Friday, 06/12/2009 Print Version |

Governor Delivers Speech on Status of State Budget

GOVERNOR SCHWARZENEGGER:

Thank you. Thank you very much. Thank you, I really appreciate it. And thank you, Mayor Pfeiler, for the wonderful introduction. I also want to say thank you to all of you for being here today, especially Senator Hollingsworth is here -- where is he? It's great to see you. You look all pumped up, I can tell that. Very nice. (Laughter) Good, good. And then, of course, we have other elected officials here; I don't have to go through all the names now.

And then we have, of course, 100 carpenters and laborers here today and I see them in audience, so let's give them a big hand also. (Applause) It's terrific to have all of you here. And then we have also students here from San Elijo Elementary School. Let's give them also a big hand. (Applause) Right up there. Thank you all for coming, it's really great.

Well, I'm traveling up and down the state of California to talk about the budget. But I wanted to pick this area here because this area was really kind to me in the elections, in the recall and then when I was running again in 2006. I got 80 percent of the votes right here, so thank you very much for that. (Applause) Absolutely. And the other 20 percent never forgave me for my first movie, Hercules in New York. (Laughter) They want their money back and I understand that.

But anyway, so I'm traveling up and down the state to talk about the budget and about our financial crisis that we have. So it is very important that we fix this big problem that we have, which is a $24 billion budget deficit and we have to do this as quickly as possible. Nearly four months ago the legislators from both parties came together and have solved $36 billion out of the $42 billion budget. Part of that budget agreement required us, by law, to go back to the people for approval, which was the $6 billion, Proposition 1A-1F. But we went to the people right at a time when the people actually wanted to send Sacramento a very powerful message, which is, do your jobs yourselves, don't come to us with those complex issues, live within your means, get rid of the waste and the inefficiencies and don't raise our taxes.

Now, as I stand before you here today, we are in the midst of the greatest economic decline and recession since the Great Depression. As a matter of fact, in the past 18 months we have seen one-third of the world's wealth literally evaporate. As a matter of fact, today I heard in the news also that there is literally $1.3 or $1.4 billion in America just gone -- trillion dollars, $1.3 to $1.4 trillion dollars, just gone.

Because of that and because of California's outdated and volatile tax system, our revenues have dropped by 27 percent in this last year alone. And, when adjusted for inflation and population, that means that we now have revenues the same as we had in the late '90s, just to make you understand of how low our revenues are.

Today, just four months after our February budget, we again face another $24 billion budget deficit. The immediate task before us is to cut spending to the money that we have available. Now, I have already used my executive order and my executive authority to reduce the state's payroll and I have also proposed the necessary cuts to the three largest areas in our budgeting, which is education, health care and prisons.

As I have said last week to the legislators during my address to the Joint Session, there is absolutely no time to waste. We must solve this deficit now or we will run out of cash.

Now, the controller has already said that the deadline is June 15th. In fact, this week I sat down with the controller and also with the treasurer. We all agreed that after June 15th every day of inaction jeopardizes our state's solvency and our ability to pay schools and teachers and to keep hospitals and ERs open.

I'm calling on the legislature to send me a budget immediately that closes the entire $24 billion deficit. We cannot have a piecemeal approach here -- we have done that in the past -- or do it by steps or phases while praying that maybe our revenues come back and that our economy comes back. It won't happen. Such a miracle doesn't exist. The treasurer, the controller, the legislative analyst, the Department of Finance and also every economist, is saying that our revenues will continue to fall and our economy has not yet bottomed out. George Skelton from the Los Angeles Times put it best yesterday when he said, "There is no miracle cure; just cut deep and soon." That's exactly right.

We must stand up and deal with the realities, not blindly ignore them or live in denial. For decades Sacramento has kicked that can down the alley and ran away from the tough decisions. I think that time is over. There is absolutely no place left to hide. The days of gimmicks and the days of denial are literally over. California's day of reckoning is finally here.

Now, in the coming days and in the coming weeks you will see all kinds of forces in Sacramento scrambling and doing the Kabuki and the song and dance up there, desperately trying to avoid reality and to avoid this day of reckoning. There will be television ads and commercials by the interest groups calling for higher taxes. You will see legislators calling for massive borrowing; as a matter of fact, the legislators already have called for that. And you will see huge demonstrations in front of the Capitol and around the Capitol continuing. Accusations will, of course, fly, of whose fault it is, finger pointing will be going on. And there will be accusations even -- and I've heard accusations -- that I'll try to shut down government, state government. I don't have to shut down state government, because when they don't produce a budget on time we will run out of cash and, therefore, our government will shut down by itself.

So in the end the answer is just very simple. We have a $24 billion gap and we must resolve this gap. This is the only way to do it. We must sit down, work together, Democrats and Republicans. We have no choices other than just confronting this reality. That is the message that the people have sent us last May on May 19th.

I know it is difficult and I know that the consequences of those cuts are not just dollars. I can see beyond those numbers, when we do the budget. I see the faces behind those dollars. I see the children whose teachers will be laid off. I see the Alzheimer's patients who are losing some of their in-home support services. I see the firefighters and the police officers that may get laid off. People come up to me all the time and say, "Governor, please don't make those cuts in those programs." And we meet all the time with advocates, advocates for the poor or the disabled that come to my office, or the heads of police and fire departments or local government and counties and so on. They tell me how the cuts will affect them and their constituents and their loved ones and so on. So I see the pain in their eyes. I realize what affect those cuts will have. I hear the fear in their voices. I think it's awful.

There are no two ways about it, those are tough cuts that we are making. But we have no choice. We have absolutely no choice, because our wallet is empty, our bank is closed and our credit is dried up. We are not like Washington. You see, in Washington they print more money. We cannot print more money here. They can run up a trillion dollar deficit; we cannot do that. We can only spend what we have. That is the harsh but simple reality.

At the same time, we cannot make this budget just about cuts. This is a great opportunity here; there are also some great opportunities for structural reform. As a matter of fact, Winston Churchill said, "A pessimist sees difficulties in every opportunity and an optimist sees opportunity in every difficulty." And that's me. I see an opportunity, a terrific opportunity. A crisis is a terrible thing to waste, so we must use this crisis as an opportunity to make government more efficient and to find innovative ways to stretch the taxpayers' dollars. There are no two ways about that.

For example, starting this fall we are making math and science textbooks available in digital formats. Now, if we expand this to all textbooks, that will mean that schools will save hundreds of millions of dollars. Those hundreds of millions of dollars can be used for hiring more teachers or lowering our class sizes.

Spending on prisons, for instance, is another area where we are spending way too much. Our spending on prisons has nearly doubled in the past five years. We spend $49,000 per prisoner per year, while the average in this country is $32,000. Other states have privately run correctional facilities that operate at half the cost. Why can't we do that here in California?

We must also restructure the relationship between the state and local governments and cut some of the strings and Band-Aids. For instance, right now we are cutting billions and billions of dollars from education. Luckily, in February we freed up some of the categoricals, $6 billion worth of those categoricals, to give schools more flexibility on how to spend their money.

But that is not enough. Current law ties the hands of our schools with strict rules that tell the schools who are they allowed to hire, who should be mowing the lawn, who is allowed to do the roofing, who is allowed to fix the plumbing and so on. I think this is the wrong way to go.

And that's why today I'm calling on the legislature to repeal Senate Bill 1419 so the schools have the right to act, because in this economic crisis we must allow our schools to enter into the public-private partnerships and obtain construction, maintenance and transportation services at the lowest possible cost. That money that is saved by doing that, which is $500 million a year, can go again back into the classroom to help our children with their education. Sacramento must stop being the schoolyard bully and telling the local schools what to do. (Applause)

Now, in so many areas of government there are opportunities like this for reform and for changing things around without having to stay with the status quo. All we have to do is just go out and seize those opportunities. I am proposing to implement electronic reporting in our courts. This would save tens of millions of dollars.

And there is rampant fraud and abuse in our in-home support services. We hear it all the time, the papers write about it all the time. Let's dig in there and reform this particular area and let's go and get rid of the fraud, just like we have done in Workers' Compensation, where we reformed the system and now we have drops in Workers' Comp costs by 60 to 70 percent and we have saved, in the last five years, the state of California's businesses, $50 billion. All of these reforms could save us billions of dollars that we could then use for health care, for Healthy Families, for Cal Grants, for keeping state parks open and so on.

I'm also proposing once again to eliminate and to consolidate more than a dozen state departments, boards and commissions. There is absolutely no reason why we should hold onto those redundant boards and commissions when we are in this financial crisis. I will not cut a dollar from education or cut from health care or from our state parks or public service, or any of those things, if we don't first cut some of those boards and commissions.

All of these proposals have been talked about, of course, for years. I mean, think about it, in 2004 in my State of the State Address I talked about blowing up the boxes and getting rid of some of those boards and commissions. But at that time, of course, because our revenues went up and our economy came back, no one wanted to listen to those things. But now we again have a crisis. We have run out of excuses, we have run out of time and I think that the people of California have run out of patience.

Now, in July we should receive the bipartisan recommendation from our Tax Modernization Commission. Now, that's very important, as you know. As I said, it's one of the reasons why we have this financial problem, is because our tax system is outdated. This will be a tremendous opportunity here to make our revenues more reliable.

Right now our tax system reflects Wall Street's economy rather than California's economy. Last year California's economy has actually increased, even though people always think that our economy went down but our economy has increased by 0.4 percent. Normally it increases by around 3 to 4 percent. So we increased by 0.4 percent but our revenues have plummeted by more than 20 percent. We need more stability and less volatility and that's because we are relying on 1 percent of Californians to pay 50 percent of the taxes. Now, this 1 percent goes and relies on Wall Street's money and on Wall Street's activities rather than on California's economic activities. I want to work with the legislators to make this become a reality and to make the change in this system.

Now, there are other big reforms, of course, that I continue to believe in very strongly, which is the rainy day fund and the spending cap. But this is not something I'm going to talk much about here today, because that needs to go before the voters again.

So there is no doubt that the challenges that we face are enormous. This will be testing our will, this will test our resolve and this will test our leadership. Many of my proposals that I have put forth are despised by the special interests in Sacramento, there are no two ways about that. They want to hold onto the status quo. So the legislators have to find the will in themselves to be able to push back and to do what is right for California, because after all, we have been elected to be the lobbyists for the people of California.

Now, of course, we are in difficult times, there are no two ways about that and we have never seen anything like this before. But I think that we're going to come out of this. Even though there are tremendous uncertainties, there is one thing that is certain; that California will be back.

People ask me all the time if I don't regret having become governor, if I would have rather just stayed in Terminator and make another $30 million. Let me tell you something, the answer is always very simple. No, I don't regret it at all, because for me it is, even though the biggest challenge that I've ever faced in my life but it is the most rewarding thing that I've ever done, because I never forget that it was California that has given me all the opportunities to be successful in bodybuilding and in acting and in this particular business, or make millions of dollars and so on. So this is my way of giving something back.

I always remember one thing and that is California is, without any doubt, the greatest place on earth. It's the greatest state in the greatest country in the world. And because of that, I think it is worth fighting for. We have to fight for this state and I, in the coming days and in the coming weeks, I will not give up and I will not give in until the job is done, I can promise you that.

Thank you very much for listening. Thank you for being here today. (Applause)

QUESTION/ANSWER:

GOVERNOR:          Now let's do something unusual, even though we are not really geared up for that. But I wanted to do it anyway; I like to improvise. My wife hates that but I like to do it. If there are any questions out there about any of those things that I have just talked about, why don't we take three or four questions before I move on and fly back to L.A. Yes, please.

QUESTION:             (Inaudible) $20 million. Right now we have a financial crisis ourselves. Every hundred thousand dollars you take from us, you are taking police officers or firefighters from the city of Escondido.

GOVERNOR:          Well, thank you very much for bringing that to my attention. And let me tell you, what you're talking about is the $2 billion that we want to borrow from local government. As you know, we passed Proposition 1A in 2004. And I was one of the people that was campaigning up and down the state to make sure that we protect local government from now on, because everyone should know that in the past the state has always taken money from local governments when they ran out of money and then they never paid it back. And it was kind of like ripping off local government. And that, of course, is where all the action is.

So what we did was, we passed Proposition 1A. And Proposition 1A says specifically that we can borrow twice in 10 years but we have to pay back the money within three years. And this is exactly what we intend to do. And we want to work with local government so that we can figure out a way so no one does have to get laid off and that you can borrow against that money and our promise to pay your back.

And by the way, this is not yet a 100 percent thing, because my Republican colleagues have already said that they don't like that idea of borrowing from local government and my Democratic friends have also said that they don't like to borrow from local government. So if both parties don't like to borrow from local government, of course we will not borrow from local government. That's clear.

And we already, our Finance director has already come up with a way of where we have to make the necessary cuts, which is in, I think, money that we are giving for health care for our state employees, there's $1 billion there and then for some foster care things, there's another $800, $900 million. So he's working on a whole variety of different things, a whole menu of things that we're going to send to the legislative leaders as ideas of where we need to go in order not to borrow from local government.

So you know, I'm not stuck with any of those ideas. What is important for us is that we solve the $42 billion -- the $24 billion deficit. That's the key thing, because if we don't solve that we cannot borrow any money down the line, we cannot get the RAN. And I already made it clear I'm not going to go and sign any RAW, to do any borrowing before the budget is done, because that only will give the legislators a chance to postpone the whole thing and to drag it out. So we are not for that. We've got to solve the budget right now.

But I'm a big fan and our administration is a big fan of local government, because I am a strong believer that's where the real action is. You guys are in the trenches, you provide the services and we always have to be good partners of local government. OK? Absolutely. (Applause)

Any other questions? Yeah, there's one back here. Please. We have a microphone right there.

QUESTION:             You talk about modernizing the system and using more electronics in the schools. The math books, for example. What about going all the way and using like a Kindle with all the kids? They're already used to having computers and all those things. Why don't we just go ahead and put all the books electronically and just give a Kindle to every kid in the state of California?

GOVERNOR:          Well, we are working on all kinds of different ideas on how to be creative and this is why I mentioned the digital textbooks. There are still some schools that don't have the technology available so they can print out and that still is just a fraction of the cost of what textbooks cost. But with the textbooks, this is one of those things that -- you know, we are teaching kids like we did 100 years ago. And I think that, having four kids myself, I know how bored they are with the textbooks, because there's no action, there is no playback, there is nothing there. So now, when they go on the internet, that's where they usually get all the great information. So this is why I think it will be such a great addition to education, to provide them with digital textbooks and have those savings.

And this is just one area where we can have great savings and one area where we can be more creative. There are many other things that we are studying right now and working on. OK?

                                    Yes, right down here. We have a mike. If you'd take the mike, please.

QUESTION:             Thank you. Welcome to Escondido and San Diego.

GOVERNOR:          Thank you.

QUESTION:             You have talked about selling some of the assets that this state holds, for example the Del Mar Fairgrounds. That's 400 acres of irreplaceable land and plus it creates hundreds of jobs and brings hundreds of thousands of dollars to our economy. Are you really seriously thinking about selling those properties?

GOVERNOR:          Yes. But was you know, this is a longer process. There are some people that always say now, to solve this financial crisis, we should just get rid of some of our state property. It doesn't work that easily. I mean, if you just think about, for instance, the Del Mar, or if you talk about the Coliseum, all of those things are tied up in so many different ways and with the zoning and with all of those kinds of things, so it will take some time to do that. And it's also not always the best time right now, when we are in a financial crisis where people pay you much less for those properties, to go out and sell them immediately.

But what we should do is, we should really seriously look at all of our properties, if it is San Quentin or if it is Del Mar, or if it is the fairgrounds and all of those things, the Coliseum -- I think we should look at those things and say, why are we holding onto this real estate? Maybe the locals can take it over. Maybe the locals should buy those things. Or maybe there are investors that can do more with that property.

We're not saying let's go and destroy those properties and then build housing or something like that. We're just saying let's go and let's not us be in the real estate business, because when we have a financial crisis we should not be in the real estate business.

There's a better way of dealing with it. There are people that can do much more with those properties. The state in general is not good at managing properties in the first place. I mean, we don't always have that money to pay for managing those properties and the upkeep and all of those things. You should see what it costs us for Hearst Castle and for all of those things. So let's have someone else take over those things that can do a much better job than the state has and therefore we have the money.

There are also other ideas around to look at the state buildings that we have. We have an enormous amount of state buildings available. Why do we own those state buildings? Why shouldn't we have someone else own this and we just pay a lease to those? And that frees up capital again so we can do other things with that capital. So we have to think outside the box and not just keep going the same way, down that road and just hold onto those things and we don't even know why. OK? So that's the idea.

But we always want to have the input of the locals. There is no move that is being made to kind of like, you know, not include the locals. The locals are always included in that. And we want to give the cities the option, maybe they want to take over. Like I told Mayor Villaraigosa with the Coliseum, if you guys want to have it, or if USC wants to have it, of course the locals should have the first right to look at those things, as long as the bids are competitive. OK?

Yeah, we'll take one more, right over here, from one of the hardworking people right out there. I love them. I love them, yes. (Applause)

QUESTION:             Thank you, Governor, for coming down and speaking with us.

GOVERNOR:          Absolutely.

QUESTION:             We all really appreciate it.

GOVERNOR:          Thank you.

QUESTION:             I like your statement here today and your attitude that in these hard times there is incredible opportunity. I was born here in San Diego, lived here my whole life. We had a farm in Del Mar and part of our farm, a large part of it, was taken by a freeway system.

I want to ask you if there's any way the state can go back to the federal government, who owns a lot of the right of ways and systems that deliver services to us as citizens and get them to start maintaining them better, pay for them better and keep the work and the jobs here in California instead of transferring that work and jobs to other states and other workers from even other countries. I think that if we can use the assets we have -- and if we have had an increase in our economy, like you stated, we all should have an increase in our wages. Unfortunately, they seem to be shipping them out to other places.

So what are your plans and how do you intend to keep those projects going that are funded by the federal government and increase the amount of income and revenues we get to California from them?

GOVERNOR:          Well, first of all, let me just say thank you for the question. And let me just say that it is very important that the state and the federal government work together. As you know, with infrastructure, a lot of it is a coordination with the federal government.

We have made -- we are the only state that has made the biggest commitment to infrastructure. We have made a commitment of $42 billion in 2006. We just recently, last November, made a commitment of $10 billion for the high-speed rail. So now we have transportation, fixing the levees, affordable housing, to build school buildings and now the high-speed rail. We are right now in the middle of negotiating the water infrastructure deal, which will be another $10 billion infrastructure deal to have more water and to have reliable water for the future, because our water infrastructure is only for 18 million people.

So all of this creates jobs. And as you know, this is why I'm a big fan of what you guys are doing, because each billion dollars that we have available for infrastructure creates another 18,000 jobs. So those jobs stay here. There's nowhere else that they go.

And what we have to do is and the reason why infrastructure is so important, is because the more we can build roads and mass transit and the faster we can get people and goods around from one place to the next in our state, that's economic power. And then if we have that and also get rid of some of those laws that we have that restrict some of the businesses, we can really have a great booming economy again and create more jobs right here in California. That's what I want to do.

I will do everything -- and this is why in our budget negotiations -- Senator Hollingsworth can tell you, that we have -- oh, he's not here anymore. He left. OK. I just pointed at him. But anyway, he can tell you that when we had our budget negotiations we always talked about job creation, stimulating the economy and doing those kind of things, because that's where the action is, in the end. If you provide jobs for everybody, that's when everyone is happy, because then not only do you feel productive but you can earn money and you can provide for your family, you can provide for your kids and for everybody.

And this is where the action is, that's what we want to do. And the only way that we do that is by having businesses be successful in California and continue building this infrastructure, that I think is so important, because for four decades before I came into office no one built infrastructure. Not in water, not in transportation or anything. So now we finally have made a commitment to rebuild California and I think it's going to be terrific for everybody. There are a lot of jobs that will be available in the future.

But the key thing now is to get out of this economic crisis and out of this financial crisis as quickly as possible so that we bounce back and bring our economy back so that everyone again can enjoy this great state and make it again the Golden State that it once was.

                                    Yeah, one more question we have here. Yes?

QUESTION:              Good morning, Mr. Governor. I'll try to make this as fast as possible. Just real quick, in Glendale, Arizona, they had a situation where they wanted to build a new stadium for the Arizona Cardinals. They received a lot of help from the government on the state level. This was the local government I'm referring to.

Well, we here in San Diego, we find ourselves with a similar problem. We want to build a stadium in the city of San Diego or the surrounding communities, the surrounding counties. Are we going to receive any help from the Governor's Office? Because I know as a union craftsman, as a union laborer, along with my brothers back here, the union carpenters, we want to build America's finest stadium in America's finest city. Thank you one again.

GOVERNOR:          Absolutely. Well, let me just tell you that, because of our financial situation that we are in, that we are not about to go and say yes, we're going to help financially build a stadium, because it wouldn't make any sense. People would be outraged about that, because they would immediately come and say so, you'd rather build a stadium and go and have the football players have a good time but at the same time we have homeless people and what do we do with that? (Applause)

So that is the problem that we have with it, even though I'm a big fan of infrastructure also when it comes to stadiums and when it comes to building all of this. I think we should have -- like I am right now working very hard to get the world soccer championships over here and to get all of these championships over here to California, because we are, like I said, the best place.

But it's very tough to have the state get involved in those things. There is a football stadium that they want to look at and build up in the Bay Area. There is one, of course, the NBA arena where they want to build for the Kings in Sacramento. There are the 49ers up there and then the Chargers down in San Diego. So there is, all over the place, they want to build stadiums.

The state of California is not in that business, so it's very hard. So I think the locals have to do that by passing a certain tax measure or something like that, to put that money up for those stadiums and do a public-private partnership or so.

But anyway, I want to again thank all of you for being here today and for participating. I want to thank the kids again and everyone else here and the media and everyone. Thank you very much for listening and I'll be back. Thank you very much. Thank you. (Applause)