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| May 26, 2009 |
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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.
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| May 19, 2009 |
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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 21st
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.
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| May 12, 2009 |
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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.
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| May 5, 2009 |
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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.
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| April 28, 2009 |
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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. |
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| April 21, 2009 |
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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.
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| April 14, 2009 |
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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. |
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