Recover, Reform and Rebuild California

Like an alcoholic facedown in the gutter, California's fiscal system may have finally hit rock bottom after last week's special election defeat. Lawmakers now face two choices — confront our broken system once and for all or continue politics as usual until there is forced intervention in the form of statewide default or bankruptcy.

As a leading political strategist and Director of the Jesse M. Unruh Institute of Politics at the University of Southern California, Dan Schnur perfectly summarized in a recent op-ed in the Los Angeles Times, conservatives and liberals began to "construct lessons that precisely fit their ideology and worldview" as soon as the polls closed. The right declared a victory for anti-tax crusaders and the left called the election a backlash against budget cuts. Both sides continued to cling to the same arguments that delayed the enactment of a state budget last year.

The next steps taken by the Governor and the Legislature are critical and will set the stage for long-term fiscal reform or a crisis in perpetuity. Last week, the L.A. Area Chamber released our advocacy agenda to Recover, Reform and Rebuild California, which focus on near and long-term efforts to restore the fiscal health of our state.

In the short term, because of a pending cash crisis, the process will begin with major cuts in services that will impact every business and every family in California. The Governor presented his first proposal last week and the cuts were front page stories in all state and national news media. The governor and the legislature have four to six weeks to put the cuts in place. We urge the legislature to move quickly and to give our schools maximum flexibility in making these cuts.

For long-term budget cuts, lawmakers would be wise to establish an independent commission to evaluate all state programs and recommend long term budget reductions. The creation of performance-based budgeting and use of an outside body like the highly-successful federal military Base Realignment & Closure (BRAC) commission provide useful templates.

Every experienced observer has noted that long term budget and tax reform will be required to protect the state from the boom-and-bust budget process that led us into this crisis. The forthcoming recommendations from the Commission for 21st Century Economy's tax reform should start that discussion.

Rebuilding California must start with securing the state's precious lifeblood — our water supply. Implementing the Delta Vision Plan immediately will ensure the sustainability and security of the vital Sacramento-San Joaquin Delta.

California has hit the bottom and there is no time to waste in starting the rehabilitation process. We invite you to be a part of that process by joining the Chamber and more than 100 Southern California business leaders when we discuss our Recover, Reform and Rebuild agenda one-on-one with lawmakers in Sacramento on June 10-11. The future of California is on the line, and successful rehab requires everyone's help and sacrifice.

And that's The Business Perspective.

A Bright Spot for Education

Regardless of the outcomes of today's special election, L.A. public schools face severe budget cuts to compensate for the state's fiscal crisis. These cuts will have an immediate impact on teachers and students, but much-needed school renovations will continue, thanks to voters who approved more than $20 billion in bond measures to rebuild and repair our schools. At a time when every investment dollar matters, these renovations are already delivering safer schools with 21^st century technology for our students to learn and succeed.

Belmont High School in downtown Los Angeles is just one example of the progress that is being made to modernize aging school facilities across the district. Two years ago, I volunteered at Belmont for a Cash for College workshop hosted by the L.A. Area Chamber. During my visit I saw a school that was bursting at the seams, originally designed for up to 1,800 students but accommodating 5,500. The overcrowded hallways and portable classrooms must have been clear signals to students that they were not very important to the adults in our community.

When I recently returned to Belmont, I saw dramatic changes. The outside of the school is still more than 80 years old, but the inside sparkles like a modern building. The hallways and lockers are brand new. The classrooms have all been renovated. The library is welcoming and loaded with computers.  The skilled architects, engineers and construction professionals contracted by the Los Angeles Unified School District delivered a truly welcoming environment for our students to learn. But most importantly, because of the opening of two new nearby high schools, Belmont now boasts 1,500 students, smaller classes and a traditional school schedule — all key reforms advocated by the Chamber.

Along with improvements to its infrastructure, other important programs are now being offered at Belmont, thanks to the support of the business community. The Juvenile Intervention and Prevention Program (JIPP), which takes place every Saturday under the direction of the Los Angeles Police Department Rampart Division, teaches young adults about attitude, public speaking, discipline and respect. One of eight high school retention programs sponsored by the AT&T Foundation, JIPP exemplifies the impact business involvement can have on our schools.

As the fiscal future of California and its effect on L.A. public schools remain uncertain, I am encouraged by the physical transformation and involvement of the business community in our schools. During these difficult economic times, these investments are bright spots for education, helping to improve student morale and achievement. At least one indicator — the projected graduation rate for 2009 is expected to improve.  Despite declining enrollment, LAUSD this year has its largest-ever senior class.

I thank the voters for saying yes to school construction bond measures, LAUSD staff for their strategic and efficient construction program, and local businesses that are helping give more students the opportunity to succeed. In business terms, these are good investments.

And that's The Business Perspective.

Show Your Anger by Voting Yes on May 19

California's dysfunctional state government and our chronic budget crisis are beyond inexcusable. The majority of voters are justifiably angry about taxes and elected officials seem to be unable to effectively plan for the state's fiscal future. That sentiment is reflected in the latest polls showing Propositions 1A-1E headed for defeat. But taking out our frustrations on these initiatives is the kind of self-flagellation that will deepen the crisis and prevent the reform we dramatically need.

As I wrote last month, the Los Angeles Area Chamber of Commerce — together with nearly every business organization in the state — is urging support for the package of state budget initiatives on the May 19 special election ballot. There are no perfect short-term fixes for the disastrous financial condition that California is in, but these ballot propositions go a long way toward avoiding a fiscal catastrophe and putting in place the kind of reforms that will avert a similar crisis in the future. Most notably, Proposition 1A will significantly reduce spending by establishing a long-sought spending cap and requiring the stockpiling of revenues from good years in a substantial "rainy day" fund to mitigate future economic downturns.

These reforms are just the beginning of what is necessary. But they represent an important first step because we all know that controlling expenses and having a savings account to draw on during hard times is essential to every budget, including our family budget at home.

Both proponents and opponents of the May 19 ballot propositions agree that the state's fiscal condition is a mess and must be dramatically reformed. Some opponents urge the voters to teach the state a lesson and if necessary, force a bankruptcy. Other opponents believe that the current budget cuts have been too dramatic and the solution is to put new, permanent tax increases into place.  The L.A. Area Chamber Board of Directors cannot embrace either of these two recommendations. We understand and share the anger of the voters, but we do not believe that either of these alternatives is in the best long-term interest of our state, its residents or its businesses.

By saying yes to Propositions 1A-1F, we can begin the process of fixing our broken system and hold our politicians accountable. Please join us in spreading the word to vote YES on Propositions 1A-1F on May 19.

And that's The Business Perspective. 

Saving Our Lifeblood Before It's Too Late

The Sacramento-San Joaquin Delta conveys water to more than 25 million Californians, supports a $400 billion economy and is home to 700 native plants and species. This lifeblood for our state is threatened by unsustainable governance practices and a crumbling physical infrastructure. Without implementing a new strategy, we will continue to be a moderate earthquake away from a Katrina-like disaster that will immediately cut off one of our most critical water sources and decimate the Delta's natural environment.

Fortunately, a group of civic leaders is working to ensure that our state has a safe, reliable supply of water for years to come - The Delta Vision Foundation. The group, which started as a blue ribbon task force appointed by Gov. Arnold Schwarzenegger, is a true bipartisan effort including business, labor and the environmental community. As our state heads into its worst drought in modern history and water reliability remains at the forefront of the Sacramento political agenda , the Delta Vision Foundation is our state's best bet for developing solutions that balance the economic and environmental functions of the Delta.

You may wonder what makes this group different. Blue ribbon task forces are a favorite way for politicians to appear action-oriented without actually doing anything. The script is usually the same - lawmakers seize upon a hot-button issue, hold a flashy press conference announcing the creation of a task force, appoint experts to develop recommended solutions, hold another press conference thanking them for their hard work, and then file away the commission's report next to dozens of others just like it.  The good ideas gather dust while everyone's stuck with the same status quo.

The Delta Vision Blue Ribbon Task Force refused to accept this fate.  Originally formed in 2006 by Gov. Schwarzenegger, the group developed a thoughtful, strategic vision for the long-term future of the fragile Sacramento-San Joaquin Delta.  Their report outlined a series of steps that should be taken in order to secure the water supply while also protecting the Delta's unique ecosystem.

Once their report was complete, the task force created a second life for itself by becoming the Delta Vision Foundation in March 2009. They are no longer an appointed task force, but instead an independent body committed to making sure that lawmakers implement their excellent set of recommendations and strategies.  Business and community leaders will be discussing these strategies at a Southern California Water Committee event in June hosted by L.A. County Supervisor Don Knabe and co-sponsored by the Chamber.

There isn't much good news coming out of Sacramento lately.  Our lawmakers are struggling to address a growing deficit and the state faces additional budget cuts. But fixing the Delta can be done even in these difficult times.  The Chamber applauds the ongoing commitment of the Delta Vision Foundation and supports their conclusions.  Doing nothing only carries enormous long-term costs when the inevitable disaster strikes.

And that's The Business Perspective.

A Municipal Atomic Bomb

By 2015, the City of Los Angeles will need $2 billion every year to fund its public employee pension plan, four times as much as the current $530 million budget deficit. To put that number in perspective, $2 billion equals the combined budgets of the city fire department, police department and sanitation bureau. The message to city residents and taxpayers is clear – Los Angeles will likely go bankrupt within five years unless significant structural changes are made to the pension system.

All pension funds suffered horrible market losses over the past two years, but the economic downturn simply accelerated an inevitable crisis. Six years ago, pension fund contributions as a percentage of total city revenue were less than 4 percent. It is 8 percent this year, and the percentage is projected to exceed 20 percent by 2015. That means 20 cents of every taxpayer dollar will fund retiree pensions instead of actual city services. 

The structural problems that are contributing to this crisis are many:

• Pension funds assume an 8 percent annual return, and the lifetime benefit to employees is based on that return.
  
• When the stock market doesn't earn an 8 percent return or loses money, the city is expected to make up the difference.
  
• Employee contributions do not increase when market conditions change; only the city's contribution changes.
  
• Early retirement ages and an increase in life expectancy means longer payments, some exceeding the number of years the employee worked for the city. 
  
• The city plan includes an annual cost-of-living increase in addition to a guaranteed retirement benefit. 

It's obvious that fixing the city's pension system will require fundamental structural changes. Essential to making these changes will be vigilant and vocal taxpayers, elected officials with vision and courage, and union leaders who understand that while the current situation may be a win for their members, it is a disaster waiting to happen for the 4 million residents and taxpayers of Los Angeles.

Last week, the Chamber's Board of Directors recommended to Mayor Antonio Villaraigosa that he not add to this pension crisis during his negotiations with union leaders on this year's budget. We also suggested that he immediately appoint a task force of business, labor and professional city staff to address this crisis and present a series of recommendations. We have no option but to fix the pension system today. This crisis is a municipal atomic bomb waiting to explode.

And that's The Business Perspective.

Yes to Shared Sacrifice

"Shared responsibility and sacrifice" is the theme of this year's L.A. City budget proposal from Mayor Antonio Villaraigosa. That is exactly the right approach to address a $530 million budget deficit during a serious economic recession. We urge the Coalition of L.A. City Unions to join with city residents and businesses to meet this challenge.

The Mayor's budget makes good recommendations including trimming department budgets, consolidating smaller city departments and entering into public-private partnerships for certain city operations. However, the most controversial City Hall debate brewing internally involves city workers and the proposals to furlough, increase retirement contributions and temporarily defer automatic annual salary increases.

The proposal is both fair and reasonable, especially when most of us in the private sector are making similar – and often much more dramatic – adjustments. Yet it appears that the Mayor and City Council will be in for a fight since the Coalition only wants early retirement packages, rather than the menu of sensible options proposed in the budget. Unfortunately, early retirement packages will actually increase city pension costs in the long run.

Let's put the options that the Mayor placed on the table in perspective. As of March, there were 565,000 unemployed citizens in Los Angeles County, representing 11.2 percent of our workforce. During the past year, 252,000 private-sector employees have lost their jobs while the public sector added 2,900 jobs. So far, the private sector has borne the entire burden of shared sacrifice.

Let's hope the Coalition for L.A. City Unions will join their fellow Angelenos in sharing the "responsibility and the sacrifice" in order to save jobs and right our listing city ship. That choice would be in the best interest of city residents as well as city employees. If the structural problems with the city's budget and pension systems are not resolved, the alternative will be far worse – mass layoffs, major city service disruptions and a pension bankruptcy.

The city's budget deficit is so large – expected to exceed $1 billion by 2011 – that elected officials, taxpayers and city workers can no longer avoid or postpone some very difficult financial decisions. Government must innovate to survive this downturn and succeed in the long run. This budget is a good first step that should be followed by a renewed commitment to business growth and fixing the pension system.    

And that's The Business Perspective.

Propositions 1A Through 1F: The Right Choice for California's Future

There are moments when we are asked to make difficult decisions that are far from perfect, but represent the smartest option available. That's the case with the Propositions 1A-1F, the series of state ballot initiatives that will keep California from falling off the economic cliff and begin the process of restoring the state's fiscal sanity. The Chamber has joined a growing coalition in support of these initiatives and we encourage the business community to vote "yes" on all six propositions on May 19.

All of us agree that significant reforms are necessary to restore the state's fiscal integrity and make sure California is open for business. During the past year we watched the budget deficit skyrocket to over $40 billion while lawmakers froze amidst a multi-month legislative standoff. Finally, a budget compromise was passed by incorporating both budget cuts and temporary tax increases for a middle-of-the-road compromise that no one cheered about but started us back on the road to recovery.

Passing Propositions 1A, 1B, 1C, 1D, 1E and 1F is another step in the right direction. These initiatives will lock in a long-sought after cap on state spending and create a real and effective "rainy day fund." Had these two requirements already been in place, they would have averted nearly the entire current budget crisis. State spending will be lowered to a level not seen since 2005-06. And Prop 1B will assure that the $9.3 billion in funding for education which was transferred to the general fund will be paid back through the rainy day fund and will be available to our schools.

There are plenty of reasons to oppose these initiatives. Some say they don't go far enough to restrict spending and reform government bureaucracy. Others oppose the two-year extension of the temporary tax increases. Still others object to the temporary transfer of revenue that is being collected under Propositions 10 and 63, even those the funds will be used to cover general fund expenses for children and health care. Those are legitimate positions supported by reasonable people. However, the consequence of not passing these initiatives is far, far worse.

If Propositions 1A through 1F fail, California's budget compromise will go up in smoke. The budget deficit will immediately jump to more than $20 billion. There will be no serious cap on the amount of revenue that can be spent; neither will there be a rainy day fund with a plan to accumulate 12.5 percent of the state budget for use during difficult times. In other words, we will be right back to where we were when the budget crisis began, and we will have no additional tools to solve the problem in future years. In addition, California's credit rating will decline and we will not be able to invest in the infrastructure improvements that the voters strongly supported in November 2006.

Each day the number of organizations and individuals who are supporting these propositions is growing as citizens consider the negative results of ballot failure, the lack of good alternatives and the future benefits of a spending cap and rainy day fund. While these organizations represent very diverse and often opposing interests, they share the conclusion that passing Propositions 1A-1F as a package is in the best interest of all of the citizens of our state and is essential if we want to rebuild our economy and enhance our quality of life for future generations.

And that's The Business Perspective.