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Governor Schwarzenegger discusses the budget with the San Jose Silicon Valley trade

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Tuesday, 08/10/2010   Print Version |

Good morning. Governor, before we get started, let me fist of all say how pleased we are that you saw fit to come to San Jose and to the Chamber of Commerce. You've been a regular visitor to this chamber and we really appreciate it. Before you today you have some of our board members, our trustees, which is our Political Action Committee members, as well as some of our ambassadors that are kind of our front door to our community and to the business organizations here in San Jose. We also have a few of our candidates that are here. They did very well in the primary and we're hoping that we're going to get them elected in November and have some good people working to get up to Sacramento.But let me also just say how important it is that we have a governor like this governor, that is always in tune with what the business community is interested in, what the business community needs. He has always done that since he's been elected and we so much appreciate it. He's got quite a task, working with some of the legislators and trying to come to commonality on what's good for this state -- what's good for this state when it comes to business, to healthcare, to education, to transportation -- but he's in there and he monitors it continuously.What he's going to talk about with us today is something, Governor, that we're all very interested in, because we in the city of San Jose and in the county struggle with trying to pass our budgets every year. Part of the reason that we struggle is because of pensions and how they have ballooned so much in the last few years and, quite frankly, we just can't -- it's not sustainable, we cannot continue to pay those. So we have two ballot initiatives that will be on the ballot in November dealing with, one, binding arbitration limitations and the other pensions.So we are speaking the same language. I think you're going to be talking with us a little bit about some of the challenges that you're having with the California budget and, hopefully, some of the areas that the business community might be able to be helpful. So with that, would you like to say a few words before we get into some questions?Well, thank you very much, Pat, for the extraordinary job you're doing for the chamber here and also the great job you have done for my administration when you worked over in Sacramento. And thank you for inviting me to come here today and thank you all for being here today. I know you all are busy doing your own work but it's always nice to reach out and to talk to people directly.I have been traveling up and down the state talking about the budget, talk about why is the budget late and that's, of course, an easy one to explain. The legislators just haven't done it yet. (Laughter) It's one of those things that happens. Out of the last 20 years there only were three times where they did the budget on time.I, as governor, I have my Budget Proposal on January 10th every year; I've never missed that deadline. And on May 14th we have the May Revise; I've never passed or was late with that deadline either.But the legislators, like I said, they are always late and I think it is just because they don't start negotiating until the new fiscal year starts. So this year, for instance, again on May 14th I presented my budget and then you didn't hear anything. And then they do the various different hearings and then, when they were finished with the hearings in the end of June, they went on vacation. So they never really negotiated a budget.Then, all of a sudden, you know, they started coming down to our office and they start talking a little bit and getting together with the Republicans. And that's what's going on right now. They're back in session now, a month later, after vacation. And now we are getting together regularly, so I think that there's a good shot that we will have a budget within the next two or three weeks.But it's a very difficult time, you know, to come to an agreement. When there are a lot of revenues it's easy to come to an agreement. And like Pat said, that right now, because of the economic decline over the last three years -- worldwide, not just in San Jose or in California -- it's worldwide. Countries are scrambling and struggling all over the world, if it is Ireland, if it is England, if it is Germany, if it is Greece, if it is Spain or Portugal. Everywhere you look they are having difficult times because the whole world, basically, has reduced in value by at least 20 percent. So they are all of a sudden now -- you know, the business activities are not there, the revenues are not there.But the good thing about that is -- and I always look at problems as an opportunity, as a way of seeing new opportunities. And I think, because every state and every city and county is going through this stress test where all of a sudden you have less revenues and then you realize, wait a minute, I think that we are not distributing our money the right way, or we are doing something wrong and that's why we don't have enough revenues right now.And that's exactly what's happening also with the state. We now recognize that we need a rainy day fund so when we get hit by an economic slowdown we have a little bit of money left aside. So therefore one of the things that I'm proposing is to have budget reform so that we save money into a rainy day fund and use that money then when our economy goes down and when there are less revenues, so we have enough money for the vulnerable citizens, for education, higher education, kindergarten through 12th and so on and so forth.The other thing that we have to recognize is that by having less money there are certain other areas where we are spending too much money and that's why we don't have enough money for the most vulnerable citizens or for education and so on. And that is, like Pat said, pensions. So that's another thing we recognize. And I think it's very important that we use this opportunity and look at it closely and carefully and say to ourselves, wait a minute, there has been a huge spike in pension costs for the state and also locally.And that spike is not just like where you say OK, our revenues came in at an increase of 26 percent and our pensions went up by 30 percent or so. No, it's not that. That would be doable. But the pensions went up by 2,500 percent in the last 10 years. So what once was in the budget in general funds a $150 billion expenditure now is this huge amount of money. Now we're talking about going from $150 million to $3.9 billion -- correct me if I'm wrong, David, because David is the expert -- $3.9 billion just in CalPERS alone. This is not talking about the others, now. Altogether it's $6.5 billion that we are spending every year.So think about that increase in 10 years. Revenues go up by 26 percent and this goes up by 2,500 percent. So that is where the problem lies. Now you're crowding out other programs. If we would not have this kind of an increase, if we would have had an increase of 26 percent, like our revenues go up, we would be paying $200 million a year for the pensions rather than, you know, $4 billion just from the general funds, the general account and then the rest of it in other special funds. So that is really where the problem is.Then we also have to look at how we are spending our money in education. We know that we need more money in the classroom but we are consistently -- there was a just a report that came out today that talked about that the education spending went up but the funding into the classroom went down. So that means that the kids are not getting the money. It's adults that are fighting in the education community to get that money, that education money, because the state and the federal government and the locals are giving education a certain amount of money and then they make the decision how to spend the money. But it's not going into the classroom, so there's another thing that we have to look at. And it's a good opportunity now to look at how are we funding education and is the money really going to the children. I'm sure you read just recently in the L.A. Times that the Robert F. Kennedy Community School was supposed to cost, in 2007 when they started building it, $300 million. And all of a sudden it ended up costing in 2010 -- it's opening now -- $600 million. Now, how did it go from $300 million to $600 when construction costs went down by 25 to 40 percent? It doesn't make any sense. But that's what happens because there are so many people, grownups, that are fighting for education money rather than giving it to the kids and putting it into the classroom.So when you have this stress test you're looking at all of the things where you may be making mistakes. You know, it doesn't make sense to point fingers at anybody or to look back. It's always easy to be smart in hindsight; we all know that. But I think we can make certain corrections and that's what we're trying to do. We're trying to do pension reform. We'll try to do budget reform this year.And we'll try also to do tax reform. And why tax reform? Because we recognize when there's a dip in the economy that, all of a sudden, even though there's maybe a decline of 2.8 percent in the economic activities, we have a dip in revenues of 30 to 40 percent. Why? Because we are relying so heavily on income tax. And of course, out of that income tax, it's all the rich people in California that are paying most of the income tax. But they are investing their money on Wall Street, so when Wall Street goes from 14,000 to 6,500 you have a major problem because all of a sudden everyone has a loss, no gain, therefore they're not paying income tax. So you have this tremendous loss just in that category, a 60 percent drop in revenues.So those are the problems, so we should correct that and make our system less volatile. Very complicated. The only way you can get all of those things done is if you start early, if you start working through the process and negotiate and bring both of the parties together. Now they are scrambling because they realize, darn it, why didn't we go on May 15th, the day after the May Revise was handed in, why didn't we just sit down and start going through those issues?I already made it clear that I'm not going to sign a budget if we don't have those pension reforms and straighten out that mess and roll it back to pre-SB 400, which was done in 1999, where they decided to increase all those pensions and make them so outlandish, the way they are.Or, for instance, I will not sign a budget if we don't have the budget reform where we go and say let's put a rainy day fund aside. Let's go and save money and put it into a rainy day fund. It wouldn't make any sense to not use this opportunity. That's why I say crises can be great opportunities. I look at every crisis as great opportunities. The pessimist always will look at and see a crisis in every opportunity but I see opportunities in every crisis, so that's the difference.So I think that this would be a wasted opportunity there. We have to have those reforms. The legislators, Democrats and Republicans, are working on this. They also know that I'm very adamant about becoming more efficient, the way we spend our money, because this is old. I'm a big believer that we are not short on revenues, we are more short on the way we distribute the money. There's plenty of money there under the circumstances -- I'm talking about, the economic circumstances -- but we've just got to distribute that money the right way.It's like with water. You know, people always talk about we need more water. We just have to distribute the water the right way and then we have plenty of water. And that's why our water bonds -- and I'm very happy that yesterday they decided to put the water bonds to 2012. So the legislature did a great job and the legislative leaders did a great job yesterday, so I'm very proud of them, of working together, Republicans and Democrats on this issue.So with that, I want to open it up to you and just say, you know, this is a great opportunity for us to do some good work here in California.Thank you, Governor. I’m going to have Mr. Rodriguez come up and take his seat -- he is tardy -- before we get started here. (Laughter)Governor, thank you. Thank you very much for that overview of the budget and some of the negotiations that are going on. If I could -- and just to let you know, we sent out an email to all of our folks and they have sent us in questions, so if we have time when we get to the end maybe we'll go the general but I've got a stack here.So one of the first questions was and you talked about this a little bit:  "How does the pension reform really fit in budget negotiations?" And I guess this is leaning to why have you connected the two.Well, because pensions -- out of the general fund we almost spent $4 billion, $3.9 billion now. It used to be $3.3 and now they just asked to bump it up another $600 million. That makes it $3.9 billion. This is out of our budget.So if I would have, as I said earlier, if we would only have an increase of 26 percent, then we would be spending now $200 million rather than almost $4 billion. I would have $3.7 billion more for other programs. I would give some money for in-home supportive services, I would have more money for higher education, I would have some more money for community colleges, I would have some more money for kindergarten through 12th, I would have some more money for childcare and the list goes on and on and on. Now I have to make cuts because the pension is crowding it out.There is, for instance -- David, if you have the charts here? I think it's very important to look at this here. Oh, you have it right over here. Let's look at the pensions here just briefly, the increase in pensions. Here it just shows to you, the yellow line here is the increase in revenues, 26 -- 28 percent. OK, I was wrong by 2 percent -- 28 percent increase in the last 10 years.But look at this, pensions. So that's why this is directly related to budget, because we are giving, we are putting too much money into those pensions because, in 1999, some geniuses have thought (Laughter) that it will be easy, affordable for the state to make those increases in pensions because they promised the legislature that our stock market at this point, in 2009-2010, will be at 24,000. Now, think about that. In the meantime, we are struggling with between 10,000 and 11,000, going back and forth right now. But they said in 2009 it will be at 24,000. And they also thought that our budget will be at $130 billion and on and on and on, while we are actually at $90. So they projected all kinds of crazy things and the legislators went along then and voted for that.Here it just shows to you, if we continue -- if you think this increase is tragic, the 2,500, look at this increase here. Look at this increase. So it will continue spiking. The $4 billion that we almost spend now will go, within a few years, to $10 billion a year -- thank you, David -- to $10 billion, just to give you an idea.So we are distributing our money -- we have the money but we are distributing it the wrong way. And so to me, what I am saying is, let's pull back on that, let's change it. We shouldn’t take anything away from anyone that was promised that money. What I'm saying is for new hires, people that are starting to work in January, let's go and go back to pre-SB 400 and give them those benefits. You know, change -- instead of making it the last year of your salary, where the spiking goes on, let's average it out over the last three years. This will bring down the cost. Let's go and say, instead of retiring at 50, for law enforcement and emergency people, to retire at 55 again, the way it was. And instead of 55 for state employees, to retire at 60, just the way it was before SB 400. They went insane. Everyone talks about let's go and retire later, because we don’t have the money for all this.So those are the kind of reforms that we want to do and also that state employees contribute 5 percent more to their state pension. So those are a few of the changes and to roll it back and I think that will help us tremendously in the future. And those are just some of the things and that's how it's connected to the budget.Well, that's exactly what we're seeing in San Jose. As a matter of fact, the chamber's initiative that will be on the ballot in November says the same thing; we need a two-tier benefit for pension benefits. We just can't keep paying what we are now as we continue to close parks and libraries and community centers and lay off police officers and firefighters.So how is that negotiation going? What's the prognosis?Well, the negotiations -- you know, the thing is, I mean, I like the people that I negotiate with. Pérez is a nice man and Steinberg and my Republican colleagues are really great guys. We all sit down and talk. It's just a philosophic difference. The philosophic difference is that Democrats want to -- they have just done their budget presentation and they want to increase taxes and they want to borrow more money. But those are the kind of things that got us into trouble in the first place.Last year I told them I would do it because we had a $60 billion deficit and you can't cut $60 billion. So I said one time every 20 years we can go there. I said Ronald Reagan went there, then Pete Wilson went there, Deukmejian and now myself. I understand when there's an emergency.But this year it's not the same thing. We have now increased the taxes last year by $12.5 billion, which we are benefitting from right now. Why would I go and increase it again, when really what we should do is live within our means, make the necessary cuts? I'm not talking about the whole $20 billion deficit, making cuts. Half of it at least making cuts and the other half we can do with fund shifts and federal money we draw down and so on. So we are working on that.So there's a fundamental difference. They want to increase taxes, they want to do more borrowing. I say let's live within our means. Let's go and be fiscally responsible.Number two, I'm asking them to go and stimulate the economy, because what brings us extra revenues, if they want extra revenues, is when we stimulate the economy. When you look at business today, no matter where you go, they give you incentives -- 30 percent off, 50 percent off.I just came from Sun Valley, Idaho. There they have a hotel. It normally costs $280. Now they give it to you for $128 and they give you the ice-skating for free and they give you the buffet breakfast for free and all of those kind of things to just attract people. And it was packed because they gave incentives.You go in Beverly Hills today, they give you incentives, big signs out there, discount this and that. You go to any store, they give you all this because you incentivize people to spend money.Well, the same is when you run a state. The problem is that we really don't have a business plan to run the state because legislators don't come from a business background, so they have difficulty with that idea of making a business plan. So what you have to do is, you have to go and say let's incentivize. Let's give incentives to businesses, tax incentives, new hire tax incentives so that you inspire businesses to hire more people.Then you go and you go into tort reform to make it easier, so you don't always keep suing businesses and hold them up so they can't move forward. You do the kind of things that we have proposed in our State of the State Address.Or like, for instance, very successful, the homebuyer's tax credit that we had, hugely successful because we gave them an incentive. Or the green manufacturing -- green technology manufacturing equipment, we gave an incentive. Hugely successful. Now they took over the NUMMI plant and they're starting to bring more and more companies in. The Chinese just relocated their headquarters here with building the electric car and all this because we gave incentives. It's a no-brainer.They want to take away from business the incentives. They call it "loopholes" and they want to take incentives away from businesses. So it's an ideological difference, a philosophic difference that we have there. And we're going to work through that and come out with some kind of a compromise.So Governor, you mentioned at the beginning of your conversation that our budgets aren't met very routinely on time. And this question is:  "Constitutional deadlines for budget passages seem to be routinely missed with little consequence from court rulings. What's the purpose of having these deadlines if there seem to be no consequences? And how could we possible put consequences so there would be, again, more incentive for legislators to pass on time?"Well, as you know, that I have said this many times, that if we don’t have incentives there will be no -- or consequences, there will be no reasons why they should meet that deadline in the first place. So they can go casually -- right now they go over that deadline and there is really no franticness in the Capitol about this because there's no consequence.The only consequence is for you, because we are right now using $52.5 million a day more than we are taking in on tax revenues because we have to make those cuts or, since we don’t have a budget, I cannot make the cuts that are necessary. So that is the big problem. So there is a consequence to the taxpayers. We are losing money that will be money that we will have less for education, less for healthcare, less for the children, less for the vulnerable citizens.So there are consequences to those people out there but not to the legislature. The legislature doesn't get paid so they go out and get a loan and then, as soon as we have a budget, they get paid all the money back that they didn’t get paid and then they can pay back their loan.But if they never get that money back for every month they don't come in, they don't get that salary and it will never come back, all of a sudden things change. Now there would be a scramble. Now they would feel a little bit like what the general public out there in the private sector feels, that all of a sudden don't make money, or they lose jobs or they lose their homes or they lose business. All of those things go on in the private sector but not in the public sector. No consequences in the public sector, so this is the problem. Those kind of things would inspire them to work much faster.And as I said, the key thing is -- and I've talked to Willie Brown and to other Democrats and Republican leaders -- the key thing is to start in January. These are very complicated issues. As soon as they see in January the Budget Presentation -- because there are no secrets, there are no unusual things that happen from January to May. And if there is some May Revise or some "May Surprise" where all of a sudden there's $5 billion more, great. Great, put it in a rainy day fund, then. But the key thing is to start negotiating in January and to work through this and to create the tax reforms and to create the budget reforms and to do all of the things that need to be done.Governor, to change the subject just a bit -- on water and you did touch on that earlier. But we have -- this is from Rick Callender, who is with us today:  "We receive 50 percent of our water supply from the Delta. What do you believe the likelihood is of delaying the bond and what is the likely prospect of passage in 2012?"There's another question: "Has the water bond completely failed? What does that mean?"Well, first of all, I think that it was a remarkable accomplishment by the legislature to, after all these decades of fighting, to bring everyone together, all the stakeholders. I mean, remember, for decades Democrats were fighting Republicans, environmentalists were fighting business leaders, the farmers were fighting, everyone. The federal government was fighting with the state. Everyone was fighting, Southern California with Northern California, with the Central Valley -- everyone.And we eventually brought everyone together at the table and we worked out a water bond deal, an $11 billion deal that will be extraordinary for the future of California, to have more dams, to build the canal, to fix the Delta, to measure the groundwater, to clean the groundwater, all of those things. And there's something for every community all over the state of California.The only thing is that we now see that there are forces out there that wanted to use that in the negotiations. They say, "If you want us to cut more in those programs or if you want to really insist on not creating extra revenues, then we're going to go and attack the water bonds when it's on the ballot in November."So I asked the legislature, let's take it off the table and let's push it to 2012, because we have worked so hard on the water bonds to get an agreement that it would be a tremendous waste if we go and make it vulnerable this November. So that's why I proposed it, to postpone it to 2012 and to make sure that we win, that the people approve those water bonds.And so that's exactly what we have done. And just like I said, last night at 9:00 o'clock at night, I think that the leaders got together and got them to pass this through and to postpone the water bonds so it will be successful.It will be successful in 2012?It will be successful because we need water. It's one of the things that I've promised when I became governor. I said that I'm going to fight for more infrastructure because the state of California does not have the infrastructure. The whole United States doesn't have the infrastructure. We are living off things that were built 50 years ago. It's absolute insanity that we can't get our act together.But in California we did get our act together because in 2006 the people have approved $42 billion of infrastructure. Then, after that, we did the infrastructure for prisons, to build 53,000 new beds. And then after that we did the high-speed rail where the people approved almost $10 billion for the high-speed rail, where we will be the first state to start building high-speed rail.And now we did the water infrastructure also, which was the last piece of the puzzle and we moved it to 2012. When that passes, then we have the whole package for the next 10 years to really rebuild California, our roads, our levees, schools, university buildings, affordable housing, water and all of those things.Well, this county certainly had very strong support for high-speed rail and many of the other issues that you've talked about. And part of the reason is not just to rebuild the infrastructure, ease of travel for business and recreation but to create jobs.And this next question deals primarily with jobs that drive the economy and this person said that:  "Jobs drive the economy more than anything else and they provide real people with the best solutions to financial problems. Yet it becomes more difficult each year for entrepreneurs to start businesses and to invest in future jobs because of so much uncertainty within the state. So how can we get the legislators to focus on creating a more favorable environment for jobs? California, wrongly or rightly, has a perception of being a very tough place to do business."Well, first of all, it is. If you compare California with other states we have tougher labor laws and it is more expensive to do business here. And this is why I said earlier, we've got to educate the legislature to concentrate, in these budget negotiations, also on job creation.And that's why in my State of the State and also in my Budget Presentation I made it clear that we've got to go and create jobs in order to get more revenues, rather than do tax increases or borrowing more money. It is, like I said earlier, if you give incentives to businesses and if you create an image for California again that this is a business-friendly state, then people will come here from around the world, more so than they will already and create business, hire people and so on.And we have seen it in green technology. We have seen that, because of the tax incentives, more and more green technology is being developed here. As a matter of fact, the Wall Street Journal calls it "The New Gold Rush for California," because we see companies that are developing batteries and solar and doing installation of solar, solar plants that they're building, if it is the electric car -- all of this really helps our economy. We have like literally two-thirds of all the venture capital is coming to California when it comes to green technology. So those are the kind of things we need to do.And this is why it's very important and I want to mention it because I just came from a meeting with leaders from Silicon Valley about AB 32 -- there are oil companies from Texas and coal companies -- not from California, all from outside of California -- that are spending a fortune to go and to suspend or to wipe out AB 32, which is a huge accomplishment where we really made a commitment to roll back our greenhouse gas emissions and other environmental laws like 33 percent of renewables and so on. They want to wipe that out under the auspices of job creation.The fact of the matter is it's the green technology that has created 10 times more jobs in the last 10 years than any other sector in California. So this is why we have to fight for this job creation and push back and spend as much money as it takes to push back those oil companies and coal companies that are spending a fortune here because they are greedy and they want to make more money and they don’t care how many respirators people need and inhalers they need, the children in the Central Valley, or how many people are dying because of respiratory problems, all of this. They don’t care about that. They only care about one thing and that is profits.And so we Californians have to go and stick together and say let's push back on those guys and let's go and protect AB 32 and all of our environmental laws. It's very important because it's for jobs, to create more jobs and also to have a better, healthier state, because we always think about way into the future.You know, I just want to say also that very often there are some that think that it's a partisan issue on liking clean air and clean water. We should make sure that all parties appreciate clean air and clean water and there shouldn’t be this separation of -- Republicans don't want clean air and clean water? That's absurd. You know, we all want that. And so how do we get the Republicans and the Democrats and the Independents to work together on solving some of these issues?And this question kind of leads into it. It says:  "The partisan division and extremism prevents any meaningful reforms. So it seems like the safe super-districts magnify that power of partisan extremists. Do you think that Proposition 11 will make a difference in these districts? And do you think Proposition 20 can pass?"Well, you know, the thing is that, first of all, I think that the political reforms that we have created now with the redistricting reform and open primaries will solve some of the problems. Not all of the problems; it will solve some of the problems. But remember that if we get 20 percent more legislators that are more thinking in the center rather than extreme right and extreme left, you will make huge progress in Sacramento. So that's number one.Number two, I think it is important that we find something that is good for both parties, like with water. It was always like the Democrats always said, "We are with the environmentalists and we want to fix the Delta but we don't want to build any dams and no canal, because we don't believe in growth."You know, some environmental -- there are some factions within the environmental community that don’t believe in growth. Others do. But the fact is that they just didn't want to build any canals and no dams or anything, because they said then more people move to California and this will be crazy and it will be terrible and it will create more pollution and so on.And the Republicans had very little interest in fixing the Delta and doing water conservation and all of those things. And so they were stuck, like I said, for decades.So then we started exploring the idea, well, why don't we do all of those things? I mean, it would be crazy to do water infrastructure but not talk about conservation. We are wasting a lot of water. Why would we not look at technology and ways of saving water? And measuring our groundwater. How much do we really have? How much do we get from Colorado? Let's measure all of this stuff. And then, just like you do with money, let's distribute it the right way.So let's do that. Let's think about the environment, let's fix the Delta. I think we have to fix the Delta. We can't push all this water through it because the judge, federal judges, will turn off the water to protect the smelt and the salmon and all this stuff. So it doesn't make any sense. Let's go around the Delta, like Pat Brown has already planned and had on his plans in the '60s. It was always to get around the Delta. But then they stopped building the canal because they ran out of money, there were economic difficulties and so all of those things. And Reagan then wanted the federal government to pay for it and it went on and on and on, the whole thing.But now we are back and we say OK, let's do all of those things. Let's do water conservation. Let's fix the Delta. Let's measure the groundwater and let's build the canal and let's build the dams. OK, then the bonds will be, instead of $7 billion $11 billion but we get everything done. And all of those things are necessary for the state.So the Democrats had great ideas, the environmentalists had great ideas and the Republicans had great ideas. I said, "These are all great ideas. Let's come together." And that's what happened in the end. They all came together.And so that's what we have to do in all of those issues. If it is issues in healthcare we have to listen to the Republicans, because they have good ideas when it comes to saving and protecting the taxpayer. But the Democrats have good ideas also, when it comes to providing healthcare for everybody. So how do we do it cost effectively, like the Republicans are talking about and how do we go and create healthcare for everybody, for every child, for every vulnerable citizen, for everyone? How do we do that?So let's get both of the parties together. And that's where a lot of times they make the mistake, it's one party or the other. I try always to bring them together and that's why I was for campaign finance -- for political reform, I should say, because when we have redistricting and when we have the open primaries then we have a much better shot of getting politicians that are thinking much more in a collaborate way and thinking much more about not being party servants but being public servants.You know, Governor, you talked about the need again to come together with the parties to get something done. And I have to say, you have been a real start when it comes to trying to work with everyone to get accomplishments.Well, Pat, you know I sleep with a Democrat every night. (Laughter) So I've been well trained in how you can work together.All right. Well, we'll make sure the First Lady knows that she's getting some compliments in this gathering today. But you have really been great at working with everyone to try and accomplish things.And actually, I think one of -- you've had many good ideas, don’t get me wrong. But one which I thought was a really good idea for reform and a direction that you were seeking is that it should be just very simple, that legislators can't spend more than the revenue they take in. And that on a regular basis there should be feedback to you and the legislators, to let you know, are you overspending your budget. That just seems common sense to me. And I have a feeling most of the folks in this room don’t know that now that really doesn't happen. I mean, the legislature passes a budget, you go on spending for the year and you don't really know where you are until you start the process all over again.It's in California and it's in all 49 other states and it is in countries around the world. The basic problem is that the legislature signs the check on the back. Think about that. If they would sign the check on the front it would be immediately solved, the problem. But if you spend someone else's money you don’t think of it in the same way as if you spent your own money.These very same legislators are very, very organized with the financial stuff when it comes to their own personal life. They watch every penny. I know, because I go out sometimes with them for lunch, I know how much tip they give. (Laughter)Of how fiscally responsible they are.And so you know that they have it in them. But as soon as it comes to the budget and as soon as it comes to spending, it's someone else's money, it's the taxpayers' money, so all of a sudden millions of dollars doesn't mean as much. And so this is why you always need this kind of check and balance. You need someone that is on top of it and you need the two-party system so they can check each other and all of this. So the system, you know, is good. It's just in general, all over the world, that legislators just never really get that feeling of oh, my God, this is my money and let's really be frugal and let's really live within our means.And they always also talk about we're going to somehow create extra revenues. And everyone is still -- or a lot of people, I should say, in the Capitol, are still living in this fantasy that there will be some surprise revenues coming in these next few months. I said, "Guys, three years ago Warren Buffet said that this economy is not going to bounce back the same way as we're used to. This ball is deflated. It has no air in it. So it will bounce but very slow. Very slow. It could take years."He said that then already and he said it two years ago at the Women's Conference that we had. He said the same thing again. He kept warning everyone. Everyone is always looking for some magic increase of revenues. We haven't seen it. One year there is $500 million more coming in than expected. The next year, the next month, there's $1 billion less coming in than expected. Then it's 500 more. So it continues like this.The same is when you look at the news out there today. There is good news, economic good news but there is also kind of where people are hesitant to even give any news, because they don’t know. There are uncertainties. Or the stock market goes up and then it goes down again. Then they talk about job creation and they say oh, this was all government jobs really. It's not really real. Then they talk about oh, my God, there is some good news here economically. Well, it was while we had the auto funding. And then all of a sudden that went away, or is going away and all of a sudden things are going down again. So there's all of this.So it's not really coming back yet -- even though in the end it will come back, there are no two ways about it. And as you know, California will be one of the first places where it comes back because we are the most diversified economy. We have so many different business and wonderful small business, very innovative people in this state. I mean, just this valley here alone, if you think about it, is unlike anything else in the world. So this is the great thing. We are not just some other state, we are a very special state where we are number on in many, many things. We have the best university system.And just remember, when Medvedev, the Russian president, was here. Where did he come first before he ever stopped in Washington? He stopped here in the Silicon Valley. He stopped here because he wanted to go and talk and see firsthand of the great stuff that's being done with biofuels that are being created from algae and he wanted to see the way the batteries are being developed and what's going on with the high-tech and computers and communication and the cell phones and all of those things, the latest of the latest.And now we are doing a trade mission to Russia in October where we'll go over there to bring Silicon Valley leaders to Moscow -- as soon as the smoke goes away, that is. (Laughter)But to take them over there and to form partnerships with them and to help them and at the same time create great revenues and jobs again for California.So there are all kinds -- so we are on top of the world, there are no two ways about it. We've just got to get our finances together and make sure that Democrats and Republicans work together so we can get out of this and create the economic stimulus that we need to create the jobs.Governor, you know I could chat with you all morning but I know that you might have a few other things on your plate today. So we are drawing near -- this is our last question:  "With all of your vast experience and knowledge that you've gathered, especially during your time as governor, if there were --" This question is from John Tang. "If there were three things that you could say we as Californians should do to move California forward, what would those three things be?"Well, I think first of all, get our fiscal house in order.Number two, to be a more business-friendly state; I think that's very important.Number three, to really go and look at education in a much more serious way than we do and to pass laws and to concentrate on that the money goes into the classroom. We have a lot of money for education, we are spending a lot of money.But it really saddens me when I see that a school that cost, that was estimated to cost $300 million, that all of a sudden costs $600 million. That $300 million, that's gone for building another three or four schools that we could build with that money and that will not enable us then to reduce the class sizes, if we don't have the extra schools.And it also saddens me when we pay more attention to that it has to be civil servants that are working in the schools, that no job in the school can be done by anyone but a civil servant. Rather than you being able to contract out as a school principal and just get the cheapest bid to mow your lawn or to fix your plumbing or to fix your roof or something, that all of this has to be done by civil servants. We spend $500 million a year more by doing that than if we would just contract out. That is money that should go into the classroom, to the children.The classroom is all about the teacher and about the child. This is where the action is, not on administrative costs, not on getting the expenses -- you know, what it costs to build schools. It's all money that goes into the wrong direction and all of those things.So we've got to go and pay attention to those things so we continue building universities, university buildings, we continue with education and fund education fully and get the money to the right place, get it into the classroom.And keep reforming education. That is the most important thing; reforming education. And I think that's why a lot of people were upset about Obama now just giving -- you know, pushing and Congress pushing for and voting for getting extra money to education without attaching some reforms, getting rid of the seniority and those kind of things. And I think that's what we are fighting for here, is getting rid of seniority, to make sure that the best teachers stay in the classroom and when we have a layoff of teachers it's not always the youngest teachers and the good teachers but also there's a good mixture of teachers that are affected, not just the youngest and the brightest.Right, yeah. Well, you know, Governor, I think certainly all of your comments have been well received today with this audience. I will say that your three priorities, I don’t think there's a person in this room that would disagree with that. We are all for getting fiscal reform, gaining control of our spending and keep it in sync with revenue. Also, our state has to become more business friendly. It just has to become more business friendly.Any questions out there that you have before I leave? I want to make sure -- yes, please.QUESTION:  (Inaudible) you're doing all of these things in education. I don’t think the politicians and the people like you are not making an emphasis on (Inaudible) that is much important for the children, you know? You can spend all the money on education and find the best teachers but when they go home -- are they doing the homework? Are they following up where they live? And I think that's where we are failing them. (Inaudible) as a part of the education.GOVERNOR:  I think that's a very good point. You're absolutely right. I have said many times, actually, that the reason why I got involved in after-school programs, for instance and why we passed Proposition 49 that gives $5 million more for after-school programs, is because when I was growing up in Austria, I had someone there 24 hours a day. I had my mother there. As soon as I came home from school my mother was doing homework with me and with the ruler in her hand. (Laughter)MS. DANDO:  At the kitchen table.GOVERNOR:  So there was no -- there was no deviating, or look, I've got to go now and play with my friends. First was the homework, then was the reading and the math and all of those things. And then my father would wait there at 5 o'clock in the evening when he was finished -- he was a police officer -- when he was finished with his work he would then coach us in soccer. And this is how it went. And the next day the school and the school principal and I had the mentors, the athletes, the coaches, the teachers. Everyone was there 24 hours a day.Today a lot of that is missing and that's why I created a lot of the after-school programs in 15 different cities in the United States. That's why I'm pushing after-school programs, to at least give the kids a break when both of the parents are working, that they don’t get locked out of the school and then they drift around on the streets and they commit juvenile crime -- as you know, it's very high -- teenage pregnancy, drugs, gangs, violence, all of those things.So you're absolutely right. This is all a lack of parenting. If the parents would do, like I did, the homework with the kids and work with the kids and read with the kids and do those things with their kids, it would be a whole different ballgame. We can't just overload the schools with all of the responsibility.So I'm glad that you brought that up. It's absolutely correct. That's why I wanted to take a question from one of you. (Laughter)MS. DANDO:  So Governor, we have time for one more question but then I think you're going to have to head out. Michael?QUESTION:  Michael (Inaudible). I'm involved in two local projects here in San Jose. One is to bring the A's to downtown San Jose, the other is to expand our convention center. Both bring about $600 million in private investment. The public side, however, is a redevelopment agency budget item and, with the ongoing takes by the legislature of our redevelopment funds, we're going to have a problem getting over the goal line on both of these projects. What do you see in this next budget round for government takes of redevelopment agency funds, both here in San Jose and across the state?GOVERNOR:  Well, I think that, you know, we have, as you can expect from a state when you're low on funds, you go after those kind of funds. And I think that as soon as the economy comes back I think you will get those funds. But I mean, it has really been a problem because we've had more local leaders coming to us and complaining about that. They even have an initiative on the ballot that will cure that problem. And as you know, that since I have been in office, by helping locals with Proposition 1A and with various different initiatives, to tighten that noose is always good.But we have at the same time an Office of Economic Development. If there's any way we can help you with your business ventures and with what you're trying to do, we would be more than happy to work with you on that.I have just recently walked into a restaurant that wasn't open yet in Beverly Hills and I asked the restaurant owner, I said, "When are you opening up? You've been futzing around here now for the last eight months."And he said, "Well, not because of me." He said, "I can't get the permits. I can't get the permits."So I said, "What do you mean, you can't get the permits?"He said, "You have no idea what I go through here in California." He said, "I'm from Texas. I want to open up 20 places in California." Salad Bowl they call it, the Salad Bowl. So they serve salads, you pick the salads and all the ingredients you want to put in there. It's a great idea. I ate there after they opened up.But what happened was, I got in touch with the Economic Development Office, with Ayala, who is in charge of it and I said to him, I said, "Let's see if this agency is really working." We created it a few months ago. It was all about helping businesses, to have a one-stop shop and you get all the permits -- and that you fight out with all the agencies around the state and do the rest. That was on Wednesday last week. On Friday, I went by there in the afternoon and it was open. It was open.So that's the kind of effect our Office of Economic Development has, because we go all out because we really believe in a one-stop shop and to help people comb through those problems. Because people are doing unnecessary things. They are abusing their power, people that are doing the permits, giving you the permits.That guy had one guy from the city come in and say, "We want you to have your window in front of the salad be between 25 and 30 inches high." So he made it 28, in the middle.The next inspector came in and he measured it and he said, "I want it 30 inches high."And he said, "I thought it was between 25 and 30."He said, "I want it 30 inches. Do you get it?"So the attitude alone -- "You get it?" -- rubbed me the wrong way. So that guy is already not really helpful. The inspector has to be helpful. Yes, he has to go and comply and there are laws there. But let's be helpful.Let's go and have all the inspectors get together at the same time. He had in there someone from Beverly Hills measure, then from Los Angeles, from the county and from the state and they never met each other. None of the inspectors met each other. So why wouldn't I try to get all the inspectors together?And that's what our Office of Economic Development did. They got all those inspectors together, talked to each one of them and they all said, "Oh, we didn't know. Gee, this is terrible." But he always, each time they corrected him, he had to wait another two, three weeks. So now he has been hanging there for eight months and he has hired the people, 16 people. Unnecessary burden. He had to pay for them and they did not work and serve any salad until last Friday.Now he says he has so much faith in California and he's convinced again that California wants him to stay here, that he now is opening the rest of the 20 places in California, which will be hundreds of new jobs. So this is what we need to do, is help them.And so the same is with you. I know that we created a big problem with the economic development money but that doesn't mean that we cannot help in another way to help you through with all the challenges.MS. DANDO:  So Governor, I have a great idea. You could talk --GOVERNOR:  Hmm, I bet. (Laughter)MS. DANDO:  I've had a few. You don't usually listen to them but this is a really good one.GOVERNOR:  Oh, man. I listen to your good ideas.MS. DANDO:  Yeah. Well, this -- just what do you think if you were to go to the Mr. Salad Bowl guy and, when he's looking to build 20 restaurants, he brings one to downtown San Jose?GOVERNOR:  I will connect him today.MS. DANDO:  OK, good. Great. Governor, we very much appreciate your coming.

GOVERNOR:  Thank you. Thank you very much.

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