May 4, 2004 - From the October, 2003 issue

Post-Recall: Appropriation Chair Steinberg's Rx For State's Fiscal Ills

Much has been said and written about this month's election to recall Governor Davis from office, but the fact remains that California is facing a monumental financial crisis. While there is hope abound that Gov-elect Scwarzenegger will right the ship and get California back on its feet, there's no denying that Arnold faces the same structural problems that put Governor Davis in such a pickle. As Arnold rounds up his transition team and plans for the selection of his key cabinet appointments, the Legislature likewise is gearing up to work with the new administration. MIR is pleased to present this interview with Assem blyman Darrell Steinberg (D-Sacramento), in which he addresses the root causes of the recall election and offers his prescription for restoring the fiscal and political health of the state.


Darrell Steinberg

Assemblyman,the gubernatorial recall election has concluded-the voters decisively chose change. How do you interpret the results of the recall campaign, and what's your assessment of the political health of representative government in the State?

I'm concerned about the political health of the state. I believe that the recall is reflective of a system that's pretty well broken, and people are making a statement that they're unhappy with this system. I believe strongly that the recall was ill advised. It could easily perpetuate a series of recall - retribution - recall - retribution that is going to take politicians and policymakers further away from solving the huge problems from which the state suffers, and I'm very concerned about it. We have got to get back to governing. We have to get back to taking on the big structural issues that have helped lead to this political paralysis, and I don't know if the system that's constituted is necessarily capable of doing so.

With the results in, the governor-elect is surely preparing himself to lead his new administration. If you were to write a prescriptive letter addressing the challenges resulting from the State's deficits to Governor-elect Schwarzenegger, what priorities would you advance?

My number one prescription is, don't be afraid to take risks. Don't be afraid to lead-people are hungry for it. People are hungry for leadership on big issues. People want to know that this system is going to work, and those who are reliant on government in one way or another-whether it's public educators, parents, students, health care providers, health care recipients, those concerned about the environment, those dependent on public safety-have to be assured over time that their fates are not going to be dependent upon the ups and downs of a volatile state budget. It's going to take leadership to break through the interest-based politics that make it very, very difficult to really accomplish the needed reform.

Highlight the priority state reforms you believe must be adopted if the state is to disentangle itself from partisan gridlock and the public's faith in representative government is restored.

I would say that what is fundamentally wrong with this system is that there is a mismatch between resources and responsibilities. Those responsible for carrying various public services are not empowered to raise the revenue to be able to deal with the needs of those services. That's what I think is broken about the system more than anything else-there's a huge disconnect between the state collecting taxes and revenue and those who provide the services. We need to empower school districts and communities on the education side. We need to empower local governments to deal with the revenue side of their budget equation. We need to have a genuine system of public financing of political campaigns. The system of huge political contributions from the private sector has to change. Legislators are generally people of integrity, but systemically money has too much influence.

Displeasure with the underfunding of local government was repeated expressed by the major candidates during the recall campaign. Both McClintock and Schartzenegeer's campaigns focussed on rolling back the VLF. Of course, eliminating $4 billion of local revenues, given our deficits, clearly threatens the capacity of city and county governments to deliver mandated services to constituents. How will these two seemingly irreconcilable public demands be met by the state?

The VLF is a perfect example of what's wrong. It's become a state political football, and its greatest impact is on local governments. It's very easy, and of course popular, to say "my first day in office, I'm going to sign the executive order that eliminates the VLF." But the candidates who espoused that position are not being completely straight with the voters. They're not asking the second question, which is, "how are we going to fund police, fire, libraries and parks the way that people have come to expect? How are we going to make up for the loss of $4 billion?"

Mr. McClintock's position is even more irresponsible in that he's circulating a constitutional amendment which says, not only should the VLF be brought down to $1, but that state government needs to constitutionally backfill their local government for the entire amount. That would keep local government whole, but would add $6 billion annually to our state budget deficit. And where does he propose to cut? I've not heard a single specific proposal. If local government had control over the VLF and/or other revenue sources, these issues would be less of a political football. They could be decided locally, and local government could measure their needs versus the necessary resources. That doesn't exist now.

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Let's revisit structural reform of state and local finances. What's the status AB 1221? How does the tax/debt swap that was built into the current budget agreement impact the prospects of AB 1221 ever passing?

AB1221 is very much alive, and we're trying to work with the League of Cities to see if there can be consensus around the issue. It's still an uphill fight, but it's another issue that's reflective of the difficulties that our system faces. It is a fairly modest, although very significant, reform, and the forces of resistance are huge, consisting mostly of the cities. The state of California could offer the cities a gold-plated watch and millions of dollars and they would be very suspicious, less about the policy than about anything the state may want to do that could impact local government. That is an institutional resistance that we're going to have to continue to work to overcome.

The swap in the budget actually was and continues to be a real opportunity, because it swapped property tax for sales tax in order to pay for the bond. The problem is that the Legislature was not willing to consider doing it in a way that was consistent with structural reform. What they did was, they gave the cities more property tax, but then they said they would base their growth on the growth of sales tax. I urged very strongly, in a couple of different venues, for the budget to at least give cities and counties the ability to choose property tax, but there was a fear that there could be significant financial implications for the state. In the end, the Senate didn't want to go there. But the issue is very much alive. We'll continue to press, and hopefully before my time runs out here, we'll be able to accomplish this reform.

Post the recall campaign, have you sensed a window of opportunity for the legislature and Governor to address the unintended negative consequences of Prop 13? Or is Warren Buffet's public rebuke an indication that the state incapable of addressing the unintendent impacts of this 25 year old popular initiative?

Thank you Warren Buffett. That's the only sign I've seen. Cruz Bustamante raised the issue briefly during the gubernatorial debate about cities' over-reliance on sales tax and how the lack of property tax revenue affects housing. But, I've not seen the issue of fiscal reform be a front and center issue of this recall campaign. It's unfortunate, but it has not been one. Schwarzenegger talks about the VLF, but he doesn't want to be specific about how he would deal with the consequences of repealing the increase.

Even after the fact, MIR would like your views on the recall election.

The recall is really a power grab. I believe fundamentally that we have elections and the winner gets to lead and the loser, in terms of the party, prepares for the next election cycle. That's fair and that's the way it should be. This election was a power grab in the beginning of a term and I think it's bad for California. It will result in a series of back and forth retribution, just like the whole issue about appointing federal judges and supreme court judges has led to this back and forth between Democrats and Republicans in the US Senate. I think you'll see years of recrimination here. That's unfortunate, but it's probably reality.

People may not like Gray Davis, and everybody gets that. But, there is a pretty darn good record of accomplishment under Democratic leadership in this state. Whether it is the first of its kind privacy legislation in the country, and/or an internationally acclaimed law to reduce our auto emissions, or the huge increased investments we've seen in public education, reducing the ranks of the uninsured. There is a lot to point to with pride, setting aside personalities and how people feel about the man himself. Policy-wise, the state is going to regret going back to a Republican governor, where those kinds of advances may not be possible.

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