The Flywheel

Program for friDAY JUNE 20Th

City Lights



In the months and years following Richmond's 2004 financial crisis, its newly-appointed managers worked smart and hard to restore order to our fiscal house. Not only did they succeed but today, in the grip of a major budget shortfall (see last week's program summary), Richmond stands stronger than most neighboring cities.

Leading the recovery were the two men who will address the Club on this day: City Manager Bill Lindsay, and Finance Director, Jim Goins.

Please make it a point to attend what will be one of this year's most fascinating and, we believe, encouraging meetings.

MEETING OF June 13th, 2008

Welcome, Invocation, Thought for the Day

President Pam welcomed the Rotarians.  Glenn led the invocation and Red-Badger Laura led the pledge. (So far so good.)

Rotarians with Guests

  • Incoming President Mark Howe brought his guest Rosie Freeman.
  • Rafael Madrigal was accompanied by Barbara M. Diaz, of Santa Barbara Jewelry.
  • Ted brought 2 guests: Aliza Kazmi, a Salesian High School graduating senior and scholarship awardee; and Henry Moe, the high school's Director of Alumni Affairs and the Interact Club sponsor.

Announcements

  • Ted’s guest, Aliza Kazmi, addressed the club and offered thanks to Rotarian’s for providing scholarship funds that will help facilitate her attending the nations top public university!  She also noted the wonderful impact the Interact Club is having on providing basic needs for those in third world countries, and other related efforts towards the eradication of preventable poverty. 
  • Laura presented the group with the images that will be used in connection with the Richmond Police Hotline and Anti-Violence Programs, including the Gun Buy-Back Program.
  • Liliane followed up on her presentation from last week about her great GSE trip to Madagascar with a picture slide-show presentation.  She also passed around banners from various Madagascar Rotary Clubs.
  • Rafael Madrigal is having his insurance agency’s First Anniversary on Wednesday, June 25th from 5:30 pm to 8:00 pm at 38 Washington Ave., Point Richmond.  All of the Rotarians who attended the office opening last year remember the flowing beverages and great food!

Recognitions

  • Markku celebrated his 61st Birthday by dining at the prestigious Denny’s Restaurant in Emeryville, CA, though his evening of opulence was nearly side-railed when he learned that the Motel 6, where he intended to stay the evening was fully booked!
  • Monique celebrated her anniversary with the Club and was also very happy that her twin daughters turned 18 and then, one week later, graduated high school.  She is very happy that all three of her kids will now be college-bound.

Happy and Sad Dollars

  • Josh Genser was happy to invite everyone to his office balcony for Friday Blues Night on the night of the meeting.
  • Bob was very happy that his daughter had completed her Doctorate degree.
  • George is happy to be the first to be certified for Reverse Mortgages in Contra Costa County.

Raffle Results

Margaret drew the white ball and is the proud owner of one free lunch.

THE PROGRAM

Not waiting for "golden meteors"

Dr. Tom Campbell

Taking time from his busy schedule as the Dean of the Haas School of Business at UC Berkeley, Dr. Tom Campbell, spoke to the Richmond Rotary on Friday about California’s current budget crisis.  Despite his beaming personality, our speaker could not be upbeat about our state’s $17 Billion deficit.

Dr. Campbell’s “golden meteor” notion means that just as awaiting the plummet of a golden meteor plopped onto the front lawn of the Governor’s mansion is not a prudent financial schema to address the state’s growing deficit, nor has been funding the state based on the enormously speculative booming of the technology sector, or the more recent “bubble”, as many have described the state and national housing markets.  Problematically, California has balanced many a recent annual budget by counting funds borrowed in anticipation of similar economic windfalls, as revenue.  When our gracious speaker advised Governor Arnold Schwarzenegger that the state had been utilizing this unconventional accounting method, the Governor characteristically responded “Yah. Daht’s Bo-gus.”

The state’s deficit for the current fiscal year is approximately $12 billion and will likely be about the same next year. We got here in large part, says Dr. Campbell, because California does not require a balanced budget. Instead the legislature and executive branches only need agree that the budget is “balanced.”  No independent means of validation (a commission or the Controller’s office) required.  Thanks to this laxity, California is tied with Louisiana at the bottom of the bond rankings. Accordingly, we pay among the nation’s highest bond interest.  This year, unless elected officials hammer out a budget agreement, California will run out of revenue by August. The State will then resort to “revenue anticipation notes” — essentially IOUs to Wall Street.

Dr. Campbell’s kibitzed that his “revolutionary idea” to address this problem is to “not spend more than (the state) has.” Given that our budget is built on speculation, that's tough. But there is a potential solution: base each year’s budget on that of the preceding year. When we’re pleasantly surprised by a surplus, use it to shore up our cash reserves. When we come up short, draw on the reserves.

Dr. Campbell’s suggestions are apparently solid.  Although he modestly attributes it to “dumb luck”,  the year he was State Finance Director was the only one in recent memory in which the budget was actually balanced—and without “bogus” accounting.

On the real estate slowdown and its relation to state school funding, Dr. Campbell noted that because counties are obligated to fund public schools, and because their funding relies on Prop 13 property tax resets when homes sell (often vastly below market valuations), the current housing slow-down is a severe blow to the state economy.  That’s because when the counties fall short on their funding obligations, the state makes up the difference.

Our speaker also cautioned against “scaring businesses out of the state”, as some have suggested raising taxes to raise funds for increased services (or just to meet the needs of those already in place). California already has higher taxes than nearby states in certain regards, including the highest state sales tax in the country. Dr. Campbell fears that additional taxation will drive away would-be investors.

Dr. Campbell also offered thoughts on several sundry subjects.  He does not favor balancing the budget by increasing lottery sales, because this, he says, amounts to a “voluntary tax” on the poor, and because lottery funds are often diverted from their prescribed purpose, education.  He believes that term limits have a detrimental effect on our legislature. A study has shown that in their last term (when they know it is their last term) legislators actually vote more frequently with their party.  With their eye on their next job,  some departing legislators vote to keep possible benefactors on their side.

A Rotarian asked “When are you running for governor?” Dr. Campbell won’t discuss a political career until he complete his tenure as Dean at the Haas School.  However he did reveal that he turned down an invitation to continue as Dean because he is considering getting back into politics.  We will keep a keen eye on his progress. 

-Your Rotating Editor, Joshua Surowitz