Question: How do you run California without a balance sheet?
My answer: Apparently, rather poorly.
We all know about California's liabilities, the $72 billion in debt, the $100 billion plus in unfunded pension liabilities, IOU's, etc. But, where is the list of the state's assets? Incredibly, the state of California, the 8th largest economy in the world, doesn't have a complete balance sheet.
California needs to show the world that our state isn't bankrupt, isn't in dire need of raising taxes or cutting essential services. How? By redeploying its significant assets.
Some of these assets are tangible, like the Rose Bowl, or our University system, others are not, like the value of a large and technologically advanced workforce. California is not only home to some of the best beaches and most beautiful parks in the world, but the busiest ports, major airports, and a DMV whose revenue is the largest in the United States. In total, it has some 22,000 different properties recorded, most of which are vastly underutilized. California is not bankrupt. It's just not making effective use out of what it has right under its nose. If we did, we would not need to cut spending or raise taxes.
We need to leverage the tools of modern finance to ensure premium value for the assets held in the public trust. That means using the capital and expertise of the private sector to create partnerships with the state so that the assets can become more valuable over time and create more revenue for the state. It does not mean selling public assets outright. That's old school. Few in our state would want to do that, especially in a down market.
But through leasing arrangements, and especially by pooling assets together, something that is second nature in modern finance, but that has not been done before with public assets, we can not only ensure premium value, but also raise significant revenues upfront, money that can be used to pay down debt, and even build a reserve, a rainy day fund of sorts for the future.
Where to start? How about the DMV, a woefully inefficient $3.5 billion behemoth bereft of adequate technology investments and likely one of the least popular points of interaction with the state for citizens. Talk about nothing to lose.
What I'm proposing is a far cry from mere "privatization" which means handing over control to the private sector. In my proposal, the state is capitalizing on the private sector's money and expertise but keeping ultimate ownership and control over key decisions. My plan includes a comprehensive regulatory body, similar in nature to the public utility commissions that define the ground rules for price increases and maintaining the integrity of state property.
Australia, an economy significantly smaller than California's, was saddled with 100 billion Aussie dollars of debt in the mid 1990's. In April 2006, their central bank announced that all of the country's debt had been paid off. Thanks largely to redeploying its public assets, Australia now has an $80 billion rainy day fund called the future fund. California, under my plan, can do the same thing.
California is sitting on an embarrassment of riches. Some estimates say the land value alone is worth more than $200 billion, more than enough to pay off all of our debt and have $100 billion left over for our fund for the future.
I have asked Governor Schwarzenegger to issue an executive order to form the California Enterprise Commission. This commission would be responsible for valuing the State's assets, selecting which ones should be part of a first ever California Enterprise Fund, and finding the type of marquis investors that once and for all can shift the whole psychology about the state.
To paraphrase Mark Twain: "the reports of California's demise have been greatly exaggerated." We have technology, incredible weather, education, great citizens and all the resources needed to get us back on track. What I'm proposing is a sound plan to make it happen.