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Sunday, November 16, 2008 CEO Op-ed Commentary in Orange County Register

Letters: Adapt to new economic climate

Orange County Register, Letters to the editor for Nov. 16, 2008 by, Mitch Goldstone President & CEO

As the CEO of a business based in Irvine I've taken a keen interest in what has been going on in our state and local governments. This difficult economic climate has had a dramatic effect on our business, but it also has affected government revenues and our company has a vested interest in how our state and local governments handle their fiscal situations.

Gov. Arnold Schwarzenegger announced this week that the state now faces an $11.2 billion deficit because of the state's revenue dependence on Wall Street. As the governor explained, our state's revenue system is too dependent on capital gains taxes and the income taxes of higher earners.
What struck me was when he pointed to a chart that showed how much revenues fluctuate even though our state's economy has remained relatively steady, showing the problem with being linked too much to the always unpredictable Wall Street.

To address the large deficit, the governor proposed a combination of spending cuts and tax increases. The most significant tax increase that he proposed is a 1.5 percent statewide sales tax increase that expires after three years. Combined with Los Angeles's already high sales tax, my company will have to make some significant adjustments and adapt to the new burdens of what could be more than 10 percent.

Although I'm no fan of higher taxes, I understand the precarious position the governor is in, and I'm in full support of what I see as a pragmatic approach to solving our state's budget problems. The state made around $10.9 billion in cuts when the governor signed this year's budget in September and his new proposal calls for $4.5 billion more. I think it's reasonable for the state to find additional revenue to make sure that the cuts don't do any more damage. When faced with big challenges and a new environment, as a CEO, I understand all too well how important it is to adapt.

My company,, started in 1990 and began as a boutique retail film-based photo center. We faced extinction as the photo industry transitioned from film to digital, and I was forced to make some leaps of faith to try to change our business model. Years ago, we pioneered and commercialized a new type of super-fast Kodak photo scanning technology that can process 1000 photos in about 15 minutes and expanded our online presence to appeal to consumers across the nation. That decision has paid off and our company is doing very well.

The state needs to make similar adjustments and adapt the way it operates. The governor created a bipartisan commission to look at the state's outdated revenue system and offer a recommendation on how to modernize and stabilize it. That is exactly the type of adaptation the state needs to make. But this commission isn't going to report its findings until next year so we still have to face the current fiscal problems.

With a balanced approach that involves more cuts than tax increases, the governor is laying out a path for the state to reasonably fix our problems for this year. One of the reasons why so many people respect this governor is that no matter what the issue or crisis is, he has the courage to put forth a realistic solution and tries to get both parties to find a compromise.

My greatest hope is that the state is able to address this situation quickly and responsibly, because if they don't, we would face even worse conditions. If they don't make cuts immediately and find a way to bring in more reliable revenues, the state's deficit will likely grow and they will have less time to make up the difference. Furthermore, if they choose to borrow or use accounting tricks to try to solve the problem, businesses like mine will recognize those shams and realize that they just indicate that the state is going to need to make up that money with even higher tax increases in the future. It's important for the state to get through this emergency for all of our sakes and I know the governor's approach is the most responsible way to go.