California’s economy is better than most believe, but changes must be made to it sooner rather than later to avoid another economic slide, warned the state’s chief fiscal officer.
State Controller John Chiang was the featured speaker at the monthly Culver City Chamber of Commerce event on June 10, and while he laid out how the Golden State has arrived at its current anemic fiscal condition, he also brought some good news to the audience composed primarily of small business representatives.
“The economy has picked up over the last few months, because consumers are starting to spend again. They feel more comfortable,” Chiang told the audience. “However, when you look at spending patterns versus wages earned, they are starting to spend more than they should.”
The controller said that spending pattern was a large part of what led to the financial crisis. Politicians seek to blame the opposition party and the public also has its favorite targets of overspending, but everyone shares in the blame, Chiang said.
“People say the government is overspending or Wall Street is overspending. The fact is everyone is responsible,” he said. “We have to be prudent with our money. Businesses, families, governments and Wall Street are overleveraged.”
Chiang mentioned that Gov. Jerry Brown announced on May 4 that the state had an unexpected $2.3 billion windfall in income tax payments and that state officials expect an extra $4 billion next year, which should help the California’s fiscal condition.
While that was much of the good news, there were sobering details that Chiang imparted as well. “Our revenues are declining dramatically,” he said.
In his 20-plus-minute presentation, the state controller took the audience through a chronology of events and decisions that have led to the current fiscal crisis, culminating in the meltdown of the financial markets three years ago that affected California as well as the rest of the nation.
The issuance of demand warrants, or IOUs last year was a low point for the state, he said. “It was a very shameful chapter in California history,” the controller recalled. “I felt terrible having to issue those warrants.”
The room was silent when he said the last time that California was in the black was July 12, 2006.
The controller also gave a verbal primer on the state’s largest expenditures – education – as well as its primary sources of income: sales, income and corporate taxes.
He echoed a theme mentioned recently by his friend, state Sen. Ted Lieu (D-Marina del Rey) regarding the importance of an educated workforce as an essential cog in California’s financial future.
“We really need to focus in as Americans and Californians on making our education system,” Chiang said.
He said the current real estate market remains troubled and without improvement in the residential housing sector, the state’s economy cannot return to full strength.
The controller received good reviews for his candor on the budget situation and the state’s fiscal condition.
“I thought his remarks were very sobering,” said City Manager John Nachbar. “I think that it reinforces the kinds of headwinds that we face.
“It’s a big hold that we’re digging ourselves out of.”
Culver City Chamber of Commerce President Steven Rose agreed. “I think he gave a very factual history of where we are and where we were,” he said.
The chamber president added that there were some things that he thought were missing from the controller’s presentation. “I thought it was very glaring that he did not mention state pension reform and healthcare,” he noted.
Chiang did mention both topics, but only as it regards the categories in which they are listed for budgetary purposes.
Michel Chaghouri, a Culver City-born attorney who works in Century City, said he enjoyed Chiang’s presentation. “It was very informative and detail-oriented,” Chaghouri said. “I was especially impressed by how he navigated the fiscal crisis without crowding out bond revenue for cities.”
Besides holding the responsibility of paying California’s bills and assisting in the management of its financial practices, Chiang has also been focusing on financial scandals at the municipal level.
Last year, a torrent of reported fiscal improprieties in various cities made state and national headlines, and at the apex of the scandals was the city of Bell.
The southeastern city’s chief administrator Robert Rizzo and four former officeholders are currently on trial for misuse of public funds. They stand accused of enriching themselves through allegedly unlawful means such as charging exorbitant illegal fees.
Chiang’s office has accused the accounting firm of Mayer Hoffman McCann – which audited Bell – of failing to recognize what he and others believe was an egregious plot by officeholders to enrich themselves through illegal means at taxpayer expense, placing the city’s fiscal future in peril.
Since the Bell scandal, at least six municipalities have announced that they would no longer hire Mayer McCann to audit their finances.
The News revealed on Dec. 9 that Culver City had also contracted with Mayer Hoffman for its redevelopment and municipal auditing from 2007 until this year.
Last year, the controller issued a scathing report on how Mayer Hoffman’s failures in auditing Bell’s redevelopment and municipal finances. His review stated that the accounting firm of had not followed generally accepted fieldwork audit principles in its auditing practices.
“Mayer Hoffman McCann appears to have been a rubberstamp rather than a responsible auditor committed to providing the public with the transparency and accountability that could have prevented the mismanagement of the city’s finances by Bell officials,” Chiang wrote on Dec. 21.
The following day, Culver City announced that it would hire an outside auditor to review certain areas of its redevelopment agency’s reporting that had been scrutinized by the state Office of Oversight and Outcomes last September.
The audit probe questioned Culver City’s use of affordable housing funds as well as doing “relatively little to create new spaces for low to moderate income people to live,” among other things, according to the report.
On Jan. 1, Culver City retained the services of Brea-based Redevelopment Reporting Solutions review several areas of concern in raised by the state redevelopment oversight board.
Legislation by state Sen. Alan Lowenthal (D-Long Beach), Senate Bill 450, would require redevelopment agencies to include additional information relating to any major audit violations, as defined, any corrections to those violations, and planning and general administrative expenses of the Low and Moderate Income Housing Fund.
SB 450 would also authorize the controller to conduct quality control reviews of independent financial audit reports. In addition, the bill would prohibit an agency from expending more than 15% of the tax increment deposited in the fund for planning and general administrative costs.
“In general, I’m in favor of better and complete disclosure as it pertains to the use of taxpayer dollars,” the state controller told the News. “One of the things that is of extraordinary concern to me is how do we make sure that every redevelopment agency dollar is used for its maximum benefit.
“What happened in Bell was tragic,” he added. “This was a hard working community that was indebted by the failure of leadership to take the proper legal and financial action.”
The controller said redevelopment agencies have turned out some good projects but there have also been questionable development as well. “That’s an area where we can all come together to make sure that we have improvement,” he said.
Chiang said SB 450 would allow his office to review the performance of some of the independent auditors as well as avoiding conflicts by rotating the audit partner who is conducting the review. “That way you can have a fresh set of eyes looking at the practices,” he explained.
State Sen. Curren Price (D-Culver City) joined his fellow senators in a unanimous vote for SB 450 in a Senate floor vote on June 2.