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10 Resolutions to Build a Fiscally Fit California

The governor can flex political muscle to remake the state's economy

January 04, 2004|James L. Doti

Here are 10 New Year's resolutions for Gov. Arnold Schwarzenegger. While they're not in a particular order, No. 10 clearly is the most significant.

1. OK, so you had to compromise with the Legislature to float a $15-billion bond that's needed to bail out the state for its prior deficits. That compromise involved agreeing to a weak-kneed balanced-budget requirement that lacks the teeth of a rigorous spending rule based on population and inflation growth.

Go back and push for that tough spending rule, even if it means asking voters to approve another initiative. But timing is everything; wait until after the March bond measure is approved before starting to lobby.

2. Use regulatory and tax reform to create a friendlier business environment. A recent Business Roundtable survey suggests that 20% of California businesses are planning either to expand outside the state or move all operations out of the state. A small-business survival index created by Raymond J. Keating, the Small Business Survival Committee's chief economist, ranks California among the worst business environments in the nation. Two suggestions: Flatten the state's steeply progressive income tax code that is driving those who pay the highest taxes out of the state; and reduce California's overall corporate tax rate of 8.8%, which is 28% above the national average.

3. Get rid of all the accounting gimmicks that make California's state budget totally indecipherable and which set the stage for manipulation. A two-year budget cycle, already a reality in 20 states, would be a good start and allow for greater public oversight.

4. An improved economy will help increase tax revenues for next year's budget. The Anderson Center for Economic Research at Chapman University, for example, estimates that a moderately improving economy will result in $5 billion more in revenue than currently estimated by the Legislative Analyst's office. That's the good news. The bad news is that the structural deficit is $8 billion.

That means pushing your finance director, Donna Arduin, to cut, cut and cut even more. Use your new authority to make as many expenditure reductions as possible in this year's budget. Then push forward the 38 specific actions that have already been identified for reduction in this year's and next year's budgets.

Eliminating non-core Regional Center purchases, for example, will save $69 million, and reducing Cal Work grants by 5% in high-cost counties will save $224 million through 2004-05. A million here and a million there, and pretty soon you're talking about real money!

You can save another $1.1 billion by renegotiating labor contracts. There's a strong rationale for renegotiating contracts: If you don't, state law will mandate that you lay off workers.

5. Listen when the Reason Foundation talks about streamlining state government. Merge the redundant Environmental Protection Agency and the Resources Agency. While you're at it, combine the Franchise Tax Board and the Board of Equalization. We don't need two tax-collecting bodies.

6. Use all of your charm, power of persuasion and leadership ability to overturn the terribly onerous SB2 that requires businesses with more than 20 workers to provide employee medical coverage and businesses with more than 200 workers to provide coverage for employee dependents. Think more creatively than the backers of this job-killing machine. A system of medical tax credits is one possibility.

7. Don't forget about reforming workers' compensation laws. Follow the lead of Arizona, a state where businesses pay one-third of what California businesses are paying.

8. Read Orange County Judge Jim Gray's book, "Why Our Drug Laws Have Failed and What We Can Do About It: A Judicial Indictment of the War on Drugs." Clearly, our current drug laws are not working. Alternatives should be explored. And when you visit Milton Friedman (see the next resolution), get his views on drug law reforms.

9. It's not just about cutting costs. A true leader is a visionary. For sure, our state's budget needs to be balanced. But don't get bogged down by budgetary nitpicking. We need a leader with the courage and foresight to realign our priorities.

This means tackling long-term infrastructure issues like education, transportation and energy. Make a pilgrimage to seek clarity on these issues. Start with your mentor, Nobel laureate Milton Friedman. Listen especially carefully to what he has to say about the many benefits that school vouchers offer. A solid voucher program could do for elementary education what Cal Grants have done so well in opening access for deserving college students at public and independent colleges and universities in California.

10. Don't forget about your health. Pump iron every day, and who knows? If you work hard, maybe you'll develop a physique as taut and fit as Jim Doti's.

James L. Doti is president of Chapman University in Orange and is the Donald Bren Distinguished Chair of Business and Economics.

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