California Faces the Music

As California voters go to the polls Tuesday for primary election, incumbents are worried. The Golden State is facing a $19 billion budget deficit and most of the incumbent politicians are running for cover. But it is the local officials rather than the state leaders who seem to get it.

California’s cities, counties and school districts are releasing their final lists of cuts as they struggle to complete their FY2011 budgets by the end of June.  For most this will be triage to achieve a balanced budget since they have already cut everything that resembles fat.  The State is helping by seizing money that is supposed to go to local governments and schools to reduce the state budget deficit.  The implications ripple through to Main Street and individual tax payers

At the local level we are getting a zero-based approach to budgets and spending because there is no alternative.  So how are they doing?

City of San Jose:  Grade: A

City of San Jose will cut nearly 1000 positions from its operating budget and see staffing levels rolled back to the same level as in 1989 after eight consecutive years of budget cuts.[1] This is in addition to wage and benefit concessions from City employees that equal about a 10% reduction in overall compensation.  Public safety departments will cut staffing by about 10% but non-essential departments will see budget cuts of as much as 35%. Mayor Chuck Reed is a solid, no nonsense guy who runs the place just like it is one of Silicon Valley’s other business leaders.  This is a class act.

City and County of San Francisco: Grade C

San Francisco, whose Mayor Gavin Newsom is running for Lt Governor on the primary election ballot, pink-slipped 17,000 employees and only relented when its unions gave concessions equivalent to about 7% of total compensation.  Newsome’s final budget cuts 350 jobs and plays a few games with assumptions about Federal and State revenue expectations while making cuts in virtually every service program across the board and raises fees on virtually everything the City and County does.  Amazing what having the Mayor run for higher office in an ugly time can do to cut the crap and get a deal with the unions.  Now let’s see if the Board of Supervisors plays along.

City of Los Angeles:  Grade: D

Los Angeles faces a $485 million deficit and faces more challenges ahead since the union concessions, early retirement of 2400 employees, fee increases and other measures delay the pain but do not solve the problem.[2] LA is boldly playing games and calling in all its chits hoping for Federal bailouts and help from its large Sacramento legislative delegation to save the day.  Don’t count on it.  The Major’s attempt to jump on the bandwagon for renewable energy by directing LADWP, its city electric and water utility, to raise rates and skim off a big part of the rate increase for the City General Fund fell to earth like—well let’s just say it was ugly and smelled worse. Mayor Antonio Villariagosa runs the City just like he ran the State Assembly.

University of California: Grade F

And then there is the University of California.  It has been a period of austerity at the University of California, with layoffs, across-the-board pay cuts and fee hikes of as high at 33% for students.  But guess what, the University is up to its old tricks of playing games with compensation behind the back of the State Board of Regents which cost the last President his job. [3]

Since then the University is required to publish a periodic report on its compensation practices, but that has not necessary changed its poor behavior. Over the last year, the number of senior officials at UC making more than $214,000 each increased 6.3% from 2,996 to 3, 184 and two of them are among six coaches making more than $ 1 million each.

The number of UC employees earning more than $10,000 in OT climbed 79%, to 2,733 from 1,531 employees.  UC’s top overtime champion is an operating room nurse at UC San Francisco Medical Center, who got $97,000 in overtime raising total compensation to $320,000 according to just-released payroll data for 250,249 people paid by UC in calendar year 2009, and from UC’s new report on executive compensation that the chronicle reviewed. [4]

UC paid $4 million in bonuses and incentives to 79 coaches, doctors and finance experts, according to the University’s compensation report down from $6 million to 112 employees in 2008.  Its defense is this is less than 1 percent of the $9.8 billion payroll.  The university offered its same lame argument that it must pay top dollar to compete with elite private schools and industry for Nobel-level researchers and other world-class brains.

The University of California was once a great institution of high learning.  Today it is fat, bloated with over priced and under-performing managers, gutless and living on the state dole.  In an earlier post I said I felt it might be time to IPO the University of California and I have not changed my mind.[5]

So what?

So Tuesday June 8th is the California Primary election and there is expected to be a day of reckoning for some incumbents.  If that happens, we might see progress at the State Legislature in resolving the state budget deficit—but don’t count on it. The survivors will not want to piss off their special interest benefactors as long as they still need them for campaign contributions for November.

If Meg Whitman wins the primary for Governor we’ll have the most interesting race in the nation between Meg and Jerry Brown. What Jerry has going for him is name recognition and a track record of doing a great job as Mayor of Oakland once he finally grew up.  What the national press wants to talk about is Jerry Brown as Governor Moonbeam in a time long, long ago.  This is not fair but is a good lesson to politicians that stuff does stick to your shoes!

Barbara Boxer has no primary opponent but still faces a near death experience no matter who wins the Republican contest between former Silicon Valley Congressman Tom Campbell and former HP CEO Carly Fiorina.  If you want to see mud wrestling of epic proportions vote for Carly where the contrasts with Boxer could not be more stark.  Campbell is a social moderate but a fiscal conservative and a win for him deprives Boxer the ability to play the abortion rights card and other chits she will call in to try to smack down Carly.  Campbell’s problem is he is just a regular guy and does not have the money to fight a knock down media war with Boxer.  Carly can outspend Boxer in the rounding error of her bank account.

California cities and counties face choices of draconian proportion in balancing their budgets—and that is good.  The report card for how they are doing is mixed.  Those closer to Sacramento or Washington seem to be doing worse than those who come from Main Street and just want to get the job done.

Don’t count California out!

There is still a lot of gold to be made in these hills, but first we must run off the politicians and revenuers!