California's economic stability leaves Gov. Brown a new challenge

Gov. Jerry Brown, center, at a 2012 rally for Proposition 30, a temporary tax increase that voters approved. On his watch, the state’s finances have greatly improved, but big challenges remain. (Francine Orr / Los Angeles Times / October 30, 2012)

SACRAMENTO — Soon after Jerry Brown was elected governor in 2010, he invited the state's top budget official, Ana Matosantos, to lunch at his office. He had just two months to prepare his first plan for tackling California's $26-billion deficit.

He asked his assistant to fetch the budget director a sandwich. Then, Matosantos said, the incoming governor of one of the world's largest economies ate a single hard-boiled egg, sprinkled with salt.

Brown's dietary discipline was a hint of the regimented approach he would take to California's staggering financial problems, which he had promised to fix by pushing the state back into the black.

"I don't go to the theater. I don't golf. This is what I do," Brown told Matosantos.

For previous governors, California's budget was quicksand. Gray Davis, a fellow Democrat, was recalled by voters as state finances imploded following an energy crisis. Republican Arnold Schwarzenegger limped out of office with rock-bottom poll numbers, leaving a pile of debt.

But on Brown's watch, deficits have become surpluses, helped along by tax hikes the governor persuaded voters to approve. More money is being pumped into schools.

University tuition has stabilized.

Budget standoffs that once dragged through the summer are now wrapped up by the June deadline, lending the Capitol a new sense of orderliness. And on Wednesday, the governor called a special legislative session to prod lawmakers to pass his plan for saving money and paying off debt.

That record, which will be a major part of Brown's reelection campaign, is due partly to good fortune. California is benefiting from a nationwide economic recovery that has helped flood the state with revenue. Brown is also blessed with a Capitol dominated by fellow Democrats and a 2010 rule change that lowered the number of votes needed to pass a spending plan.

"Somehow he managed to get all the stars aligned," said Norton Francis, who studies state finances at the Tax Policy Center in Washington, D.C.

But California's finances remain vulnerable in some ways, as Brown's main challengers in the June primary — Republicans Neel Kashkari, a former U.S. Treasury official, and state Assemblyman Tim Donnelly of Twin Peaks in San Bernardino County — have noted.

Brown keeps pushing for a $68-billion bullet train whose funding is in dispute. And although some debts are being repaid, others are growing as the state fails to allocate enough money for long-term funding of teacher pensions and healthcare for retired state workers.

The governor has acknowledged the gap. "By no means are we out of the wilderness yet," he said in January, although he has not detailed any plans to address those ballooning costs.

When Brown was inaugurated in January 2011, California was a punch line for jokes about government dysfunction. The state had $35 billion in debt — equivalent to more than one-third of general fund spending — that it had accumulated by borrowing money and delaying payments when it was short on cash.

Brown warned then that there would be more pain ahead.

"Choices have to be made and difficult decisions taken," the septuagenarian governor said in a speech when he was sworn in. "At this stage of my life, I have not come here to embrace delay or denial."

Unlike Schwarzenegger, Brown did not convene blue-ribbon panels to recommend ways to overhaul California's finances — ideas that mostly went nowhere. But like his predecessor, he cut aid to the needy.

Providers in the state's healthcare program for the poor are now paid less. Welfare payments are lower, and fewer families receive state-subsidized child care.

The governor's decisions paved the way for his 2012 tax-hike campaign, a defining moment of his term.

Brown had promised to seek voters' blessing before raising taxes, but he failed to win the needed Republican support to put the issue on the ballot. So he used the initiative process, asking Californians to increase income taxes on high earners for seven years and raise the sales tax for four years.

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De Blasio's Communications Director Leaves

A key aide to the city’s public advocate, Bill de Blasio, has left her position after only three months on the job.

Gabby Adler, who joined Mr. de Blasio’s staff in December as communications director, left on April 4 to join a “super PAC” in Washington that focuses on Democratic Congressional campaigns.

Ms. Adler’s new employer, House Majority PAC, is considered to be the primary super PAC aimed at aiding the electoral efforts of House Democrats. Its Twitter page describes its mission as “on the offensive against House Republicans’ extreme agenda.”

Mr. de Blasio is a highly vocal opponent of super PACs and Citizens United, the United States Supreme Court opinion that allowed for their creation. He has routinely appeared on national television and at events in Washington to protest the effects of the groups, which can raise and spend unlimited money on candidates’ behalf.

The public advocate was traveling in California with his family on Thursday and could not be reached for comment.

Ms. Adler, whose new position was reported on Thursday by Politico, wrote in an e-mail that the new job “was one I couldn’t pass up.”

“The decision was tough,” Ms. Adler wrote. “My career has primarily been focused on national politics and policy, and with so many Congressional races heating up across the country, I’m excited to put my efforts into winning the battle for a Democratic majority.”

Mr. de Blasio, who is widely expected to run for mayor next year, has one of the smaller staffs among citywide officials. His previous communications director, Matthew Wing, left late last year to join the staff of Gov. Andrew M. Cuomo. Ms. Adler’s position remains unfilled for now.

The new assignment would be a return to familiar ground for Ms. Adler, who previously worked in communications and strategy for various Democratic Congressional campaigns and the House Foreign Affairs Committee. She served as the Midwestern regional press secretary during the 2010 campaign for the Democratic Congressional Campaign Committee. At House Majority PAC, Ms. Adler will coordinate strategy and operations on a number of House races.

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Fraud case leaves California Democrats scrambling (Reuters)

LOS ANGELES (Reuters) – Stunning accusations that a top California Democratic campaign treasurer looted the war chests of her big-name clients have left candidates across the state scrambling to raise more money as election season looms.

Kinde Durkee, who controlled the funds of roughly 400 candidates and groups, ranging from Senator Dianne Feinstein to local Democratic youth clubs, was arrested in September and charged with fraud.

While the extent of the losses isn't yet clear, the coffers of dozens of Democratic politicians have been frozen, prompting the crippled campaigns to ask the California Fair Political Practices Commission to permit further donations from contributors who have already given the maximum.

Feinstein, seeking re-election in 2012, has been forced to start from "square one" to raise campaign money, said Bill Carrick, political strategist and consultant to the Senator.

But a commission official said it wasn't that simple.

"It's quite clear that we can't just say 'the contribution limit is set aside'," California Fair Political Practices Commission chair Ann Ravel said, adding that the commission's legal team was researching what options were permissible by law.

Feinstein donated $5 million of her own money to her re-election bid after the campaign lost access to an estimated $5.2 million, Carrick said. The senator has sued Durkee for fraud and breach of contract in a lawsuit that also accused First California Bank of aiding that fraud.

Durkee, the 58-year-old daughter of a Hollywood pastor, is accused of co-mingling money in the roughly 400 accounts she controlled at the bank, making it unclear to whom any recovered money actually belongs.

The bank reported $2.5 million in Durkee-controlled accounts, according to court documents, far less than the at least $9.8 million that her clients had raised, according to the Los Angeles County Democratic Party.

"We lost at least $200,000 and the impact of that, for us, is much more immediate than it is for most candidates," Los Angeles County Democratic Party Chair Eric Bauman said.

"We've got more than 50 races on the November 11 ballot. Our ability to support our endorsed candidates in these local elections is significantly affected," Bauman said, adding that the loss represents 90 percent of the party's total funds.

'GOING TO BE TOUGH'

If a donor's campaign contributions were never received, Ravel said, there is a possibility that they could donate again. The commission hopes to decide if and how donors could contribute again by its next hearing on November 10.

That deadline, however, would be too late for local elections slated for the following day, and the sudden loss of funds will be most acutely felt in grass-roots operations.

"It's definitely going to be tough," Carrick said. "It's going to be very difficult for them to replenish that kind of money."

Not everybody is as sympathetic to the sudden fund-raising challenges facing the California Democratic campaigns.

"Most of these Democrats are very influential, powerful incumbents, and the political parties are able to contribute as much as they want to the candidates," said Allan Hoffenblum, a former Republican political consultant.

"I don't think any client of (Durkee's) will lose because of this. There's plenty of money out there," he said

Durkee, who has been called the "Bernie Madoff of campaign finance treasurers" by one former client, Representative Susan Davis of San Diego, admitted to using campaign funds for her own personal expenses, according to court documents.

The mail fraud case against her in federal court alleges that Durkee used campaign donations to make mortgage payments and pay her American Express bills.

"Durkee admitted that she had been misappropriating her clients' money for years and that forms she filed with the state were false," according to an account of an interview by Federal Bureau of Investigations agents in September, according to the federal complaint.

The bank angered clients when it handed over control of the 398 bank accounts associated with Durkee to a California state court on September 23, recusing itself from sorting out how much of the recovered money should be doled out to whom.

"In yet another attempt to escape liability for the fiasco that they helped create, First California Bank has turned most of the accounts that Durkee controlled over to the courts," the Los Angeles County Democratic Party said.

It added that smaller parties who lost funds lack the financial resources to fight in court to get their money back.

First California Bank marketing director Diane Dickerson told Reuters: "It will all come out in time, I promise." She declined further comment.

Durkee is next expected to appear in court in December. Her attorney could not be reached for comment and a phone number listed in court documents as belonging to her appeared to have been disconnected.

(Editing by Dan Whitcomb and Cynthia Johnston)

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