Bill Simon
Republican Candidate for State Treasurer

Interview by Leon Worden
Signal Multimedia Editor

Sunday, August 7, 2005
(Television interview conducted July 21, 2005)

Bill Simon     "Newsmaker of the Week" is presented by the SCV Press Club and Comcast, and hosted by Signal Multimedia Editor Leon Worden. The program premieres every Wednesday at 9:30 p.m. on SCVTV Channel 20, repeating Sundays at 8:30 a.m.
    This week's newsmaker is Bill Simon, a Los Angeles investment banker who is seeking the nomination for California Treasurer in the June 6 Republican primary election. Questions are paraphrased and some answers may be abbreviated for length.

Signal: You ran for governor in 2002 and came within 5 points of the incumbent, Gray Davis. You had never sought political office before, right?

Simon: That's right.

Signal: Why are you moving "down" to a race for state treasurer now, instead of challenging Tom McClintock for lieutenant governor?

Simon: Because treasurer is a great job. It's where you can make an impact on the state. When I ran for governor I saw a good path to making substantive change, and now I think (Gov.) Arnold (Schwarzenegger) is doing a great job. I don't see a reason to challenge him. Lieutenant governor is a nice position from a title standpoint, but I think it's more ceremonial than substantive. I think treasurer, controller, insurance commissioner — I think these are jobs that have real meat on the bone.

Signal: Plus, you know a little bit about money.

Simon: I do. I have spent 30 years in the investment business. I've got a good track record and a lot of experience in investing.

Signal: It's early in the game, but in terms of campaign finances, you're 10-1 over your nearest competitor in the GOP primary — Keith Richman, our assemblyman. The polls might not mean much right now, but you're at something like 55 percent while everybody else is languishing at less than 10 percent. It looks like there's Bill Simon, and there's everybody else. Are you looking past the primary now and focusing on the general election?

Simon: I don't like to look beyond any contest. I was an athlete in college and high school, and I was taught: Don't look beyond your immediate opponent.
    I would never sell Keith Richman short. You're right, the polls are right that show me ahead by a wide margin, in great part because I've got great name ID coming out of the governors race. My ID is still very high at 82 percent in a general election; in the primary it's 95 percent. So I think they have a lot of catching up to do. They'll have to spend an awful lot of money — millions of dollars to get that kind of name ID. So I'm confident (but) I'd like to think I'm not overconfident. But it's still (the) early days.

Signal: In 2002 you were labeled the "conservative" Republican candidate for governor, versus Dick Riordan, the "moderate" Republican. Republican voters chose the conservative over the moderate; the conservative went on to lose to the Democrat. This time it's Bill Simon the conservative Republican and Keith Richman the moderate Republican; the winner faces Bill Lockyer, the Democrat with plenty of name identification as the sitting attorney general. Why will the outcome be different this time?

Simon: Well, a couple of things. The first, when you noted at the top ... when I ran against Gray Davis, I lost by 5 points in a state where there are 12 percent more Democrats than Republicans. Although that was the case at that time, 2002, I was also outspent 3 to 1. I still came within 5. This time I will not be outspent 3 to 1, first of all.
    Second, it's very important, who's up at the top of the ticket. It's well known (that) whoever is at the top of the ticket, either Republican or Democrat, really can help or hurt people who are farther down the ticket.
    So now we talk about how we have a Republican governor, and I believe Arnold will make a good comeback. In the next 12 months, I think that history will show you that at midpoint in anyone's first term, they have taken a few shots on the chin — and that's what has happened to Gov. Schwarzenegger in the last six months. But I think he is going to make a roaring comeback...
    I think the way this election is set up, next year, in the general election, if I'm fortunate enough to have the nomination, I think that Bill Lockyer will be a tough opponent — but I think we'll beat him because we'll have a strong top of the ticket. Because I'll be able to match Lockyer at least dollar-for-dollar, if not outspend him.
    So for those principal two reasons, I think I'm going to beat him.

Signal: As you said, you don't look past the next contest, and for Schwarzenegger that's the Nov. 8 special election. He's got to get through that one before he gets to the primary. Do you think he will have some coat tails for you to ride?

Simon: I do. I think so, and I think — regardless, frankly, of what happens in November with the special election — I mean, you take a look at history: Reagan was elected for the first time in 1966, and there was a special (election) during his first term, and he got killed. And he still got reelected. He beat (then-Assembly Speaker) Jesse Unruh — not an insubstantial politician, kind of like a Lockyer, someone who has been around the water cooler for a long time.
    So when you think about it — a lot of outsiders say now that Arnold's political career hinges on the special election; I think that's bunk.

Signal: Phil Angelides, the current treasurer, is being termed out; he'll be challenging Controller Steve Westly for the Democratic nomination for governor. Do you think Westly will beat Angelides?

Simon: I think it is going to be a toss-up. I think, as we sit here today and talk about the fact that it's early and polls don't mean much, but they are just about even — I think Westly is behind Angelides by 5 to 7 points, depending on the poll. But Westly just put $10 million of his own on the table — like a poker contest, he put a lot of chips in the middle of the table.

Signal: Money he made as vice president of a little startup called eBay?

Simon: You've got it. Now, Angelides has also put his chips on the table, also $10 million. They've each got veteran consultants and veteran campaign teams.
    I think it's going to be a great thing for us to watch. Frankly I'm rooting for each of them to cream each other.

Signal: An interesting thing to watch would be Westly versus Simon for treasurer. But that's not going to happen — maybe luckily for you? Wouldn't Westly make a more formidable opponent, considering his financial background, than Lockyer?

Simon: Well, I think Steve Westly has clearly more experience than Bill Lockyer in a treasurer position. That's not hard, because Bill Lockyer has no experience. But Steve Westly does have good experience, and the fact is, Lockyer has no better name ID than Westly. So frankly I think it is a toss-up, who would be tougher. On the one hand I think Steve Westly would make a far better treasurer than Bill Lockyer, but on the other hand, Steve Westly has no name ID — or very little name ID. So —

Signal: But he can buy some.

Simon: He can buy some, and he can.

Signal: Today, Angelides, as treasurer, is chiefly responsible for managing the state's investments. Right now California's bond rating is pretty low.

Simon: It's last in the country. So I'm campaigning on the slogan that "I will improve the credit rating. It can't get any worse."

Signal: Angelides is blaming the low credit rating on Arnold's budget: Arnold is borrowing money to balance this year's budget, and that's why California's credit rating is low. What say you?

Simon: I say the credit rating has been last since Gray Davis started, and Angelides was the treasurer when Gray Davis began. So when you take a look at the bond rating when Gray Davis first started, it wasn't last. It went to last during Gray Davis' first term. So Angelides cannot blame this on Gov. Schwarzenegger.

Signal: Going back to those labels — you, the conservative, were going to run in the 2003 recall election, but then you backed out. You decided to back the moderate, Schwarzenegger, over the conservative, McClintock. What was that about?

Simon: I thought Arnold was very conservative fiscally, and that fiscal issues would be very important to him. At that time, fiscal issues were important issues facing the state.
    Let's go back for a sec(ond). At the time of the recall in 2003, the state faced a $30 billion budget deficit, a deficit that Gray Davis had refused to acknowledge had refused to address, had no solutions for. Arnold comes along and writes an editorial in the op-ed section in The Wall Street Journal about his fiscal program. It was a page out of my own campaign play book, if you will.
    I thought Arnold stood a good chance of winning, and I thought, frankly, given that, and given his fiscal positions, he was the right guy to endorse. I think Tom McClintock is a good man. I pretty much agree with Tom right down the line.
    Now, having said that, I didn't think he could get elected.

Signal: What's your assessment of how well Schwarzenegger has done in the past year and a half?

Simon: I give him a solid A-minus. I think he's done a good job and frankly, it's been a difficult environment. I think he's done well on the fiscal front.
    As I mentioned a moment ago, the fiscal front at the time Arnold was sworn in was the key area, the biggest challenge, and now we have a deficit of $7 billion. It's a lot better than when he was sworn in, at $30 billion. (That's) $23 billion to the good. He has made progress at workers' comp(ensation). He has done well with having the credit rating improve; we're still last, but when Angelides says it's (Schwarzenegger's) fault — actually Moody's, Standard & Poor's, which are the rating industries that rate the bonds — actually have upgraded (California's bond rating), I think it's now three separate times since Arnold was sworn in.
    I think he's doing a good job, and I think the Democrats know that he is a strong leader. They're going after him and Tom, throwing everything at them but the kitchen sink.

Signal: How much influence do you think you would have over fiscal policy with Arnold?

Simon: I think he listens. He's got good advisers. And I've been (a) good friend of the governor, and I think I can see — he has characterized himself as a sponge. He is willing to take direction and listen to several different viewpoints. I think he's been very impressive, to me, according to his intellect, in terms of his willingness to listen.

Signal: Why is it important to have a solid bond rating, and what could you, as treasurer, do to improve it?

Simon: It's important to have a good bond rating for two reasons. One, it lowers your interest cost. It lowers your mortgage payment, in fact. Two, it preserves access to the capital markets when you need it. It's almost like a rainy-day insurance policy that you have, so that if there's an emergency, you have access those credit markets.
    For example, we have huge infrastructure issues here in California — $180 billion were going to need to borrow — more money to pay for our roads, water and power. How can we do it? Well, we can have the public sector do some of it. (The) private sector is going to have to do some. But at $55 billion in outstanding indebtedness now, we're approaching our ceiling. Unless our bond rating improves, Wall Street is going to say, "No mas."

Signal: If we're borrowing so much money and it's jeopardizing our bond rating, do you have any ideas for how we can finance roads more quickly?

Simon: I do, and the idea is very simply, public-private partnership. You know, the privately held companies. We put up the money, the public sector does things like public approvals and rating, things that public companies could do, but the public sector's probably better. Then, over time, when the money is returned to the private sector, then the roads revert to public ownership — so over time, the roads are maintained by the public sector; the roads are owned by the public sector after the money is returned, with a stated rate of return, to the capital provider.
    Public-private partnerships have been entered into in every state of the country and in many countries all over the world. We would not be setting a precedent here, and in fact other states have shown it's possible to work a public-private partnership and construct the infrastructure to accommodate the growth.
    The Santa Clarita Valley is obviously one of the fastest growing (areas) in California; (it's a) beautiful area, it's a natural place where people are going to (come), it's a natural place where businesses are going to want to headquarter. Over the next 25 years I think it's a very safe assumption, there's going to be more people in Santa Clarita rather than less people. Those more people are going to need roads, water, power and schools. So rather than put our heads in the sand, let's say OK, let's recognize we're going to have to (address) these needs, and let's put in place now some plans to address them. That's what I'm all about.

Signal: You're talking about a private company building a road, and then it becomes a toll road until it reverts back to the state?

Simon: You know, there are many different ways of doing it. You can do "shadow tolls" and in fact the state pays when — every time someone goes through a toll booth there's a click and there's a bookkeeping entry that basically says that the state will pay the private company in effect a toll, or of course you can have toll roads.
    There are some instances — for example, I just noticed where the governor signed an agreement on the Bay Bridge, and they are going to increase the tolls by $1. Some people are screaming, but honestly the tolls are still pretty cheap in comparison to the efficiencies that you get by being able to travel for work, and also you have a choice — you don't have to go that way; you can go another way. So I think, frankly, that there are so many options for public-private partnerships, that these things should be explored very exhaustively and in a timely fashion.

Signal: Wal-Mart. A lot of companies are doing good business with China, but others complain about the loss of manufacturing here. As state treasurer, can you do anything about it? Do you want to do anything about it?

Simon: Well, right now there is a concern about outsourcing outside our country — outside California, in particular — and I believe the best job we can do to keep jobs here is to make California competitive, rather than set up some artificial system. Let's not do that. Lets make California competitive. Because I know one thing for sure, that when Californians are given a chance, they compete just fine.
    Farming, that's one great area. California has led the nation now for many years in farming products. In fact, last year they were at $27 billion in produce, beating the No. 2 and 3 states, Texas and Iowa, combined. They have been competing against unfair competitors for many years, against other countries that allow certain forms of pesticides; that allow all different cheaper ways of making their products; minimum wages are a lot lower. California has figured out how to make their products more efficiently. As long as we give Californians a level playing field, we're going to be just fine.

Signal: What you have been doing the last four years or so?

Bill Simon studio portrait Simon: I have continued the investment business with my brother Pete. We've been working together for 18 years. We have an investment firm that invests in a broad variety of businesses and real estate and money managers.
    I've scaled back active involvement, and over the last three years I've spent most of my time on charities and politics, speaking all over the state. Tonight (July 21) I'll be speaking to a (California Republican Assembly) group in Santa Clarita. I've been backing candidates, supporting issues that are important to the state of California. I focused in the public policy arena on issues that have a California focus. So I have done that.
    Charity-wise, my wife and I have a foundation, and I coach on my dad's foundation, and we focus on helping people who need a leg up, whether it be kids, whether it be schools, whether it be fitness facilities, whether it be a wide variety of public sector initiatives. It has been very active now for a (number) of years, and my run for governor gave me a window on issues that are just crying out for support in the state of California.

Signal: Your list of charities includes the William E. Simon Foundation and Catholic Charities of Los Angeles; what do those do?

Simon: William E. Simon Foundation now gives away around the sum of $10 million a year. We give it away partly in California and partly in other areas of the nation. We focus on helping kids by creating environments where people have a chance. We focus on opportunity, creating opportunity for people.
    I coach that foundation with my brother Pete. My wife and I have a foundation, and that foundation focuses on two areas: beautification, and fitness facilities for kids. We put fitness facilities for kids in schools in L.A. and the surrounding area. We're at 20 schools now; we have a program now called Sound Body, Sound Mind.

Signal: You mentioned having a sports background. What is it?

Simon: I'm from back East, and I played a lot of tennis, competitively, growing up. I played football and basketball, and when I got to college I took up a sport called squash. At the time I was all-American captain of my team. After college I continued playing tennis and squash quite a bit. I had the privilege of playing on two college teams, tennis and squash. I was captain of both. It was a great experience.
    I would encourage any young person to compete. It teaches you a lot of lessons — unlike for governor.

Signal: Your opponent Keith Richman has been involved in pension reform. The governor decided he wasn't going to push that this year, after all. But we hear it's breaking a lot of cities.

Simon: There's no question, it's breaking a lot of cities, and it's something that Keith rightly focused on. There was a flaw in drafting (the pension reform initiative) — and that happens. The Democrats are making a big deal of it. I've made mistakes myself, so I wouldn't poke at Keith just for that. It's a shame that there was a drafting error, because it allowed the Democrats to make hay out of something that frankly could easily have been fixed.

Signal: Is that going to be at the top of your list?

Simon: Sure. Absolutely. I mean, pension reform is a huge number right now. CalPERS and CalSTRS, which are the two biggest state pension funds, are underfunded by $22 billion, and it's got to me addressed. (Editor's note: The state treasurer sits on the CalPERS and CalSTRS board.)
    You talk about local governments; city of San Diego is basically bankrupt in part because of its pension reform funding. You have many cities in the state, given the weakness (in the) stock market, given the underperformance by the managers — which I understand a little bit about — they have been now been placed in a seriously underfunded position.

Signal: Totally off the subject of the election, give us some of your investment banking advice. Where should people be putting their money right now?

Simon: Play it safe. I think that bonds and safe stocks and real estate — there's an old saying in the investment business: Trees do not grow to the sky. Real-estate prices in L.A. and here have exploded. It's not going to continue.
    Whether it dips, I can't say. I don't think anyone can predict what will happen. Interest rates are going up. Alan Greenspan said today he expects successive tightening, so I could anticipate three or more tightenings this year. That will tend to put a damper on the real-estate market, tend to put a damper on the stock market.
    The Dow is at 10,700 as of today. I could see it breaking 11,000 towards the end of the year; I don't think it's going to be a screaming stock market. It's going to be a stock market premised on value, a stock market that's premised on individual opportunities. You invest in companies that are well run.
    Just right now you talk(ed) about the pension fund crisis. It would be OK if we just start investing in a conservative fashion, I think. Not 100 percent, but very nearly so.

    See this interview in its entirety today at 8:30 a.m., and watch for another "Newsmaker of the Week" on Wednesday at 9:30 p.m. on SCVTV Channel 20, available to Comcast and Time Warner Cable subscribers throughout the Santa Clarita Valley.

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