No Time for Sound Bites if State Is to Be Saved

August 18, 2003

Los Angeles Times

James Flanigan

August 17, 2003

Wouldn't it be nice if at least a few of the 135 candidates for governor spoke candidly and forcefully on the biggest issues facing the state's economy instead of offering the usual self-serving half-truths and sound bites?

This is no time for bromides, for ducking the tough choices.

Unfortunately, that's just what's happening. A couple of those gunning for Gray Davis, including Republicans Bill Simon Jr. and state Sen. Tom McClintock, have offered budget plans. But precious few are talking in a precise way — or in any way, for that matter — about the nitty-gritty of taxing and spending.

What's more, they're assiduously avoiding the most important issues facing the state and its economic future. Among them: housing, energy, and the mass of red tape strangling businesses.

Any candidate worth electing must begin by recognizing how California — the sixth largest economy in the world — makes its money. It relies mostly, of course, on more than 1 million individual enterprises, 95% of which employ fewer than 50 people. In other words, this is a small-business state.

And yet, perversely, its laws and regulations seem more suited to the old industrial world of big companies and struggling labor unions.

For instance, California has passed rules requiring payments for daily overtime that do not apply in other states. It has mandated higher award levels for workers' compensation, with the result that California employers pay more than double the national average in premium rates for workers' comp insurance. And it has established a family leave law that is broader than the national standard.

At least a few companies are fleeing the Golden State as a result of this regulatory piling on; Rancho Dominguez-based American Racing Equipment Inc. said last week that it was shifting most of its production from Southern California to Mexico in order to cut costs. Meanwhile, even those that aren't pulling out of California altogether are foreclosing on the future here by making sure that when they expand their operations, they do it across state lines.

So what should a gubernatorial hopeful say about all that?

He or she should advocate rolling back regulations and articulate a well-thought-out overhaul of the broken workers' compensation system, including changing the very definition of an injured worker. Labor advocates will scream, but it's the only way to make California competitive again.

A serious candidate for the governor's office shouldn't just take on labor either. He or she must go after big business too.

On energy policy, for instance, it should be declared that any power company unwilling to renegotiate its costly California supply contracts would be barred from future projects that involve so much as a penny in state funds. Such bare-knuckle tactics would make corporations see red, not to mention file suit, but that shouldn't deter someone who really cares about curing what ails California.

As for housing, a forthright candidate would explain to the electorate that California's population is increasing by 600,000 a year — and that it's the government's responsibility to ensure that they have safe places to live. "We are building 100,000 fewer houses than we need each year," says Bruce Karatz, chairman of KB Home Corp., a Los Angeles-based builder.

Until 1989, California built housing to keep up with its population growth, but since then it has failed to do so. The recession in the early 1990s is partly responsible. But there are plenty of other culprits for a candidate to attack: a tax structure that penalizes communities erecting houses instead of big-box retail centers; excessive environmental restrictions; and runaway liability lawsuits against builders of multiple-family units.

The most important need at this time, however, is for changes to the state's budgeting process.

A few voices are rising to demand reform. Warren Buffet, financial advisor to candidate Arnold Schwarzenegger, caused a sensation last week by suggesting that California's property taxes, held down by the hallowed Proposition 13, need to be higher.

Others should be so bold — including Schwarzenegger himself.

Whatever their original benefit, limits on property taxes have led to serious distortions in California's public finances. For one thing, they have forced the state government to rely on income taxes for almost half of its annual revenue — a higher percentage than any other state. But income taxes swell in good times and shrink in bad times, leaving state coffers vulnerable to wild ups and downs.

For another thing, by keeping tight control over property taxes, the state has forced cities and towns to rely too heavily on sales levies to finance public services, including police and fire protection.

Now the whole system has begun to creak. "The state today is characterized by a complete lack of fiscal discipline," says former Democratic congressman and White House budget director Leon Panetta.

What should a candidate for governor do about that?

"Call for sacrifice from everyone: taxes from the wealthy, more disciplined expectations from everyone," Panetta says.

Will any candidate ask the electorate for such sacrifice?

If not, this circus of a recall campaign may be followed by a far less entertaining spectacle: the long, gray dwindling of the California dream.