Sequoia's Moritz grills California's controller on state budget issues

Mike Moritz, key player at Sequoia Capital, posed tough questions to California controller John Chiang regarding the state’s economy and budget deficit at yesterday’s Churchill Club breakfast in the Silicon Valley.

With the state’s deficit growing to an unprecedented $26 billion, Moritz asked Chiang whether California had become fiscally “ungovernable,” and if not, what his ideas were for fixing the increasingly dire situation. He also mentioned the cash deficit, now running close to $25 billion.

“When many of us came to California 30 or so years ago, California had a reputation around the world as the place that knows how,” Moritz said at the breakfast. “Today California is known as the ghost of the future of the U.S.”

In response, Chiang was very frank about the state’s situation. California “has not been net cash flow positive since July 12, 2007,” he said. But there’s not much he can do about it as controller. The budget is the responsibility of the governor and the legislature. And any remedies Chiang could implement himself must also go through the governor.

For example, the state has been borrowing money from its own emergency funds set aside for natural disasters, and borrowing from the market. It is also delaying payment of bills and calling in past IOUs. All of these actions are a stop gap as the governor and legislature work out an agreement.

Other than this brand of political maneuvering, Chiang said that — in the long-term — eliminating term limits would be helpful, as would getting rid of the rule requiring a two-third majority to approve a budget or raise taxes. He also said that turning over control of education spending to local areas and cutting spending in state agencies would go a long way.

In the course of the conversation, Moritz pitched the idea of a tax on gasoline that could be used to cut greenhouse gas emissions in the state. Predictably, Chiang responded that the electorate wouldn’t go for that kind of measure (an understatement). He also declined to go into detail about the California State Teachers Retirement System and the California Public Employees Retirement System, the state’s two largest pension funds. All he said is that the funds haven’t defaulted on any of their obligations to investment firms.

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