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May 25, 2008

Chamber Supports Idea of a State Budget Savings Account

By Glenn Bishop

2007 Chair of the Board

It is clear to us that the State of California does not have a revenue problem. Instead, we have a spending problem. We need to start considering proposals that end the eventual budget deficits that plague our state. In January, the Governor proposed the Budget Stabilization Act. His proposal transfers budget surpluses into a savings account to be used to balance the budget in years when a budget deficit is projected.

Currently, when the Governor signs the state budget, the spending outlined in the budget is committed and therefore cannot be reversed. If revenues begin to decrease, the Governor has the option of declaring a fiscal state of emergency and may call a special session of the State Legislature to reduce spending. However, you have to take into account the politics in Sacramento for this process to work. Many organizations, groups and other related entities are all pulling at the “purse strings” of their local legislators, asking for more. This would hinder the reduction of state spending, especially when immediate action is necessary. Furthermore, it is very hard to say “no” to special interests who demand more money each year combined with the fact that many of those special interests are major contributors to Sacramento legislators.

The Governor’s proposal also allows California to reduce spending mid-year. Currently, California does not have the ability to reduce spending to accommodate reductions in revenue. The excess revenues, which are defined in the act as state tax revenues above a reasonable, long-term average rate of growth, will be determined by the state Department of Finance. Automatic reductions in state spending, triggered by the Governor, if the Department of Finance predicts a year-end budget deficit will therefore protect budget deficits even further. If a deficit is predicted, state agencies must reduce their spending by either two percent or five percent, depending upon the projected deficit.

The Act also requires that the legislature enact a statute specifying how the state will reduce spending by two to five percent to meet Budget Stabilization Act requirements as soon as a deficit is projected.

The Chamber supports the concept of a state budget savings account. It is the right idea at the right time – the projected state budget deficit might reach the $20 billion mark. However, the Governor’s proposal has yet to be introduced formally in the State Legislature. Therefore, the Chamber reserves its right to take a position on the details on the plan once it is formally introduced.
 

May 8, 2008

Redondo Beach Chamber Supports Governor's "Rainy Day Fund" Concept

The Governor’s budget proposal in January 2008 included a 10 percent reduction to nearly all General Fund departments and programs, boards, commissions and elected offices, except in cases where such a reduction is unconstitutional. A clearer impact on state revenue will release in the Governor’s May Revised Budget to be released May 15, 2008.
 

The Governor proposed a Revenue Stabilization Fund (RSF), which is a savings account for excess revenues taken in by the state each year requiring that the state deposit excess revenues into the RSF.
 

The Redondo Beach Chamber supports the concept of a rainy day fund to protect the state from future budget deficits. However, the Chamber reserves its right to take a position on a specific legislative proposal once introduced in the State Legislature.

The RSF will make these savings automatic—thus ensuring that California does not again fall into the trap of spending all its revenues in prosperous times.

In years when tax revenues are below average and California cannot meet its spending obligations, the state will transfer the difference from the RSF into the General Fund. Transfers will only take place when revenue grows at a rate below the long-term average.
 

The Budget Stabilization Act will allow California to reduce spending when necessary. Right now, California doesn’t have this flexibility. Once the Governor signs the budget, spending is locked in unless the Governor declares a fiscal state of emergency and calls a special session. Under this Act, automatic reductions in state spending will be triggered by the Governor if the Department of Finance predicts a year-end budget deficit. The Department of Finance will calculate and release this projection three times each year: in November, January and June.
 

California’s economy continues to grow, in spite of the current housing downturn, and the state continues to enjoy overall job growth. California still faces a projected $14 billion budget gap that necessitates across-the-board-cuts. California’s budget problem is chronic, and driven by two factors: The state historically spends all the money it takes in during years of high revenue growth, leading to unsustainable spending levels in the long run.

California has not slowed spending growth fast enough. Automatic formulas will increase spending in FY 2007-08 by 7.3 percent, unless we take action now. Each month California spends $600 million more than the state takes in. The majority of spending in the budget is set on auto-pilot. Currently about 90 percent of the budget is tied up with contracts and statutory requirements.
 

February 5, 2007

Gubernatorial Goals

In November 2006, Governor Arnold Schwarzenegger proposed a comprehensive bond package which included needed funding for transportation improvement projects, education, housing and levee repair and flood control. The Redondo Beach Chamber agreed and so did the voters.

In the Governor’s January 2007 State of the State address, he announced that he now wants voters to pass an additional $29.4 billion in bonds for dams, schools and courthouses. "We are a big state and we have big needs. And we have made a big down payment. But the job is not finished," the Governor stated in his State of the State address. “We still have more roads to build, more schools to construct and more universities to equip to keep up with the future,” he continued.

One might agree that there are always needs.  One might also expect that the $37 billion bond package approved by the voters late last year should have been enough to get us through the next couple of years.  Apparently not.  The Redondo Beach Chamber will be reviewing the Governor’s new bond proposal and so should each of you.

The Governor also briefly discussed his health care reform package.  The Governor’s goal is for all Californians to have health insurance. However, finding a way to fairly spread the cost amongst residents, employers, doctors and hospitals, and the State might be a problem. We must ensure that the cost is reasonable for all and not expect the business community to be solely responsible.  Your Chamber will be engaged in the debate and will work to ensure that Redondo Beach businesses are protected.

Finally, the Governor would like to have an independent commission take over the Legislature’s power in drawing legislative districts.  The Redondo Beach Chamber is on record as being supportive of this concept. This would eliminate “safe” districts for both parties, ensuring the voters have a real choice when they go to the ballot box.

We will keep you posted throughout the year on all of the Governor’s plans and the Chamber’s actions.

May 18, 2006
Infrastructure Bond Makes the November Ballot

Voters in the state will have an infrastructure bond issue to vote on in November. It is large--$37.3 billion and has bipartisan support. Even the taxpayers can look at a win if it is passed because California’s infrastructure is eroding.

“Passage of the infrastructure bonds called for in the Governor’s Strategic Growth Plan is an important accomplishment of California, our economy and our state government,” said Marna Smeltzer, President and CEO of the Redondo Beach Chamber. “It is important that we get behind passage of this bond issue so that we can build California and our local businesses for future generations,” Smeltzer continued.

The bond monies will all be focus upon shoring up everything from ports to levees to highways. Over half of the $37 billion will go towards transportation projects. Much of the money will focus upon rebuilding, not new construction. There is no question that when paired with the other resources it represents over a $100 billion commitment to transportation, air quality, education, flood prevention, and housing. All tolled will mean that California’s business economy will continue to be strong and vibrant for many years to come if the money is spent wisely.

In the excitement of this new bond issue, we should not forget that there is another statewide proposition on the ballot in November that protects the 2002 voter approved Proposition 42’s gas tax revenues. Since Proposition 42 was passed in 2002 many of the funds have found their way out of transportation and into the general fund because of a loophole in the original law. With this loophole closed it will mean that the gas taxes paid under this bill will be locked into transportation projects.

Highway 99 in the central valley is an example of how bond funds would be spent. The governor wants $1 billion earmarked for repairs and expansion to Highway 99. This highway is in bad repair and overloaded as it essentially functions as a major north/south artery for our state’s commerce.

Voters can expect to be inundated with political leader’s rhetoric touting the wisdom of the bond. Few quarrel with the need, most have differences about how the money will be spent—the Democrats want emphasis upon schools and the environment while Republicans press for transportation and roadway improvements. Because so much of California’s infrastructure has been allowed to degrade, it positions everyone to be right on needs without alienating their respective constituencies.

While there will be other initiatives on the November ballot, it seems that the stakes are highest for this mammoth bond issue. It seems to resonate well with the populace, yet it is always unpredictable when such a complex and large spending bill goes before the public for a vote. History shows that it is easier to say no than yes. In November we will all find out how Californians prepare for the future.
 

March 2006

Bonds Need Action, Not Politics

By Ann Garten

2005 Chair of the Board

March 15th is the deadline for bond issues going on the June 6th ballot. There is much to consider and little time to debate. The Governor and Legislators are recognizing our infrastructure is at risk of crumbling under the weight of California’s continuing growth. Our immediate needs are now up to $300 billion, and we need to plan for another 20 million people living here by 2025. The legislature and Governor should work together on a bond program that will relate to both short-term and long-term needs.

So, while legislators come together on the first of what is expected to be a series of General Obligation bonds, key issues need resolution.

Top infrastructure priority—Transportation. It is an economic issue, an air quality issue, a public health issue and a quality of life issue. Families are purchasing homes further and further away from where the jobs are, making transportation an affordable housing issue.

Bond funding allocation. Over half of the state’s population lives south of Ventura County. Most of the state’s growth is occurring in San Bernardino and Riverside counties. Half of the money needed to pay off the bond will be raised in Southern California. Perhaps transportation dollars for goods movement projects could be allocated based on the volume of containers moving through each region.

Allocating bond monies. The best regional solutions would result from state agency allocations in accordance with voter-approved criteria and existing regional plans. A concern is that if monies are distributed only to local planning agencies, then the proceeds will only fund community-based projects. Criteria could be included to reward regional partnerships and municipalities that have already stepped up to address problems that have regional impact.

Lawmakers should focus on moving forward. Public trust will be enhanced if legislators focus on the task at hand and build consensus.

Strategic long-term vision is needed. The needed two-thirds voter supporting important infrastructure bonds will happen if they are direct and simple. Voters must consider the importance of infrastructure bonds to our state.
 

January 17, 2006

Redondo Beach Chamber to Evaluate Governor’s 2006 Strategic Growth Plan

Governor Arnold Schwarzenegger delivered his annual State of the State address on
January 5, 2006 proposing a comprehensive Strategic Growth Plan to invest in California's transportation, education, water, public safety and public service infrastructure. Infrastructure improvements are a top priority for the Redondo Beach business community.

The Governor is committed to partnering with the State Legislature to prepare to meet the infrastructure needs of Californians in 21st century. The Redondo Beach Chamber will review the specifics of the Governor's Strategic Growth Plan and take official positions on the plan in the coming months.

The Governor believes we “must build a California eager to meet the challenges of the 21st Century without reluctance or fear.” The Governor’s plan is now in the hands of the State Legislature to debate and make final decisions on the Strategic Growth Plan.

The Governor also believes we “must not only expand the concrete highways that connect Los Angeles to San Francisco and Stockton-but the digital ones that connect Stockton to Shanghai, Sydney and Seoul.”

According to the Governor’s office, California’s population is expected to increase by 30 percent over the next 20 years. It is estimated the state faces more that $500 billion in infrastructure needs over that same period.

Governor Schwarzenegger's Strategic Growth Plan is the first phase of a 20-year investment to meet these expected needs for Californians. The plan leverages $68 billion dollars in bonds over the next 10 years to invest more than $222 billion in the state's infrastructure without raising taxes.

The Governor also called upon the Legislature to adopt a debt ceiling to keep the state's debt service ratio below a prudent six percent. The Department of Finance's projections estimate the increase in debt service costs as a result of the Strategic Growth Plan will be a change of about one percentage point.

The following details the specifics of the Governor's Strategic Growth Plan:

Transportation & Air Quality

- $107 billion total investment in transportation infrastructure over the next decade
- $47 billion from existing funding sources such as Proposition 42 and federal funds.
- $48 billion in new funding is proposed from leveraging existing funds.
- $12 billion in new bond funds to attract increased federal, local and private funding. These bonds would be approved by California voters in two $6 billion authorizations in 2006 and 2008.
- Protecting Proposition 42 permanently through a constitutional amendment to eliminate the option for future governors and legislatures to suspend funding.
- Using design-build contracting and design-sequencing construction to deliver projects more quickly and efficiently.
- Pursuing public-private partnerships to complete projects such as high occupancy toll lanes, regular toll lanes, truck lanes and freight movement facilities where a predictable revenue stream will be created to re-pay capital investments.
- Road and port congestion produces pollution which decreases productivity and increases health care costs. For this reason, the Governor's plan also includes $1 billion in bonds to be matched by $1 billion in funding from other sources to reduce goods-movement related pollution.

Education

- $26.3 billion total investment in K-12 education over the next decade through general obligation bonds.
- The initial $7 billion bond would come before voters in 2006. Subsequent bond measures are proposed for the general elections every two years beginning in 2008 and ending in 2014.
- $11.7 billion total investment in higher education over the next decade.
- The plan calls for $5.2 billion in bonds over the next five years, $6.1 billion from 2011 to 2016 and $400 million to fund the expansion of University of California telemedicine programs.

Water and Flood Control

- $9 billion in general obligation bonds to be issued in two installments, one $3 billion installment in 2006 and $6 billion in 2010.
- $26 billion in non-state funding resources.
- Establishing a Water Resources Investment Fund for additional water management efforts.
- Implementing legislation to reform flood management and the financing of flood control improvements and to allow flood management projects to proceed more quickly.

Public Safety

- $14.8 billion in total investment to protect public safety.
- An initial $6 billion bond for local jail construction to provide beds for approximately 45,000 offenders. This bond is proposed for the first five years.
- A second $6 billion bond in the second five years also for local jail construction.
- $1.1 billion in bonds to build new prisons and juvenile facilities for the California Department of Corrections and Rehabilitation.
- $600 million in bonds in the first five years and $1.1 billion in bonds in the second five years to fund critical public safety projects in the Department of Forestry and Fire Protection, a DNA lab for the Department of Justice and to improve the Military Department's facilities.

Courts and Other Public Services

- $1.8 billion in bonds over the next decade for trial courts, $800 million in bonds for fiscal years 2006-07 through 2010-11 and $1 billion in bonds for years 2011-12 through 2015-16.
- $400 million in bonds over the next five years to seismically retrofit other high-risk state buildings and address health and safety needs at state park facilities.
- In addition to setting forth his vision to build for the future needs of our state, the Governor also called upon the Legislature to join him in taking action this year to improve the lives of Californians in 2006.
 

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