Dear Honorable Members of Congress:

Are we in a financial crisis yet? As recently as 2 weeks ago, conservatives like Larry Kudlow on CNBC
were inexplicably saying no. Robert Reich even asked for a pair of Larry's rose colored glasses. We
didn't suddenly get into a crisis last week and we will not be able to "fix" our economy in a short time, if at all.

What has been presented of the Paulsen plan is unacceptable. Huge dollars. No strings. No accountability.
No safeguards. No regulatory changes. No punishment. No restitution. We should not be giving taxpayer
money for any of this financial mess unless MAJOR strings are attached and it keeps more people in the
homes they bought. The resolution of this crisis must punish the perpetrators and reduce the chance that
this mess will happen again, at least during our lifetimes. The RTC did not work. If it had, we would not be
here. It appears that the only lesson learned from the RTC process was: the American taxpayers will
bail out the banking system from its mistakes.

It seems that now everyone, even Senator "our fundamentals are strong" McCain agrees we are in a financial
crisis. There are many proposals being thrown about to spend unbelievable sums of money "saving" financial
institutions. That is wrong. That will neither solve our problems nor keep us out of trouble next time. If we want
to try to "fix" our economy, "if" that is even possible, we need a closer look at the causes of the problems and
undo the causes. "Fixing" the  symptoms of our crisis will not repair the deep, underlying damage.

While it seems perfectly fine with our leadership that the American taxpayer should be paying for this "fix",
I have heard nothing about how those connected to the crisis will pay their greater portion. The suggestions
which follow are only politically unappealing if you work in the financial industry. To the American taxpayer,
perhaps they are a reasonable consequence of inappropriate behaviors. Without real consequences, ones
that actually hurt, rules have no meaning. Now that we are talking "real money" in the range of $1 TRILLION,
can we please invoke some sanity and responsibility? Please forward this to anyone who might listen. I was
pleased to hear that some of these suggestions are actually being considered by Congress. If you can
promote even one suggestion that may be of value in minimizing the cost to the American taxpayer and
reduce the chance of recurrence, Thank You.

 My view of the biggest causes of our problems:

1) Mortgage brokers who violated their fiduciary responsibility to borrowers, encouraging them to
   take loans that were not in their interest, including ones where the borrower clearly could not
   afford the mortgage
2) Inadequate oversight of individual brokers by the banks who lent the money
3) Lack of transparency - Inadequate ratings of mortgage security quality, which now leaves us with
   securitized mortgage products that we cannot value
4) Greed - Everyone was "doing it" and making money. Like 1929 or 1999, it appeared housing values
   could only go up
5) Poorly constructed bonus plans that put short term financial gains ahead of pretty much everything
   else, including legality and ethics
6) Corporations allowed to get "too big to fail"

                                                                        

 = = Solution Part 1 - Assign responsibility and accountability = =
There is a lot of culpability to go around. When there is no punishment, there is no learning. Lack of
consequences for bad choices *guarantees* that bad choices will be made again. Regardless of how
much money we ultimately spend, we must spend around $1 billion for enough investigators, prosecutors,
prisons and associated government services that those responsible are found and punished. Every individual
who participated in loan originations should be investigated. It is likely that most are innocent. However, if
they encouraged borrowers to lie about income, guilty. If they lied about a borrower, guilty. If a borrower was
sold a loan the broker should have known they could not afford, guilty. Investigate. Speak to borrowers
who have lost or are losing their homes. Prosecute. Assess fines, with all of the money collected going
toward this huge bailout budget. Jail. If the problem extends up the chain of command, keep going. If we
do not do this critical first step, there are no disincentives for this out-of-control cancer to recur. The extent
of the malfeasance should not be a protection for the guilty.

 = = Solution Part 2 - Enforce or expand banking oversight requirements = =
Require any bank making a loan to perform due diligence. They cannot simply rely on what they receive
from the loan originator. If the numbers don't add up, don't make the loan. If it is "too expensive" to verify
every piece of data submitted by the loan originator, verify every piece of data for every third, fifth or tenth
application. This process can be different for each bank to permit competition, but the necessity that each
bank have such a process should be part of regulations. If these regulations exist and are not being enforced,
then enforcement activities must increase and the penalties for non-compliance need to be much tougher,
including fines to both corporations and individuals who fail to comply. For those complaining about the dire
consequences of credit being too tight, too bad. It is a rational response to credit being too loose for too long.

 = = Solution Part 3 - Rate mortgage related securities = =
All mortgage related securities (CDOs or otherwise) must be rated by one of the ratings organizations. Clear
criteria must be used and these criteria, developed by the ratings agencies, must be published to enhance
transparency. If the ratings criteria are inadequate to enable valuation of a mortgage related security, they
must be expanded. The SEC shall be the arbiter of whether the ratings are adequate based upon input from
the market, both buyers and sellers of mortgage related securities. If the ratings agencies cannot develop
adequate criteria, then Congress shall determine a mechanism to direct this to occur. If a mortgage related
product cannot be rated or does not achieve a minimum level of rating, it may not be sold. Thus, the security
creator will perform due diligence before selling it to the market. Once it is sold in the market, this security
should have a readily determined value on a periodic basis, perhaps monthly to correlate with the receipt of
monthly mortgage payments. Higher risk securities will command lower prices and the market will, in the future,
adjust price according to risk as it does for high risk corporate bonds. This would eliminate the crisis of confidence
we have had and continue to have where no one really knows the  value of the mortgage related securities
that they hold. DO NOT bundle the securities together and resell them until and unless this procedure has
occurred.

 = = Solution Part 4 - Moderate Greed = =
There is no cure for greed. It is as human as love. However, when greed causes significant financial harm
to others, as it has in this crisis, there needs to be a mitigating force. Key factors of greed at play in creating
this crisis:
1) mortgage broker compensation
2) corporate compensation

On the one hand, we are a capitalist democracy wherein individuals should be able to charge what the
market will bear. On the other hand, we should consider whether some of our incentives, which clearly
motivate personal choices, are harmful. Mortgage broker compensation must be independent of the type
of loan funded, so that they are not motivated by their potential earnings to direct borrowers to bad loans.
Any mortgage broker found to have directed a borrower to a harmful loan, for any reason, will repay their
commission on that loan to the bailout fund. This applies to all loans funded back to 2000, the approximate
beginning of the recent boom.

Corporate executives have been overly incentivized to do whatever is necessary to continually increase the
bottom line. This has led us down the path of finding the newest financial product, generally unregulated
because it is new. It is long past time to recognize that the obscene salaries paid to many corporate executives
are long overdue for a correction. The increasing number of angry shareholders wanting some say over corporate
pay makes that abundantly clear. In answer to the executives request for this huge financial bailout, for which
many have partial if not total responsibility, their pay must be reduced. All bonuses retroactive to 2000 must
be repaid (including stock or options) to the bailout fund by all named corporate executives in every affected
financial institution. In addition, all salaries shall be retroactively cut to a multiple of the median employee
wage at their company, no greater than 10. It may be variable from 4 (at 100 employees) to 10 (at 100,000)
depending on the size of the corporation. All money must be paid within 12 months regardless of any losses
the executive may suffer in the process. If they have inadequate personal resources, their debt shall fall to
their family for both future generations and distant relatives, including any former spouses. The American
taxpayer should only pay after culpable individuals and their families have first repaid.

Does this sound like retribution? It is partial restitution. Is there a reason the American taxpayer should not 
be upset that while these executives were laying the groundwork for our current crisis they were being well
compensated for their terrible long term choices? Is there a reason the American taxpayer has greater
responsibility to pay for the errors of corporate greed than those who benefited?

 = = Solution Part 5 - "Fix" the mortgages = =
Once we implement effective ratings, identify the problem mortgages and "fix" them. Don't buy CDOs as part of
the bailout, they are a derivative. Pay down mortgages or decrease interest rates or extend terms so that people
can stay in the homes they bought and the value of the collateralized mortgages increase, increasing the value of
the derivatives. Best to decrease interest rates as that reduces bank profits but costs the taxpayer ZERO. Putting
money anywhere else in the system both lets the homeowner lose and the American taxpayer lose. Who wants a
lose-lose proposition? Resetting mortgage terms to where banks make less money, still allows for some level of
profit and real live people benefit by staying in their homes. The real estate market will improve from reduction
of foreclosures and given enough time, prices will eventually rise again. While enabling bankruptcy judges to do
this will help, that should not be a necessary condition. Clear criteria could be established where banks are
simply required to make the change for qualified borrowers. Those criteria should *only* apply to owner-occupied
homes and would be considered to be recommendations to bankruptcy judges. Speculators, as part of the problem,
would not qualify for a "fix".

 = = Solution Part 6 - Ensure that there is no company "too big to fail" = =
If there is the perception that any company can become "too big to fail", then once a company reaches a certain
size, it can increase the risks it takes without consequences knowing the American taxpayers will bail them out.
 We must either specifically and explicitly state that "no company is too big to fail" to counter all the statements
made by our leaders, or we regulate away this possibility. Existing companies that are deemed "too big to fail"
must shrink by spinning off a few divisions as new companies. Regulations would have to prohibit mergers
beyond a certain "too big to fail" size and require companies that grow too big through prudent choices to spin
off one or more divisions.

If you support 'anything' in this message, please forward it to everyone you know in the hopes that it ultimately
reaches every member of Congress before Friday. While it would be better to fix the system right, it appears that
they are going to try to fix it fast. Of course, a very good argument could be made that Congress should only
implement reforms which do not require 'any' taxpayer dollars and allow our otherwise effective capitalist system
to run its course to resolve this problem.

Regards,

Larry Ozeran

http://www.PrinciplesforPolitics.org
http://www.DrOzeran.com
http://www.ClinicalInformatics.com

        

The Fiscal Future of Cities
Citing a perfect storm of rising home foreclosures, declining home values, and spiraling
costs such as the increasing cost of health care premiums, a report from the National
League of Cities identifies that the fiscal health of cities, especially in the West, is not
good and getting worse. It says “troubling developments” will likely affect the financial
health of cities over the next several years. 


                      

NLC’s report, City Fiscal Conditions in 2008, found that the decline in property tax revenues
(3.6 percent from the prior year, in inflation-adjusted terms) is having an impact on the fiscal
health of local governments.

Unlike the economic downturn in 2001, when property tax revenues were able to buffer the
effects of declining income and sales tax receipts, the weak housing market is likely to affect
city budgets until 2010,the report says.

Moreover the report found that other sources of revenue are headed downward as well, with
sales tax receipts declining by 4.2 percent and income tax revenues expected to decline by 3.3
percent in inflation-adjusted dollars in 2008 compared to 2007.

As a result, 64 percent of city finance officers surveyed expect cities to have a harder time meeting
fiscal needs in 2008, and 79 percent forecast even bigger problems ahead in 2009. “Even if economic
conditions improved immediately, the nation’s cities are likely to be realizing the effects of the current
downturn through 2010,” says Michael Pagano, co-author of the report and dean of the College of
Urban Planning and Public Affairs at the University of Illinois at Chicago. “The sharp decline in property
tax receipts erodes a critical buffer that has helped cities through economic downturns for the last three decades.”

On the spending side, increases of 3 percent in 2007 were met with flat or declining revenues,
according to the report. Taken together, city finance officers project a budget gap of 2.8 percent
in 2008, with revenues declining by 4.3 percent and spending declining by 1.5 percent in inflation
-adjusted dollars over 2007. 


                                                        
The areas affecting city budgets the most heavily include prices and inflation (including energy prices),
which were identified by 98 percent of respondents. Increases in infrastructure (85 percent) and public
safety spending (83 percent), and employee-related costs for wages (95 percent), health care (86
percent), and pensions (79 percent) were also cited as budget-busters. To meet budget shortfalls,
half of the cities responding (49 percent) have increased fees, while 28 percent have increased the
number or types of fees and 23 percent increased the level of impact and development fees.
Regionally, cities in the West are being hit hardest, with 74 percent of finance officers stating that their
cities are worse off in 2008, followed by cities in the Midwest (67 percent), Northeast (61 percent) and
the South (53 percent).

The situation also varies depending upon local tax authority. Finance officers in cities reliant upon property
tax were most likely to say their cities are worse off (75 percent), compared to cities that utilize a mix of
sales and property taxes (60 percent), or cities that use a mix that includes a local income tax (52 percent).
The pessimistic assessment is registered regardless of city size. Sixty-nine percent of the nation’s largest
cities reported a lessening ability to meet needs, 68 percent for cities with populations 100,000-299,999,
65 percent for cities 50,000-99,999, and 61 percent for cities with populations under 50,000.

“There is … only so much cities can do when faced with the macro-economics of a housing market in crisis,
flat revenues and soaring health care and energy costs,” says Donald Borut, executive director of the
National League of Cities. “It’s time we recognize that we must support strong cities if we are to expect
to benefit from a healthy, growing economy. Federal and state policies need to support local economies
if we want to improve the national outlook.”

        

A new study completed by The Field Poll asked California voters a series of questions
about Prop. 13 and various proposals that have been made to amend some of its
main provisions. The survey's main findings include the following:

When California voters are asked how familiar they are with the landmark 1978 property
tax reduction initiative, Proposition 13, they divide into three camps. About one-third
(37%) report being very familiar with it, another third (30%) say they are somewhat
familiar, while the remaining third (33%) report being not too or not at all familiar with it.
Nearly three times as many homeowners (46%) as renters (16%) are very familiar with
Prop. 13. When a homeowner bought their current home is also a big factor, with long-time
homeowners more likely to report high familiarity than those who purchased their homes
more recently.

Three decades since its adoption, Prop. 13 remains very popular with voters. Statewide
more than twice as many voters (57%) report that they would vote in favor of Prop. 13 if
it were up for a vote again today as would vote against it (23%).

Support for Prop. 13 is much greater among homeowners (64%) than renters (41%),
particularly long-time homeowners. Support reaches 79% among homeowners who bought
their present home prior to the passage of Prop. 13.

When voters are asked their opinion about various proposals that have been made
to change Prop. 13, most are rejected by wide margins.

For example a proposal to gradually raise the property taxes of long-time property
owners, so the amount they pay is more in line with the amount paid by recent buyers
of similarly valued property, is opposed two and one-half to one (66% to 27%).
A proposal to amend Prop. 13’s provision that local governments cannot increase
property taxes by more than 2% per year is rejected by an even wider 78% to 17%
margin.
 
There appears to be strong resistance to the idea of changing the Prop. 13 provision
requiring a two-thirds vote of the state legislature to increase taxes, with about
seven in ten opposed.

In addition there were a variety of voter reactions to the idea of creating a split
roll property tax system, whereby residential and commercial properties would be taxed
at different rates, depend on how the issue is framed. Voters are divided if this means
ncreasing the property taxes of business and commercial property (47% approve and 44%
disapprove). On the other hand, the survey results show that voters would approve 61%
to 28% if this means lowering the property tax rates of residential property owners.
Six in ten survey respondents (voters) (61%) now describe state and local taxes as
being much too high or somewhat high and 37% saying they are about right. These findings
are near the thirty-year average result obtained across fifteen separate Field Poll
measures on this subject since 1977, and are quite similar to the four most recent
surveys conducted between 2001 and 2007.When asked to specify which state and local
taxes they feel are too high, survey respondents voters most often mention the gasoline
tax (32%), the property tax (29%), the state income tax (27%) and the sales tax (22%).
No other single tax is cited more than 9%.

        

                                            

Only in California
In 1985, the comedy movie Real Genius starring Val Kilmer presented the scenario
of a college age undergraduate studying at "Pacific Tech," a fictitious technical university
based on Caltech. Chris Knight (Kilmer) is a genius and in his senior year working on the
development of a chemical laser. The story weaves through a variety of trials and tribulations
of this collegian’s life who is seemingly bored with his studies.  However, the story takes a
turn when the CIA defines that they want a laser based system mounted on an aircraft. 
Kilmer’s professor embellishes the request - demand for the laser and pressures the young
genius to find a solution for more power or suffer the consequences of not graduating and
loosing an unknown future career making millions.  Suffice it to say the genius succumbs
to the pressure and finds a solution to the demand. Even the genius comes up with the
solution he also uncovers its subsequent use. The plot turns through a variety of humorous
outcomes. But last week at Edwards Air Force Base in southern California, this apparently
became a serious reality.


Reagan's Star Wars Redux
An aircraft-mounted laser designed to shoot down missiles was fired for the first time in a
ground test aboard a 747 located at Edwards Air Force Base. The test of the high-energy
chemical laser was conducted by the contractors and the U.S. Missile Defense Agency,
The laser is in the back half of a Boeing 747-400F jumbo jet. Subsequent tests will increase
duration and power before the beam is sent through a fire control system to a turret mounted
in the nose of the aircraft. Ground firings will be followed by flight tests of the system, which
is intended to be capable of destroying all classes of ballistic missiles in the boost phase of
flight. The laser was designed and built by Northrop Grumman Corp. Lockheed Martin Corp.
developed the beam control-fire control system, and Boeing provided the battle management
system. The program remains on track to reach the missile shoot-down demonstration planned
for 2009.

                               

Of interest
I was sitting in my then office in Yuba City when a member of the Beale Military Liaison
Committee returned from a trip to Washington DC where apparently he had met with
Air Force officials that identified to him two unclassified military aircraft – the Global Hawk and
the laser armed 747. A community request was made to acquire the Global Hawk mission(Unmanned
Aerial Vehicle, ‘Jet Powered’).  I always wondered what happened to the airborne laser aircraft. 
Well, to para-phrase the radio commentator Paul Harvey, ‘Now you know the rest of the story.’
Now, let's see what's playing at the movies.



Tim Johnson
www.CaliforniaBusnessMinute.com

 

        

Not So Quick California -
The U.S. Defense Department canceled competitive bidding on a $35 billion
air tanker contract, allowing the next administration to pick between rival bids
from Boeing and Northrop Grumman Corp. U.S. Defense Secretary Robert Gates
said the "cooling off" period will allow the decision to be made "objectively."

                                       


If you recall, this elongated contract process of selecting a bid to replace the
Air Force’s aging fleet of KC-135 refueling aircraft has taken on a life of its own. 
If you remember it was announced by the Air Force that California based Northrop
Grumman was awarded the winning bid.  However, then Boeing countered saying
that due to changes in the bid requirements, their bid was not correctly reviewed. 
They demanded and received an audit by the federal Government Accountability
Office, GAO.  The GAO detailed significant errors the Air Force had made in the
original award.   The GAO’s conclusion was that had the mistakes not been made,
it might have lead to Boeing receiving the contract. 

 
                             
   
The Pentagon took over the bid process from the Air Force and conducted a limited
re-bid that examined 8 issues where the government auditors found problems in the
initial bid.

For California, specifically southern California, that means the potential loss of 7,500 jobs.

        

                                                             

Winning Ethically

After a major victory on the gridiron this past weekend over Oregon State, the Cardinal looks
to be returning its football team back to a respectable level. 

And speaking about respect, catching the headlines is the teaching of ethics at its Business
School.  If the economic expansion from 2001-2006 taught us anything about respect, it would
have been hard to find it in the business world during this period. It was fraught with corporate
corruption.  We all received a civics lesson or in this case an ‘ethics lesson’ as we watched or
read about companies and their executives as they were called into courtrooms across the nation
to plead their cases.  The legal proceedings against companies such as Enron, MCI, Tyco, Adelphia
to mention just a few along with their corporate leadership that were paraded in and out courtrooms
in handcuffs provided a living classroom 'in real time' for ethics. 

So it must be asked why would a parent pay $$$$$$’s to send their kids to learn about this topic
‘down on the farm’ when they can simply teach this subject by disciplining them by taking away their
Playstation or Wii and force them to watch such proceedings on cable television with the precursor
of saying “do not do as those depicted have done.”

But there is more to this story.  According to a feature story in the Stanford Business Magazine
and at the Stanford Knowledgebase, many people, including students at business schools resist
discussing how the influence of a group or a situation can lead good people to do bad things.
Apparently research indicates that leaders who don’t acknowledge that group pressure exists
within their organization can create and perpetuate an environment of bad behavior if not corrupt. 
Thus, those that do can use their understanding to promote an ethical organizational culture and
appropriate controls.

The idea that ordinary, good people can end up involved in corruption is counterintuitive to some.
“We underestimate the power of a situation to control people’s actions,” says Deborah Gruenfeld,
who is Moghadam Family Professor of Leadership and Organizational Behavior at the Stanford
Graduate School of Business. “Most of us believe we’re much more autonomous than we are.”
(Great, tell that to all of the former employees from Arthur Andersen).

Stanford Business School Accounting Professor Maureen McNichols teaches an elective course
called Understanding Cheating. Among other things, the course helps students see how good
leadership and the right organizational structure can cut down on the opportunities for corruption.

While these are admirable teachings, the efforts, specifically creating the right organizational
structure would be far more valuable and appreciated by 37 million Californians if Stanford would
do research on how to create the right organizational structure needed to pass a state budget.

Time to open a satellite campus in Sacramento. 

To read the full story, go to: http://www.gsb.stanford.edu/news/knowledgebase.html. 

What do you think?  Is teaching ethics wasted on college age students.  Should ethics be taught to the
state's economic development and redevelopment professionals?  Let's hear your comments


  
   Tim Johnson
   www.CaliforniaBusinessMinute.com  

        

                  

A Movie with a Historic Flavor and a Hint of Jocularity

Bottle Shock is an independent film about the story of the early days of California wine
making and it tells the now infamous and true story of the blind Paris wine tasting of 1976
where a Napa Valley wine beat wines from France that has come to be known as
"Judgment of Paris".  The movie chronicles the struggles of a small California winery,
Chateau Montelena located in the Napa Valley.                                               

Bill Pullman plays Jim Barrett, who gave up his law practice to run the vineyard. What
was to be his romantic entrepreneurial effort quickly became an albatross around his
neck.   His venture causes him to become financially overextended and cranky about
his seemingly failing venture. He also is not at all thrilled with his long-haired son, Bo
(Chris Pine). Also working for him is Gustavo (Freddy Rodriguez), who has a finely honed
palate and aspirations to make his own wine, and an eager intern (Rachael Taylor), who
has the attention of Bo and Gustavo. 

                                          

Meanwhile across the Atlantic, Alan Rickman plays the owner of a struggling vintner's
shop and wine academy in Paris who is seeking publicity for his foundering business. 
He is spurred on by the suggestions of a neighboring shop owner (Dennis Farina). So
Rickman decides to expand his wine collection to include global offerings and heads to
Napa Valley to see whether the wines grown there are any good. Along the way, he
significantly improves his own position and permanently changes the fate of the global
wine industry. Rickman rents a bright yellow AMC Gremlin which is a show stealer.  First
because who can image where they found this relic and second it too brings back the
memories of a time when Detroit had to reinvent itself to accommodate higher gas prices
from the early 70’s  as is now the case and second, it harkens back to a time when there
were four major US automakers.

                                                      

But it is the cinematography along with the cultural and historic context of the early days
of California’s wine industry that steals the show rather than the plot of romantic
entanglements and family conflicts.

The performances, particularly those of Pine, Rodriguez and Pullman, are excellent. Rickman
is great as a wine snob but proves to be even more than he appears. Bottle Shock is a California
crowd-pleaser with an intriguing story to tell. 

It is rated PG-13 for brief, strong language, some sexual content and a scene of drug use.
It’s running time: 1 hour, 46 minutes. 

If you have seen it, give us your review!

        

                                    
   
SPIN DRIED FRUSTRATION

A recent edition of the Las Vegas Business Press covered a speech by a California legislator that painted a very
bleak picture of California before a business group in a neighboring state.

State Senator George Runner (R) apparently in a speech before the Nevada Development Authority stated,
"In California, we treat businesses more like the enemy at times," Runner said. "In that process, we make
employees a greater and greater liability. And as we create greater liabilities, smart businesspeople decide
not to hire as many employees, or they choose to go ahead and do business somewhere else."

It appears that the legislator has a sense of frustration with the state’s regulatory environment in terms as
he sees it impacting the business climate. And his frustration manifested itself into his comments
presented at an out of state forum. 

While he may have thought that it was politically expedient to make these comments, especially being out
of state, our Internet connected society can easily view such press and news media coverage and specifically
his comments - and it is these comments and where they were expressed that is of concern.  

Unfortunately the legislator used an out of state venue to make his case.  It is too bad, for it would have been
far more constructive to have had him speak at one or more of the many regional economic development
forums presented across the state to express his comments specifically  to the professionals in business,
community, economic development, workforce development and edevelopment, thus enabling a dialogue
on his concerns related to these issues of regulation and taxation and working to find solutions.

The California Business Minute has written extensively about the business climate and corresponding
regulatory and taxation issues, specifically publishingthe annual review, California: Ranked Rated and
Graded. (The 2008 report is pending.)  And it is true that many times California is not ranked high, such
as the recent case with a Forbes online ranking illustrating the state as the most expensive location in
the nation to do business.  Yet in other cases it can be ranked extremely high.  In addition, multiple cities
across the state find themselves ranked very high in terms of economic growth and business climate
such as Kiplinger’s ranking Sacramento as one of its ‘Top Ten  Best Locations for Business’ in the
nation or Irvine as the one of the ’Top Ten Best Cities in the Nation to Live.’

The rub with the legislator’s comments stems from my nearly 30 years of service in economic
development particularly in the Golden State.  For example, during my tenure as executive director of
the Yuba-Sutter Economic Development Corporation, we worked with our legislators, assemblymen
Doug LaMalfa and Rick Keene along with state senator Sam Aanestad. The region had been named
not once but twice as ‘The Worst Place to Live in the Nation’ by Rand McNally and Money magazine
-a horrible label to be given a community.  In concert with this, the region also suffered from 20 percent
unemployment and corresponding double digit poverty levels.

So the community in concert with its legislators worked to reverse these trends and the unfortunate public
relations fiasco.  Within seven years, coordinating work on business expansion, retention and recruitment
activities, the region reduced unemployment to 9 percent and poverty levels from a high of 25 percent to 13.
Forbes magazine ranked the region not once but twice the ‘Best Rural Location in the State to do Business’
and in the ‘Top Ten Rural Locations in the Nation for Business’.  Additionally, the US Department of Commerce
bestowed it’s National Award Of Excellence to the Yuba-Sutter Economic Development Corporation as the
‘Best Rural Economic Development Program in the Nation in 2006’   Together local and state officials with
the private sector over came all obstacles even with the rigid regulatory and heavy tax environments expressed
by Senator Runner.  And throughout, I never heard any business ever describe themselves as the ‘enemy’ in
the context to doing business in the state.

Again, while the legislator might have been trying to make his case not to create an environment like
California to the people of Nevada, he and other legislators might take these facts into consideration:

                                                 California Facts 2007-08

• California is the 8th Largest Economy in the World (State Finance Dept.)

• California comprises 13 percent of U.S. GDP (Bureau of Economic Analysis)

• 12.5 percent of the nation’s population lives in California (Census Bureau)

• 10 percent of all U.S. housing stock is in California (Census Bureau)

• California adds 400,000 to 600,000 people a year, creating a population the
 current size of Kentucky in 4 years or of Oregon in 6 years (State Dept of Finance)

• California has the largest and most diverse agricultural crop production and dollar
 value in the nation. (US Dept of Agriculture) 

• Contrary to public opinion, California is not the most expensive state to do business,
 that title goes to Hawaii (Milken Institute)

• Contrary to public opinion, California is not the highest taxed state in the nation for
 business, that title goes to Rhode Island 2007, New Jersey 2008 (Tax Foundation)

• California is ranked #1 in the Nation in Aerospace based on employees and dollars
 spent in production (Development Research Partners)

• Biomedical companies in California generated $62 billion in revenue last year and a
 ccounted for two-thirds of the market value of all NASDAQ listed life sciences companies

• California is one of ten states that has out produced the national average in job growth,
 average wages, total personal income, per-capita income and population growth over
 the last ten years (Business Council of New York)

• California possesses 25 percent of the Forbes 400 richest people in the nation, larger
 than any other state

• California possesses 10 percent of the Fortune 500 firms in the nation, just behind the
 states of New York and Texas

• California’s Rank in the nation
#1 in High Tech jobs in the nation with 919,300 (AEA)
#1 in employment for Computer Design and Related 
      Services (AEA)
#1 in Telecommunications Services employment (AEA)
#1 in Semiconductor Manufacturing employment (AEA)
#1 in Computer and Peripheral Equipment Manufacturing employment (AEA)
#1 in health care employment with over 1,434,000 employees (Census Bureau)
#1 in Asian-Pacific, Black, Hispanic and Women Owned Businesses than any 
      other state (Census Bureau)
• California was ranked the ‘Best Place’ where Americans want to live (Harris Poll)

Rhetorically, if our state’s regulatory and tax environment is so bad, then how did we accomplish
all of this?  These rankings are the reason why Nevada along with all of the other states come to
California to recruit business and industry, because it is where growing business and industry is
located. And that message more than anything is what the legislator should have taken the
privilege and honor of presenting.

The California Public Policy Institute earlier in the year identified in a study that the state has not
lost significant numbers of businesses and specifically has not lost due to its regulatory and tax
environment.


                                                                         
                                    Assistant Secretary of US Dept. Of Commerce, ( current director of SBA nominee)
                                    Sandy Baruah with Congressman Wally Herger and State Senator Sam Aanestad
                                    with community officials at the presentation of the National Award of Excellence at
                                    to Yuba-Sutter County Econ. Dev. Corp. at the California State Capital

If the response to the reason for the remarks is because it is about politics then that is too bad.  California
deserves statewide elected officials and legislators who will engage  business, community and economic
development professionals to vette these concerns across the state and then work together to identify and
subsequently implement actions to achieve economic success as did the Republican legislators Doug
LaMalfa, Rick Keene and Sam Aanestad.

Let's hear your comments----



Tim Johnson
www.CaliforniaBusinessMinute.com

        

                                           
A Two Punch Combination Rock's the Industry
and Soon State and Local Government

New auto dealers in California are big business . . .  $82.3 billion in sales to be
exact in 2007.   But not all has been good for dealers.  A boxing analogy puts
into perspective.  The industry has been hit by a strong two punch combination.
The mortgage meltdown coupled with the spiraling costs of gasoline has brought
new car dealers to their knees.  And while they have struggled to get back up,
their potential customers have been impacted by the credit crunch.  Even with a
low prime rate, borrowers are confronted by some of the stiffest terms in recent
history.

Overview of New Auto Dealerships in California

Average sales per dealership...........................................................$51.6 million
Total sales of all new-vehicle dealerships in California ................... $82.3 billion
Dealership sales as % of total retail sales in the state....................18.9%
Estimated number of new-vehicle dealerships.................................1,594
Dealers provide thousands of well-paying jobs in California.
Total number of new-vehicle dealership employees in CA................133,721
Average number of employees per dealership..................................84
Average annual earnings of new-vehicle dealership employees.....$55,491
Dealership payroll as % of total state retail payroll..........................13.9%
Annual payroll of new-vehicle dealerships......................................$7.38 billion
Average annual payroll per new-vehicle dealership .......................$4.63 million
Dealers generate hundreds of millions of dollars of tax revenue
for state and local government through:
. Sales Tax Revenue
. Corporate Tax Revenue
. Payroll Tax Revenue

                                                                
                                            No More, but not impacting sales

Auto dealers in the Golden State have seen sales of new cars and light trucks
plummet by more than 18% in the first half of the year, according to figures from
the California New Car Dealers Association.

That's compared with a nationwide drop of 10%. Not counting sales to corporate
and government fleets, California dealers had sold 634,577 cars, SUVs, pickup
and minivans through June, versus 779,778 in the same period last year.
Here are a few other tidbits from the dealers’ association report:

•Toyota/Scion was the top-selling brand in the state, with a 22% market share,
 followed by Honda (12%) and Ford (11%). Another Japanese brand, Mitsubishi,
 came in last with a share of less than 1%.
•Domestic brands account for about 34% of new vehicle sales in California.
 Nationally, the Detroit Three capture 48% of sales.
• The top-selling models in the state were (in order) the Toyota Camry, the Honda
  Civic, the Toyota Corolla/Matrix, the Honda Accord and the Toyota Prius.
•The Ford F-series and Chevy Silverado were the top-selling full-sized pickups,
  easily fending off a challenge from the Toyota Tundra.
•Cars (as opposed to light trucks) have accounted for almost 60% of new vehicle
 sales in California, compared with around 54% nationwide

The California New Car Dealers Association in their most recent California Auto Outlook
identify two key factors for what they forecast as to be the reason for the continue decline
in sales, specifically a forecasted loss of 20 percent in sales for 2008.

•Number one roadblock to a rebound in new vehicle sales: Excessive household debt
•Number two roadblock to a rebound in new vehicle sales: Rising fuel prices and shifting
 consumer demand

                                         
                                       An example of a two punch combination

The Golden State’s lackluster sales will manifest themselves into less tax revenue for local
jurisdictions.  And unless the price of gasoline returns to the $80 to $100 a barrel, the transition
to smaller vehicles and specifically more fuel efficient vehicles will present a bind for the
manufacturers in the transition, causing further years of lackluster sales impacting local
governments who operate off of the life blood from the sales tax receipts created by new car
sales to also tumble.  Now who is driving California?

   
Tim Johnson
www.CaliforniaBusinessMinute.com

 

        

                                                                 

Another Hand

A controversial tax measure — one provision under discussion in a state budget plan
calls for $8.2 billion in new taxes — is designed to close a loophole for large corporations
and generate $1.1 billion for the state. But small businesses earning less than $5 million
in revenue may suffer the most negative effects.

"Although 80 percent of the total taxes would come from businesses with more that $5 million
in revenues, it is the 20 percent of the total businesses in California that make less than this
that will suffer the most" said Scott Hauge, founder and president of Small Business California,
a business advocacy organization.

Companies in California are permitted to carry forward net operating losses incurred in one year
and use them as deductions against earnings in future years. The proposed budget would suspend
the losses for three years. If a business operates at a loss — often the case with start-ups or
businesses that add employees, expand inventory or upgrade equipment — a business could not
carry over that loss in subsequent years to mitigate the tax burden.

One hellava hand!  Fold and deal again.

  

Tim Johnson
www.CaliforniaBusinessMinute.com