November 8, 2013 - From the December, 2013 issue

California Assembly Speaker John A. Pérez Announces Bid for State Controller

John A. Pérez, Speaker of the California State Assembly, spoke to Town Hall Los Angeles attendees on Oct. 9 in a keynote titled, “California: A Global Contender.” During the Question and Answer segment of the conversation, Pérez announced his decision to run for California State Controller in the upcoming 2014 election. The following edited transcript of his comments has been reprinted with permission from Town Hall Los Angeles.

John A. Pérez

"We made a commitment to the people of California that we would put our fiscal house in order and protect our hard-won fiscal integrity." -California Assembly Speaker John A. Pérez

Assembly Speaker John A. Pérez: It's really an honor to discuss the important issues facing the State of California. Just a few weeks ago, the Legislature wrapped up a very productive legislative session for the people of our state. But before I get into the particulars of the policies we've moved forward, I want to take a moment to discuss where we've come from. When I was first sworn into the Assembly at the end of 2008, California was in the depths of the worst economic crisis since the Great Depression. Our budget was $60 billion deficit and that is out of $110 billion budget. Our unemployment rate was near the worst in the nation. Twice that year, we came within days of fiscal insolvency. Professional pundits gleefully discussed California as a failed state incapable of governing ourselves, and lending ourselves to all sorts of comparisons to countries and economies like that in Greece. We had a government whose approach to this crisis was to cut indiscriminately. The governor thought that the only way out of this solution was to cut, cut, cut. His budget proposal would've literally cost people their lives, to say nothing of the massive economic harm that would've been the direct result of laying off more than 430,000 teachers, cops, firefighters, nurses - yes, public servants, but also tens of thousands of private contractors who do business with the state. In fact, even if you weren't one of those people on the chopping block, the State of California was paying on its contracts so late that it didn't make sense for many businesses to continue to contract with the state. These difficulties were compounded by a budget process that was paralyzed by the fact that California was one of only three states in the nation - along with Arkansas and Rhode Island - that required a supermajority to pass a budget. I don't know about you, I don't think of California being much like Arkansas or Rhode Island. The byproduct of the supermajority requirements - and let's be clear, Arkansas and Rhode Island already had single-party rule in excess of their supermajority requirement. But the byproduct of that supermajority requirement was the same kind of hostage-taking that we're currently seeing on the national stage in Washington, D.C. 

The inherent nature of the crisis, and the scale, means that the decisions we were making required examining some fundamental questions about our values as a people. There were those, as I said, who thought the only solution was to cut indiscriminately. There was a rhetorical debate, but there was also a moral debate going on, a question about the best ways forward in times of scarcity and economic need. In the end, my colleagues and I reflected on some of the thinking of Franklin Roosevelt during the crisis of the Great Depression, where he said that "Governments can err, presidents do make mistakes, but better the occasional faults of a government inspired by charity than the constant omissions of a government frozen in the ice of its own indifference." Those words guided our deliberation. We put forward proposals that cut responsibly in ways that wouldn't harm the overall economy. We ultimately prevailed in that discussion and protected the jobs of 400,000 Californians during the worst period of the recession and we began the process of moving forward in job creation measures on a bipartisan basis. Our focus on making the smart decisions gave voters the confidence that they needed to give us the tools to govern effectively. Voters approved Prop 25 in 2010, and as a result of that California joined 47 other states and the federal government in requiring a simple majority to pass a budget, putting an end to the era of chronically late budgets that hurt the finances of our state and paralyzed our ability to govern.

Those actions sent a very clear message to all of the doubters. And paraphrasing one of the most iconic writers on California, the reports of our demise were greatly exaggerated. They weren't just exaggerated, they were wrong. They were Dewey defeated Truman wrong. Today, as a result of those changes approved by the voters and the responsible actions by my colleagues and myself, today our budget is balanced. We have a reserve of over $1 billion, and we have surpluses projected to continue in the coming years. Our revenues are rebounding faster than all but one other state. Our unemployment rate is dropping, and job growth in California is greater than any other state in the country, which in turn is driving our national recovery. Our economy in general is recovering faster than 44 other states. And interestingly enough, the gross domestic product of California is growing a full percentage point faster than the rest of the nation as a whole. Most tellingly of all, California has reclaimed our mantle as eighth largest economy in the world and we're projected to continue moving up that ladder. Our number one priority as a state is to continue to build on this progress, and make sure that our recovery stays on track and continues to gain strength. And for three years we've worked closely with Governor Brown to do exactly that. We've passed, as I've said, three on-time balanced budgets; the first time in over three decades that California has passed continual on-time balanced budgets. We didn't approach the budgets as an exercise in indiscriminate slashing, as many suggested that we should. Rather, we went through the budgets line by line and made smart cuts where we could while avoiding the kinds of cuts that saved us money on the short term but undermined our economy in the long run. As a result, the voters saw that we were working hard to protect the public safety and public education, and in the last election voters approved temporary short-term revenue increases through Prop 30 so we could end the cycle of taking money out of our schools.

We made a commitment to the people of California that we would put our fiscal house in order and protect our hard-won fiscal integrity. After the last election, when as you heard Dr. Griffith mention, we gained supermajority in the Legislature, there were many who were worried about what Democrats would do with that supermajority. There were those who wondered whether we would increase taxes or rewrite Prop 13. We made it very clear that with a supermajority or without the supermajority, we would not raise an additional single tax dollar above what the voters had approved in Prop 30. What we're doing instead is putting forward policies that California needs for us to build on our recovery. As you can see clearly, the one thing that California's gotten under Democratic supermajorities is a new sense of fiscal discipline.

Maintaining our fiscal stability is essential if we're going to put forward the kinds of policies that will add fuel to our economic recovery, and my colleagues and I are absolutely committed to maintaining the health of California's finances.

That's why this year during our budget negotiations, I introduced the concept of a genuine rainy day fund. We know that historically, California's tax base has been inherently volatile. Over the last 20 years, the proportion of revenues coming from capital gains taxes and income from wealthy Californians has varied between 3 percent and 14 percent of our general fund. That level of volatility means that some years we are awash in revenues while other years our revenues are seriously depleted. The rainy day fund that I'm proposing will take the additional revenues we get in the good years and bank them away so that in years when our revenues fall short, we have the resources we need to smooth out the volatility of the economy. This is a vital step that we must take if we're going to maintain fiscal discipline in California and I strongly believe the voters will approve this important measure when it's placed before them on the ballot next year.

But ultimately, we know that the single best way to ensure the long-term health of our state's finances is ensuring the long-term health of our state economy in general. We've taken a number of steps to ensure that the California recovery continues to outpace the rest of the nation. Some of these efforts have been targeted at specific industries and some have been more generalized in state policies. We've extended the film tax credit to help bring stability and we've helped bring stability to the housing market and significant relief to the construction industry, which was hit harder than virtually any other sector of our economy by the recession and the housing meltdown. We've passed a green manufacturing tax credit program to help nurture industries of the 21st century. Now, as you see every Tesla rolling off the assembly lines in Fremont, it is a testament to that transformative potential of industries, like green energy and green manufacturing - the potential that they have to rebuild our economy. These are industries that will define the 21st century in the same way that Silicon Valley has reshaped the entire world over the last

30 years. Their natural home is here in California, and we must fight hard to ensure they continue to grow and thrive in our state. We worked closely with our congressional delegation to successfully bring a new patent on trade office to California. We know that one in five patents filed in the United States are filed right here in California, so it only made sense to open a patent office here in our state as well. We're going to be equally aggressive in fighting for one of the high-tech manufacturing hubs that President Obama has proposed creating. I've discussed this issue with the entirety of our congressional delegation and with members of the administration, in particular the Department of Commerce. We've made it clear that California is the natural home for one of these hubs and we're going to fight like hell to get one here.  

Those are just a few of the targeted efforts we've made at industries that will put California back to work and ensure that our economic recovery is not only robust in its aggregate, but fueling opportunities for every single Californian. Our efforts have not been limited to specific industries. We've put forward a number of statewide policies that'll help our economy strengthen and recover. We've updated a number of regulations, but quite frankly, not enough of them, to reflect the real world conditions facing businesses across the state, and making more common sense without compromising the environment and workplace standards that Californians value. One of my colleagues this past year, Assemblymember Gatto, introduced and passed legislation that will curtail frivolous shakedown lawsuits aimed at businesses like restaurants and coffee shops whose Prop 65 notices were either not visible enough or inadvertently had been taken down. Prop 65 was intended to warn consumers when they might be exposed to substances that can cause cancer or other medical conditions, and that was worth doing. But consumers aren't being protected when coffee shops and restaurants are being shaken down because their sign wasn't visible enough. This new law brings needed protections for business owners who are simply trying to run their businesses responsibly.

Furthermore, I was also pleased that the governor joined the Legislature in signing legislation correcting an egregious action by the Franchise Tax Board. Thousands of small businesses across the state were slapped with a five-year back tax notice after a judge ruled that a tax credit program that we had initiated was unconstitutional. Small business owners who didn't pay a tax that they were never required to pay in the first place were ordered to pay those taxes going back five years, placing a $120 million burden on small businesses across the state. I strongly believe this action was arbitrary and unfair, penalizing hardworking small business owners. And the governor made the right decision in joining with us in signing the repeal of this retroactive tax. We need to have common sense government, especially when it comes to our regulations. A badly worded or particularly onerous regulation can stifle businesses and keep them from creating jobs. So, we've worked hard to modernize many of our regulations. One of the best examples is the effort to change the way in which the California Environmental Quality Act is used, and help Farmer's Field Project, among others, move forward. We didn't waive any environmental standards. Instead, we simply required that all challenges to large construction projects, especially those with a green bent, be heard and mitigated within six months of the release of the environmental impact report. That legislation was introduced to serve as a template for broader sets of changes to bring common sense to reforms to California's landmark environmental quality law. And while we've had some limited success, we know that there's more work that needs to be done in this area as well. This is a simple, common sense change that our law needs to reflect our commitment to sustainability and healthy environments while allowing construction projects with enormous job creation potential to move forward.

But in all of these discussions, one thing has consistently stood out. California needs to have a comprehensive strategy for growing our economy and improving our business climate. Most economic planning in California is made at the local level, by cities or counties, and in some places cogs. But that has led to inconsistencies across different counties and regions of our state. And I strongly believe that our state needs to work proactively to strengthen our economy rather than rely on a piecemeal approach. That's why I wrote the law creating the Governor's Office of Business and Economic Development, or GO-Biz for short. We needed to have a focused, strategic approach to growing our economy and strengthening California's businesses, and GO-Biz is already making an enormous contribution to that effort. GO-Biz serves a number of important functions in state government. First, it serves as a long-term economic planning agency bringing focus and a growth-oriented view to our policy deliberations. Second, it serves as a clearinghouse for businesses seeking to expand into California and will be aggressive in marketing California - a state with 40 million consumers - as an ideal location for businesses to expand their operations. Third, GO-Biz will fill a critical void overseas. California used to have a strong overseas presence that reflected the vast sectors of our economy that are driven by foreign trade and direct foreign investment. Those trade offices were closed some years ago as a result of the ongoing budget turbulence and some problems in management. GO-Biz has already reestablished trade offices, our first in Shanghai, and we're working to ensure that further offices are established with California's most important trading partners - Mexico and the Republic of Korea make sense as our next step - as well as a second office in another region of the People's Republic of China. GO-Biz is not just a planning agency, it's a vital tool for marketing California, and it's essential for an ongoing recovery. 

In fact, throughout the worst days of the recession, one industry that proved more resilient than virtually every other was the tourism sector of our economy, which contributes billions of dollars to our economy every year. That's why I've worked closely with Visit California, because they've done an amazing job in marketing our state to the rest of the world, and their approach in marketing California for tourism is the same approach that GO-Biz should take in marketing California for new investments in our state. We need to plan for the future, and GO-Biz is a key agency in ensuring that we're making the kinpolicy decisions that will ultimately restore the health and prosperity for our entire state.  

This is a fundamental challenge that we face as a state, but we also know the challenge is about much more than the percentage points in our GDP or revenues and expenditures in the budget. It's about opportunity for all Californians. Opportunity is the birthright of every Californian and restoring opportunity to every Californian is essential if we're going to truly be successful in restoring the health of our state. You can see that commitment so clearly in the work that we've done to strengthen public education. One of the fundamental reasons why California is the home to Silicon Valley and high-tech and biotech industries in general is that those industries know that in California they have access to a well-trained, well-educated workforce that's essential for their competitive innovation. 

The budget crisis of the last several years severely curtailed our ability to fund our schools, but as our revenues have improved we're moving aggressively to ensure every classroom in California has the funding they need. This year we increased the investment in K-12 by an additional $2.1 billion. We did it in a way that resulted in an increase of funding for every school and every school district, but we also did it in a way that allowed for us to make additional investments in districts and schools where it was needed the most - schools with a high percentage of low income students or large numbers of English language learners. We know that we need to have impacts at an early age to give California's kids the best possible start in education. 

Now, earlier I told you we passed three on-time budgets in a row. It's important to know what the result of that is and what the impact was on the rest of our economy. As a result of those on-time budgets, California's credit worthiness has been upgraded multiple times over the last three years, in stark contrast to the downgrading of our federal credit worthiness as a result of the intransigence that was seen in Congress both in the past years and during the current shutdown. The numbers spell out why it's so important for our state. In January, when the governor unveiled his budget proposal, we knew what we thought it was going to cost to finance the State of California. In May, when he issued his revise, we got a new number. In those five months alone, one of the starkest changes we saw was that the cost of financing California's government went down by $480 million. By maintaining our commitment to fiscal discipline, that number will continue to shrink. As a matter of fact, this morning's newspapers show a report from Treasurer Bill Lockyer, where he says that the cost of financing the government of the state over the last year has gone down nearly $1 billion. By maintaining our fiscal discipline we're able to make other smart decisions. That savings gave us the flexibility we needed to make new investments in higher education as well. So this year, given that savings, we were able to invest an additional $125 million in our CSU system, $125 million more in our UC system, and $300 million more in our community college system. That means that our higher education systems will be better prepared to train the students at our community college systems and technical jobs, and increase the numbers of innovators graduating from UCs and CSUs. Investing in our campus is essential if they're to live up to their number one responsibility of producing a well-trained, highly-skilled, innovative workforce. 

But for our campuses to be effective in that mission, they must first be affordable for every Californian. For the past decades, fees at our public universities have more than doubled. UC fees over the last 10 years have gone up by 145 percent. CSU fees have gone up by 191 percent. This is an unsustainable trajectory. For the great swath of middle class Californians, those kinds of increases have made college unaffordable. Either parents had to write large checks to university, meaning that they couldn't spend that money on other uses like paying down debt, home repairs, or new cars, or students had to take out enormous student loan debts that severely limit their future opportunities. And let's talk about that for a second. Last year, student loan debt got to over $1 trillion, and surpasses consumer credit card debt in our country. Student loan debt surpasses the entirety of consumer credit card debt. California made a promise 50 years ago, a promise that said that every student who was willing to work hard in high school would be rewarded with a place in our UCs or CSUs or community colleges. That promise has built California into a global powerhouse with an iconic station in the world. But a decade of fee hikes have worn away at that promise and pulled the rug out from under every single middle class family in our state. We fought very hard to protect Cal Grants, and we know that there are many students in California who are fortunate enough to be able to write a check without any difficulty, so we took care of the neediest, and the wealthiest were able to take care of themselves. But for the vast majority of middle class Californians, there was an absolute need for relief in the cost of higher education. And I'm proud to say that this year, we delivered. This year, I passed the Middle Class Scholarship Act, and the Governor signed it into law, and beginning next fall, middle class students will be able to see relief in their tuition. Once the program is fully up and running, a family earning between $80,000 and $150,000 per year will see the cost of higher education fall by up to 40 percent. This is a dramatic reinvestment and opportunity for California students and I was honored to be joined by students from virtually every UC and CSU campus to secure this important victory for middle class families. We need to invest in success for every student, from the kids walking into kindergarten to the freshmen at our UCs and CSUs. This isn't just essential for the health of our economy, it's fundamental to the California dream of opportunity for all. 

Removing barriers for opportunities is essential for our state, and that's why I've taken dramatic steps on another issue facing California, and that's the issue of healthcare. For years, spiraling costs of healthcare coverage have put affordable quality healthcare out of the reach of six million Californians who are currently uninsured. We know that in the California of the 21st century, no person should have to go about their daily lives knowing that they're one injury or one illness away from complete fiscal disaster. I was proud to write the legislation creating Covered California, our state's health benefit exchange, and as was noted earlier, we were the first state in the nation to create an exchange. It's up and running, and people are signing up as we speak. The overwhelming response the first day of operation was incredible. It showed so clearly that Californians deserve to have quality affordable plans that provide the right coverage for them and their family. Millions of Californians will be able to purchase affordable healthcare for themselves, their families, and their small businesses. Families deserve to have the peace of mind that comes with knowing they have quality coverage. And California small business owners should be focused on growing their business and expanding their market share, not on trying to navigate a complicated and incredibly expensive healthcare market for themselves and their employees. Covered California will connect those families and businesses with the right plans for them, and it's a tremendous accomplishment for our state. 

But even though the plans are affordable, we know there are a lot of folks who won't be able to afford even the most modest plans offered through the exchange. Imagine what it would be like to try to survive on $15,400 a year or less, living paycheck to paycheck, working hard jobs that don't adequately cover even basic living expenses. For folks in that situation, an injury as small as a broken wrist or an illness as mundane as the flu, can be an absolutely catastrophic event in their finances. And that's why I was honored to write the legislation expanding healthcare coverage for more than 1.4 million low income Californians as well. Giving those folks the ability to enroll in Medical accomplishes two very important goals. First, it gives them the coverage they need so that an injury or illness doesn't mean financial ruin. But just as importantly, it removes a major drag on our recovery, and a major cost driver in our healthcare system. And I'm proud of the work that my colleagues and I have been able to do to make quality, affordable healthcare available to people in both of those sets of categories. 

Now before I conclude, there's one other issue that I'd like to discuss, and that's our obligation to the men and women who've served our country in the military. Supporting our veterans isn't just a job for policymakers, it's a basic obligation of all of us as citizens. And over the last three years I've been honored to serve as speaker, we've seized every opportunity to work with California's veterans, and they're getting the support they deserve. In an era of scarce resources, that means we've had to be creative in our approach. At my direction, the Assembly has cut its own operating budget to free up money we've had to invest in targeted veterans' programs. We've provided funding for job training and placement services. We're funding counseling and mental health services for veterans dealing with issues relating to their service, and we've provided the startup funds necessary for the National Guard’s Work for Warriors Program, which is now a national example. This is a wonderful service that connects members of the National Guard with employers seeking full-time coverage. Now, national programs run out of the Pentagon cost roughly $10,000 per placement. California's Work for Warriors Program is able to do the same job placements for $500 a placement. Over 100 businesses and public agencies have partnered with the National Guard, and we're adding new enrollees every day. So, I want to encourage any business owner who happens to be in the audience to Google the Work for Warriors Program and sign up.

I'm proud of these efforts, but my colleagues and I are acutely aware that we must do more. And that's why I'm very hopeful that the governor will sign my AB 639, a bill that will ask the people of California to repurpose bond money they've already approved for veterans but isn't being spent. We'll be seeking to spend $600 million of those unspent bonds to build affordable housing for homeless veterans and their families. Sadly, California is home to 25 percent of our nation's homeless veterans. Los Angeles is ground zero, followed by San Diego and San Francisco. And it's absolutely unacceptable that we would allow our veterans to roam our streets homeless. I'm very optimistic about the chances that the governor will sign that measure into law so that we can build housing for the men and women who've served our country.

Ultimately, all of these efforts are aimed at restoring opportunity for California. Opportunity is inextricably linked to the California Dream. From the moment on a frosty January morning when James Marshall looked into a creek bed and saw a flash of gold, California has been known the world over as a place where everyone, no matter who you are or where you come from, can have the opportunities to succeed in life and make the most of your potential. That's a powerful legacy for every person in our state, and that's a legacy that every generation of Californians has faced, a legacy that we must reaffirm at a moment we must recommit ourselves to that legacy. And I strongly believe in the actions that my colleagues have taken, we're reaffirming that legacy. We've restored the health and confidence of our finances, we're making it easier for businesses to be more competitive and expand their operations, we're putting forward policies that will create quality high-paying jobs, and we're investing in success for every person in our state. But, we must remember that California's success comes from the values that we share as Californians, and that's why each of us needs to be a part of that debate. Each of us needs to be active and engaged in the complex issues facing our state. Each of us must remember the words of


Thomas Jefferson, that an enlightened citizenry is indispensable for the proper functioning of a republic. If we're able to be successful in our efforts to restore health to our economy and opportunity to our people, every person in our state much be engaged, and in doing so we will truly reaffirm our commitment to that proud legacy of opportunity that has made California such a truly special place in the world. Thank you.

Town Hall Los Angeles Audience Q&A Session

Audience Member: Yes, Speaker Pérez, you mentioned tax incentives for the television and film industry, and I think - correct me if I'm wrong - I think currently they're $100 million a year. And that is woefully inadequate. As a result of that we're finding more and more production leaving this state. We need increased tax incentives, significant increases.

Assembly Speaker John A. Pérez: I totally agree with you. And if you look at what the Assembly's proposals were, they were significantly larger. And each time that the Assembly has put forward a proposal for larger incentives for production here in California, we've met a negative fate in the state Senate. We've got a proposal that'll be heard again in January authored by Ian Calderon, the chair of our arts and entertainment committee, and Raul Bocanegra, the chair of our revenue and tax committee, that we now think has a better chance of passage in the senate. Senator De León has signed on to this notion, as has the chair of our appropriations committee in the Assembly, Assemblymember Gatto. With the support of the relevant committee chairs and the two appropriations chairs, I think we'll make a major increase in the level of that tax credit program in the coming year. No pollsters. We don't take questions from pollsters unless they come in by phone.

Audience Member: I'll mail it in, how about that? First, I just want to thank you for your remarks. And I know that this is a little partisan, but I wish that our speaker in Washington had your vision and your courage at this time, so thank you. I just had a quick question about one issue that people talk about, which is this notion of reducing the threshold for passing a school or college district parcel tax to a lower supermajority. Is there any chance of moving a bill on that, or a statewide ballot measure on that? Thank you. 

Assembly Speaker John A. Pérez: I think passing a major state…first of all, we'd have to do it by ballot measure. So, it would require legislation to put it on the ballot, or a collection of signatures. I think it's a more efficient way to actually pass legislation to put the question before voters. I think there is increasing support for lowering that threshold to somewhere around 55 percent so that it's still greater than a simple majority, but not quite the onerous two-thirds majority. I think people generally understand and are supportive of specific taxes for specific purposes where they could see the accountability. I can't help but notice David Abel in the audience. He was on the BB Commission when LA voters approved a significant investment in LA Unified schools to build and modernize facilities, because we understood the impact that the antiquated facilities were having on the opportunity to fully educate our kids. But the way we were able to get the public support was not just in saying, will you authorize this expenditure, but here is a well-structured oversight process that creates the measures for accountability going forward. So, you have to do both. You have to talk about the need for the funding and there has to be a very explicit oversight process so that people can have the confidence that the money is used for exactly the intended purpose.

With respect to your statement about Speaker Boehner, I appreciate that, but the speaker is in a very difficult position and it is one I am not unfamiliar with. It's something that we struggled with in California when we had supermajority requirements as well. And it's the question of how you balance your obligation as the head of your party with your obligation as the head of your chamber. And at the end of the day, the speaker has to be a speaker for every member of their House and for every person, in my case the state, in his case the country. And it is our hope that in the coming days, the speaker will reevaluate that balance. 

Audience Member: I make it a point to ask you this question every time I see you, and maybe in a public setting instead of a private setting, you might answer. I know you know what I'm getting at, but have you decided? Are the rumors true? I mean, have you thought about controller?

Assembly Speaker John A. Pérez: I've taken a lot of time trying to think about what I'll do, and here's the reality. I think that one of the worst things that's happened to governing in the history of California was the implementation of term limits. Voters last year approved an extension of term limits, so instead of six years in the Assembly and eight years in the Senate, somebody could serve 12 years in either House. Lower total amount of time in office, but greater stability. I think that's going to serve the state well. I think complete elimination of term limits would serve the state better. But right now, out of the 55 Democrats in the Assembly, 29 of them are brand new. They'll be able to be there for 12 years. We've already seen a completely different pace in the work of the Legislature. It is a more deliberative, thoughtful approach, because people aren't running around figuring out what the next office to run for is. I'm faced with the reality that I'm term limited next year, and really struggled with what I would do. And in the last two days, I've made a decision. And so, this afternoon, I will be announcing that I will be running for controller. Thank you. Every once in a while you get an answer.

Audience Member: Thank you again for everything that you do for California. The question I have is on tax reform. You look at the good news, Prop 30 has brought us stability when it comes to… we're not going to you know, we're bringing in as much as we're spending. But the bad news, it has made us the state with the highest state income tax and some of the highest local income taxes. If you look at the past decade, as you know, we've had 10 million people come to this state, but we've only added 150,000 new tax filers, and then you look at up to 50 percent are paying no state tax at all, and then you look at the decline of the sales tax generation and the increase in the reliance on personal income taxes. How do you see, when Prop 30 goes away in 2018, is there going to be some discussion of tax reform in the next couple years to get rid of that volatility and align it more to the broader economy?

Assembly Speaker John A. Pérez: A couple of issues:  Let me first deal with the issue of the proportion of folks who don't pay state tax. If you actually look at the amount of their total income that is paid in tax, it's actually a significant percentage because they're folks who earn so little that they're not required to pay a state tax, but so much of their income actually goes for taxable goods that they are paying a tax. It's just all of the different taxes. And so, when we talk about tax reform broadly, we have to look at all of the different taxes folks pay: income tax to be certain, both federal and state, any local taxes, property taxes, and the like. And you were right to focus on this question of volatility. Two things. One, we're very mindful of the fact that we only have six and a half years left with the Prop 30 revenues, which was why the governor and I and the Senate pro tem were so focused on discipline in making sure that we built a reserve. This is the first positive. We had to immediately demonstrate the commitment to grow a reserve over time. Second, volatility is what has hurt us the most in terms of the cycles of funding state government. As I said, over the last 20 years, the proportion of our general fund revenues that come from capital gains tax and individual income tax of high net worth individuals has fluctuated between 3 percent and 20 percent. In years of 3 percent, we are in horrible budgetary situations as a year. Unfortunately, in years of 20 percent, people thought there would be a never-ending cycle of revenues coming in at that level, and they were profligate spenders.

So, we have to look at the area of greatest volatility. Two things. One, as we rebuild our reserves, we need to make sure that we never have expenditures that exceed the ongoing revenues that exist past Prop 30’s expiration date. Second, you have to look at what level in that range of 3-20 percent is the most predictably consistent. It is my opinion that the appropriate number is 6.5 percent. So, whenever individual income tax from high net worth individuals or capital gains taxes exceed 6.5 percent of the general fund revenues, you ought to take that money in excess, immediately put it into a rainy day fund so that you have a fund to draw down from in bad years. When you have filled that fund to an appropriate level - I think that level is somewhere between 10 percent and 20 percent of the overall general obligations of the state - then that money ought to be used for one-time purposes. Paying down ongoing debt should be first call on the money. Second call on the money should be investments in infrastructure that benefit us on an ongoing basis. We have to have a clear distinction between one-time money and ongoing money, and this Prop 30 money is a third category. It's short-term money, and short-term money ought to be spent as much like one-time money as possible.

Now, what are the appropriate reforms with respect to tax rates in particular? The problem has been that the most appropriate solutions are the least politically palatable. So, our individual sales tax is based on old models of the old economy. We operate in a very different economy today. Most thoughtful economists would say that you need to decrease the taxes on traditionally sales taxed items and grow the universe of items that you'd apply those taxes to. Virtually every approach to do that is rejected by 65-70 percent of the voters. Perhaps under extended term limits there may be the political will of elected officials to engage in that discussion. I don't believe we're there yet and I don't think the voters would support it yet, and I think if we did it in this next year, even if it were to be passed by the legislature, it would be referendized by the voters. So, we have to build a discussion around that approach over time. And we really need to get a series of economists that are well respected across the ideological spectrum to do this. Governor Schwarzenegger tried to put together a panel in his last year in office. The problem was the panel itself refused to include in their discussion some of the most controversial ideas. If you want to avoid controversy, let it be politicians. If you want to have a substantive panel, at least let the economists talk about every possibility that's out there.

Audience Member: We really applaud your initiative and vision in establishing Covered California. That has made us the envy across the country. My question relates to other parts of the Affordable Care Act that create the opportunity for healthcare centers to create jobs in the profession, wellness centers, and prevention. Has there been any thought in Sacramento to how we can embrace that as a model to sernumbers of people who will now be able to access healthcare?

Assembly Speaker John A. Pérez: There has been. I don't think there's been any final resolution. There have been conversations about the different ways in which you can create a medical home, creating places that are geographically convenient and culturally appropriate for the most diverse population in the country. We know that if we create an ongoing relationship between folks who've traditionally been uninsured and healthcare providers, we can actually create new efficiencies that haven't existed before. We've also explored ways at reevaluating the roles of different members of the healthcare community, looking at the real challenge that we have in having enough qualified healthcare providers, and figuring out if there ought to be some adjustments to the sharing of workload between a variety of providers. And I think that we've created some broad-based consensus in a lot of the professional communities in healthcare that will serve us in that effort. But we're by no means at a point of resolution yet.

Audience Member: Regarding the comments you made on our men and women in service. What is your opinion on extending more of the empty West LA VA housing to homeless veterans?

Assembly Speaker John A. Pérez: Look, I think the VA facility in LA has really been a national disgrace, that we have such a wonderful space that we could be using to house a variety of veterans. And there are a couple… it’s not just homeless veterans, but veterans with a whole series of needs. When you look at the number of veterans coming home right now with traumatic brain injuries, the VA facility in Westwood creates a wonderful opportunity for us to create a new campus where you can create housing opportunities and treatment opportunities on the same campus, where you can create a community of folks that are struggling with some of the same sets of challenges in such a way that they support each other in their advancements. So, that's one element. 

But we can't limit ourselves just to the federal model. So, the idea behind my bond is to do something that the federal government and local governments have failed to do, and that's figuring out a way to move beyond a model that only did single-family housing and farms. People coming home from war today aren't looking to buy a farm, and most of them are not in a position to buy a single-family house. And if they are, the federal program is actually a better program for them to buy a single-family home. And so, our approach is to look at other interventions. First and foremost, multi-family housing for veterans, and second of all, housing with direct access to supportive services. It is a model that we've seen be successful in its limited application and we have built broad-based support from veteran service organizations and affordable housing communities to move forward on this model.  

Now, in conversations with members of our congressional delegation and with the Secretary of Veterans Affairs, there may be an opportunity to do some partnership on other parcels of federal land, including Westwood, where the federal government may either contribute or write down the property values and then we could use a combination of state bond money and private nonprofit money to build the housing and services. So there, we've been impressed by the level of cooperation that every level of government has offered us as we move forward on this model. 


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