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Finally a Bond Deal

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After several fits and starts Governor Schwarzenegger and legislative leaders finally reached a deal to place a package of infrastructure bonds on the November, 2006 ballot. During floor sessions that began on May 4th but continued well past midnight, the State Assembly and Senate approved four bond proposals totaling $37.281 billion. Broken down by subject area, $19.925 billion will go to transportation projects, $10.416 to K-12 and college education, $4.09 to flood protection projects, with $2.85 to be spent on affordable housing. As part of this compromise the Legislature approved a separate appropriation for $500 million in levee repairs and changed the sales-tax allocation to guarantee that the entire sales tax on gasoline sales will go to transportation projects. Governor Schwarzenegger signed the four proposals at separate events held in the days immediately following the legislature's action, clearing the way for the proposals to go before the voters for approval.

Both the Governor and Democrat leaders hailed the agreement as a triumph of bipartisanship. Interestingly, the two candidates for the Democrat nomination for Governor - Controller Steve Westly and Treasurer Phil Angelides - rushed to endorse the plan as well. Since the Governor first announced his bond proposal back in January during his State of the State Address, political commentators have assumed that Schwarzenegger viewed a bond deal as a means to reinvigorate his credentials as a bipartisan political reformer. The unwillingness of both Westly and Angelides to challenge Schwarzenegger on any of the bonds indicates their sense that the public supports the proposals. This development complicates whatever political critique the eventual nominee will mount against the Governor in the fall.

The November ballot promises to be one of the more competitive election cycles in recent years. In addition to what will likely be a relatively tight race for Governor, four other constitutional offices - Lieutenant Governor, Treasurer, Controller, and Attorney General - as well as Insurance Commissioner will be open. Besides Schwarzenegger, the only incumbents seeking statewide office will be Secretary of State Bruce McPherson and Supervisor of Public Instruction Jack O'Connell. Open seats generally produce tighter races. Beyond the candidates, several other provocative ballot measures appear likely to qualify. Sponsors of an initiative to restrict the application of eminent domain powers have submitted signatures sufficient to qualify. Signatures have also been filed for a measure to require parental notification when a minor seeks an abortion. Along with the bonds, this menu of initiatives and open offices will crowd, complicate and intensify the public debate.
Hot Summer, Cool Budget?

The so-called May revise - the annual adjustment to the Governor's January budget proposal to reflect any discrepancies between projected and actual tax receipts - brought good news for the Schwarzenegger Administration. California has collected $4 billion more in revenue this fiscal year than analysts had expected back in January. These forecasts also indicate that the state will collect an additional $2 billion over previous projections during the 2006-07 fiscal year. (California runs on a July-June budget cycle.) Together, this $6 billion bump in receipts smoothes the way for a relatively clean budget process this summer. (The California Constitution requires that the Legislature approve a budget by June 15th and that the Governor sign a budget by July 1st each year. In practice the Legislature typically runs into July in its budgeting process, with July 15th - the first date in the new fiscal year on which state bills come due - as the first deadline of practical significance.)

With this improved revenue position, the Governor's revised budget proposal looks to direct nearly $5 billion more to education. In a "Prop 98" deal that he reached with the California Teachers Association, Schwarzenegger now proposes to spend $55.1 billion on education during FY 2006-07 out of a total budget of $94.3 billion. That number comes in at $2.0 billion more than what the January budget had provided. His deal with the CTA commits Schwarzenegger to spending an additional $2.8 billion more on schools over the following seven years. The revised budget also would raise debt payments by $1.6 billion and add another $1.6 billion to the budget reserve during FY 06-07. (Prop 98 establishes the budget baseline for education funding.)

Schwarzenegger's budget choices indicate a belief on the part of the Administration that the newfound revenue represents a one-time windfall to the state rather that a lasting increase in receipts. His budget therefore avoids creating new and ongoing funding obligations. Instead, the educational increases described above have been cast as a correction of previous education spending shortfalls. Allocating $3.2 billion to one-time debt reduction and reserve payments likewise avoids increasing any budget baselines. This approach contrasts with how Governor Davis and the Legislature treated the dot-com windfall during the early years of this decade, when a flood of one-time capital gains receipts was dedicated to new spending programs that continue to obligate the state long after the market correction reduced these payments.

The CTA deal should ease the political path to a budget deal. While the legislative leadership will look to shift some spending to Democrat priorities the higher revenue means that tax increases and spending cuts can both be avoided. That suggests a relatively painless budget process.

This article is copyrighted and cannot be republished without the consent of the author.

What A Difference a Few Postcards Can Make!

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On the eve of our magazine's deadline, the Apartment Association scored a GREAT victory in Huntington Park. With the help of hundreds of property owners in Council Chambers, we were able to get the City Council to vote 5-0 AGAINST the introduction of onerous rental inspection ordinances.

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Bond Deals Falls Apart

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Despite prolonged and intense negotiations, Governor Schwarzenegger and legislative leaders were unable to agree on a bond proposal in time for its inclusion on the June primary ballot. Last month's edition detailed the bond discussions and the Governor's express desire for tens of billions of dollars worth of bonds for infrastructure improvements.

The Secretary of State, Bruce McPherson, issued an opinion that any legislative referral to the primary ballot had to be approved by March 10th so as to provide the state printer sufficient time to produce the actual ballots and related paper materials necessary to carry out the election. Although the legislature claimed a few extra days of leeway, by March 15th all involved conceded that no deal was imminent and postponed further discussions.

Hindsight is 20-20 but the best explanation for the failure of a bond deal is that Democrats ultimately decided not to give the Governor this political victory ahead of his reelection campaign. In many ways Schwarzenegger has only himself to blame because he openly and repeatedly indicated his preference for the June ballot and spoke of the political advantages that would come to him if a bond deal were struck quickly. He showed his cards. That was an inadvisable tactic during an election year when legislative leaders put a premium on denying their opponents political victories.

On the merits the terms of the deal being considered during the final hours of negotiations were favorable to Democratic constituencies. When Schwarzenegger started this process by declaring his support for a massive infrastructure bond during his State of the State Address last January he referred to so-called "steel and concrete" proposals - more roads, more schools, more dams and water storage, better flood protections.

Democrat negotiators succeeded in reshaping the bond proposal into a more "liberal" document. Beyond the traditional notion of infrastructure the Governor agreed with Democrat leaders to add significant moneys for open space, environmental projects, public housing, and alternative transportation programs.

These changes in priorities turned off legislative Republicans who argued that long-term debt should be reserved for basic infrastructure needs.

Democrats, sensing the Governor's vulnerability, refused to relent significantly on any of their demands, leaving Schwarzenegger in the position of having to twist Republican arms to win the necessary two-thirds supermajority required for legislative approval of bonds.
Ultimately, time ran out. Have no doubt that, if given time, the Governor could have delivered the necessary six Assembly and two Senate Republican votes. But any deal so complex - the last versions being discussed exceeded $50 billion in spending - presents a great number of tricky details that require resolution.

Those details - e.g., deciding whether the agreed to new water storage should be placed in Northern or Southern California, or determining the regional breakdown for new highway spending - were not bridged in time so Schwarzenegger never had one final proposal that he could put in front of Republicans to claim a specific vote.

Both parties will now retrench to consider their options. The next deadline, for presenting a bond package to the voters at the general election, will come in early August.
The Governor will first have to decide whether he wants a bond proposal on the November ballot when his own reelection will lead the ticket. Polling suggests that public support for a massive infrastructure bond is lukewarm and so candidate Schwarzenegger must consider what is best for his campaign.

If his interest in a bond deal persists, the Governor will likely first attempt to work out a deal with legislative Republicans before resuming talks with the Democratic leadership. The Democrats will go through a similar calculus; beyond electoral politics, however, some will lament the loss of literally billions of dollars in spending on projects the party generally supports. In the end, no one leaves this process without some regrets.

POLICY COMMITTEES TO BEGIN HEARINGS

The next two months will see a rush of policy committee hearings. April 28th marks the deadline for committees to act on fiscal bills with May 12th the last day for consideration of non-fiscal bills. (To simplify, fiscal bills involve a state appropriation or otherwise affect state spending. Fiscal bills face an earlier deadline because, unlike non-fiscal bills, these must also be heard in the Appropriations Committee while non-fiscal bills are referred from a policy committee directly to the Floor.)

What follows is a partial list of bills that affect apartment interests and that will most likely be considered in committee during the next month. Future editions will provide updates on the status of these bills and other legislation of interest.

AB 1169 (Torrico) would reenact the 60-day notice of termination for any tenant in residence for more than one year. This provision was in effect through 2005 but "sunsetted" after proponents failed to pass SB 51 (Kuehl). The AACSC joined with other apartment interests to defeat SB 51 and that same coalition will work against AB 1169 this year.

SB 540 (Kehoe) would make it illegal for a landlord to prohibit a tenant from posting or displaying signs that relate to a political campaign or legislative issue subject to certain size and place limitations.

As drafted, this proposal would leave an apartment owner powerless to address concerns regarding safety, appearance, and property damage that the posting of political signs might generate.

The author has expressed an interest in negotiating a compromise that addresses these concerns, and the apartment lobby will be attempting to work out a compromise during the next month. For now, the AACSC has taken an OPPOSE position.

SB 1745 (Kuehl) creates various legal rights for tenants who have obtained a legal protective order. It would require a landlord, upon request, to replace or reconfigure household locks for a tenant who has obtained a valid protective order against another person who is also a tenant.

The legislation would also prohibit the landlord from giving the tenant who is the subject of the protective order a copy of the new key. Any tenant who has secured a protective order and who has been the subject of domestic violence would be allowed to quit the premises on 24 hours notice.

The measure would extend the reach of the California Fair Employment and Housing Act to cover persons who were the victim of domestic violence, sexual assault, or stalking.
The author's intentions - to protect victims of violence - are just and certainly every landlord would want to provide all reasonable protections to victims. That said, this bill as drafted would place a significant economic burden on landlords for the misconduct of 3rd parties.

It would also require landlords to make determinations on whether a tenant is a legitimate victim of violence. The apartment lobby will explore with the author and sponsor potential compromises.

SB 1834 (Alarcon) would define "to go out of business" for purposes of applying the Ellis Act as "to discontinue in the business or occupation of being a landlord." This is an "all or nothing" provision designed to deter condominium conversions. The AACSC will oppose.

This article is copyrighted and cannot be republished without the consent of the author.

Changes in Tenant Screening Services

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Just as a car dealer will not let you test-drive a new car without checking you out, you should not hand over the keys to your valuable apartments without checking out your prospective tenants. Our low cost tenant screening services offer you just that opportunity. It’s a lot less expensive for you to make the hard decisions regarding your tenants before you rent to them than it is once they become residents.

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Renew Your Membership Today — AACSC is a Gift!

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THANK YOU! This has been a frightfully fast two years as your President. Your Apartment Association began over 86 years ago. Amazing! Imagine that in 1924, Long Beach was going through a housing boom and a group of owners banded together to form your Apartment Association. I praise all of our past and current members for their continuing efforts to support your Association.

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