Monday, April 16, 2012
Off Shore Oil: State Revenues
MORE STATE REVENUES: As a State Lands Commissioner, I conceived a strategy to implement a 14 year, $2 billion offshore oil leasing project amidst intense lobbying efforts to stop it. It is time to re-new this project which can provide billions to the state' coffers while protecting the environment at the same time.
http://www.t-ridgefacts.com/
CALGREEN: California's Green Building Code
A green building wave has rolled into California – one that is going to change the way we do construction and build our communities. And that wave is being amplified by some important state policies.
California is an extraordinary place where electric cars are becoming commonplace, recycling is pursued with a passion and composting isn’t just something you read about in Organic Gardening magazine. Business and political leaders in California can agree that reducing energy consumption and conserving water can be good for the environment and good for business at the same time. Further, we are building more energy-efficient buildings to help address volatile energy prices and reduce our dependency on foreign oil. California’s pursuit of green touches many aspects of its economy.
Growing the economy in an environmentally sound way can be good business. Policies like CALGREEN, the new green building code, are having a significant impact on sustainable residential, commercial and retail construction around the state. Former Gov. Arnold Schwarzenegger deserves a lot of credit for pushing the Building Standards Commission to adopt a mandatory green building code, in 2010, supported by the environmental and business communities. Under the governor’s leadership and in partnership with the Legislature, the state has implemented green building initiatives that are solid, sensible public policies that also happen to be good for the environment without overly burdensome requirements for builders.
In 2004, a governor’s executive order created the California Green Building Initiative, challenging state government to demonstrate leadership in energy efficiency and environmental responsibility in state buildings. The initiative requires the state to reduce grid-based energy usage in its buildings 20 percent by 2015, and, consequently, reduce energy costs and provide environmental benefits - at the same time. The initiative has been quite successful. In fact, the California State and Consumer Services Agency has achieved United States Green Building Council LEED certification for 18 new state buildings and certification for 18 more existing structures that have been retrofitted. However, there’s much more that can be done.
In 2007, the governor’s leadership was moving the state to achieve environmentally sound construction methods. It became quickly apparent, however, that the environmental community and building industry wanted a uniform, consistent, statewide green building code. In response, the Building Standards Commission expanded the work it was doing and coordinated with key state agencies on the adoption of a green building standards code that would apply to every building throughout California. From the Oregon border to San Diego and from the Central Valley to the San Gabriel Valley – a common consistent code that would save huge amounts of water, energy, divert materials from landfills and ensure quality indoor air in working environments.
In January 2010, after three years of hard work and perseverance, the California Building Standards Commission successfully adopted CALGREEN, the nation’s very first green building code. Beginning in January 2011, CALGREEN requires that every new building constructed in California reduce water consumption by 20 percent, divert 50 percent of construction waste from landfills and install low pollutant-emitting materials. In the coming years, new CALGREEN compliant buildings will populate the state and become an important part of its infrastructure. Over time, California will become a national and international leader of resource conservation and innovative building design and construction. Also notable about the CALGREEN code is that it was developed collaboratively with environmentalists, architects, builders, and government officials. It is a significant achievement.
While California has set the bar high for green construction practices, Gov. Jerry Brown has the opportunity to lead and encourage the state and local jurisdictions to do more. Gov. Brown can bring those same parties back to the table to improve upon the mandatory provisions by challenging local governments, builders, and industry leaders to establish resource conserving buildings and neighborhoods. He can also encourage his administration to continue to retrofit existing state buildings to become more energy efficient while building new state facilities that surpass current CALGREEN requirements. This will further California’s leadership in green building practices.
California’s leadership in green technology matters is increasingly being challenged in places like New York City. New York recently passed a package of legislation known as the Greener, Greater Buildings Plan aimed at improving the energy efficiency of the city's commercial buildings. Some analysts say it is the most comprehensive legislation of its type in the nation. California must continue to invest or cede leadership in this area of technology development.
CALGREEN and the Green Building Initiative are important achievements that demonstrate California’s leadership in resource conservation and set an example of how to build the future on a greener foundation.
California is an extraordinary place where electric cars are becoming commonplace, recycling is pursued with a passion and composting isn’t just something you read about in Organic Gardening magazine. Business and political leaders in California can agree that reducing energy consumption and conserving water can be good for the environment and good for business at the same time. Further, we are building more energy-efficient buildings to help address volatile energy prices and reduce our dependency on foreign oil. California’s pursuit of green touches many aspects of its economy.
Growing the economy in an environmentally sound way can be good business. Policies like CALGREEN, the new green building code, are having a significant impact on sustainable residential, commercial and retail construction around the state. Former Gov. Arnold Schwarzenegger deserves a lot of credit for pushing the Building Standards Commission to adopt a mandatory green building code, in 2010, supported by the environmental and business communities. Under the governor’s leadership and in partnership with the Legislature, the state has implemented green building initiatives that are solid, sensible public policies that also happen to be good for the environment without overly burdensome requirements for builders.
In 2007, the governor’s leadership was moving the state to achieve environmentally sound construction methods. It became quickly apparent, however, that the environmental community and building industry wanted a uniform, consistent, statewide green building code. In response, the Building Standards Commission expanded the work it was doing and coordinated with key state agencies on the adoption of a green building standards code that would apply to every building throughout California. From the Oregon border to San Diego and from the Central Valley to the San Gabriel Valley – a common consistent code that would save huge amounts of water, energy, divert materials from landfills and ensure quality indoor air in working environments.
In January 2010, after three years of hard work and perseverance, the California Building Standards Commission successfully adopted CALGREEN, the nation’s very first green building code. Beginning in January 2011, CALGREEN requires that every new building constructed in California reduce water consumption by 20 percent, divert 50 percent of construction waste from landfills and install low pollutant-emitting materials. In the coming years, new CALGREEN compliant buildings will populate the state and become an important part of its infrastructure. Over time, California will become a national and international leader of resource conservation and innovative building design and construction. Also notable about the CALGREEN code is that it was developed collaboratively with environmentalists, architects, builders, and government officials. It is a significant achievement.
While California has set the bar high for green construction practices, Gov. Jerry Brown has the opportunity to lead and encourage the state and local jurisdictions to do more. Gov. Brown can bring those same parties back to the table to improve upon the mandatory provisions by challenging local governments, builders, and industry leaders to establish resource conserving buildings and neighborhoods. He can also encourage his administration to continue to retrofit existing state buildings to become more energy efficient while building new state facilities that surpass current CALGREEN requirements. This will further California’s leadership in green building practices.
California’s leadership in green technology matters is increasingly being challenged in places like New York City. New York recently passed a package of legislation known as the Greener, Greater Buildings Plan aimed at improving the energy efficiency of the city's commercial buildings. Some analysts say it is the most comprehensive legislation of its type in the nation. California must continue to invest or cede leadership in this area of technology development.
CALGREEN and the Green Building Initiative are important achievements that demonstrate California’s leadership in resource conservation and set an example of how to build the future on a greener foundation.
Tom Sheehy is the former Acting Secretary
of the State and Consumer Services Agency
and Chaired the Building Standards
Commission in 2010 when it adopted CALGREEN.
He currently has a government affairs practice
with Greenberg Traurig in Sacramento.
Get off The Fiscal Roller Coaster: Taxes and Government Spending
The more things change… Governor Brown’s first budget was the first on-time budget in years and the first majority vote budget in decades. At the same time, it relied on optimistic economic forecasts, ($4 billion in additional tax revenue not reflected in the May Revision) and spending reduction “triggers” if the revenue didn’t materialize as projected. The rosy forecast was in lieu of getting a 2/3’s vote from the Legislature to put tax revenues on the ballot. Five months later, the non-partisan Legislative Analyst’s Office (LAO) reported that the state’s finances are back in the red by as much as $13 billion. This development resulted in the Director of Finance “pulling the trigger” on cuts of approximately $981 million to K-12, Higher Education, and Health and Human Services. Even with these triggered cuts, Governor Brown faces difficult choices once again as he works with the Legislature to craft a budget that brings California’s fiscal house into order. Governor Brown is asking the voters to raise personal income tax (PIT) by 1% to 2% on individual tax filers who make more than $250,000 per year and raise the state’s base sales and use tax (SUT) rate by ½ cent from 5% to 5.5%. While both of these proposals would raise state revenues, both have a fiscal policy downside that highlights the need for a strong rainy day fund.
First, let’s look at the PIT. California is blessed with a large number of highly affluent individuals so raising the top brackets from 9.3% to 11.3% for income earners of $500,000 will definitely raise revenues - in good years. The problem with this approach is that the state’s General Fund already gets almost 60% of its revenue from PIT and these high net worth individuals receive much of their income from capital gains which are volatile and hard to predict. Much of California’s boom-bust budget cycles have been directly attributed to these taxpayers. When they get a “financial cold” the state gets a severe case of “fiscal influenza.” So in a good year, the revenue peaks are higher but in bad years the valleys are lower. The overall impact is greater volatility making it more difficult for the Legislature and Governor to do long-term budget planning. The fiscal roller coaster would likely continue under this approach unless safe guards were built in.
Next, let’s consider the SUT which makes up about 22% of the General Fund revenue. California already has the highest total SUT rate of any state in the country (up to 9.25% in some jurisdictions). Many believe that the very high rate has accelerated out-of-state internet purchases where some either knowingly or not dodge the state use tax and receive their goods tax free. Many fights over this issue in the Legislature have resulted in new laws being enacted which attempt to address this issue. Raising an already high SUT rate could cause other economic distortions. But beyond that, the SUT is also highly regressive. That is, citizens with lower incomes pay a higher percentage of their disposable income in SUT than the more affluent do. Some argue the SUT regressive nature is an unfair burden for the less fortunate in the state. However, the fiscal advantage to increasing the SUT is that it does not suffer from the same volatility issues as the PIT so it tends to “stabilize” the revenue picture.
It appears that Governor Brown has tried to “balance” these competing fiscal issues by proposing both - at the same time. However, he also signed SB 202 which moved a strong rainy day fund ballot measure (ACA 4 is a Legislature-sponsored constitutional amendment) from the June 2012 ballot to the November 2014 ballot. Some have argued that the Legislature and Governor may not want to have the rainy day fund voted on at all due to various stakeholders who have a vested interest to maintain maximum flexibility in state spending. This would be an unfortunate development because as former Governors know, it is extremely difficult to build a General Fund reserve when getting a budget passed means meeting the needs of many special interests in any given year. The last time the state had a double digit surplus was the Budget Act of 2000 when the May Revision produced a $12 billion surplus! Then Governor Davis, needing a two thirds majority, provided billions of dollars in vehicle license fee tax breaks that Republicans demanded and provided billions of dollars in additional spending on schools, health and human services and other programs that Democrats demanded. The unfortunate result for Governor Davis, was that the $12 billion surplus, which was primarily one-time money, got entirely spent. When the dot com bubble burst a year later, the General Fund went billions of dollars in the red and with no rainy day fund, Governor Davis spent the rest of his time in office trying to recover from a structural budget deficit. He was ultimately recalled, in part, due to his inability to un-ring the bell he had rung in 2000.
If Governor Brown is successful in getting the additional tax revenue he is seeking to balance the budget, he needs to stand strong against special interests trying to undermine real budget reform and a rainy day fund. He and future Governors will need a mechanism or reform that would divert peak revenues like we had in 2000 away from the General fund and deposit them instead into a rainy day fund so legislators and future governors could not commit them to ongoing spending. This approach needs to make sure that the peak revenue funds stay in the rainy day account unless and until it is actually “raining” and the state needs the funds to stabilize the budget in times of economic downturn. It needs to be an approach that can not be un-done on a majority or even super majority vote. There are a myriad of opinions about how best to accomplish this. Whether it is through spending limits, revenue limits, or related reforms, the bottom line is that this state, with its high net-worth earners and volatile income, needs a viable reform put into place; especially if PIT increases become a permanent part of balancing the state budget. Failure to achieve this will keep California on a fiscal roller coaster for years to come.
Tom Sheehy is the former Chief Deputy Director of Finance
and Acting Secretary / Undersecretary of the State and Consumer
Services Agency under Gov. Arnold Schwarzenegger. He joined
Greenberg Traurig's Sacramento government affairs practice
in October 2010.
First, let’s look at the PIT. California is blessed with a large number of highly affluent individuals so raising the top brackets from 9.3% to 11.3% for income earners of $500,000 will definitely raise revenues - in good years. The problem with this approach is that the state’s General Fund already gets almost 60% of its revenue from PIT and these high net worth individuals receive much of their income from capital gains which are volatile and hard to predict. Much of California’s boom-bust budget cycles have been directly attributed to these taxpayers. When they get a “financial cold” the state gets a severe case of “fiscal influenza.” So in a good year, the revenue peaks are higher but in bad years the valleys are lower. The overall impact is greater volatility making it more difficult for the Legislature and Governor to do long-term budget planning. The fiscal roller coaster would likely continue under this approach unless safe guards were built in.
Next, let’s consider the SUT which makes up about 22% of the General Fund revenue. California already has the highest total SUT rate of any state in the country (up to 9.25% in some jurisdictions). Many believe that the very high rate has accelerated out-of-state internet purchases where some either knowingly or not dodge the state use tax and receive their goods tax free. Many fights over this issue in the Legislature have resulted in new laws being enacted which attempt to address this issue. Raising an already high SUT rate could cause other economic distortions. But beyond that, the SUT is also highly regressive. That is, citizens with lower incomes pay a higher percentage of their disposable income in SUT than the more affluent do. Some argue the SUT regressive nature is an unfair burden for the less fortunate in the state. However, the fiscal advantage to increasing the SUT is that it does not suffer from the same volatility issues as the PIT so it tends to “stabilize” the revenue picture.
It appears that Governor Brown has tried to “balance” these competing fiscal issues by proposing both - at the same time. However, he also signed SB 202 which moved a strong rainy day fund ballot measure (ACA 4 is a Legislature-sponsored constitutional amendment) from the June 2012 ballot to the November 2014 ballot. Some have argued that the Legislature and Governor may not want to have the rainy day fund voted on at all due to various stakeholders who have a vested interest to maintain maximum flexibility in state spending. This would be an unfortunate development because as former Governors know, it is extremely difficult to build a General Fund reserve when getting a budget passed means meeting the needs of many special interests in any given year. The last time the state had a double digit surplus was the Budget Act of 2000 when the May Revision produced a $12 billion surplus! Then Governor Davis, needing a two thirds majority, provided billions of dollars in vehicle license fee tax breaks that Republicans demanded and provided billions of dollars in additional spending on schools, health and human services and other programs that Democrats demanded. The unfortunate result for Governor Davis, was that the $12 billion surplus, which was primarily one-time money, got entirely spent. When the dot com bubble burst a year later, the General Fund went billions of dollars in the red and with no rainy day fund, Governor Davis spent the rest of his time in office trying to recover from a structural budget deficit. He was ultimately recalled, in part, due to his inability to un-ring the bell he had rung in 2000.
If Governor Brown is successful in getting the additional tax revenue he is seeking to balance the budget, he needs to stand strong against special interests trying to undermine real budget reform and a rainy day fund. He and future Governors will need a mechanism or reform that would divert peak revenues like we had in 2000 away from the General fund and deposit them instead into a rainy day fund so legislators and future governors could not commit them to ongoing spending. This approach needs to make sure that the peak revenue funds stay in the rainy day account unless and until it is actually “raining” and the state needs the funds to stabilize the budget in times of economic downturn. It needs to be an approach that can not be un-done on a majority or even super majority vote. There are a myriad of opinions about how best to accomplish this. Whether it is through spending limits, revenue limits, or related reforms, the bottom line is that this state, with its high net-worth earners and volatile income, needs a viable reform put into place; especially if PIT increases become a permanent part of balancing the state budget. Failure to achieve this will keep California on a fiscal roller coaster for years to come.
Tom Sheehy is the former Chief Deputy Director of Finance
and Acting Secretary / Undersecretary of the State and Consumer
Services Agency under Gov. Arnold Schwarzenegger. He joined
Greenberg Traurig's Sacramento government affairs practice
in October 2010.
State Government Innovation: Cloud Computing
Last month at Microsoft's Silicon Valley offices in Mountain View, the TechAmerica Foundation held a press event where they released a Cloud Computing report entitled "The Cloud Imperative” focusing on best practices in Cloud computing for state and local governments. The report found that Cloud computing presents opportunities for governments to modernize, streamline delivery of public services and improve cost efficiency. Among other state officials, California lieutenant governor Gavin Newsom and state CIO Carlos Ramos participated and emphasized the potential benefits of Cloud computing. The timing of this event coincided with the recent “migration” of 3,500 state e-mail boxes at the Department of General services (DGS) to the Cloud. This was the first large State Department to migrate to the California Email Service (CES), a Cloud software solution. CES is one of two e-mail solutions available to the Executive Branch departments pursuant to AB 2408 legislation of 2010. Since AB 2408 was enacted, ninety percent of all state departments have elected to use CES for their departmental e-mail service.
AB 2408 consolidated state information technology functions under the Office of the State Chief
Information Officer and required all executive branch state departments under the Governor’s control to consolidate e-mail systems, servers and networks to reduce redundancy, save energy and streamline delivery of IT services. The legislation requires the consolidation of 130 separate e-mail systems, all with their own hardware, software licenses and maintenance requirements into just two systems: CA MAIL offered by the State Office of Technology Services and CES offered by a private Cloud vendor (CSC) utilizing the Microsoft Exchange platform. It took one year to build the service for the state and some departments have more pre-migration planning and remedial work to do in order to consume the service, but the recent successful migration of 3,500 e-mail boxes at DGS to the Cloud is a major milestone in the implementation of AB 2408. “We support the vision in the state's 2012 IT Strategic Plan and the recent DGS migration to CES has demonstrated the promise cloud computing offers” - Andrew Armani, Agency Information Officer of the California State and Consumer Services Agency. Several smaller departments have also migrated to CES including the Contractor State Licensing and Medical Boards which were the first organizations to use the Cloud service. When fully implemented, 66 state departments and over 100,000 state mail boxes will utilize CES for email, making it one of the largest Cloud email systems in government today.
The long-term benefits of Cloud e-mail include the reduction of significant state costs for, among other things, the maintenance of unused mailboxes for contingency needs, the maintenance of hardware and software licenses, and the capital expenditures required for equipment replacement and software upgrades. A greatly reduced IT foot print will significantly lower energy costs and space requirements. Furthermore, State employees will have access to state of the art eDiscovery, archiving, and collaboration tools facilitating better cross departmental communication all under the same ‘per user per month‘ payment plan. State departments will have dedicated support 24/7 365 days a year, which is a direct result of consolidating 130 unique email systems into two systems running the same email platform. Under Cloud e-mail consolidation, Governor Brown can easily communicate with all state employees via e-mail. This type of comprehensive communication is difficult and somewhat ’hit and miss’ with the current diverse 130 e-mail systems and was a source of great frustration with previous Governors.
Future progress and the velocity of migration of state departments to Cloud e-mail depends on effective executive leadership and effective change management. The move to Cloud computing is about people as much as technology. Worker feelings, beliefs, and attitudes about the change must be managed. However, its clear that to achieve the full benefits anticipated under AB 2408, Cloud computing must be a critical component of the overall IT structure of the State. The Federal Government has recognized that fact by instituting a ‘Cloud first‘ initiative that instructs all federal agencies to first look at a Cloud computing solution when considering any new IT application.
The Brown Administration should continue to press on with the consolidation activities mandated by AB 2408 as quickly as possible in order to get the better levels of service and recognize the significant cost savings that will result once the law is fully implemented. While it is true that in some cases state funds must be expended up front to upgrade certain IT environments in order to migrate to the Cloud, in many cases these upgrades are necessary anyway to bring the overall IT structure of the State up to a minimum standard necessary to take advantage of today’s mobile workforce and the technologies necessary to effectively support them. State government should not let the inertia of living with legacy IT systems and organizations stand in the way of real progress. Continuous change is the order of the day for government organizations facing tight budgets and expanding responsibilities. State government needs to adopt that mind set and continue to modernize its IT infrastructure to adapt to the ever changing needs of today’s modern government workforce.
While definitely not the last word on Cloud computing in state and local government, the TechAmerica Foundation report does mark the start of an on-going public/private dialogue. It helps us understand the potential benefits of Cloud computing, related best practices and better ways leverage existing public IT assets. California Government IT has a bright future as long as it embraces change, lets go of antiquated legacy systems in a timely manner and embraces the most cost effective technologies available today for the delivery of public services and information. When combined with the need to reduce overall operating costs in tight budget environments, Cloud technology innovation in state government cannot come soon enough.
Tom Sheehy is the former Chief Deputy Director of Finance
and Acting Secretary / Undersecretary of the State and Consumer
Services Agency under Gov. Arnold Schwarzenegger. He joined
Greenberg Traurig's Sacramento government affairs practice
in October 2010 (http://www.gtlaw.com/People/ThomasLSheehy).
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