Vol. 1, No. 8, Published December 9, 2015
Haves and Have-Nots Not Sharing Equally in Economic Recovery
Treasurer Chiang Re-Imagining How Public Finance Can Tackle California’s Critical Needs
Treasurer John Chiang speaks in favor of Secure Choice during an event hosted by the Los Angeles Area Chamber of Commerce.
California has outperformed the rest of the nation in job growth for the last 44 months, recovering all of the 1.3 million jobs lost during the Great Recession and creating an additional 800,000 positions. Our unemployment rate is the lowest it has been since October 2007.
But the benefits of the surging economy have not spread to all parts of the Golden State. Nearly one in 10 workers remain jobless in large parts of the San Joaquin Valley, while that number sits at one in five workers in the Imperial Valley.1 Per capita income in these areas is about two-thirds the state average.
Stagnant wage growth, unaffordable housing and rising educational costs heavily impact the poor, working class and lower middle class families. The dream of decent housing, good schools and secure retirements continues to be out of reach for these residents.
The issue of income inequality is important to Treasurer John Chiang, and he will be discussing the problem and solutions when he meets with his Council of Economic Advisors on Dec. 11.
Here is how the Treasurer is already helping:
- Secure Choice: About half of all households age 55 and older have no savings and are heading toward an impoverished retirement or working until they are incapacitated or die. The problem is particularly dire for women, who account for as much as 70 percent of the state’s poorest retirees. Empowered by a new law authored by Senate President Pro Tempore Kevin DeLeon, Treasurer Chiang has taken on the challenge by engineering a revolutionary workplace retirement savings plan. Funded by automatic payroll contributions, Secure Choice would help as many as 7.5 million private-sector employees save for retirement, even when their employers offer no such benefit.
- Affordable Housing: Millions of Californians across the state cannot secure safe, decent, and affordable housing. The problem has grown so severe that a leading credit rating agency recently began listing California’s high cost of housing as a looming weakness that, if left unfixed, could cause a downgrade in the state’s financial rating. The independent Legislative Analyst’s Office also noted that “the state’s high housing costs make California a less attractive place to call home, making it more difficult for companies to hire and retain qualified employees.”
Treasurer Chiang, after 10 months of engaging with nearly every major affordable housing stakeholder, recently crafted a major housing initiative giving builders access to up to $6.5 billion in federal resources. Regulatory reforms included in the initiative reduce the costs and increase the amount of available financing to produce housing, both barriers to increased production of new housing. Alan Greenlee, executive director of the Southern California Association of Non-Profit Housing, calls these changes "the most significant for the tax credit program in 15 years." Approval of Chiang’s new regulations caused the state’s third largest builder of affordable housing to announce that it would immediately produce more than 1,000 new affordable homes that otherwise would not have been possible, while at the same time generating jobs, tax revenues, and economic activity.
- ScholarShare: Over the past 40 years, college tuition has consistently increased at two to three times the rate of inflation each year. In the last decade alone, University of California fees have increased by 114 percent. At the same time, state support dwindled and federal financial aid funding shifted away from student grants and toward student loans. Today, nearly 60 percent of all federal financial aid is in the form of loans, substantially increasing the number of college graduates burdened by enormous student loan debt upon entering the workforce.
Treasurer Chiang is overhauling California’s ScholarShare College Savings Program, the state-sponsored 529 college savings plan that offers a diverse set of investment options and tax-deferred growth. Withdrawals are free from state and federal taxes when used for qualified higher education expenses, such as tuition and fees, books, certain room and board costs and other required supplies. Chiang’s early efforts are paying dividends. In October, Morningstar (an independent investment research firm which closely monitors college savings plans across the United States), awarded ScholarShare a silver rating, upgraded from a bronze rating issued last year.
- Restoring California’s Financial Health and Modernizing the State Treasury: As part of his strategy to take advantage of low-interest rates to reduce the debt, Treasurer Chiang has aggressively refinanced past higher-cost borrowings. So far in 2015, he has overseen refinancings that will result in $2.5 billion in taxpayer benefits over time. As the state’s banker, the Treasurer not only directly manages more than $66.5 billion in state and local money, but he also handles more than $2 trillion per year in banking transactions. To increase productivity and efficiency while acquiring more tools to meet the present-day business needs, the Treasurer is moving his office’s financial operations from mid-20th century “paper-and-fax era” methods to today’s most powerful online banking technologies, such as offering Local Agency Investment Fund transactions online.
- Making Government Spending and Borrowing More Transparent and Accountable: In November, the Treasurer introduced DebtWatch, which provides important details about $1.5 trillion in debt issued by state and local government entities over the past 30 years. Because bonds are not free money and, indeed, obligate the public to repay them through higher taxes, fees, or assessments, Treasurer Chiang wants to make easily accessible information about bonds available to the public. Such data includes how much is being borrowed, how much it costs to borrow money and how the money is being used. In the tradition of his three award-winning open data sites created while he was State Controller, the Treasurer now has created a one-stop, online tool to provide access to more than 2.8 million pieces of debt data. The information is available with a few clicks of the mouse and can be sliced-and-diced in powerful ways so that users can perform trend analyses or compare how debt is issued and used among different communities.
- Treasurer’s Task Force on Bond Accountability: On Feb. 1, the Treasurer convened a special task force to develop best practices guidelines for the fiduciary care and use of state and local bond proceeds. The decision to form the Task Force resulted, in part, from the revelation that approximately $1.3 million was discovered missing during a routine audit of bond funds held by the Association of Bay Area Governments (ABAG). The San Francisco Chronicle reported that the bond money, earmarked for public parks and street improvements in downtown San Francisco, allegedly was embezzled by ABAG’s director of financial services.
The Task Force -- composed of current and former securities regulators, local treasurers, public agency fiduciaries, academics, and finance industry experts -- is charged with identifying best practices that would enable public agencies to ensure that bond proceeds are used for intended purposes. The experts also are looking at whether the money is correctly accounted for, managed and safeguarded in a manner transparent to the public and consistent with legal requirements, best practices, and internal controls.
Intersections is prepared by staff of the State Treasurer's Office. This newsletter should not be used for making investment decisions about State of California bonds or notes. Potential investors always should obtain and read the Official Statement published by the state for each issue of bonds or notes. Send us suggestions and feedback.