May 4, 2004 - From the October, 2003 issue

County CAO David Janssen's Unsolicited Advice To Governor Schwarzenegger

One of Governor-elect Schwarzenegger's primary policy commitments as soon as he takes office in November is to repeal the increase in the vehicle license fee, triggered by the revenue shortfall in the current state budget. However, repealing the increase will strip local governments throughout the state of $4 billion with no clear source to backfill that revenue. Metro Investment Report is pleased to present this interview with Los Angeles County's Chief Administrative Officer, David Janssen, in which he expresses his concern for local government funding, presents the inherent trade-offs in repealing the VLF, and offers his analysis of the recall of Governor Davis earlier this month.

David Janssen

As the CAO of the most populous county in California, what, in your opinion, ought to be the new Governor's priorities re counties and local government?

Well the first priority has to be budget. It's been pretty clear from everyone's campaign that the deficit of the state has to be resolved in whatever fashion they choose to do it. That's the number one priority for them and for us. The obvious concern we have is all of the discussion about repealing the VLF-since that is solely a county revenue and not a state revenue-and the potential consequences for local government if that should happen. Second, the state/local relationship is still in dire need of long-term fixing. The economic situation has simply reinstated a problem that has existed for some time.

Many Californian's fail to realize that the counties are primarily agents of the state. If the opportunity arose to brief the inner circle of the Governor-elect's transition team on county and local government vis a vis the state, what would be the advice you'd offer?

I would want him to understand that counties have dual responsibilities in California-that we are responsible for about 17% of the population as a city council, and that the bulk of our responsibility is carrying out state and federal programs. To the extent that they are interested in state and federal programs, they need to be interested in the fiscal capacities of the counties. Beyond that, our budgets are constrained-the new governor will learn pretty quickly that there is not a lot of flexibility with respect to making reductions in programs unless you are prepared to give up federal revenue. About the only discretionary revenue that counties have is about 8% of our budget, and a significant portion of this is the VLF revenue. Much more than cities, counties are desirous of a positive relationship, a team relationship if you will, with the state because of our specific responsibilities.

How would you advise he manage/balance the political challenge of keeping his pledge to repeal the VLF increase with his otherwise moderate social views about the delivery of services to the most needy in the state?

We have an $8 billion-$11 billion deficit in the state budget without discussing the additional $4 billion in lost vehicle license fees if that's repealed. It is not possible to cut that much money out of the budget. In fact, they are already proposing to borrow $10.7 billion to take care of last year's shortfall. There are clearly very tough decisions to be made in Sacramento and in the public. The public needs to better understand what programs are funded now in California, and then which ones are important to them. Polls indicated last Spring that the public does not education cut, the public does not want transportation cut, the public does not want health care cut. Right there, you're talking about the bulk of the state and county budgets. So there's going to have to be some meeting of the expectations here between the public and Sacramento on what their priorities are and what they are willing to pay for.

The voters seem to have little patience, nor confidence, in government. What must our public leaders do to generate more confidence and appreciation of the real challenges associated with intelligently allocating scare public resources to secure California's present and future needs?

First of all, 9-11 had a very dramatic impact and positive on the public's image of government. For the first time in decades, government was seen in a favorable light. The public's discontent right now is not necessarily with government. It's with the people that are running the government. And the message that they are sending to Sacramento, based on polls, is that we're not happy with what's going on in our capital. I don't hear them saying we're not happy with the services that are being provided by Los Angeles County and we want them all eliminated. They're expressing a frustration that Sacramento has not coped with the problems challenging California in a sufficient and acceptable manner. The challenge for the new governor is to provide the leadership that is necessary to bridge that gap. Through strong leadership, I think it is possible to do so.

In about 90 days, Governor Schwarzenegger must submit his budget to the Legislature. What will you most closely be examining when reading that document? What line items will give you the best read on whether the new governor has tackled his responsiblities appropriately?

We're probably going to know sooner than that. They're talking about calling a special session and the court has already stopped one of the debt financings worth about $2 billion. On a positive note however, the economy looks like it is improving and that they may have some revenues they didn't plan on. But, we'll know sooner than January how they are planning to tackle this problem-they're not going to wait to start dealing with it.


If they are not willing to go to the public, and this would have to be in March, with some kind of new revenue for the state, then the only alternative is very dramatic reductions in services throughout California. For us, that will mean cuts for sheriffs, probation, district attorneys, parks, libraries, and maybe even the health department this time around. That is the magnitude of the exposure.

What are L.A.'s County Supervisors asking you to pay close attention to?

Right now, it's the vehicle license fee. We have $700 million a year at risk. If Governor Schwarzenegger decides that he's going to undo, and can undo, the reinstatement of the tax, we would lose $700 million unless the state somehow backfills it, as they committed to do so previously.

That $700 million translates into libraries closing, parks closing, and deputies off the street. We've already made deductions of $472 million in the budget. We've already lost $260 million from state reductions this year. There aren't any more places to mitigate cuts. We've used almost all of our reserves; we're not proposing salary increases for our employees; we're having serious job actions from the deputies as a result of that. There isn't anything more there that we can do other than start reducing services that the public really wants.

How do electeds in this state appropriately manifest their leadership? Certainly, the governor-elect brings to his new office energy and enthusiasm, as well as public attention. But what must he do to move from celebrity to a recognized public leader of California?

The public is looking for somebody who communicates directly with them in a straightforward, open, and honest fashion. That whatever the news is-good, bad or indifferent-he's telling them the truth and he's accessible to the public. That can go a long way to making people feel more comfortable about who is in charge. California is in for an enormous challenge on this budget and people are going to get angry. I'm not sure he understands that yet, but he certainly will very quickly after the audit is done.

Lastly, CSAC and the League of Cities have been frustrated since Prop 13 with our disfunctional state-local fiscal arrangements, and the lack both of state accountability and local budgetary discretion. Has the recall campaign and its results changed the orientation or priorities of either local government organization?

I don't think their approach or their passion or their appeal is going to change at all. They have been very straightforward with Governor Davis, and I think it will be the same with Governor-elect Schwarzenegger-local government is where the action is in California. We have our own budget problems to deal with, and the state can't solve its problems on the backs of local government and still have a viable local government system. That has been the message for the past two years, and I don't think that will change at all.


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