based Infrastructure (PBI) plan. This powerful technique was pioneered by Great Britain and has also been used by Canada, Australia, Spain, France and other states and countries to deliver nearly 1000 infrastructure projects. PBI combines the dynamism and innovation of the private sector, the financing of public pension funds and other investors, and the regulatory concerns of the public sector in order to deliver and maintain infrastructure projects faster, better and cheaper.

Unfortunately, because of government employee union opposition to competition, California remains significantly off-limits to PBI.  As a result, California is missing out on billions of dollars of high quality infrastructure services being provided to others around the world.  

The good news is that local governments appear to be increasingly willing to step up for infrastructure expenditures but obviously they cannot carry all these costs themselves.  That’s why we need all of these sources: federal, state, local and private.  

It’s time for California to lead the world in infrastructure.  Our citizens and environment deserve no less.

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Some new ideas for ‘Nanny Bills’

Public Affairs Consultant specializing in Issue Advocacy and Strategic Communications

While there have always been "nanny bills" to address the multitude of cultural wrongs in our society, the number appears to have increased in recent years.

The California Legislature has considered several such bills since last year that address some important issues, but should probably have been amended, including:

  • Smoking (both legal and illegal cigarettes I assume) in vehicles with children and is now the law. I’d actually vote for this bill even though I doubt it will inspire anyone thoughtless enough to smoke in front of children in a car to comply with this law.
  • 17-18 year olds using electronic devices while driving, and is also a new law. Why just kids? In my experience, younger folks are able to multi-task better than adults!
  • Spanking children under 5 years old. From my experience as a parent and a recipient of spanking, it doesn’t really work as a behavioral tool. But it might work on parents who insist on taking their obnoxious kids to places and then ignore them while the rest of our outings to restaurants and movies are ruined.
  • Banning trans fats in school cafeterias and restaurants. As long as lard is still legal, what good will it do to ban trans fats?
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The Fight for Eminent Domain Reform in California Continues

John Kabateck
NFIB State Director in California

As we make the transition from one year to another, one cannot but hope the future holds great promise for both personal and professional endeavors.  One also reflects on the past.  Families mark the doorjamb with a notch to track the growth of children.  Small business owners look over the books to measure the product of their blood, sweat, and tears.

It is hard to imagine losing all that to a natural disaster, but even more so to the government elected by voters to protect our rights.  But many California homeowners and small business owners find themselves facing that reality.

In 2007, the California Legislature responded with ACA 8 that did not protect small businesses or homes, leaving them at the whim of local government.  The National Federation of Independent Business (NFIB), and a coalition, including Howard Jarvis Taxpayers’ Association, lobbied successfully for the defeat of fake reform and it never made it off the Assembly floor.  

NFIB, along with the California Hispanic Chambers of Commerce and California Black Chambers of Commerce, support true eminent domain reform as proposed in the California Property Owners & Farmland Protection Act.  Statewide surveys show more than 67 percent of people support an eminent domain reform ballot initiative – Republicans, Democrats, Independents, business owners and homeowners, seniors and baby boomers all support this initiative.  

Key provisions in the initiative:

  • Private property may not be taken by eminent domain for private use under any circumstances (i.e. to build a shopping center, auto mall or industrial park).
  • Property may be taken by eminent domain only for public use (i.e. freeways, parks, schools, water projects).
  • Family farms and open space are protected from seizures by government for the purpose of selling the natural resources.
  • If a public agency takes property under false pretenses, or abandons its plans, the property must be offered back to the original owner at the original price and the property tax would be assessed at the value when it was originally taken.
  • If farmers or business owners are evicted by eminent domain, this initiative would entitle them to compensation for temporary business losses, relocation expenses, business reestablishment costs and other reasonable expenses.


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California’s Leadership Role on the Environment

Joel Kurtzman, Energy Policy Specialist with the Milken Institute
Douglas A. Wilson, Vice-Chair of the New Majority Energy Task Force

If California were an independent country, it would be the world’s ninth largest economy. That’s the good news. The bad news? California’s the world’s ninth largest emitter of greenhouse gases. And, while California has taken action — energy usage on a per capita basis has remained flat for a decade — it still has a long way to go. The state is growing in population and every new person coming to California adds to the state’s carbon footprint.

When it comes to climate change, the only metric that matters is tons of CO2 emitted into the atmosphere, and California still emits too much. One of the objectives of AB32, the energy bill which Governor Schwarzenegger endorsed and the assembly passed early last year, has been to reduce California’s greenhouse gas emissions to 1990 levels. It’s a bold plan that aims to bring California up to global standards, even though the rest of the country lags behind.

Because the country is concerned about climate change, California is viewed as the national leader. Since AB32 was passed, fourteen states and three Canadian provinces have agreed to abide by its goals. Standards set in Sacramento have become the de facto standards for the rest of the country. And, when Gov. Schwarzenegger announced he was suing the Environmental Protection Agency because it set the emissions bar too low, other states joined in. Without strong voices in Washington advocating for the environment, the country looks to Sacramento to do that job.

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