How do we adapt to the economic crisis?

October has been the worst month for the stock market since 1938. Yesterday, the government announced that the Consumer Confidence Index had plunged to its lowest level on record.

It is too soon to project how much our revenue will be reduced this year. But the grim national and global economic news makes it increasingly obvious that local governments must not only make short-term reductions in spending this year, but will also have less available to spend for at least the next two years.

Back on March 19, in the aftermath of the collapse of Bear Stearns, I initiated a number of immediate steps to reduce costs, accelerating efforts already underway to trim our budget. In response, our citywide team effort produced $5 million savings below our budget by June 30. That paid off - because our revenue during the fiscal year that ended June 30 was also $5 million below budget, meaning we just barely broke even.

The national and world economies are now in much worse shape. Once again, we are going to have to take appropriate action - first, to reduce spending this year and second, to make adjustments so we can balance our budget during what most expect will be a recession that will last at least two years.

We've already seen $10 million of our $130 million investment portfolio put at risk by the bankruptcies of Lehman Brothers and Washington Mutual. Since we only have first quarter numbers for the fiscal year that began on July 1, we have only sketchy data on what impact the market meltdown will have on our revenues for the rest of the year. But obviously it will be severe.

While we will obviously be affected, Ventura does have some advantages. UC Santa Barbara economist Bill Watkins told the Chamber earlier this year that our job base is more stable than many formerly high-flying communities. Conservative local watchdog Bob McCord shared with me his thoughts: "Ventura has all of the attributes that the next generation will want. Next to the sea, good weather, near to Santa Barbara, a good place to raise families and far enough from LA to avoid their problems."

We've also been ahead of most public organizations in facing up to the severity of this test for months. Not only did we reduce expnses by $5 million below last year's budget, we cancelled or postponed an additional $2.5 million in capital projects and planning efforts. The City Council adopted $4 million in expense reductions in this year's budget -- and the Council Ad Hoc Budget Committee has been working since August on a "Plan B" budget in case further reductions are necessary.

It is vital that we continue to take responsible and collaborative steps to address the economic situation. We will communicate fully and regularly about each step--this will be an open and transparent partnership with our Council, staff and community.

By again moving forward decisively, we will courageously confront our challenges and overcome them. There is a sobering analysis circulating on the web, a copy of a Powerpoint presentation prepared for its clients by one of the most respected Silicon Valley business consulting firms. Its central point is: don't wait too long to make adjustments. This is not a time to panic. But given the scope and severity of this crisis, it is also not a time to "wait and see."

We'll get through this. But not by ignoring it and hoping it will go away. We'll thrive in the long run by acting now, together, to make hard, but vital choices.

A new climate?

Today the Dow closed down over 700 points, the presidential candidates face off for their last debate tonight and we continue to live in "interesting times." In addition to the global financial meltdown, there’s the collapse of the State budget. These crises have pushed the rising costs of energy, food and housing off the front burner. We’re hearing less about climate change, although the planet continues to heat up inexorably, even as China keeps building coal plants.

National polls are showing nine out of ten Americans feel the country is on the wrong track, a record level. But in the frenzy of around-the-clock media noise leading up to the November election, we may lose perspective that solving fundamental crises isn’t going to be achieved overnight. We didn’t get into these messes overnight and we won’t overcome them in the first 100 days of the next administration.

And, although the scope of our challenges is increasingly global, there is significant leverage here at the local level to make a difference.

What happens at G-7 summits and in Washington and Sacramento (and Beijing, Baghdad and Paris) affects our lives. But what we do every day not only affects our community, it is a piece of the much larger picture.

I’ve often talked about Ventura’s opportunity to be a “national model.” The goal is not to boast or seek recognition for its own sake, but rather to set a positive example. It elevates our sights, broadens our perspective and can inspire us to stretch toward our better selves.

At the global and national level, frantic efforts and a gargantuan amount of money is now being directed to prop up the collapsing pillars of our national and global economy. But here at the local level, our work should increasingly be focused on the next economy – one that moves away from the unsustainable reliance on borrowing money for a high-consumption way of life.

We’ve put significant emphasis on becoming more accountable as a city government. We've emphasized the theme of “change” – one we are hearing nearly incessantly now at the national election. It is at the local level that we can define and shape change in a positive direction: wellness, waste reduction, energy and water conservation, accountability, community policing, smart growth, etc.

We can’t control the planet, the nation or the state. But we can influence them by what we do in Ventura. A century ago, Booker T. Washington confronted the brutal racism against African-Americans in the south with practical advice: “Cast down your buckets where you are.” Historians still quarrel over the politics of that strategy, but there is no question that we can lay the foundation for a better future by what we do today, right here with the tools we have at hand.

Over the next few weeks, I welcome a dialogue led by our elected leaders on how Ventura will adapt to the tough economic times and how our city government will rebalance the dissonant expectations of those who want to preserve services and those unwilling to pay for them. The climate is changing in so many ways. As the book Good to Great advises, we need to confront the brutal facts of the new world we are going to be living in, without ever losing hope that we can find ways to thrive in it.

The long road to recovery

American and world investors are heaving a sigh of relief at this morning's strong stock market recovery. After a sickening 42% drop from last year's market peak, the Dow Jones this morning surged back over 9,000.

It is not over yet. Just last Friday, the Dow swung an unprecedented one thousand points in a single day's trading. There will be more bad news as the credit crisis continues to ripple through the economy with mounting job losses and bankruptcies. But for now panic has abated and free fall in the markets has been halted.

This pause should give an opportunity not only to assess what went wrong, but to think clearly about how to move forward. "Rescuing" an economy in crisis is different from curing an economy of unsustainable practices. We spent too much on the wrong things and we will be paying for it for a long time. The solution is not to artificially reflate the bubble with borrowed taxpayer money, but to build a new foundation under our nation's economy.

No where does this make more sense than in the real estate market where this crisis originated. Not only did unscrupulous banks and brokers lend to people who couldn't afford the loans, banks and institutional investors bankrolled unsustainable sprawl development that has cratered, virtually freezing new housing development, especially here in California.

New urbanist author and Oceanside city planner Peter Katz has a thoughtful blog column on the subject here. He lays out a familiar critique of the folly of endless tracts of new homes at the far fringe of metropolitan areas, subsidized by massive public investment, especially in highway construction. He raises the provocative question of whether this pervasive "market failure" doesn't call for tougher national standards to protect the taxpayers who are paying for the $700 billion plus "bail out":

"Maybe it’s time, even as the billions of bailout dollars flow, for official Washington to get tough. It’s emerging as lender of last resort, asset manager for the wounded American taxpayer, assuming the responsibility for thousands of toxic mortgages on property that more diligent local planners might never have allowed to be built. So why could Washington not advocate — maybe even require as a price for the potential subsidies and loan insurance it may offer — compliance with planning rules aimed at promoting more economically robust, resource-efficient communities?"

Neither of the presidential candidates has addressed the underlying unsustainability of suburban sprawl. But any comprehensive effort to restore our economy must ask the question: are we going to invest massive taxpayer subsidies in propping up an unsustainable pattern of growth or are we going to direct those subsidies toward a more sustainable future.

Building houses no one can afford out where driving fuels our dependence on foreign oil, aggravates global warming and undermines the health of American children and families is not sustainable. Before we get back to lending money in the real estate markets, public policy must change to ensure that money is invested in a better -- and more prosperous -- future.

Meltdown?

Back on March 17 on this blog, I expressed concerns that the worldwide financial system "now appears in danger of collapse." On a day when the Dow Industrial Average closed at 11,972, I wrote: "The Dow dropping below 9,000 before President Bush leaves office is no longer an implausible prospect."

Today, of course, the Dow continued its march toward that grim milestone. Last week's historic $700 billion "bail-out" failed to halt the global slide in confidence in the financial markets. The impacts are radiating out and affecting the lives of every American.

No one knows what comes next, except that things are going to get worse before they get better. The meltdown on Wall Street has put in jeopardy $10 million of Ventura's conservatively-managed investment portfolio. Our AAA-rated bonds issued by Lehman Brothers and Washington Mutual are now of uncertain value in the wake of the bankruptcy of both firms. How much will eventually be recovered is simply unknowable at this time, although the Federal "bail-out" bill does have some provisions that may assist public agencies across the nation that have encountered similar or worse problems.

It is important not to overreact. Since March, Ventura has taken decisive action to trim our budget, making $4 million in cuts and preparing for even deeper revenue reductions this year. We've also postponed or cancelled several million more in capital projects. But even in tough times, we must continue to adequately serve our community and invest in the future by maintaining our vital infrastructure, including our streets, water and sewer systems.

With the presidential election just a month away, one thing is certain: the next president will take office in January facing the most difficult economic challenge facing the nation since Franklin Roosevelt in 1932. With the nation running all-time record deficits and with California not certain it can even pay its bills without a loan from the federal government, we will continue to work responsibly at the local level to live within our means and do our best to cope with global forces beyond our control.