May 17, 2006 - From the May, 2006 issue

Hertzberg: State Infrastructure Bond Results from Consensus-Building & Need

After the disappointment and frustration of the Legislature's failure in March to reach an agreement to place a comprehensive infrastructure bond on the June ballot, state leaders renewed their efforts. In the first week of May a bipartisan consensus was reached to produce a $37 billion package of four infrastructure bonds-for transportation, housing, educational facilities, and levees -which voters will have the chance to approve in November. The package did not come about easily, and members of both parties in both legislative houses fought for their share of the billions promised, which, if passed, will represent the largest investment in the state's infrastructure in decades. For insight into the bond package and the intense negotiations surrounding them, MIR was pleased to speak with Robert Hertzberg, a trusted advisor to elected officials and a former State Assembly speaker.


Robert Hertzberg

Early in the morning of May 5th the Legislature and the governor agreed to the largest public works bond measures in the state's history. It includes funds for expanding and repairing roads and schools, preventing flooding, and encouraging the construction of housing in urban areas. The achievement is being celebrated by the governor and legislative leaders from both parties, up and down the state. What's the back-story? What enabled consensus and action in the Capitol to create the opportunity for voters to approve the bond in November?

The tremendous pressure put on the state's infrastructure by population growth has inspired a robust discussion among the thinkers and the business community in California. The bipartisan consensus is that the state needs to invest a considerable amount of money in a "Pat Brown II" plan to maintain and expand our infrastructure. This consensus stems from an understanding of the need to not only provide for California's citizens but also to keep the state on the cutting edge in our globalizing economy.

As you travel the globe, everybody wants to be a part of the vision of California, but it only happens if government continues to focus on what's necessary for the success of California. In this global economy, the ports of Mexico, New York, and the South-all over-are all competing with us.

One thing that government can do that the private sector cannot do is build the infrastructure framework for the success of California. The California Business Round Table came to me when I was speaker and touched an important nerve when they proposed a five-year infrastructure plan. I introduced a bill at that time, and Governor Davis signed the measure, which for the first time required a five-year capital plan. Before then, the right hand didn't know what the left hand was doing, so to speak. We now require the departments of California's government to talk to each other to plan capital spending and frame a vision for our future.

Those of us who have spent time with Governor Schwarzenegger know that two big issues define him as governor. First, he wants to balance the books. He is not an ideologue who wants to worry about containing the growth of government, but he certainly doesn't want a structural deficit every year. Second, he really wants to build California. He intuitively understands the need for a commitment to "Pat Brown II."

The bond package consists of four distinct bond measures funding transportation, school construction, levee repair, and affordable housing. Each will be before the voters Nov. 7. Why these priorities? Is the package of bonds the best voters could hope for?

With the gridlock we're facing, the transportation challenges are self-evident. I wish we could have seen more public-private partnerships approved for goods movement projects, and more money spent on goods movement because goods movement investments would provide the greatest amount of leverage in terms of jobs and traffic relief in the shortest period of time.

The efforts to support community colleges, the state university, and University of California systems are essential – this is what epitomized the Pat Brown efforts of a generation ago. With respect to education, we saw a repeat of a great effort over the last number of election cycles by the voters supporting Prop 47 and Prop 55 ($25 billion toward school construction), which began back in 1998 with AB 16, which we passed when I was speaker.

The tragedy is that there is not enough money for joint use, with which we could create schools as the centers of neighborhoods and leverage other governmental assets. We could co-locate transportation, housing, healthcare services, library services, and all the other things that are necessary to help us create as much bang for our buck and create the greatest relationship in communities that desperately need to connect with their schools.

With respect to the levees, Hurricane Katrina created a sense of urgency, and the bond provides money for crucial maintenance. But I think we missed an opportunity to better plan for water policy, which is crucial for California's future. Those who are students of history, like I am, know that most of the water in Southern California has been imported, and we need to be much more thoughtful in the long term about our water planning.

Although it's difficult to do, we could have put more money into developing an intelligent 50-year strategic plan about water. With respect to housing, the state's need is self-evident, not just in the homeless issue and low-income housing. I think the housing community came out as winner in this bond measure.

Given your knowledge of the legislative leaders and the Governor, what truly helped motivate the "Big Five" to reach agreement on the infrastructure bonds for this November's ballot?

I give a great deal of credit to our elected leaders. The vision and focus of Governor Schwarzenegger must be commended; in every politician there is a sense of what defines you, and I think that these bonds define who he is. Investing in the "California dream" is why he ran for governor. I also give a great deal of credit to Sen. Don Perata, who reached out to all corners of the state, put his heart and soul into this effort, and saw it through difficult times.

And ultimately credit goes to Speaker Fabian Nuñez, who is a very keen legislator who understands how to put the pieces and parts together and see the big picture. He was instrumental in taking what was a failure last time and putting it all together this time. Fabian is willing to work with all sides and wants to get things done.

What ultimately fell out of the bond package before passage by the Legislature? Specifically, what expenditures and language failed to win bipartisan support?

Many of us fought for an enlightened alternative to Governor Romer's "warehouse approach" to new school construction, by which the LAUSD has failed to leverage state and district school bond money with other public and private investment. By entering into public-private partnerships with housing, health and other investors in our neighborhoods, the district could have significantly leveraged their investments in our inner city and inner-suburban communities. For example, Superintendent Romer has consistently missed obvious opportunities to leverage the library bonds passed with the support of Mayor Riordan and Governor Davis.

The original Schwarzenegger plan had much more emphasis on logistics, goods movement, and trade infrastructure. Why is that important? Because it would allow industries, rather than taxpayers, to pick up a great deal of the cost of building – and greening – the infrastructure. It can be done the quickest, and it would tell global markets that California is a great place to do business. Secondly, it provides high-wage jobs that aren't outsource-able.

The L.A. Economic Development Corporation estimates that we have half a million jobs relating to goods movement. We could bump that up to 1.5 million. Also, getting trucks off the highway helps with traffic, and the trucking industry, through fees, would pick up the tab. Unfortunately, a proposal to fund dedicated truck lanes with fees from railroads which could have leveraged public bond money did not make it into the bond package.

That being said, I'm not griping. I'm one of those people that are dancing in the streets about these comprehensive bond issues passed by a bipartisan majority in the Legislature. I think it is fantastic that our state's elected representatives have come together and acted in a bipartisan way.

How will the funds from the package of bonds be spent if voters approve them? Will their success be linked or will each stand or fall on their own?

They are not linked; each proposition stands on its own. All of the bonds could pass, or only one or two. As we move forward the Legislature can decide how to spend the money and create a more holistic approach, which I certainly hope they will consider. If all of the bond issues win public support, the bonds are issued and the money is spent only when the money is needed for a specific project.

In the meantime, currently outstanding bonds get paid off on an annualized basis, so there is a kind of rolling number in the budget. The very conservative Department of Finance under Mike Genest modeled the governor's original $68 billion proposal, and he showed that California would always be under what Wall Street considers a very conservative debt-equity ratio.

As with any business, for example, it is necessary to make capital investment to build the business. If a business needs to expand its facility to increase sales, the management borrows money to acquire that machinery to produce the product, and hence, sales. Government and infrastructure are no different. We have to borrow in order to pay and grow so that we continue to progress.

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Seldom addressed in the multitude of articles and media attention given to the passage of this package of bonds is a park and clean water bond, which was not included in the package that came out of the Legislature. How will those separate park and water bonds will fare in November?

It's important to note that the voters of California already have passed two significant bond issues for parks. One was the biggest in the history of California when Mayor Villaraigosa was speaker, and the other was a few years ago when Jon Burton, Fred Keeley, and I pulled together a $2.6 billion bond issue. A lot of that money went towards urban parks-I'm looking out my window at the Cornfields, which is one of the great projects that we acquired with those park bond funds. So it's not as if there hasn't been a great deal of resources devoted towards parks. Nevertheless, advocates have separately put together for the November ballot their own $5 billion-plus bond issue for parks and water, and it will appear alongside the package approved by the Legislature.

One of the catalysts for consensus, some suggest, was a transportation coalition initiative ready to be placed on the November ballot. If successful, it would permanently close what is called the Prop 42 gas tax "loophole." Can you elaborate on the politics of the Prop 42 issue and how the current bonds addressed this contentious issue?

In 2002, when I was assembly speaker and John Dutra was Chairman of the Transportation Committee, we addressed the transportation funding issue with the passage of Prop 42 (gas tax). At that time, the increase in gasoline prices caused a surge in revenue from sales tax. A huge policy debate ensued over whether those sales taxes should be used to pay for general government services or should be devoted exclusively for transportation. Certainly the public thought that taxes charged at the pump should pay for transportation.

But Prop 42 included a loophole whereby those sales tax dollars collected could be used for general government purposes with a two-thirds vote of the legislature. The transportation community has become frustrated because so many of these dollars that they had planned and earmarked for transportation projects now were being used to fund social services and other public needs during budgetary tough times.

Over the years different groups have resorted to the ballot to try to protect certain parts of the budget for themselves – public safety, Prop 98, Prop 172, and the like. This year, the transportation coalition came together to protect Prop 42 funds. This new bond package represents a serious compromise between the education community and other interests on the one hand, and the transportation community on the other hand, to assure that the measure to protect the Prop 42 funds will go forward without much opposition.

In barnstorming the state after the signing of this package of infrastructure bonds, the governor has asserted that voters understand that California's infrastructure currently supports a population of 25 million while we actually have 37 million residents, and eventually 50 million. How did the Capitol faile for forty years to reinvest funds in the very infrastructure that made the California dream possible?

I think that there were competing interests. These are hard decisions– what does the new infrastructure look like? What is the vision? We don't all agree that there should be freeways, for example, in the area of transportation; there are strong advocates in the community for more buses, light rail, or subways. There are advocates for high-speed rail. Politics became gridlocked as various groups sought for support for "their" solutions. In the meantime, other challenges were grabbing at the public funds. Public safety has had more political support at various times, and education dominated voters' concerns in the last few elections.

As a former speaker you've often said that you've lived in the belly of the beast and that you appreciate the challenges facing our elected officials. The local and state media rarely provide insights into governing, preferring instead to cover government as a political horse race. Are issues about the governing process really irrelevant or not newsworthy?

Unfortunately California is so big that the press seems to focus on "horse race politics," instead of covering the comprehensive bond package as, "What are the needs of California? What are the obligation do California voters have to future generations?" Rarely does the press ask, "Do we build more large, warehouse schools, or do we build smaller, joint use schools in the center of communities?" Such questions would result in better coverage. Coverage of this bond, instead, was about Democrat versus Republican, Senate versus Assembly, governor versus Legislature. I think the media really missed the real, and more interesting story.

Please shed some light on how bonds, whether for transportation, levees, goods movement, or housing, actually get written in the final hours of a legislative session. What roles do the governor and legislative leaders from both parties play in the final drafting?

It's frenzy with a sense of urgency-I call it the "kabuki." There is a crescendo where the rumors are flying, interest groups are trying to get what they want, calling every legislator and trying to say, "Don't vote on this unless this is in the measure or that is in bond proposal." It requires the leadership of both parties and the governor, to maintain cool heads, stay focused on the big picture, and to not let last-minute shenanigans derail the effort.

Often at the last minute a few smart Alecs try to say, "I'm going to hold out my vote unless you give me this or that." It requires a real sense of command to sit down and say, "This is about the common good. Not everyone gets exactly what they want." It is very difficult, but there is nothing more rewarding than to pull something like this together.

Ultimately, agreement turns on values and vision. This is where leadership matters: The strength and character of the governor and legislative leaders, what are they made of, what are their visions and values? Someone from one part of the state will often oppose a measure unless his or her section of the states gets ten times what the population calls for, or whatever it may be. You just can't let that kind of thing happen.

If you don't have values, you are going to be bouncing all over the place and never reach a conclusion. It's all about making decisions and taking bullets from people that might be mad at you and just say, "Look, I don't agree with you on this," and shake hands and move forward.

Interest groups often grumble when their priorities fail to win support in the Capitol. When approval in the Legislature requires a two-thirds vote, how do you convey to these interest groups the importance of compromise?

Often a legislator from one committee will say, "I can't vote for this because it doesn't have enough of X or Y and I'll get thrown out of office." You have to be smart enough to understand the communities that legislator represents so you can say, "That's not the case, let me tell you, I know."

You need to build support from those respective communities and be able to say, "That's not the case. All of these other groups that are very important to the communities are on board." When interest groups are over-reaching and say, "they got X and they want double X," you have to be able to say, "you're not going to get double X; it's not good for the state of California."

From a gubernatorial point of view it is about putting together a picture of the state and showing that the elements of the transaction really support your vision of the state. It's a balance between getting the votes and building new support from the thousands of communities that California comprises.

Will you, cognizant of the pros and cons of each, vote for the four bonds in November?

Yes, I am enthusiastic about the bond package and I am proud of both the governor's and of the Legislature's efforts.

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© 2018 The Planning Report | David Abel, Publisher, ABL, Inc.