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Millions, Billions, Gazillions: But where are the reforms and innovations?

Have you noticed? Everyone’s asking for more taxpayer funding.

For education, Sacramento majority leadership wants voters to approve a seven year tax increase of “billions” in new funding, yet it may not really fund education per se but general state government; a competing, private ballot measure seeks “billions” for the classroom under a status quo education system.

The Chief Justice of the California Supreme Court was in Orange County last month and presented a well-articulated case for more funding for the California court system. The proposed budget before the state legislature includes $500 million in cuts to the court system. Courtrooms will be closed, civil cases delayed further, trials will be deferred to retired judges for mediation instead of juries. Justice delayed is justice denied.

A Statewide Needs Assessment on Infrastructure was recently released showing that a $300 billion funding shortfall is guaranteed over the next 10 years to keep the current transportation, goods movement, transit systems operational—no added road capacity for population growth.

Affordable housing advocates need “billions” especially since the demise of redevelopment agencies and the onerous regulatory requirements for any type of housing make it very expensive to build. Supportive home services—keeping grandma at home instead of in a nursing facility—require millions (or is it billions with our aging population?) to keep the care givers in service.

Millions, billions, gazillions.  It’s mind-numbing the financial demands. Yet, this money—your tax dollars—is only one leg of a three-legged stool as I see it. The other two legs are obvious government reforms and new products/technologies. Where are the “honest brokers” within government that see the need for these changes we find so compelling? What assurance is offered that more money isn’t being thrown at “more of the same” government inefficiencies, duplicative regulations, process uncertainties, and ineffective or nonexistent performance metrics?  

For example: 

Education: More money hasn’t helped so far—schools get one-half the state’s budget now. Student performance metrics aren’t significantly better, however. How about moving K-12 education back to local control? How about an Education Code with only 600 standards instead of 6,000? Study after study shows that California’s education system is a mess. Isn’t there a major reform or two or three to pass now as evidence that education is worthy of more funding?

Courts:  How are you helping to curtail the plethora of frivolous litigation?  Are you proactively teaching the trial bar that those proverbial “nail salon” cases, for example, shouldn’t clog the system and use up valuable court time? Is it reasonable that one third of California businesses got hit with class action suits in one 18 month period? Why should a legal system be funded that won’t realign so California is no longer the “most litigious state” in the union?

Transportation:  Where is the support for new project delivery systems like public-private partnerships, design- build; for new construction products, traffic management technology? Why are there duplicative environmental reviews, and state government agencies suing each other to delay local road projects using local funding.

And we haven’t even hit the $500 billion crater needed to fix government pension shortfalls, yet solid pension reform measures by the administration seem frozen in the legislature.

You get the drift.

Without a concurrent discussion on reforms and innovation, the cry for millions, billions and gazillions results in a collective yawn.  It isn’t about quantity, but quality of funding.

Remember: Business contracted and reinvented and—especially suffering small businesses—entered a “new normal” in 2006 when the economy tanked. Government is six years overdue in modernizing for a global 21st century competitive economy that values efficiency and effectiveness. California’s future depends on it.

Tell Them to End Epic Congressional Gridlock Now!

Road congestion wastes 1.9 billion gallons of gas, says U.S. Treasury Department.

With federal transportation funding set to expire March 31, House Transportation Committee Chairman John Mica has introduced a three-month extension of the highway and transit program. If adopted by Congress, this would be the ninth extension of SAFETEA-LU, which first expired in September of 2009. Hearing that House Republicans are not prepared to take up a bipartisan transportation bill (approved overwhelmingly by the Senate with a vote of 74 to 22) reminds us of that old elementary school report card category, “Works and Plays Well with Others.” If Sister Mary Ignatius were grading, Congress would definitely get an “F” and would be in detention cleaning chalkboard erasers for a month.  CLICK HERE to send a note to Congress telling them to pass the transportation bill!

Today’s epic congressional gridlock has potentially disastrous impacts on the well-being of our entire country.  With the Highway Trust Fund, the main source of transportation funding, projected to run out of money possibly before year’s end, Congress is under pressure to find new sources of funding both for the extension and for long-range funding.  Without any stability or certainty in funding, critical transportation projects can’t begin and projects already underway face shutdowns.  In an industry with over 40% unemployment and the literal underpinnings of the economy crumbling through lack of infrastructure investment, it is unconscionable that Congress can’t manage substance over stubbornness.

Clearly, the decisions are difficult, the math is hard, and the problems are much more complicated than depicted in the sound bites featured on the news.  However, forgotten with all the finger-pointing, petty squabbles and imagined affronts in an election year is a constituency that views our elected leadership less like an august body and more like a wild schoolyard game of “red rover.”  With that in mind, perhaps a remedial course in the social arts of the playground is in order:

“Share everything, play fair, don’t hit people, clean up your own mess, don’t take things that aren’t yours, say you’re sorry when you hurt somebody.”

Not to put too fine a point on the whole “don’t take what isn’t yours,” the Treasury Department has released a report indicating that traffic congestion costs drivers more than $100 billion annually in wasted fuel and lost time. And poor conditions of roads cost the average motorist who regularly drives in cities more than $400 annually in additional vehicle maintenance. The average American family spends more than $7,600 annually on transportation – more than it spends on food and twice what it spends on out-of-pocket health care costs, according to the report. Perhaps most damning, is that America invests less in transportation infrastructure than other countries.

An annual investment of $85 billion over the next 20 years would be required, according to the Department of Transportation, “to bring existing highways and bridges into a state of good repair.” Right now lawmakers differ on how to pay for an extension, and the length of time a new bill should cover.  Critical issues, but not insurmountable.  Should an agreement be reached, federal leadership should be content in knowing they did the right thing for the people they represent. No taunting, no tantrums, no boasting, no bragging.  Remember, everyone gets to share in the win because everyone had a hand in making the mess.

Investment in infrastructure – federal funding for road, bridge, public transportation – can sustain and create jobs and economic activity in the short-term, improve America’s export growth opportunities, and enhance our global competitiveness. Even better than money, program reforms like the “Breaking Down Barriers Act” would make the dollars stretch even further by reducing the time it takes transportation projects to get from start to finish, encouraging public-private partnerships and increasing accountability.  The time is now to pass not only the short term extension, but a fully-funded, long-term, comprehensive plan.

All political leaders, Republican and Democrat, House, Senate and the Administration, have agreed that a multi- year surface transportation bill is important for job creation and economic recovery.  See, those early life lessons still ring true. No matter how old you are, when you go out in the world, watch out for traffic, hold hands and stick together.

President Obama – Leave Well Enough Alone

This blog was co-authored by Lucy Dunn, President and CEO, Orange County Business Council, and Dr. Wallace Walrod, Chief Economic Advisor, Orange County Business Council

In the State of the Union Address, President Barack Obama laid out his plan to rebuild the economy — an economy that is built on American manufacturing, American energy, skills for American workers, and stabilizing the nation’s housing market — “an economy that is built to last.” President Obama is correct in saying “the housing crisis remains the single biggest drag on our recovery,” but his plan does not address one of the biggest obstacles facing the housing market — credit availability.  

The President’s proposal to revive the housing market is two-part. The first part is a mass refinancing program of underwater mortgages to help homeowners lower their mortgage payments. While the attempt to allow homeowners to refinance at today’s low rates will stimulate the economy, it does so through increased government mortgage-backing — a mini bail-out that may support short-lived economic growth at the expense of  longer lasting negative consequences. 

The second part of the administration’s plan would allow Fannie Mae, Freddie Mac and FHA to sell foreclosed homes to investors to rent out. This proposal aims to stabilize home values in neighborhoods with vacant houses, but in its current form is too vague to estimate any kind of positive impacts on economic growth.

But the President’s proposal merely shifts the burden from banks to the taxpayers, with government lending and deep involvement in mortgages. This is fascinating to me because the federal government is quick to “blame” banks and lenders for making non-creditworthy loans, causing the housing crises, while at the same time writing regulations mandating that banks and lenders loan to credit-risky borrowers to eliminate “red-lining” areas in a community.

The central question that should be before us at this point, however, is not to revisit the “why” of the collapse in housing prices occurred – as we unfortunately cannot go back in time to correct what has already occurred.  Many theories have been put forward as to the “why” and policymakers, politicians, and academics will likely be debating the true causes for decades. Rather, we should focus on how best to move forward in the most constructive manner with what is currently known as fact at this moment.  

Although some will try to guess at whether the President’s plan helps or hurts a turnaround in the housing market, at this point unfortunately neither he nor we can know the true impacts or outcomes of the proposal on the housing market. 

For example, President Obama states that “it is wrong for anybody to suggest that the only option for struggling, responsible homeowners is to sit and wait for the housing market to hit bottom.”  For all we know, this may have already happened – the housing market may have already bottomed.

But we do know a few trends occurring in the housing market right now:

  • There is pent-up demand from several years of below-trend new housing unit construction, and we are just beginning to see “green shoots” trends in new construction;
  • Mortgage interest rates are at historic lows, leading to greater housing affordability; and
  • The overall economy is improving, especially the job market and employment outlook.  

All these key indicators lead us to believe that the factors that drive a healthy housing market are starting to move in the right direction. How best to “fix” the housing market for the long-term? Ensure that these fundamental drivers of a healthy housing market continue on a positive course. And the last thing it seems we need now is to institute untested policies that have potential for uncertain results and unintended consequences. Thus President Obama’s plan should be rejected.

Brown’s Visit Behind the Orange Curtain

There’s been a lot of media coverage over Governor Jerry Brown’s visit last week to OCBC. Orange County overwhelmingly supported gubernatorial candidate Meg Whitman in the last election and often that the OC business community embraces the policy or politics of Sacramento.

County overwhelmingly supported gubernatorial candidate Meg Whitman in the last election and it’s not often that the OC business community embraces the policy or politics of Sacramento. Having this Governor visit behind the Orange Curtain was a welcome departure from politics as usual.   

And I gotta give the Governor credit where credit is due.  He came, he met with 50 top OC CEO’s and business leaders, he presented his proposals for systemic reform, and he advocated his proposed November ballot measure, now gathering signatures to qualify, to temporarily raise sales taxes ½ cent for five years and raise income taxes for earners over $500,000 annually.  The funds would be used for education in order to avoid further cuts, he says. 

OCBC doesn’t generally take positions on measures that haven’t yet qualified for the ballot so there is no support or oppose at this time. Brown’s proposal was rolled out on Tuesday so details are still missing. Our CEOs had an excellent meeting of Q&A with him.  He has met with LA and San Diego biz groups this week as well.  

 But actually very little time was spent by the CEOs on the tax proposal. Overwhelmingly, the Q&A time was dedicated to his reform proposals: education—specifically categorical spending reforms and testing reforms, a 12 point plan to overhaul government pensions, a strategy for updating the water delivery system for Southern California, long term income tax reform to curtail the volatile state revenue stream too dependent on high wage earners, infrastructure investment and regulatory relief. If he can deliver on even a few of these, businesses would significantly benefit—clear evidence that elected leaders finally “get it” which would in return inspire businesses to invest, hire and grow.  Reforms were what they were most interested in. 

Unfortunately, the Governor’s tax proposal is not tied to, nor dependent upon, reforms.  Further, there’s a strong argument to be made that more funding for education has not historically assured academic improvements. In fact, just the opposite. A 95% increase in education funding since 1968 has resulted in a 4 percent drop in SAT scores, according to the Cato Institute. More funding to a status quo education system cannot be the answer. Thus, the jury is still out and we will be watching in the coming months, encouraging that those reforms are not delayed.  

Finally, OCBC is not an anti‐tax group. Taxes have to be fair, understandable and good for business (like OC’s Measure M for transportation improvements). The Governor’s tax proposal will sunset in five years and is half what Governor Schwarzenegger’s was (which expired in 2010).  I suspect with real reforms, and performance metrics, folks will look favorably on the proposal.  Will we see more efficiency and effectiveness in education before November voting? Will we see real reforms that help restore the public trust?  And will we see a true emphasis on improving the business environment to help grow the economy? 

This will be an interesting debate. Count on OCBC to remain an active participant.

Adult Leadership in Irvine for the Nation to Follow

Mayor Kang Works to Put Others Back To Work

I witnessed firsthand on August 30 an amazing display of calm, deliberative and ultimately decisive leadership by Irvine Mayor Sukhee Kang.  The only agenda item was a major development project—Great Park Neighborhoods by FivePoint Communities.  At stake, nearly 5,000 homes surrounding the Great Park, transportation improvements, bringing 16,500 jobs to the City and contributing more than $865 million in local infrastructure investment.

Three people testified in support:  business leader Tom Nielsen, former State Senator Marian Bergeson, and yours truly on behalf of OCBC.  Not one person appeared in opposition, yet the public hearing lasted for more than six hours with two council members out of the five taking the majority of time peppering staff with questions about the plan.
Questions they already knew the answers to.  Questions they would have already asked in personal council briefings. Questions that, to this ear, seemed to be “gotcha” questions.  But they were questions well-answered, I might add, by a well-prepared city staff and development team.  City staff had done its homework and represented the residents of Irvine very well, assuring the public of the significant public benefits of the project.

Mayor Kang heard it all.  He skillfully led his fellow council members into a thoughtful motion to approve the project, subject to conditions to satisfy most of the questions asked, and called for a vote.  Amazingly, the council voted three to two to support the project, with two Republicans—Steven Choi and Jeffrey Lalloway—supporting Democrat Mayor Sukhee Kang!
I suspect that is the first time bi-partisan support occurred in Irvine over the Great Park.  An historic vote and none too soon.
The project deserved unanimous council approval.

California’s economy is suffering, and so are its people. We have the second highest unemployment rate in the nation at 12.4%.  And it is no secret that Irvine is the heart of Orange County’s economy.  As Orange County leads Southern California out of the recession, a lot of credit goes to Irvine, a jobs magnet, a housing innovator.
Nationally recognized investment advisors PIMCO (Pacific Investment Management Company) visited OCBC recently and shared a dire prediction: there is a 30-35% chance of re-entering the recession. They emphasized that recovery of the housing market is critical to the nation’s recovery.  Irvine, of course, is ground zero for housing:  not only has The Irvine Company started successfully building and selling new homes again, but FivePoint Communities’ project furthers the objective, and these companies then give confidence to other communities to begin to dust off the plans and start building again—a major boost to any economy.

Equally as important, said PIMCO: politicians need to stop bickering and start working together on practical solutions to the country’s economic problems.  We need to replace the “teenagers leading our country with adults,” they said.
The back-and-forth political carryings-on are still daily fodder for the press in Sacramento and Washington.  Fortunately, here in Orange County, we have an example of an elected official who understands what it means to lead in tough times.  He and his council brethren know that in this economy, with so many folks out of work, those who have the ability to create a job have a duty to do so.

Kudos to Mayor Kang.  And thank you.

You’re kidding, right? How about ‘punishing’ everyone?

Here’s the latest: The results of a recent poll conducted by the Public Policy Institute of California clearly show that Californians do not want tax increases to balance the state’s budget. In response our leaders in Sacramento are threatening to punish “certain” districts – Republican districts – by focusing government cuts in those areas, presumably reducing government services.

But with 62 percent of voters opposing tax increases, it’s not just Republican districts that should be “punished!”

That same poll makes it clear that voters want education funding protected. This makes perfect sense to me. Voters have seen education funding “protected” through ballot initiatives like Prop 98, lotteries, categorical spending, legislators playing in education “reform” that isn’t reform at all, unions touting “for-the-children” slogans while enabling contract provisions that keep the worst teachers and layoff the young and brightest, and reject online learning opportunities. Notwithstanding all these “protections,” legislators borrow and defer that funding to local districts in order to balance the state budget and fund other programs. Orange County alone has millions of dollars in deferred payments owed to it by Sacramento, and no plan for future repayment.

Voters, and specifically parents, aren’t fooled any more. Sacramento: Get out of education command and control, do the real reform needed in CEQA, government pensions, business over-regulation, and return control and accountability to local officials.


Can you see clearly now?

This blog is written by Lucy Dunn and features special guest co-author Dr. Wallace Walrod, vice president of Economic Development & Research for the Orange County Business Council.

I serve on a local business advisory committee to the South Coast Air Quality Management District – folks charged with clearing the air for better health and visibility.

They’ve done a good job over the last 40 years. The air quality of Southern California has gotten much better even with major population growth and economic development.

But there is always one more rule to impose, one more particulate to regulate, one more greenhouse gas to consider – it’s government’s job to do that – and one more business fails to grow or simply folds under the weight and cost of compliance. Not just air quality but add the tens of thousands of regulations, fees and taxes coming out of numerous local, state and federal agencies today. And millions of folks out of work, a stagnant economy in California and a bottom ranking on any objective list as the nation’s “worst place to do business.”

As a result, California suffers continuing annual $27 billion dollar budget shortfalls, government employees’ pensions at risk of funding shortfalls, ballot measures, tax-increases/extensions.

You get the picture.

So I asked one government employee the other day, “Do you know where your CalPERS or CalSTRS pension money is being invested?”

“No, never thought about it,” he said.

“Stocks, bonds, mutual funds, real estate, investments in BUSINESS,” said I. “CalPERS and CalSTRS are invested in every type of business – from oil to medical to tech to manufacturing, small and large. And every time a new regulation or tax is passed impeding business growth, you inflict another wound to your own personal wealth creation, your own pension security.”

Lost in translation is the fact that CalPERS is one of the largest investors in stocks of California companies and other California investment vehicles. As of Dec. 31, 2010, approximately $23.2 billion, or 10.3 percent of CalPERS total assets, are invested in California. Then, $7.5 billion is invested in the stocks of California companies, $5.8 billion in fixed income, $5.4 in AIM (Alternative Investment Management such as private equity and venture capital) and $4.5 billion in California real estate.

For example, from the CalPERS website: “The CalPERS Nationwide Single Family Housing Program and Member Home Loan Program, and our private equity investments through limited partnerships that are either headquartered in the state or have charters to invest in California, are just a few examples of programs designed to provide superior risk-adjusted returns for the system and invigorating support for the state’s economy.” (Emphasis added.)

However, due to this state’s miserable business climate and regulatory environment, CalPERS investments will not generate “superior returns” in its California equity or real estate investments. CalPERS recently debated whether to decrease further its projections. While CalPERS unfortunately does not break out returns on its California portfolio, the likelihood is great that these investments are producing substandard returns, leading to an overall underperformance and making the pension gap larger by the day.

A significant part of the solution could simply be fixing California’s overall regulatory environment and business climate issues, therefore paving the way to increased CalPERS and CalSTRS returns over the long term.

A first step would be to perform a study on the actual investment return/performance of CalPERS and CalSTRS California investments, and see where opportunities are for improving that performance in our own backyard.

When business thrives, it pays taxes, hires folks who pay taxes and government receives legitimate funding for its programs, public employees and pension benefits. Everyone wins. California’s self-inflicting wounds must stop. To grow business and directly benefit government employees and their pension investments, cut those regulations, stop those crazy pieces of legislation, limit litigation and incentivize jobs creation for a thriving economy.

Clearing the air in this state could take on a whole new meaning. How refreshing.

Lobbying 101: I say ‘squirrel’

With the travesty in mismanagement at the city of Bell, Sacramento budget disasters, government regulations choking business at every level of our lives, under-funded public pensions and a sluggish economy that – shocking – can’t seem to recover, we now hear the words: “And what we need is more transparency in government!” Sheesh.

Frankly, what we need is LESS government, LESS regulation, LESS red tape, but I digress.

Recently the O.C. Grand Jury decided that O.C. needed an ordinance regulating lobbyists because “everyone else has it; why shouldn’t we.” Well, sure. We have about 15 honest-to-goodness professional O.C. “lobbyists” in the traditional definition of the word: those who promote or secure the passage of legislation by persuading public officials. In Los Angeles and San Diego – bastions of transparency and good government – they have formal lobbying ordinances requiring registration and reporting of all lobbying activities.

In Orange County, Supervisor Bill Campbell recognized that we are rather unique with our onerous TINCUP gift bans and political contribution reporting, so he proposed testing a rather limited lobbying ordinance, which OCBC supported. Professional lobbyists would register and report on who their clients were. Simple. It could always be expanded if needed but was an OK first start for a county that didn’t have a lobbying ordinance. And a small fee (surprise!) would be paid by the lobbyist registering.

It shockingly failed to win support from the rest of the O.C. supervisors for a variety of reasons, most of which were that it wasn’t all-encompassing enough! Let’s include everybody.

So, Supervisors Bates and Nelson proposed an outrageously expansive ordinance that would have taken those 15 lobbyists and added 12,000 O.C. nonprofit organizations, landowners, utilities, unions, building trades, small-business owners, residents – frankly almost everyone in Orange County would have qualified to report as a lobbyist under their proposal if you had anything to do with a “public official.” Not an “elected public official.” Any “public official.” If you wanted to remodel your kitchen and your contractor asked the county planning for your permit in three days instead of five, for example, you and your contractor would have had to register as lobbyists! Think of the expanded fee base here.

Fortunately, this didn’t pass muster with the other supervisors and the drafting of an appropriate ordinance has been sent to county counsel and the county CEO for consideration, and is set to be brought back in 60 days.

Now enter, stage left, Sen. Lou Correa with his very first bill – on the state’s failed economy? On jobs creation? On regulatory relief? No. On requiring all local government agencies to have a lobbying ordinances: SB 31. Not just Orange County, but water districts, school districts, sanitation districts, flood control districts and transportation agencies. Everyone gets the fun of drafting an ordinance, folks registering, reporting, paying and government collecting fees.

“At a time when the state is facing tough economic times, this is when you really have to look at how you’re doing business and think about doing things in a better way,” said Correa. “And a great way to start is transparency in government.”

Really? I guess working on the stuff that would put folks back to work is just beyond comprehension. It’s so politically correct to go after lobbyists. Well, lobbyists didn’t cause the problems in Bell, or the O.C. bankruptcy or vote in so many California regulations that we are at the bottom of the list of “business-friendly” states in the union.

I say “SQUIRREL.” Californiasquirrel.com. What do you think?