by John M. Curtis
(310) 204-8700

Copyright January 1, 2002
All Rights Reserved.

ith the election drawing near, accountability for California's "energy crisis" and fiscal ills become inescapable. Facing reelection in 2002, Gov. Gray Davis feels the pinch from a looming $12 billion budget deficit, threatening to upend his bid for a second term. When deregulation went haywire, Davis turned a blind eye. One year later, rolling blackouts forced Davis to spend $50 million a day to keep the lights on. Runaway spending eviscerated the surplus, racked up billions in debt and pushed the state into recession. Sept. 11 didn't help, but the state was already heading in the wrong direction signing exorbitant long-term power contracts—with no way out. A year earlier, the state's major utilities begged the Public Utilities Commission to grant rate hikes due to skyrocketing power prices. At that time, Davis couldn't deal with the political fallout of raising rates. When Pacific Gas & Electric and Southern California Edison went broke, the state entered the power business. Already in crisis mode, Davis appointed septuagenarian S. David Freeman to save the day.

      Davis and Freeman had a secret plan: Buy long-term power contacts and break the runaway spot market. Entering the power business, the state purchased billions in long-term power contracts, glutted the market, and shattered prices. Their theory proved true with only one minor glitch: They locked the state into paying $80 per megawatt hour, when the going rate was $35. Then Davis and Freeman had a second brainstorm: Authorize the PUC to finally pass whopping rate hikes, saving utilities and satisfying creditors. Hiking rates and bailing out cash-strapped utilities opened the door to future bond sales. But ratepayers aren't happy underwriting the state's failed deregulation law and clumsy way it regained control over the power market. Faced with a 12 billion dollar budget shortfall, Davis looks to cut services and raise taxes. Increasing the sales tax .25% Jan. 1 only makes up10% of the budget shortfall, assuming that the state rebounds quickly from the current recession.

      Tax increases could actually slow the recovery and add to growing deficits. With Republican primaries in March, Davis will have to answer many questions, including why it took so long to rein in California's runaway power market. GOP hopefuls, former LA mayor Richard Riordan, Secretary of State Bill Jones, and millionaire businessman Bill Simon Jr., will ask tough questions. Belt tightening and austerity programs don't sit well with cash-strapped voters looking for better times. "We've already had one unprecedented development in the energy crisis," said Gail Kaufman, a Democratic strategist in Sacramento. "Then we had Sept. 11, with absolutely no precedent for that. So we're really heading into territory no one's ever seen," noting Davis' vulnerability. Davis can't rest on the fact that incumbents haven't lost a second term in more than 60 years. While Davis is an impressive fund-raiser, he has difficulty spinning his way out of the state's economic woes.

      Despite the state's economic mess, Davis hopes to capitalize on massive demographic changes, tilting California heavily Democratic, especially with Latinos, whose immigration patterns make them more dependent on government largesse. Tough talking Republicans turn off immigrants, whose policies are generally less friendly to minorities. Secretary of State Bill Jones is the state's last GOP elected official outside the legislature. He appeals to more conservative Republicans, frequently criticizing Riordan for straying from the party line and supporting Democrats. Yet, it's Riordan's independent streak that makes him more electable, emphasizing problem solving over ideology. While Jones claims less uncorrupted GOP credentials, Riordan enjoys a bipartisan track record of managing the nation's second largest city. Millionaire businessman Bill Simon Jr. lacks name recognition, and carries unwanted baggage of a rich political outsider. Despite his wealth, Riordan prefers sweat clothes over three button suits, making him far more approachable, but maybe not fitting the statehouse's business-like image.

      While the primaries are just getting underway, Riordan emerges as the clear frontrunner. "The race is Riordan's to lose," said Ken Khachigian, a veteran GOP strategist, speaking from the sidelines. "And he could lose it," suggesting that Riordan's casual style and propensity toward hoof-in-mouth problems might get in his way. But Riordan's positives far outweigh his negatives. Not since the 1982 recession has the state faced whopping budget deficits. Unlike 2000, when Davis refused to endorse utility rate hikes, he'll have to wield the scalpel before July 2002 when the budget requires approval. Twelve billion dollars won't disappear anytime soon. Residents don't like belt-tightening or tax increases, leaving "Mr. Nice Guy" in the unenviable position of disappointing voters. Riordan should capitalize on growing discontent as the bills for the state's energy crisis finally come due. Davis was elected in 1998 during a booming economy against an unpopular Republican opponent, Atty. Gen. Dan Lungren. Under today's gloom and matched up against a buoyant challenger, it's another ball of wax.

      Anyway he goes, Gov. Davis can't avoid explaining what happened to the state's whopping surpluses. Blaming it on the current recession or 9/11 won't convince too many voters. Exorbitant energy purchases emptied out the state's coffers, burying the state in debt for the foreseeable future. Now faced with a $12 billion deficit, Davis will have to perform some pretty fancy footwork to find a silver lining for the state's economic problems. Despite demographic swings, Republicans still have to make their best case for changing management in Sacramento. Insiders see Latinos as key to victory. "The Latino electorate in California is simply not available at the moment to Republicans," said Gary South, Davis' key campaign strategist, forgetting that most people still vote their pocket books. Facing a looming financial crisis, Davis only prays that GOP candidates train their barrels on each other. If they keep Davis in the crosshairs, he'll have difficulty touting his record, especially about California's fading prosperity. Regardless of party or demographics, all voters have to pay their bills.

About the Author

John M. Curtis is editor of OnlineColumnist.com and columnist for the Los Angeles Daily Journal. He's director of a Los Angeles think tank specializing in political consulting and strategic communication. He's author of Dodging the Bullet and Operation Charisma.

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