Background

Strictly speaking, redistricting is the constitutionally mandated procedure in which district boundaries are redrawn to accommodate changes in population. The United States Constitution requires that Americans are represented equally, and thus it is necessary to redraw political boundaries to balance population numbers in political districts. The redrawing of Congressional lines occurs every 10 years, following the tabulation of the U.S. Census and the process of reapportionment (the reallocation of representatives among states based on population shifts).For California, 2011 redistricting marks a number of firsts. For the first time since California earned its statehood in 1850 (except 1920, in which reapportionment did not occur), the Golden State will not see an increase in its Congressional delegation following the Census. While states like Texas, Colorado, and Georgia will each gain a few more seats in the House of Representatives, a slowing of population growth in California means that the status quo of 53 representatives will remain in place for the next ten years. Perhaps even more historic, 2011 marks the first redistricting cycle in which the power of redistricting has been granted to a brand new, voter-approved organization: the California Citizens Redistricting Commission (CRC).

The California Citizens Redistricting Commission

The California Citizens Redistricting Commission, created with the passage of Proposition 11 in 2008, was initially given the task of handling redistricting exclusively for state legislative districts (and the Board of Equalization). However, its role expanded to include congressional redistricting with the passage of Proposition 20 in 2010. Both propositions had to overcome significant opposition to their passage. The commission, comprised of five Democrats, five Republicans, and four commissioners unaffiliated with either major party, was supported heavily by Governor Schwarzenegger and state Republicans. They believed maps produced by a bipartisan redistricting process would be more favorable to the GOP than ones authored by the legislature, with its majority of Democrats in both chambers. Conversely, Democrats and many incumbents feared the fallout of a group of citizens by drawing lines from scratch. Following the narrow passage of Proposition 11 and the easy approval of Proposition 20, the battle shifted to the CRC.

The process of picking commission members began in December 2009. Through a complex selection process meant to eliminate candidates with any direct ties to state politicians or parties, the state auditor’s office narrowed the applicants from more than 25,000 to 60 candidates. By November of 2010, the first 8 commissioners (randomly selected from the final pool) had been chosen. These 8 commissioners selected 6 more, finalizing the 14 member commission by the end of the year. In 2011, the commission began its work in earnest. Over the course of the next 8 months, it would criss-cross California, take public input from thousands of people, hire numerous staffers (to some controversy), and gradually formulate operational procedure for the first itineration of the most powerful redistricting commission in the nation.

The first signs of forthcoming political upheaval became clear when the CRC announced it would prioritize geographic and cultural factors such as compactness, and city, county, and community boundaries over political considerations in designing the maps. Existing districts and the locations of incumbents’ homes would not play a role in the CRC’s work. The commissioners would instead start from scratch in drawing 53 districts for Congress, 80 for the State Assembly, 40 for the State Senate, and four for the Board of Equalization.

It took little time for the CRC to run into controversy, however, as Republicans criticized the commission for hiring legal and technical consultants with perceived Democratic Party ties. (The Rose Institute submitted an unsuccessful bid for the technical consulting services). Nevertheless, the CRC marched onward with public comment and released the first of two planned draft maps on June 10. The map was met with mixed reviews. Supporters praised improved compactness and a noticeable reduction in community splits while expressing concern over an overall lack of competitive seats. State Republicans attacked the commission for crafting a map that would likely produce several Democratic gains in Congress and the State Senate. Latino advocacy groups such as the Mexican American Legal Defense and Education Fund (MALDEF) voiced outrage that the CRC draft map created few Latino majority seats.

Additional concerns emerged as it became increasingly clear that with just a few weeks left before their August deadline, the CRC continued to consider wholesale changes to the first draft maps. In a controversial vote on July 12, the commission moved to skip the creation of a second full draft map in order to proceed straight to a final map. While CRC opponents such as the California Friends of the African American Caucus criticized the move as an affront to transparency, describing the vote as just the “latest shenanigans” of the CRC, commissioners defended their decision. Commissioner Jeanne Raya claimed the vote would give the CRC “more time to deliberate thoughtfully” and “more opportunity for the public to interact with us in live drawing sessions.”

On August 15, the CRC formally approved finalized legislative redistricting plans in a 13-1 vote and the Congressional plan 12-2. While most commissioners who voted in favor of the plan spoke highly of the plan, the sole dissenter on the legislative plans, Commissioner Michael Ward, alleged that “the commission broke the law,” and “simply traded the partisan, backroom gerrymandering by the Legislature for partisan, backroom gerrymandering by average citizens.” In an LA Times Op-Ed, Commissioner Cynthia Dai responded to CRC detractors, declaring that the CRC’s “commitment to a fair process trumped partisan allegiances,” and boasting that “we were able to eliminate partisan gerrymandering and draw 177 districts for the state Assembly and Senate, Board of Equalization and Congress on time and under budget.”

Redistricting Analysis

A district-by-district analysis of the California Redistricting Commission’s maps illustrates the far reaching nature of the CRC’s work. The new maps drastically reshape congressional and state legislative representation in the Inland Empire. As a result of efforts by the commission to create reasonably compact districts and preserve communities of interest, the new maps offer districts that are, for the most part, much more compact than their predecessors.

By ignoring existing districts and focusing on compactness and communities, the CRC has produced a Congressional map that will result in significant political turnover in the Inland Empire. Longstanding Republican incumbents David Dreier (San Dimas) and Jerry Lewis (Redlands) no longer reside in safe Republican districts. The options available to two of California’s most notable Congressmen are few: retire, move, or wage tough battles to hold onto their seats. In addition, a handful of open seats have emerged in the area, offering up-and-coming politicians a rare opportunity to run for Congress without facing competition from powerful incumbents. All in all, it appears the commission’s work has created three competitive seats and two or three open seats in the Inland Empire’s Congressional delegation. For a regional delegation that has seen little to no turnover in the past twenty years, this is nothing short of a political earthquake.

San Bernardino County Congressional Districts

The 8th District, geographically massive, is primarily a combination of the rural 31st and 25th Districts. It stretches from Bridgeport (near Yosemite) hundreds of miles south to Yucca Valley, and encompasses the cities of Victorville, Ridgecrest, Barstow, Baker, Mammoth Lakes, Death Valley, Highland, East Highland, and Yucaipa.

A hotbed of the California Tea Party, the 8th leans heavily Republican, but neither incumbent Jerry Lewis (R-Redlands) nor Buck McKeon (R-Santa Clarita) reside in the new district. While Rep. McKeon will almost certainly run in the 25th (a safe Republican seat much closer to home), Rep. Lewis is in a bit of a jam. He could run in the 31st District (where he now lives), but he would likely face a very competitive race in somewhat unfamiliar Democratic-leaning territory. Legally, he can still run in the 8th even though he does not actually live in the district, but even this could be a danger given the area’s history of voting out incumbents. If Rep. Lewis does retire, San Bernardino County Supervisor Brad Mitzelfelt (R) has promised to enter the race, and would be a heavy favorite. In any case, this is an open seat, but almost certain to remain in Republican hands given the GOP’s ten point edge in registered voters.

The new 31st District attempts to unify the city of San Bernardino, previously split between the 41st (Rep. Jerry Lewis, R-Redlands) and 43rd (Rep. Joe Baca, D-Rialto) Districts. It includes San Bernardino, Rancho Cucamonga, Upland, Colton, Verdemont, Muscoy, Grand Terrace, Loma Linda, Redlands, Crown Jewel, Meritone, and West Highlands.

Democrats hold a small registration advantage over Republicans in this district (41 percent to 37.5 percent), which does not bode well for Rep. Jerry Lewis, should he decide to run in his new home district. Rep. Joe Baca could run here as well, in which case he would be a slight favorite, but he may instead opt to run in the 35th District, where he would be a strong favorite against any Republican. Rep. Baca and Rep. Lewis each appear to be waiting to see if the other will move to another district, despite pressure from Democratic and Republican party officials to stay and win in what is seen as a winnable race for either incumbent. If both incumbents run in this district, the 31st could be one of the marquee races of 2012.

The 35th District includes much of the remainder of San Bernardino County: Fontana, Ontario, Montclair, Chino, Montclair, Rialto, and Bloomington. This area was previously split into four separate districts. The 35th also includes Pomona from Los Angeles County.

This seat will likely be a safe Democratic seat, given the sizable registration advantage the Democrats hold (48.6 percent to 29 percent), and the large number of Latinos in the area. President Obama won more than 66 percent of the vote here in 2008, making it an appetizing prospect for district resident Joe Baca (D-Rialto) to run here rather than risking an expensive contest with Rep. Jerry Lewis in the 31st. Somewhat complicating things for Rep. Baca, however, State Senator Gloria Negrete McLeod (D-Chino) has all but claimed this district as her own. The 35th District closely resembles Senator McLeod’s current district, giving the Senator somewhat of an incumbency advantage. Senator McLeod and Rep. Baca are no strangers to conflict either. In 2006 Congressman Baca’s son, Joe Baca Jr., was beaten in the Democratic State Senate primary by Senator McLeod. Further complicating the picture, Democratic Assemblywoman and former Pomona mayor Norma Torres has also declared for the 35th district. With the “top two” primary system set to kick in next fall and a vast swath of Democratic voters in the district, it could come down to two popular Democrats battling it out in the general.

The 27th District is comprised of most of Pasadena and odd pieces of the north San Gabriel Valley. It includes Glendora, San Gabriel, Rosemead, Altadena, Arcadia, Temple City, Alhambra, and South San Gabriel. Once prominent members of Inland Empire districts, Claremont and parts of Upland have now been demoted to mere appendages of this Pasadena-dominated district.

Rep. Judy Chu (D-Monterey Park) has announced she will be running in the 27th District, and would be a heavy favorite to win, given the double digit Democratic edge (42 percent to 30 percent).

The 41st District includes the cities of Riverside, Moreno Valley, Glen Avon, Mira Loma, Rubidoux, Pedley, Sunnyslope, and Perris.

A major change is in store for residents of Riverside and the Moreno Valley area. Once split between Rep. Mary Bono Mack’s (R-Palm Springs) 45th District, Rep. Darrell Issa’s (R-Vista) 49th District, Rep. Ken Calvert’s (R-Corona) 44th District, and Jerry Lewis’s (R-Redlands) 41st District, the Riverside/Moreno Valley population now has a district of its own. The 41st offers Democrats an open seat with a moderate registration advantage (42 percent to 36 percent). Nevertheless, popular Republican Riverside County Supervisor John Tavaglione is favored for this seat over the only declared Democratic candidate, Mark Takano. There still remains a significant chance that other Democrats may jump into the race, and in all likelihood the 41st will be another close race to watch next election night.

The 36th District remains remarkably similar to its predecessor, the 45th District, trading Moreno Valley and Murrieta for San Jacinto, Banning, and Desert Hot Springs. Palm Springs, Cathedral City, La Quinta, Coachella, Indio, Hemet, Blythe, and the Riverside County portion of Joshua Tree remain in the district.

Mary Bono Mack (R-Palm Springs) remains a favorite, as the narrow partisan advantage she has traditionally held in her district remains effectively unchanged (42 percent to 39 percent). Rep Mack stands as one of the few Republican beneficiaries of the redistricting process, as her district remains largely intact and efforts to add Democratic-leaning Imperial County to the district were rejected by the Commission. Although the Democrats will likely again make a serious attempt to unseat Rep. Mack, the redistricting process does not appear to have affected Rep. Mack’s chances in the race.

The 42nd District also remains somewhat similar to its predecessor, the 44th District. The core of the district, including Corona and Norco is unchanged, but the district now moves south and east to include much of what used to be in Darrell Issa’s (R-Vista) 49th District. Key cities include Corona, Norco, Murrieta, Sun City, Canyon Lake, Wildomar, Lake Elsinore, Lakeview, and Nuevo. The Orange County portion of the old 44th is no longer included in the new 42nd, which is located entirely in Riverside County.

Much like the 36th District, the 42nd District is unlikely to undergo any significant political turnover. Rep. Ken Calvert (R-Corona) resides in the district, and Republicans enjoy a ten point registration advantage. Rep. Calvert, probably the biggest winner in this redistricting effort after facing significant reelection challenges in 2008 and 2010, will likely have a much safer seat than in years past.

What’s Next?

With the CRC’s plan formally adopted on August 15, California is now moving toward using the new lines for the 2012 election. To the dismay of Commission supporters, however, there remains a distinct possibility that the Commission’s work could yet unravel.

The biggest danger to the CRC’s congressional plan is a Republican referendum. Several state Republican officials have expressed concern that the new maps will unfairly benefit the Democrats, who are poised to make several gains thanks to the new maps. If the Republicans are able to gather at least 505,000 signatures on a congressional referendum by November, then the CRC’s congressional plan will be suspended for 2012 and replaced with a court-drawn plan. Should the referendum pass and reject the CRC lines, the court-drawn plan will remain in place for the rest of the decade. Should the referendum fail, the court plan would only be used in 2012 and the CRC map will be used from 2014-2020.

Will such a referendum make it to the ballot? The answer is currently unclear. According to redistricting expert and Rose Institute fellow Douglas Johnson, getting the 505,000 signatures it takes to reach the ballot “is a matter of money.” If Reps. Dreier and Lewis decide to run for reelection, and dislike their election chances, they could throw their considerable financial strength behind the referendum. “[Dreier and Lewis] have the ability to essentially fund the referendum on their own,” says Johnson. Reps. Ed Royce, Gary Miller, and other GOP Congressmen displeased with the new lines could support the referendum as well.

So if the courts do end up drawing lines, what would they look like? Insiders speculate that the courts could produce districts similar to those drafted in 1991, the last time the courts drew the lines. The 1991 lines were “community oriented, with limited splits of cities and counties, and very competitive districts,” says Johnson. But where court-drawn lines will actually end up is anyone’s guess. While much of the rest of the state might closely resemble the 1991 plan, in the Inland Empire, Johnson says “there’s been so much growth in this area that anything that actually resembles the 1991 lines is not a possibility.” Whether the public pushes for a plan from the courts, or sticks with the California Citizens Redistricting Commission, one thing is certain: California’s congressional delegation will likely be facing a major shakeup come 2012.

Census numbers revealed disappointingly low population growth for the state of California over the course of the past decade. With a population increase of 10.0 percent (4.5 million residents) since 2000, California barely managed to beat the national average of 9.7 percent. This marks the first time California did not gain a seat in the U.S. House of Representatives. The growth that occurred reflects a shift strongly inland from the coast, threatening to pull political power away from the traditional strongholds of San Francisco and Los Angeles.

California’s slow growth stands in sharp contrast to the Inland Empire’s robust expansion. Made up of San Bernardino and Riverside counties, the Inland Empire has seen considerable growth over the past decade. According to the 2010 Census, Riverside County’s population grew by an impressive 42 percent while San Bernardino County grew by nearly 20 percent. This growth brought the Empire’s total population to 4.2 million, a 30 percent increase over 2000. Even with Riverside County’s explosive gain of 42 percent, it failed to place near the top of the nation’s rankings for the fastest growing regions. The nation’s fastest growing counties were strongly concentrated in the southern United States and frequently reported population increases higher than 50 percent. Kendall County, Illinois, was the fastest growing county in the country and is the exception that proves the rule. It is located in northeastern Illinois (in the Chicago region) and saw its population increase by 110.4 percent in the last decade. Riverside County just makes the top 70 on the list of the decade’s fastest growing counties, placing 69th.

The population of Riverside County grew from 1,545,387 in 2000 to 2,189,641 in 2010, with most of the rapidly expanding cities along freeway corridors. On the 10 Freeway, Beaumont led with a 223.9 percent increase, with San Jacinto (85 percent) and Coachella (79.1 percent) also showing large gains. Murrieta (133.7 percent) and Perris (89 percent), on the 215 Freeway corridor, also had big population increases. Lake Elsinore (79.1 percent), and Temecula (73 percent) led the growth along the 15 Freeway.

In San Bernardino County the Victorville area was the center of significant growth. Victorville’s population increased by 81 percent, Adelanto’s by 75.2 percent, and Hesperia’s by 44.1 percent. Twentynine Palms grew by 69.7 percent, driven by increased military activity. Closer to Los Angeles, Fontana (52.1 percent) and Rancho Cucamonga (29 percent) both grew substantially.

As expected, the Hispanic population throughout the Inland Empire grew substantially while Caucasian numbers remained fairly steady, thus decreasing in the percentages. Hispanics now make up 49 percent of San Bernardino County and 46 percent of Riverside County, much higher than California’s statewide total of 38 percent, and the national average of 16.3 percent. African Americans now make up 7.6 percent of the Inland Empire while Asians make up 6.2 percent.

With substantial population growth came new and more inclusive district boundaries for the Inland Empire. These lines, drawn by the California Redistricting Commission (CRC), are a considerably shift from those of 2001. In 2001 the region’s Congressional representation was split, with western portions San Bernardino County placed in districts with Los Angeles County, and western Riverside County sharing districts with Orange and San Diego Counties. The CRC has adopted districts that stay almost entirely in the Inland Empire plus Pomona (Pomona-Ontario-Fontana, Redlands-San Bernardino-Rancho Cucamonga, Riverside-Moreno Valley-Perris, and so on). See New Maps, Big Changes for the Inland Empire in this issue for a detailed analysis of California’s new congressional districts.

State Senate and Assembly lines have also undergone changes, although not to the same degree. Key shifts in the state Senate include placing eastern areas of the City of San Bernardino in a Rancho Cucamonga-Lake Arrowhead-Highland-Redlands-Hemet-Menifee district, and the placement of Riverside-Corona-Moreno Valley into a single “Northwest Riverside County” district. The assembly lines maintain the Pomona-Ontario and Fontana-west San Bernardino districts. The 2001 Yucaipa – Apple Valley – Claremont – Glendale 59th District has been replaced with a district that appears only slightly less geographically creative as it climbs Mount San Antonio to link Rancho Cucamonga with east San Bernardino and Redlands. The Coachella Valley is divided between Assembly Districts, placing Indio/Coachella and Desert Hot Springs with Imperial County and the rest with San Jacinto, Banning and Twentynine Palms. The San Jacinto/Hemet area is split three ways: San Jacinto with most of the Coachella Valley; East Hemet with Wildomar and Murietta, and Valley Vista with eastern San Diego County. The CRC’s maps are finished but face legal and referendum challenges.

The first city in the nation to experiment with contracting was Lakewood, California in 1954. Lakewood, unincorporated at the time, faced aggressive, and unwelcome, annexation attempts from the neighboring city of Long Beach. John S. Todd, the former city attorney of Lakewood and father of what came to be known as the “Lakewood Plan,” describes the genesis of the modern contract city in his memoir: “I suggested…that Lakewood incorporate and contract with [Los Angeles] County for the performance of municipal services so as to avoid costly capital investment in buildings and other facilities…. This was the first time it had occurred to me that there was a method of incorporating and thereby preserving Lakewood’s identity, continuing county-type services, which the community had been receiving, and avoiding annexation to Long Beach.” This, then, was the beginning of The Lakewood Plan.” After Lakewood’s successful incorporation, many other cities began adopting variations on the Lakewood model.

In the Inland Empire today, many cities and local governments employ some variation of the original Lakewood Plan. Contract emergency services – police and fire protection – are the most obvious examples of services for which cities have recently received media attention, but everything from tree-trimming to traffic signal repair, to legal services can be outsourced. Some cities and counties are even outsourcing library services to private, for-profit companies.

Not only are the types of contract services varied, the partnerships themselves also take a number of forms. Cities can contract with other governmental entities such as counties or neighboring cities, special districts, and, of course, private sector companies. If a Care ambulance drives by, a Burrtec truck picks up trash weekly, or the county sheriff’s office responds to a 9-1-1 call, those entities are providing services under contract with the local government. In Lakewood, for example, the city hired Los Angeles County to provide a variety of municipal services. Riverside County similarly provides police services to seventeen incorporated cities and one tribal area. Nineteen cities contract with Riverside County Fire for emergency services.

“You contract for services because of economies of scale,” says Palm Desert City Manager John Wohlmuth. “You get all these ancillary services that, if you did not contract, you would have to supply as a city and use them very rarely.” Because it chooses to contract for services, Palm Desert, a medium sized city of approximately 50,000 people, has access to a SWAT team, DUI enforcement, hazardous material clean up crews, helicopters, and other specialty equipment that would not be cost-effective to provide in-house. Even more basic facilities such as public service yards and stations can be provided more efficiently when the cost is spread across different jurisdictions. As Wohlmuth says, “you don’t necessarily pay 100% for [these services], but when you need them, they’re there.”

There are examples of cities forced to take the contract model to an extreme. The city of Maywood laid off almost all its public employees in 2010. It kept only the city manager, city attorney, and the city council. It contracted with Los Angeles County to provide police protection and with its neighbor, Bell, for all other services. The city council took this action because Maywood had a budget deficit and found itself in the position of not being able to secure insurance due to a history of lawsuits, mostly against its police department.

Many cities fear a loss of identity if they no longer provide certain services. What is a city, some may ask, if it does not have its own police department, fire department, public works department, or finance department? The residents of Maywood, however, are not bothered by this. Following the wholesale change last summer, the New York Times reports that residents noticed an improvement in the delivery of services, felt safer, and were generally more satisfied with the way their community was governed.

It is hard to argue with the trend. “Residents and council people who have the responsibility for providing the best possible services they can and keeping their costs low, have looked at contracting because it is flexible and more economical,” states Sam Olivito, Executive Director of the California Contract Cities Association.

Cities and counties contract for a wide range of services. For example, Riverside County employs Library Systems Services, LLC (LSSI), a Maryland-based for-profit company to run its library system. LSSI replaced the City of Riverside, which had managed the County’s libraries for eighty-five years. It beat out competing bids from the Riverside County Office of Education and the San Bernardino County Library. Within the first year of the partnership the library system saw its operating costs decrease by $900,000 while its materials budget doubled. In a report released last year – thirteen years after Riverside County hired LSSI – the County cites many achievements including twenty completed construction projects, the implementation of six joint-use library facilities shared with local school districts, the creation of more than 100 new jobs, an increase in the book budget from $180,000 in 1997 to $2.6 million in 2010, and a 63 percent increase in the number of visitors each year.

An interesting aspect of the Riverside County/LSSI partnership is that LSSI offered employment to all existing library staff when it took over in 1997. The new LSSI employees received the same rate of base pay and accumulated vacation time as they previously held. They were given the option of participating in LSSI’s 401-K plan and other LSSI employee benefits. This removed some expensive aspects of their employment from Riverside County’s budget and gave LSSI more staffing flexibility than the County ever had. Many of the incumbent employees are still working for the library system, with more than fifty marking ten years of service with LSSI in 2008.

Sam Olivito insists that competitive bidding for government contracts drives down prices and that shifting potential liability to private sector firms can save cities in unforeseen future costs as well. He adds, “The beauty of contracting is its flexibility.” Cities are not responsible or additional future costs such as pensions and workers’ compensation for contract employees. And in tough economic times, it is easier for cities to scale back on the amount of services they provide. Wohlmuth agrees, “I can adjust contracts far easier than I can layoff employees and reorganize a city.” An additional benefit is that smaller full-time staffs reduce the bureaucracy within city governments.

There are, of course, disadvantages to the contract city model. Once a city decides to outsource a service, it must go through the difficult process of re-assigning or dismissing city employees. Also, contract workers may have responsibilities to clients in multiple jurisdictions, which can result in slower response times. For example, Palm Desert used to contract for traffic signal repair services, but, according to Mr. Wohlmuth, it took repair crews two hours to travel to the desert before they could start fixing a broken signal – a delay that was unacceptable to the city. Palm Desert recently chose to bring that service in-house in an effort to reduce response times.

Cronyism and corruption are also concerns, as these lucrative government contracts can lead to outsized profits for private sector companies (although these concerns are certainly not limited to public/private contracts). Olivito insists that this is not a problem so long as appropriate controls are implemented. Making the process open and transparent, he argues, is the way contracting should be done. But ensuring that the bidding process is always fair, balanced, and non-biased, is hard to guarantee. Moreover, successful contracting requires ample supervision and oversight on the part of the city.

One counter-intuitive result of contracting for services, however, is that cities who do so may wind up with little or no direct control over contract workers’ benefits. If the service provider decides to increase workers’ retirement plan, the contract city and the taxpayers have little control. In Palm Desert, “we don’t have a lot of say in what we think about those extra expenses or those contracts. So, the price has been creeping up because those benefits have been creeping up,” says Wohlmuth. One response to this is that the city could find another contract provider. “It’s a competitive world,” points out Sam Olivito.

Increased attention to public employee pensions and benefits is also driving interest in privatization. A steady stream of stories about bloated pensions from California cities such as Bell, Vernon, and others has resulted in intense scrutiny to benefit costs for all public employees. It is not then surprising that cities facing such pressures would seek to contract with private companies that may not be burdened by rich benefit programs. It is also not surprising that organized labor opposes this development.

Public employee unions are fighting against the wave of privatization. Camarillo, Santa Clarita, and Ventura are each contracting for, or considering outsourcing, library services to LSSI. According to privatizationbeast.org, a blog written by the Service Employees International Union, “Privatizing public libraries means libraries will be de-professionalized and residents will pay more and receive less, while LSSI makes a profit for its investors and shareholders.” The public employees are fighting back in the state legislature. On June 3, 2011 the California Assembly passed AB 438, a bill proposed by Das Williams (D-38), which would strip cities of the authority to outsource library services. “Elected officials and lobbyists in support of privatization tried to kill the bill but thousands of California residents made calls in support of AB 438 and it passed 41 to 28,” according to a blog written by the Southern California Public Service Workers. Having passed the Assembly, the bill has been introduced in the California Senate and referred to committee. The California League of Cities strongly opposes the bill on the grounds that it will tie the hands of local governments at a time when they need more flexibility, not less.

As with most debates, there are reasonable arguments to be made on both sides and the decision to contract ultimately rests with the community. Local governments that are focused on efficiency may prefer to contract for services. Others that value workforce stability, or have a strong union presence or history, may prefer the traditional in-house model. A multitude of exogenous factors might ultimately influence a city’s decision.

The Rose Institute of State and Local Government has begun work on a long-term, comprehensive study of contract services in California. Look for updated information at www.rosereport.org.

Redevelopment agencies are government subdivisions whose main goal is to reinvigorate and improve blighted, deteriorated, and economically downtrodden areas. Sixty years ago, the California legislature established a process whereby a city or county can declare an area to be blighted and in need of redevelopment. Thereafter, most property tax revenue growth from the “project area” is distributed to a newly created redevelopment agency rather than to other local agencies.

Once a community establishes a redevelopment project area, property tax revenue allocated to local government bodies is frozen at its current level, known as the frozen base. If the value of the property increases due to improvements to the redevelopment area or any other factor, than the amount of property tax revenue also increases. The amount of the increase above the frozen base is called the tax increment.

In many cases the use of redevelopment agencies has provided substantial benefits. For example, Riverside embarked on a housing redevelopment project in the city’s University neighborhood by renovating a 64-unit building rife with health and safety violations. Today, the Topaz and Turquoise housing complex has been substantially rehabilitated and is now a vibrant asset to the city, providing affordable housing for low-and moderate-income families. On the other hand, redevelopment agencies have also come under attack for subsidizing projects that would not ordinarily be considered “blight.” State Controller John Chiang’s audit of eighteen agencies found that Palm Desert’s redevelopment agency proposed to eliminate so-called blight by spending nearly $17 million on refurbishing a municipal golf club.

Establishing a redevelopment area is one of the easiest ways for local governments to raise significant money. This is because they are not constrained by some of the key accountability and transparency elements required of other local government bodies. Specifically, redevelopment agencies can incur debt without voter approval and redirect property tax revenues from schools and other agencies without voter approval or consent of the other agencies.

Tax increment revenues in California totaled $5.7 billion in 2008-09. Over the last three decades, redevelopment agencies’ share of total statewide property taxes has increased to 12 percent. In some counties, nearly 25 percent of all property tax revenue collected goes to a redevelopment agency rather than schools, community colleges, and other local agencies.

The current law allocates 20 percent of tax increment revenue to low- and moderate-income housing. Another 22 percent (on average) passes through to local governments and is distributed among counties, K-14 schools, special districts and cities. The remaining 58 percent of tax increment revenue is available for redevelopment activities. Controller Chiang’s office found significant flaws with the state’s redevelopment agencies. These include inaccurate audits, substandard reporting procedures and inappropriate use of housing funds. Supporters of redevelopment agencies argue that they reduce unemployment and promote long-term economic prosperity. However, the Legislative Analyst’s Office notes that there are no objective or standard performance measures to gauge whether these agencies do, in fact, promote job growth or generate significant economic returns to the taxpayers.

Under Governor Brown’s proposal, a local successor agency, most likely the city or county that originally authorized the redevelopment agency, would be responsible for managing the existing contractual obligations and paying the agency’s debts. Tax increment revenue would first go to the successor agency to retire the redevelopment agency debt and then to fund other local government services.

The Governor’s proposal assumes tax increment revenues of $5.2 billion in 2011-12. It allocates $2.2 billion to successor agencies to pay down redevelopment debt. It maintains the local pass through at $1.1 billion, approximately 21 percent, and adds another $210 million to local governments. However, the proposal also contains a one-time $1.7 billion dollar payment to the state in 2011-12 to fund trial courts and Medi-Cal. After the first year, any property tax revenues remaining after the successor agencies pay redevelopment debt would be distributed to other local governments in the county.

John Benoit

Brown objects that these changes will save the state approximately $1.7 billion—the amount of the one-time payment to the state—during the next fiscal year. The governor argues that California’s enormous deficit makes it no longer feasible to subsidize the work of redevelopment agencies.

Supporters of redevelopment agencies, however, fear that their elimination would be devastating to the California economy for a number of reasons. First, they argue that the eradication of these agencies will kill jobs and shift much of the fiscal burden on cities themselves. At a time when the state faces a high unemployment rate, they argue that the redevelopment agencies provide much needed employment. They also point to the use of redevelopment to improve many areas of the state through the revitalization of public infrastructure and commercial development, such as Riverside’s Topaz and Turquoise housing complex.

Further, because 20 percent of tax increment revenue must go to low- and moderate-income housing, redevelopment funds have been a significant source of revenue to local housing districts. It has been noted, however, that state audits and oversight reports have concluded that a significant number of redevelopment agencies take actions that reduce their housing program productivity, such as maintaining large balances of unspent housing funds, using most of their housing funds for planning and administrative costs, and spending housing funds to acquire land for housing but not on actual building.

The League of California Cities is also critical of the Governor’s plan, saying that it violates Proposition 22, which prohibits the state from reaching into local government funds. The League argues that the first year allocation of $1.7 billion to the state flies in the face of the 61 percent of California voters who passed Proposition 22 last November.

Governor Brown’s proposal has ignited opposition in the Inland Empire. With traditionally high unemployment rates, his proposal has significant impact in this area of California. Riverside County in particular is among the top ten counties in the entire state in redevelopment growth (first in the Inland Empire) and makes extensive use of redevelopment agencies.

Riverside County Supervisor John Benoit is a leading local advocate of redevelopment agencies and argues that they have helped revitalize economically depressed communities. “We have absolutely been able to use redevelopment agencies to ameliorate the unemployment problems. We have used RDA money to put 8,700 people back to work in Riverside County, particularly construction workers who were previously out of work,” Benoit said.

Benoit fears that if redevelopment agencies in Riverside and the Inland Empire are eliminated, it may require years to adapt to the change. “We’ve clearly made some dramatic improvements using RDAs; it’s a source of pride for us in Riverside, but it’s also in danger. The projects that have been completed have created long-term economic development so significant that it makes it hard to argue about the benefits of RDAs.”

Perhaps the biggest impact that redevelopment authority spending has had in Riverside is Mecca, a community of 5,000 Hispanic farm workers. A small area in Riverside County that had previously been severely impoverished, underdeveloped, and with over 40 percent of the population under the poverty line, Mecca used $50 million dollars of redevelopment money to vastly improve the lives of its inhabitants.

“There has been impressive work being done by the redevelopment agency in Mecca,” Benoit says. “Redevelopment has been used to build a medical clinic, library, sheriff’s station and a lot more that never would have been possible without RDAs.”

Redevelopment agency advocates acknowledge that eliminating them would provide a temporary improvement to the state budget deficit. Advocates hope to see an improvement of the redevelopment process and have developed compromise proposals to save redevelopment authorities.

A recent proposal put forth by Los Angeles Mayor Antonio Villaraigosa, suggests that the agencies could help the state borrow money in order to alleviate the budget deficit. The proposal calls for allowing the agencies to divert approximately $200 million a year to the state for 25 years, thereby allowing the state to finance a $1.7 billion loan to help reduce the deficit. In addition, the proposal would ask redevelopment agencies to divert more tax funds to pay for local services with $50 million going to schools annually.

Governor Brown’s proposed budget also targets enterprise zones—another popular local government program. Currently, there are forty-two enterprise zones throughout the state that offer special tax breaks and other incentives to businesses in designated areas to encourage economic development and growth. The tax benefits provided for most of these areas include a hiring credit, a credit for sales tax paid, a credit for employees who earn wages within the area, and a deduction for interest received from businesses in the area. The governor estimates that his proposal to eliminate all enterprise zone tax incentives will generate an estimated $343 million in 2010-2011 and $581 million in 2011-12 in additional tax revenues.

The enterprise zone program has grown remarkably since the legislature enacted it in 1984.The program started in 1986 with ten zones and expanded to forty-two by 2008. The average cost per zone increased from $48,000 to $11.1 million. The California Budget Project puts the cost of enterprise zone tax credits and deductions at $465.5 million in 2008, up from $657,000 in 1986. The hiring tax credit accounts for 58.7 percent of this cost, $273.5 million in 2008. Yet because the hiring credit is granted for new hires, rather than new jobs, companies can claim it without creating any new jobs. Critics argue that this rewards companies with high turnover rates more than those that create steady employment.

Governor Brown’s proposal sparked an outcry from local officials, legislators, and business leaders who have come to rely on enterprise zones as a tool for economic development. Californians for Jobs and Safe Communities is a coalition of local government bodies, statewide trade and industry groups, local and regional chambers of commerce, and businesses. It argues that eliminating enterprise zones is a tax increase on the more than 10,000 businesses in California currently benefiting each year and it strongly opposes such a move.

Assembly Member Manuel Perez’s Coachella Valley district is home to four enterprise zones. Perez acknowledges that there are problems with the program, but believes that the solution is to reform it, not to eliminate it completely. Perez has an alternative plan, the 2011 Enterprise Zone Reform Package, which would reform the program in several ways. Most notably his plan would phase out the 5-year hiring credit, replacing it with a 3-year credit. The new hiring credit would reward employee retention by increasing the amount of credit each year. It also would offer more accountability by designating “poor performing zones” for zones that have not demonstrated progress and tracks how local resources are spent on zone activities. The Perez proposal would check the unlimited expansion of zones and require enterprise zones to follow census tract boundaries. It also would raise the reporting requirements for claiming the hiring credit and limits the carryover of excess tax credits to 15 years.

Perez strongly supports these reforms because, under current laws, low-income populations in rural areas are treated differently than those in cities. “Too often, rural areas are not invited to the table and we tend to lose out to urban areas with regards to resources,” Perez asserts. He contends that the perception that the program is a wasteful form of corporate welfare is inaccurate, citing data to demonstrate that eneterpise zones have improved economic conditions in Indio.

Perez knows that accountability will be an important issue. “Another element of my reform legislation includes implementing measurements of success that over the course of time, will show numbers grow steadily in terms of variables such as how many jobs are being created in enterprise zones and how many people are getting off social welfare.”

Defenders of enterprise zones also argue that eliminating them would be unconstitutional. Marty Dakessian represents the Communities to Save Enterprise Zones coalition and strongly opposes Governor Brown’s proposal. “Governor Brown’s proposal violates agreements involving the state, local governments, and businesses lured to the zones by hiring tax credits, operating loss deductions, and other invectives.” He argues that repeal of the enterprise zone program violates the contracts and due process clauses of the United States Constitution and the contracts clause of the California Constitution.

Governor Brown’s proposal to eliminate redevelopment agencies and enterprise zones has sparked serious debate throughout the state. Inland Empire officials have come to rely on both as valuable economic development tools. They vow to fight both proposals.

In an area with a long history of ousting incumbents, it should not have been a surprise that San Bernardino County’s high desert region generated California’s only tea party victory in the 2010 Republican primaries. As the region’s weekly tea party meetings slowly grew from a handful of activists to mass meetings of 200 or more, Donnelly quietly worked to build his support in the race for the 59th Assembly seat. Yet his candidacy was largely ignored by the Republican Party, which focused its attention in the campaign on the three more traditional, establishment candidates: Chris Lancaster (son of former Assemblyman Bill Lancaster), businessman Anthony Riley, and Claremont Councilmember Corey Calaycay.

The perceived three-way race created the opportunity for a tea party surprise. When primary ballots were cast, the establishment candidates Lancaster, Riley, and Calaycay split 60 percent of the vote. But Donnelly’s 12,449 votes were enough to win—with the support of only 30.3 percent of the district’s Republican primary electorate.

59th Assembly District candidate Tim Donnelly

After the primary, Donnelly secured the support of his former Republican opponents. At a fundraiser hosted by Lancaster, Donnelly and Lancaster expressed similar conservative values. However, Donnelly claimed that he won the primary election because he knows how to step outside the establishment boundaries and defend the people. “I speak my mind,” Donnelly told the San Gabriel Valley Tribune. “I really don’t care who I offend, in terms of fighting for what is right— getting insane regulations out of the way of business, returning to a path of growth, scaling back our spending drastically.”

Donnelly, 44, is a native of Georgia who later moved to California where he graduated from U.C. Irvine. He is a small businessman who became an activist through his work with the controversial Minuteman movement. The Minutemen were formed in 2005 to monitor and combat illegal immigration at the United States-Mexico border, and to advocate for stricter border enforcement. That year, Donnelly formed a Minuteman chapter in California and lived for a month along the United States-Mexico border to protest what he believed to be negligent border security. His experience with the Minutemen earned him recognition and a leadership role within the tea party group.

An intriguing question is whether Donnelly is too far to the right for the 59th Assembly
District. As also happened in Delaware, Arizona, and Kentucky, the victory of a relatively
extreme tea party Republican launched speculation that the Democratic candidate
might have a chance at victory even in the heavily-Republican 59th Assembly District.
The district, which connects the foothill communities of eastern Los Angeles and San
Bernardino Counties then stretches into the high desert, has long been safe Republican
territory. Currently, 43 percent of the district’s voters are registered Republican, compared
to 35 percent Democratic, and 22 percent decline to state. But while the district is solidly
conservative and Republican, it is not monolithically so. San Bernardino County Democrats
are still celebrating their recent surge in voter registrations (which gave Democrats a 39.3
percent to 38.3 percent edge countywide), and President Obama defeated John McCain
in the County by a margin of 52.1 percent to 45.8 percent in 2008. In the 59th District,
McCain defeated Obama by less than five points—51.4 percent to 46.6 percent.

The fate of the district’s incumbent, Anthony Adams (R-Hesperia), highlights the district’s
conservative orientation. Adams, a conventional conservative and political insider, won by
a comfortable 51 percent to 41 percent margin over his Democratic opponent in 2008, but
became vulnerable to attacks from the right when he supported a state budget compromise
that included tax hikes. Adams had previously pledged not to support tax increases and he
paid a price for breaking this pledge. Talk radio hosts and other activists derided Adams
for departing from conservative orthodoxy and formed a drive to recall him from office.
Although Adams barely avoided a recall election in 2009, he decided not to seek reelection
in 2010—thus opening the door for Donnelly’s insurgent campaign.

In the November General Election, Donnelly will face Democrat Darcel Woods. A Pomona native, Woods is a community college professor and former Los Angeles County Sheriff’s Deputy. Woods has attacked Donnelly’s fitness for the office. She has seized on a media report that that Donnelly has voted in only 13 of the last 30 elections. “He’s touting himself as a patriot, as…someone who is concerned about his country and his state,” she told the Inland Valley Daily Bulletin. “If that’s the case, why wouldn’t he have been taking an active part and been actively participating in voting? Patriots are active in the process of making decisions.”

California's 59th Assembly District

It is unlikely that Donnelly’s uneven voting history will harm his candidacy in a year when populist outsiders are thriving. The more salient question is whether a candidate with Donnelly’s activist background and political views will win election in a district that is solidly, but not overwhelmingly, conservative. As noted above, the San Bernardino County portion of the district has a long history of electing outsiders and rebels. Those factors, combined with the heavily Republican tilt of independent voters and the much higher motivation levels among Republicans in 2010, make it a safe bet that Donnelly will prevail. If so, the Inland Empire will have contributed to a national phenomenon by sending a tea party representative to the California Legislature.

SD-37

California’s State Senate District 37 encompasses most of Riverside County, including the Coachella Valley. The district starts in Norco and Corona, swings south to include Lake Elsinore and Perris, north to Moreno Valley, eastward through Hemet, San Jacinto, Calimesa, Beaumont, and Banning, and then continues into the Coachella Valley cities of Desert Hot Springs, Palm Springs, Rancho Mirage, Palm Desert, Indian Wells, and La Quinta. To the East, it extends all the way to the Arizona border. The district’s population in the 2000 Census was approximately 8 percent African American and 31 percent Latino. According to Secretary of State’s most recent Statement of Registration, the district has 462,132 registered voters—37 percent are registered Democrats and 41 percent are registered Republicans, 17 percent are decline to state and 5 percent are registered with minor parties. Latino voter registration has increased by 4 percentage points since 2007, and is now 23 percent, according to the California Target Book.

After John Benoit resigned in November 2009 to become a Riverside County Supervisor, candidates scrambled to prepare for the special election. The first Republican to declare his candidacy was Assemblyman Bill Emmerson (AD-63). Emmerson’s Assembly District is in San Bernardino County and he faced charges that he was running as a carpetbagger in the Riverside County Senate District. (Emmerson switched his voter registration from Redlands to Hemet shortly after Benoit was appointed to the Riverside Board of Supervisors.) Emmerson’s leading opponent was former Assemblyman Russ Bogh. Bogh had lost to Benoit in the 2008 GOP primary. This time, Emmerson defeated Bogh by a 42-22 percent margin. On the Democratic side, Justin Blake, a member of the Palm Springs USD Board of Education, emerged as the leading candidate with 14 percent of the vote. Emmerson, Blake, and American Independent candidate Matt Monica now advance to the run-off.

Although the district leans Republican, it is not a completely safe for the GOP. President Barack Obama won this district by 2 percentage points in 2008. Democrats also have a plurality in some key cities in the district. Of Moreno Valley’s 64,114 registered voters, 49 percent (31,425) are registered Democrats compared to the 29 percent (18,733) registered Republicans. In Palm Springs Democrats are 49 percent (11,037) of the district’s voters, while Republicans are 31 percent (6,956). Nevertheless, Emmerson is favored to win the run-off.

AD-36

The 36th Assembly District joins the Los Angeles County cities of Lancaster and Palmdale with the San Bernardino County cities of Adelanto and Victorville. The district’s population is approximately 52 percent white, 30 percent Latino, 12 percent African American, and 3 percent Asian. Latino voter registration increased by 5 percent to 25 percent between 2007 and 2009.

Although this district has been controlled by the GOP since its creation in the 2001 redistricting, the 2008 General Election saw a surprisingly close race. In 2008, Republican Stephen Knight beat Democrat Linda Jones, 52 percent-48 percent. Although Knight’s campaign believes the close call was due to its minimum effort, Jones garnered a large percentage of the vote despite spending less than $50,000.

Three Democrats will be on the primary ballot. Linda Jones has filed again, as has her competitor in the last Democratic Primary, Maggie Campbell, who lost to Jones 80 percent-20 percent last time. The new candidate is Shawntrice Watkins, an LAPD officer.

The general election could be competitive. Latino and Democratic registrations have increased, leaving Republicans with only a 138 voter advantage among registered voters in January 2010. Three of the four cities in this district have a Democratic plurality. Registered Democrats have a plurality in Palmdale, 44 percent to 35 percent, in Adelanto, 49 percent to 25 percent, and in Victorville, of 43 percent to 33 percent. In Lancaster, Democrats make up 39 percent of the registered voters while Republicans have a slight plurality with 40 percent of the registered voters. Decline to State voters, who comprise 17 percent of the district’s registered voters, will decide the winner of this Assembly District in November.

AD-59

California’s State Assembly District 59 is split almost exactly in two between 123,000 registered voters in San Bernardino County and 127,000 registered voters in Los Angeles County. In Los Angeles County, the district includes the cities of Bradbury, Claremont, Glendora, Hesperia, La Verne, Sierra Madre, a small portion of Arcadia, and most of Monrovia, San Dimas, La Crescenta-Montrose, and the Angeles National Forest. In San Bernardino County, the district includes the town of Apple Valley and the City of Hesperia, as well as a portion of Highland, a small portion of the city of San Bernardino, and the San Bernardino National Forest, including Lake Arrowhead and Crestline. The district’s population in the 2000 Census was 65 percent Caucasian, 5 percent African American, and 21 percent Latino. As of January 2010, the district has 249,810 registered voters, 35 percent of which are registered Democrats and 43 percent are registered Republicans. In the 59th Assembly District McCain outpolled Obama in the 2008 Presidential Election 51 percent to 47 percent.

Conservative activists attempted to recall the incumbent, Anthony Adams (R-Hesperia), following his vote for the budget bill in 2009, but they failed to qualify the recall for the ballot. Following the recall controversy, Assemblyman Adams decided not to seek reelection. Five Republicans have entered the race for the GOP Primary. Ken Hunter, Michael Rogers, Corey Calaycay, and Chris Lancaster, Anthony Riley, Iver Bye, and Tim M. Donnelly have all submitted Statements of Intention. In the 2006 Republican primary, Christopher Lancaster lost to Adams despite spending nearly $200,000, $100,000 of which was his own money. Nevertheless, Adams won by a nearly two-to-one margin, 5,584 votes for Lancaster and 10,997 for Adams. As of March 24, 2010, Lancaster had spent $56,111 on the 2010 election and still has $70,513 cash on hand. The other Republican candidate to have reported funds is Claremont City Councilmember Calaycay, who spent $18,681 by March 24 and has $54,416 cash on hand.

The Democratic candidate is Darcel Woods, an instructor at Chaffey College. As of March 24, 2010, Woods had spent only $4,304 and had only $5,825 cash on hand.

Although this district has traditionally been fairly safe for Republicans, GOP registration has decreased by 5 percent since 2002, from 48 percent to 43 percent. Yet Republicans maintain an 8 percent advantage over Democratic registration. AD 59 promises to be one of the most competitive June primaries in the state, but is expected to stay safely Republican in November.

SD-32

The 32nd Senate District consists of cities in San Bernardino County plus Pomona in Los Angeles County. It includes Montclair, Ontario, Fontana, Rialto, Bloomington, Muscoy, 80 percent of the city of San Bernardino and 89 percent of the city of Colton. In the 2000 Census, the district was 59 percent Latino, 12 percent African American, and 4 percent Asian. Since 2007, Latino voter registration in this district has increased by 8 percent, reaching 48 percent in 2009. The overall voter registration also increased from 289,860 total voters in 2006 to 302,105 total in 2009. Registered Democrats increased from 48 percent to 51 percent in January 2010, while registered Republicans decreased from 33 percent to 27 percent.

The Democrat Gloria Negrete McLeod ran unopposed in the 2006 General Election for this seat, and if she wins this year, she will not be termed out until 2014. McLeod was first elected to the Assembly in 2000 and termed out in 2006, when she won this Senate seat. For this upcoming election, McLeod has a huge war chest, with over $943,000 cash on hand. Compared to Senate District 37 and Assembly Districts 36 and 59, Senate District 32 will be quiet this election year. With this large sum at her disposal, however, McLeod is rumored to be running against San Bernardino County Supervisor Gary Ovitt next year. She denies any such plans.

To help assess the prospects for growth and investment in the Inland Empire, we have developed two new economic indices specific to the region. Our Inland Empire Coincident Economic Index (CEI) provides information about the current state of the economy, and our Inland Empire Leading Economic Index (LEI) seeks to predict future economic conditions (p. 2). There is no question that the Inland Empire will continue to struggle to recover. Commercial real estate vacancy rates have been rising (p. 12) and trade volume has been decreasing (p. 14). However, the indices we are developing will help businesses position themselves for the region’s eventual recovery.

Turning to the public sector, we discuss how the City of Riverside, the Inland Empire’s largest city, is seeking to maintain innovative policies during a period of reduced revenues (p. 8). Under Mayor Ronald Loveridge’s leadership, Riverside has continued to make strategic investments in infrastructure, technology, the environment, and the arts. Meanwhile, some of the region’s Native American tribes, including Agua Caliente, are seeking to diversify their business enterprises to sustain future growth (p. 18), and candidates for the California state legislature in Inland Empire districts are debating how to promote economic recovery (p. 20).

The publishers of Inland Empire Outlook are also looking to the future. The Rose Institute of State and Local Government and the Lowe Institute of Political Economy have recently launched the Inland Empire Center for Economics and Public Policy. The new center is designed to provide the Inland Empire with expert analysis of the region’s political and economic trends. In one of its first ventures, the center has formed a partnership with the UCLA Anderson Forecast, California’s premier economic forecasting organization. This affiliation will combine the experience of the UCLA Anderson Forecast with the Inland Empire Center’s specialized knowledge of the region. As part of this collaboration, the Inland Empire Center and UCLA Anderson Forecast plan to co-host conferences featuring topics of special concern for the Inland Empire at local venues in San Bernardino and Riverside counties. The conferences will help establish the UCLA Anderson Forecast/Inland Empire Center partnership as the preeminent source for economic and political analysis of the region.

The City of Riverside serves as the unofficial capital of the Inland Empire. Founded in 1870 and incorporated in 1883, Riverside has long been the Inland Empire’s most populous city, the seat of government for Riverside County, and a major supplier of jobs for the region.

Riverside is also the Inland Empire’s largest center of higher education. It is home to several colleges and universities, including the region’s University of California campus. U.C. Riverside is the city’s largest economic and cultural asset—a research and teaching center with nearly 20,000 students and a large, highly-educated faculty and staff. UCR will soon provide the city another major asset when it opens a new medical school in 2012—the first new public medical school in California in over forty years. In many ways, the region’s future is tied to the fate of this important city.

An Innovative City

Riverside is led by Mayor Ronald Loveridge, a UCR political science professor who first won election to the city council in 1979 and rose to the office of mayor in 1994. During Loveridge’s tenure, Riverside has pursued an ambitious plan to distinguish itself from its regional neighbors. Most notably, the city launched a program called “Riverside Renaissance”—a massive $1.57 billion, 5-year investment in public works, utilities, parks, libraries, and other projects. In his 2010 State of the City address, Mayor Loveridge asserted that “we are on track to complete more [infrastructure] projects in five years than were completed over the last 30. I know of no city in California, or elsewhere, with such an ambitious ‘bricks and mortar’ program.”

Mayor Ronald Loveridge

In addition, city leaders have sought to establish Riverside as the region’s center for arts and culture. As part of its capital investment program, the city recently completed a $32 million restoration of Riverside’s historic Fox Theater, now a 1,600-seat Center for the Performing Arts in the heart of the city’s downtown district. While some have criticized the city’s large expenditure on this project, Loveridge has defended it as “Riverside’s signature statement as a City of Arts and Innovation. It is our commitment to artistic excellence and audience enjoyment, for the City, the Inland Empire, and all of Southern California.”

Riverside has also won recognition for its innovative environmental policies. The California Department of Conservation has named Riverside as the state’s first “Emerald City”—a distinction based on Riverside’s commitment to environmental sustainability. To win this recognition, Riverside has committed to pursue specific goals in areas including renewable energy sources, waste management, land use, construction, and transportation. While other California cities such as Santa Monica and Berkeley have pursued environmentally-friendly policies, Riverside stands out as a green city in a red region.

At the same time, the Riverside has sought to position itself as the region’s technological leader. The city has launched the SmartRiverside program, which seeks to attract tech-sector businesses and improve residents’ access to computers and the internet. Through one initiative, the city has worked to close the “digital divide” by soliciting donations of used computers, refurbishing them, and providing them free of charge to low-income families. Riverside also has been a pioneer in establishing a free wi-fi network that provides internet access to most areas of the city. In recognition of these and related projects, Riverside has been selected as one of 21 cities around the world to receive the Smart21 Communities Award.

The Recession’s Impact

Riverside launched much of this ambitious agenda during the recent economic boom, when rising tax revenues filled the city’s coffers with plentiful resources. More recently, Riverside has been hit hard by Inland Empire’s economic bust—the horrific combination of home foreclosures, business failures, and job losses. As a consequence of the recession, the city’s official unemployment rate has neared 15 percent, and property values in the county as a whole have dropped 10.5 percent—the largest decline in county history.

The economic downturn has had a direct impact on Riverside’s finances. Like most cities in California, Riverside raises general fund revenues primarily through state subventions and local levies. Tax levies account for nearly two-thirds of Riverside’s general fund revenues. Within that amount, 35 percent comes from property taxes. This means that more than one out of every five dollars in the city’s general fund comes from property taxes.

Under this revenue structure, the local real estate market greatly affects the city’s income stream. When the recession shocked real estate prices, reductions in property values resulted in lower property tax revenues. High unemployment rates compounded the problem, as declines in disposable income reduced consumer spending, which in turn reduced the flow of sales and use taxes to the city.

California’s severe state budget crisis only made things worse. To patch massive holes in the state budget, the legislature has reduced the funds it normally allocates to local governments. In 2008-2009, for example, the city of Riverside relied on the state to provide 9 percent of its budget revenue. After Sacramento’s 2009 cuts, the Riverside city budget showed that the amount was cut by nearly 5 percent.

Overall, in 2009-2010, the city of Riverside lost over $17 million in general fund revenue. This sharp decline made it impossible for the city to avoid cuts in services.

Last year, the city council made many hard budget choices. It cut allocations to the Riverside Public Library by 19.86 percent; to Parks, Recreation, and Community Services Department by 15.11 percent; to general government by 10.43 percent; and to the police department by 4.56 percent. As part of the reductions, the city eliminated over 16 net full time equivalent positions, and limited authorizations for additional staffing.

Yet, in an interview with Inland Empire Outlook, City Manager Brad Hudson asserted that Riverside has been able to minimize cutbacks and even expand some investments in quality of life thanks to smart fiscal planning and management. He noted that Riverside was able to draw on its budget reserves and tap into revenues from other sources.

Over the years, Riverside has been disciplined in setting aside some of its current general fund budget as a reserve to be used in times of fiscal crisis. In the current fiscal year, the city was able to use over $2 million of its cash on hand to supplement the general fund and buffer against the decline in other sources of revenue.

The city also shifted revenue from profitable sources using interfund transfers, or transfers from one city fund to another city fund. Most importantly, the city reallocated income from Riverside Public Utilities, which has seen increasing revenues in recent years. Riverside Public Utilities has been able to maintain steady returns by providing competitive rates to residential customers and discounted commercial rates to large power users. Earnings from Riverside Public Utilities traditionally feed into the city’s electric and water funds. Last year, however, thanks to fund surpluses, the city was able to move $32.5 million in utility revenues to the general fund.

These moves have allowed Riverside to avoid the draconian cuts now facing many other cities in the state and, at least in the short term, to make ongoing investments in environmental policies, technology, and the arts despite the economic downturn. Riverside hopes that by sticking to its strategy of building a green, high-tech metropolis with a range of cultural amenities, it will attract new businesses, generate jobs, and emerge from the recession more securely positioned as the Inland Empire’s leading city.

The Coachella Valley is home to five tribes—Agua Caliente Band of Cahuilla Indians, Augustine Band of Mission Indians, Cabazon Band of Mission Indians, Torres-Martinez Band of Desert Cahuilla Indians, and Twenty-Nine Palms Band of Mission Indians.

Through development of casinos and other businesses, these tribes have contributed to the economy of the Coachella Valley. But the gaming industry has been hit by the current economic downturn. In 2008, revenues from tribal casinos in California were $7.3 billion, a 6 percent drop from 2007. Inland Empire Outlook met with Tom Davis, the Chief Planning and Development Officer for the Agua Caliente tribe, to discuss how the recession has affected its enterprises.

The Agua Caliente Band of Cahuilla Indians is a Palm Springs-based tribe with approximately 400 members and land covering 31,500 acres. The tribe launched its gaming business in 1995 when it opened its first casino in a tent in Palm Springs. Over the past 15 years, Agua Caliente’s business operations have rapidly expanded to include two casinos, two hotels, a golf course, and a concert center. The Agua Caliente Casino in Rancho Mirage is a large operation, with over 45,000 square feet of gambling space, a 16-story hotel, and the convert venue called The Show. The tribe’s other casino, the Spa Resort Casino, is located in downtown Palm Springs.

After more than a decade of rapid expansion, Agua Caliente, like other casino operators, is facing an uncertain period: fewer people are going to casinos, and those who do are spending less money. This softening demand is making it difficult for casinos to expand. Although Agua Caliente has the option to open a third casino or to renovate and further expand the existing Agua Caliente Casino, the tribe is currently not moving forward with either plan. Page

Agua Caliente and other casinos close to Los Angeles have not been hit as hard as those in Las Vegas or the fringe casinos in Reno. According to Mr. Davis, Agua Caliente has benefited from its unique market position as a destination resort that is an affordable option for Los Angeles residents. Coachella Valley casinos offer a comparable experience to a Las Vegas casino, but since they are closer to Los Angeles, they are a less expensive to travel to and are able to draw customers in the current economy.

In the longer term, Agua Caliente’s casinos also stand to benefit from several new expansion projects, including the I-10 Bob Hope Drive/Ramon Road interchange construction project in Palm Springs. This project is estimated to cost around $35 million. The federal government is covering the majority of the construction costs through the American Recovery and Reinvestment Act of 2009. The new interchange will help decrease traffic congestion and thus help increase the revenue stream that the I-10 provides into the area. Agua Caliente is also investigating initial plans to build an open-air retail center on the west side of the I-10 Bob Hope Drive interchange.

By diversifying into other industries and engaging in new construction projects, tribes hope to minimize the impact of diminished casino revenues. Mr. Davis believes that diversification will be important for long-term sustainability for the Agua Caliente. “We have only been diversifying for about 10-15 years. Because of this, our investments were not enough to insulate us greatly from this economic downturn,” said Mr. Davis, “but as our current projects are further developed and grow to their full potential, they will be able to act as a buffer against a bad economy in the future.” 

The tribe has already started diversifying in several ways: it owns leases on over 570 residential properties, two golf courses, and various other non-gaming related real estate. The tribe is dedicated to further diversification, particularly in the area of green technology, including wind power and industrial research. Agua Caliente is also in the process of developing more residential properties, the biggest of which is the construction of 100 town homes in the Village Traditions neighborhood. So far, the tribe has finished the first stage of construction with most of the completed units already sold. In addition, the tribe is hoping to develop homes in the Alexander Village Development, which aims to reproduce classic Hollywood homes from the 1950s and 1960s within a 21-acre community.

According to Mr. Davis, sustainable growth through diversification reflects the tribal “seven generations”  principle by which current leaders keep future generations in mind.