CapitolWeek Transcript 5/4/01

 

Davis leadership on energy – Housing shortage

 

((Jack))

Thanks for joining us.

California’s difficult summer of blackouts begins with the start of May.

 

State officials predict a minimum of 80 hours of blackouts, and the uncertainty of the power crisis has impacted other areas, specifically the cost of housing.

Melissa Crowley takes a look at the lack of affordable housing later in the program.

 

But we begin with this week’s developments in the energy crisis.

Governor Davis released his financial plan that shows the state will spend more than 18 billion dollars to buy electricity through June.

 

Republicans put forth an alternative suggesting the state absorb electricity costs with the budget surplus, versus having consumers pick up the tab with bonds.

 

Some power generators say the answer is more plants, more conservation, and more long-term contracts.

 

Finally, Vice president Dick Cheney, who leads an energy task force, says increased supplies should be the focus, not price controls or conservation.

 

On now to a what political insiders are saying behind the scenes at the state capitol about our energy crisis

 

@ ISSUE

 

((Jack))

At issue this week, leadership.

Is the Governor leading the state in the right direction?

 

Gray Davis has been criticized by Republicans for not taking action sooner.

He has been criticized from both sides of the aisle for not revealing details of power purchases sooner.

And consumer advocates say his transmission grid buy-out is a bail-out in disguise.

 

In fairness, supporters point out that the energy crisis is a complex situation that he inherited from Pete Wilson

 

Joining us now to debate how the Governor has handled the energy crisis:

 

Steve Maviglio, Press Secretary for Governor Gray Davis,

 

And Dan Schnur, Republican Consultant and former advisor to Governor Pete Wilson.

 

Steve, let me begin with you.  This is all about leadership.  The Governor’s plan seems to be to borrow our way out of this crisis, and that’s not getting a warm reception in the legislature.  What’s happening? 

 

((Steve Maviglio, Governor’s Press Secretary))

Well, no one disagrees that the Governor was dealt a very bad hand on this.  We had twelve years of neglect in this state.  Not a single major power plant licensed.  The Governor moved quickly when he stepped into this office and got thirteen power plants licensed since he was elected.  We can’t solve this problem overnight, but he’s working very hard.  What he’s doing is setting up the rate increases so that we bond the rates and have smaller increases over a longer period of time, rather than the instant rate jack of  240% which the utilities would have preferred.

 

((Jack))

When we think of the legislative process, we think of a political leader who goes into the legislature and takes names and twists arms and gets the job done.  This doesn’t seem to be happening right now.

 

((Steve Maviglio, Governor’s Press Secretary))

Well, this is a democracy, and everyone wants to weigh in on this, and we have financial implications on Wall Street.  We have political implications here in Sacramento.  It’s very difficult to walk that narrow line.  He has met with legislators right and left.  A complex problem here is that we have to get two-thirds of the votes for a lot of things because we're in a special session where we need Republican votes, and we did have that early on.  Now the Republicans seem to be throwing obstacles in the way and stamping their feet, but offering no solutions.

 

((Jack))

That does sound true.  The Republicans have been very quiet about this just letting the Governor basically politically spin in the wind.

 

((Dan Schnur, Republican Political Consultant))

Well, legislators from both parties have been very frustrated, not only by the lack of leadership, but by the lack of direction they’ve gotten out of the Governor’s office.  It’s not just Republicans, and rather than Steve and I debating back and forth, I think it’s worth noting that several of the Governor’s strongest allies in the legislature have been very critical of that lack of leadership also.  Democratic Assemblywoman Carol Migden: “I think the Governor should peek out from behind the curtain and tell Californians what he intends to do to solve the crisis.”  Democratic State Senator Dee Dee Elpert: “Deeply disappointed with Governor Gray Davis, we need the Governor’s leadership.”  Democratic State Senator John Burton: “Everybody wants him to step forward.  They aren’t happy campers.”  And it goes on and on through the legislature.  Not so much a lack of willingness on the part of the legislature to consider alternatives, but a frustration that the Governor hasn’t been very forthcoming with them.

 

((Jack))

Steve?

 

((Steve Maviglio, Governor’s Press Secretary))

Well, I think a lot of legislators are upset that they can’t negotiate the deals that the Governor has been doing.  They gave him the authority and said, “Go ahead.  You see what you can come up with.”  That took a while.  This is a multibillion dollar transaction; we couldn’t do it over night, so there was some sense of frustration while those were going on, which is where most of the those quotes were pulled from, that they didn’t have their hand on the situation.

 

((Jack))

We are taping this program on Thursday, so viewers know where we are.  The programs airs on the weekend throughout California.  Yesterday, the Lieutenant Governor and a member of the legislature decided to sue five electricity generators.  They took a stand that was very similar to what Gray Davis did when he was Attorney General, and he sued as a private citizen against tobacco companies.  The question is, did the Lieutenant Governor upstage the Governor?

 

((Steve Maviglio, Governor’s Press Secretar))

No, he did what he had to do.  I mean, he’s addressing what the federal government hasn’t done.  We have an administration in Washington that’s adamantly opposed to any price caps, and there’s not a lot of control over these big generators.  The Governor has spoken out many many times against these folks—

 

((Jack))

And why didn’t the Governor sue?

 

((Steve Maviglio, Governor’s Press Secretary))
Well, we have investigation going on by the Attorney General and the PUC.  We’re waiting to get hard evidence to move forward.

 

((Jack))
Deregulation, that happened under your watch.

 

((Dan Schnur, Republican Political Consultant))
There’s no question that Governor Wilson and the legislature by bipartisan, unanimous votes, supported deregulation in the early 1990’s.  Back then though Jack, as you remember, the problem was an oversupply and a lack of demand.  California was in a deep recession the early 1990’s.  One of the constant complaints from job providers in California, along with workers’ compensation reform needs, along with high taxes for employers, was the cost of energy in the state, so, yes, he passed deregulation in order to make energy more affordable, but I think that everybody involved with that deregulation vote at the time, all the Democrats and all the Republicans, assumed that once the situation changed, and the recession ended and the supply and demand equation changed, that the people in office at that point would take decisive action.  The complaints toward Governor Davis’ leadership do not suggest that he caused this problem, but rather that when the nature of the problem, when the breadth and the scope of the problem became apparent last summer and last fall, he failed to act.  When prices skyrocketed in San Diego a year ago, Davis did nothing.  When the Republicans in the state assembly called for a special session last fall, Governor Davis did nothing.  An electricity problem became a crisis became an emergency before the Governor began to step in earlier this year.  That’s the frustration on the part of both Democratic and Republican assembly leaders.

 

((Jack))

Is that fair, Steve?

 

((Steve Maviglio, Governor’s Press Secretary))

No, let’s be honest here.  As soon as San Diego happened, the Governor moved forward very quickly and put forward a bill that capped rates in San Diego, and I think the people of San Diego are still very appreciative of that.  During that time, the federal regulators didn’t act.  There’s nothing the Governor could have done at that time to control wholesale power prices.  In fact, there still isn’t.  We had a board called the ISO that was responsible for setting caps.  They lifted the caps because the board was mostly made up of Wilson appointees and generators, so that was the situation that the Governor had at that time, and he also had a PUC that he didn’t have control with his appointees until January of this year, so he had all of the responsibility, but none of the authority.

 

((Jack))

It is not a scientific poll, but the vast majority of people who answered the question that we asked last week—and the question was: “if you had to make a choice between rising energy prices and blackouts, which would you choose?”  The vast majority said, “give us the blackouts,” and in the response in the e-mails that came in, they said, “We are incensed in paying these high prices to generators.”  That fits with a field poll from January.  Why aren’t we going in that direction?

 

((Steve Maviglio, Governor’s Press Secretary))

Well, we can’t.  It’s only the federal regulators that can control wholesale power costs.  We’re doing everything we can, believe me, in Washington to turn the administration around on that, but it’s simply out of our hands.

 

((Dan Schnur, Republican Political Consultant))

I think there are two points.  One, I think saying “It’s out of our hands” speaks to the lack of leadership that we’ve been discussing throughout this program.  Governor Davis—and I have great sympathy for Steve because I was a spokesman for Pete Wilson during some fairly tough times too, but Governor Davis and his advisors throughout have, instead of setting a clear direction for the people of California, have continued to attempt to lay blame.  On Pete Wilson.  On Bill Clinton.  On George Bush.  On FERC.  On utilities.  On providers.  Eventually, a Governor, a leader, has to say, “I didn’t cause this, but I’m going to fix it.”  At some point the finger pointing has to stop, and the solution making has to kick in.

 

((Steve Maviglio, Governor’s Press Secretary))

I think I’ve said that, and the Governor does have a plan, an aggressive conservation plan, the largest one in this nation.  We have a plan to cite more power plants.  Again, we have more power plants underway now than ever before in this state, and we also have a plan that we’ve worked very hard on with Southern California Edison to stabilize rates.  The Governor has said first and foremost to the people of this state that he was going to do what deregulation permitted, lower electricity rates.  We haven’t been able to do that because of federal decisions.

 

((Jack))

The Governor’s plan, which was released in the legislature this week, came along with a quote.  I think the term was the “Armageddon Scenario” that could possibly happen this summer.  What is that?

 

((Steve Maviglio, Governor’s Press Secretary))

Well, there are certain things we can’t plan like the weather and what happens in the Northwest in terms of the hydrofacilities.  Those things are out of everyone’s control except God’s.  What we did do is forecast a worst-case scenario, the worst, hottest summer, and plan something along those lines.  “Armageddon” is the absolute worst case.  We’re planning for the worst, but hoping for the best.

 

((Dan Schnur, Republican Political Consultant))

Once again, Jack, here is an example of a Governor and an administration failing to provide a clear direction.  Listen to what Gray Davis says, “We will work through this problem in thirty days or so.  I’ve been telling people that we’re on the backside of this crisis,” at the same time that the highest ranking official—

 

((Jack))

He also said that we could do this in the existing rate structure—

 

((Dan Schnur, Republican Political Consultant))

Of course he did, but my point is that at the same time that he is attempting to dampen people’s fears down, his top advisor, Susan Kennedy, is out using words like Armageddon.  Either we are in for a nightmare scenario this summer, or we’re not.  If we are, the Governor has a responsibility himself to talk straight to the people of California, not palm it off on aides to do it for him.

 

((Jack))

If Gray Davis is doing such a poor job leading us, show us which Republican you would suggest who would do a better job.

 

((Dan Schnur, Republican Political Consultant))

Which Republican would do better?

 

((Jack))

Yes.

 

((Dan Schnur, Republican Political Consultant))

Well, I suspect that once you see an energy plan, which I suspect you’ll see fairly soon, from either Bill Jones or Bill Simon, you’ll see much greater public support for that plan.  In the meantime, the Republicans this week, now that they’ve finally seen the numbers that they’ve been asking for from the Governor as it relates to his plan for week after week, have come up with an alternative that would use a large portion of the budget surplus to pay off the utility debt, rather than raising Californian’s utility rates.  These alternative plans, once they’re discussed in the context of the comparison are going to, I think, develop a great deal of public support, but until Gray Davis was finally willing to come forward with his plan earlier this week, it’s awfully hard to lay out an alternative.

 

((Jack))

Steve, let me give you the last twenty seconds.

 

((Steve Maviglio, Governor’s Press Secretary))

Well, I find it fascinating that, here we are two years into this and the Republicans still don’t have a plan on the table, yet they’re very adept at criticizing the Governor.  He has a plan; he’s laid it out; he’s spoken to the people at addresses.  Unprecedented in California’s history, we’ve got generation online and conservation online; we’re moving forward.

 

((Jack))

On that point, thank you very much, Steve Maviglio.  Thank you, Dan Schnur.

 

We’d like to know what you think.

How would you rate Governor Davis’s performance during our energy crisis?

Send us your thoughts to capitol week dot org

 

In a moment,

Melissa Crowley on real estate prices that are going through the roof.

But first, energy topped conversation at a capitol café.   Let’s listen in.

 

 

((Melissa))

So what impact is the energy crisis having on already skyrocketing home prices?

Home ownership in California is among the lowest in the nation.

 

For anyone that’s been looking for a new home, or scouting the market, it’s no surprise that prices are high and supplies are tight.

 

A government watchdog group says housing shortages not only drive prices up, but could steer business away from California.

 

The Little Hoover Commission will give its recommendations to the Legislature early next year.

 

So can we expect any relief meantime?

 

Let’s ask our guests:

Don Harris, the founder of The Nehemiah Corporation

And Tim Coyle, with the California Builders Association .

 

Thanks for being with us.  Tim, we’ll start with you.  We have an affordable housing problem, and now we have an energy crisis.  What does that add into the mix?

 

((Tim Coyle, California Builders Association))

Well, we do have an energy crisis, but as you state, Californians are finding it very, very hard to find housing that they can afford to buy or rent.  There are things that the home building industry can do to increase energy efficiency in the homes that it builds, and I’m pleased to report that we are doing that.  Homes today are thirty percent more energy efficient than ever before, and thirty-percent higher than any other homes built anywhere else in the nation are being built here in California.

 

((Melissa))

Right.

 

((Tim Coyle, California Builders Association))

At the same time, that comes at a cost, and we have to be careful not to make housing less affordable, but in the end, to solve our energy problem and to solve our housing problem, we have to increase supply.

 

((Melissa))

Will we see some innovation.  We’ve received some e-mails from viewers asking, “Why on earth are we still building if we have an energy crisis and not enough juice on the grid?”  We’ve heard all kinds of proposals.  Everything from having new home builders have to put ten percent solar on homes, but, Don, as we get down to it, is that another factor or another strike for somebody that trying to buy a new home in a really pricey market?

 

((Don Harris, The Nehemiah Corporation))
Well, it definitely is.  One thing that you have to remember is that when it comes to any type of added amenity or improvement to a home, that’s going to be passed through to the buyer, and, obviously, that’s going to affect who can buy that home, and keep in mind that one of the other big dynamics happening here in California is that we’re also experiencing a significant demographic shift so that the typical homebuyer if we compare to who they have been historically, is really different.  They’re more likely to be female.  They’re more likely be a minority as our demographics shift.  Along with that, there are more people with less access to capital, and, therefore, it really does become a challenge of how do you maintain affordable housing for the emerging demographics in the state?

 

((Melissa))

And I know you’re concern is that as we continue to look at how can you afford it if you’re someone that wants to buy their first home under a certain price ceiling.  The concept now is to built it out farther and farther away.  Is there another option that we maybe need to take a look at?

 

((Don Harris, The Nehemiah Corporation))
Well, I think so.  I think, ironically, one of the good things that may come out of our current challenge both in terms of energy and our shortage of housing is that people may begin to look at creative alternatives at how we meet our housing demand in terms of taking  a look at areas that have historically been overlooked for in-fill development and say, “Hey, let’s do something here.”  There’s been a real challenge trying to overcome the issues associated with multi-unit housing.  Construction litigation has eliminated the condominium market, but perhaps as a result of people now being focused on the affordable housing crisis and the energy crisis, we might be able to get people focused now on some countermeasure so that we can begin building multi-unit housing in the inner city, achieving both energy efficiency and affordability.

 

 

((Tim Coyle, California Builders Association))

What Don is pointing out is—what we have are policies that are driving people further and further away from the areas where the jobs are being created, where the population really is growing.  What we really need is a change in policy in order to accomplish some of the things that Don is pointing out.  For example, we can do more in the inner cities.  We can do more in the already urbanized areas if the policies are put back in place in those communities to make development in those areas more attractive.  Today, it’s not the case.  We, the job center housing coalition that I represent, are working in the state Capitol with legislators in an attempt to get them to accept the policies we think, that Don and I think, will work to bring about the housing outcomes that he described.

 

((Don Harris, The Nehemiah Corporation))

What of the things that is interesting is we were talking about energy issues and the affordability of housing, but there are other dynamics going on that are going to have impact on this question.  Case in point: as the energy crisis continues, the cost of capital to develop affordable housing in the state is going to be impacted.  Equity players that would typically bring money into a project that might be national corporations or national banks are going to be asking the hard question of, “Gee—

 

((Melissa))

“Can we afford to do this anymore?”

 

((Don Harris, The Nehemiah Corporation))
“Can we afford to do this, and are we going to make a return on our money if there’s a forty-five percent increase over the life of the project in energy cost.  The other thing that is likely to happen on the home ownership front is a lot of the programs that are helping with a down payment or helping people come up with financing are either on one hand bond programs, or they are state grant programs.  Well, if the state is going to be the major buyer of energy, where is the money going to be available to provide housing to provide assistance?  And on the other hand, if California’s credit worthiness because of the energy crisis is further impacted, then it means that the cost of bonds is going to go up, and that will be passed on.  It means there will be higher interest rates; less people are going to be able to qualify for the assistance.

 

((Melissa))

So, how do we balance this?  Because there are actually some great programs out there that help people qualify and get the down payment assistance, but when you have seven people bidding on a home, the one with the least red tape will get the house, so, Tim, how do we solve that problem by making sure that there is enough supply?  Then maybe we don’t have to continue having all the sprawl because then we get all the other problems that come with it, the infrastructure problems, and the traffic on the freeways.

 

((Tim Coyle, California Builders Association))
Well, there are a lot of things, as your question suggests, that go into deciding on the approval of and getting the house actually built, but in the end, that long line of buyers that, today, buyers in California have to compete with are there because there are fewer choices.  We need to increase the opportunities for them to choose in different places in different styles of homes to avoid some of those price problems that you’re describing.

 

((Melissa))

Now, is there a labor shortage?  We see so much building all the time, but do we actually have enough people to build these homes on time and on schedule.

 

((Tim Coyle, California Builders Association))

Believe it or not, we are still underproducing housing in California, and, again, that’s why you see the long lines of buyers lining up to buy new homes in new subdivisions.  Moreover, the opportunity to buy homes that most working class people can afford—and we’re talking about the fabric of our communities.  We’re talking about teachers and public safety employees—

 

((Melissa))

They’re getting priced out.

 

((Tim Coyle, California Builders Association))
And younger professionals.  That’s right.  They’re getting priced out of the market.  Well, their choice, the only choice left to them is to go further and further and further away from their places of employment—

 

((Melissa))

And, Don, we want to give you the last word here.  Further and further means people from the Bay Area, say, coming to the Central Valley and driving up prices there.  Is there hope there?  What’s your advice for someone who wants to buy a house right now at these prices?

 

((Don Harris, The Nehemiah Corporation))

Well, I think that there are some interesting micro-market dynamics when it comes to housing, and I think the case would be looking at the Bay Area versus the Sacramento Valley, and you say, here’s the situation: the Bay Area has no land, and so there is no opportunity for additional housing even if you adopt policies to—

 

((Melissa))
So, should prospective buyers wait?

 

((Don Harris, The Nehemiah Corporation))
Well, in Sacramento, you know, I think that should be considered.  We have a whole lot of undeveloped land and a lot of subdivisions that are not built out yet—

 

((Melissa))
And on that note, gentlemen, I’m sorry, but we are out of time.  We could go on forever, but unfortunately we are out of time, and we want to thank our guests very much for being with us

 

Solving the housing crunch may require looking at the problem from a variety of different angles.

 

A horse farmer in Woodside, just outside of San Francisco, believes with a little imagination communities may realize they already have some answers.

 

((Melissa))

Mr. Atkinson says he knows the horse barn concept won’t work everywhere, but hopes its inspires other communities to be innovative as they approach the problem.

 

((Jack))

Melissa, innovative thinking is what viewers hope will be applied to our energy crisis.

Mary from Lincoln writes:

 

“I vastly prefer the inconvenience of blackouts to the robbery by energy generators.”

 

((Melissa))

 

But Mason from Pleasanton says:

 

“It appears that the state and utilities are the only ones willing to spend themselves into astronomical debt . . . you want a public outcry, start charging people what it really costs.”

 

We appreciate your comments.

 

((Jack))

Next week, a special on-location edition of California CapitolWeek in the Bay Area.

 

((Melissa))

Can the Silicon Valley hold onto the technology industry?

Plus, learn about a technical innovation that is changing the way we can detect cancer.

 

Until then, I’m Melissa Crowley

 

((Jack))

And I’m Jack Kavanagh.

Thanks for joining us.