HomeMy WebLinkAboutBUDGET & FINANCE AGENDA 12-15-08
Central Contra Costa Sanitary District
5019 Imhoff Place, Martinez, CA 94553-4392 (925) 228-9500 . www.centlalsan.OIg
BUDGET AND FINANCE COMMITTEE
Chair McGill
Member Nejedly
Monday, December 15, 2008
3:00 p.m.
Executive Conference Room
5019 Imhoff Place
Martinez, California
INFORMATION FOR THE PUBLIC
ADDRESSING THE COMMITTEE ON AN ITEM ON THE AGENDA
Anyone wishing to address the Committee on an. item listed on the agenda will be heard when the
Committee Chair calls for comments from the audience. The Chair may specify the number of minutes
each person will be permitted to speak based on the number of persons wishing to speak and the time
available. After the public has commented, the item is closed to further public comment and brought to the
Committee for discussion. There is no further comment permitted from the audience unless invited by the
Committee.
ADDRESSING THE COMMITTEE ON AN ITEM NOT ON THE AGENDA
In accordance with state law, the Committee is prohibited from discussing items not calendared on the
agenda. You may address the Committee on any items not listed on the agenda, and which are within their
jurisdiction, under PUBLIC COMMENTS. Matters brought up which are not on the agenda may be
referred to staff for action or calendared on a future agenda.
AGENDA REPORTS
Supporting materials on Committee agenda items are available for public review at the Reception, 5019
Imhoff Place, Martinez. Reports or information relating to agenda items distributed within 72 hours of the
meeting to a majority of the Committee are also available for public inspection at the Reception. During
the meeting, information and supporting materials are available in the Conference Room.
AMERICANS WITH DISABILITIES ACT
In accordance with the Americans With Disabilities Act and California Law, it is the policy of the Central
Contra Costa Sanitary District to offer its public meetings in a manner that is readily accessible to
everyone, including those with disabilities. If you are disabled and require special accommodations to
participate, please contact the Secretary of the District at least 48 hours in advance of the meeting at (925)
229-7303.
A
'" Recycled Paper
Budget and Finance Committee
December 15, 2008
Page 2
1. CALL MEETING TO ORDER
2. PUBLIC COMMENTS
3. OLD BUSINESS
*a. Two Outstanding Questions from Previous Meeting
4. CLAIMS MANAGEMENT
*a. Review Outstanding Claims
5. REPORTS/ANNOUNCEMENTS
*a. Sewer Service Charge and Property Tax Revenue
*b. Update on AIG
c. GASB 45 Trust
*d. Article on CalPERS
*e. Governor Schwarzenegger declares fiscal emergency for California
6. REVIEW EXPENDITURES (Item 3.a. in Board Binder)
7. ADJOURNMENT
*
Attachment
3. Q.
Central Contra Costa Sanitary District
December 12,2008
FROM:
BOARD BUDGET AND FINANCE COMMITTEE
RANDALL MUSGRAVES 11''''
DEBBIE RATCLIFF ~t'_
DECEMBER 1,2008 FINANCE COMMITTEE MEETING
TO:
SUBJECT:
The following questions were outstanding from the prior Board Budget and Finance
Committee meeting. The questions and responses are provided below:
1. Page 7, 173320 Cole Supply Company - Is the District using "green"
products and are the prices better if we do?
Currently, the only green product we are purchasing from Cole Supply Company
is toilet paper. The sales representative provided additional information on other
green products and indicated that the prices were comparable to what the District
currently pays. Glass cleaner will be ordered and evaluated to make sure it works
well. The District previously tried green paper towels and there were issues with
the quality so we switched back. Stephanie King, Purchasing Manager, is
currently drafting an Environmentally Preferable Purchasing Policy which
includes a section on cleaning products.
2. Page 8, 173327 D & L Supply - Does the District monitor the price of iron
and buy additional manholes to store in inventory when the price is down?
Currently, the District does not monitor the price of iron. The warehouse
purchases manholes for CSO in large quantities when needed and a large supply
is stored in inventory. The cost of manhole covers and rings includes several
variables, all which can potentially affect the cost of the final product. These
variables include the price of iron, cost of fuel to transport, labor, energy cost and
machining costs. Staff will review the past three years of purchases to see if the
price of manholes and rings has fluctuated significantly, and will bring back
additional information at a future Committee meeting.
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Central Contra Costa Sanitary District
DECEMBER 12, 2008
TO:
FROM:
BUDGET AND FINANCE COMMITTEE
RANDALL MUSGRAVES ~(ftrt..
DEBBIE RATCLIFF IlL
VIA:
SUBJECT: SEWER SERVICE CHARGE AND PROPERTY TAX REVENUE
Staff continues to monitor the collection of Sewer Service Charge and property tax
revenue with both the County Assessor's Office and the County Treasurer's Office. Staff
has been told that the District will receive the actual amount of Sewer Service Charges
and property taxes that are collected in December and again in April. In the June time
frame, the County reconciles receipts and distributes the remainder due. The County
indicated that they will not TRANS finance this year as it is too costly, and that any extra
amount that needs to be paid out will come from their Tax Reserve Fund.
H:\Sewer Service Charge and Prop tax Rev.doc
5.b.
UPDATE ON AIG
Or~enberg Urges Yet Another A.LO. Lifeline - Mergers, Acquisitions, Venture Capital, H... Page 1 of 4
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Greenberg Urges Yet Another A.I.G. Lifeline
DECEMBER 2. 2006. 7:06 AM
Link to This
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TOPICS
INDUSTRIES
Legal
Financial Services
Maurice R. Greenberg can't let his old firm go.
The former chief executive of the American International Group again
took to the op-ed pages of The Wall Street Journal, writing on Tuesday that
the insurance giant needs yet another revision to its bailout by the federal government.
It's not that the A.I.G. lifeline 2.0 is worse than the original $85 billion loan from the
government, a solution that many had come to see as too punitive. But in light of the new
triage plan for Citigroup, Mr. Greenberg argues that A.l.G. needed a similarly
structured deal.
The attitude of the piece is different from whaLMJ:....Gre!)nberg.c$.p.Q\.!s~ shortly after the
second A.I.G. rescue plan was unveiled last month.
To wit, A.l.G.'s CUITent rescue boat includes a five-year $60 billion loan, with a lower
interest rate. While better than the first bailout, which was quickly sapped as A.l.G.'s
(~ounterparties demanded more collateral, Mr. Greenberg writes that it only raised the
government's stake in the firm to nearly 80 percent. (Unsaid in the piece is that the
government has also agreed to set up and help finance two new off-balance-sheet entities
to house collateralized debt obligations, which are essentially private insurance contracts,
and mortgage-backed securities.)
"A new plan needs to be drawn up to allow private capital to replace the government's
capital," he argues. "And the company itself cannot be so burdened with interest
payments that it is forced into effective liquidation, making jobs impossible to keep and
decreasing the likelihood taxpayers will be repaid."
(Indeed, Mr. Greenberg at several points referenccs the disaster that would unfold should
A.I.G. he allowcd to fail, including hits to institutional investors like pension funds and
scores of jobs lost. He also writes of the company's "credit default swap counterparties"
with distinct distaste.)
What the former chief executive likes of the Citi plan is that it offers a federal guaranty of
toxic assets, in that bank's case mortgage-backed securities. By extending a similar
structure to A.I.G., Mr. Greenberg argues. the capital drawn down from the federal
government to ml'et CDS countl'rp.uiies could be repaid and deployed elsewhere.
"The 1'01(' of government should not be to force a company out of business, but rather to
help it stay in business so that it can continue to be a taxpayer and an employer," :\11'.
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LA TEST DEALBOOK HEADLINES
MERGERS & ACQUISITIONS.
Why Twitter Turned
Down Facebook
EDF Goes Nuclear on
Warren Buffett's Deal
Edward S. Rogers Jr.,
Canadian Media Mogul,
Dies at 75
INVESTMENT BANKING.
Analysts' F.,timates Fall;
(',oldman and Murgan
Rise
Banks' Upheaval I.eaves
Manhattan Awash in Open
Office SpaL..,
Merrill Plans to Halve
Bonuses, Repurt Says
I.P.O.lOFFERINGS.
Vietnam to Sell Stake in
Lender in \.1'.0.
Shares Slip in Europe;
Asian Markets Are MLxed
Daimler Sells $1.3 Billion
in Bonds
PRIVATE EQUITY.
Han'ard's Endowment
,.,ses $8 Billion in 4
Months
Yahoo Buyout May Be
Uolikely
Terra Firma Shows
F.x.l"{'Uti \'e~ the Door,
Report Says
DEALBOOK NEWS BY INDUSTRY
HEDGE FUNDS.
Odes to a Bursting Bubble
Highbridge Said to to Limit
Redemptions
Write- Downs 1I urt Sears in
3rd Quarter
VENTURE CAPITAL.
Hawaii Endorses Eleliric Car
Plan
Chemree Takes $20 Million
UTest Scures $5 MilIiun
LEGAl.
Need a Bailout? He<<"s the
Form
Debt Wars: kahn Strikes
Back
The Case of the I'hoto, the
Lawyers and the Auto makers
http://dealbook.blogs.nytimes.com/2008/ 12/021 green berg -urges-yet -another-aig -lifeline/?s...
12/3/2008
_ Greenberg Urges Yet Another A.I.G. Lifeline - Mergers, Acquisitions, Venture Capital, H... Page 3 of 4
7. December
2nd,
2008
2:14 pm
aspects of the business seems the most common sense solution..
This can be accomplished by:
1. division of companies with individual leadership.
2. creating a transparent business plan.....that makes plain common
sense, indicates that it can strengthen companies and work in the best
interests of all. (Anything that requires our investment with a song and
prayer rather than plain common sense needs to be renamed as
gambling)
Our government must themselves have staff that are not tainted by greed,
that can evaluate the structure of the business as well as the ongoing
business. Clearly, our oversighters have either turned the other eye or
been unequal to the job. Staff from top - down must have a strong sense
of "what is good for Humanity and the environment - .can with
intelligence, involvement and care become an economically sound
business investment and process.
OUr government's job in all of this is to protect the businesses, workers
and taxpayers from unfair, underhanded competition and help sustain a
healthier life on earth. .
Summary: Companies that have become huge fosselized dianosaurs and
can no longer perform in a sound financial or humane way can be
devided into manageable size.
r would think that those that believe that private companies can do a
better job than government, would applaud such a venture - because
clearly most businesses have failed....to be able to support a healthy
planet, a fairly distributed economically sound wage payer base for all.
Our government that has allowed deregulation and a manipulated market
has failed - big time.
Government's job was to keep these divisions honest, using profits to
benifit the present and the future of the businesses and the country -
and they failed. Where are the plans to get it right and make it
transparent this time?
Business based on a win-win bottom line can become a supporting
element of a healthier society.
- Posted by Isa Case
In my industry (export of agricultural products), what Hank is trying to
do is called "back trading". This is where a company or person enters into
an agreement for freight or goods, and then tries to wriggle out of that
agreement (or revise the terms) when someone later offers them a better
deal. Needless to say, its not a flattering term. The management of AlG
accepted the terms of the first bailout. The management of AlG (gladly)
accepted the revised terms ofthe 2nd bailout agreement. Now, seeing
that Citigroup received terms that are seemingly more attractive than
what AlG received, you want to change the terms that AlG's management
agreed to. That's back trading. AlG reached an agreement - and should
honor those terms.
- Posted by DaveK
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(.'Ol1I1Jlent.>) are I1H)(Jeratetl (111(llI'ill Ill' posted if they are on--topic Ilnd 7Wt llhw.;il'l'.
71II'Y may hI.' l'dil'C'dfnl' h'119lh wltl d(/rity. hl1' more infurlTlat"iu/l :..t'!, Ollr Jfemhpr
http://dealbook.blogs.nytimes.com/2008/ 12/021 greenberg - urges-yet -another-aig -lifeline/?s...
12/3/2008
Print Story: AIG owes $10 billion on trades gone bad: report - Yahoo! News
Page 1 of 1
YA.E:oOf. NEWS
PRINT
Back to story
AIG owes $10 billion on trades gone bad:
report
11II
2 hrs 54 mins ago
WASHINGTON (AFP) - Fallen US insurance giant American International Group owes financial firms
some 10 billion dollars on speculative trades that turned sour, the Wall Street Journal reported on
Wednesday.
The trades have not been explicitly revealed before and would not be covered by the US government's
bailout package of more than 150 billion dollars for the troubled company, the Journal reported. citing
unnamed sources.
Details of the trades mark the first indication that AIG may have been gambling with its own capital, the
Journal wrote.
The government intervened to rescue AIG from collapse in September and has since dramatically
expanded its rescue funds as the firm suffers from failed bets on complex financial instruments.
An AIG spokesman told the Journal that the trades were not speculative bets but "credit protection
instruments. "
He said the trades have been fully disclosed already and amount to less than 10 billion dollars of the firm's
71.6 billion dollars exposure to derivative contracts on debt pools, or collateralized debt obligations, as of
September 30.
AIG was the world's largest insurer before the global credit crisis brought it down.
Copyright @ 2008 Agence France Presse, All rights reserved. The information contained in
the AFP News report may not be published, broadcast, rewritten or redistributed without the
prior written authority of Agence France Presse,
Copyright @ 2008 Yahoo! Inc. All rights reserved. Questions or Comments Privacy Policy Terms of
Service Copyright/lP Policy
http://news.yahoo.com/s/afp/2008121 Olts _alt_afp/financeeconomyinsuranceuscompanyai... 12/1 0/2008
:rhe Professors Pop Quiz: Who Controls A.I.G.? - Mergers, Acquisitions, Venture Capital... Page 1 of7
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. 5IJe~t\Ulork.tS .
! Thursday, November 20, 2008 Business
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0<> THE DEAL PROFESSOR BY STEVEN M, DAVIDOFf
The Professor's Pop Quiz: Who Controls A.I.G.?
NOVEMBER 19, 2008. 8:00 AM
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Legal, Wall Street Bailout
Financial Services
TOPICS
INDUSTRIES
THE II' The terms of the government's investment in the American
DEAL . . International Group were released last week. After reading
PROFESSOR these terms, I have a multiple-choice question.
<X>
Who controls AJ.G.? Is it:
1) 'Dle Federal Reserve
2) The Department of the Treasury
3) The current shareholders of AJ.G. (but not the government)
4) All of the above collectively
5) No one knows
The best answer I can discern right now is number 5. The deal has become much more
i complicated than it was before, but the control rights over A.I.G. appear to be as follows:
1. In exchange for its $40 billion preferred share
injection under the Emergency Economic Stabilization
Act, the government is getting a 10 percent dividend
on these shares (plus A.I.G.'s agreement to restrictions
on lobbying), the same limitations on executive
compensation as in other preferred equity injections, a
further limitation on annual bonus pools for senior
partners not to exceed 2007 and 2006 levels, and
compliance with an expense policy. As for control
rights - the $40 billion preferred is nonvoting except
on certain major issues affecting the preferred. If A.I.G. misses dividend payments for
four consecutive quarters, the Treasury has the right under the terms of this preferred
stock to elect two directors and a number of directors (rounded upward) equal to 20
percent of the total number of directors after giving effect to such elet'tion.
Steven M. Davidoff, writing as
TIle Deal Professor, is a
commentator for Dea/Book on
the legal aspects of mel'gers,
private equity and corporate
governance. Afonner
corporate lawyer at Shearman
& Sterling, he is a pl'ofessor at
the University of Connecticut
School of Law. His columns are
available at I.IW.Dfi.!JLProfl!ssor
bJ.gg.
2. In exchange for the new $60 billion Federal Credit Facility (down from $85 billion),
the Federal Reserve obtains the general rights of a creditor including senior security over
I A.I.G.'s unregulated subsidiaries, hut no real governance rights except for some negative
. covenants limiting A.I.G.'s operations and expenditures.
VENTURE
CAPrrAL
LA TEST DEALBOOK HEADLINES
MERGERS & ACQUISITIONS.
Halliburton Wants to
Keep M&A Pipeline Full
Chrysler Still Hopes for
C.M. Deal, Report Says
,Japan's Itochu to Buy
Stake in Food Firm
INVESTMENT BANKING.
Goldman Shares Tumble
Below Their tP.O. Price
No Prince Bounce for
Citigroup
Saudi Plince to Raise
Stake in Citigroup
LP.OJOFFERINGS.
Commercial Loans Are
Looking Risky
Over 100 U.S. Blne Chips
Now Selling For Under
$10 A Share
Stocks Are Hurl by Latest
Fear: Declining Prices
PRIVATE EQUITY.
Obama Factor Cited in
Fortress Filing
Market Turmoil Pummels
Blackstone and Fortress
KKR. Hires European
Communications Officer
HEDGE FUNDS.
Fund Hurt by Volkswagen
Tmde to Close
John Paulson's Toast to His
Firm's Fortunes
Icahn Takes Stake in Another
Drug Maker
VENTURE CAPITAL.
Hunting for a Brainy
Computer
Arete 'I11erapeutics Gets Final
Injection
The Doctor Will See You Now
-Online
LEGAL.
Auto Chiefs Fail to Get
Bailout Aid
After Losses, Pensions Ask
For a Change
Senate to Probe Bond-
Ratings Finns, RepOIt Says
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3. Finally, the government is receiving 100,000 Series C preferred shares convertible into
77.9 percent of A.I.G.'s outstanding common stock. This second preferred stock has a DEALBOOK NEWS BY INDUSTRY
vote equal to 77.9 percent of AI.G.'s share capital and is entitled to 77.9 percent of any
dividends paid by AI.G. on its common stock.
Thus, whoever controls these Series C preferred shares controls A.I.G. These Series C
shares, the stock that will vote and control A.I.G., will be owned by is a trust for the
benefit of the Treasury Department. The trust is called the A.I.G. Credit Facility Trust.
And who are the trustees of this trust and the controllers of A.I.G.? I have no idea nor
have I seen any public disclosure on the issue except for news reports in October that
these trustees would be appointed by the Fed and that there would be three of them.
Moreover, under Section 5.n ofthe original credit agreement, a provision that appears to
be unamended in the new deal, AI.G. "shall use all reasonable effOlts to cause the
composition of the board of directors of [A.I.G.] to be ... satisfactory to the Trust in its
sole discretion."
So, why this oddity? I must admit, I am puzzled. Perhaps it is related to accounting or
some other legal requirement? But I also suspec:t it may be political - the government
does not want to control AI.G. directly. Rather, it is preserving some separation of
ownership and control to bar future administrations from political meddling (read the
Obama administration). This is probably a worthy goal - allowing AI.G. to operate on an
economic basis protected from political meddling.
Of course, this worthy goal is probably trumped by the fac:t that AI.G. is a mess and now
can borrow up to $170 billion from the government. The governance arrangements
simply show what a mess this is.
In any event, there should be adequate oversight of the trust and some mechanisms to
prevent the trustees from obtaining their own private benefits from controlling Al.G. and
its $1 trillion in assets. In addition, the trnstees themselves should be chosen for their
acumen and ability to right the sinking AI.G. ship. Here, the government could begin by
disclosing the terms of this trust once they are drafted.
33 comments so far...
1. November
18th,
2008
8:02 pm
Whoever it is, you can bet he is a blithering idiot...
- Posted by williambanzai7
2. November
18th,
2008
8:22 pm
The people who control AIG are the current and prior management and
some related parties who have entered into certain recurring transactions
many of which are fundamental or at least near-fundamental to the
conduct of the business and which are used to syphon off cash without it
being construed as anything out of the ordinary course or as a part of any
employee compensation.
It's all in the deals and not in the comp that the cash has been and is
being taken away, and the gaps that the taxpayer is funding are a direct
and indirect result of this draining of corporate assets. So AIG is kept
adequately capitalized on one side by the taxpayer and is sucked dry on
the other side by these special parties, most of which are corporates and
partnerships but some of which are individuals and syndicates of various
types including some three, four and five party/cornered structures.
Cuomo and his people are not adequate in number, force or knowledge to
know how to untangle this mess, and the AIG people and their friends
have set it up in a way that it probably cannot be untangled without many
tens of billions being passed into wrongful hands. Got it? Far more
complicated than meets the eye and far less penetrable by normal legal
means.
So who cares who owns the conduit when the real economic beneficiaries
are the people taking away the cash on the other side: they are the most
clearly beneficial claimants no matter what their legal status as "owners"
or whatever.
- Posted by Hank
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http://dealbook.blogs.nytimes.com/2008/11/19/the-professors-pop-quiz-who-controls-aig/ ... 11/20/2008
, :rhe Professors Pop Quiz: Who Controls A.I.G.? - Mergers, Acquisitions, Venture Capital... Page 3 of7
3. November
18th,
2008
9:04 pm
4. November
18th,
2008
9:17 pm
5. November
18th,
2008
9:42 pm
6. November
18th,
2008
9:43 pm
7. November
18th,
2008
10:01 pm
8. November
18th,
2008
10:02 pm
9. November
18th,
2008
10:08 pm
10. November
18th,
2008
10:39 pm
11. November
18th,
2008
10:46 pm
12. November
18th,
2008
10:54 pm
13. November
18th,
2008
11:00 pm
hmmm...being a former auditor myself, sounds like Hank my have done a
little duty reading AIG's footnotes and actually knows what they mean.
- Posted by woniq(uy
Perhaps we now have a sense to what position Cheney will retire in
January .
- Posted by max
I thought AIG was bailed out because it would have taken Goldman Sachs
down with it. And Paulson couldn't allow that. Would Cheney give up
Halliburton?
- Posted by ReorRepwebster
Go Figure.... Gov't Sachs pulls another one over on the taxpayers. Paulson
should be tarred and feathered!
- Posted by desm088
Status of delaware litigation regarding shareholder vote pis?
- Posted by a RreenberR
Well put, Hank, and so sad for all the taxpayers.
- Posted by Jim
The complexity is just part of the problem. I see a deeper mess in there -
and that is finding the way to give it back. It may be impossible to know
right now who owns A.LG. but when the time comes to payback what it
owes and sell those shares bought with tax's payers money, then you will
have a huge mess. Who will in fact make sure that A.LG is accountable for
all the money given? Too many "owners" will never be responsible for
making sure people don't lose on this bailout.
- Posted by Roberto J. Ribadeneira
Me thinks Hank knows whereof he speaks. But Paulson's been around the
block a few times. Wouldn't he know what rocks to look under?
- Posted by Den
Wow, I wish I could get loan terms like that. It's like getting a mortgage,
but already owning half the house, and I can pay the rest back whenever I
get around to it. As long as I make some sort of payment in the first two
years, I'm fine, otherwise, the bank might be able to put someone in a
position to have a 77% vote on how I spend my money going forward.
And how hard should we be laughing about "keeping bonus pools for
senior partners to 2006 and 2007 levels"? As if they were going to be
higher in '08 or '09 anyway. How did they get that deal? It's criminal
- Posted by Jonathan
As much as this will irk the current CEO who is appointed by Paulson,
taxpayer can benefit by letting Hank Greenberg and other major
shareholders for suggestions and assistance in getting AIG back on its
feet.
- Posted by Elizabeth
"But I also suspect it may be political - the government does not want to
control A.I.G. directly. Rather, it is preserving some separation of
ownership and control to bar future administrations from political
meddling (read the Obama administration). This is probably a worthy
goal- allowing A.I.G. to operate on an economic basis protected from
political meddling:
But it doesn't, because they've been lobbying. That's the problem with a
hybrid plan like this. It looks private, but the company keeps pressuring
the government through lobbying to alter the terms in their favor.
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:rhe Professors Pop Quiz: Who Controls A.LG.? - Mergers, Acquisitions, Venture Capital... Page 4 of 7
14. November
18th,
2008
11:04 pm
15. November
18th,
2008
11:10 pm
16. November
19th,
2008
12:20 am
17. November
19th,
2008
1:40am
18. November
19th,
2008
8:26 am
19. November
19th,
2008
8:58 am
20. November
19th,
2008
9:16am
You need to have someone who's only concern is for the taxpayer's
investment. That means someone who actually influences policy. The real
issue should be letting the people who got into this mess, or from the
same company, keep making the decisions. Either the government should
run it, or have a real power of decision. Otherwise, let them deal with
their problems on their own.
- Posted by Don the libertarian Democrat
6) A Mexican drug smuggling cartel with billions to launder.
- Posted by Esteban
Hank I think you nailed it.
We need you Hank not the plumber in Washington.
Oh that's right your much too smart for that
- Posted by Wayne
"Bonus pools will not exceed 2007-7 levels. " The bonuses were obscene
during those reckless years; obviously, the good 01' boy network is alive
and well, taxpayers be damned. It isn't clear to me why law enforcement
isn't intercepting communications between Wall Street and the Goldman
Sachs gang, et. aI. to determine possible wrong doing.
- Posted by riMt now
Does Mr. Davidoff truly believe that these trustees, "appointed by the Fed
and that there would be three ofthem" actually would truly allow, "A.I.G.
to operate on an economic basis protected from political meddling. "
- Posted by Michael
While I read about our government representatives reaming our Big
Three Automakers on how they got into this mess, I wonder why this
wasn't done with AIG and all the other BIG BUSINESS who got checks
with absolutely no oversight. How do you think they got into this trouble?
It appears like Paulsen has his own group he wants to focus on, and its
not helping out consumers. This whole mess is going to tangent into all
places in our society, hence the car industry. Who cares who owns AIG?
What we need to do is get Andrew Cuomo whatever funds he needs to go
after these greed feeding businesses/ins companies whatever and get
transparency. Big 3 Auto Companies too. If the regular public even
remotely knew what the top 10% of AIG and other Financial Firms
executives made on salaries alone, there would be a revolt. I often wonder
why our representatives don't take Mr. Cuomo and give him the means to
create a transparency "revolution." Its absolutely disgusting to hear how
blank checks are being given out to these companies while regular
consumers are losing there jobs, just as I did last Friday.
Mauimalia
- Posted by mauimalia
I think it's stupid to give a bonus to any of the AIG execs
and I would give them a controlled salary. These bums
ran the business into the ground and should be fired.
Ernie B.
- Posted by ernie briefel
the answer to this question will be the TREASURY GOVERNMENT who
is the beneficial owner of the trust. for sure, the trustee is the party who
controls the trust but if the trustee is not acting in the best interests of the
treasury government, or in other words fails its own fiduciary duty owed
to the treasury government, the treasury government would exercise its
enforcement right to sue the trustee for breach of trust and everything
will start from there. the court will appoint a new trustee or a new trustee
will be appointed under the trust instrument.
to make things more complicated, i would say the type of trust will be
very likely to be a SPECIAL trust, say set up under the cayman laws, and
the enforcement right will have been delegated to an independent party
which acts as the "supervisor" of the trustee.
hope it all makes sense to you and feel free to drop me any comments.
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, The Professors Pop Quiz: Who Controls A.I.G.? - Mergers, Acquisitions, Venture Capital... Page 5 of7
21. November
19th,
2008
10:38 am
22. November
19th,
2008
11:28 am
23. November
19th,
2008
11:54 am
24. November
19th,
2008
1:1] pm
25. November
19th,
2008
2:02 pm
26. November
19th,
2008
from a chartered accountant in australia.
- Posted by nicolas ho
Whoever is appointed as a trustee won't know as much as management.
This is the sad history of these things. The Government should just try to
get its money out as quickly as feasible and not put too much into making
management decisions for A.I.G. Lending A.I.G. funds was a difficult
decision and the Government should act solely as a lender.
- Posted by fxp
Hank, your post is intriguing and may help explain why there is so little
transparency to the AIG bailout. I suspect there are plenty of leds for
reporters to sort through. Come to think of it, AIG does seem like an
Enron-type operation. Doesn't Hank Greenberg have a huge fine against
him for past shenanigans? I'm sure plenty of his comrades are still at the
firm.
While I write this, I'm watching the auto industry hearings in the House.
Imagine that we execute the auto industry, who may be lousy managers
but are probably not a bunch of crooks, and commit bucketloads of
taxpayer money to a possibly criminal operation. This would not be a
good thing.
- Posted by etfmaven
So let me see if I have this straight: the American government just gave
an ungodly huge sum of money to a privately owned insurance company
(AIG) in such a manner that no one really knows who controls the
company. The money is secured by stock in the company, which was run
so poorly it almost went belly up a few months ago. None ofthe senior
management responsible for the screw-ups that led to the wreck of AIG in
the first place were disciplined, and the few that were fired received
"golden parachutes". The money for the bailout itself was either borrowed
from the Chinese, or created out of thin air by the Federal Reserve. And
the whole thing is being overseen by the former CEO of Goldman Sachs; a
firm that is consitently found at the vortex of these financial tornadoes.
What could possibly go wrong?
- Posted by Paul the cab driver
Normally I reject anything that sounds like a conspiracy theory - but in
this case Hank's diagnosis rings true. Wasn't AIG (pre-bailout) effectively
controlled by a shadowy partnership called Starr that was a private
vehicle for Greenberg, AIG's 4th- or sth-most-recently-ousted CEO? And
didn't AIG at that time have a series of deals with Starr affiliates whose
effect was to hand much of its revenue stream to Greenberg? Since he
(Greenberg) is still in the game, that's why I say the above post rings true.
- Posted by anon
It includes people affiliated and "friends" with both Starr and other
companies located in NYC, London and a few other places. Some do not
even know they are part of it. Cuomo needs to crack a few heads of people
who have been on the inside and in various clearing and insurance
operations most of who tend to be incredibly secretive and elusive. We
are also talking about people who blend into the landscape very easily...
and it does not take a huge headcount to get this done.
Also, it does not take documentation outside of normal "forms" to get this
kind of syphoning completed, and the cash flows and movements in the
industry and in related "streams" are huge, varied and multi-
location/jurisdiction and provide excellent ways to move money and have
the movements well-obscured and with very normal appearances.
There's an awful lot of our money at stake on this one, so let's hope the
government and various agencies pull out all the stops. I am concerned
that we may see neither good results from the current investigations nor
any cessation of the flows outward any time soon, although there are so
many billions out of this one already the beneficiaries should almost have
enough... and they are very smart people.
- Posted by Hank
It is difficult to understand the size, scope and diversity of AIG without
looking at its history and some of the public information. One also needs
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2:43 pm
27. November
19th,
2008
3:00 pm
28. November
19th,
2008
3:13 pm
29. November
19th,
2008
5:23 pm
30. November
19th,
2008
5:36 pm
31. November
19th,
2008
8:34 pm
to understand that not all of the AlG "family" of companies is in the
public view and that there are a significant number of "partners" out
there in which AlG has little or no ownership interest but where there is
common ownership and a hugh portfolio of shared interests/investments,
both corporate and transactional.
Here is a short Wiki summary:
http://en.wikipedia.org/wiki/ American_International_Gro up and AlG's
own history page: hUp:/ /www.aig.com/history--547_104196.html
And from its "AlG at a Glance": "American International Group, Inc.
(AlG), a world leader in insurance and financial services, is the leading
international insurance organization with operations in more than 130
countries and jurisdictions. AlG companies serve commercial,
institutional and individual customers through the most extensive
worldwide property-casualty and life insurance networks of any insurer.
In addition, AlG companies are leading providers of retirement services,
financial services and asset management around the world."
Try putting a rope around that when paired with the "cash power" of the
"friends" outside of AlG. BTW this has been evident for 20+ years and
was just a matter of time.
- Posted by Hank
Few days ago I happened to be in Bahamas' poshest hotel, Atlantis, and
saw a bunch of AlG suits having a corporation-sponsored party (the large
sign next to the restaurant identified them as AlG).
Don't forget to pay taxes. Banksters need it.
- Posted by averros
The problem is that AlG is still writting policies. They are taking business
from well run insurers. They are most likely writting policies at a loss,
taking buisiness away from health insurers, and subsidizing risky
behavoir by insureds. As far as the insiders go, they are hoping once they
wipe out some competitors and rebuild the balance sheet they will take
they company public and then cash out.
- Posted by l:e081'j!;e
Are you kidding me? AlG, which is owned by the United States, is legally
registered as a Panamanian company. When Noriega fell, AlG went in
and paid the new legislature to let AlG write the rules under which it was
incorporated. The biggest joke of all is that AlG has any valuable
businesses they can sell. Now that they have to FOLLOW THE LAWS
they have no competitive advantage. You can bet most of the business
they wrote is bad business, where their intermediaries pocketed nice
sums for fleecing their customers. That's why they couldn't stop the
junkets, cause that's where all the bad business was done. And we're
worried about who is running this shell....
- Posted by William Yates
...and who is paying for the attorneys that will be defending the board and
the executive suite? I say, it had better not be T ARP.
- Posted by Ivona
Ivona et al: management and the Board are covered by a "willful
misconduct and gross negligence... proved in a final judgement in a court
of competent jurisdiction" set of clauses plus some language in various
places around the articles and by-laws and some other legal agreements
in multiple jurisdictions that give them many more protections than
normal... plus prior deals made with the regulators for cooperating.
The legal fees won't be very high even if there is a case, and right now the
case is totally unclear. There needs to some understanding of exactly
what has occurred here, and there is none right now; then there needs to
be a process, investigations, establishment of governing law and
jurisdiction (which will be fought over), evidence, indictments, trials,
testimony, regulatory hearings, grandstanding by Congress and some
special interest groups and on and on. It will take years if it works even
close to lucky.
In the meantime one huge amount of money will be pulled out of AlG and
our pockets, and in the end if there are convictions that hold up on appeal
http://dealbook.blogs.nytimes.com/2008/11/19/the-professors-pop-quiz-who-controls-aig/... 11/20/2008
. -The Professors Pop Quiz: Who Controls A.I.G.? - Mergers, Acquisitions, Venture Capital... Page 7 of7
32. November
19th,
2008
9:07 pm
33. November
20th,
2008
4:47 am
then a deal will be struck to return some portion of the money to the US
government and taxpayer... but nothing like 100% of the cash taken.
Crime pays and the felons will walk away with somewhere in the area of
at least $50-150 billion as my best guess.
Pretty sickening. I just hope that Goldman and a few others were able to
untangle themselves from AIG before this mess started. Yes, there was a
very real and substantial relationship over many years between the two
firms, which many of us were concerned would pull Goldman down if
certain AIG-related events occurred. If not, Goldman is in deep trouble if
not already sunk. Sorry. They are among the best around.
- Posted by Hank
You can blame Eliot Spitzer for all of AIG's problems. If he had kept his
nose out of it, Hank Greenburg would still be running AIG and it would
be solvent.
- Posted by Stan
Who in their right mind, other than dead meat vultures, would continue
to initiate new business with AIG or its many downstream parts?
- Posted by Doubtinl( Thomas
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AIG chief gets a dollar in salary
Page 1 of 1
SFGate.com
AIG chief gets a dollar in salary
leva M. Augstums, Associated Press
Wednesday, November 26, 2008
(11-26) 04:00 PST Charlotte, N.C. -- American International Group Inc. said Tuesday it is limiting
how much it pays its top executives, including granting a $1 salary for this year and the same for 2009 to
its Chief Executive Officer Edward Liddy.
The decision is one of many broader moves made by the troubled New York insurer, which has been
under pressure to restrict executive pay since accepting billions in government assistance to save it from
collapse. AIG has received about $150 billion so far, more than any other company.
It was once the world's largest insurer with customers around the globe, and regulators feared the
possible effect an AIG collapse would have had on the world's financial system.
The company said there will be no 2008 annual bonuses and no salary increases through 2009 for AIG's
top seven officers and no salary increases through 2009 for the 50 next-highest AIG executives.
In addition to his $1 a year salary, Liddy will be getting an unspecified amount of stock.
"We believe these actions demonstrate that we are focused on overcoming our financial challenges so
AIG can return value to taxpayers and shareholders," Liddy said in a statement.
The announcement comes after New York Attorney General Andrew Cuomo sent a letter to Liddy this
month saying AIG should be "completely transparent" about its compensation plans for 2008.
In mid-September, the Federal Reserve said it would offer two loans totaling $123 billion to AIG to help
the insurer stave off bankruptcy. AIG was later allowed to access an additional $20.9 billion through the
Fed's "commercial paper" program. And earlier this month, the government announced new financial
assistance to the company.
AIG said no taxpayer dollars will be used for any annual bonuses or future cash performance awards for
AIG's top management positions.
Liddy, who joined the company in mid-September, will not receive an annual bonus this year or next,
although he may be eligible for a special bonus for "extraordinary performance" payable in 2010, the
company said.
It wasn't immediately clear how much stock Liddy stands to get, but AIG spokesman Peter Tulupman
more information would be disclosed in a regulatory filing with the Securities and Exchange
Commission.
http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/ 11/26/BUOB14C9F8. DTL
This article appeared on page C - 2 of the San Francisco Chronicle
http://www.sfgate.com/cgi-binlarticle.cgi?f=/c/a/2008/11 /26/BUOB 14C9F8.DTL&type=... 11/26/2008
American International Group, Inc. I Newsroom
Page 1 of 1
<< Back
AIG NAMES PAULA ROSPUT REYNOLDS VICE CHAIRMAN AND CHIEF RESTRUCTURING OFFICER
PDF Version
Richard H. Booth Named Vice Chairman, Transition Planning and Chief Administrative Officer
NEW YORK--American International Group, Inc. (AIG) has named Paula Rosput Reynolds, former Chairman, President and Chief
Executive Officer of Safeco Corporation, as Vice Chairman and Chief Restructuring Officer. In this new position, Ms. Reynolds will
oversee AIG's divestiture of assets and will serve as chief liaison with the Federal Reserve Bank of New York. She reports to AIG
Chairman and Chief Executive Officer Edward M. Liddy.
Richard H. Booth, previously AIG Senior Vice President and Chief Administrative Officer, has been named Vice Chairman,
Transition Planning and Chief Administrative Officer. Mr. Booth will be responsible for restructuring AIG's corporate center,
overseeing the separation of companies being sold by AIG and executing AIG's operational transition to its new organizational
structure. Mr. Booth will continue with his current responsibilities including AIG's global operations and systems, corporate
administration, corporate research and development, and a variety of special projects. He will also continue to serve as Chairman
of HSB Group, Inc. (HSB) until it is sold. Mr. Booth also reports to Mr. Liddy.
Mr. Liddy said that Ms. Reynolds and Mr. Booth are both well prepared to play key roles in turning around AIG.
"Paula brings to AIG deep experience, not only as an insurance industry leader, but also as someone who has successfully
realigned organizations to meet new challenges," Mr. Liddy said. "She has earned a reputation for working collaboratively with
government and regulatory officials to achieve mutual goals."
Mr. Liddy also recognized Mr. Booth's successful career in the insurance industry - notably with HSB, the Travelers Corp. and the
Phoenix Companies - and his particular strengths in managing complex organizations. "In his brief tenure as AIG's Chief
Administrative Officer, Dick has made tremendous progress in improving efficiency and reducing costs," Mr. Liddy said.
"Both of these executives will serve us well as we restore AIG as a competitive enterprise that contributes to the economy and
returns value to taxpayers and shareholders."
Ms. Reynolds was named Safeco President and Chief Executive Officer in January 2006 and Chairman in May 2008. Prior to that,
she was Chairman, President and CEO of AGL Resources, an Atlanta-based energy holding company. Before joining AGL
Resources, Ms. Reynolds spent 20 years in the energy business in various executive positions. She has served on a number of
public boards, including Andarko Petroleum and Delta Airlines. She graduated with highest honors in economics from Wellesley
College.
Richard Booth was named AIG Senior Vice President and Chief Administrative Officer in June 2008 in addition to his
responsibilities as Chairman of HSB. Mr. Booth served as President and CEO of HSB from 2000 through 2007. Prior to joining HSB,
he spent 30 years in various insurance industry positions, including President, Chief Operating Officer and Director of The
Travelers Corporation, and Executive Vice President and a Director of the Phoenix Companies. Mr. Booth is a CPA, Chartered Life
Underwriter and Chartered Financial Consultant. He received his bachelor's and master's degrees from the University of Hartford's
Barney School of Business.
American International Group, Inc. (AIG), a world leader in insurance and financial services, is the leading international insurance
organization with operations in more than 130 countries and jurisdictions. AIG companies serve commercial, institutional and
individual customers through the most extensive worldwide property-casualty and life insurance networks of any insurer. In
addition, AIG companies are leading providers of retirement services, financial services and asset management around the world.
AIG's common stock is listed on the New York Stock Exchange, as well as the stock exchanges in Ireland and Tokyo.
Source: American International Group, Inc.
http://ir.aigcorporate.com/phoenix.zhtml?c=76115&p=irol-newsArticle&ID=1216730&hi... 10/24/2008
A {juestlOn tor A.l.U. - Where DId the Cash Uo'! - NYTimes.com
Page I of 4
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October 30, 2008
A Question for A.I.G.: Where Did the Cash Go?
By MARY WILLIAMS WALSH
The American International Group is rapidly running through $123 billion in emergency lending provided by
the Federal Reserve, raising questions about how a company claiming to be solvent in September could have
developed such a big hole by October. Some analysts say at least part of the shortfall must have been there all
along, hidden by irregular accounting.
"You don't just suddenly lose $120 billion overnight," said Donn Vickrey of Gradient Analytics, an
independent securities research firm in Scottsdale, Ariz.
Mr. Vickrey says he believes ALG. must have already accumulated tens of billions of dollars worth oflosses
by mid-September, when it came close to collapse and received an $85 billion emergency line of credit by the
Fed. That loan was later supplemented by a $38 billion lending facility.
But losses on that scale do not show up in the company's financial filings. Instead, ALG. replenished its
capital by issuing $20 billion in stock and debt in May and reassured investors that it had an ample cushion.
It also said that it was making its accounting more precise.
Mr. Vickery and other analysts are examining the company's disclosures for clues that the cushion was
threadbare and that company officials knew they had major losses months before the bailout.
Tantalizing support for this argument comes from what appears to have been a behind-the-scenes clash at
the company over how to value some of its derivatives contracts. An accountant brought in by the company
because of an earlier scandal was pushed to the sidelines on this issue, and the company's outside auditor,
PricewaterhouseCoopers, warned of a material weakness months before the government bailout.
The internal auditor resigned and is now in seclusion, according to a former colleague. His account, from a
prepared text, was read by Representative kl~n!'Y-A. Waxl1l.l!!l, Democrat of California and chairman of the
House Committee on Oversight and Government Reform, in a hearing this month.
These accounting questions are of interest not only because taxpayers are footing the bill at A.LG. but also
because the post-mortems may point to a fundamental flaw in the Fed bailout: the money is buoying an
insurer - and its trading partners - whose cash needs could easily exceed the existing government backstop
if the housing sector continues to deteriorate.
Edward M. Liddy, the insurance executive brought in by the government to restructure ALG., has already
said that although he does not want to seek more money from the Fed, he may have to do so.
Continuing Risk
http://www.nytimes.com/2008/1 0/3 O/business/3 Oaig.html ? J= 1 &oref=slogin&ref=busine... 10/3012008
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An estimated $13 billion of the money was needed to make good on investment accounts that AI. G. typically
offered to municipalities, called guaranteed investment contracts, or G.I.C.'s.
When a local government issues a construction bond, for example, it places the proceeds in a guaranteed
investment contract, from which it can draw the funds to pay contractors.
After the insurer's credit rating was downgraded in September, its G.I.C. customers had the right to pull out
their proceeds immediately. Regulators say that AI.G. had to come up with $13 billion, more than half of its
total G.I.C. business. Rather than liquidate some investments at losses, it used that much ofthe Fed loan.
For $59 billion of the $72 billion AI.G. has used, the company has provided no breakdown. A block of it has
been used for day-to-day operations, a broad category that raises eyebrows since the company has been
tarnished by reports of expensive trips and bonuses for executives.
The biggest portion of the Fed loan is apparently being used as collateral for AI.G.'s derivatives contracts,
including credit-default swaps.
The swap contracts are of great interest because they are at the heart of the insurer's near collapse and even
AI.G. does not know how much could be needed to support them. They are essentially a type of insurance
that protects investors against default of fixed-income securities. AI.G. wrote this insurance on hundreds of
billions of dollars' worth of debt, much of it linked to mortgages.
Through last year, senior executives said that there was nothing to fear, that its swaps were rock solid. The
portfolio "is well structured" and is subjected to "monitoring, modeling and analysis," Martin J. Sullivan,
AI.G.'s chief executive at the time, told securities analysts in the summer of 2007.
Gathering Storm
By fall, as the mortgage crisis began roiling financial institutions, internal and external auditors were
questioning how AI.G. was measuring its swaps. They suggested the portfolio was incurring losses. It was as
if the company had insured beachfront property in a hurricane zone without charging high enough
premmms.
But AI.G. executives, especially those in the swaps business, argued that any decline was theoretical because
the hurricane had not hit. The underlying mortgage-related securities were still paying, they said, and there
was no reason to think they would stop doing so.
AI.G. had come under fire for accounting irregularities some years back and had brought in a former
accounting expert from the Securities and Exchange Commission. He began to focus on the company's
accounting for its credit-default swaps and collided with Joseph Cassano, the head ofthe company's financial
products division, according to a letter read by Mr. Waxman at the recent Congressional hearing.
When the expert tried to revise AI.G.'s method for measuring its swaps, he said that Mr. Cassano told him, "I
have deliberately excluded you from the valuation because I was concerned that you would pollute the
process."
http://www.nytimes.com/2008/10/30/business/30aig.html? _r= l&oref=slogin&ref=husine... 10/30/2008
Cuomo Asks for Pay Data From Banks - NYTimes.com
Page 1 of2
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October 30, 2008
Cuomo Asks for Pay Data From Banks
By BEN WHITE and JONATHAN D. GLATER
Wall Street is coming under mounting political pressure to cut bonuses for top executives, traders and
bankers in what was already expected to be a down year for pay.
Under pressure from members of Congress to curtail compensation, banks now face a new threat from
ADdrew_M. CUQIDQ, the New York attorney general, who sent a letter on Wednesday to nine big financial
institutions receiving government aid.
Mr. Cuomo gave the companies a week to provide a "detailed accounting regarding your expected payments
to top management in the upcoming bonus season."
That could prove difficult for the banks, which typically do not complete bonus pools until later this month at
the earliest.
Mr. Cuomo's letter also warned that payments worth more than the services provided by executives might
violate New York law.
The letter follows one sent earlier this week to the same banks by Henry A. Waxman, the California Democrat
who is chairman of the House Committee on Oversight and Government Reform, urging them not to use any
government money for bonuses or other payments and asking for data on pay going back to 2006.
The demands from Mr. Cuomo and Mr. Waxman reflect an increased concern among lawmakers and
regulators about payments to executives, which have drawn strong public reactions since the government
approved a $700 billion bailout to stabilize the financial system. Other politicians have also held private
meetings with bank executives to warn them that big bonus figures this year would create enormous political
problems.
Any lawsuit based on the law cited by Mr. Cuomo would take some creative legal footwork, said Edward R.
Morrison, a law professor at Columbia University. The law permits creditors to try to recover or block
payments. "You have to find a way for the attorney general, for Cuomo, to shoehorn himself into the position
of a creditor," Professor Morrison said. "It's not implausible." The attorney general could act under the law,
Professor Morrison said, if New York state pension funds hold bonds issued by the nine companies. Mr.
Cuomo might also claim jurisdiction over any of the companies that might owe taxes to N ew York.
The attention raised questions on Wall Street, because bonus payments are already expected to be as much as
50 percent smaller than last year and perhaps even far smaller at banks that posted big losses. The N ew York
State comptroller estimated that Wall Street paid $33.2 billion in bonuses for 2007, compared with $33.9
billion the year before.
http://www.nytimes.com/2008/l 0/3 O/business/3 Opay .html ?ref=business&pagewanted=print 10/30/2008
Cuomo Asks for Pay Data From Banks - NYTimes.com
Page 2 of2
Even banks like Morgan Stanley and Goldman Sachs, which produced decent profits this year, are expected
to award significantly smaller bonuses.
Lloyd C. Blankfein, the chief executive of Goldman Sachs, received bonus and stock awards worth about
$68.5 million last year, while Goldman's co-presidents got just slightly less. Those numbers will not be
repeated. John J. Mack, Morgan Stanley's chief executive, declined to take a bonus last year.
Last week, Mr. Cuomo reached an agreement with the American International Group, the insurance
conglomerate that has received tens of billions of dollars in loans from the Federal Reserve, to freeze millions
in payments to former executives. His latest move appears to expand the inquiry into executive compensation
at companies participating in the government's financial bailout program.
"Taxpayers are, in many ways, now like shareholders of your company," Mr. Cuomo wrote, "and your firm
has a responsibility to them."
In his letter, Mr. Cuomo asked specifically for a description of bonus pools for this year, a description of how
money in those pools would be allocated, an explanation of how that allocation might have changed since
each company received money under the federal Troubled Asset Relief Program and a description of bonuses
paid to executives earning more than $250,000 in 2006 and 2007.
Mr. Cuomo's letter was sent to J1~J1.k9fAID~d~g, H~I1lLoLNeWYQJ;:kM~1lQ!1, CitigrOM);!, Goldman Sachs,
JPMorgan Chase, Merrill Lynch, Morgan Stanley, State Street and Wells Fargo, all of which received capital
injections from the government as part of a wide-reaching program to stabilize the financial system.
Representatives of Morgan Stanley, JPMorgan Chase, Bank of America and Wells Fargo declined to comment
on the letter.
Citigroup said it would "cooperate with federal and state inquiries about our global expenditures for wages,
health insurance and other benefits, which we believe reflect compensation best practices. In addition, we
will of course adhere to applicable legal and regulatory requirements, including those in the federal
government investment program, such as restrictions on executive compensation."
In an e-mail message, a spokeswoman for State Street said the bank was "carefully evaluating" Mr. Cuomo's
request.
Other financial institutions did not return calls.
Coovriaht 2008 The New York Times Comoanv
Privacy Policv I Search I Corrections I
First Look I ~ I Contact Us I Work for Us I ~
http://www.nytimes.com/2008/ 10/3 O/business/3 Opay .html ?ref=business&pagewanted=print 10/30/2008
Page 1 of 2
Randy Musgraves - Central Central Costa SD - Fiduciary Liability
From:
To:
Date:
Subject:
"Marilyn Schley" <MSchley@alliantinsurance.com>
<Sdeutsch @centralsan.dst.ca.us>, <rmusgraves @centralsan.dst.ca.us>
10/28/2008 10:08 AM
Central Central Costa SD - Fiduciary Liability
Good Morning -
We have been ask to forward this correspondecne from AIG to all Fiduciary clients.
_ . Commercial
, Insurance
October 24, 2008
Dear Business Colleagues,
AIG Commercial Insurance's (AIGCI) commitment to policyholders is never more evident than when claims are filed. Our willingness and ability
to pay claims remains unassailable - even in the face of our parent company's challenges. In fact, in the past 45 days, Lexington Insurance
Company, a member of AIGCI, has advanced $130 million in claim payments on nearly 2,300 claims for customers devastated by Hurricanes Ike
and Gustav. Below are more facts that I think are important to note about AIGCl's claims operations:
. AIGCI stands ready to pay claims, making on average $73 million in policyholder claims payments every single business day.
. There is no substitute for experience. Nearly 6,000 dedicated AIGCI claims professionals average more than 10 years of experience.
. AIGCl's in-house claims experts manage the most highly technical and complex claims situations from severity specialty and workers'
compensation claims to primary casualty and directors' and officers' liability suits.
. More than 50 percent of the staff in most of our specialty claims areas are attorneys. These professionals provide our operations with in-
depth knowledge of laws and regulations, real world experience, and an ability to identify, and help circumvent, developing loss trends.
. Best-in-c1ass, global resources are on-the-ground for the benefit of our clients, including premier law firms, investigators, medical
management professionals, forensic specialists and others.
. The latest technology streamlines claims reporting and expedites resolution, including paperless claims handling and convenient 24/7
online access to report claims.
When clients need us most, the promise to pay covered claims and provide exemplary service is a priority at AIGCI. I would ask you to compare
our in-house claims resources to others. I am confident that you will find our claims team is second to none.
For more information on our market-leading claims capabilities, contact your local AIGCI representative, your broker or visit:
www.<;!ig.com/commercialinsurance. Additionally, an updated Fact Sheet is available on the latest AIGCI developments.
Thank you for your continued support.
file://C:\Documents and Settings\rmusgraves\Local Settings\ Temp\GW} 0000 1.HTM
10/28/2008
Page 2 of 2
~I
John Q. Doyle
President and CEO
AIG Commercial Insurance
Copyright @ 2008 Amer~i!JLlDtern_ational Group. Inc. All rights reserved.
175 Water St. New York NY 10038
Thanks & Best Regards,
Marilyn P. Schley, AU
Account Manager
Alliant Insurance Services, Inc.
600 Montgomery Street, 9th Floor
San Francisco, CA 94111
Direct: 415.403. 1432
Fax: 415.402.0773
E-mail: mschlev@ alllantias.UfJ1QC(!2,-CQill
This e-mail and all attachments to it are for the sole use of the intended recipients and
may contain proprietary information and trade secrets of Alliant Insurance Services, Inc.
and its subsidiaries. This e-mail may also contain information which is confidential or
which is protected from disclosure by privilege. Any unauthorized use, disclosure or
distribution of this e-mail and its attachments is prohibited. If you are not the intended
recipient, let us know by reply e-mail and then erase and destroy all electronic or other
copies of this message.
file://C:\Documents and Settings\rmusgraves\Local Settings\Temp\GW } 0000 1.HTM
10/28/2008
5.d.
ARTICLE ON CalPERS
State publi~ worker pension fund takes big hit
Page 1 of 4
SFG8ttI.com
State public worker pension fund takes big hit
Carolyn Said, Chronicle Staff Writer
Monday, December 8, 2008
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(12-07) 18:55 PST -- The market downturn has walloped the nation's largest pension fund.
The California Public Employees' Retirement System portfolio has lost 31.1 percent of its value
since peaking last fall, a staggering $81.4 billion drop. CalPERS officials say a "rainy day fund" is
helping to defray the losses - for now. But if the market slump continues, they will hit up state and
local employers for more money. That's a painful prospect as California struggles through a fiscal
emergency and municipalities cope with the foreclosure crisis and economic downturn.
The good news for the 1.6 million CalPERS retirees, workers and family members is that their
pension benefits are guaranteed.
"Obviously, ifthere is a downturn, there are going to be ramifications," said Rob Feckner, president
of the CalPERS board. "Our job is to make sure we protect the system and the funds that are there
for the pensioners."
The CalPERS portfolio hit a high point of $260.6 billion on Oct. 31, 2007. As of market close on
Dec. 4, it had fallen to $179.2 billion - almost back to its value in mid-2000.
The portfolio drop comes amid a time of extraordinary financial turmoil, with wrenching
contractions on Wall Street that have wiped out trillions of dollars of shareholder value. The Dow
Jones Industrial Average has dropped 39.8 percent during the same period that the CalPERS
portfolio fell 31.1 percent, for instance.
Unlike many pension funds, CalPERS can require employers to dig deeper when needed. Since
those employers are public entities, their funds come from taxpayer dollars. This fall, CalPERS
warned that it might ask for more money from the state starting in July 2010 and from local-
government employers starting in July 2011.
If the current losses are sustained, CalPERS said the increases could be from 2 to 5 percent of
payrolls. That's a hefty rise on top of the 12.7 percent of payrolls employers already contribute to
the pension fund. (Employees contribute from 5 to 7 percent of their salaries.) If losses are more
moderate, then the potential increases would be smaller. Although it seems highly unlikely, if the
fund finishes the year in positive territory, employers could even see their pension obligations
reduced.
htto://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/12/08/MN 1314IRLO.DTL&type=pr... 12/8/2008
State public worker pension fund takes big hit
Page 2 of4 .
"We wanted to give an early warning so they had plenty of time to prepare if the worst were to
happen," said Pat Macht, a spokeswoman for the agency in Sacramento.
Long-range focus
She and other experts emphasized that CalPERS focuses on long-range planning.
"It's important to remember that public pension funds exist over decades and their liabilities will
come due over decades, which provides the time for markets to recover and funding levels to
recover," said Keith Brainard, research director ofthe National Association of State Retirement
Administrators. "Yes, this has been a precipitous market decline, but because (CaIPERS and other
retirement plans) have plans and mechanisms to smooth out peaks and valleys, the actual effect is
likely to be far less sharp."
The nation's second-largest public pension fund is the California State Teachers' Retirement
System with 794,812 members. It, too, has sustained heavy losses in the market downturn. Its
portfolio fell 20.3 percent, or $32.9 billion from June 30 to Oct. 31, going from $162.2 billion to
$129.3 billion.
CalSTRS' defined-benefit pensions are guaranteed just like those of CaIPERS. Unlike CaIPERS,
however, the teachers' fund does not have the authority to ask for increased contributions from
employers. Any contribution changes would have to be enacted by the Legislature and approved by
the governor. CalSTRS is funded by school districts contributing 8.25 percent of payroll, the state
general fund paying in a tad over 2 percent of payroll, and members contributing 8 percent of
salaries.
"As a patient, long-term investor, we're built to make it through these ups and downs," said Sherry
Reser, a CalSTRS spokeswoman in Sacramento. "We're a forever investor. There is going to be a
recovery; we've done this before."
Both funds use various "smoothing" mechanisms to help minimize the impact of market volatility.
During four years of double-digit growth from 2004 to 2007, CalPERS reserved 14 percent of its
total portfolio to hedge against drops, Macht said.
"If we had not done this, it would have been considerably worse," she said. "The impacts of today
are being softened considerably."
However, that cushion is largely depleted. For the fiscal year ended June 30, 2007, the portfolio
was down 5 percent. The "rainy day" funds were used to make up that shortfall and provide the
returns CalPERS would have experienced if the portfolio had risen 7.75 percent.
httn'//vJur\.\l "fO::ltf' C'()m/C'oi-hin/;lrtidp c.oi?f=/c./;l/?OOR/12/OR/MN1114TRLO. DTL&tvoe=of... 12/8/2008
::'tate public worker pension fund takes big hit
, .
Page 3 of 4
The portfolio fell an additional 25 percent from June 30 to Dec. 4. There are still almost seven
months in CaIPERS' fiscal year, but ifthe results are still negative on June 30, then it will ask
agencies to ante up.
Hoping for best
California Treasurer Bill Lockyer, who sits on the CalPERS board, said he is hopeful that market
conditions will improve by then so it won't have to ask for more money.
But if agencies do have to dig deeper to fund pension obligations, "this would be an added burden,"
he said. "It means both state and local government employers would be spending more on
retirement than on some immediate program needs. Paying the commitments to pension
obligation is a high priority, and it would take precedence over many other spendings."
Where would the money come from? Government has just two choices, Lockyer said. "You either
cut some other program expenditures or you tax something."
Critics say that underscores their basic gripe with public pensions: Taxpayers end up footing the
bill.
"This is another example of why, over time, all public entities in California need to think seriously
about changing from the defined benefit to the defined contribution plan," said Jon Coupal,
president of the Howard Jarvis Taxpayers Association in Sacramento. "With defined contribution
plans, which can still be quite generous, the taxpayers' obligation ends when those contributions
are made. You don't get in a situation like we have right now, where the economy is heading in a
downward spiral and you ramp up taxpayer obligations to meet those pension obligations."
Attempts to change p~blic pensions meet strong opposition from government workers and their
unions. In 2005, Gov. Arnold Schwarzenegger proposed reforming California public pensions with
a 401(k)-style plan, but later withdrew the idea.
'It's going to get worse': Obama expects the economy to dive further before improving. A3
About calpers
Mission: Manages pension and health benefits for public workers from about 2,300 California
public entities. Pensions, which are guaranteed by law, are defined benefits determined by a
retiree's salary, length of service and age.
Members: 1.6 million public employees, retirees and their families (1,126,133 active and inactive
members; 476,252 retirees). Members are drawn about one-third each from state government,
schools and local government agencies.
http://www.sfgate.comlcgi-bin/article.cgi?f=/c/a/2008/12/08/MN 1314IRLO.DTL&tvoe=or... 12/8/2008
State public worker pension fund takes big hit
Page 4 of.'4'
Income: Participating agencies contribute an average of 12.7 percent of payroll. Workers
contribute 5 to 7 percent of their salaries.
Source: CalPERS
Possible changes in employer contributions
Depending on investment results when the fiscal year ends on June 30,2009, CalPERS may
request additional contributions from employers, which are taxpayer-funded government entities.
So far this fiscal year (from July 1 to Dec. 4), the investment return is -25%. Contribution decreases
are smaller with larger returns because CalPERS would hold back some gains as a cushion for
future downturns.
2008-09 investment return Change in employer contributions as percentage of payroll
-20% 2% to 5%
-15% 1% to 2%
-10% 0.2% to 0.5%
0 0.1% to 0.2%
7.75% -0.1%
10% -0.1% to -0.2%
20% -0.2% to -0.5%
Source: CalPERS
E-mail CarolynSaidatcsaid@sfchronicle.com.
http://sfgate.com/cgi-bin/article. cgi?f= / c/a/2008/12/08/M N 1314IRLO. DTL
This article appeared on page A-I of the San Francisco Chronicle
h++..../I"n"'" "f'n<>t", N........./('n;_h;n/"'rl;('\'" "o;?f=/,,/<>!?()()RI1 ')mR/MN1114TRT J) nTT .&tvne=nr 12/H/200S
GOVERNORSCHWARZENEGGER
DECLARES FISCAL EMERGENCY
FOR CALIFORNIA
5.9.
Central Contra Costa Sanitary District
December 12,2008
FROM:
BUDGET AND FINANCE COMMITTEE
JAMES KELLY aI~
RANDALL MUSdAAVES/flt1\M
DEBBIE RATCLIFF ilL
TO:
VIA:
SUBJECT: GOVERNOR SCHWARZENEGGER DECLARES FISCAL EMERGENCY
Staff has been following the economic crisis in the State of California. Various articles
and information are attached including a Proclamation by the Governor declaring a
fiscal emergency and calling a legislative special session to address this emergency.
Staff reviewed what Proposition 1A allows during a proclaimed state budget emergency.
Prop 1 A was intentionally written to allow flexibility and provide the Governor with
options in the event of a significant state fiscal hardship. The Legislature may borrow
local property taxes only under the following conditions:
- A separate urgency bill must be passed by a 2/3 vote of Legislature
- The Legislature must pass a law to fully repay the loan with interest within three fiscal
years
- New loans are prohibited until prior loans have been repaid
- No more that two loans may occur during any ten-year period
- The loan amount is capped at 8% of the local government property tax amount
As of the writing of this memo, there has not been a separate urgency bill that has been
submitted for a vote, however, the Legislature could still propose an urgency bill to
address the current and future State deficit. The Governor has yet to state that he
intends to borrow funds from local agencies. Currently, Governor Schwarzenegger has
created a bipartisan Commission on the 21st Century Economy to re-examine and
modernize California's out-of-date revenue laws and provide for a fair and equitable
revenue structure.
Staff will continue to monitor the situation and will inform the Board should anything
change.
H:\Govemor Schwarzenegger.doc
--.---.----.---.------^'--'.-..-.-...---.'.--...-".''',"".,.",._-~._._-,...,"~.,._._..._.,._-,,--_.._--_._--_.-,~_._"-_...-._-_._.__....._--,--,_._..._..._._"
A PROCLAMATION
BY THE GOVERNOR OF THE STATE OF CALIFORNIA
WHEREAS on this date, pursuant to Section 10(f) of Article IV of the Constitution
of the State of California, I have proclaimed a fiscal emergency; and
WHEREAS on this date, I am submitting to the Legislature proposed legislation
to address that fiscal emergency; and
WHEREAS this extraordinary occasion having arisen and now existing, it
requires that the Legislature of the State of California be convened in extraordinary
session.
NOW, THEREFORE, I, ARNOLD SCHWARZENEGGER, Governor of the State
of California, by virtue of the power and authority vested in me by in accordance with
Section 1 O(f) of Article IV of the Constitution of the State of California, do hereby
convene the Legislature of the State of California to meet in extraordinary session at
Sacramento, California on the 1 st day of December 2008, at a time to be determined, to
consider and act upon legislation to address the fiscal emergency proclaimed by me this
day.
IN WITNESS WHEREOF I have hereunto
set my hand and caused the Great Seal of
the state of California to be affixed this 1st
day of December, 2008.
ARNOLD SCHWARZENEGGER
Governor of California
ATTEST:
DEBRA BOWEN
Secretary of State
A PROCLAMATION
BY THE GOVERNOR OF THE STATE OF CALIFORNIA
WHEREAS, due to developments in the worldwide and national financial
markets, and continuing weak performance in the California economy, it is estimated
that there will be a General Fund revenue shortfall of at least $11.2 billion for the 2008-
09 fiscal year. Additionally, the weakening economy will increase the expenditures for
health and social services beyond what is provided for in the Budget Act.; and
WHEREAS on November 6, 2008, due to concerns regarding dramatically
declining revenues, I issued a Special Session Proclamation and convened the
Legislature of the State of California to meet in extraordinary session to address the
fiscal crisis that California faces; and
WHEREAS the Legislature failed during that Special Session to enact any bills to
address the State's significant economic problems; and
WHEREAS immediate and comprehensive action is needed to address the
revenue shortfall facing the State of California; and
WHEREAS within months the State will not be able to meet all of its expenses,
outside of debt service, without immediate and comprehensive action; and
WHEREAS failure to substantially reduce the deficit carried forward from the
current fiscal year into the next fiscal year willli,kely prevent the State from being able
to finance the cashflow shortages of billions of dollars that will occur in July and August,
thus making it likely that this fiscal year's deficit will cause the State to miss payroll and
school payments at the beginning of 2009; and
WHEREAS, according to the Legislative Analyst, next fiscal year's budget will be
even more out of balance than the current year budget and balancing the 2009/2010
budget will be immeasurably more difficult if actions to reduce spending trends and
increase revenue trends are not put into place immediately,
NOW, THEREFORE, I, ARNOLD SCHWARZENEGGER, Governor of the State
of California, in accordance with Section 10(f) of Article IV of the Constitution of the State
of California, HEREBY DETERMINE that General Fund revenues for Fiscal Year 2008-
09 will decline substantially below the estimate of General Fund revenues upon which
the 2008 Budget Act was based.
I, ARNOLD SCHWARZENEGGER, Governor of the State of California, HEREBY
DECLARE that a fiscal emergency exists.
I, ARNOLD SCHWARZENEGGER, Governor of the State of California, HEREBY
IDENTIFY THE NATURE OF THIS FISCAL EMERGENCY to be the projected budget
imbalance and insufficient cash reserves for Fiscal Year 2008-09 and the projected
insufficient cash reserves and potential budgetary and cash deficit in Fiscal Year 2009-
10 which are anticipated to result from the dramatically lower than estimated General
Fund revenues in Fiscal Year 2008-09.
FURTHER, on this day, as required by Section10(f) of Article IV of the
Constitution of the State of California, I will cause the Legislature to assemble in special
session to address this fiscal emergency, and I will submit to the Legislature proposed
legislation to address this fiscal emergency.
IN WITNESS WHEREOF I have hereunto
set my hand and caused the Great Seal of
the State of California to be affixed this
1 stday of December, 2008.
ARNOLD SCHWARZENEGGER
Governor of California
ATTEST:
DEBRA BOWEN
Secretary of State
A PROCLAMATION
BY THE GOVERNOR OF THE STATE OF CALIFORNIA
WHEREAS, an extraordinary occasion has arisen and now exists requiring that the
Legislature of the State of California be convened in extraordinary session.
NOW, THEREFORE, I, ARNOLD SCHWARZENEGGER, Governor of the State of
California, by virtue of the power and authority vested in me by Section 3(b) Article IV of the
Constitution of the State of California, do hereby convene the Legislature of the State of
California to meet in extraordinary session at Sacramento, California on the 1 st day of
December 2008, at a time to be determined, for the following purpose and to legislate upon the
following subjects:
1. To consider and act upon legislation to address the economy, including but not
limited to efforts to stimulate California's economy, create and retain jobs, and
streamline the operations of state and local governments.
2. To consider and act upon legislation to address the housing mortgage crisis.
3. To consider and act upon legislation to address the solvency of the
Unemployment Insurance Fund.
IN WITNESS WHEREOF I have hereunto
set my hand and caused the Great Seal of
the State of California to be affixed 1st day
of December, 2008.
ARNOLD SCHWARZENEGGER
Governor of California
ATTEST:
DEBRA BOWEN
Secretary of State
State deficit nearly $15 billion, governor says
Page 1 of2
SFG.te.com
. '
State deficit nearly $15 billion, governor says
Matthew Vi, Chronicle Sacramento Bureau
Wednesday, December 10, 2008
(12-10) 13:15 PST SACRAMENTO -- California's budget deficit for the current fiscal year has
ballooned to nearly $15 billion, Gov. Arnold Schwarzenegger said Wednesday, with the state
overspending its revenue by about $40 million a day.
Without quick action by the Legislature to fix the budget's gaping hole, the state will finish the
fiscal year $14.8 billion in the red, the governor said at a news conference at the Capitol.
The deficit is far worse than the $11.2 billon shortfall that Schwarzenegger announced last month,
but the deteriorating economy is likely to make the problem even worse next year, Schwarzenegger
said.
Schwarzenegger said he's frustrated by the Legislature's inability to find a compromise solution.
Republicans have been standing firm on their vow not to support taxes, while Democrats have
argued that spending cuts and taxes should be considered.
"What is amazing is that legislators act as if we have $30 billion in surplus," he said.
Last month, Schwarzenegger called on lawmakers to convene a special legislative session to tackle
the budget crisis, but the Legislature failed to find a compromise before the session ended on Nov.
30.
"They met, they debated, they postured and they did nothing," Schwarzenegger said today. "If that
isn't a shameful performance, I don't know what is."
Schwarzenegger called another special session on Dec. 1, the first day of the new legislative session
with newly-elected lawmakers. The Legislature on Monday held an unprecedented joint session to
hear from the state's leading finance officials on the state's fiscal picture, which was painted grim at
best.
The state Senate began holding committee hearings today on the budget crisis and the Assembly is
expected to begin Thursday.
"Legislators had an earful from our finance experts ... and it's the same sad news that I've been
saying for months now," the governor told reporters this morning.
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/12/1 0/BAAM14LL07 .DTL&type=... 12/10/2008
State deficit nearly $15 billion, governor says
Page 2 of2
.schwarzenegger said he will ask legislative leaders to meet with him Thursday to restart
negotiations.
The governor even unveiled a large poster board, titled "Legislature's Failure to Act," with a digital
clock that calculates every the state's increasing budget hole by the second.
"Every second, the state is losing $470, every minute $28,000 and every hour $1.7 million, and
every day $40 million," Schwarzenegger said. "That is approximately more than $1 billion a month
iflegislators don't act."
As of 11:30 a.m. today, the clock showed the deficit at more than $6.6 billion. Schwarzenegger said
he plans to place the board in the hallway of the state Capitol outside his office on the first floor.
E-mail MatthewYiatmyi@sfchronicle.com.
http://sfgate.com/cgi-bln/article. cgi?f=/c/a/2008/ 12/ 10/BAAM 14LL07. DTL
http://www.sfgate.com/cgi-bintartic1e.cgi?f=/c/a/2008/12/l O/BAAM 14LL07 .DTL&type= ... 12/1 0/2008
Budget crisis could stall projects in Bay Area
Page 1 of 4
SFG.te.com
Budget crisis could stall projects in Bay Area
Matthew Vi, Michael Cabanatuan,Jill Tucker, Chronicle Staff Writers
Wednesday, December 10, 2008
..
(12-09) 20:37 PST -- Bay Area officials said Tuesday the region will be devastated if work on
school renovations and transportation projects is halted or delayed because of Gov. Arnold
Schwarzenegger and the Legislature's inability to solve the state's huge budget deficit.
"Talk about the Grinch that stole Christmas," said Dennis Fay, executive director of the Alameda
County Congestion Management Agency, which is overseeing freeway carpool-lane projects that
could be in jeopardy.
<<Related story: City workers, poor lose out in S.F. budget cuts.>>
Several Bay Area public works projects would be affected if state financing runs dry in the coming
days, including a $950,000 job to resurface a freeway ramp in Oakland, $6 million in
modernization work at Jefferson Elementary School in San Francisco and the $420 million fourth
bore in the East Bay's Caldecott Tunnel.
The construction of the eastern span of the Bay Bridge would not be affected because it is funded by
bonds that are backed by bridge tolls rather than the state's general fund.
On Monday, state Treasurer Bill Lockyer warned state lawmakers during an unprecedented joint
legislative session on the state's fiscal crisis that nearly $5 billion worth of financing for hundreds
of building projects throughout the state may grind to a halt in days without a budget fix.
Finding investors to buy the state's voter-approved bonds has become nearly impossible as a result
of the worldwide credit crunch and the state's worsening budget mess, Lockyer said.
Getting worse
California is in the midst of an $11.2 billion revenue shortfall for the current fiscal year that ends on
June 30, and the numbers are expected to be much worse when Schwarzenegger unveils his budget
proposal in January.
On Dec. 1, the first day of the new legislative session, Schwarzenegger declared a fiscal emergency
and called a special session. Lawmakers have until Jan. 15 to send a package of solutions to the
governor for his signature. If they miss the deadline, they can't consider any bills other than those
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/12/1 0/MN3K 14L 1 EF .DTL&type= ... 12/10/2008
Budget crisis could stall projects in Bay Area
Page 2 of 4
that address the budget deficit.
The state Assembly and Senate are set to hold committee hearings beginning today, but the
problem is worsening each day, the state's finance officials say.
State Controller John Chiang announced Tuesday that the state could run out of cash in February
rather than mid-March because state revenue in November came in $1.3 billion lower than
expected.
California's looming cash crunch is the primary reason for Lockyer's warning that the state may
need to halt or delay public works projects funded by voter-approved bonds that are backed by the
state's general fund.
Initial financing for those projects comes from the state's Pooled Money Investment Account,
which is a combination of the state's general fund, special funds and deposits from local
governments. The money is repaid by bond sales.
But the current credit-market freeze, coupled with California's fiscal crisis, has made it nearly
impossible for the state to sell voter-approved bonds for the state's public works projects, Lockyer
said.
The treasurer wants to turn off the financing spigot so the state can save as much cash as possible
to pay its bills.
No decision yet
A final decision on whether to halt financing for the local construction projects will be made Dec. 17
by the little-known Pooled Money Investment Board, which is made up of Lockyer, Chiang and
Schwarzenegger's finance director, Mike Genest.
While Lockyer said the state needs to stop financing projects until lawmakers fix the budget,
representatives of Chiang and Genest refused to say Tuesday whether their bosses support the
treasurer's conclusion.
But there may be little choice but to hold off on financing projects, at least for now, because the
state will simply run out of money, said Tom Dresslar, a spokesman for Lockyer.
A halting of state funds would immediately throw a wrench into many projects that are counting on
state money, local officials said.
Jefferson Elementary School in San Francisco is in midst of a $6 million modernization project
that includes a new elevator, upgrades to plumbing and electrical systems, and improved access for
the disabled.
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/12/1 0/MN3 K 14L 1 EF.DTL&type=... 12/1 0/2008
Budget crisis could stall projects in Bay Area
Page 3 of 4
The San Francisco Unified School District is waiting for $3.4 million from the state to help pay for
the work at Jefferson, which hasn't been renovated in 25 years, said Gentle Blythe, a district
spokeswoman.
Other Bay Area school districts that are in line to receive state funds for renovation projects are
West Contra Costa Unified ($11 million) and Livermore Unified ($5 million).
Bay Area transportation officials also reacted with concern, frustration and anger after learning
that the state budget crisis could stem the flow of funds for planned construction projects.
The long-awaited fourth bore for the Caldecott Tunnel, for which construction is tentatively
scheduled to start in the fall, and the carpool lanes being added to Highway 101 in Sonoma County
are the biggest improvements on a list of $1.6 billion in endangered projects identified by Caltrans
statewide. Sixteen Bay Area projects account for $468 million.
Work can't begin
Bob McCleary, executive director of the Contra Costa Transportation Authority, said while the state
funds a part of the $420 million Caldecott Tunnel project, work can't begin until all the money is
available.
"We can't build this in phases," he said. "It's basically one big hole in the hill. If we don't have the
money secured, we can't advertise and start the project."
McCleary and Fay also fear that halting projects such as carpool lanes on eastbound Interstate 580
and southbound Interstate 680 would result in layoffs at a time when the state's unemployment
rate has increased above 8 percent.
"We could have to stop people from working," Fay said. "And just at the time we need to have
people working."
Where you'll feel the budget pain
Here are some public works projects that could be affected if state funds are halted:
Caldecott Tunnel {above}: $420 million to begin construction on a fourth bore in the tunnel.
Sonoma County: $61 million for carpool lane construction on Highway 101.
San Jose: $15 million for traffic-light synchronization.
Jefferson Elementary: $3-4 million for modernizing school in San Francisco.
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/12/1 0/MN3K 14L 1 EF .DTL&type= ... 12/1 0/2008
Budget crisis could stall projects in Bay Area
Page 4 of 4
San-Francisco: $1 million for widening the ramp at the Alemany Boulevard overcrossing.
Oakland: $950,000 to resurface ramps from Interstate 580 and Highway 24 to the 52nd Street
undercrossing in Oakland.
Source: State Treasurer, Caltrans, San Francisco Unified School District
E-mail thewritersatmyi@sfchronicle.com. mcabanatuan@sfchronicle.com and
jtucker@sfchronicle.com.
http://sfgate.com/cgi- bin/article .cgi ?f= / c/a/2008/ 12/ 1 O/M N3K 14L1 EF. DTL
This article appeared on page A - 1 of the San Francisco Chronicle
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/12/l 0/MN3K14L 1 EF.DTL&type=... 12/10/2008
GovernDr Arnold Schwarzenegger - Policy Update
Page 1 of 2
Randy Musgraves - Governor Schwarzenegger Calls New Legislature into a Prop 58
Special Session and Second Special Session to Address State's Economy
From:
To:
Date:
Subject:
"Governor's Mailing List" <DoNotReply@govnews.ca.gov>
<colette@centralsan.dst.ca.us>
12/1/2008 3:09 PM
Governor Schwarzenegger Calls New Legislature into a Prop 58 Special
Session and Second Special Session to Address State's Economy
POLICY UPDATE
BUDGET
Governor Schwarzenegger Calls New Legislature into a Prop 58 Special
Session and Second Special Session to Address State's Economy
After the previous legislature's inaction in both addressing the state's $11.2 billion current year revenue
shortfall and enacting economic stimulus in the last legislative special session, Governor Arnold
Schwarzenegger today declared a fiscal emergency for the state of California, allowing him to call a
Proposition 58 legislative special session to address this emergency. The Governor also called a second
legislative special session to address the state's economy. The Governor reiterated his call for a combination
of difficult spending cuts and new revenues to solve the state's revenue shortfall - and also reiterated his call
for the legislature to enact plans previously outlined by the Governor to stimulate job creation, address the
mortgage crisis and fix the state's Unemployment Insurance Fund.
"Without immediate action our state is headed for a fiscal disaster and that is why with more than two dozen
new legislators sworn in today - I am wasting no time in calling a fiscal emergency special session," Governor
Schwarzenegger. "We must act now to address the current year revenue shortfall of $11.2 billion and we must
implement an economic stimulus package to help retain and create jobs, keep Californians in their homes and
fix the state's Unemployment Insurance Fund. I look forward to working with the legislature in attacking these
problems head on, making the difficult choices and working together for the common good and future of the
state of California."
While Governor Schwarzenegger has worked to fix California's spending problem and has kept state
spending relatively flat for the past three budget cycles, the dramatic deterioration in revenue projections
since the signing of 2008 Budget Act presents an extraordinary situation which, combined with the volatility of
our tax system, creates a revenue problem. The current fiscal year budget shortfall is projected to be $11.2
billion. Over the next 18 months, preliminary estimates from the Legislative Analyst's Office show the budget
deficit reaching a staggering $28 billion.
Under Proposition 58 the legislature has 45 days to pass and send a bill or bills to the Governor's desk
addressing the state's budget crisis. If the 45 days pass and the legislature has not passed bills to address
the problem, they cannot adjourn or act on other bills until the state's fiscal emergency is addressed.
The Governor previously called a legislative special session and announced a plan to close California's
budget shortfall. At that time, the Governor also unveiled a separate plan of targeted actions that will stop our
economy's downward spiral. His prescription is full of specific actions to generate jobs, keep jobs and
file://C:\Documents and Settings\rmusgraves\Local Settings\Temp\GW}00002.HTM
12/512008
Governor Arnold Schwarzenegger - Policy Update
Page 2 of 2
businesses that are tempted to leave in California and lure those that have left back to the Golden State. The
Governor's plan to stimulate employment in our state includes: accelerating hospital construction to inject
approximately $160 million into California's economy; expediting infrastructure bond monies to create jobs
and help unemployed residential construction workers in the hardest hit areas of the state get trained in a new
type of construction; keeping high paying jobs in California by providing overtime exemptions and allowing
more flexible work schedules to increase productivity; clarifying meal and rest periods to save businesses
hundreds of millions of dollars in litigation costs and create less confusion from meal break violations which
will mean fewer terminations; reducing barriers to public-private partnerships and "design-build" agreements
to enable more infrastructure to be built better, faster and cheaper and generate more jobs during the housing
downturn; and keeping television and film production in California by providing targeted tax credits and keep
thousands of jobs in the state and economic output in our state.
The Governor also recently provided the legislature an aggressive plan to help shore up our state's economy
by helping Californians stay in their homes. His proposal would bring down foreclosure rates by helping both
borrowers and lenders modify existing home loans in ways that benefit both parties. Also, to prevent another
mortgage crisis in the future, the Governor prescribed changes to the way mortgages are brokered and
originated to make lenders more accountable, guard against risky mortgages and prevent unsustainable
bubbles from ever arising again.
Governor Schwarzenegger also recently unveiled a plan to continue to help those Californians most in need
by ensuring benefits for the state's unemployed through restoring solvency to the unemployment insurance
fund. The financing system for the trust fund is over 20 years old - and while benefits have increased,
contributions have remained the same. The fund is projected to be $2.4 billion in the red for the coming
calendar year and $4.9 billion in the red in 2010. If no changes are made, federal taxes for California
employers will increase in 2012. To shore-up the fund and protect benefits to unemployed Californians, the
Governor has called for a gradual increase in contributions into the fund, combined with a small reduction in
benefits in order to maintain the fund's solvency.
In an effort to avoid the extreme revenue swings that have caused crippling deficits in our state, the Governor
and legislative leaders announced the long-term action of creating the bipartisan Commission on the 21st
Century Economy to re-examine and modernize California's out-of-date revenue laws that contribute to our
feast-or-famine state budget cycles. The commission will suggest changes that will result in a revenue stream
that is more stable and reflective of our economy while maintaining a fair and equitable revenue structure that
will ensure our continued competitiveness and attraction to employers and workers.
The three proclamations Governor Schwarzenegger signed today are below:
Prop 58 Special Session Proclamation December 1 . 2008 (PDF)
Special Session Proclamation December 1. 2008 (PDF)
Fiscal Emergency Proclamation December 1. 2008 (PDF)
To edit your subscriptions or to unsubscribe please visit: http://gov.ca.gov/interact/#subscribe
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Governor Schwarzenegger Announces Plan to Address Budget Emergency, Stimulate California's Econ... Page I of 4
. Office of the Governor
ARNOLD SCHWARZENEGGER
THE PEOPLE'S GOVERNOR
Home About Arnold About Maria Newsroom Multimedia Issues 810g Interact Appointmen"
11/06/2008 GAAS:764:08 FOR IMMEDIATE RELEASE PriI11VE:lJ$iQD I
Erngill ShgrE:)
Governor Schwarzenegger Announces Plan to
Address Budget Emergency, Stimulate
California's Economy
To remedy California's
urgent budget situation due
to economic conditions
radically deteriorating since
the 2008 Budget Act was
signed, Governor Arnold
Schwarzenegger today
called a special session of
the legislature and
announced an action plan
to get our budget back on
track, invigorate our
economy and generate jobs
for the state's unemployed. The Governor called for a combination of cuts
and revenue increases to solve California's budget shortfall which has now
reached $11.2 billion. The actions prescribed by the Governor must be taken
up as quickly as possible in order to prevent a cash crisis that will jeopardize
vital state services.
"In the six weeks since I signed our last budget the mortgage crisis has
deepened, unemployment has increased and the stock market has lost
almost 20 percent of its value," Governor Schwarzenegger said. "We have
drastic problems that require drastic and immediate action-we must stop the
bleeding right now. We must first close a projected current year shortfall of
http:// gov .ca. gov lindex. php? Ipress- releasel 1 09661
RELATED CONTEL'
.. Proclamatiol
.. Speech
.. Fact Sheet
.. Photo Essa~
.. Video
.. PDF - Mortg~
Foreclosure
.. PDF - Cuts 8
.. PDF - Emplo
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.. PDF - Uneml
Trust Fund
.. PDF - Comm
21st Century E
PHOTO ESSAY
CLICK TO ENLARGE
12/5/2008
Governor Schwarzenegger Announces Plan to Address Budget Emergency, Stimulate California's Econ... Page 2 of 4
$11.2 billion, and then we must address the mortgage crisis to keep people
in their homes, implement an economic stimulus package to help retain
existing jobs and create as many new ones as possible, and fix the state's
Unemployment Insurance Fund. I look forward to working with all the
legislators, hearing their ideas and doing what is best for the people of
California. "
While Governor Schwarzenegger has worked
to fix the state's spending problem, and has
kept state spending relatively flat for the past
three budget cycles, the dramatic drop in our
revenue projections over the past six weeks
presents an extraordinary situation which,
combined with the volatility of our tax system,
creates a revenue problem. To address this ~~""Claarts
extraordinary situation, the Governor is
proposing $4.5 billion in difficult cuts and $4.7 billion in new revenues for the
current-year budget which will ensure the state can protect vital services.
Governor Schwarzenegger's proposal calls for a temporary increase in the
state sales tax, from 5 percent to 6.5 percent, which will generate additional
sales tax revenues of $3.219 billion in 2008-09 and $6.606 billion in 2009-10
for the General Fund. It will also effectively protect significant education
funding. At the end of three years, the state sales tax would revert back to 5
percent. Additionally, the Governor called for additional revenue increases
including broadening the sales and use tax to include certain services,
imposing an oil severance tax upon any oil producer that extracts oil from
the earth or water in this state and increasing the alcohol excise tax by five
cents a drink.
Yesterday, the Governor announced ang.ggr~ssjYE2plg.O to help shore up our
state's economy by helping Californians stay in their homes. His proposal
would bring down foreclosure rates by helping both borrowers and lenders
modify existing home loans in ways that benefit both parties. Also, to prevent
another mortgage crisis in the future, the Governor is prescribing changes to
the way mortgages are brokered and originated to make lenders more
accountable, guard against risky mortgages and prevent unsustainable
bubbles from ever arising again.
Governor Schwarzenegger has also unveiled a plan of targeted actions that
will stop our economy's downward spiral now. His prescription is full of
specific actions to generate jobs, keep jobs and businesses that are tempted
to leave in California and lure those that have left back to the Golden State.
The major elements of the Governor's plan are workplace reforms to assist
California businesses and put an end to costly lawsuits and clearing
regulations in order to push specific funding that is already "in the pipeline"
out into the economy sooner.
http:// gov .ca. gov lindex. php? Ipress- releasel 1 09661
MORE RELATE
RELEASES
12/1/08 - GOY.
Scll WCi r;zE2IlE2gge
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8l.Jsin~ssAdYoc
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&uEntrepr~n~LJr~
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12/5/2008
Governor Schwarzenegger Announces Plan to Address Budget Emergency, Stimulate California's Econ... Page 3 of 4
The Governor's plan to stimulate employment in our state includes:
. Accelerating hospital construction to inject approximately $160 million
into California's economy.
. Pushing out and expediting infrastructure bond monies to create jobs
and help unemployed residential construction workers in the hardest hit
areas of the state get trained in a new type of construction.
. Keeping high paying jobs in California by providing overtime
exemptions and allowing more flexible work schedules to increase
productivity.
. Clarifying meal and rest periods to save businesses hundreds of
millions of dollars in litigation costs and create less confusion from meal
break violations which will mean fewer terminations.
. Reducing barriers to public-private partnerships and "design-build"
agreements to enable more infrastructure to be built better, faster and
cheaper and generate more jobs during the housing downturn.
. Keeping television and film production in California by providing
targeted tax credits and keep thousands of jobs in the state and
economic output in our state.
Governor Schwarzenegger also unveiled a plan to continue to help those
Californians most in need by ensuring benefits for the state's unemployed
through restoring solvency to the unemployment insurance fund. The
financing system for the trust fund is over 20 years old - and while benefits
have increased, contributions have remained the. The fund is projected to be
$2.4 billion in the red for the coming calendar year and $4.9 billion in the red
in 2010. If no changes are made, federal taxes for California employers will
increase in 2012.
To shore-up the fund and protect benefits to unemployed Californians, the
Governor has called for a gradual increase in contributions into the fund,
combined with a small reduction in benefits in order to maintain the fund's
solvency.
In an effort to avoid the extreme revenue swings that have caused crippling
deficits in our state, the Governor and legislative leaders last week
C::l.nnQLJnG~<::l the long-term action of creating the bipartisan Commission on
the 21st Century Economy to re-examine and modernize California's out-of-
date revenue laws that contribute to our feast-or-famine state budget cycles.
The commission will suggest changes that will result in a revenue stream
that is more stable and reflective of our economy while maintaining a fair and
equitable revenue structure that will ensure our continued competitiveness
and attraction to employers and workers.
http:// gov .ca.gov lindex. php? Ipress- releasel 1 09661
12/5/2008
Governor Schwarzenegger Announces Plan to Address Budget Emergency, Stimulate California's Econ... Page 4 of 4
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CASlatenHQmepage
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12/5/2008
- --.'--..--__.____.___.___.__..,_.____....___._0_._._._'".___..""_.__._______._".__~__._______._.__,__~..___~_.__.__.._..__.....__________..".,__.__....._....__..._._ .
Special Session Proclamation 11/06/2008 - Proclamation by Governor Arnold Schwarzenegger
. Office of the Governor
FtR"'~OLD SCHWARZENEGGER
THE PEOPLE'S GOVERNOR
Page 1 of 2
Home About Arnold About Maria Newsroom Multimedia Issues 810g Interact Appointmen'
11/06/2008 Print V€?rl5iQIl
Special Session Proclamation 11/06/2008
PROCLAMATION
by the
Governor of the State of
California
WHEREAS, an extraordinary occasion has arisen and now exists requiring
that the Legislature. of the State of California be convened in extraordinary
session.
NOW, THEREFORE, I, ARNOLD SCHWARZENEGGER, Governor of the
State of California, by virtue of the power and authority vested in me by
Section 3(b) Article IV of the Constitution of the State of California, do
hereby convene the Legislature of the State of California to meet in
extraordinary session at Sacramento, California on the 6th day of November
2008, at a time to be determined, for the following purpose and to legislate
upon the following subjects:
1. To consider and act upon legislation to address fiscal and budget-
related matters.
2. To consider and act upon legislation to address the economy, including
but not limited to efforts to stimulate California's economy and create
and retain jobs.
3. To consider and act upon legislation to address the housing mortgage
crisis.
4. To consider and act upon legislation to address the solvency of the
Unemployment Insurance Fund.
http://gov.ca.gov/proclamation/l 0971/
RELATED CONTE~
... Press Relea:
... Governor's'
... Fact Sheet
... Photo Essa~
... Video
PHOTO ESSAY
CLICK TO ENLARGE
MORE BUDGE"
PROCLAMA TIC
MORE JOBS &
ECONOMY
PROCLAMA TIC
12/1/08 - Fiscal
prQcla.mation 1 ~
12/1/08 - Specie
Procla.ma.tion 1 ~
12/5/2008
Special Session Proclamation 11/06/2008 - Proclamation by Governor Arnold Schwarzenegger
IN WITNESS WHEREOF I have hereunto set my hand
and caused the Great Seal of the State of California to be
affixed 6th day of November, 2008.
ARNOLD SCHWARZENEGGER
Governor of California
ATTEST:
DEBRA BOWEN
Secretary of State
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@ 2008 State of California
http:// gov .ca. gov Iproclamationl 1 09711
Page 2 of 2
12/1/08 - Prop 5
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STATE BUDGET 2008-09: SPECIAL SESSION
UNPRECEDENTED DECISIONS IN AN EXTRAORDINARY SITUATION
SUDDEN CHANGES IN OUR ECONOMY DEMAND A COMBINATION OF DIFFICULT CUTS AND NEW
REVENUES
Economic conditions have deteriorated radically since the Governor signed the 2008 Budget Act on September 23. The
volatility in our nation's financial markets has affected our budget - which is too reliant on Wall Street gains - to a
point where the state faces the very real possibility of running out of the necessary cash to meet all its obligations.
Critical state services could be jeopardized. California is facing a hole of $11.2 billion in lower revenues than when
the state budget was signed just six weeks ago. To remedy the urgent situation, the Governor is prescribing a
combination of cuts and revenue increases - all of which must be taken as quickly as possible to prevent a cash crisis
and an even larger budget problem next year.
BUDGET SOLUTIONS
Necessarv Budl!:et Adjustments: With $11.2 billion less revenue that we anticipated just six weeks ago, it is
necessary to immediately make cuts to our budget. The Governor is proposing $4.5 billion in cuts to the current-
year budget. All of the cuts are painful, but essential to ensure the state can protect vital services. The major budget
adjustments are:
> Proposition 98 Education Funding. Because education funding is based on revenues, and revenues have fallen,
funding to the Proposition 98 guarantee also drops. The Administration proposes total Proposition 98 expenditure
reductions of $2.5 billion, which keeps education funding at approximately $122 million higher than the minimum
guarantee.
> Higher Education. $132 million in reductions are proposed for higher education segments, including $65.5 million
to the University of California system and $66.3 million to the California State University System.
> Supplemental Securitv Income/State Supplementarv Pavment. Reduce SSI/SSP grants to the federal minimum
effective March 1,2009, which would result in General Fund savings of $348.9 million in 2008-09
> CalWORKs. Modifying the Safety Net program, making certain benefits consistent with other CalWORKs
benefits, instituting a face-to-face self-sufficiency review every six months for some CalWORKs families, and
reducing CalWORKs grants by 10 percent effective March I, 2009, would result in General Fund savings of
$273.9 million for the current fiscal year.
> Employee Compensation Changes. Requiring state employees take a one day furlough each month, eliminating
two state holidays (combining Lincoln and Washington days into Presidents Day, and Columbus Day) and
premium pay for hours worked on all remaining holidays, as well as eliminating the ability to count leave time as
hours worked when computing overtime will result in General Fund savings of $320 million in the current fiscal
year. Additionally, the Governor proposes changes that would give state agencies the ability to establish a ten-
hours-per-day, four-day workweek.
> Department of Corrections and Rehabilitation (CDCR): To realize saving in corrections, the administration
proposes implementing parole reforms that protects public safety while cutting costs. This will be done mostly
through parole reforms where high risk offenders who have committed serious, violent, or sexual crimes receive
full supervision on parole while low-risk non-serious offenders receive no parole supervision after their release
from prison. These reforms will save $78.1 million in 2008-09 and $677.6 million in 2009-10.
> Public Safety Grants: By proposing a funding realignment for public safety grants we are protecting funding for
core public safety activities while realizing General Fund savings of $250 million in 2008-09. Booking fees, the
COPS and Juvenile Justice programs, and juvenile probation would receive stable, non-General Fund support
going forward.
> Medi-Cal. Reducing California benefits to the level provided in most states, and ceasing to provide some optional
benefits for adults will keep California providing more optional benefits than most states and will save the General
Fund savings $41 million in 2008-09 and $129.9 million in 2009-10.
Page 1 of 2
A Revenue Problem: While Governor Schwarzenegger has worked to fix the state's spending problem, and has kept
state spending relatively flat for the past three budget cycles, the dramatic drop in our revenue projections over the past
six weeks presents an extraordinary situation which, combined with the volatility of our tax system, creates a revenue
problem. Raising taxes is never a good idea, but in this extraordinary situation, there is no question that new revenues
must be brought into the state to protect education and vital services. The Governor is proposing $ 4.7billion in new
revenues for the current budget year in the form of:
~ A Temporary Sales Tax Increase: A temporary increase in the state sales tax (from 5 percent to 6.5 percent) will
generate additional sales tax revenues of $ 3.5 billion in 2008-09 for the General Fund. It will also effectively
protect significant education funding. At the end of three years, the state sales tax would revert to 5 percent.
~ Broadening the Sales and Use Tax to Include Certain Services: Effective February 1, 2009, the sales and use tax
rate will be applied to appliance and furniture repair, vehicle repair, golf, and veterinarian services. Effective
March 1,2009, the sales and use tax rate will be applied to amusement parks and sporting events. This is expected
to generate additional General Fund sales tax revenue of $357 million in 2008-09.
~ Oil Severance Tax: Effective January 1,2009, impose an oil severance tax upon any oil producer for the right to
extract oil from the earth or water in this state. This brings California in line with other states. The tax shall be
applied to the gross value of each barrel of oil at a rate of 9.9 percent and will generate additional tax revenues of
$528 million in 2008-09.
~ Increase Alcohol and Excise Taxes: Alcohol excise taxes are proposed to be raised by five cents a drink beginning
on January 1, 2009. This increase is estimated to raise $293 million in 2008-09. Revenues from this tax will be
used to fund critical drug and alcohol treatment and prevention services. Alcohol taxes were last raised in 1991.
Page 2 of2
.
STATE BUDGET 2008-09: SPECIAL SESSION
KEEPING CALIFORNIANS IN THEIR HOMES
IMMEDIATE FORECLOSURE RELIEF AND LONG- TERM MORTGAGE REFORM To HELP STABILIZE
CALIFORNIA'S ECONOMY
California was hit hard when the national housing bubble popped, and the foreclosure crisis that ensued continues
to negatively affect California's economy, its communities, and our budget. The single most powerful action the
state can take to shore up its economy is to help Californians stay in their homes - and Governor Schwarzenegger
is presenting a plan to do just that. Stemming the increase in foreclosures will help save jobs, businesses, and
revenue for both the state and local governments. The Governor's plan is an aggressive effort to bring down
foreclosure rates by helping borrowers and lenders modify existing home loans in ways that benefit both parties.
Also, to prevent another mortgage crisis in the future, the Governor is prescribing changes to the way mortgages
are broke red and originated to make lenders more accountable, guard against risky mortgages, and prevent
unsustainable bubbles from ever arising again.
Keeninl!: Californians In Their Homes Todav:
Keeping families in their homes is the single most powerful action we can take for our ailing economy - and
our economy demands we take that action now. Working to help California families to stay in their homes will
curtail an excessive downward spiral of home prices, free up cash for other expenditures, improve the fortunes of
lenders and make an immediate positive impact on our economy.
. California's housing prices rose too high during the bubble and now they threaten to fall too far, putting
families, communities, businesses and governments in jeopardy.
. Stemming the foreclosure rate will curb job losses and help maintain vital property tax revenues for local
governments.
. Reducing foreclosures will stabilize neighborhoods and curtail negative effects on nearby homes. Because
when your neighbor is foreclosed, your home's value plummets too.
. Successfully modifying loans allows homeowners to ride out today's depressed prices and lenders to reap a
better return.
The Governor's plan improves upon other foreclosure-relief programs by incentivizing loan modifications.
To reduce foreclosures and encourage loan modifications, the Governor proposes:
~ A 90-dav stay of the foreclosure process for each owner-occupied home subject to a first mortgage on which a
Notice of Default has been filed.
~ A "Safe Harbor" under which lenders will be able to exempt themselves from the 90-day stay procedure if they
provide evidence to the state that the lenders have an aggressive modification program in place. An
"aggressive modification program" is one designed to keep borrowers in their homes where doing so will
ultimately bring investors a better return than simply foreclosing and selling at a loss.
. Loan modification Model: modifications will be based on a 38% housing debt-to-income ratio so that the
modified loan is sustainable for the homeowner. The lenders can achieve that 38% level by invoking some
or all of the following modification plans:
(1) reducing the interest rate to a lower rate for five years or more; e.g., to a rate as low as 3%;
(2) increasing the amortization of the loan to 40 years from the start of the amortization period; and
(3) deferring some amount of the unpaid principal balance to the end of the loan term, so that the borrower
will repay that amount upon refinancing or sale of the property.
. These actions will reduce monthly payments by 25-30%
Page 1 of 1
11/04/2008
Fighting for emergency economic relief dollars to help keep Californians in their homes. Additionally, the
Governor will continue to advocate that the federal government use a portion of the $700 billion Troubled Assets
Relief Program to buy up and modify troubled home loans or to guarantee modified home loans.
A Summit on Housing:
· The Governor will also convene a housing summit to further craft modification and foreclosure abatement
solutions.
Preventine: Another Morte:ae:e Crisis:
The Governor's plan ensures more responsible lending to help prevent Californians from ever again being
victimized by unsustainable loans. In order to prevent a future mortgage crisis, the Governor prescribes a set of
proposals, including:
· The state (Department of Real Estate and Department of Corporations) will now be able to enforce federal laws
and regulations such as the Truth in Lending Act and others, and to discipline real estate licensees who violate
those laws and regulations.
· Lending practices will be reformed to protect borrowers by I) expanding fiduciary duties for mortgage brokers
so that borrowers can be assured they are getting a loan that suits their circumstances, and 2) penalizing lenders
who make false or misleading statements.
· Licensing requirements for loan originators will be increased and standardized.
· California will contribute to a national database for the public to access license status and disciplinary records
of all loan originators to prevent dishonest originators from victimizing consumers.
· Pre-counseling interviews will be required for borrowers entering into risky "non-traditional" mortgages, as
defined by the federal government, to ensure they understand and accept the terms to which they are agreeing.
The Governor's mortgage plan also includes:
· Urging the federal government to require loan originators to retain a portion of the loan risk to encourage sound
underwriting of loans.
· Encouraging the federal government to promote the use of "covered bonds" which allow lenders to securitize
loans but require them to retain those assets on their balance sheets.
This Prescription Builds On The Governor's Previous Actions To Help Stabilize California's Housine:
Market
· Signed legislation to help protect homeowners by requiring a mortgage holder to provide a 30-day notice to a
borrower prior to filing any default notice leading to the foreclosure. The new law also provides tenants of
foreclosed properties a minimum of 60 days notice to move and requires holders of foreclosed properties to
maintain the property.
· Announced an agreement with maior loan servicers to streamline the loan modification process for subprime
borrowers living in their homes.
· Launched a $1.2 million public awareness campaign to help educate homeowners about options that can help
them avoid losing their homes to foreclosures.
· Established the Interdepartmental Task Force on Non-traditional Mortgages to ensure a comprehensive and
coordinated approach to the issues raised by subprime loans.
· Announced $5.6 million to help mortgage and banking industry workers laid off as a result of the subprime
crisis make career transitions to high-demand jobs in other industries.
· Joined the OneCalifornia Foundation to announce a bridge loan fund for homeowners facing foreclosure in
Oakland.
· Awarded $8 million to community based mortgage counseling providers around the state to help avoid
foreclosures.
Page 2 of 1
11/04/2008
.'
.
STATE BUDGET 2008-09: SPECIAL SESSION
EMPLOYMENT STIMULUS FOR CALIFORNIA
A SPECIFIC ACTION PLAN To GENERATE JOBS AND BOOST CALIFORNIA'S ECONOMY Now
The crisis in our nation'sfinancial markets has compounded the difficulties California's economy is experiencing.
The steep decline on Wall Street has caused our revenues to nose-dive and the budget we signed just six weeks ago
to fall out of balance. In addition to advocating for a second federal economic stimulus package and taking action
to keep California families in their homes, the Governor knows California needs immediate relief He has called a
special session of the Legislature to pass a plan to invigorate our economy, and has prescribed an action plan of
targeted proposals that will immediately generate jobs for California's unemployed and put real dollars into our
economy now.
California is suffering the serious effects of Wall-Street induced economic malaise and joblessness -
generating jobs is the key to recovery. A housing market wrought with foreclosures, a slowing economy and a
volatile Wall Street have created an unprecedented financial crisis that is taking a toll on hardworking Californians.
~ Our unemployment rate stands at 7.7%.
~ Our state accounts for nearly one-third of the nation's foreclosure activity each month.
~ Our outdated tax structure has created a feast-or-famine revenue stream that is currently starving our budget.
Governor Schwarzenegger has a plan of targeted actions that will stop our economy's downward spiral now.
Like his plan to stem the foreclosure rate and reform mortgage practices to keep California families in their homes
now and in the future, the Governor's prescription for employment stimulus contains specific actions to generate
new jobs, as well as keep existing jobs and businesses in California and lure others back to the Golden State. The
major elements of his plan are:
~ Workplace reforms to assist California businesses and put an end to costly lawsuits.
~ Clearing regulations in order to push specific funding that is already "in the pipeline" out into the
economy sooner.
ProDosal
Accelerate Hospital Construction:
Streamline the permitting and review process for non-
structural hospital construction projects under $2
million. This will reduce the review and construction
permit time for already-planned projects from 10
months to as little as 2 weeks.
Accelerate Bond Spending: ·
Push out the remaining $700 million in Proposition 1 B
local streets and roads funds and $800 million for public
transit. Pair it with $3 million in Workforce Investment .
Act funds to local job training providers to help out-of-
work housing construction employees transition into
new streets and roads construction jobs.
Also expedite nearly $1 billion in transportation and
water infrastructure funds for specific projects that will
get shovels in the ground and Californians into jobs this
fiscal year.
Provide Overtime Exemptions: ·
Exempt employees in executive, sales, administrative,
Page 1 of 1
Stimulus
. Immediately accelerate the injection of
approximately $160 million of "in the pipeline"
hospital construction projects into California's
economy.
. Provide a boost to employment in the California
construction sectors.
Create jobs; a conservative estimate shows that
every $1 billion in infrastructure spending leads to
18,000 jobs.
Will help unemployed residential construction
workers in the hardest hit areas of the state get
trained in a new type of construction.
Keep high-paying jobs from leaving the state. (For
every 10,000 jobs paying more than $100,000
1 0/29/2008
and professional jobs who earn more than $100,000
annually from overtime pay.
Allow More Flexible Work Schedules: .
Allow employees to work more flexible hours upon
request, such as 10 hour work days for a 40 hour work .
without being paid overtime.
Clarify Meal And Rest Period Laws: .
Clarify existing law regarding meal and rest periods to
provide employers and employees with a clear .
understanding of meal breaks and offering flexibility to
both businesses and workers.
Reduce Barriers To Public-Private Partnerships And .
"Design-Build" Agreements:
Take down barriers to public-private partnerships and
"design-build" agreements to enable more infrastructure
to be built better, faster and cheaper.
Keep Television And Film Production In California: .
Provide targeted tax credits from 20-25% to the film and .
television industry to help keep production in California
- focusing on new production and production returning
to the state.
I
Page 2 of 1
.
placed out of state, California's economy misses out
on $1 billion in employee spending.)
Save approximately $90 million per year 10
employee classification costs.
Reduce absenteeism and boost productivity, which
save employers real dollars.
Raise employee retention rates, which will reduce
claims on the Unemployment Insurance trust fund.
Will save businesses hundreds of millions of dollars
in litigation costs.
Less confusion means fewer terminations over meal
break violations and a more welcoming work
environment.
Will generate tens of thousands of construction jobs,
and will particularly benefit those workers
disproportionately affected by the housing
downturn.
.
Keep thousands of jobs in the state.
California's share of TV and film production
activity has slipped from 66 percent to 31 percent in
the past five years; this proposal would seek to bring
back some of that share.
Every $100 that is spent on production in California
generates $285 in economic output.
1 0/29/2008
.
STATE BUDGET 2008-09: SPECIAL SESSION
ENSURING BENEFITS FOR CALIFORNIA'S UNEMPLOYED
RESTORING SOLVENCY To THE UNEMPLOYMENT INSURANCE FUND WHEN WE NEED IT MOST
Over the years California's Unemployment Trust Fund has helped millions of struggling Californians get through
tough employment downturns and difficult transition periods, while also pumping billions of dollars into our
economy. But now, when California needs both of those things most, the Fund is on the brink of bankruptcy. That's
because while the state has increased the benefits provided to unemployed Californians, it has done almost nothing
to increase the money going into the fund. This imbalance has caused the fund to atrophy in our current
employment climate, as the unemployment rate has risen higher and faster than anyone predicted. Governor
Schwarzenegger has a plan to rescue this fund and ensure it continues to help those Californians most in need.
California's rising unemployment has placed unexpected additional strain on our already-strained
Unemployment Insurance Fund - and without action the fund is projected to be insolvent beginning in 2009.
Our unemployment rate has risen higher and faster than anyone predicted - and California's unemployment trust
fund is quickly running out of money.
> California's unemployment rate stands at 7.7 percent - much higher than projections made by both the state's
Department of Finance and UCLA's economic forecasts.
> The financing system for the trust fund is over 20 years old - and while benefits have increased, contributions
have remained the same - and rising unemployment is placing unexpected demands on the fund.
Maximum weekly payments have nearly doubled since 2001. from $230 to $450. and the percentage of a
person's weekly wage they can receive in benefits has increased from 39% to 50%.
> The Fund is proiected to be $2.4 billion in the red for the coming calendar year and $4.9 billion in the red in
2010. If no changes are made, federal taxes for California employers will increase in 2012.
Governor Schwarzenegger has a solution to shore-up the fund and save it from bankruptcy - protecting
benefits to unemployed Californians. The Governor is calling for a gradual increase in contributions into the
Fund, combined with a small reduction in benefits in order to maintain the fund's solvency. The components of his
plan are as follows:
> Maintain payments to the unemployed in the short-term by taking out a federal loan.
> Increase the amount in contributions employers make to the Fund by increasing the taxable wage ceiling from
$7,000 to $10,500 and the maximum tax rate from 6.2 percent to 8.1 percent. The increased contributions will
range from a minimum of $56 to a maximum of $416.50 per employee.
> Slightly reducing benefit levels including lowering the replacement rate from 50 percent to 45 percent and
increasing the minimum earnings requirement to file a claim from 3.5 weeks to 7.5 weeks in a year.
Page 1 of 1
11/04/2008
.
2008 SPECIAL SESSION
BRINGING CALIFORNIA'S REVENUE SYSTEM INTO THE 21sT
CENTURY
BI- PARTISAN COMMISSION WILL ADDRESS OUR CHRONIC BUDGET PROBLEMS BY MODERNIZING
OUR STATE'S REVENUE LAws
Today Governor Schwarzenegger signed Executive Order S-12-08 to create the bipartisan Commission on the 21st
Century Economy to re-examine and modernize California's out-of-date revenue-gathering laws that contribute to our
feast-or-famine state budget cycles. This 12-member commission to be made up of legislative and gubernatorial
appointees will suggest changes that will result in a revenue stream that is more stable and reflective of our economy.
This is long-term action that will help avoid the extreme revenue swings that cause crippling deficits while maintaining a
tax structure that will ensure our continued competitiveness and attraction to employers and workers.
California's antiquated revenue system is a major contributor to our feast-or-famine budget cycles. Our tax system
has not been restructured in over 80 years even though our economy has changed dramatically.
~ 50 percent of California's personal income tax revenues come from just 1 percent of residents. That's fewer
than 150,000 taxpayers, and much of their income is based on volatile investment income - so when their income
dips the state's tax revenues fall too.
~ When Wall Street sneezes, California catches a cold. Nearly 15 percent of our revenue comes from capital gains-
meaning the turmoil on Wall Street brings pain straight to Main Street, California.
In contrast, the state of Washington is proiecting a revenue shortfall of less than 1 %, while our state may face a
shortfall of nearly 10%. The difference is that our state's tax revenues reflect Wall Street's economy more than
California's economy.
This annual uncertainty makes it difficult to fund government operations year-to-year. Boom years produce more
spending than can be sustained in bust years, putting state services in constant annual jeopardy.
~ Such a volatile revenue stream is unacceptable for California's 38 million residents who rely on a stable funding for
a host of state-funded programs.
We need a revenue system as diverse as our economy. Unlike our budget system, California has one of the most
diverse economies in the world. A tax system as diverse as our economy would produce stable revenue.
~ An improved revenue-gathering system would decrease the pressure for future tax increases to address revenue
shortfalls, which will continue to occur if the volatility of our tax system is not reduced.
~ A tax structure that better reflects California's economic strengths could actually grow the economy. For example,
reducing the corporate income tax would boost hiring, creating jobs.
Executive Order S-12-08 immediately establishes this bipartisan Commission on the 21st Century Economy to
modernize and decrease the volatility in the state's tax system. The Commission will make recommendations to bring
our tax system into better alignment with our modem economy and to improve the state's economic competitiveness.
~ The commission will have 12 members, six appointed by the Governor, three appointed by the Assembly Speaker
and three appointed by the Senate Pro Tempore.
~ The commission members will receive no compensation.
~ They will create a road map toward a more reliable revenue stream that is more reflective of today' s economy - to be
unveiled on or before April 15, 2009.
Page 1 of 1
1 0/29/2008
GOl1ernor AQJ10unces Plan to Address Budget Emergency, Stimulate Economy - Remarks by Governor ... Page I of 23
. Office of the Governor
ARNOLD SCHWARZ EN EGGER
THE PEOPLE'S GOVERNOR
Home About Arnold About Maria Newsroom Multimedia Issues 810g Interact Appointmen'
Thursday, 11/06/2008 E'[intV~n:;iQn Il;mc:liII$bc:lr~
Governor Announces Plan to Address Budget
Emergency, Stimulate Economy
GOVERNOR
SCHWARZENEGGER:
Good morning, everybody.
First of all, I want to say
thank you very much to
Mike Genest, David Crane,
Susan Kennedy, Will
Kempton, Lester Snow and
Preston DuFauchard for
helping us put this special
session together.
Today I want to talk to you
about the special session of the legislature that I have proposed and what
11m trying to accomplish here. As all of you know, the economic conditions
have been deteriorating rapidly all around the world, across this country and
also here in California. In the six weeks since I have signed the last budget
the mortgage crisis has deepened, unemployment has increased and the
stock market has lost more than 20 percent of its value and I know how
painful this is to everyone here in California. Many Californians have lost
their homes, they have lost their jobs, retirement funds have disappeared
and everyone is worrying about the future.
All of this negative news, of course, has had a dramatic effect on our
revenues of our state government and also because California is overly
dependent on income tax from capital gains. Making matters worse, the
http://gov .ca.gov/index. php? /speech/1 0973/
RELATED CONTE~
... Press Releas
... Fact Sheet
... Photo Essay
... Video
... PDF - Mortg.
Foreclosure
... PDF - Cuts 8
... PDF - Emplo
Stimulus
... PDF - Cuts 8
... PDF - Comm
21 st Century E
PHOTO ESSAY
CLICK TO ENLARGE
MORE RELATE
12/1/08 - Goven
12/512008
Gm/ernor f.\nJIounces Plan to Address Budget Emergency, Stimulate Economy - Remarks by Governor... Page 2 of 23
state unemployment insurance fund is on the brink of insolvency.
So, we don't have the luxury of waiting for January when I make my budget
proposal or hold my State of the State Address where I point out my vision,
or the goals that I have. We have a dramatic situation here and it takes
dramatic solutions and immediate action. We must stop the bleeding.
People expect leadership and they expect us all to work together, if it is the
federal government or the state, if it is Democrats and Republicans,
government and stakeholders, everyone here has to work together. I've
been meeting regularly, as you know, with the legislative leaders and we
have had Big Five Meetings, good, constructive Big Five Meetings and
everyone agrees that it is necessary to have this special session.
Now, here are the four problems that we want to tackle here:
Number one is closing a projected current year shortfall of $11.2 billion,
caused by the stock market, the real estate meltdown and by higher
unemployment. It would be irresponsible to close this, of course, all by just
cuts, so therefore I recommend a combination of reductions in programs and
also an increase in revenues. The reduction in this year will be a total of $4.5
billion across the variety of different programs, from education to prisons,
from health care to social services and so on.
And when it comes to additional revenues, I propose raising $4.4 billion in
the current year through a temporary 1.5 percent sales tax increase and
other revenue generators that Mike Genest will be talking about later on.
With an unprecedented drop in our revenues, we absolutely have no choice
and we cannot delay or push the problem until the next year because we're
going to run out of cash by the end of February and then we will be unable to
meet our obligations.
Now, number two is the mortgage crisis. Nothing will stimulate our economy
and bring it back quicker than creating a stable housing market and keeping
people in their homes. That's why we want to build on actions that we have
already taken in this past year and this year, like last year's first-in-the-nation
loan modification agreements that we helped broker between loan services
and homeowners. And also we signed Senator Perata's bill, SB 1137, which
was last July, which requires lenders to contact homeowners and explore
loan modifications before foreclosure.
Our actions have actually helped to keep 125,000 people in their homes but
of course the crisis got worse and there we need additional action now. In
the special session we will introduce legislation to keep even more people in
their homes through a gO-day grace period of delay in foreclosure teamed
with an incentive to make mass modifications of home loans.
http://gov .ca.gov/index. php? /speech/ 1 0973/
L..egi~latLJre Into
Special Session
11/18/08 - Gave
First-r::verConfE
f3l.1siness& Entr
11/12/08 - Gave
Greate r.. Fresl10
CommerceCou
12/5/2008
Goyernor An.nounces Plan to Address Budget Emergency, Stimulate Economy - Remarks by Governor ... Page 3 of 23
Those modifications will reduce monthly mortgage payments for tens of
thousands of at-risk homeowners by 25 to 30 percent. Through interest
reductions, extended amortization periods and deferral of principal. I also will
use my bully pulpit to push the federal government to modify more home
loans by using the $700 billion of the federal rescue plan that Congress has
approved.
Number three is our economic stimulus package to help retain existing jobs
and to create as many new jobs as possible. There are a number of steps
that we can take. We have talked about that in the past, how we use
infrastructure bond money, to push it out as quickly as possible.
Here are some addition ideas: We want to expedite $204 million in funding
from our water bonds to improve our water quality and to protect water
supplies.
In transportation, for instance, we can appropriate more than $700 million in
existing bond funds from what I call our 'Pothole Account'. Using workforce
development money is also very wise in this case, because we would train
the unemployed to take those local construction jobs.
We can also expedite $800 million in transit projects up and down the state
of California. We would accomplish this by exempting the bond projects from
CEQA, or in its national equivalent, NEPA, if federal money is involved.
I'm not proposing that we change CEQA, by the way. I'm remaining 100
percent committed to protecting California's environment. But during this
severe economic crisis, I think we have to be creative here. We must do
everything that we can to stimulate our economy and to put people back to
work.
California families and our state need this help and it would be irresponsible
to do otherwise. That's why we're also proposing to expedite the permit and
plan review for hospital construction. By cutting the red tape for relatively
small renovation work we can speed up 500 hospital construction projects
worth an estimated $164 million dollars. I look forward to working with
OSHPD, the Office of Statewide Health Planning and Development, to make
all of this happen.
As another part of our stimulus package, we also want to clarify and reform
our labor laws and encourage job retention and creation. We should take
advantage of the billions of dollars in potential savings to California
businesses by allowing flexible work schedules that help employers and also
help the workers.
And number four is fixing the state's unemployment insurance fund. At a
time when we need it most because more and more people are seeking
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work, that's exactly the time we are running out of funds now. It is facing
insolvency because of actions that were taken by previous administrations,
which is to increase the benefits without increasing the funding. So this is a
major problem. Eventually something like this catches up with you and it did
catch up with us now.
I also will continue to push, of course, the federal government to further
extend unemployment benefits for those who are seeking work. But, you
know, the fact is that we have to straighten out our California system as
quickly as possible so there will be money available for those that are
unemployed and need work and need money.
Now, there are three ways, of course, to go about solving this problem. One
is to put the burden on employers, which I will not recommend, or to put the
burden on the employees, like cut benefits for the unemployed; I will not
recommend that either. Or, we meet in the middle where everyone has to
give a little bit. I'm asking businesses to gradually pay more while we tighten
eligibility and benefits slightly.
Of course, if we take this action and do all of the things that I have just
proposed, we will solve our revenue shortfall, get the people back to work,
keep people in their homes and keep our unemployment insurance fund
solvent. So here is a big urgency, because as I have said, that we cannot
wait any longer. Our problems will get worse. As a matter of fact, Eleanor
Roosevelt once said that the things that we refuse to meet today always
come back at you later on, usually under circumstances which make the
decision twice as difficult as it was originally and this was actually said
exactly for our circumstances that we are in today.
So, I look forward to working with the legislators, hearing all of their ideas
and doing what is best for the people of California. We must all remember
that California never stays down long. This is the greatest state in the
greatest country in the world. We have the most talented people, the most
innovative people, the hardest working people and the most diverse
economy. There's no doubt about it, that we'll be back. Thank you very
much. Now, if you have questions, please feel free.
QUESTION/ANSWER:
QUESTION:
Governor, you haven't talked about the idea of a sales
tax increase in the presentation you just made, though
we know you're proposing a sales tax increase.
GOVERNOR:
Maybe I have not made it clear but I did talk about a
sales tax increase of 1.5 percent.
QUESTION:
I just wonder if you could talk about the sales tax for a
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moment. You know, a lot of budget experts say it's the most regressive tax,
that people who have the least amount of money are
getting hit the hardest. Why do that, then?
GOVERNOR:
QUESTION:
in the mixture?
GOVERNOR:
QUESTION:
GOVERNOR:
We feel very comfortable that this is the best tax to use.
And there will be additional fees and taxes that Mike will
be talking about. But like I said, this is the best way to go
and we have to not delay it. I think now is the time for
action. I think there are a lot of people in California that
are hurting. People need jobs. We need to protect
education, we need to protect also law enforcement and
some of those programs. This is why I will not
recommend to take this $11.2 billion and make it all in
reductions of programs. But we need to raise our
revenues.
Governor, any more state employee layoffs or pay cuts
Well, there are various different things that Mike will be
talking about also, about a furlough and where we have
one day a month of state employees, they will not work
and different ideas like that where we can cut down the
costs of government and also in the various different
agencies. So we are looking at a whole variety of
different things that we want to work together with the
legislators in order to get this done. I think the important
thing here is we can give you all the details but I think
that the most important thing here today is that the
legislators take this seriously, that we don't delay it, that
we create the action so that we put people back to work
as quickly as possible in California and we keep families
in their homes and that we deal with the budget crisis that
we have, which is a shortfall of $11.2 billion and that we
do that with a combination of revenue increases and
reductions in programs.
What's your deadline for getting this done?
Well, as you know, that the legislature is termed out and
this session basically will be over by November 30th,
because by December 1 st the new legislators will be
sworn in. So I think that it's actually good that there's a
deadline like that, because I think it makes everyone
speed up and take it seriously.
And I tell you one thing, that the meetings that I've had
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QUESTION:
GOVERNOR:
QUESTION:
GOVERNOR:
with the legislative leaders were really good meetings. I
think that everyone, across-the-board, Democrats and
Republicans, recognize the severity of the problem, they
recognize that this is something, a phenomenon, this is
all over the country and all over the world. There are
many states that are in special sessions right now. There
are states that are dealing with it in different ways but
everyone is facing this crisis.
And I think California is actually -- you know, even though
we get hit more than any other state, because everything
is always more magnified here in California -- but we are
also very good to come to the table and to fix those
problems. So I have total faith in our legislators, that we
will fix all of those problems and we'll get the economy
going again and people back to work. Yes?
Governor, could you talk a little bit about which
environmental regulations you plan to relax? You talked
about protecting CEQA but you didn't go into any
specifics on the environmental rules. Could you provide
us with the details?
We have Will Kempton here who can then take you
through that. You can ask him about all of that, okay? So
he can take you through this. But it is just during that
period and it is just for specific projects, because we are
not trying to change CEQA at all. CEQA is a very, very
good and powerful thing that protects the environment
and we want to keep committed to that. It's just to kind of
relax it during a certain period of a certain project, so
that's the idea. Yes?
I see you have a $12 increase in the car tax. Was that
a particularly difficult decision for you to make?
No, not at all. I think that -- you can't single out one
thing and say that this is more difficult than this. To me,
all of those things are very difficult decisions to make.
They all get grouped together. When you talk about trying
to keep people in their homes, it's very difficult to find
exactly the right way to go and do that. If you try to create
extra revenues ifs very difficult to do that, because 11m
not a believer in taxes, I'm not a believer in increasing
fees. It's just under these circumstances it's necessary to
do. I also don't believe in taking a penny away from any
of the programs but it is necessary to do that, to live
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within our means.
But I also want to say, when we talk about living within
our means, we say many times that we have a spending
problem, not a revenue problem. It just has happened
this year that it actually has switched, that because of this
tremendous drop in revenues, it is now a revenue
problem rather than a spending problem, because our
spending in this state has not increased now for years.
We have been very steady and we have been very
fiscally responsible in this state, when you look at the
numbers. It's just that the revenues have dropped so
rapidly, because as I have said, we are relying so much
on income tax from capital gains that we have this odd
kind of a thing where the economy is flat but our tax
revenues are decreasing by 10 percent.
And I think this is why I have these kind of grafts here. If
you look at this here, this is a graft of the economy, of the
economy, which is rolling hills. Over here, look at this.
This is what our tax, our income tax on capital gains
looks like. So, as you can see, it doesn't make any sense.
And I think this is why we have, with the legislative
leaders, now proposed and have created a commission
that is going to study this system. How do we create our
revenues that match our economy, rather than to match
Wall Street? Because this is what this is. And so we have
to change that tax system. It's an old, outdated system.
And I have been talking about this for a year and finally
we got our act together that we are creating a bipartisan
commission to study this and within the next few months
that we have then some direction from them, how do we
move forward and create stability. Not so much to look at
more revenues but just how do we take this and make it
more like this, so we can deal with it. Because with the
combination of making the changes with our tax system
and also with the rainy day fund and being able to make
mid-year cuts, we should create great stability in this
state when it comes to revenues.
QUESTION:
Governor, would you consider restoring the VLF tax?
There is talk about that now among Democratic leaders.
GOVERNOR:
I think that would hurt the economy too much, because
as you know, we have a severe drop in cars right now,
which is more than a 30 percent drop and the car
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companies and everyone are really hurting right now. And I remember when
we introduced the last time the illegal Vehicle License
Fee and we saw a huge plummet in the car business.
The car business took a huge dive and no one wanted to
buy cars, so I don't think that we should go there.
I think what we have proposed here is a good proposal
that will take care of, like I said, to deal with the $11.2
billion shortfall in revenues this year and also will create
an economic stimulus package to put people to work and
to keep people in their homes. And I think that if we solve
also this problem with the unemployment insurance, like I
said, because there were benefits given but without any
additional revenues and you can't do that. So it eventually
catches up with you and I think we have to deal with it
now and I think with the combination again where you
meet in the middle, where everyone takes a little hit, I
think is the way to go.
Yes? You have been waving a lot.
QU ESTION:
GOVERNOR:
QUESTION:
GOVERNOR:
Yeah. (Laughter) I thought you were ignoring me.
Yeah, okay.
You still have the two-thirds problem. You could not
deliver the Republican votes last time for a tax increase.
What makes you think, even given this deadline, you can
deliver Republican votes this time?
I think that we have two changes here. One is that we
are now after the election, which makes it easier to deal
with those kind of things. And second of all, we are living
in a different world now. I think what has happened since
we have done the budget in our economy, in the stock
market and worldwide, has been a huge shift and I think
that our economy has come down considerably because
of that now, revenues have come down considerably.
When you see a drop of $11.2 billion because of this
problem here and because of our stock market and we
are relying so much on capital gains, I think that everyone
here has gotten a wakeup call, that this is not just where
we can debate something. We are running out of money.
QUESTION: Could you elaborate on the first one? What do you
mean, the elections?
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GOVERNOR:
QUESTION:
GOVERNOR:
Genest, please.
Before elections, I think that it's very difficult for some
people to make decisions, because remember, we are
still in a profession here where getting elected sometimes
is more important than really doing something what is
right. So it's just the way it works in politics, sadly but
that's the way it is. And so I think that after the election
there is more will there and therefore we have a much
better shot of getting this done.
Governor, in 2006 you opposed the oil severance tax, I
believe, it was on the ballot. And this time, you're
proposing raising or adding an oil severance tax. Do you
have any concerns this will lead to higher gas prices, hurt
the economy at a time the economy is struggling here?
Oh, we have been concerned about all the different
effects that all of those things have, what effect it has
when you decrease education spending, what effect it
has when you increase sales tax, what effect it will have
when you run out of unemployment insurance funds, all
of those things. Yeah, we have looked at that. But I think,
like I said, this is a different now, two years later and
that's why we have to really make drastic -- a drastic
situation like this takes drastic measures and it needs to
take those measures right away. That is the important
thing.
Thank you very much, everybody. And now Mike
DIRECTOR GENEST:
We're going to try to do this in two steps, since obviously you're going to
have a lot of questions about the budget itself but there are also other issues
that are proposed in the special session. So we have other officials of the
administration here to answer questions. We thought we'd try to start with
the budget questions, get that out of the way. Our experts from the
Department of Finance will be here. They'll be answering some of your
questions. And when we're done with the budget segment they'll go back
over to the Department of Finance conference room. If any of you have more
detailed follow up questions for them, they will be available over there
immediately after this.
So let me just start by just reiterating something the Governor said about the
urgency of our current situation. You can see, this chart here shows the loss
in revenue that we are now projecting and that is a precipitous drop in our
revenue. Focusing on this year, we go from 101 to 91 and you've got some
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other things in the prior year that adds up to the 11.2, or 11.3 that the
Governor was mentioning. That is a monumental change in just a few
weeks. It was only a couple of weeks ago when we were saying the drop
would be about 3 billion and then after projecting that, you can see what
happened. This is not the economy but this is the stock market. And we
signed the budget, the Governor signed the budget in here.
So we were taking this into account a little bit. The budget was mainly based
on our forecast from May. But after the signing of the budget we realized
things were going a little south on us. We did a preliminary estimate of about
a $3 billion shortfall. And then, in the month of October, everything just went
nuts. And I think the stock market is the best way to show that. That is what's
driving, the biggest single reason for this drop in revenues is the drop in the
capital gains estimate and that is being driven primarily by that stock market
result. It all happened in the last couple of weeks.
So we're in a crisis situation, it demands quick action. And it's not just
demanding quick action because we'd like to fix our budget, it's a lot more
real world than that. We are now projecting that we will run out of cash --
well, we're going to get uncomfortably low next month but we can probably
make it through next month. But in February and March, we'll be out of cash.
Now, that doesn't mean that we would stop paying every bill. Of course,
there are a lot of priority payments like debt service on bonds, school
payments and so forth, we will continue to pay in any event. But that means
that if we do nothing there will be people who are owed money by the state
and that we're not going to be able to pay them. So there is really no
alternative here than to take quick action.
I would also say that often we are able to sort of paper over, or
accommodate these kind of shifts with some temporary type moves. We're
not able to do that this time. We've looked at our options. We don't have very
many options and they're not adequate to solve this problem. We have to
change the spending and we have to change the revenue and that's what
the special session budget proposal would do.
If you look on page 3, you'll see an itemization of all of these changes in the
budget and it's broken down. You see the revenues are in one area and the
spending cuts are in another. And for convenience, we've also shown the
kinds of changes that we have already put in place in the enacted budget
and you can see that -- if you just look at the special session, about 51
percent of what we're proposing to do to fix the budget is in the area of
revenue increases and about 49 percent is in the area of spending
reductions. But if you look across what we did in the Budget Act for this
same year's budget, it's 40 percent revenue, 12 percent borrowing and 46
percent budget reductions, spending reductions.
So any way you look at it, it's a balanced approach and I think that's the key
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to this the Governor mentioned, in urgent times like this you have to take a
balanced approach and everybody has to take a bit of a haircut and that's
how this is essentially designed.
I'm not going to get into the details other than to answer your questions. I'm
going to ask our program budget managers from finance to start coming up
here in case we need to get them on stage to answer some of your more
detailed questions.
QUESTION/ANSWER:
QUESTION:
by, I think it's $12.
Mike, you have a proposal in there to increase the VLF
GENEST:
No. It does not increase the VLF. It increases the
Motor Vehicle fees but not the -- there is a distinct
difference. The tax that the Governor rolled back, which
we at the time -- and I think everybody agreed with us --
thought was illegally raised by the previous
administration. That was the Vehicle Licensing Fee. At
that time that fee was up to 2 percent of the assessed
evaluation. The Governor rolled it back to where it should
have been, which is about two-thirds of a percent of
assessed evaluation and that's where it remains and
that's where it will remain under this proposal. There are
licensing fees that are charged, that are used to support
the operation of the Department of Motor Vehicles and
the operation of the CHP and other things that are related
to the licensure of your cars, your own license, etc. Those
fees will be increased by $12 to accommodate the idea
that we're going to remove what's left of the state's share
of that old VLF tax and give it all to local governments so
that they can use it for essentially law enforcement
programs. So we're trying to save and protect from these
cuts those law enforcement programs by not using the
VLF to pay for the operation of DMV, etc. but in order to
do that and still keep DMV and CHP running, we have to
raise the Motor Vehicle Fees, which are a separate --
they're a fee, not a tax. The VLF was a misnamed fee. It's
actually a tax.
QU ESTION:
Didn't you -- and I've lost track of it but didn't you in this
current budget already increase a share of that?
GENEST:
QUESTION:
Yes.
So this is in addition. So in effect, you're raising this
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section of the fees by $23-some, so it's additional money, ifs not -- youlre
not talking about the same amount?
GENEST:
I donlt know if I know the exact figure. What's the total
impact, between the Budget Act and this proposal, Mark?
We did $11 in the regular budget and this is $12, so
HILL:
thafs $23.
QU ESTION:
So it's actually, in January 1 st or February, it's going to
be $23 more, correct?
GENEST:
Right.
QUESTION:
QUESTION:
Thank you.
Mike, can you just macro -- back up into a macro
moment? When 11m trying to figure out your solutions --
you know, you've identified a budget gap of $11.2, which
I know is not all in one budget year, right?
GENEST:
QUESTION:
Right.
So in other words, 11m trying to understand how you
worked back from it. And I guess one way of asking you,
to start it, is are you proposing to eliminate that shortfall
completely in this special session document, or are you
still left with some work to do afterwards?
GENEST:
Well, this is a complicated question and a complicated
answer. I'll try to do my best to keep it simple. But
number one, you're correct about the 11.2, is last year we
made a slight adjustment, .5 billion or so and now this
year is where the bulk of that falls.
Now, it's not a budget shortfall, it's a revenue shortfall.
Because normally when we talk to you we're identifying a
budget deficit or a budget shortfall that welre trying to
solve and that includes problems on the spending side
and problems on the revenue side. This is a very unusual
proposal and a very unusual situation, because we are
still working on the spending side and there will
undoubtedly be spending pressures that we have to do
something about; caseload increases, population
increases in our prisons, etc., that we have yet to price
out.
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But given the magnitude of the revenue shortfall, we've
taken this unusual step of putting out a revenue update
today and basing solutions around that, because it's just
so big we can't wait until we have the whole budget done.
Okay, that's one thing. It's not budget deficit number, it's
a revenue shortfall number.
Now, there is no actual requirement to bring us back to
even. If we have an 11.2 loss against our budget, there's
nothing that says we have to restore, through various
solutions, the entire exact 11.2. For one thing, when we
signed the budget, we did have a reserve. So we are
proposing 9.2 in solutions for the current year, their value
in the current year, which is actually remarkable, if you
think about it, because we were already a third of the way
through the current year. So, virtually all of these are
ongoing kinds of changes, so they'll have a much larger
impact next year than they have this year.
And the key test for this year is, can we make it through
the year on a cash basis? Now, we've looked at our cash
flow numbers against these solutions and, even though
we don't solve the entire 11.2, we solve enough of it so
that we won't have a cash problem the rest of the year.
But let me point out, that's not true if we don't get this
done right away.
QUESTION:
But you're proposing solutions of 9.2 to get you to solve
the 11.2? I mean, to get you closer to it?
GENEST:
Yes.
QUESTION:
GENEST:
I'm just trying to make sure I've got the full --
Yeah. And getting closer to it, as you'll -- I think the
way to understand this is to read just in the introduction
those bullets. Getting closer to it is the key thing. There
are two rules. Number one, you can't go broke. And so
we know if we get these solutions we won't go broke,
we'll have cash to make all of our mandatory payments
and our legal obligations throughout the entire year.
And number two, when you have a problem like this, this
year, it's not a good sign for next year. So if you were to
solve this year's problems, even if you solved them
entirely with temporary, one-time things, you're building a
really big problem for next year.
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So we're doing two things here. We're making proposals
that will allow the state to get through the year in good
shape on a cash basis and it will also set us up for a
much better budget next year. And that's not a luxury.
We're not doing that because oh, as long as we're at this,
let's just try to help next year's budget. No, we have to do
that, because if we don't, we'll take that -- if we did
nothing, in addition to running out of cash this year, we
would take that entire 11.2 and put it into next year, into
next year's problem, which would double, or more than
double, probably, next year's problem to solve.
So it's absolutely essential. Do it now so that we can stay
solvent and do it now so that we can avoid next year
being a catastrophe.
QUESTION:
Mike, on the (Inaudible) services, what was the thinking
on picking those services?
GENEST:
Well, there are two layers of those services. One is,
you know, that the Governor's tax commission -- which is
also something the Speaker, obviously, is much
interested in -- recognized and if you read the executive
order, that our tax system is based on an economy that's
not really our economy any more. We used to be much
more heavily oriented towards goods and now we're
much more weighted towards services. So I think it's
pretty generally accepted among economists, the best
way to deal with a tax system is to have the broadest
base and the lowest rate. Well, we're going to have to
raise the rate, because we have no choice fiscally. But
we do think broadening the base makes a lot of sense.
And we've chosen these particular services because
they're administratively more feasible immediately. Auto
repair, for example, there's already cash registers that do
sales tax in auto shops, because when they sell you your
oil filter they put sales tax on it. When they sell you the
service of putting the filter in your car, they don't. So for
them to reprogram and just charge it for both is a little
easier than to go, for example, to an accountant or a
lawyer and say hey, guess what? You've got to get a
cash register and start charging sales tax.
So there's an administrative feasibility here but there's
also a policy rationale that you want a tax system that's
broader based.
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QUESTION:
GENEST:
that.
HILL:
QUESTION:
HILL:
QUESTION:
GENEST:
QUESTION:
GENEST:
Is the golf -- that's on greens fees?
Is it, Mark? I don't even know greens fees. I don't do
Any amount that you pay if it isn't already taxed.
Yeah, that's my question. That's not taxed today? If
you're playing 18 holes of golf you don't pay a tax? Not
on the cart or anything?
(Inaudible)
The cash flow borrowing, up until now has been $7
billion for the year. Does the state now need to go ahead
and borrow more money to get through to June 30th?
I think the answer is no, if we get these solutions,
because you're' starting all over and redoing your
calculations. We've got the 5 billion and that's what's
getting us through the next month or so. We did borrow
that and it's in the bank and it's being used to prop up so
that we have the cash cushion to get through the next
few months. But we didn't get the 2 but now with these
solutions, when we do the math again, I think these
solutions, without any more borrowing, would work. We
may still want to do a little more borrowing but we
wouldn't be in a position to do that until we've got our
budget back in order.
So you wouldn't need to do the additional 2 if you get
these solutions? Or you would still need to do the 2,
including these solutions?
I think we'd have to wait and see exactly which
solutions we get and how fast we get them and what else
is happening. Because, you know, we also -- this is a
preliminary estimate. The numbers could get worse. They
might get better. I don't think they're going to get a lot
worse or a lot better. We've been pretty conservative in
these forecasts. But I don't think we've been so
conservative as to think that there is just a sunny day
right over the horizon. I don't think that's the case. So
these are preliminary.
Plus we haven't yet accounted for the spending
pressures that are built into our programs. So I can't rule
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Goyernor Announces Plan to Address Budget Emergency, Stimulate Economy - Remarks by Governo... Page 16 of 23
out the prospect of more borrowing. I can say that now,
with this announcement of this size of a deficit, I can't
imagine us being able to borrow until the legislature gives
us the solutions to put us back on an even keel.
QUESTION:
GENEST:
(Inaudible)
Other than during a late budget. Every year in the
budget, when the budget is late, there are bills that we
should be paying that we're not, so you know about that.
QUESTION:
GENEST:
Has it ever defaulted on bonds or --
No, never defaulted on bonds. We have paid in the
past warrants, registered warrants for certain debts.
Those, for many purposes, those have been ruled out by
the courts, so we don't have that option anymore.
QUESTION:
GENEST:
(Inaudible)
No.
QUESTION: Do the bonds have any kind of claim on the treasury?
When we reach the point where we get toward out of cash, that they
get money before schools or --
GENEST:
Absolutely.
QUESTION:
How does that work?
GENEST:
Well, the bonds are -- the debt service on bonds is
appropriated in the Constitution and it is the second
priority for expenditure of any money in the state
treasury, the first being just a portion of the school
allocation. So the bonds in the school -- our revenue will
never get so low that we couldn't easily make those
payments. So the threat here isn't to go into default, that's
not the issue. The issue is being unable to pay bills like
our Medi-Cal bills or the vendors who run our computer
systems. If it got bad enough, we could even have a
problem with payroll. So running out of cash is a really
bad thing but I don't want to raise the specter of default. I
don't think that's in our future at all. I think we're very
comfortable about that.
QUESTION:
Just to stay on the bond threat for a moment -- the
Governor is proposing an acceleration of bond-
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Goyernor Announces Plan to Address Budget Emergency, Stimulate Economy - Remarks by Governo... Page 17 of 23
offererings related infrastructure projects, which is going to come with a cost
as well, to everything we're talking about. In other words -
GENEST:
QUESTION:
GENEST:
QU ESTION:
GENEST:
QUESTION:
GENEST:
QUESTION:
GENEST:
We've already got those costs built into our long-term.
The acceleration will slightly accelerate when they start to
hit but they are still several years out.
How do you define 'slightly'?
Probably a couple of years, maybe. I'm not sure. I
think it will depend on the particular project. It also
depends on when the treasurer chooses to sell bonds.
Because we don't sell bonds as soon as we start a
project. It could be several years after the project is done
before we finally go out and sell the bonds. So I don't
think it's possible for me to predict exactly how much this
speeds up or when it when it speeds it up. But it's not a
substantial impact on the budget.
So where's the stimulus from that, then?
Hmm?
Where is the stimulus? He's talking about the
acceleration of the bonds but if the bonds aren't going to
be sold right away, how does that --
Well, we still do the project, we still pay the vendors.
They still pay their workers. The way you do the project is
you do it with intermediate-term borrowing that we have a
variety of vehicles for doing that. We can borrow from
internal funds called the 'Pooled Money Investment
Account', we can borrow on the market, Bond
Anticipation Notes, we can use commercial paper. There
is a variety of mechanisms the treasurer has at his
disposal to finance the time between when we need to
make a payment and when we think it's the right time to
sell a bond.
(Inaudible) how fast do you think -- the legislature
comes in this month, they approve this accelerated
spending of the bonds. When does it actually -
I know that it budget related but can I defer that to the
next segment? Because we have Will Kempton and
others here who can really speak to that with more
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GQvernor Announces Plan to Address Budget Emergency, Stimulate Economy - Remarks by Governo... Page 18 of 23
certainty.
QUESTION:
On the school cuts, are you worried that this is going to
be disruptive, because the school year is already
underway?
GENEST:
Yes, the Governor is very concerned that this is a
problem. It's going to be difficult. We've done some things
in the way we've done it to make it as easy as possible
but no one can say it won't be difficult. It's going to be
hard for schools to accommodate. These are tough
times. We're doing very difficult things across-the-board,
unfortunately. And I think if the Governor could, he would
exempt schools but there is no way to do that.
QUESTION:
Mike, can you talk about the impact on state services,
the furloughs and other proposals have related to state
employees?
GENEST:
State agencies are definitely tightening their belts. It
goes beyond the furloughs. In the enacted budget we
have hundreds of millions of dollars of unallocated cuts to
state agencies where we're saying to them, you're just
going to have to find a way to get by with less money.
And we've been doing that for quite a while. So we think
we're putting a lot of pressure on state agencies but we
have great agency secretaries and great department
directors and we think they can accommodate the cuts
we've asked them to do so far. Most of them have signed
up for voluntarily agreeing to a certain level of cuts in
exchange for not having to follow the particulars of the
Governor's executive order on the hiring freeze and all
that, because most managers -- not just state managers -
- would, if you tell them they're going to be cut, they'd
rather you just give them a target and let them manage to
that target rather than telling them layoff 10 of your
people, or whatever. So it's belt-tightening time at the
state, there's no question about it. We think we can
protect vital services and still get these savings.
QUESTION:
Mike, did you -- this might have been something you've
already answered but the prison receiver is demanding
payment. Are you guys -- there's the threat of contempt of
court. Are you guys just not going to pay that?
GENEST:
You know, I think I need to have that discussion, or the
administration will be having that discussion, with the
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Goyemor announces Plan to Address Budget Emergency, Stimulate Economy - Remarks by Governo... Page 19 of 23
judge in the court and I don't think talking about it here is a good idea.
QUESTION:
GENEST:
MATASANTOS:
GENEST:
QUESTION:
GENEST:
QUESTION:
MATASANTOS:
QUESTION:
GENEST:
QUESTION:
(Inaudible)
GENEST:
We have, however, in our cash flow analysis,
accommodated a variety of budget threats, including the
possibility that that money has to be spent.
Do all the estimates here represent a December 1 st
enactment date? And if that's no met, how much of these
savings do you lose each week or month?
Ana?
(Inaudible) specific ones. It depends. Some of the
revenues, some it's January, some it's February, some
it's March and (Inaudible) proposal based on how much
time is needed in order to be able to achieve the savings
and implement the proposals.
We can get you that detail if you want to go over to the
But it would be significant under the --
Right. It's always the case. The longer you wait, the
harder it is. The longer you wait, the less you get for
these things, so you have to do more things. And that's
one of the reasons for urgency here.
Could I just follow up on that? In terms of taxes on
services, is there an outside date by which all of these
would be enacted to have some significant impact on the
budget this year?
There is specific implementation information in the
document. Generally, we're looking at January 1 st for
most of the revenues. We're looking at February and
March for phasing in the sales tax broadening.
And those are permanent taxes? Is that right?
The sales tax, 1.5 cents, is temporary, the same as in
the Governor's August compromise.
The expansion of the (Inaudible) oil service tax
Right.
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Goyernor Announces Plan to Address Budget Emergency, Stimulate Economy - Remarks by Goyerno... Page 20 of 23
QUESTION:
GENEST:
QUESTION:
increase?
GENEST:
MAT ASANTOS:
QUESTION:
MAT ASANTOS:
QUESTION:
GENEST:
QUESTION:
KEMPTON:
Mike, how is this going to affect the RANs that the
treasurer was thinking about doing and --
Well, that was the question earlier. At this point we're
obviously not going to be able to sell the additional 2
billion in RANs. Who would loan us money until we get
our budget back in shape? But we hope to get our budget
back in shape and then we may, in fact, need to go out
for more RANs. But we'll have to see how that plays out. I
think -- maybe we should segue into the portion that has
to do with UI and the mortgage proposals and the
stimulus. If I can get our various administration officials
who are expert in those subject areas to come up, we
can -- budget questions can then happen over there in
the Department of Finance conference room. We'll be
available.
Real quick on the sales tax -- it ends after 9/10, the
After 9/10 --
It's three years.
Three years. Is that in July, or-
Starting in January.
So it's a calendar year?
So, mortgage, UI, stimulus -- there was a question
earlier about CEQA, Will is here to answer that, or Lester.
So weill just see what questions you have and then the
right person will come up and start answering. Unless
you have none.
A question for Will. It's Will's turn. Just how quick can
you get something happening?
Well, we've identified about $821 million worth of project
work that is at least partially 1 B funded that we think we
can move forward quickly. And the whole idea is
obviously economic stimulus, so the sooner we can get
project work out, the sooner we can get shovels in the
ground, the more economic stimulus. One of the positive
features of this is that, because of the state of the
economy, the construction industry is very hungry. And
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Goyemor Announces Plan to Address Budget Emergency, Stimulate Economy - Remarks by Governo... Page 21 of 23
so the more work we can put out right out right now, the better bids we're
getting and so it's a lower cost. Literally, for every five
projects we go to bid with, we've got enough money to do
another project. So that's some good news in all of this
doom and gloom. But we are doing our best to identify
that project work which we can get out sooner and create
jobs. For every billion dollars of capital investment we're
creating, by the California Business Roundtable's
calculations, 18,000 new jobs.
QUESTION:
KEMPTON:
QUESTION:
KEMPTON:
But can you -- like March, April? Can we see things
happening if the legislature acts here?
Yes. We'll be seeing things. We're talking about the
2009 calendar year and what we can advance in that
timeframe. We're also looking beyond that. Secretary
Bonner of the Business, Transportation and Housing
Agency is very interested in longer term economic
development, so we're looking at all aspects of the bond
program to see how rapidly we can move it forward.
Will, could you be more specific in terms of the
environmental regulations? And if you're going to still
require compliance with CEQA, how can you know what
environmental mitigations you need without doing an
EIR?
Well, let me answer the first part of the question first. If
you remember, back in 1994, we actually got exemptions
from CEQA for much of our toll bridge seismic retrofit
program. That was an emergency issue. We think this,
the state of the economy, is a similar type of an
emergency with respect to needing to respond to a
serious problem. And so we're going to take some of the
same kind of exemptions that we received back in 1994
and ask the legislature for that kind of relief. So we would
identify a group of projects that would be exempt from
CEQA for some period of time and then we would also
ask for imposition of a permit accelerating process which
will allow for early settlement of permit issues.
And the fact of the matter is that the CEQA exemptions
would, in fact, if we are granted that authority, we still do
a -- stewardship is one of our five strategic goals. We pay
very close attention to what we're doing with respect to
our projects. We take care of water quality, noise
attenuation, air quality issues. And so we would still
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Goyernor Announces Plan to Address Budget Emergency, Stimulate Economy - Remarks by Governo... Page 22 of 23
QUESTION:
KEMPTON:
QUESTION:
KEMPTON:
QUESTION:
KEMPTON:
GENEST:
unemployment?
QUESTION:
HOFFNER:
continue to follow our generally green standards for the
implementation of those limited number of projects that
might be exempt.
And then the Governor will have to use his bully pulpit to
try to seek similar exemptions from the federal level,
because obviously we don't have control over what
happens in Washington.
But can you give us some specific examples of what
kinds of environmental harm might be caused by these
projects that would be mitigated if you weren't exempted
from CEQA?
I don't think we would see any environmental harm.
That"s the point I was making. We follow very rigid, strict
standards from our own perspective. We know what the
environmental laws say and as long as we"re building
those mitigations into our projects, which we intend to do,
what we"re talking about here is limiting process and
allowing us to get those shovels in the ground earlier.
So you're explaining this as a paperwork issue?
Well, much of our CEQA and NEPA requirements are
process and time related.
So how much time do you save by doing that?
It will depend on projects, depending on where we are
in the delivery pipeline. But you know, if you could
exempt a project from CEQA, depending on the level of
environmental documentation, you could save as much
as a year.
Questions on any of the other stuff? Mortgage,
On unemployment, what are your plans there?
I'm Doug Hoffner, acting secretary for the Labor
Workforce Development Agency. The Governor's
proposal would be to increase the taxable wage base
from $7,000 -- which is the federal minimum -- to
$10,500, starting in 2010. It would also include an
increase to the maximum tax structure from 6.2 percent
to 8.1 percent for across-the-board. So what you're
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Go_vernor Announces Plan to Address Budget Emergency, Stimulate Economy - Remarks by Goyerno... Page 23 of 23
looking at is an increase, depending on the tax-rated employer, between $56
to $413 over that period of time.
QUESTION:
What were those numbers?
HOFFNER: Between $56 and $413, depending on their tax rating
and how well they do when it comes to keeping employees employed versus
those that move off.
QUESTION:
HOFFNER:
So that's per employee?
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12/5/2008
Special ~ession 2008: Unprecedented Decisions in an Extraordinary Situation - Governor Arnold Schwa... Page I of 3
. '
. Office of the Governor
ARNOLD SCHWARZENEGGER
THE PEOPLE'S GOVERNOR
Home About Arnold About Maria Newsroom Multimedia Issues 810g Interact Appointmen'
Special Session 2008: Unprecedented Decisions in an
Extraordinary Situation
11/6/2008
Unprecedented Decisions in
an Extraordinary Situation
Sudden Changes In Our
Economy Demand a
Combination of Difficult Cuts
and New Revenues
Economic conditions have
deteriorated radically since the
Governor signed the 2008
Budget Act on September 23.
The volatility in our nation's
financial markets has affected our budget - which is too reliant on Wall Street gains -
to a point where the state faces the very real possibility of running out of the
necessary cash to meet all its obligations. Critical state services could be
jeopardized. California is facing a hole of $11.2 billion in lower revenues than when
the state budget was signed just six weeks ago. To remedy the urgent situation, the
Governor is prescribing a combination of cuts and revenue increases - all of which
must be taken as quickly as possible to prevent a cash crisis and an even larger
budget problem next year.
BUDGET SOLUTIONS
Necessary Budget Adjustments: With $11.2 billion less revenue than we
anticipated just six weeks ago, it is necessary to immediately make cuts to our
budget. The Governor is proposing $4.5 billion in cuts to the current-year budget. All
of the cuts are painful, but essential to ensure the state can protect vital services. The
major budget adjustments are:
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RELATED CONTE~
.. Press Releal
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.. Photo Essa~
.. Video
.. Budget IssUl
.. PDF - Mortg.
Foreclosure
.. PDF - Cuts 8
.. PDF - Emplo
Stimulus
.. PDF - Uneml
Trust Fund
.. PDF - Comm
21 st Century E
PHOTO ESSAY
CLICK TO ENLARGE
12/5/2008
Special Session 2008: Unprecedented Decisions in an Extraordinary Situation - Governor Arnold Schwa... Page 2 of 3
Proposition 98 Education Funding. Because education funding is based on revenues,
and revenues have fallen, funding to the Proposition 98 guarantee also drops. The
Administration proposes total Proposition 98 expenditure reductions of $2.5 billion,
which keeps education funding at approximately $122 million higher than the
minimum guarantee.
Higher Education. $132 million in reductions are proposed for higher education
segments, including $65.5 million to the University of California system and $66.3
million to the California State University System.
Supplemental Security Income/State Supplementary Payment. Reduce SSI/SSP
grants to the federal minimum effective March 1, 2009, which would result in General
Fund savings of $348.9 million in 2008-09
CaIWORKs. Modifying the Safety Net program, making certain benefits consistent
with other CalWORKs benefits, instituting a face-to-face self-sufficiency review every
six months for some CalWORKs families, and reducing CalWORKs grants by 10
percent effective March 1, 2009, would result in General Fund savings of $273.9
million for the current fiscal year.
Employee Compensation Changes. Requiring state employees take a one day
furlough each month, eliminating two state holidays (combining Lincoln and
Washington days into Presidents Day, and Columbus Day) and premium pay for
hours worked on all remaining holidays, as well as eliminating the ability to count
leave time as hours worked when computing overtime will result in General Fund
savings of $320 million in the current fiscal year. Additionally, the Governor proposes
changes that would give state agencies the ability to establish a ten-hours-per-day,
four-day workweek.
Department of Corrections and Rehabilitation (CDCR): To realize saving in
corrections, the administration proposes implementing parole reforms that protects
public safety while cutting costs. This will be done mostly through parole reforms
where high risk offenders who have committed serious, violent, or sexual crimes
receive full supervision on parole while low-risk non-serious offenders receive no
parole supervision after their release from prison. These reforms will save $78.1
million in 2008-09 and $677.6 million in 2009-10.
Public Safety Grants: By proposing a funding realignment for public safety grants we
are protecting funding for core public safety activities while realizing General Fund
savings of $250 million in 2008-09. Booking fees, the COPS and Juvenile Justice
programs, and juvenile probation would receive stable, non-General Fund support
going forward.
Medi-Cal. Reducing California benefits to the level provided in most states, and
ceasing to provide some optional benefits for adults will keep California providing
more optional benefits than most states and will save the General Fund savings $41
million in 2008-09 and $129.9 million in 2009-10.
A Revenue Problem: While Governor Schwarzenegger has worked to fix the state's
spending problem, and has kept state spending relatively flat for the past three
budget cycles, the dramatic drop in our revenue projections over the past six weeks
presents an extraordinary situation which, combined with the volatility of our tax
system, creates a revenue problem. Raising taxes is never a good idea, but in this
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12/5/2008
Special Session 2008: Unprecedented Decisions in an Extraordinary Situation - Governor Arnold Schwa... Page 3 of 3
extraordinary situation, there is no question that new revenues must be brought into
the state to protect education and vital services. The Governor is proposing $
4.7billion in new revenues for the current budget year in the form of:
A Temporary Sales Tax Increase: A temporary increase in the state sales tax (from 5
percent to 6.5 percent) will generate additional sales tax revenues of $ 3.5 billion in
2008-09 for the General Fund. It will also effectively protect significant education
funding. At the end of three years, the state sales tax would revert to 5 percent.
Broadening the Sales and Use Tax to Include Certain Services: Effective February 1,
2009, the sales and use tax rate will be applied to appliance and furniture repair,
vehicle repair, golf, and veterinarian services. Effective March 1,2009, the sales and
use tax rate will be applied to amusement parks and sporting events. This is
expected to generate additional General Fund sales tax revenue of $357 million in
2008-09.
Oil Severance Tax: Effective January 1,2009, impose an oil severance tax upon any
oil producer for the right to extract oil from the earth or water in this state. This brings
California in line with other states. The tax shall be applied to the gross value of each
barrel of oil at a rate of 9.9 percent and will generate additional tax revenues of $528
million in 2008-09.
Increase Alcohol and Excise Taxes: Alcohol excise taxes are proposed to be raised
by five cents a drink beginning on January 1, 2009. This increase is estimated to
raise $293 million in 2008-09. Revenues from this tax will be used to fund critical drug
and alcohol treatment and prevention services. Alcohol taxes were last raised in
1991.
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12/512008