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Kirk West: Three Decades of Leadership

By Ron Roach

Kirk West is stepping down after 12 years as president of the California Chamber of Commerce, but he doesn't intend to kick back under the usual definition of retirement. He intends to add to his list of accomplishments.

Mr. West says he will continue at the Chamber as a consultant. And he plans to keep his passport handy to serve as an international ambassador for the California economy. He also serves on the boards of directors of several corporations.

The easy-to-see-in-a-crowd (he's 6-foot-5) chief spokesperson and watchdog for California business interests also is a familiar name to many voters, although he has never run for office. He probably has signed as many ballot proposition arguments as anyone during the past quarter-century. Usually, he is supporting school bonds and opposing anti-business tax initiatives.

At the end of this month, Allan Zaremberg succeeds Mr. West as president of the 11,000-member California Chamber (see October Cal-Tax Digest).

This is an organization that was struggling with only 2,800 members when Mr. West took over in January 1986. He notes with pride that he led the organization's expansion and will leave it in good fiscal health.

His 30 years in and around California government include eight years (1974-1982) as executive vice president of the California Taxpayers' Association. A 1958 graduate of Stanford University, he then earned his master's degree in political science from the University of California at Berkeley. He was a chief deputy state controller under Houston Flournoy, and a deputy director of the Department of Finance in the administration of then-Governor Ronald Reagan.

After leading Cal-Tax, he joined Governor George Deukmejian's Cabinet as secretary of the Business, Transportation and Housing Agency. Mr. West ran 14 departments with more than 33,000 employees and an annual budget of $3 billion.

In a recent Cal-Tax conversation, Mr. West recalled leading the (unsuccessful) campaign against Proposition 13 in 1978, when he was with Cal-Tax, and what went wrong. He also picked curtailment of health care costs as the unsung yet perhaps most significant pro-business development in recent years. And he was disturbed by a ballot initiative process that has unleashed a stream of anti-business proposals.

Q. From the 1960s almost through the 1990s, there have been many changes. From your perspective, have they been good for taxpayers, for businesses?

A. We have a very mixed picture looking at the last 30 years. Much like the stock market, the business climate improves, then it drops, and then it picks up again. But overall it keeps moving to higher ground.

Q. Can you describe the highs and lows?

A. In the Sixties the state had a tremendous surge in investment and infrastructure development. In the Seventies, we saw a pretty severe recession, followed by a recovery. In the Eighties, when Deukmejian was governor, I was the secretary of the Business, Transportation and Housing Agency. In January 1983, the unemployment rate was 11 percent, and to prove that timing is everything in life, when I left three years later, it was 5.5 percent. We just had a red-hot economy in the Eighties, with a tremendous surge in tax revenues.

Aerospace and defense spending was $85 billion, compared to $35 billion in 1997-98, but the seeds of problems were being sown in the Eighties. Real estate was overheated. We got very tolerant about abuse such as the scandalous workers' compensation system that cost employers $11 billion at the peak in 1993. Litigation just kept growing and growing. Welfare rolls kept increasing. The crime rate went up. This is all during a period of unprecedented prosperity.

Kirk West, president, California Chamber of Commerce

The severe recession of the Nineties forced a lot of changes that are for the long run positive: the reforms in workers' compensation, the curtailment of the frightening growth in medical costs - employers in the state were facing 10 to 15 percent annual increases in costs of health care. That's on a premium base of $30 billion. Imagine a $3 billion tax increase each year, compounded. These increases were brought to a halt by the market forces, health maintenance organizations, and so forth, not by government. This is a reform people don't talk about as much as the others. But, in my mind, it is perhaps the biggest. We were looking at medical costs going from 12 percent to 20 percent of the gross domestic product in the United States. It was on a run to simply destroy productivity and competitiveness.

After losing 700,000 jobs from 1990 to 1994, we have regained those jobs - and more, and we are creating over 1,000 jobs a day. I believe, for a number of reasons, we should be able to avoid the extremes of a too-hot economy in the Eighties and a much too-cold economy of the early Nineties. Reforms have been enacted that make the state more competitive on a long-term basis.

Annual costs of workers' compensation insurance are down $3 billion from the ghastly levels of 1993. Energy costs should drop as a result of electrical restructuring. Health care costs are no longer going up 10 percent per year. The business tax structure has been improved, including a research-and-development credit expansion, an exemption for manufacturing equipment, and a cut in the corporate income tax.

Q. How were health care costs harnessed?

A. The only thing government did, in the 1970s, was to put caps on liability for physicians, for malpractice insurance. Of far greater importance over the long haul was the fact that, as a result of the competitive market, the health maintenance organizations (HMOs), led by the Kaiser example, were able to bring a stop to the fee-for-service lockstep increases that were occurring. The impact is just tremendous.

Q. What about taxes?

A. We have improved tax burden levels, which means California has gone from being one of the top states in per-capita taxation to a state that is still higher than it should be, particularly in corporate and personal income taxes, but it is substantially improved from the levels of 10 and 20 years ago. I remember when we had a business inventory tax (repealed in 1980).

Q. It would appear that California's economy has ridden a roller coaster. What of the future?

A. Structural changes have positioned California so we have a good chance to avoid the sharp downturns in the economy elsewhere. If we can avoid job-killing ballot measures or legislative proposals - and I think we can - things look pretty good for the California economy in the long term.

Q. What of the "initiative wars?" You started out at Cal-Tax fighting Proposition 13. You have fought and won many ballot battles. How many campaigns have you been in and what were some of your most significant victories?

A. In 1980 we opposed an initiative by Bill Press (who was Governor Jerry Brown's Office of Planning and Research director) to increase taxes on oil companies. I co-chaired that campaign.

Since I've been with the California Chamber I have signed 22 ballot arguments. On the support side, our biggest wins were more funding from the gas tax (Propositions 108 and 111) for transportation in 1990, the $2 billion seismic retrofit bond, Proposition 1A in 1994, and Proposition 204, the water bond, in 1996. Of course, there also have been a number of school construction bond measures.

Proposition 51, the joint and several liability initiative campaign of 1986, was another that I co-chaired. So I have been involved with about 25 initiatives, either organizing the campaign, co-chairing and signing the ballot arguments. Probably close to 30 counting the Cal-Tax days.

 If we can avoid job-killing ballot measures or legislative proposals - and I think we can - things look pretty good for the California economy in the long term.

On the side of defeating measures, the biggest victories, at least the ones I'm proudest of, are the defeat of "Big Green" (a Tom Hayden-drafted environmental initiative that was Proposition 128 in 1990), the "Single Payer" health care initiative (Proposition 186 in 1994), the split roll tax increase (Proposition 167 in 1992) and the "Lerach Initiative" (on securities litigation, Proposition 211 in 1996).

Q. That's an impressive record.

A. Yes, but I am worried down the road because we have these atrocious anti-business initiatives lining up for next year. (Three labor-financed initiative campaigns are under way for 1998. Two would repeal tax incentives for businesses. Another would prohibit business interests from contributing to political campaigns.)

Q. Labor reportedly says they will drop their initiatives if business will oppose another initiative campaign that would require unions to get permission from members before using their dues for political purposes. They also want business to convince Governor Wilson to back away from this initiative.

A. The governor is very strongly in favor of the "Bucher Initiative." He has seen examples of the use of public union dues to attack him. I have told the people from labor: If they persist with these anti-business initiatives, I predict it will end up backfiring. It will create a strong incentive for businesses - businesses who otherwise would not want to get involved in a fight with labor but who are being attacked - to suddenly think about strongly supporting the initiative because it illustrates the destructive use of mandatory dues.

Q. It is not as though this is the first election cycle that public employee unions have sponsored anti-business initiatives. It has become a cost of doing business in California, a business climate negative.

A. It has been that way every two years. Can you imagine against this background that I come in, having had to raise money to defeat Proposition 167, a union dues deal to increase business taxes, and all of these others, and say, 'Governor, we haven't been helping on the Bucher Initiative at all, but we want you to drop it or they will come after us with some more initiatives?' It is a ludicrous suggestion. The governor has been personally attacked extensively with political advertising from the use of these union dues, so he is the last person on earth who would back off.

I regret the whole thing. We should all be working together on school construction and infrastructure needs. We worked together on workers' compensation reforms. The unions have put in measures simply to severely damage California's economy and make the state appear to be a place where investment is unwise and unwelcome, and to create an image of instability. All of this we have been able to avoid because we keep beating back these measures.

Q. Have these initiatives galvanized the business community?

A. Yes. That is correct. If I had to predict, public opinion will turn against these measures, and either they will drop them or they will realize they will not succeed. I can't believe they will succeed with these anti-business tax measures. The whole business community is well united. The California Chamber, the Business Roundtable and Cal-Tax, as always, will be working very closely to defeat these initiatives.

Q. What happened with Proposition 13? There was widespread, well-organized and well-funded opposition.

A. What should have been done, and we did advocate it, was to have increased the homeowners' exemption to at least 50 percent in Proposition 8, which was the Legislature's rival to Proposition 13. It just wasn't competitive, and with soaring assessments, the state could easily afford to run the homeowners' exemption to 50 percent of market value. Then we would have had a competitive measure, to cut property taxes in half. Why didn't that happen? Because the Department of Finance and A. Alan Post (then the legislative analyst) said they thought the state couldn't afford it. Jerry Brown was the governor. At a critical time the leadership was too cautious and did not offer a competitive alternative to Proposition 13.

And now, trying to get back to fair market value (instead of the acquisition value method of Proposition 13) is like trying to unscramble an omelet. I just don't think the public will go back to annual assessments.

At a critical time the leadership was too cautious and did not offer a competitive alternative to Proposition 13.

Arguments against Proposition 13 were quite valid at the time. We were concerned that it would create a tremendous push for a split roll. There is always a push for a split roll (to tax business at a higher rate) but for reasons other than that, just to get more money for government. Some of the defects of Proposition 13 were straightened out by follow-up ballot measures and court decisions that smoothed out some of the rough things in the language. For example, as it was voted on, it said a special tax can only be approved by two-thirds of the electorate, which presumably means registered voters, not just those voting. And declines in value, if a house burned down, Proposition 13 did not provide for rebuilding without increasing property taxes.

Q. What about the initiative structure itself? It's still only $200 to file an initiative, and you can't even raise that, to cover more of the actual costs, without a public outcry.

A. That's right. But raising the fee is not going to stop the public employee unions or others. We have had a number of these reforms tested by polling, and the results show that although the public is feeling disillusioned about the initiative process, the idea of trusting the Legislature more, which goes along with curtailing the initiative process, just doesn't sell. They have less confidence in the Legislature than they do the initiative process, and they do think, when all is said and done, the benefits of the initiative process do outweigh the negatives.

After some initiative wars in 1998, I think the public will be more receptive to some reforms. I would like to see some disclosure by initiative signature gatherers that they are being paid to solicit signatures prior to getting the signature. Since you can't ban paid signature gatherers, I think disclosure might curtail it. I would like to see the number of signatures raised, to reflect a percentage of the population, rather than the 5 percent of the last gubernatorial election. The percentage of people voting has dropped off so dramatically that the current rule of 5 percent of the last gubernatorial election means you need only about 430,000 signatures to put a statutory initiative on the ballot. And the population now is 33 million. That is 1.3 percent of the population. You go back 20 years, and it was a whole lot higher number as a percentage. Having said that, these deep pockets, these labor unions, would not be deterred (by additional costs of qualifying a measure).

We have an initiative industry of pollsters, consultants and lawyers who benefit. The newspapers and media certainly benefit from the heavy advertising. It is usually an unproductive activity and expenditure. Initiative reform is an unfinished agenda.

Q. What should be priorities for business in the years ahead?

A. Where we are today, as I look at 1998, great strides have been made in competitiveness of our economy through deregulation and through certain curtailments of litigation. Now is the time for California to make a commitment for the type of massive investment in our infrastructure that can sustain our economy when our population is 40 or 50 million, rather than 33 million. That means far more investment in transportation, water and school construction projects.

After some initiative wars in 1998, I think the public will be more receptive to some reforms.