League of California Cities New President Takes the Measure of State's Budget Agreement

"Locals Tired of Wearing Kick-Me Signs in State Budget Travails," wrote columnist Dan Walters in the Sacramento Bee this month. His assertion was that local governments have neither an effective lobby in the capital nor the political muscle to drive the needed restructuring of state and local government. If true, how might you, as the League's incoming president, address this weakness?

Through the leadership of people like Beverly O'Neill, John Russo and Chris McKenzie, the dynamics of the League have changed dramatically in recent years. It is time to protect local revenues, to separate the state and local books. Currently, we simply are an ATM for the state government when it's in trouble. The state's claim of ERAF began in the 90s and has now taken over $5 billion from local government coffers. In good times, none was returned. To date, the governor is reluctant to sign off on even a 10% reduction in ERAF money. I'm reminded of the old Willie Sutton line on why he robbed banks, because that's where the money is.

What is the League's overall reaction to the recent budget passed by the Legislature and signed quickly by the governor?

It's better than it could have been. Clearly, the governor's proposal had all of the VLF going to the state and, in effect, redevelopment funds were going to disappear as well. But, if you looked at the current budget for cities, VLF goes away for three months with the promise of repayment in three years. And, there is what they call a "triple-flip," involving the redirection of sales tax and property tax revenues, to help the state finance the deficit bonds. Redevelopment, which was on the block to be shut down, is still in business.

The problem for cities is that there is little financial security, making long-term planning very challenging. Next year, we expect the budget process to be even more difficult. This is the third year passing what Sacramento calls a "Get Out of Town Budget." There's very little structural reform in the budget and next year we will start off with an $8-billion deficit and counting. We're afraid that when the state looks to fund its programs, it will continue to look at revenues currently dedicated to cities and counties.

The League recently took a strong position against a bipartisan structural reform measure advanced by Assemblymen Steinberg and Campbell, AB 1221 -- a swap of sales and property tax to minimize the fiscalization of land-use. While it's a dead issue now, what was the League's problem with addressing one of the chief deficiencies that most people believe was an outgrowth of Prop 13?

Our deputy city manager, Michael Beck, has just joined us. He has a response.

Michael: It's important that we recognize the seriousness of the Steinberg-Campbell bill. One of the reasons it became a two-year bill is because the League offered to work with Steinberg and his staff on specific issues. There was a special committee set up, and a whole series of questions have come in. I'm not sure what would have been the position of the League at the end of this deliberative process, but now the triple-flip has made it a moot point.

One hundred years ago, the Progressives sat down and drafted the reforms that changed California governance for most of a century. If a group of like-minded folks were to sit down today to restructure California governance to deal with the paralysis that plagues state and local government today, what would you suggest as the essential elements of their reform package?

Mayor: I can approach this in several different ways. The obvious one is to talk about the system defects that everybody identifies -- the shortness of the term limits, the reapportionment process, the open versus closed primary, and the 2/3 vote on the state budget. There was a wonderful state commission, the Constitutional Revision Commission, that did great work on this subject, it took great advice, had a good staff, however its recommendations were dead on delivery.

Despite the numerous commissions that have come out of Sacramento on the issue, nothing happens. The League is proposing a ballot measure -- the only way currently you can make any changes in the decision rules -- to initiate some structural reform and to protect the revenue sources already dedicated to local government. If you attempt too much change at once, you run into opposition with so much at stake in the status quo.

The other observation I have is that the Legislature is polling even lower than the governor is right now. There's such dismay and anger with Sacramento now that you get the feeling that there's shaking at the foundation, a kind of thunder from below. There's been a kind of dismissal of the recall as a carnival, but what's going on may once again dramatically change California politics. For better or worse, there's more interest in Sacramento today than in any time I can remember.

Informing your new responsibilities with the League are your current duties as Mayor of Riverside. How does the recently signed state budget and the above exchange about the challenges facing the state impact your city, which is within one of the fastest growing regions in the country, let alone the state?

Mayor: This is the best of times for the Inland Empire and it's the best of times for the city of Riverside. This budget takes about $5.5 million from the city, but we have a reserve of about $22-million which we can draw down for a couple of years. It hurts redevelopment, which in an older, aging city is significant. Our governor said when he gave his inaugural address that he was interested in jobs, jobs, jobs. Well, the primary tool of large, urban cities to create jobs is redevelopment. This cut hurts, but I'm glad it's a one-time shot and not a long-term shutdown, as it had been proposed.

Michael: The biggest challenge for us is the redevelopment cut. That is the investment arm of the city, a key method for creating jobs and creating additional wealth for the community, as well as for the city itself. I haven't quite comprehended why redevelopment, or economic development in general, has been targeted for cuts. One of the things that continues to defy logic is this concept of making California as uncompetitive as humanly possible when we have such a fast growing population. We have to find jobs for all of these people, house all of these people, enable them to live and to commute and move around the state. This takes a tremendous amount of resources. And, instead, we're taking steps that reduce our ability to create jobs and increase the need to provide services for those who cannot find gainful employment. This seems to me a very scary process that will make the structural deficit a long-term problem.

Mayor: In an op-ed piece in the LA Times recently, Joel Kotkin suggested that you cannot look to the state anymore for economic development. There's no plan, there's no money, and there's no assistance. It's up to cities and counties to seize control of economic development and make it happen.

As you have noted in other interviews, there's no alignment of sources and uses of funds post-Prop 13 in our constitutional arrangement for state and local government. Rather than being proactive to restructure a dysfunctional fiscal arrangement, the League of Cities appears simply defensive. Why is that? Why is the League so unable to be proactive re reform of our state's fiscal system?

Mayor: Well, again, the League's ballot measure is one that we are looking to address our concerns regarding the instability of the current fiscal arrangement.

Everyone favors comprehensive reform, but in searching for comprehensive reform you run into the buzzsaw of individual interests. The League is not only playing defense, but it's trying to be pro-active in having protection for current city revenues. The League is not asking for more, but just to protect what we have.

Changing focus, you are not only a mayor and incoming president of the League, you're also a board member of SCAQMD. Could you address your reaction to the long-range air plan recently approved by the AQMD board?

Mayor: This is an important exercise that we go through relatively frequently. This last time, we had a preliminary hearing, one of four across the Basin, in City Council chambers in Riverside and one person came to express their views on the air quality plan. Part of that is because air quality has become so highly technical. The other reason is that the heavy lifting for the 2010 plan is in the "Black Box." What we're trying to do as a district is to marshal our efforts to deal with state and federal sources of emissions. The district is the best in the world at what it does -- particularly the stationary source responsibilities -- but we need now to step up politically. I remember the Dingell Amendment, in which California got the right to set higher auto standards than other states. Maybe we need to go back to something like that for air basins. I think you are going to see a shifting from the kind of technical regulatory policy and stationary sources to more aggressive policy connections with the state and federal regulators.

Another issue of public concern in the Inland Empire is the challenge of having to build new school facilities to meet significant population growth. But new schools are only one of many challenges brought on by growth; clearly, there is concomitant need for more housing, open space, libraries, and parks. What in your opinion is the most efficient and intelligent way to leverage the many bond measures that the voters have so generously passed in recent of years into public investments that revitalize neighborhoods?

Mayor: Well, again there are a lot of individual initiatives out here. Riverside County has their RCIP, we have dump fees, and endangered species fees connected with it. The IEEP is having a major visioning event on September 5 with the focus not so much on what is our vision, but what are our strategies to meet the need and to gather support and resources for them. Another major effort is at UCR, which just established its Center for Sustainable Suburban Development.

This is the Inland Empire's time. We still have land, but it's going quite quickly. We certainly can do more. We ended up on this scholarly look at sprawl, as being the sprawl capital of the world. It wasn't even close. The way they had the numbers, the Inland Empire had undesirable sprawl factors and everybody else was way below us. The Inland Empire is producing more jobs, the economy is good, and one -- fourth of the housing being built in California is being built in the Inland Empire. It's a dramatic, exciting time, but it's difficult to have a cohesive, comprehensive policy.

Michael: The challenge for us is to change the way in which we handle public finance. W e need to be able to do a better job of estimating and understanding what the revenues are so that we can provide strong fiscal management both locally, as well as at the state level. To me that's the biggest challenge. I try and run my organization, generally, as an entrepreneurial organization, as a business, and not as a government. That is a different philosophy. Government tends to focus on the expense side -- they figure out how much it costs to run it, and then they figure out how to get the revenue. Businesses focus on how much revenue they are going to generate, and then how they can produce and still earn a profit. That's almost impossible to do right now in government, simply because the income side is completely unknown and all we know is that we have to deliver from service side. We need to get a better handle on understanding the revenue side.

If reform for our dysfunctional state/local government arrangements is essential, from where do you expect it to come?

Michael: I would hope that it comes from Sacramento. Right now it's not, but it should. The city of Riverside is in great shape, but we would be in phenomenal shape if it weren't for the uncertainty occurring at the state level. The city of Riverside is utilizing prudent fiscal management. We see the same things the state sees in the next few years, in that probably the biggest hit for all of us is going to be the PERS contribution level that we haven't seen before, and that's primarily because of our focus on job market performance and new labor contracts that provide improved retirement benefits.

Most people focus on the fact that the government is a monopoly and therefore it doesn't really matter. It does matter because people have choices, and people are making their choices. We're now seeing companies that were in California moving into Arizona. Even though the transportation costs to businesses may be higher in Arizona, the cost for them to remain in California -- based on recent workers comp adjustments as well as the energy issues -- are so significant that they can move their business out of the state and realize an immediate pay back on the investment. So, people do have choices, and they are going to make those choices. We are not a monopoly.