CAPITOL
REVIEW #603
September
21, 2001
(Jack)
Just
ahead,
The
long-lasting effects of this national tragedy, and what you need to know.
We’ll
show that even among this tragedy, there are heartwarming tales of hope and
help.
Soundbite
In
(Man)
It’s too
bad that something tragic had to happen for it to come out like this, but it’s
been unbelievable. Look at everybody
excited and working together.
Soundbite
Out
(Melissa)
Plus, a
show of patriotism, amidst growing concern about our state economic health.
Hello I’m
Melissa Crowley.
(Jack)
And I’m
Jack Kavanagh.
Are state
budget cuts on the way?
And what
does our state future look like?
Details
coming up.
(Jack)
Thank you
for joining us.
While
details of the terrorist attack continue to emerge, so do fears about the
long-term effects this may have on our nation and our state.
(Melissa)
We’ll
share what the future financial forecast looks like with our experts, but we
begin though with a story about how Californians are using their hearts and
finances to help ease the pain on the East Coast.
CALIFORNIA
CHARITY PKG.
(Firefighter)
We’re
going to wait until the very last moment to run it through the figure eight
obviously. Let’s go ahead and bring it
around.
It was quite an undertaking, stretching a giant
flag across a busy street…
Sacramento
firefighters were happy to take on the challenge…
Their
efforts to honor our country and lift spirits were one of many in California
this week…
(Veteran)
Our flag
means a lot, you know? I mean, I’m a
World War II vet. I fought for my
country, you know, and the flag is a symbol of our freedom.
Flag
sales, when you could still find them available, were brisk, and Californians
were pitching in with donations to help ease suffering on the east coast…
(Kyle
Learmonth, son of California firefighter)
It’s kind
of shock, you know, but we just have to take it as it comes.
Kyle
Learmonth’s dad is a California firefighter.
They both hope that raising money for victim’s families will help…
Kyle’s
dad, grieving for the loss of fellow firefighters, says the process has helped
him as well…
(Firefighter)
It makes
me feel good. A lot of times, to be
quite honest with you, we don’t know if people appreciate us or not.
Today, he learned that people do. That kept these firefighters going…
(Tom
Perkins, Battalion Chief, Sacramento Metro Fire Dept.)
Well, I
don’t know if anything will ever balance out what happened, but we know that
there is good in people. We know that
everybody really has good in them.
While
recruitment offices are quiet, other displays of patriotism are quite bold.
(Man)
This is
what it’s all about. Unfortunately,
it’s too bad that something tragic has to happen for it to come out like this,
but it’s been unbelievable. Look at it;
everybody is excited and working together.
(Sandy,
supporting victims)
We need
to stick together and support one another, and that’s why we’re here for the
food tonight and everything to lend our support to the people back east to let
them know that even though that even though we’re way out here, we haven’t
forgotten them.
That’s
what drew Sandy and her husband to the victim’s fundraiser…
Others
came for their children…
(Woman)
Sometimes
I think we forget what we have until something like this happens, and it just
makes us really appreciate family and friends and babies.
Perhaps
all the efforts help more than victims.
They remind little faces like these that there is still something to
celebrate…
END
CHARITY PKG.
(Melissa)
If you’d
like to help firefighters’ efforts to
contribute to the New York Widows and Orphans fund, call (916) 739-8522.
Many
mosques and churches displayed flags this week…
Leaders
stressed tolerance, including our attorney general, who said hate crimes and
backlash against any group will not be to tolerated; we are all Americans.
(Jack)
The
financial picture overall is also a subject of growing concern. This week’s
Wall Street opening did not settle uneasiness.
There are
some big unknowns. What we do know is
that, in California, budget experts say the state could be five billion dollars
in the red by next year if trends continue.
(Melissa)
And the
State Department of Finance sent state agencies a letter asking them to prepare
budgets with cuts of ten percent…
Joining
us now to share what it all means for California are
State Treasurer
Phil Angelides,
(Jack)
Brad
Williams, senior economist with the State Legislative Analyst’s Office,
And Ted
Gibson, with the State Department of Finance.
CALIFORNIA’S ECONOMY DISC.
(Jack)
Phil, you’re the State Treasurer. You’re the guy that’s basically dealing with
this issue immediately. We know we’re
going to take an economic hit. Do we
know how much?
(Phil Angelides, State Treasurer)
Well, I don’t think that anyone can posit how deep
and how long. Before the tragedy last
week, we were already in a situation where the economy was slowing nationally,
and even though California was holding up fairly well, we were seeing slowing
here, particularly in the Bay Area.
We’ve seen our revenues drop by over five billion dollars alone from
capital gains and options as the market moved down, and even without the
slowing, we were looking at a budget situation where, by the 2002-2003 budget
year next year, we were going to be in a situation where the budget was going
to have to be cut. Now, I think we’re
facing the potential for even tougher times.
(Melissa)
Brad, Ted, it’s your difficult job to predict these
unknowns. What does it look like from a
state perspective, and does this put any programs or any bills in jeopardy in
light of this recent news?
(Brad)
Well, I think there’s no question, as the Treasurer
had indicated, that even before the tragic event last week, the state was
headed toward more difficult times.
With next year’s budget, we were looking at a potential operating
shortfall, the difference between revenues and expenditures, of four or five
billion dollars.
(Melissa)
There wasn’t a lot of meat on the current budget.
(Brad)
Not a lot of meat.
There had already been cuts, and I think one good thing in terms of
where we stand going into this is it was a high priority for the legislature
and, I think, ultimately, the Governor to build up a fairly large reserve in
this year’s budget, and that is going to cushion some of the effects of this
softness or this weakening that we all expect next year.
(Jack)
What does this mean to me as a taxpayer? Does it mean, Phil, that my taxes have to go
up? Does it mean that my services would
have to be curtailed, that I wouldn’t be able to get the health services, the
education services that I would expect from the state?
(Phil)
Well, I think it’s going to mean some tough
choices, and Californians are going to have to face the following: I think it
could mean cutbacks in education and the Healthy Families program, and it could
make for cutbacks in funding for local governments, or alternatively looking at
how we raise the revenue for the public services that we need to maintain this
state, so I do think we’re moving into tougher times, and we face another
challenge. As you know, we’ve talked
before about the fact that we’re trying to sell bonds right now to repay what
it’s spent on energy earlier in this year, and those bonds would be paid off by
ratepayers over time, and getting that bond issue done now becomes even more
critical because the state general fund has lent six billion dollars, and if we
don’t get these bonds sold and get that six billion dollars-plus back into the
general fund, we’re going to be a world of hurt. Then we’re talking, then we’re talking about Wilson era sized
cuts with a ten billion dollar-plus hole in the budget.
(Jack)
Uh, that was a 14 billion dollar hole in the budget
at one point in the 1990’s. Those bonds
were supposed to go out for sale in August if I recall. When do you expect to put them out now?
(Phil)
Well, here’s what has to happen: Our office can’t
move forward to sell these bonds in the marketplace, and
interestingly enough, there’s probably never been a better market.
We have historically low interest rates and they’re projected to be
throughout the fall. If we were able
to get these bonds in the marketplace this fall before the end of the year,
we’d have incredibly low interest rates on them, but before our office can
move forward, the Public Utilities Commission has to adopt seven orders that
they’ve had before, that until they adopt, we can not go to the marketplace. Now, they’re scheduled to act on those, hopefully,
shortly, and then once they do, there will be an appeal period and then potential
litigation periods, but the risk is that PG&E and the big businesses in
the state and other people who want to keep fighting about their energy agendas
hold the state hostage, they could play a role in plunging the state into
fiscal chaos.
(Jack)
Just a detail.
While we’re waiting until next year for a bond issue that you expected
to go out in August, we’ve obviously had to borrow the money to cover us. How much do we pay a month or a day on
that? Is it millions of dollars?
(Phil)
Well, we’re borrowing. In fact, at the end of this week and the beginning of next week,
we’ll be in the market to borrow 5.7 billion dollars in what’s called a revenue
anticipation note, short-term borrowing to give us the cash to get through the
year in case these bonds are held up because the PUC doesn’t act or because
PG&E sues or because big businesses sue because they’re not happy with
energy policy.
(Jack)
And the cost of that interest has to be worked into
it?
(Phil)
Well, we’re pretty lucky right now because the cost
of interest right now will probably be less than three percent.
(Melissa)
Ted, meantime though, your job is to keep things
running and to make projections with these unknowns, including energy bonds,
still out there. Where do things stand?
(Ted)
Well, I think in the near term the economy,
certainly here and across the country, is going to suffer a setback. People feel vulnerable; they feel
uncertain. Investors don’t like
uncertainty, and they’re certainly reacting that way in the market.
(Melissa)
Is California in better shape?
(Ted)
Well, California, as Brad indicated, we we
re
slowing down along with the nation. There
is some evidence now that the nation may have slipped into a recession even
before all this happened, but we are all Americans and we all share those
attitudes and fears and concerns and grief and anger and so on, and we’re
going to be expressing that in our spending habits and so on, so the next
few months are going to be very difficult, but I think we need to look beyond
the next few months. Feelings do heal,
and assuming that effective action is taken to root out these terrorists,
especially in the United States, we’re looking at a tremendous amount of economic
stimulus that is being poured into the economy. The Federal Reserve has now cut short-term
interest rates to three percent. The
market thinks that they’re going to go another percentage point lower over
the next few weeks. The government
is talking about spending packages or fiscal stimulus tax and spending that
could reach 180 billion dollars in the fiscal year that begins October 1st,
so I think the pathway, once we get by this current period of reflection and
grief and resolve, and so on—the path forward is positive, but—
(Jack)
What I’m hearing from you, Ted, is that we have the
economic resources in this country, the economic muscle, to get ourselves out
of this.
(Ted)
Oh, absolutely, absolutely. This is country is by such a wide margin the
strongest economy in the world, and this state, by a considerable margin, is
the strongest economy in this strongest nation in the world. I have no doubt that we’re going to be fine,
but we do have a problem that we must deal with over the next several months.
(Brad)
Yeah. If I
could just add to that, I think that there have been a lot of references back
to the early 90’s when we’re looking at the hard times that we may be facing
now, and, clearly, there are a lot of major differences with regard to California
in particular. That era was the toughest
era for California in the post World War II era. We were going through a massive transformation,
especially with major downsizing of defense and a near collapse of the housing
industry with amount of overbuilding that had gone on in the 1980’s.
The state’s economy emerged from that era much stronger and much more
balanced, and so now we’re, in a sense, a microcosm of the nation.
If the nation is feeling pain, we’re going to feel it here in California,
but we’re very well positioned to expand again once this slowdown ceases.
(Jack)
What kinds of new costs should we be looking
at? For example, if I’m a business
operator and I need expedient delivery, if I depend on airfreight, if I export
to the Pacific Rim, which a lot of businesses in California do, and because of
security concerns, that will slow down.
What does that mean to me?
(Ted)
Well, time is certainly the one thing you’re talking
about there. It will now probably
take some extra time to get shipments done. I personally believe that one of the things that is going to come
out of all this—I mean, even The Wall Street Journal this morning
was talking about it in a positive way—is that we will probably have some
kind of nationalized air transportation security system that we will find,
I think, much more trustworthy than what we have now, so I think there silver
linings to all this. Looking down
the road—It’s going to take a couple of years to put that all into place,
but looking down the road, I think we’re going to come out with a better transportation
system than the one we have now, so, again, temporary disruption, but longer
term I think we still have every prospect to resume our economic growth.
(Melissa)
Phil, we’ve heard about all the airline
layoffs. We’ve heard about some of the
shakeups with tourism; many people think California relies on those
dollars. Are there businesses here that
are particularly vulnerable in this state, and, in turn, how will that affect
the tax base?
(Phil)
Well,
I think Brad put it right when he said that unlike the early 90’s, we have
a much more diversified economy. I think that’s important to point out. You know, we do have entertainment and tourism
in this state. We do have financial
services in this state, and I think that they’ll be affected. Again, I think it’s hard to tell how long and
how deep, but here’s, I think, the overarching principles in the sense that
we ought to move forward. I think
we need to expect that we will see slowing down because we had seen that before
this tragedy, and that means we need to batten down the hatches and keep our
eyes on the ball from a fiscal perspective.
We need to take a look at this year’s budget and next year’s budget
and figure out what we need to do to trim whatever fat there is so that we
can preserve education funding, healthcare funding, law enforcement funding. We’re going to need to get these energy bonds
done because the one thing that could throw us into an early 1990’s fiscal
kind of problem is if we don’t repay the general fund. That’s kind of an oddity out there. We no longer have the luxury. Do you remember, only four months ago, Republicans
in assembly were saying, “Well, we spent that six billion dollars in surplus.
Let’s let that go.” We’re going to have to do our work, keep our
heads down, and I agree with both Ted and Brad that we have a much more diversified,
resilient economy. The other night,
Warren Buffet said, “We’re the same nation we were before Tuesday.
We are today,” and I think the fundamentals are there.
We’re just going to have to get through a tough period and be prepared
to make tough choices in doing that.
(Jack)
Brad, to get it back to me at home, I’m watching
this. When we’re talking about a
slowdown in the economy, how does that impact me? Is it something where I have to worry about the security of my
job, for example? The cost of going to
college? Should I put off buying
house? What is it?
(Brad)
Well, certainly, there are a lot of dimensions to
this. Right now in California, if
you’re in the hi-tech industry, even before last week, you were facing much
fewer job prospects than you were before.
A lot of people have lost jobs in the Bay Area. The unemployment rate in Silicon Valley has
gone up from less than two percent a year ago to over five-and-a-half percent,
so already, I think that job opportunities have diminished some for right
now. In terms of what it means for
college costs, I think, certainly, as we go into next year’s budget, I think
that a lot of different options are going to be on the table. I can’t predict what the Governor and the Legislature
are going to ultimately decide on, but certainly things like student fees,
that have been held down for a number of years, could be one of the options
that they choose to—
(Jack)
So what we should be anticipating is that some of
the fees that we pay and the services that we get will require an
adjustment. There’s going to be an
adjustment there, is that fair to say.
(Phil)
It’s hard
to say the magnitude, but we’re going to have to do some tough thinking around
those issues. You know, there are also some opportunities that come with an economy
that’s going through a transformation, and I would say that we’re also in
a period of extraordinarily low interest rates, partly because of the volatility
of the stock market and partly because of the Fed’s actions. We’re now looking at treasury rates, for example,
six month treasury rates that my office informs me may be as low as we’ve
had since the 1950’s. Extremely low
borrowing rates, and that means that there are some opportunities for people
to look at purchasing homes with historically low interest rates, for the
state to make long-term investments at cheaper borrowing rates by selling
bonds than we ever could for school construction and university construction,
so there are ways in which we can also look at the opportunities in this changing
economy and say, “How can we build a stronger long-term economy by investing
and borrowing?”
(Jack)
Ted, the stock market has lost ten-percent of its
value since it reopened. How much of
that is directly related to the amount of revenue the state takes in?
(Ted)
Well, over time we believe that about a quarter of
the general fund, maybe a little less, from the fiscal year that just ended
came out of the stock market, but you can’t look at it on a daily basis. It really is what it averages over a certain
time, so certainly—and we had assumed, as the Treasurer had indicated, a
five-and-a-half billion dollar hit in the current year from lower stock
prices. Whether or not, you know, that
is still a reasonable expectation, I don’t know because we still have
eight-and-a-half months to go in this fiscal year, and I, frankly, would expect
the market to start to rally here as we move forward.
(Melissa)
How long can we continue at this pace because we
know that if this is a long and involved conflict, which nobody wants, but that
is something that the President has said, you know, “Be prepared. This could take a while.” Are we in a position to wait that long
because our budget is already pretty tight, and our reserves are not
necessarily where we would like them to be due to the energy crisis, so what
happens if this drags on?
(Phil)
Well, I want to say something. Ted and Brad put it well. We’re in a period of uncertainty here. Even if we’re in an engaged conflict in this
country, that doesn’t mean we won’t have a resilient economy, so I do think
there’s a short-term period here where we’ve got to be very watchful and do
what we have to do. Not to be a broken
record, but that’s why these energy bonds have to happen because we’ll have
fiscal meltdown if they don’t happen, so we have to do what we have to do in
this time of uncertainty.
(Melissa)
And you’re confident that the bond market is still
there to get that accomplished?
(Phil)
Oh, the bond market’s there. The irony is the reason that these haven’t
moved to market is because people in California are still fighting their energy
wars. You got the Public Utilities
Commission with their viewpoint, the big businesses who want direct access and
who are threatening to hold up the bond issue, PG&E, who doesn’t believe
that they’re getting their rightful amount out of the ratepayers, threatening
to hold the state hostage. We’ve got to
tell everyone, large businesses that want to buy directly their energy
directly, PG&E, the Public Utilities Commission, “Take your energy wars
somewhere else, so we can make the budget solvent,” so I think the message is:
we’re in tough times; we no longer have the luxury of fiddling around. Do what we got to do in the short-term.
(Jack)
Keying off of what Melissa just asked, we’ve had
short-term economic crises in the past in California with earthquakes, and we
understand how those work. What has the
economy been like after, say, the Loma Prieta earthquake or Northridge, and
what is the recovery time?
(Ted)
We can always focus on the immediate geographic
region of those earthquakes, and, obviously, there was damage and destruction,
but if you look at statewide economic statistics for both Loma Prieta and
Northridge, it’s really hard to find them.
For example, activity may strengthen in an adjacent area when one of
those things goes down, but, again, you do have that very short-term disruption
assess what’s happened. It makes people
feel vulnerable and so on and so forth, but these are not lasting as far as the
economy is concerned, but I would hasten to say that, our earthquakes, as
devastating as they might be to those of us who live here, really pale next to
the tragedy that occurred in New York.
(Jack)
But is one of the most patriotic things we can do
then is go out and shop?
(Phil)
[laughs] My mother believes that.
(Brad)
I think, as the mayor of New York said, trying to
get back to our normal lives and do what we would have otherwise done, I think,
makes a lot of sense. I think it would
be helpful. The economy would be
helped, but us as individuals, no question about that.
(Phil)
Let me tell you what I think, and I just want to—
(Jack)
Last 30 seconds.
(Phil)
Last 30 seconds.
Here’s what I thinkwe need to guard against. One of the things that’s made us one of the strongest economies
in the world is we’ve been a Democratic country, a peaceful country, a stable
country. That’s why there is the
ability to invest here on an ongoing basis.
We need to make sure that we do not allow these terrorists to disrupt
our domestic tranquility and our freedom that is the basis of our sound
economy.
END CALIFORNIA’S ECONOMY DISCUSSION
(Melissa)
And on
that note, we want to thank you all very much for joining us.
We’d also
like to take the time to recognize the heroic efforts of all emergency
personnel, including 64 search and rescue team members from Northern
California…
They left
Tuesday to assist New York and are pitching in on 24 hr shifts.
We spoke
with one, Larry Savage this week by phone.
INTERVIEW
W/ SACRAMENTO USAR MEMBER
(Larry
Savage, USAR)
I don’t
think that anyone can really be prepared for a disaster of this scope and of
this size.
(Melissa)
What was
your first impression when you saw the scene, Larry?
(Larry
Savage, USAR)
Well, I
don’t think words can really describe what the scene looked like. Firsthand, it’s a massive scene. The pictures can give you a pretty good idea
of how twisted and gnarled the scene is, but you really don’t get the scope or
the magnitude of this event until you’re up there and having to climb through
the rubble itself. We really do feel
the loss that the city, the fire department, the police, and the emergency
services feel. Everyone has loss there
because it really is a brotherhood of firefighters. Definitely seeing the family members does touch us and remind us
even more of exactly what we’re doing here.
We’re doing everything we can here to best represent California and best
represent the fire service and the state.
We’re working hard, and we’re going to give every effort we have to
locate these victims.
END
INTERVIEW
(Melissa)
Larry
says they have hung a flag at the command station for inspiration, and although
it is heartbreaking to search for victims, he hopes it will help bring family
members closure.
(Jack)
Last
week’s tragedy touched the hearts of those nationwide.
We would
now like to thank our viewers for sharing their thoughts.
Joan from
Signal Hill writes:
“You
don’t need to talk with your friends, they won’t harm you; you need to talk
with your enemies, they will hurt you.”
(Melissa)
And Nancy
has a different idea:
“The time
to stop the escalation of hatred and death is now . . . this country being rich
and powerful, should take the lead.”
(Jack)
We want
to leave you with an uplifting look at the many displays of patriotism in
California, brought to us by videographer Richard Enos.
(Melissa)
Thanks
for being with us.
Goodnight.