March 25, 2004 - From the February, 2004 issue

State Controller Steve Westly Stumps For Governor's Bailout Bonds and Elect

As Governor Schwarzenegger laid out his plan to dif the state out of the current deficit crisis, Steve Westly was one of the first Democrats to support the plan. Metro Investment Report is pleased to present this excerpt of an address by State Controller Steve Westly to the Valley Industry and Commerce Association, in which he lays out the argument for supporting Propositions 57 & 58 and the case for significant electoral reform.


Steve Westly

What I am going to do is cover, in very rapid order three things: First, I'm just going to say a word or two about Arnold, and about Propositions 57 and 58. Then I want to say just a little bit about electoral reform and how we fix the structural problems we're facing today so we don't end up in the same soup a year or two down the road.

I cannot tell you how different it is working with Arnold than Gray. Some of it's better, some of it's worse. Let me be honest; there was no one harder working or more knowledgeable about the issues than Gray Davis. But when it comes to interpersonal skills, twisting arms and getting an agenda put through, Governor Schwarzenegger is pretty darn good. When you think about what makes a successful Governor, I would suggest to you half of the job is being a world class executive-it's being half Jack Welch-with an agenda, a person of clear vision who knows how to move a meeting. The other half is a completely different skill set, which is, when you go in to the backroom can you twist arms, can you get a legislative majority to pass your agenda? Because without that ability, you don't move the meter. And I would just suggest to you that Schwarzenegger has come out of the block and has shown himself to pretty good on what I call "the LBJ scale."

It's a fascinating time, a time about which I joke that it's the tale of two Arnolds. And we're not quite sure yet whether he is someone with this world-class charisma, name ID, force of personality and wealth-hey, being worth $700 or $800 million doesn't hurt. Or is this someone who never quite understands the details and the procedural on-goings of Sacramento, how to get bipartisan support, how to make a compromise, and frankly, how to make the tough decisions? We'll see. As I joke, I don't think even the Governor would say he is Lawrence Olivier. He doesn't have terrific range as an actor, but he plays tough guys well. Well, now he has a chance to do that in the real world.

However tough the aliens were or the Hollywood movies were, he's now going to have to cut programs, deal with the prison guards union, and now he's going to find out what tough really is. So we're going to see how he does. And I'll just tell you right now, I'm a life long Democrat and I'm proud to be a Democrat. I was not elected to toe a party line, I was elected to fix a problem. As the State CFO, I recognize that we have a huge financial problem, which was why I was the first Democrat to cross party lines and volunteer to co-chair the Governor's Prop. 57 and 58 efforts. This is the most important election many of you will vote on in your lifetime, because if it doesn't pass, we're looking at running out of money in the next 126 days. Whatever your party affiliation is, this is not something you should want to have happen. So I'm backing the Governor strongly on this.

Prop. 57 is a common sense restructuring of $15-billion of debt before June 16th, when we run out of money. The Governor, rightly or wrongly, has inherited $22-billion of debt. We need to pay that back. $14 billion of it comes due in June. He has asked the state for support refinancing $15 billion. We're in a time of historically low interest rates, so this is a good time to refinance. This is not heaping a new $15 billion on. We have $14 billion that comes due in June, and refinancing this debt at what we hope will be a lower rate is what Prop. 57 does.

This is a common sense initiative, and I'll tell you, when I stood up and agreed to be the Governor's co-chair three weeks ago, it was kind of a lonely feeling. Not a lot of Democrats were willing to stick out their necks. I was looking over my shoulder saying, "c'mon you guys, this is a common sense solution. It's very close to what Gray Davis put forth and you all backed it." A lot of people wouldn't back it. Why? They wanted to poke the Governor. They didn't like the recall, they didn't like Republicans, they didn't like – fill in the blank. Again, we're not here to toe a party line. We're here to fix things. So I stood up.

Fast forward three weeks, and let me just tell you, I could not be more proud. We've been endorsed by almost every newspaper in the State – LA Times, San Diego Union-Tribune, Oakland Tribune, I could go right on through the papers. Three weeks ago, we stood at 37% support. People said, "Steve, what are you doing?" And I said, "I am doing the right thing." Last week we were at 48% support in the polls. Yesterday more polls came out and showed we were at 55% support. Tonight, we go on TV with one of the larger buys in the whole state. Two of your favorite screen stars – okay, one of your favorite screen stars and I will be doing commercials with a very large buy. But the simple message is, this is a common sense, bipartisan solution to solve the state's program. By the way, even Moodys came out last week and said that they view this as a positive for the state to solve its long term financial problems.

Now, Prop. 58 is the other half of this. With these two initiatives, they both must pass, or both of them go down. Prop. 58 does three things. First, it says never again can the Legislature enact a budget that's not balanced. Let me pause and explain this. Today, the Governor is required to put forward a balanced budget. The Legislature is not required to pass a balanced budget. So that little disconnect is a huge problem for the state of California. Prop. 58 says, never again may the Legislature enact and unbalanced budget. This is part of the state's problem.

Second, we need a greater reserve fund. When the recession hits, other states that have had reasonable reserve funds were largely buoyed from sever cuts-we didn't have it . Prop. 58 requires a larger reserve plan. That is a good thing, and something every Californian should support. The third thing is that never again should we use debt to finance operating expenses. We don't have that today, we need to change that in the future. We can't change it today, because simply put, we don't have the money. But it says never again will we borrow as a state to finance operating expenses. These are three common sense things, and this is why you see virtually every member of the Democratic leadership, except for one or two, and every member of the Republican leadership, except for one or two on the far right, backing these initiatives. Today in Sacramento, you have John Burton, Herb Wesson, Fabian Nunez, all of the Democratic leadership standing up to support this saying, we are going to back the Republican governor. It is the bipartisan, right thing to do. That's why these initiatives are going to pass.

Let me just close and say a few other words about Sacramento. Some of you know I come to this position from a business background. And people ask, "Steve, what's the biggest surprise in serving in government?" And I'll tell you, far and away, without a doubt, the sheer level of partisan rancor and bickering in Sacramento would make any one of you sick. I am here to try and turn down the partisanship on both sides to focus on real problem solving.

Let me just suggest to you, what we really need long term, so we're not right back here facing the same problem next year in the budget, is that we need to get serious about electoral reform. Term limits was a mistake. Anyone who is in Sacramento working there day today would tell you this. Even my good friend Gary Hunt, who was the chair for term limits, a Conservative Orange County Republican, will say it's the thing he most regrets in his life. While I can't make term limits go away, within the next few years there will be an initiative to extend term limits to a more reasonable length, probably 6-to-8 years in the Assembly, 8-to-12 years in the Senate.

Second, we need nonpartisan, independent redistricting in this state. We have 120 legislative districts, 80 in the Assembly, 40 in the Senate. Of these 120 districts, only five of them had an election that was decided by less than 10%. That means we're not having real elections. This is not democratic. You had a greater chance of losing an election as a member of the Supreme Soviet in Russia. This is one of the tragedies of government. What is happening here is the Districts have been drawn up in such a partisan fashion that we have real left wing Democrats and we have real right wing Republicans. And, guess what? There's a reason we're not getting a budget passed on time. There's a reason we can't fix workers comp. This is what we need the fix for.

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Third thing, I'm strongly supportive of an open primary. People want an open primary. The simple premise is, most people want to be able to vote for whoever they think the best candidate is, regardless of party affiliation. People want this, it's democratizing. We had it in 1996 and voter turnout went up substantially. It's a good thing for government.

So these are the three electoral reforms that I think will begin to give us the sort of world-class government we need to support the world class companies like Amgen, Countrywide and Verizon that are making this area so successful. So, call him the Terminator; I want to be the Reforminator. We need to fix the state's government, and I'm just delighted that you were willing to have me here today. Thank you.

What are we going to do about the deficit?

Great question. Please understand. We have two issues here. We a fallout caps low prices. I'm the state's chief financial officer, this is what I'm trying to solve here. This is not going to make our deficit go away. There is still going to be a lot of heavy, where the Governor and the legislature are going to have to hash this out. Let me tell you right now we, as a State, are going to see some of the largest cuts to programs we've seen in a long time. And the question is, because the Governor still has an extra, I believe, $3 billion of a gap to fill that's going to have to be negotiated, and we may end up some additional taxes. It's going to be a wrestling match. We're still going to have this problem. But, I don't want to have a financial collapse in the next 110 days in the midst of this. I want to solve it in an appropriate way. By the way, the economy is improving, and I think most of the legislators now get it, who were in denial just a year ago, because while they bickered and dithered Wall Street came out and said, you know what, we're going to cut your bond rating not once, not twice but a triple cut. I've gone out to both caucuses, Republican and Democrat, and said, do not let this happen again. We're just two bond ratings from junk bond status. By the way, this is why I'm so bullish on extending term limits. Frankly, we don't have enough people in the legislature who even understand what a bond rating is. That's my job, and that's why I'm down there all the time. As I often joke, what I wish is there was a law you have to have served in business at least two years before you run for the legislature.

What happens if 57 and 58 fail?

If 57 and 58 fail I have to go back to Wall Street almost immediately hat in hand to borrow money. It's entirely likely Wall Street will not lend us but a fraction of what we need, perhaps half, and then Wall Street will also require immediate cuts and probably some level of tax increases. You will see a dislocation or a jolt of government in this state like people have never seen before – instant layoffs across the board, think schools and health care.

But please know, people have to think about Government is you have to make cuts, and there's this picture I think people have of a building that looks like the Pentagon with hundred of thousands of bureaucrats and we'll just get rid of them. That's not the case. There's clearly waste and fat in government, but what you think of as the bureaucracy in Sacramento is less than 7 or 8 percent of the pie. What's going to get cut here is education, health care, medical, and most of the other things that a lot of us, frankly, need.

You had mentioned that the Governor is required to submit a balanced budget but the legislature is not yet required to pass one. So if 58 passes the legislature would be required to pass a balanced budget. However, with the extreme level of partisanship in Sacramento how is that going to be accomplished within some timely frame?

We're doing as best we can, and you've heard the expression you've got to play the cards as your dealt them. I can't snap my fingers and change the legislature. What I can do is make them work as well as they can. And let me just tell you, the story that's already being written in Sacramento because of myself standing up and working with Arnold is it is beginning to be less about Republican versus Democrats and more about people in the middle. And both parties want to fix problems and the extreme on both ends, who is just sitting there poking people e without any alternative solution. That alone is an extraordinary mood change in Sacramento. I think that's what Senator Feinstein has done well in the Senate. If we can change the atmosphere of partisan brinksmanship in Sacramento we will have gone a long way. Next issue up is going to be on workers comp, where it will be my pleasure to work with the Governor to find a compromised solution that will back us away from something that frankly is hurting every business in the state.

This Los Angeles Times came out in favor of Prop. 56, which they said would help a lot of the budget issues because the state legislature would be able to pass with a 55% margin. VICA has taken quite an opposite opinion on that, and believes that it would be very detrimental to the business community. Could you comment on that?

Prop. 56 is one of the tougher initiatives out there. It's one I think, frankly, where reasonable people disagree. Here's the rub: 56 does two things. On the one hand it says you no longer need a 2/3 majority to get a budget passed through the legislature. I'll tell you right now, that is a good thing because it does not serve anybody to have the state's budget tied up every year. That's part of why we get our bonds downgraded, and I'll tell you very rating agency on Wall Street is very supportive of this. The flipside, and what' s odd is that they're roped together, it also says the legislature can pass any new tax with 55% majority, and that leaves the business community in this state scared to death for reasons I fully understand. So it's a very tough one, and most of my friends are split about evenly on it.

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