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Republican gubernatorial candidate Tom Campbell, right, speaks to the Emeryville Chamber of Commerce luncheon, Thursday, July 23, 2009 in Berkeley, Calif. (D. Ross Cameron/Staff)

BERKELEY — Approving the budget agreement reached by Gov. Arnold Schwarzenegger and legislative leaders this week is the right thing to do despite its many flaws, Republican gubernatorial candidate Tom Campbell said Thursday.

"We just cannot afford the financial consequences of us voting down the budget," Campbell, who was Schwarzenegger's finance director for about a year, said before addressing the Emeryville Chamber of Commerce's Economic Outlook Luncheon.

Wall Street must be reassured of California's fiscal stability if the state will be able to borrow what it needs to stay afloat, he said, even if some parts of this budget deal aren't as he wished.

"If I could have, I would not have taken the money from the cities and the counties," Campbell said, referring to the deal's $4.4 billion drain on local governments: almost $2.1 billion in property and sales tax money, $1.3 billion in redevelopment money and $1 billion in gas tax money.

The diverted property taxes must be repaid within three years, he noted, so this is really just a stopgap borrowing tactic which will force many cities and counties either to severely slash services or to raise local taxes.

Campbell stood by his mid-May proposal to raise the state's gas tax by 10 percent for one year, which he said would eliminate the need for raiding city and county coffers, and making deep education cuts.


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Campbell said he's pleased that CalGrant money for disadvantaged college students is preserved in this deal, as higher education is a sound investment in the future workforce.

He said he still opposes offshore oil drilling such as the Tranquillon Ridge project off Santa Barbara, which is expected to bring $100 million into this budget deal: "I think we could've found that money elsewhere."

But he's glad that an oil severance tax — levied per barrel of oil as it's pumped from the ground — was rejected because that would've disproportionately affected Kern County, already struggling with above-average unemployment.

Campbell, also a former dean of the UC Berkeley's Haas School of Business, lectured Thursday's luncheon attendees on the national and state economic outlook. He said economic growth numbers and the stock market look good, but those are leading indicators of recovery while unemployment tends to be a trailing indicator; he warned that unemployment could continue to rise through the end of next year before employers feel confident enough to start hiring again.

And Campbell warned that the unprecedented 33 percent growth in the nation's money supply over the past year likely could result in double-digit inflation toward the end of next year, just as the economy is starting to emerge from recession.

Though he said his speech wasn't meant to be political, attendees asked about what he'd do as governor. He said he'd make better use of the line-item veto; insist that all new regulations have sunset dates and cost-benefit analyses detailing the job losses they would cause; and would alter the governor's relationship with the Legislature. "It doesn't hurt if the governor has respect for the legislative process, has been in the Legislature and doesn't demonize the Legislature."

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