The Ebncroft Library University of ~ a l i f o r n i a / ~ e r k e l e y Regional O r a l Ristory Office CALIFORNIA STATE FINANCE I N THE 1940s E'red Links An Overview of the Department of Finance E l l i s Groff Some Details of Public Revenue and Expenditure i n the 1940s George Killion Observations on Culbert Olson, E a r l Warren, and Money Matters i n Public Affairs A . Alan Post Watchdog on State Spending Paul Leake Statement on the Board of Equalization With an Introduction by Stanley Scott Interviews Conducted by Gabrielle Morris Copy No. - @ 1974 by The Regents of the University of California This manuscript is open for research purposes. All literary rights in the manuscript, including the right to publish, are reserved to The Bancroft Library of the University of California at Berkeley. No part of the manuscript may be quoted for publication without the written permission of the Director of The Bancroft Library of the University of California at Berkeley. Requests for permission to quote for publication should be addressed to the Regional Oral History Office, 486 Library, and should include identification of the specific passages to be quoted, anticipated use of the passages, and identification of the user. - E A R L WARREN - ORAL HISTORY PROJECT The Ear1 Warren Oral History Project, a special project of the Regional O r a l History Office, was inaugurated i n 1969 t o proditce tape-recorded interviews with persons prominent i n the arenas of politics, go.irernmental administration, and criminal justice during the Warren Era i n CaLifornia. Focusing on the years 1925-1953, the interviews were designed not only t o document the l i f e of Chief Justice Warren but t o gain new information on the social and political changes of a s t a t e i n the throes of a depression, then a war, then a postwar boom. An effort was made t o document the most significant events and trends by interPiews with key participants who spoke from diverse vantage points. Most were queried on the one or two topics i n which they were primarily involved; a few interviewees with special continuity and breadth of experience were asked t o discuss a multiplicity of subjects. While the cut-off date of the period studied was October 1953, Earl Warren's departure for the United States Supreme Court, there was no attempt t o end an interview perfunctorily when the narrator's accoun* had t o go beyond that date i n order t o complete the topic. The interviews have stimulated the deposit of Wasreniana i n the fonn of papers from friends, aides, and the opposition ; government documents ; old movie newsree1s;videotapes; and photographs. This Earl Warren collection i s being added t o The Bancroft Library's extensive holdings on twentieth century California politics and history. The project has been financed by four outright grants from the National Endowment for t h e Humanities, a one year grant from the California State Legis- lature through the California Heritage Preservation Commission,and by g i f t s from local donors which were matched by the Endowment. Contributors include the former law clerks of Chief Justice E a r l Warren, the Cortez Society, many long-time sup- porters of "the Chief," and friends and colleagues of some of the major memoirists i n the project. The Roscoe and Margaret Oakes Foundation and the San Francisco Foundation have jointly sponsored the Northern California Negro Political History Series, a unit of the Earl Warren Project. Particular thanks are due the Friends of The Bmcroft Library who were instrumental i n raising local funds for matching, who served as custodian for all such funds, and who then supplemented from t h e i r own treasury a l l local contribu- tions on a one-dollar-for-every-three dollars basis. The Regional O r a l History Office was established t o tape record autobiogra- phical interviews with persons prominent i n the history of California and the West. The Office i s under the administrative supervision of James D. Hart, Director of The Bancroft Library. Amelia R. Fry, Director Earl Warren O r a l History Project Willa K. Baum, Department Head Regional Oral History Office 30 June 1976 Regional Oral History Office 486 The Bancroft Library University of California a t Berkeley EARL W A R R E N O R A L HISTORY PROJECT Principal Investigators Lawrence A. Harper I r a M. Heyman Arthur H. Sherry Advisory Council Barbara Nachtrieb Armstrong* Walton E. Bean* Richard M. Buxbaum William R. Dennes Joseph P. Harris James D . Hart John D. Hicks* W i l l i a m J. H i l l Robert Kenny* Adrian A. Kragen Thomas Kurhel Eugene C. Lee Mary Ellen Leary Project Interviewers I?iriam Feingold Amelia R. Fry Joyce A. Henderson Rosemary Levenson Gabrielle Morris James R. Leiby Helen McGregor* Dean E. McHenry Sheldon H. Messinger Frank C. Newman Allan Nevins* Warren Olney 1 1 1 * Bruce Poyer Sho Sato Mortimer Schwartz Merrell F. Small John D. Weaver Special Interviewers Orville Armstrong Willa K. Baum Malca Chall June Hogan Frank Jones Alice G. King Elizabeth Kirby Harriet Nathan Suzanne Riess Ruth Teiser *Deceased during the term of t h e project. EARL WARREN ORAL HISTORY PROJECT (California, 1926-1953) Single Interview Volumes Amerson, A. Wayne, Northern CaZifornia and Its ChalZenges t o a Negro i n the Mid-1900s, with an introduction by Henry Ziesenhenne. 1974, 103 p. Breed, Arthur, Jr.,AZameda County and the California h g i sZature : 1935-1958. 1977, 65 p. Burger, Warren. In process. Carter, Oliver J., A Leader i n the California Senute and the Democratic Party, 1940-1950. 1979, 200 p. Carty, Edwin L. , Hunting, Politics, and the Fish a d G a m e Cornmission. 1975, 104 p. Chatters, Ford, V i e w frm the Centnil VaZZey: The CaZifornia Legislature, Water, Politics, and The State Personnel Board, with an introduction by Harold Schutt. 1976, 197 p. Dellums, C. L., InternationaZ President of the Brotherhood of SZeeping Car Porters and CiviZ Rights Leader, with an introduction by Tarea Pittman. 1973, 159 p. Faries, ~ c ~ n t ~ r e , CaZifornia Republicans, 1934-1953. 1973, 155 p. Graves, Richard, Theoretician, Advocate, and Candidate i n California State Government. 1973, 219 p. Huntington, Emily H., A Cmeer i n Conmer Economics and Social Insurance, with an introduction by Charles A. Gulick. 1971, 111 p. Jahnsen, Oscar J., Enforcing the Law Against CambZing, BootZegging, Graft, Fraud, and Subversion, 1922-1942. 1976, 212 p. Johnson, Gardiner. In process. MacGregor, Helen S., A Career i n Public Service tlith Earl Warren, with an introduction by Earl Warren. 1973, 249 p. McGee, Richard Allen, Participant i n the Evolution of American Corrections: 1931-1973. 1976, 223 p. McLaughlin, Donald, Careers i n Mining GeoZogzj and Management, University Govemnce and Teaching, w i t h an introduction by Charles Meyer. 1975, 318 p. Olney, Warren 1 1 1 , L ~ J hzforcement and Judicial Administration i n the E m l Warren Eka. 1981, 523 p. Patterson, Edgar James, Gmemzor's k d o n Aide t o W s o n Counselor, with an introduction by Merrell F. Small. 1975, 79 p. Pittman, Tarea, NAACP Official and Civil Rights Worker, with by C. L. Dellums. 1974,159 p. an introduction Powers, Robert B., LUW hrforcment, Race Rektions: duction by Robert W. Kenny. 1971, 180 p. 1930-1960, with an intro- Rumford, William Byron, LegisZator for F d r Ehployment, Fair Housing, and M l i c Health, with an introduction by A. Wayne Amerson. 1973, 152 p. Shell, ~ o s e ~ h . I n process. Sherry, Arthur H., The Ahedcr C m t y District Attorney's Office and the Cali- fornia Crime C&ssion. 1976, 146 p. Small, Merrell F., The Office of the Governor Under EarZ Wmen. 1972, 227 p. Sweigert, William, Democrat, Friend, and Advisor t o Earl Warren. I n process. Taylor, Paul Schuster, CALIFORlPIA SOCIAL SCIEUTIST, Three Volumes. Volume I: Education, Field Research, and Fcmrily, with an introduction by Lawrence I. Hewes. 1973, 342 p. Volume I1 and 1 1 1 : Califomtia Water and Agricultural Labor, with intro- ductions by Paul W. Gates and George M. Foster. 1975, 519 p. Warren, Earl, Conversations with EarZ Warren on California Govement.1981, 337 p. Wollenberg , Albert, To D o the Job Well: A Life i n Legislative, Judicial, and C o m i t y Service. 1981, 396 p. Multi-Interview Volmes PEESPECTIVES ON THE ALAMEPA COUNTY DISTRICT ATTORNEY'S OFFICE, with an intro- duction by Arthur H. Sherry. Three volumes. Volume I: 1972, 137 p. Mullins, John F., Bow Earl Warren Became District Attorney. Balaban, Edith, Reminiscences about Nathan Harry Miller, Deputy District Attorney, A h e & County. Hamlin, Judge Oliver D. , Reminiscences about the A h e d z County District Attorney's Office i n the 1920s and 30s. Shaw, Mary, Perspectives of a Nmspapervman. Shea, Willard W . , Recollections of AZarneda County' s First Public Defender. Volume 11: 1973, 322 p. Chamberlain, Richard H., Reminiscences about the Akmedcr Comty District Attorney ' s Office. J e s t e r , Lloyd, Reminiscences of an Inspector i n the District Attorney's Office. Volume I1 (Continued) Heinrichs, Beverly, Reminiscences of a Secretary i n the District Attorney ' s Office. Severin, Clarence E., Chief CZerk i n the Almeda County District Attorney's Office Spence, Homer R., Attorney, LegisZator, and Judge. Daly , E. A. ,A h e d a Carnty Political L Q U ~ ~ P and Journalist. Bruce, John, A Reporter Remembers Earl Warren. Volume 1 1 1 : 1974, 165 p. Coakley, J. Frank, A b e e r i n the A h e d a C m t y District Attorney's Office. Hedeman, Albert E., Jr., From Office Boy t o Assistant Pistrict A t t o m y . Jensen, Lowell, Reflections of the A h e d a Cowsty District Attorney. Oakley, James H., Early Life of a Warren Assistant. EML WARREN'S BAKERSFIELD. 1971, 185 p. Ashe, Maryann, and Ruth Smith Henley, Earl Warren's Bakersfield. Cavins, Omar, Coming of Age i n Bakersfield. Vaughan, F r a n c i s , S c h o o Z ~ si n Bakersfield. Kreiser , Ralph, A Reporter RecoZlects the Warren Case. Manford, Martin and Ernest McMillan, On Methias Warren. - BEE PERSPECTIVES OF THE WARREI? ERA. 1976, 186 p. Rodda, Richard, From the Capitol B e s s Room. P h i l l i p s , Herbert L., Perspective of a PoZiticaZ Reporter. Jones, Walter P., An Editor's Long Friendship with Earl Warren. M L WARREI?'S CAMPAIGNS. Three Volumes. Volume I: 1976, 324 p. Barnes, Stanley N., q e r i e n c e s i n Grass Roots Organization. Cunningham, Thomas J., Southern Califomtia Ccmrpaign Chairman for Earl Warren, 1946. Draper, Murray, Warren's 1946 Campaign i n Northern California. Mailliard, William S., Earl Warren i n the Governor's Office. Mull, Archibald M. , Jr ., Warren Fund-Raiser; Bar Assodation Leader. M c N i t t , Rollin Lee, A Democrat for Warren. Volume 1 1 : 1977, 341 p. Knowland, W i l l i a m F. , California Republican Politics i n the 1930s. Feigenbaum, B. Joseph, Legislator, Partner of Jesse Steinhart, Aide to EarZ Warren. Ladar, Samuel, Jesse Steinhart, Race Rektions, and Earl Warren. Steinhart, John, Jesse and Amy Steinhart. Hansen, Victor, West Coast Defense During World War II; The California &bernator&zZ Campaign of 1950. Mellon , Thomas J. ,RepubZican Campaigns of 1950 and 1952. Volume 1 1 1 : 1978, 242 p. McCormac, Keith, The Conservative Republicans of 1952. CALJFORNIA D E N O C R A T S IiV THE EARL W A R R E N ERA. 1976, 278 p . Clifton, Florence, CaZifornia Democrats, 1934-1950. Clifton, Robert, m e Democratic Party, CuZbert L. OZson, and the Legislature. Kent, Roger, A Demomtic kader h o k s a t the Wamen E m . Outland, George, James RoosmeZt 's m a z y Ccmcpcrign, 1950. Post, Langdon, James RoosareZtrs iVorthern CcrZifornia Campaign, 1950. Roosevelt, James, Campaigning for Governor Against E m 2 Wmen, 1950. TEE WVERNORrSFAMILY. 1980, 209 p. Warren, ~ a r l , Jr ., CaZifornia PoZitics . Warren, James, RecoZZectiotts of the Eldest W m e n Son. Warren, Nina (Honeybear) [Mrs. Stuart Brien] , Growing Up i n the W m e n F d Z y . Warren, Robert, Playing, Bunting, Talking. EARL WARREN: F E L Z O W COI?STI!lUTIONU OFFICERS. 1979, 244 p. Brown, Edmund G., Sr., m e Cacermorrs Lawyer. Kenney , Robert, Attorney General for CaZifornia and the 1946 CubernutoriaZ Ccnpczign. Kuchel, Thomas H., CaZiforn&z State ControZZer. CALFORNIA STAm FIiVUCE I h l THE 19403, with an introduction by Stanley Scott. 1974, 406 p. Links, Fred, An Ouermia, of the Department of Fincmce. Groff, Ellis, Some Details of Public Revenue and Expenditure i n the 1940s. Killion, George, Observations on CuZbert OZson, E m 2 Wmen, and Money Matters i n PubZic Affairs. Post, A. Alan, Watchdog on State Spending. Leake, Paul, Statement on the Board of EqurzZization. TEE WARRENS: FOUR PERSOIL?. VIEXS. 1976, 1 37 p . Albright, Horace, EmZ Wamen Job Hwrting a t the Legislature. Stone, Irving and Jean, Ear2 W m e n' s Mend and Biogrczpher. Henderson, Betty Foot, Secretary to ltto Wmens. Swig, Benjamin H., Shared Soc&zZ Concerns. EARL WARREN AiVD BEALTE INSURANCE: 1943-1949. 1971, 216 p. Lee, Russel VanArsdale, M.D., Pioneering i n Prepaid Group Medicine. Salsman, Byrl R., Shepherding BeaZth Inswance BiZZs %mgh the Catifornia Legislature. Claycombe, G o r d o n , m Making of a I;egisZative Committee Study. Cline, John W., M.D., CaZifornia Medicat Association Crusade Against CompuZsory State BeaZth Insurance. BUNTING AND FISBING WITH EARL WARREhl. 1976, 186 p . Cavanaugh, Bartley, A Mutual Interest i n Government, PoZitics, and Sports. Lynn, Wallace, Bunting and BasebaZZ Companion. THE JAPANESE-MICAN RELOCATION REVIEWED, with an introduction by Mike M. Masaoka. Two Volumes. Volume I: Decision and Exodus. 1976, 196 p. Rowe, James, l%e Japanese htczcuation Decision. Heckendor f , Percy C., PZamring for the Japanese htacuation: R e f o k n g Reguktory Agency Procedtcres. Clark, Tom, Cments on the Japanese-American ReZocation. Ennis, Edward, A Justice Depmknent Attorney Coments on the Japcmese- American ReZocation. Wenig , Herbert, The CaZiforn&zAttorney General ' s Office, the Judge Advocate General Corps, and Japanese-American ReZocation. Volume 11: The Internment. 1974, 267 p. Cozzens, Robert, Assistant National Director of the War ReZocation Authority. Myer, Dillon S., War ReZocation Authority: The Director's Account. Kingman, Ruth W., fie Fair PZatj Committee and Citizen Participation. Hibi, Hisako, painting of Tanforan and Topaz camps. EARL WARREN: THE ClUEF JUSTICESHIP. 1977, 245 p . Brownell, Herbert, EculZ Warren's Appoinhent t o the Supreme Court. Finkelstein, Louis, Earl Wamen's Inqtciry into TaZmudic Law. Hagerty, James, C'aigns Revisited: Ear2 Warren, Thomas Dewey, and might Eisenhower. Oliver, William, Inside the Warren Court, 1953-1954. Richman, Martin F . , Law Clerk for Chief Justice Warren, 1956-1957. Stassen, Harold, Eisenhower, the 1952 ~epubZicanConvention, a d Earl Warren. LABOR LOOKS A T EARL WARREN. 1970, 145 p. Bulcke, Germain, A Longshoreman's Observations. Chaudet , Joseph W. , A Printer's View. Heide, Paul, A Warehouseman' s Reminiscences. Simonds , U . S.,A C q e n t e r ' s Coments. Vernon, Ernest H., A mchinist's RecoZZection. LABOR LEADERS VIEW TEE WARREN ERA, with an introduction by George W. Johns. 1976, 126 p. Ash, Robert S., AZcrmedcr County tabor CowtciZ During the Warren Years. Haggerty, Cornelius J., tabor, h s AngeZes, and the Legiskture. EARL WARREN AND THE STATE DFPAR!MENT OF MENTAL EYGIENE. 1973 , 223 p . Tallman, Frank F., M.D., Dynafiics of Change i n State Mental Institutions. Hume, P o r t i a Bell, M.D., Mother of Cormunity MentaZ EeaZth Services. RICHARD M. NIXON I i V THE PIARREN ERA. 1980, Jorgensen, Frank E., The Organization of Richard Nixon's CongressionaZ Campaigns, 1946-1952. Day, Roy O., Ccapaigning with Richard Nizon, 1946-1952. Dinkelspiel, John Walton, RecoZZections of Richard Nixon's 1950 SenatoriaZ Campaign i n Northern CaZifomia. Adams , Earl, Financing Richard Nixon ' s Campaigns From 1946 to 1960. Crocker , Roy P ., Gathering Southern California Support for Richard Nizon i n the 1950 Senate Race. THE WVERNOR AND T%E PUBLIC, THE PRESS, AND T H E LEGISLATURE. 1973, 177 p. Gallagher, Marguerite, Adrdnistrcztive FPocedures i n Earl Warren's Of,fice, 1938-53. Scoggins , Verne, Observations on California A f f a i r s by Governor Earl W m e n ' s B e s s Secretary. Vasey, Beach, Governor Wmen and the LegisZature. E4RL WARREN rQND !l'HE STATE DEPARWiVT OF PUBLIC HEALTH, with ,an introduction by E. S. Rogers. 1973, 409 p. Merrill, Malcolm H., M.D., M.P.H., A Director Reminisces. Stead, Frank M., Gflviromnental Pollution Control. Ongerth, Henry, Recollections of the Bureau of S d t a r y Engineering. Zimmerman, Kent A., M.D., Mental Health Concepts. Arnstein, Lawrence, PubZG Health Advocates and Issues. THE SHPBOARD M U R D E R CASE: LABOR, RADICAUSM, Ah'D E4RL WARREN, 1936-1942. 1976, 276 p. Ramsay, Ernest G., Reminiscences of a Defendznt i n the Shipboard Murder Case. Grossman, Aubrey, A Defense Attorney Assesses the King, Ramsay, Conner Case. Harris, Myron, A Defense Attorney Reminisces. Resner, Herbert, The Recollections of the Attorney for,fiank Conner. Johnson, Miriam Dinkin, The King-Rmsay-Conner Defense Committee: 1938-1941. Odeen, Peter, CaptQin of the Point abos. EARL WARREN A S EXECUTIVE: SOCIAL W E L F A R E AND STATE PARKS. 1977, 147 p . Drury, Newton, A Consemative C m e n t s on Earl W m e n and Harold Ickes. Schottland, Charles I., State Director of Social Welfare, 1950-54. EARL; WARREN: VIEWLi AND EPISODES. 1976, 250 p. Hale, Mildred, Schools, the PTA, and the StQte Board of Education. Kerr, Clark, University of California Crises: h y a l t y Oath and the fiee Speech Mbvment. Kragen, Adrian, State and Industry Interests i n T m t i o n , and Obsemations of Earl W m e n . McConnell, Geraldine, Governor Warren, the EwwZands, and C o Z d i a StQte Park. McWilliams , Carey, California ' s Olson-Wmen Era: Migrants and Social Welfare. Siems, Edward H., Recollections of Masonic Brother Earl Warren. EARL W A R R E N AND THE YOUTH AUTHORITY, with an introduction by Allen F. Breed. 1972, 279 p. Holton, Karl, Development of Juvenile Correctioml Practices. Scudder , Kenyon J ., Beginnings of Therapeutic Correctioml Facilities. Stark, Heman G., Juvenile Correctioml Services and the Comnity. Beam, Kenneth S., Clergyman and Convm~rityCoordinator. The Bancroft Library University of California/Berkeley Regional Oral History Office Earl Warren Oral History Project Fred Links AN OVERVIEW OF THE DEPARTMENT OF FINANCE An Interview Conducted by Gabrielle Morris @ 1974 by The Regents of the University of Califorrlia TABLE OF CONTENTS -- Fred W . Links INTERVIEW HISTORY i 1927 Governmental Reorganization Fisoal Controls 11 , DURING GOVERNOR WARREN' S ADMINISTRATION 1948: Annual Budgets Begin Expenditures Mushroom Relations with Administrative Departments and The Legislature Developing a Budget Postwar Constmotion Reserves 111 ACTIVITIES AS A PRIVATE CITIZEN IV OTHER STATE MONEY MATTERS 31 Fisual Offioers Hitchwas Expenditures Controllinx Public Costs 4 1 APPENDIX: A. Statement of Appropriations and Fixed Charges 1921-3, and Budget Requests and Recommendations 1923-25, title page. 49 B. "A Century of Financial Admini~tration,~ speech by Fred W . Links before State Men's Club, June 18, 1956. 50 C . Governor's Seal. 62 INDEX 63 INTERVIEW HISTORY Fred. Links w a s interviewed. by the E a r l Warren Project of the Regional O r a l History Office i n ord.er t o record some recollections of h i s 35-year career as a key person i n the S t a t e Department of Finance, during which he observed and undoubtedly influenced. the f i s c a l policies of governors from H i r a m Johnson through Goodwin Knight- Conduct A single interview w a s held., on December 6, of the 1971, i n Mr. Links's comfortable, spacious Interview: mobile home on the eastern edge of Sacramento. Being Links's eightieth birthday, it w a s a good. time f o r reminiscing; h i s wife's preparations f o r a supper party mad.e a pleasant bustle i n the background.. S t i l l tall, rangy and. f i t , Links stated. the c l a s s i c positions of a f i s c a l conservative succinctly and with good. humor, For example, on page 20: That w a s the thing we had, t o f i g h t against a l l the time--ad.d.ing new expenditures t o the s t a t e government- W e could. see from past experience t h a t i f they once got t h e i r foot i n the d.oor, it was almost impossible t o abolish a program once it w a s established. ...because people who were i n the program did.ntt want t o stop, and the people who were receiving the benefits d.idntt want t o stop. And. on the governor's budget, prepared. by the Department of Finance: And. [the l e g i s l a t u r e ] would. of course reduce many of t h e items t h a t we had i n the budget too. W e had. t h a t problem on our hands, t o support the existing requirements f o r govern- mental a i d . and. governmental supervision ... t h e legislature started. new programs ... t h a t ' s what makes it almost impossible f o r a governor t o keep the expend.iture t h a t he recommends. It's always higher ... So i t ' s a struggle between the legislative mind.s and. the minds of those who a r e serving under the governor. CP. 211 Nuch of the interview concerned. e f f o r t s t o make the budget document more complete, detailed and accurate, s t a r t i n g with a constitutional amendment passed i n 1922. "Before that, it w a s everybody f o r himself- And. those that had the greatest influence politically, got the biggest appropria- tions- Then, i n 1948, an annual budget w a s introd.uced- "The s t a t e w a s changing so rapidly that you just couldn't w a i t two years t o get some of these things und.er control, o r t o predict accurately the requirements f o r the second. year." With the beginning of two-year legislative sessions i n 1973, it seems possible t h a t s t a t e budgeting may return t o a biennial basis- Links reviewed. the rough-edited transcript, c l a r i f i e d several passages, added. valuable details, and noted that he w a s assistant d.irector of the State Department of Finance from 1950-56. He a l s o donated. t o the project a speech he mad.e on h i s retirement, reviewing the e n t i r e history of s t a t e financial agencies, which is included. as an appendix t o the present manuscript. Gabrielle Morris Interviewer-Ed.itor Regional O r a l History Office 16 January 1973 486 The Bancroft Library University of California at Berkeley [ ~ r . Links died on April 15, 1973. A detailed obituary is i n the Sacramento &, April 16, 1973. ~ d i t o r . ] INTRODUCTION This volume of interviews prepared by the Regional O r a l History Office on s t a t e finances during the 1940s and 50s affords a sweeping overview of a crucial time of change i n California, stretching from the Depression t o the Reagan administration. The four individual memoirs herein give useful evidence t o help reconstruct the evanescent, affec- t i v e , emotional, valuational "fields" i n which past events occurred. During the years discussed, California was transformed from a modest-sized, rurally, agriculturally and conservatively oriented region into the nation's most popdous urban giant, with a t l e a s t the reputation of being one of the most progressive states. The economic changes were enormous, with war-induced industrial and aerospace growth producing a so-called Post-Industrial society t h a t seems ill-defined but indubitably "different ." Culturally also, California continued, perhaps increasingly, t o be on the "cutting edge," whether t h e forces be progressive, retrograde, o r just eccentric. While Earl Warren was governor, r e a l progress i n government and public policy was the watchword. Governor Warren helped transform the s t a t e government from one of small budgets administered by bookkeepers and ex-taxpayer association executives into one of huge expenditures (presumably i n good causes), a highly sophisticated f i s c a l and data bureacracy, and increasing awareness t h a t a modern s t a t e cannot be run effectively without a vast range of expertise. These changes a r e reflected i n the backgrounds of t h e men inter- viewed, and i n the s k i l l s they found valuable. Fred Links, f o r example, could enter the government i n the 1920s and, on the strength of h i s bookkeeping, h i s head for figures, and a nose f o r the policy of the time, r i s e t o the top of the f i s c a l bureaucracy. Later, i n the 1940s, comes Alan Post with a good l i b e r a l a r t s and economics education--partially self-administered, but including a Princeton degree. With a generalist background and a remarkable intelligence and perception, he could preside over transforming the l e g i s l a t i v e analyst's role as c r i t i c of executive spending into a more balanced and highly sophisticated policy-review enterpri.se. Post himself emphasizes the current need f o r wide-ranging expertise t o deal with engineering and electronics problems, economics, transportation questions including BART, education, welfare, penology, and "human" problems i n general. In these manuscripts, one can follow t h e development of t h e s t a t e ' s economy and i t s public finance over t h e years. One begins with t h e pre-Warren period, recognizing t h e dominance of an able but quite conserv- a t i v e old guard, marked by a recurrent economy bloc. They largely defeated t h e e f f o r t s of t h e century's f i r s t Democratic governor, Culbert Olson. But t h e Warren years t h a t followed saw many improvements t h a t might have been accomplished by Olson's ill-fated N e w Deal for California. That N e w Deal was stymied on many scores: an adverse p o l i t i c a l climate and t h e aforesaid economy bloc, p o l i t i c a l inexperience and perhaps a basic prematurity. Some interesting sidelights of t h i s period are touched on by George Killion, Olson's t h i r d director of finance, i n h i s interview. Whatever t h e reasons, Olson 's administration s p l i t t h e s t a t e , whereas Warren's, with i t s powerful bipartisan support, pulled California together and accomplished many transformations. Warren's great achievements l a y i n upgrading some of t h e s t a t e ' s basic programs. The mental hospitals were r e b u i l t , and the stage was s e t f o r greatly improved therapeutic practices. Penal i n s t i t u t i o n s were r e v i t a l i z e d and transformed by new policies and personnel who were then thought t o be among the world's most progressive. Public and higher education were pushed vigorously; school equalization and a school building program were instituted. Highways were major projects i n the Warren administration, road and freeway financing being placed on a firm foundation--too firm , some commentators would contend i n t h e 1960s and 1970s. But freeways looked good t o almost everybody i n those days of narrow and congested two-lane a r t e r i e s . Other Warren programs included improved court administration and health insurance. O n the l a t t e r he l o s t , but Warren achieved much t h a t he wanted, primarily a new "tone" i n s t a t e government. Good groundwork had been l a i d by highly motivated public-service proponents i n the uni- v e r s i t i e s , and by some of t h e more far-sighted s t a t e and l o c a l bureaucrats. These leaders were instrumental i n the growth of a contagious missionary s p i r i t i n t h e '30s and '40s~which emphasized t h e public service as a high and respected "calling" and j u s t i f i e d t h e best energies of i n t e l l i - gent, educated, and dedicated people. This s p i r i t , well-expressed by E l l i s Groff i n h i s interview, was an influential force, pulling many f i r s t - r a t e people into s t a t e and l o c a l service i n California. In other ways, too, the current of t h e times ran strongly i n favor of many of t h e Warren administration' s basic goals. One of the most important was t h e a v a i l a b i l i t y of money. World War I1 had brought great economic resources into California. Moreover, wartime limitations on s t a t e spending produced big budgetary surpluses. For a time, t h e s t a t e had more money than it knew what t o do with. Earl Warren capitalized on t h i s and helped give California a running s t a r t on many of t h e things he considered important. The bur- geoning economy continued t o produce funds f o r rapidly expanding budgets, which h i t t h e $ 1b i l l i o n mark i n 1950 and continued upward. Eventually things tightened severely, and there was a return t o budget-balancing by monetary juggling and f i s c a l sleight of hand. But t h i s s h i f t came l a t e r , i n t h e Knight administration. To Governor Brown f e l l t h e by-then inescapable t a s k of negotiating t h e f i r s t r e a l tax increase i n order t o balance t h e budget. But t h e Warren administration used i t s substantial resources well t o help reconstruct California's physical plant and upgrade i t s programs. It stimulated concern with "people" problems, and helped improve t h e quality of government and public service t o a l e v e l t h a t many considered almost unique i n t h e United States. On a couple of issues involving elected constitutional o f f i c i a l s not part of t h e governor's function, t h e Warren administration looked t h e other way. One was t r a f f i c k i n g i n l i q u o r licenses, a well-hidden scandal; and t h e other was monkey business concerning t h e banking of vast public money reserves. These were eventually cleaned up, l a r g e l y by e f f o r t s from t h e l e g i s l a t i v e side. The Warren administration deserves t h e credit often given for i t s concern for c i t i z e n s and for e t h i c a l considerations i n government. S t i l l we should not forget t h e great black mark associated with the Warren era. Hindsight has t o l d us since--and unprejudiced good judgement should have t o l d u s then--that t h e wartime incarceration and economic rip-off of c i t i z e n s of Japanese ancestry was both a grievous wrong and a monumental blunder. It was e s s e n t i a l l y a federal action supposedly taken i n the i n t e r e s t of national security, but o f f i c i a l s of t h e State of California had much t o do with it. A r e a l t r e a t f o r t h e reader i s Alan Post's 25-year synopsis of t h e r o l e of h i s own o f f i c e of l e g i s l a t i v e analyst, with which California f i r s t endowed i t s e l f when t h e economy bloc was fighting Governor Olson. Under Post's tutelage, it has grown from being l a r g e l y a "nay-sayer" on spending, into a strong l e g i s l a t i v e s t a f f agency f o r thorough and con- s t r u c tive policy review. Although he i s an admitted admirer of Governor Warren, Post's policy stance during t h e Warren years represented t h e conservative position on t h e budget. The governor was on t h e side of increased spending and Post spoke for t h e "no" side. But times and t h e philosophy of h i s office have changed. Now, under an anti-spending administration, Post often speaks up for t h e pro-spending side. Post sums up t h e s h i f t : ...we had this position of trying to keep pressure on doZZars. ..leaning over backmrd to cut doZZms...[but]we finally began to be human beings i n the office. W e began to think i n terms of the sort of thing that Ear2 Warren was con- scious of, of human retationships. ..our attitude softened over the years. I think we became more sophisticated and more...knowtedgeabte about the cireumstunces i n which peopZe Zive. But we op- posed darned near everything i n those days. Interviews l i k e these are obvious~yan important research resource. They become basic documents i n t h e i r own right. Although one assumes t h a t t h e serious historian w i l l consult other sources t o find o r confirm sheer factual d e t a i l , these o r a l h i s t o r i e s should not be discounted a s information sources. Frequently the subject w i l l provide inside infor- mation o r intimate and personal d e t a i l , especially anecdotal, t h a t may be d i f f i c u l t o r impossible t o obtain elsewhere. O r a l history seems especially useful i n several ways, depending on t h e subjects' memory, acuity, and observational vantage points, which may vary substantially from interview t o interview. A t t h e i r b e s t , memoirs provide significant , perceptive comment and interpretation. Evaluation of developments, delineation of trends, and identification of crucial events can be very revealing and informative. These interviews also shed a l i g h t on t h e subject himself, affording a t l e a s e glimpses and sometimes clear views of h i s personality, thinking processes, and value system. This i s true whether t h e interview comes out a thoughtful essay on "what-I-believe-the-world-is-am-about ,"or a nostalgic tour through a treasury of remembrances of the famous. By asking informed questions based on reasonable study of t h e era, and cautious, unobtrusive prompting, the interviewers have a l s o captured what the subject thought about friends and colleagues, especially those who played important ro1es;and what friends and col- leagues thought about each other, how they sized up each others' per- sonalities, capabilities, and motivations. These are perhaps some of the most important kinds of material. t o be found i n the manuscripts, and it i s irreplaceable i n a culture t h a t discourages alternative sources such a s diary-keeping, memoirs, o r autobiographies--except by the most eminent. I close with the hope t h a t t h i s enterprise w i l l help stimulate Alan Post t o consider some writing on h i s own. The very l e a s t we could ask i s a volume of candid memoirs, and perhaps a stream of interpretive essays might be forthcoming as well. He has a l o t more t o say about policy i n the Golden State and hopefilly he w i l l , when he f e e l s f r e e t o do so as an individual. Stanley Scott Assistant Director I n s t i t u t e of Governmental Studies 7 February 1974 109 Moses Hall University of California a t Berkeley 1927 Government Reorganization Links: The first budget f o r the biennial period 1923-1925, required under a new s t a t e constitutional provision, passed i n 1922, w a s prepared by the State Board of Control f o r Governor Richard.son. It was not a complete budget. It l e f t out many items, It l e f t out a good part of the special fund expenditures and s t a t e highway expenditures t o keep the t o t a l of the budget down. I r e c a l l very definitely t h a t Nellie Brewer Pierce, who was chairman of the State Board of Control i n 1922 was very close t o Governor Richardson, She told Governor Richardson she would. submit t o him a budget no higher than $79 million, Morris: Because t h a t q s a l l the money we had? Links: Oh, no! Richardson w a s just an economy-mind.ed governor, and he wanted t o keep the budget dom, Well the budget, instead of being $79 million, as I r e c a l l , turned out actually t o be just under $89 million when w e got a complete budget prepared. under instructions of Gilbert B, Daniels, the minority member of the Board of Control, Daniels refused. t o sign the transmittal l e t t e r of the State Board of Control t o the governor, Daniels would.nqt go f o r the "phony budget" as it was called. It was a phony budget of $79 million. Morris: That w a s what Richardson had said? Links: The budget staff had handed a budget to Mrs. Pierce, which was about $89 million the first time, as I recall, and she threw it in the wastebasket. She said, "1 said I wanted a budget not over $79 million. Go back and prepare one for under $79 million." So we did., by leaving out so many of the items, such as special fund expenditures and highway expenditures. So when Governor Richardson presented his budget for 1923-25 to the legislature, Mr. G . B . Daniels submitted a minority member budget to the legislature with the correct figures, which the state constitution required. The constitution required that the budget contain a list of all the expenditures of the state. The final budget adopted by the legislature was according to the Daniel's budget as it should have been. Our first actual complete budget was under Governor Young in 1927, when Alexander R . Heron, who was the first director of finance when the State Department of Finance was created-- Morris: Alexander Heron is one of the people who turns up again and again in state finance. Links: Yes. He was one of the finest directors of finance that we ever had. He was a very knowledgeable man. I remember one of his expressions was that "You can't see the forest because of the trees." I believe that's the way it went. Anyway he could see through things very rapidly and come to the answer in a quicker time than any man I ever worked under. Morris: What was his particular background? Was he an economist? Links: Yes. He was with Governor Young at the--what's the name of that real estate firm in Berkeley? Morris: Mason-McDuffie? Links: Mason-McDuffie. Right. He was with Governor Young at Mason-McDuffie. He came from there. Morris: So he would know land values and large fiscal matters? Links: Morris: Links: Morris: Links: Morris: Links: Morris: Links: Morris: Links: Morris: Links: Yes. He1s a very knowledgeable man, He had a wid.e expanse of knowledge, And so under Governor Young we presented the first complete, detailed budget. As I recall it was about $176, million a year. This was still -onebudget document for two years? Yes, we were in biennial sessions of the state legislature then, so we had two-year budgets, That's right, But the budget was only $176 million a year, about. And compared to now-- You could add.several zeroes, to that, I think! That's right. It's going to be about seven billion this year* I mean next year, 1972-1973, it's going to be almost seven billion dollars. Do you recall what the major items of expense were back in those late twenties? Well, the largest item, of course, were the fixed charges, The highway expenditures and bond interest and redemption. The state's financial aid to counties and school districts and such items were very small compared to what they are today. We didn't have any welfare or Medi-Cal in those days, If you had one of the old.budgets you could look at it and see what it was. I don't know where my copies are now. We have them all in Bancroft, That's right, you have them all, Irving Martin was one of the Board of Control members then, He was a newspaper publisher. Yes. I think he was an assistant director of finance for a while, Of course Lyman King, of the Redlands Savings and Loan Association was one the Links : Morris : Links : Morris : Links : Morris : Links : Morris : Links : oldtimerso* A very f i n e man too. Governor Young did more f o r the s t a t e of California i n h i s reorganization, than anyone since H i r a m Johnson's time. I went t o work f o r the s t a t e under H i r a m Johnson i n 1915. I w a s i n the Division of Highways at t h a t time, as a clerk. A s an accountant i n the highway department. Of course it was Governor H i r a m Johnson who reorganized the s t a t e , and put it on a sound. basis. And then Governor Young completely reorganized the s t a t e government of California i n 1927. W h a t particularly did. he bring i n i n terms of the Department of Finance and budget procedures? The Department of Finance w a s given charge of a l l the s t a t e properties, a l l the finances, a l l the budgeting, purchasing, a l l f i s c a l matters, plus annual auditing, and the uniform systems of accounting came under the jurisdiction of the Department of Finance. N O W , O ~ course, the Department of Finance is a l l shot t o pieces. About a l l it does now 9s prepare the budget. The Department of General Services has taken over a l l the other housekeeping functions. I see. Including the financial controls? No. That is s t i l l the Department of Finance. Now? Yes. The Department of Finance s t i l l has budgetary control. You came I came i n t o the s t a t e service i n 1915, but I came i n t o the Department of Finance i n 1922. *Lyman M. King was the second director of the State Department of Finance, January 31, 1930 t o January 5, 1931, under Governor Richardson. Morris : Links : Morris : Links : Morris : Links : Morris : Links : Morris : Links : PIorris : Links : 1922. How d.id you happen t o switch from the highway department to-- I went from highways t o become an a s s i s t a n t manager of the California State Fair- I was there from 1919 t o 1922, and took a cut i n salary of $25 a month t o get i n t o the Department of Finance, and started there as a junior accountant- W e had about seven people on the staff at t h a t time. N o w they have several hundred, o r d.id have, when they had annual auditing and a l l of i t s other functions- But we had just seven people, and did a l l of the auditing and a l l of the budgetary work i n those days- So you came i n before c i v i l service? Yes. I came i n long before c i v i l service- Although you s t i l l had c i v i l service i n those d.ays, but not as strongly as it is now, Did you have t o s i t f o r an exam? Yes- I sat f o r an examination- And had you a background i n bookkeeping and--? I had had the accounting education so t h a t I had bookkeeping knowledge, which enabled m e t o pass the examination- That's how I s t a r t e d i n the career of financial work i n the Department of Finance i n 1922- I became chief of the Division of Budgets and Accounts, i n the Department of Finance i n February, 1931, and assistant director i n August, 1949. A s assistant director I had general oversight of the several divisions of the Department of Finance- Were you calif okia-born? I was born right here i n Sacramento, I've been here f o r eighty years, Were you? Oh, that's wonderful! In f a c t , now over eighty years. A few hours over. [laughing] Morris : Links : Morris : Links: Morris : Links : Morris : Links: PIorris : Links: Sacramento would have been pretty much a small town. Yes. W e only had about t h i r t y thousand people i n Sacramento then. About t h i r t y thousand' o r forty thousand people. When I was - b o ~ n they only had about, I guess, twenty-five thousand, There were no paved s t r e e t s beyond 10th Street when I was a boy, If you know Sacramento, And the s t a t e capitol was the center of a l l the activity i n town? I recall very well when, in 1927, they completed the State Library Building, and the Office Building No, 1, which is just west of the capitol. Those buildings s t i l l stand; they are monumental buildings, Alexander Heron and I stood on the third floor of the capitol, and w e looked out the window a t those two new buildings just completed, and w e said, "Well, we're a l l set now f o r twenty o r twenty-five years," [laughing] Within f i v e years w e had four morebigstate buildings here i n Sacramento, as I recall, That1s how it goes. Yes, Well, one of the things I'd l i k e t o talk about is s t a t e construction. It seems t o have been one of the problems that has caused the budget t o increase-- The s t a t e ' s ever increasing population and a l l of these new--the welfare thing requires expenditures that have almost ruined the s t a t e financially, There's practically no control over that welfare, Anyone can get i n and get almost anything they want, You said that back in those early budgets under Governor Young w e had. very small aids, When did the welfare-- Welfare w a s only four or five years old when I retired. The s t a t e welfare program? Yes, Medi-Cal and a l l those things just increased the budget tremendously. Morris: Well, i n some of the things I've read, the amount of welfare people were receiving began t o increase in the l a t e twenties, early thirties. It was federal legislation at t h a t point, and Governor Olson w a s pushing for--. This w a s d.uring the Depression. Links: Yes. Morris: In some of those budgets--I think it was about the '27 t o '29 budget--they said that a l l the federal funds that came t o California were not included i n the s t a t e budget-- Links: NO, they're not s t a t e expenditure. They're not a s t a t e expenditure as such. We're merely the agent of the federal government, spending that money. That's not included as part of the budget even now. You see, t h i s i s state money that we're talking about i n the budget, not the federal money. Fiscal Controls Morris: But the s t a t e has t o keep an accounting of it, don't they, and administer it? W a s that much of an expense? Links: Oh, you meankeeping account of it? Oh no, no. The accounting of it is very simple. Yes, that wasn't very expensive. It's the distribution of the welfare and the keeping of those records which are very costly. Morris: The distribution of it. Links: Personnel has just grown by leaps and bounds i n i t s increase. Morris: When you say distribution, does t h a t mean what w e c a l l casework services t o talk t o people t o see i f they are eligible? Links: And of course the issuing of the checks every month, and keeping the record of the amounts paid and a l l that. That's where the costs come. And of course Links : Morris : Links : Morris : Links : Morris : Links : Morris : Links : Morris : Links : the actual expenditures, the aid granted, is what causes the costs and the tremendous staff of people that are necessary t o administer that program. And it doesn't get any less. O f course, it won't, as long as there are no controls on it. There is apparently very l i t t l e control now. I've read i n the paper on several occasions when people with plenty of money have gone i n and applied f o r welfare grants and gotten it. That really seems very strange, doesn't it? Oh, w e just had one case here the other day. This man I think had $12,000 in cash in his house, and he w a s on welfare. H e had gotten over $7,000 out of the state. O h my. Well, could w e go back a b i t ? The period t h a t we're particularly interested i n i s when Earl Warren was governor, and it seems l i k e a number of things were happening. Yes. H e w a s governor f o r about ten years. H e w a s an outstanding governor. Yes. He was elected i n '42, and then took office i n '43. U p u n t i l that time, there had been nonprofessional people as director of finance. Mr. Olson had had Phil Gibson, and then George Killion. Yes, Killion was a good finance adviser. Judge Phil Gibson w a s a lawyer, but he w a s a very able man and took ad.vantage of the knowledge of other people. That 's interesting. Yes. Very definitely so. I recall, whenever a new governor came in, one of the f i r s t ad.vices he w a s given was t o get r i d of Fred Links. [laughter] Well, because I had the knowledge and knew how t o exercise control. W e were very careful i n our controls, of course. They always got an answer, I Links: yes o r no, and they didn't have t o w a i t s i x months as they do now t o get an answer. And because of m y knowledge, and background, I knew everything t h a t w a s going on. They wanted t o get r i d of the man t h a t knew everything i n s t a t e financing and. could put roadblocks i n the way. Morris: This would be Olson's advisers? Links: Yes, Olson. But i t w a s n l t m o r e t h a n , oh, maybe three months o r four months before they decided they didn't want t o get r i d of me. Morris: In other words, Mr. Gibson f e l t t h a t your knowledge was essential. Links: Yes. He took advantage of it, you see. I worked - with t h e governors. Olson's program w a s entirely opposite t o m y philosophy of the way the government should be run. I'd been a Republican a l l m y l i f e and he w a s a Democrat. But I had a job t o do, and I did t h e job t h a t was supposed t o be done, It had t o be done correctly. I r e c a l l very definitely when Jimmy Dean came i n under Governor Warren. I'd known Jimmy Dean f o r many, many years when he w a s c i t y msulager here i n Sacramento, So he said t o m e when he came in, "Now, Fred, you make the decisions i n your department, and I'll back you up. If they're wrong, we'll straighten them out. But 1'11 seldom go contrary t o tvhat decision you make. " And. he did, too, When I'd say "now t o something, he'd usually back m e up, I r e c a l l quite definitely t h a t when the State Employees Association ( I ' m a charter member of t h a t organization, and s t i l l a m a member of it) appealed t o the State Personnel Board. f o r coffee breaks, I went i n t o Jimmy Dean one day, and said " J i m , t h i s thing i s going t o cost the s t a t e $1,700,000 a year now, and it'll go t o about $5,000,000 i n l o s t time, State employees do not need a coffee break, They don 't work hard enough, " So he said., "Go and oppose it." Well, I went over and opposed it and told the Personnel Board a l l these facts, They said, "Well, Mr. Links, you were born t h i r t y years too soon," And. they passed Links : Morris : Links : Morris : Links : Morris: Links : Morris : Links : Morris : Links : it. [laughter] NOW, look a t what i t ' s costing the state! That's on the basis of employees taking twenty minutes-- A l l our employees are entitled t o take a coffee brea;. of fifteen minutes i n the morning and f i f t e e n minutes i n the afternoon, Well it turns out t o be a half an hour t o three quarters of an hour, They a l l s i t around and talk. I never took a coffee break a l l the time I was with the s t a t e even thou@;hit w a s available. I just don't believe in it, and didn't need. it. Although w e worked long, long hours, In fact one time I worked from Wednesday noon u n t i l Saturday morning on the budget proposals, That's sixty-five straight hours, When w a s that? Oh, I don't know, now. About 1945, I've been retired. sixteen years, But that w a s required t o get the budget out in time. It had t o be presented t o the legislature within t h i r t y days a f t e r they convened, W a s t h i s a particularly tough budget f o r some reason? Yes, it w a s a tough budget, Getting the d.ecisions on the cuts and so forth were very slow i n coming, From the various departments? Yes, well, the governor, and the conferences with the departments and the governor, and trying t o come t o some decision as t o what the governor would recommend, So w e had a staff of twelve o r fourteen people working those long hours, I never had m y clothes off i n a l l that time. I a t e s i x times a day, but--! You'd need to, t o keep going. Three times during the night sad three times d.uring the day, Morris: This sounds l i k e it might have been one of the Warren budgets. Links: Oh, yes, it - w a s one of the Warren budgets. W e worked many, many times two days at a time without stopping. A l l the proof-reading of the budget-- It went t o the p r i n t e r so l a t e , everything had t o be proof-read and put on a comptometer t o make sure a l l the figures were right. It wasn't an easy task. Morris: No. It's an incredibly detailed task. Links: W e had a couple of our boys d.ie of heart f a i l u r e s o r heart attacks, under that pressure. Morris: Well, maybe we could start on how the s t a t e budget process has changed. You s a i d . that Governor Young w a s the first one t o do a complete and. proper bud.@; et . Links: A complete budget. That *s right. Under the provisions of the s t a t e constitution. Morris: And t h a t had required. a constitutional amendment? Links : Well, when the amendment passed. There was a constitutional amendment requirement. I think the i n i t i a t i v e measure w a s sponsored, i f I remember correctly now, by the Commonwealth Club of San Francisco, the requirement t h a t there be a complete, detailed budget, showing expenditures f o r the current year and the proposed expenditures f o r the coming year. For the coming biennium, i n those days. Of course now we have the yearly budget. That's when the legislature met biannually. I1 DURING GOVERNOR WARREN'S ADYIIWISTRATION 1948: Annual Budgets Begin Morris: And. then, i n the t h i r t i e s , a t what point did it begin t o be a problem t o have a two-year budget? Links: Well, you see--I have forgotten the date of the constitutional amendment that provided f o r annual sessions. Morris: That was 1948. Links: That's right. And then of course w e just had a budget every year. Before,we only had a biannual budget, which w a s much easier, of course. Morris: Verne Scoggins said that one of the problems w i t h the two-year budget was that the second year's legislature didn't know, understand,the thinking that had gone into the making of the budget. Links: That's right. And the changes were so rapid i n the s t a t e , that the budget became almost--oh, l e t ' s see, what i s the word I w a n t t o use? Morris: Obsolete? Links : Well, more o r l e s s obsolete. Yes, you're right. It became obsolete because of the changes i n the conditions, and financial requirements of it. They found. out that they couldn't operate the s t a t e on a two-year budget. They just had t o have an annual session. The s t a t e became so large, and the expenditures so much on an increasing basis, that they just had t o look a t it every year. Links: Morris: Links: Morris: Links: Morris: Links: Morris: Links: Morris: Links: Morris: Links: And that's why we have the annual sessions. Now we have almost a continuous session. [laughter] It sure looks like it this year! How long has it taken them? January to December. And they're starting again this afternoon. And ' it's still the budget that's causing-- It's still the budget. They're trying to balance the budget. They need about $310,000,000 right now. Yes. One of the things that has interested me is the economic forecasts that go into that budget document. Yes. We had a very fine staff for that, and,we were usually very accurate. Ralph Currie, who was our chief financial estimator, was a very bright man, and still is a very bright man. He's retired now. Yes. Is he still in California? He's here. I n Sacramento, yes. Where did he get his information? Oh, he gathered information from business, the volume of business and population increases. We were very accurate on our population increase forecasts, too. They had a very excellent staff of researchers, who took the information that was available from business and from the United States government, the Department of Labor, Department of Commerce, and.other government d.epartments,and compiled all that. That d.epartment still is operating. That section, I mean, of the budget staff. So that would give you your estimate of what the state's economy was going to be. What was required. Morris : Links : Morris : Links : Horris : Links : Morris : Links : And t h i s would give you indications of what revenues would. be, and also what costs would be? Yes. A l l of that. Yes. What a l l the revenues would be, and what the expenditure requirements were, from the population standpoint, the increase i n our institutions, mental institutions, prisons, and schools. A l l of that was part of t h e i r task, t o predict that. Trying t o predict it f o r two years was not an easy task. NOW, it's much easier, t o have only one year with which t o be concerned. Then what happens? After you've got the economic forecast and the predictions on revenues and s t a t e expenses . Then a f t e r w e found out what the expenditures were, whether we had t o increase revenues, or reduce expenditures t o keep within the budget. It had t o be a balanced budget. The governor had t o submit a balanced budget. In other words, i f the expenditures were greater than the revenue, he had t o propose new sources of revenue. That's how our sales tax came into the picture. That w a s i n the t h i r t i e s , wasn't it? Yes, somewhere i n there. And that's going up a l l the time. Everything's going up. Well, a couple of minutes ago you said that Olson's ideas were contrary t o your philosophy of government. Can you give us kind of an idea of what your philosophy-- Well, m y philosophy always was that w e should have a balanced budget, and that w e should hold our expenditures down t o the lowest possible amount consistent with serving the people, and giving them the service that is expected from government. O f course, Olson had sort of a "giveaway" philosophy. He had a l o t of new ideas about how t o spend. money. H e was on the l i b e r a l side, and of course I was always taught, from the very beginning, t o be frugal with s t a t e expend.itures, and prevent t h e i r increase. Expenditures ~v~ushroom Morris: How would t h e State Department of Finance react when t h e l e g i s l a t u r e would want t o expand certain services t o people? Links: Well, we would s t e p i n , and i n most cases we would oppose them. Because a s m a l l amount of expenditure now would mushroom as the years went by. And t h a t always has been true. You start something with a s m a l l expenditure, and before you know it, you've got an elephant on your back. Claughter] You carry a l i t t l e k i t t e n , you know, o r a l i t t l e elephant, and then he grows i n a hurry. Morris: This has been t r u e i n t h e construction and the highway program, too. Links: Well, yes, of course i t ' s been t h e requirement f o r additional freeways and highways t o get the public moved from one section t o another. For instance, r i g h t here on Folsom Boulevard.-- Morris: That's quite a masterpeice, I think. Links: If you had come i n t h i r t y d.ays ago, you would have a very d i f f i c u l t tfme getting into t h i s park, waiting f o r t r a f f f c . N o w you can just come i n and go out any time. We've got a new throughway. We've got eight lanes over there, and here we had four lanes. Morris: There are very few people using that new piece yet. Links: It's just amazing. N o w you can run downtown i n seven o r eight minutes. It used t o take f i f t e e n o r twenty. Morris: Yes, you'll get your neighborhood back. Links: O h yes, t h a t ' s right. Yes. It makes a big difference. Morris: Once we got into annual budgets, what kind of technical developments were introduced.? Links: No difference there. It was practically the same, Only we had to make it only for one year, and we could give a much more accurate picture than we could for two years. The state was growing so rapidly that it was almost impossible to pred.ict two years ahead, That was the reason for the annual budget, and the annual session of the legislature. The state was changing so rapidly that you just couldn't wait two years to get some of these things under control, or to predict accurately the requirements for the second year. Morris: In the forties, when we got into World War 11, one of the things that's interesting in reading those budgets is how much the revenues were ahead of the forecasts. Links: Well, that's because the governmental expenditures, the war expenditures--thatlssomething we didn't know about, to make the prediction. Morris: Well, even on into ' 4 4 and '45, state revenues continued to increase. Links: Yes. Well, the sales tax. I don't know just when that started, but the sales tax just went up by leaps and bounds as more industry came in and more people came in. Morris: It sounds as if the people in the Department of Finance didn't really think that this was going to continue. Each year you figured it was going to level off. Links: That's right. It never did level off. [laughter] Morris: Did Warren agree with you on this cautious approach? Links: Yes. Warren was a cautious governor. Off the record, he made a much better governor than he made a chief justice of the Supreme Court! [laughter] I think he's responsible for a lot of upsets on giving all the benefits to the criminal and. no benefits to the victims, That's another story. Morris: And then we have something called program budgeting and bookkeeping systems. Links: Yes, in the old days we used to consider item by item. And then when the governor--Governor Knight? Morris: Was this Knight or Brown? Links: Yes. I think in the latter part of the Brown administration we came into what we called program budgeting. We figured things out on a program basis rather than on an individual employee by employee basis. The number of employees in each category or classification. They'd. decide whether they wanted that program to continue or this program to expand, or this program to be diminished. Morris: Is this any improvement? Links: I think it has a validity, and is better budgeting. Yes. Do it by programming, and then you could understand the whole program. The legislature could decide whether that program should be expanded or contracted, or continued. Morris: I had thought it might have come in earlier on. Links: No. That didn't come until, I think--Governor Brown was in at the time it came in. Relations with Administrative Departments and.the Legislature Morris: Another thing on Department of Finance procedure that I've come across--was it about 1947 that the department began to do administrative analyses of the operating departments? Links: Yes, that was under a man by the name of Pierce Fazel. He's still here in Sacramento. Morris: What was the reason for those? Links: Well, that was to analyze to see whether there was an overstaffing or whether the particular project on which a state agency was working was a valid project for the state, whether or not it Links : Morris : Links: Morris : Links: Morris: Links : Morris : Links : Links : Morris : should be expand.ed o r contracted or consolidated. Those were the things that our analyst staff went into. H o w did the departments take t h i s idea? Well, w e were the ones t h a t proposed it, and I hired Faze1 from Los Angeles. H e w a s i n Los Angeles i n the department there-- In the Department of Finance? NO, the Los Angeles Taxpayers Association, as I recall. H e was w i t h the taxpayers association. I was thinking about, say, the Department of Corrections, f o r instance, or the Department of Mental Hygiene. H o w would they react when Finance said, "We're going t o come t o do a study--"? Well, of course they had no alternative but t o accept our services. It's just l i k e auditing. You just walk i n and say, "We're going t o make an audit." And the analyst staff said, "We're coming i n t o study your operation. When w e supported them, they were happy. I f w e made recommendations t h a t they be curtailed o r eliminated, sometimes they were not happy. That's a natural thing, you see. It i s a natural thing. It's nice that you can look at it i n t h a t friendly fashion. [laughing] Well, w e did it f o r the good of government. W e made many changes and recommendations. They were usually adopted. W e had very l i t t l e trouble getting our program over w i t h the legislature, because w e never fooled the legislature. That w a s one thing. W e gave them the facts as they are, and they mad.e the decisions. You would have worked pretty closely then w i t h the Senate Finance Committee? Oh, yes. And the Assembly Ways and Means? Links: Morris: Links: Morris: Links: Morris: Links: Morris: Links: Morris: Links: Morris: Links: Yes, Assembly Ways and Means all the time. Senator Rich, of Chico, was one of our very staunch supporters and a very fine chairman of the finance committee. He was part of what they called the '8EconomyBloc" that started back in '38-- Yes, that's right. He talked our language. [laughter] Yes, Senator Rich was a very stout supporter of ours. How much of it was fiscal solvency and how much of it was a political-- His philosophy, of course, was fiscal solvency. H e ' s gone now, unfortunately. But he was a staunch supporter for economical government. We could always rely on him when we had a proposal before the legislature to reduce expenditures or to eliminate expenditures. He was a good supporter. And then he was followed by Ben Hulse, wasn't he? Yes. Ben Hulse was another very fine chairman of finance. A very fine chairman of finance. A very able man, and a good man. Ben Hulse was a dandy man. He was from Ventura-- Yes. He was in big agriculture, down in the South. Yes. And who in the assembly? Was Wollenberg on the ways and means committee? Yes. Wollenberg was a very fine chairman for ways and means. He worked with us very closely. Well, he was known to move for things like state health insurance and some of the other social programs that Warren wanted. Yes. As I recall he did advocate some of those newer things. There've been so many of them that it's hard to remember. Morris: Paying f o r them i s the nut that the finance department would have t o cope with. The Democrats' point of view seems t o have been that as production increased, you would produce more s t a t e revenues, which could then go f o r social services. Links: That's right. The Democrats proposed most of these new innovations i n s t a t e support, s t a t e welfare. Morris: And the productivity and s t a t e revenues didn't provide enough money? Links: NO, w e had t o increase the income tax, w e had t o increase the sales tax. Those are the two sources which they'll probably tap again f o r ad.ditiona1 revenue t o meet our present crises. Morris: H o w much of t h i s comes from pressure groups out i n the community, and how much of it-- Links: N e w philosophies i n the minds of the legislators, yes. That w a s the thing that w e had t o fight against a l l the time--adding new expenditures t o the s t a t e government. W e could see from past experience that i f they once got t h e i r foot i n the door, it was almost impossible t o a-bolish a program once it w a s established. It's easy enough t o get them started, but t o ever stop them--. Because people who were i n the program didn9t want t o stop, a.nd the people who were receiving the benefits didn't want t o stop. So w e had t o fight against that a l l the time. It w a s very seldom that w e ever got r i d of a program once it became a p a r t of governmental activity. That's the difficulty of those things, l i k e federal welfare, and a l l those programs. There are so many employees involved. They've got a l o t of power i n influencing legislation through themselves and. t h e i r friend.^. That's why it's so d.ifficu1-b in federal government to--so d.ifficult f o r any president t o red.uce federal expenditures. Morris: This w a s one thing that interested m e about the budgets i n the Warren years. You would. work out the budget d.ocument, and then Warren would present it to the legislature; then almost every year, the Morris: legislature would approve other items that weren't i n t h a t budget. So that even when you were cutting the governor's budget, the f i n a l t o t a l of s t a t e . expenditure would. increase. Links: Yes. And they would. of course reduce many of the items that we had i n the budget too. W e had. t h a t problem on our hands, t o support the existing requirements f o r governmental a i d and. governmental supervision, W e had t o f i g h t t o keep what we even recommended. many, many times. Many, many times, Morris: But then--the budget always ended up higher than your requirements-- Links: Oh, always higher, yes. In the case of appropria- tions, always higher. There never w a s an exception to t h a t i n any year. Morris: That's very curious^ H o w does t h a t come about? Links: Well, the legislature s t a r t e d new programs. The new programs--for instance i n construction, They would get a new college started, o r a new mental i n s t i t u t i o n s t a r t e d i n the author of the b i l l ' s own d i s t r i c t . That's what makes it almost impossible f o r a governor t o keep the expenditure that he recommends. It's always higher. A l w a y s higher. So i t ' s a struggle between the l e g i s l a t i v e minds and, the mind of those who a r e serving under the governor. Morris: And. pressures from within government, from various departments? Links: That 's right. Developing a Budget Morris: I n producing the budget, would you work out the budget item, say, for the Department of Mental Hygiene, with Dr. Tallman and his staff? Links: Yes, we always worked.with the departments. They would present their requests to us, and.we'd sit down and have a budget hearing with the department, and begin to pare and cut and see what they could do without, and how they could cut down. That was always our philosophy, cutting down. No governor wants to present an increased budget, as a general rule, except when they sponsored some new program of their own. Governor Warren inaugurated or recommended several new types of expenditures during his ten years. What they were in detail I don't remember, because there were so many of them. Morris: Well, he had a big highway program, and that produced a money fight on the gas tax. Links: The gas tax. Yes. Morris: What would have been your recommendation on that? Links: We would recommend add.itiona1taxes for greater highway expenditures, and show it in the budget as a proposed new expenditure. The governor was right in that, because had we not had the increased. highway facilities and additional freeways, we would just simply be stuck on the roads and streets. We could see ahead that we would have to have that. So many new automobiles would be on the road. in two years, or five years, or ten years ahead. Morris: And the other thing that went on, almost throughout his administration, was a postwar construction program of state buildings-- Links: Yes. State buildings. We had a program for that laid out for years ahead--a master plan for the expansion of the build.ings at the capitol. They still are paying millions of dollars in rent for rented quarters right now. Morris : Links: Morris : Links : Morris : Links : Morris : Links : Morris : Links: S t i l l ? And t h a t was one of the big problems there i n the early forties. Two things t h a t were d i f f i c u l t t o support. One w a s the rented f a c i l i t i e s . The Mull Build.ing, which used t o be at Tenth and L Streets. The Mull Building? t h a t Archie Mull? Yes. It's i n the Archie Mull family. W e have paid millions of dollars i n rent f o r those quarters. W e could. have bought the whole thing f o r about $350,000 o r $400,000, before w e started t o rent it. And we've spent over a million dollars i n rent on t h a t place alone. W h y was the decision mad.e t o rent instead of buy? You just couldn't get approval f o r the expend.iture of the $400,000 t o buy the building. It w a s too much i n t h a t year. And look a t what we've paid-- Take the governor's mansion. I know t h a t we spent over $3,000,000 i n maintenance and. repairs on t h a t building. And. just look at what we would have saved i f we'd bought and. b u i l t a new mansion, But the legislature would never approve it. Yes. The other thing which we always fought w a s attempts of s t a t e agencies t o make the revenues they collected a special fund over which the legislature and the governor had no control. You mentioned t h a t you helped Governor Young write h i s budget message? Yes, we helped. write it. Governor Young w a s an outstand.ing governor and it was a r e a l privilege working with him on budgetary matters, and h i s message. W e gave him the figures and. the comparisons and so forth. W e always helped the governors with t h e i r messages, because the d e t a i l w a s so much t h a t no single man, who hadn't worked with it very closely, could remember a l l the details. Morris: On Warren's budgets, would Verne Scoggins sit in on those discussions? To help write them? Links: No, Verne was the governor's right-hand.man. But the governor's staff never sat in on the budgetary processes. Morris: I meant on writing the budget message. Links: Oh, they may have. They may have d.one that. But not as I recall. Postwar Construction Reserves Morris: On the postwar construction that Warren planned-- how did.he manage to get all that money earmarked from the wartime surplus revenues? How d.id you put them into special reserve funds that couldn't be touched for other purposes? Llrks: Well. Perhaps they were appropriated.for construc- tion, and stayed there in the treasury until it was required. A lot of that was done und.erbond issues. There were some b0nd.s on state buildings, too. Morris: Yes. There were about two hund-redmillion dollars of surplus revenues in '43, ' 4 4 ,and those were-- Links: Set aside in the reserve. Not by legislation, but by administrative directives. Morris: Administrative directives? How would that work? Links: Well, the governor simply said, "This money will be kept for construction work, and we won't appropriate any of it for any other purpose." Morris: And what would.happen to those funds? Links: Well, they stayed in the treasury, earmarked for that. Morris: Were they invested? Links: Morris: Links: Links: Morris: Links: Morris: Links: Morris: Links: Links: Yes, they were invested in bonds. I n other states* bonds? In other governmental b0nd.s. IrIostly always in federal bonds. Yes. Wouldn*t the legislature object to those surplus monies going into-- NO, they went right along with us on that, knowing full well that we would. have to have additional state-owned public facilities. In general they didn't-- And. who buys the bond.s? Who handled. that? The treasurer. The state treasurer? Yes. I n other w0rd.s he would. invest it in banks and. the banks would put up the bonds, in either stocks or securities or something, to protect the deposits in the banks. The banks would agree to give us a small rate of interest. I think it was two and three percent. Interest on those deposits? On those deposits. Yes. But state fund.s were always protected by b0nd.s. And then before all that postwar construction that was planned for was built, the costs started to go up. Do you recall m y debates between Jimmy Dean and Alan Post, with Dean saying that "the costs are going up, we need to build it right now," and Alan Post saying, "Let*s d.elay this construction until next year so the prices will come down on construction." Yes. There were those occasions. When Alan Post was appointed, he would make recommendations quite contrary to the governor's recommendations for budgetary support. Elimination of agencies, reducing of agencies. That was his job. We worked very closely with Alan Post and his staff. He used Links: Morris: Links: Morris: Links: Morris: Links: Morris: Links: Morris: Links: to sit in on our budgetary hearings too, to see what was going on, We kept him informed of what was in the budget so he could make his own analysis of what he wanted to recommend, It seems as if you were both doing the same thing. No, He represented the legislative side of the picture. The legislators, many of them new, elected every two years, were not informed. They had no knowledge of financial procedures. Alan Post was the man who informed.and advised them, He was their adviser. There were lots of times his philosophies were entirely contrary to ours or the governorls. He says he's a conservative, too. Yes. He's very definitely a conservative. Very definitely a conservative, Yes, he would like to cut a lot of expenditures, and if the legislature had listened to him, we would have had a lot less expenditures for state government, too. His recommendations were on fairly good, solid grounds. On this postwar construction, would he have been kind of running head-on into Mr. Dean, because Mr. Dean was an architect? Well, no. I don't think so. Mr, Dean looked at it from the state's requirements, not from an architectural standpoint. Jimmy Dean never felt that we should build buildings just to be building, He only made his recommendations on the basis of state requirements for the present and the future. A very able and a very good man. I ' m interested that he was city manager in Sacramento, before he joined Warren's administration. Yes. About ten years, He was also ten years, almost, with the governor. Yes, he was director of finance all the way through Warren's terms. Where is he now? He has passed.away, Morris: Oh, that's too bad.. Links: Yes. He died. These men are getting old, you know! [laughter] Morris: Well, Mr. Warren is still hale and hearty! Links: Yes, he's just s i x months older than I am. He's i n h i s eighties now, too. It a l l d.epends on your philosophies and your a c t i v i t i e s i n retirement, When you once get old, you'd b e t t e r keep active and. going. Morris: It seems t o be t h a t the busier you've been i n your working career, the busier and the longer you keep going when you r e t i r e , Links: I ' m s t i l l vice president of a building and loan association. I've been on the board of directors f o r thirty-five years, Fort Sutter Savings and Loan, here i n Sacramento, I still do a l o t of a c t i v i t i e s i n m y Presbyterian church. And of course I ' m very active i n music. I was a choir director i n Sacramento f o r forty-eight years. Morris: Were you! Links: That w a s m y outlet. Morris: This kept you relaxed and sent you back into-- Links: Yes. It entirely changed m y whole a c t i v i t y , and t h a t q s the thing t h a t kept m e going, Outside music. Morris: That's wonderful. Is t h i s a church choir? Links: Yes, a church choir. Morris: And you were the director? Links : Morris : Links : Morris : Links : Morris : Links : Morris : Links : Morris : Links : Morris : Links : Yes, I w a s the director f o r thirty-nine years with the Methodist church, and another twelve years with t h e Presbyterian church. The t o t a l career was forty-eight years. Had you studied music somewhere along the l i n e ? Yes, I did during the early days. Singing. I did. a l o t of soloing. In other words, you were a s o l o i s t yourself. And a l l that without salary. That kind of labor of love i s very satisfying. It's m y avocation i n l i f e . What I c a l l m y t i t h i n g of time. Yes. Where did you study singing yourself? Here i n Sacramento. Pease Music Studios, and some others. I had four o r f i v e different teachers over m y early career. Did you do any concert type of singing o r theater--? No. Nothing of t h a t kind. Not professional. This w a s a l l amateur. I had no desire t o be i n the professional business at all. Well, there a r e many l i t t l e theater volunteer groups. Yes, No, I never did that. W e did a l o t of acting i n those days, too. In theatricals. But t h a t w a s a l l amateur theatrical. W e put on a l o t of programs. W e had a 45-voice choir with a waiting l i s t , a l l t h e time. I w a s a very s t r i c t director, you see. I didn't g e t any more pay than they did, and I could demand t h e same thing from t h e members of the choir t h a t I w a s giving. I l e t many a member of t h e choir go who was absent three times. H i s seat wasn't f i l l e d , and I said, "There a r e people who want t o s i t i n t h a t seat, so i f you can't do it, somebody e l s e w i l l take it." Directing w a s l o t s of fun. Morris: Did any of those members join s t a t e service? Links: Yes. There were a l o t of s t a t e service members there. Fred Taylor w a s one of m y choir members. He w a s at one time d.irector of the Department of Professional and Vocational Standards. Earl Chapman, who w a s the administrator f o r the s t a t e retirement system was a member of m y choir. Oh, l o t s of women and men throughout the s t a t e service. John Handsaker, who w a s deputy directory f o r Veterans Affairs, w a s a member of m y choir. The choir. It wasn't choir, it w a s the choir. [laughter] o r r i s : Well, you develop kind of a fatherly feeling towards them, I would. think. Links: Yes. I've had a l o t of them i n there i n the old days. Yes. W e used t o have l o t s .of fun. Morris: I would think so. I would think so. Singing groups are very satisfying. Links: W e had about 93% attendance, year i n and year out. And. the choir members appreciated it, too. They got the discipline, and yet they had a l o t of fun with it. W e used t o have annual dinners, prizes f o r attendance, and a l l those l i t t l e gimmicks. It a l l helped. Morris: Yes. They r e a l l y do. One of the big s t a t e expenses, coming back t o that, was i n 1947 when the s t a t e took a big jump i n t o school financing. The school equalization b i l l . This w a s f o r construction, wasn't it, and a l s o f o r operating support? IV OTHER STATE MONEY MATTERS Fiscal Officers Links: Yes. That's what we call a . d . a . The average daily attendance. They got so much per unit, of average daily attendance at the schools. Morris: That was the origin, then, of the a . d . a . ? Links: Yes, Of course, now the state supreme court has said that property tax is not the way to finance schools. It should be a general tax, rather than a tax only on real property. Morris: Don't a . d . a , funds come out of state income tax revenues? Links: No, it comes from revenues that are paid. into the General Fund. Morris: Was this something that the Department of Finance went along with? Links: Oh, I think it was a result of many conferences and suggestions as to how schools should be supported, Many of these things arise from those types of considerations-- Morris: Several years' worth of discussions with local people-- Links: Yes. They don't just pop right out of the sky. It's the final consensus of opinion of those who are interested in how these things should be financed. Morris: Links: Morris: Links: Morris: Links: Morris: Links: Morris: Probably because it says "school equalization aid,n I've wondered was that administered by the Board of Equalization? No, the Board of Equalization was only interested in the raising of the money. That's all. And liquor, of course, in the early days. They had control of the liquor. Before they created the Alcoholic Beverage Control board. The Board of Equalization had liquor--. That's where Bonelli got into trouble, you know. How did he get into trouble? Well, he was accused in Los Angeles of accepting bribes for liquor licenses. They were very scarce in those days. We had so many per population, so many per city. He was accused of taking bribes, and getting licenses for people. He d.ied as a fugitive from justice in California. He d.ied in Mexico. Now his widow is suing to get all his back retirement pay due him during those years. I t ' s quite a mess. How does the Board of Equalization affect the raising of revenues? They wouldn't say, "The sales tax is going to go up one percent" would they? No. They had nothing to do with that. All they would. do would be to equalize the value of property upon which the tax was levied. They make recornmen- dations for counties, and also they would fix the rates of taxation for utilities, corporations, banks. Things of that kind. That would seem to be a very sensitive area. Oh, it is. A lot of politics in that, you see. On evaluations. Assessment valuations. It was their responsibility to see that there was an equal assessment throughout the state for the various types of properties and. businesses. That was their function. Still is. They're an elected board., and to equalize the value of properties all over the state--this would require a staff. Links: Morris: Links: PIorris: Links: Morris: Links: Morris: Links: Morris: Links: Morris: Links: Morris: Links: Morris: Links: Oh, they have a staff of analysts and appraisers. This was an issue too, wasn't it? Wasn't this one of the things that Mr. Post objected to? That they were not earning their keep? Yes. There were a lot of questions on that. A lot of questions on whether or not they were doing their job. Post is still there, too, by the way. Alan Post? Yes, I've been interviewing him-- Vandegrift was the first one they had.. Yes. Did you work for Vand.egrift? Yes. Roland Vandegrift. He was d.irector of finance too, you know. Yes. It' s a remarkable list of men wholve been director of finance. Yes. He was the first legislative analyst. After he was d.irector of finance he became the legislative analyst. Then he died, and they got Post in as-- Post had worked under Vandegrift for a couple of years. He did, yes. He was his assistant. And.Vandegrift as director of finance was und.er Frank Merriam, wasn't he? Yes. Under Frank Merriam. And what were his ideas on how the Department of Finance should function? He came from the taxpayers1 association, too, you know. That' s right. Roland Vandegrift did. Roland A Vandegrift, without a period. A was the name for him. [laughter] He never put a period.after his A . Morris: Links : Morris : Links : Morris : Links: Morris : Links : Morris : Links : Morris : Links : Links : Did it stand f o r anything? No. don' t think it stood f o r anything. N o middle name? No. It wasn't an i n i t i a l . ''AW w a s just it. Roland A Vandegrift. You mentioned that Alexander Heron was director of finance. Somewhere someone told m e that he had also been i n the Department of Education. I know he had something t o do with education, but I don't recall, frankly-- H e started some of the ideas on how the Department of Education should be funded and how schools should be funded. When C.C. Young w a s elected w e went down t o Mason- McDuffie i n Berkeley and did a l l of our budget consultations down there with Alexander Heron and the governor, before the governor actually took office. It was necessary f o r him, a s the governor, t o present a budget right a f t e r he took office. That must be a hard job, that f i r s t budget, f o r any governor* Oh, it is. Yes. For any governor i n those d.ays. Particularly when coming i n from outside of s t a t e service. W e would always have t o confer with the governors and work with them. O n that first budget, are governors i n general more l i k e l y t o rely upon the Department of Finance figures? Yes. Definitely so. Because they have no knowledge, as a general rule, not having been i n government-- Take Ronald Reagan, f o r instance. H e had no knowledge of the government as such, and a l l of the f i s c a l intricacies of budgeting a t all. So he had t o rely on the budget staff for a good part of h i s f i r s t Links: Morris: Links: Morris: Links: Morris: Links: Morris: Links: Morris: Links: Morris: Links: Morris: Links: Morris: Links: Morris: budget. So the director of finance must be one of the first appointments a governor makes. That's right. Again, on Warren, before J i m Dean, Jack Hassler-- Jack Hassler. Yes. I remember Jack very well, yes. He was a city manager, too. Yes, he was a city manager of Oakland. Had you known him by any chance? No, not ahead of time. I worked very closely with him afterwards. Lyman King was his deputy at that time. Didn't he stay in the Department of Finance? Yes, he became director of finance in January, 1930, until January, 1931. After he finished.state work, Lyman King went back to Redlands Savings and Loan Association in Redlands, California. So he had a professional banking background. Yes. He had a professional financial background. But not in state government as such, till he came into state service. He'd been in a bank, and.then came to the government and then went back to the bank. Savings and.loan. Yes. Yes. I have to remind myself that savings and loans aren't really like a bank. [laughing] Yes. They're not like a bank, exactly. They have a little different function. One other financial officer I've wondered about is the state controller. Links: Morris: Links: Morris: Links: Morris: Links: Morris: Links: Morris: Links: Yes. An elected official. He's elected, and again, how much influence do the controller and the Department of Finance have on each other? The controller has no control over expenditures. He merely disburses the money which the legislature has appropriated. He also collects inheritance assessments, Of course, he sits on several other boards. On the Board of Control, and the Board of Equalization, I don't know now, There have been so many changes that I haven't even kept up with them, But you can get that from his office, as to what boards he sits on, Yes, Well, that was Tom Kuchel, who was Warren's-- No, Tom Kuchel, who was controller for so long, was an elected official. Under Governor Warren and Jimmy Dean, our staff had.advocated a merit award. board. What's a merit award? Where state employees make suggestions for state savings, and. then the employee gets a cash award, Thereqsone of them now for $68,000 where one suggestion is going to save the state nearly $680,000 a year. The rule adopted by the board was to give the employee ten percent of the first yearqs savings, I served as the first chairman of the State Merit Award from December 1950 to July 5, 1956,when I retired, Had Tom Kuchel suggested.some these? No, He became a member of the state Board of Control. He was a member of that board, If the award was over $150, the Board of Control had to pass on it and make recommendations to the state legislature, Oh, I see, I n the old days the principals had. to sit on the boards of which they were members, Later the law Links: Morris : Links : Morris : Links : Morris : Links : Morris : Links : Morris : Links : Morris : Links : w a s amended. so that a deputy can s i t f o r the principal. Oh. That kind of changes things somewhat, doesn't it? Yes, it did quite a l i t t l e . N o w the deputy s t a t e controller sits f o r the controller, as a general rule, on some of those boards. One of those t h a t was formed. during the w a r was the s t a t e Allocations Board. I think the controller was on there, and Mr. Dean. Yes. The director of finance and. the s t a t e controller. That must have been pretty powerful. Well, it mad.e the allocations f o r the--. It's s t i l l i n operation, I think they c a l l it the Public Works Board. now. I was wondering. I was looking f o r the Public Works Board back throu@;h the years, and I ran into the Allocations Board. So i t ' s the same. It's the Allocation Board. Yes. It makes allocations f o r construction. In other words, it would have t o approve the plans-- The expend.itures. Yes. Plans. They have t o approve the general idea of what was t o be built. O f course the Division of Architecture prepared the plans i n those days. That is a d.ivision that's going down and d.own and down. Much of our s t a t e work goes t o private enterprises, which costs us more money now than when we had. the s t a t e staff of architects. D i d n 0 t t h a t come about because there were so many things t o be b u i l t that the s t a t e architects couldn't handle it a l l ? Of course,the colleges got out from under the Division of Architecture. )Iorris: You mean the building of state colleges? Links: But ft's costfng us more money, there's no doubt about that. Morris: Looking back over the years, what were the issues and the happenings in the Department of Finance that you recall as having yourself had the greatest satisfaction out of, or felt were the greatest steps forward? Links: The first step forward was the requirement for a detailed.budget, That was passed by the people and advocated by the Commonwealth Club of San Franciscoe I think that was one of the biggest steps we hade Then the legislature was informed in detail of what the expenditures weree Before that, it was everybody for himself. And those that had the greatest influence politically, got the biggest appropriations, Often more than they required, legitimately, or could justify legitimately, That was our biggest step forward, Then the annual budget was the next step, I think, as a definite improvement in fiscal affairs, The state has become so large that you just simply cannot predict two years in advance what's going to happen, And the many improvements in the form of the budget document were significant steps forward in presenting the information to the legislature, Morris: What would. some of those be? Links: Well, the number of employees per classification. There were many new improvements, Charts, and graphs, and detail that was added to the budget as the years went by were definite improvements, in permitting a better understanding of the budget requirements, The fiscal requirements, Morris: Would one of these be the breaking the budget down fnto capital and fixed charges and the local assistance--? Links: No, we had that from the very beginning. 1927 we had fixed charges all separated from other expenditures. The legislature has control only of about 25% of the budget--when left. I don't know--it* s probably lower now. But they have nothing to do with welfare, they have nothing to do to control certain school requirements, and of course bond issue redemption is not under their control, Highway Expenditures Links: Highway expend.itures are no longer controlled by the legislature, It's all fixed, Fish and Game revenues are fixed by constitutional amendment. and you can't use that money for anything but -Fish and Game expenditures. Of course the legislature does control expenditures, but not on highways. That's controlled and allocated by the state Highway Commission, Morris: The highway budget is not part of your budget docwnent? Links: Oh, it's part of the budget, but it's not a part of the requirement to be appropriated, It's all appropriated by a constitutional provision, That is, allocation is made by the Highway Commission, Morris: How did that come about? Links: Well, the people who were interested in highway construction got that fixed exclusively for highway development--so that the legislature can't do anything with it, Morris: So that it's just the Highway Commission that has control? Links: They can decide what's going to be built, how much is going to be spent, and all of that. Morris: But then the legislature has to appropriate the money? Links: Morris: Links: Morris: Links: Morris: Links: Morris: Links: NO, it's all appropriated, It all comes in from the gas tax and the motor vehicle revenues? Yes, Motor vehicle revenues are part of it, too. Is that sound, from a financial point of view? Well, Unless you had it that way, you'd have pork barrel appropriations, Every legislator who had a lot of political power and control, control of committees, could get much more for his district than the ordinary legislator who's not on an important committee, There are fewer highway commissioners than there are legislators, I think there are only five on the commission, Maybe seven now. I ' m not sure, That of course is a matter of record as to just how many members there are now. Yes, I would think that that would be one of the areas that people would question, No. They have some pretty good data upon which to make their decisions: the need for increased transportation over the years, Population changes and movements, and--. The mess out here in front of our mobile home park was terrible. At 4:30 PM cars were lined up for miles along the old Highway 50. Now, with the new 50 freeway you just go sailing along. Get downtown in seven minutes, where it used to take fifteen to twenty minutes. It makes a big difference, These are the thiws the Highway Commission has approved from their studies. They have the information necessary to make the allocation, for timing and the width-and length, that highways should be built. They're planning for ten years from now, Not now. They've had to rebuild so many highways in San Francisco now. Morris: The Highway Commission, then, you feel has more information than, say, the Senate Transportation Committee? Links: Yes. They don't have the staff. This requires tremendous research. You see these things on the highways, these little traffic counter things. Thinking wag ahead.. They've got those all over the state, to determine what is the traffic require- ment. Even on this brand new highway, they've got the traffic counters there already. The Highway 50 was a lifesaver. When they get that all the way up to Lake Tahoe-- I remember when we used to go to Lake Tahoe; it would take us four hours. Morris: It was an all-day trip. Links: Yes. Now it's anhourand.forty-fiveminutes. Morris: Oh my. Well, there are a couple of places up there I don't think they're going to be able to broad.en it out by much. Going up that slope to Myers' Summit at the south shore. Links: Oh, Myers' Grade. No, they're going to tunnel that. They're going right through the mountain. That's in the offing. They'll be starting that before too long. Go right in at the Echo Summit and come out way d.own at Myers. All underground. Morris: I hope the top of the mountain doesn't fall in. [laughter] Links: An all-new highway. Controlling Public Costs Morris: Well, let's see. We were on the highlights of progress in the budget process over the years. The thing that you have commented on several times is that expenditures continue to rise, and the operations become more complex. As a lifetime economist and finance planner, do you see any way to simplify or resolve public finance complexities? Links: NO, not unless you change some of these fixed expenditures, l i k e the welfare--, O f course the bond redemption can't be changed, That's fixed by the constitution by amendments over which the legislature has no control a t all. But I r e c a l l very vividly when our federal budget reached a b i l l i o n dollars, I w a s astounded. A b i l l i o n dollars! Now, what is it? $232 b i l l i o n , I think. Just unbelievable, The same with the s t a t e budget, $176 million a year i n 1927 has gone to almost seven b i l l i o n a year. It w i l l be next year, about seven b i l l i o n dollars. Morris: W a s it a red-letter day when the s t a t e budget h i t a b i l l i o n ? That w a s about *48, '49, Links: Well, it was just horrifying, [laughter] Just horrifying, Morris: Yes, I can imagine, H o w far ahead could you see it coming? Links: Well, you couldn't see it coming. Welfare wasn't even i n the picture then. And Medi-Cal wasn't i n the picture i n those days. Our prison population i s way down, of course, It dropped a third, I think, as I recall, O u r instftutional population i s down. Welfare has had a l o t t o do with that. Morris: Oh, I see, Links: A l o t of people go on--mentally deficient, because of the needs t h a t they had in living. The require- ments t o get food, and the cost of living, A s those pressures were taken away, the mental processes now don't d.eteriorate so fast, Morris: People can then function on t h e i r own, Well, I remember f i f t e e n years ago, the idea was t h a t it would be cheaper f o r the s t a t e , and. therefore f o r the taxpayers, if you could. take care of a mental patient o r a juvenile offender-- Links: Yes. Outside the prisons, Morris : Outside of a s t a t e institution. Links : Morris : LiKks: IJIorris: Links : Morris: Links : Morris : Links : And t h a t ' s true, The same thing i s true with prisoners, So many more a r e going on parole, They're not sending nearly so many people t o prison as they used. to, Then how can w e explain the f a c t t h a t the t o t a l cost of s t a t e government goes up? The point is, so many more come i n under the rules, than would normally come under control of institutions, That's what is happening, I see, Everybody gets on welfare now, Not everybody, I mean, but a great many people a r e on welfare now who wouldn't even get t o first base i f it wasn't so l i b e r a l , The work requirement i s the thing t h a t s t i c k s i n m y craw, These people a r e getting a l l t h i s without giving any service whatever f o r it. I ' m absolutely with the governor on a work requirement f o r able-bodied persons, men who can work, and women without children, who can work, A t l e a s t give some service f o r what they're getting. I think it's b e t t e r f o r them. H o w can you do t h i s at a time l i k e now, 1971, when there a r e fewer jobs than there have been? Well, the point then i s l e t them give service t o the s t a t e , o r the c i t y o r the county, f o r work t h a t can be done which is not being done because the money i s n ' t available t o do it. On a s o r t of a volunteer basis? Well, on a requirement basis f o r them t o earn, probably, on a regular minimum salary requirement, the amount that they get, W e then would get something out of it. It's not, I wouldrmqt say, a WPB program, o r something that's unnecessary a l o t of times, But there are many things t h a t can be done, t h a t would. help the environment, help i n c l e r i c a l work, and things of t h a t kind t h a t are not being done, because the money i s n ' t there t o employ the people t o do it. Morris: Links: Morris: Links: Morris: Links: Morris: Links: Morris: I see, One question that occurred to me on some of these technical areas like highway planning: does the University, their institutes and staff, offer advice or consultation to the Department of Finance? Yes. They present their budget and we have hearings with them, too, Yes. As the whole university, I was thinking of the Bureau of Public Administration, or Institute of Governmental Studies. NO, They do that themselves, We don't have anything to do with that, They have it in their budget requests for that. Yes, but when the Department of Finance has a new problem or a tricky area that they're trying to work out, do you ever go to the University for technical advice and ideas? Consultation? Oh, you mean on prediction of revenues and.things like that? They have a staff there too, We work together. If they have a population studies group, we work with them, We get all the information we can, We work with the Chambers of Commerce, We work with the Taxpayers' Association, All those different bod.ies, to obtain and acquire all of the information we can get, Do you contact them and say, "We're now starting a budget, What kind of information have you got?" Well, for instance our budget analyst's staff and the financial research staff would consult those people to see if they have made any predictions, and to see how near their predictions are to ours, We work closely with them, We obtain any information we can, anywhere, Then we'll make our own analysis from the information that they have that we've gathered, Out of that will come the final decisions as to whether our revenues are going to be up, or down, or stay steady, If your projections are, for instance, that sales are going up, how fast is that reflected in the Morris: Links: Morris: Links: Morris: Links: llorris: Links: Morris: Links: actual revenues of the state? Well, that depends on how the economics changes. It can change from month to month. From the employment, from business, from manufacturfng, from all that, we can make our prediction. So that within a few months, the business picture can change? And then you have to cut that into your-- Yes, but not now as drastically as when we had to make a biannual prediction. It's pretty logical, although sometimes economics changes, or war conditions, or something, and upsets the whole program. As a general rule we're fairly accurate. We've been noted to come very close to our estimates. And then, if you predict or see a drop happening, in state economic conditions, how fast will that be reflected in the actual income that the state is receiving? It depends upon the type of revenue that we're going to get. Income tax you'd have to predict coming in the following year. Sales tax is affected immediately. that paid monthly? Yes. We keep a monthly record.of that. And then, if the revenues are dropping, we have to start curtailing budgetary expend.itures. You say, "Here, you can't start that now, because there's a change in conditions. '' Or, "You'd better curtail expenditures so that we can balance our budget.I1 Because we've got to keep a balanced budget. In other words, during a year, during a given year, you've got a budget document that was passed the previous year--you'll make changes in things that you approve or disapprove, department by department? That's right. The mere fact that the legislature has made the appropriation--the Department of Finance still has control of those expend.itures, and can say, "No, you can't do it." Morris: Links: Morris: Links: PIorris: Links: Morris: Links: Morris: Links: Morris: Links: Morris: "The money hasnlt come in. "The money hasn't come in. 'I Or, just like the president has done--in many instances, billions and billions of dollars have been appropriated for various things, but he hasn't permitted it to be expended because of the economy, If the economylsgoing down, or revenues are going down, or he wants to hold down inflation, he'll just stop expenditures. Can the Department of Finance do that in California? Oh yes. Without consulting with the governor? No. The governor--of course we work with the governor all the time. The governor's the boss. We would consult with him. We have his power behind us. The reason I say this is, in talking with people in various departments, I've heard, "Those guys in Finance wouldn't let us spend a nickel'' and "we had a terrible time being-allowed to do this, that, or the other thing." That's exactly right. And it was very definitely the Department of Finance. Not the governor. [laughing] It was "those guys in Financew! The law says the Department of Finance can do it. It doesn't say the aovernor can do it. But the governor is the boss. It's his budget, and if he wants expenditures cut, the Department of Finance has to put that policy-intoeffect. This would depend.probably on the amount of the item, too. That's right, The smaller items you could-- Links: The construction of certain buildings--. W e could ask the Allocation Board. not t o approve, o r not t o allocate. New employees, we'd say, "Now, you've appropriations f o r so many new employees. You simply are not going t o put those on. We're not going t o approve the positions, even though they've been budgeted., because of the drop i n revenues, W e had. complete control of that, The Department of Finance was very powerful. Very powerful. 1 Morris: Yes, I can see this-- Links: W e had t o have it i n order t o keep the f i s c a l balance between revenues and expend.itures, In our days, w e had an answer f o r them on some contract o r request f o r approval within three o r four weeks. Nowad.ays they t e l l m e it takes about s i x months. They go through so many different authorities i n order t o get an expenditure approved. And. the controls, I've been told., everybody's afraid t o say yes or no under the present administra- tion. Everything seems t o have t o go back t o the governor o r one of h i s staff members t o get f i n a l approval. Morris: Well, t h i s has been absolutely delightful, and a great unexpected bonus, I didn't realize that I was going t o get t o hear about Young and Alexander Heron, and some of those f i n e men-- Links: Oh, they were f i n e men, There were f i n e men as directors of finance. Judge Gibson made a very f i n e director of finance, because he r e l i e d upon h i s people under him, I r e c a l l very definitely one time I brought a l e t t e r t o him f o r h i s signature. It w a s a page long, f'I haven't got time t o read a l e t t e r l i k e that. It's too long. Put i n about three paragraphs," After t h a t he got a l l h i s correspondence i n just a couple of paragraphs, o r r i s : One last question: how did Governor Knight d i f f e r from Warren i n h i s ideas and policies on s t a t e finance? Links: Governor Knight w a s a sort of middle-of-the-road advocate on s t a t e expenditures. During a ten year term Governor Warren proposed many new programs f o r increased expenditures. Morris: H o w did John Pierce d i f f e r from J i m Dean as director of finance? W a s Dean ready t o r e t i r e , o r were there differences of opinion with Knight? Links: John Pierce came from the California Taxpayers Association i n Los Angeles and w a s quite familiar with governmental and s t a t e expenditures. He w a s a qualified. t a x man. J i m Dean's background was c i t y financing. One day a few months before I r e t i r e d , Governor Knight called d-irector of finance, John Pierce, and t o l d him he would l i k e t o have a governor's o f f i c i a l seal. M r . Pierce asked m e i f I could get one designed. I t o l d him I would work on it, so I designed one myself and took it into Director Pierce. H e took it t o the governor and the governor was delighted. The design w a s adopted by the s t a t e legislature and it is now the o f f i c i a l s e a l f o r a l l governors. Full description and infor- mation regarding the s e a l is found on page 22 of t h e 1967 California Blue Book. I prepared the legislation f o r the s e a l and it was passed by the legislature on June 8, 1957, a f t e r I retired.* *There i s a l s o a Great Seal of California which appears on "all commissions, pardons and other public instruments t o which the signature of the Governor of California is required." Its history may be found i n the California Blue Book, 1958, p. 636-650. The Governor's Seal appears i n Append Transcriber: Jane West Final Typist: Keiko Sugimoto Appendix A STATEMENT OF APPROPIilATlONS AND FIXI!AI> CI-IAIICI~S 13UDCI:T REQUESTS AND 13ECOMMENDATIONS 75th and 76th Fiscal Years ENDING JUNE 30. 1925 SUBMIlTED DY THE STATE BOARD OF CONTROL BY G. R . DANIELS Chairman : *.. ! . . .:; ,., 1 . , ..I : . , ; Appendix B Th0 d~vehapz.un+ o$ $tat* P@pa;t.taantsf @LMCO &toe back G & N $ ~one crctturqc 'L;s a 4 crnaaw o$ QB~ 0 $ Z;lesrl&nam by e a t a b b aP U S & lm&rd of Ex~dqera, a% th@~&IQ cllf At# &ix?libbanti o n 2921ta wfiaSat@dsf t!tg b ~ ~ m a ~ x o ~ , o~EI $%a%@, %hePittwznq Genord, Q@ $ & G P + ~ ~ T ~ X ~ cad tho Sacra%a.~y 6f %s$ i 3 m r 4 + via% #k afPkci~ mmb~xto f r ~ C only I r a ePis &bscn@e i?xwthe stiih &pito% 0f5 any QS~Q Q$ & % B #&a= BW&B~S of %o W&&+ fh%a$U ~ W , b@g%mfng the pmoant Stska aa$ achoLSy t k ~ ale6 QF Baix.3 sf &n-1 %h1chhas m n g if$ O@&y & ? & t i &~Se$at? amat $weUan+ Bd; a?rss %)OQ duty Qf %a EFQ&rd ka cmnt fimnqf 5n bh@Tmamzy st l ~ a s t snra a kwnthru 3 e t ~Poo @x crs%nsETCBIQ bwka #f t31a S W Q Contmli~r a d Stake Ts+irtwx@~ d c r o m M naeae$@ry* as ~ f % u a X t afm $nvw%ad r?wdsr@yh $tns bckwf '$miFund v&mmo the%&v ; s b s m asmm&a%$,iiri a$ $k8~q@iN as m 1 p 0 i%n iru~d* h a Purchssing &ant ws @Ivanfull cuthodty 2 ; n d End% tcc mde h5$ duty8 upon appx~v&& of Wo .?;toteEbad 9 1 1 1 ConP;ml) ?aS Q ~ W G C ~ ~ Q X a& ga~c;Bsa.s@ nnatuk~f9@cow&q go8 %"n &%E st~ppUo$ r i y f tvha%w@sr o m af avmy $ $ . s a t @ ti?@ UnSwsakty a f o Q k $ f ~ n ~ Z ~ l y SD b t i l l agency @x@~,at '&!LO % h ap ~ ~ @ m t t3# 2m2# ~ ~ V ~ B L Q P I m~ D ~ ~ z L T s ~ ~ A Z Q ~ ~ C Q ~ 63 CZB&%G~h 19Bl9(~. e~ntQ~..tb~td OIS IOX%I~~OSCQ qnt$f;8% Ib$$k7, Y&=# urdo;~ l@adsr&.tyjcaF Gouomr C, Cj YQJF~~, cxqaleSe 3t?aq~&sa@%xt a;! C t ~ t r t $ a v r z ~ $ m $ ~ ' & o 3 ~ma,$@):deiw7~h men% W Q ~ G cprcb;t:d ~DG&IGZ QAQ J a p ~ ~ ~ r i t i 4 , Sf; ~ ~ l ~ ; u ~ s i a ~ U&SP Rwd sSa%& $an~timisf SksQo ~$VQLY&~P~@* The n w &G% pwvM& fora Gilizectoo oP tho ~ ~ p h i x h ~ ~ n t - t O tB ~ppointed epa' %d hQrd.6a3&~9&$ $k@35,&@W3X%~ f f &'&XWX* A n o G&L& a$ t k s D,%u%a%on 5~f i3amr;8cs orad &tp~Ly wa to bef ap@i.at& bj m d b[Ed ~ g f i m i-h* W@plaawrs aP G~vaxrior~ A pmvision was far:;Xudod p~xwittiw We D5mcb3 a f Pinacrg a&% ta e310 @clef OE the DWgPoa of Daeil;;&atta $ i ~ m r t Q ; a r %Wt&3anad,~ w s a t i o % w ~ b ~ ~ t , Tbto adstcand &ty or"QAGI Btatu &irsJ uf ian8wL w&a $ad f s crf G C $ L ~ ~ aii ef 49 C t ~ f : a t~ wfl~%tiaz~ &#ty agalln~$the State &hxr) fax v-irtA& n~ &ppmpT-3&$i~t4 ha8 hen wad% bgilP pas@& tho Ssmik(~ MJ Sra $?ha m d otr& sf Uiet i933 $c;ss$tm %&ablXZ 888 nrst $o$ w%99 thfi)&2t4h3bly eemiittss md on W ttra Pis~o&>kg f&wr~ekt23, khy P O . . 6$ v:~ii@ e r r tlis ttAa*c9 $&83h$ c&X%P&~'LS $a2 ffVQ d~:r$$,&Q ~~ler&wZ>c.d.ng $a%&& a t A 3 b&$ls, ~ w t p af vd&d~WTC h%r;.hiy G G ~ , ~ W ~ S B @ ] E ~ 3cticm @$t F;RY~%x%& v~QM @fi9 d~~~~ ~ $ 2 i ~ h a t % ' i & 43;rlP %I@fSl@* YI 48: ~ c w L ~ Z P & ~ &Q $"i$d63i3i?pQP& h . & 0 - 0 ; ! 4 $ . C b ~ d ~ # G~OV~MT m ~ 8 9 80 yAav&u3~t~ $33 X';;b;?:&;1";a.55$~~"t J t ; $ i aer $+a ~!,f art4 i.louaing G~P;K fiefig . . Btx&&u* ~*OGO~SG;~&&~ U;ia~$@ IT@ ~ l d m t h ~ agur;c%gah ~ a c ~ k z d ay&eisn02 Frjr~oee~y. X o B f ~ ~ f i wGb$$fig d,ad @$.& aa?$u$$d~f ~ Q ' ~ ' & ; - ~ G $ ~ @ ~ *s%rLudij~tet10. dzixw%icqlly@na$ gzf~vdZe6f &000 ~ . / , / . ' .. ., hnsd Qr8 ~&GUOTS~ 439433cket3 wald Bkwa bsoir u.n&l@tr caay we( &rsot&oa@ khAd%Eha X.q$o]t&wu bad dl@%ww(r;ab t h e . %a Sn ardor C bolan~eUla tlro turpJur &nde cl salf'm~porb, L ~ i gbogcia c o m ~ ~ s l w s Bnab~buc3ia rwmuas c a c W t ~ s , $%YAP evniJ,;e~SSL@ fox ~aswsrllIfmd @xpmd%%ur$9~~ Appendix C GOVERNOR'S SEAL The general design and the details of the Seal of the Governor of the State of California, excluding colors, shall correspond substantially with the following repre- sentation thereof: I The roman numerals shall designate the sequence in office of the Governor. Gov- I ernment Code, Section 426. In the center of the Governor's Seal is a replica of the State Flag of California. Above the flag is the rising sun as portrayed on the Great Seal of the Governor's Flag. Below the Bag are California Poppies, the State's official flower. The 31 stars above the flag relate to the fact that California was the thirty-first state to enter the Union. The Governor's Seal was designed, at the instance of the/GovernorJs Office, by I Fred W. Links, Assistant Director of Finance, and adopted by Governor Goodwin J. Knight. It became an official emblem for California Governors by legislative action approved June 8, 1957. Cal. Stats. (1957), 2203. . \ . . 3 . - I & - - - I _- , .. INDEX -- Fred. Links Assembly Ways and. Means Committee, 18-19 assessments, 32-3, 36 bond. issues, 3, 24-25, 39, 42 Bonelli, William, 32 Brown, Edmund G. ( P a t ) , 17 budgets, s t a t e , 1-7, 10-14, 16-17, 20-21, 23-26, 34, 38-39, 41-42 , 44-46 California S t a t e Alcohol Beverage Control Board, 32 Allocations Board., 37, 47 Board. of Control, 1, 3, 36 Board. of Equalization, 32-33, 36 Controller, 35-37 Department of Ed-ucation, 34 Department of Finance, 2-5, 15-17, 20, 31, 33-36, 38, 44-47 Department of Fish and. Game, 39 Department of General Services, 4 Department of Professional and. Vocational Stand.ard.s, 30 Division of Architecture, 37 Division of High-ways, 4 Fair, 5 Highway Commission, 39-41 Personnel Board., 9 Public Works Board, 37 Supreme Court, 31 Treasurer, 24-25 California S t a t e Employees1 Association, 9 Chamber of Commerce, 44 Chapman, E a r l , 30 churches, 28-30 c i v i l service, 5, 36 Commonwealth Club (S.F. ), 11, 38 constitution, California, 2, 11, 39, 42 construction, s t a t e , 6, 15, 22, 24-26, 30, 37, 39, 47 Currie, Ralph, 1 3 Daniels, Gilbert B., 1-2 Dean, James, 9, 25-26, 35-37, 48 Democrats, 9, 20 economic forecasts, 13, 16 Economy Bloc, 19 employees, state, 7, 9-10, 20, 36, 38, 43, 47 expenditures, state, 1-2, 6-7, 14, 20-23, 25, 36-38, 41-47 Fazel, Pierce, 17-18 federal expenditures, 7, 16, 20, 42, 46 fiscal controls, 3-4, 7-8, 47 fixed charges, 3 Fort Sutter Savings and.Loan Association, 28 General Fund, 31 Gibson, Phil, 8-9, 47 Great Seal of California, 48 Handsaker, John, 30 Hassler, John, 35 Heron, Alexand.erR., 2-3, 6, 34, 47 highways, 1-4, 15, 22, 39, 44 Hulse, Ben, 19 income tax, state, 20 interagency relations, 3, 18, 22 Johnson, Hiram, 4 King, Lyman, 3-4, 35 Killion, George, 8 Knight, Good.win, 47-48 Kuchel, Thomas, 36 legislative analyst, 33 legislature, California, 2-3, 10-12, 15-21, 23, 25-26, 36, 38-42, 45, 48 Links, Fred joining state service, 4-6; philosophy 8-10, assistant director, 48 liquor control, 32 local government, state aid.to, 3 Martin, Irving, 3 Mason-McDuffie Company, 2, 34 Medi-Cal, 3, 6, 42 merit awards, 36 Merriam, Frank, 33 Mull, Archie, , 23 Olson, Culbert, 7-9, 14 Pierce, John, 48 Pierce, Nellie Brewer, 1-2 politics, 32, 38, 40 Post, Alan, 25-26, 33 pressure groups, 20;-[see also: taxpayers' association] prisons, 42-43 Reagan, Ronald., 34 Red.1and.s Savings and.Loan Assocation, 3, 35 revenues, state, 14, 16, 20, 24, 31-32, 44-45, 47 Republicans, 9 Rich, William, 19 Richardson, Friend., 1-2 sales tax, 14, 16, 20 school financing, 3, 30-32, 34, 3 9 Scoggins, Verne, 12, 24 Senate Finance Committee, 18-19 Senate Transportation Committee, 41 special funds, 1-2, 23-24 state colleges, 38 Taylor, Fred, 30 taxes, 20, 22, 31-32, 40, 45, 49 taxpayersf association, 18, 44,48 transportation, 40-41 United States Department of Commerce, 1 3 Department of Labor, 1 3 University of California, 44 Vandegrift, Rolland, 33-34 Warren, E a r l , 8-9, 1 1 , 16, 19-20, 22, 24, 26, 35-36, 47 . welfare, 3, 6-8, 20, 39, 42-43 Wollenberg, Albert, 19 Young, C.C., 2-4, 6, 23, 34, 47 The Bancrof t Li'brary University of Calif omidBerkeley Regional Oral History Off i c e Earl Warren O r a l History ProSect E l l i s Groff S O M E DETAILS 02' PUBLIC REVENUE AND EXPtNDITURE I N THE 19405 An Interview Conducted by Gabrielle Morris @ 1974 by The Regents 01 the University of California TABLE O F CONTENTS -- E l l i s Groff INTERVIEW HISTORY I PERSONAL RACKGROUND I1 DEPARTMENT O F FINANCE ORGANIZATION I11 UPS AND D O W N S O F STATE REVENUE Depression Budgets Registered Warrants Gbvernor Olson's F i s c a l D i f f i c u l t i e s Relief Expenditures Health Care Proposal Economy Bloc Wartime Recovery I V SPECIAL FUNDS Horse Racing and Agricultural Fairs Highway Bonds and User Taxesp Business Taxes and Regulatory Fees Questions of Policy Liquor Taxes and Licensing OTHER FISCAL AUTHORITIES Board of Equalization Ex Officio Responsibilities of Constitutional Officers Formation of Tax Policy EARL WARREN AND FISCAL POLICY Issues with Governor Olson Governor Warren's F i r s t Budget Early Studies by UC Internes Further Details of t h e 1943-45 Budget Bond Sinking Funds Surplus Wartime Funds Table I : Growth of e a l i f o r n i a S t a t e Budget - and Expenditures 51 51 53 55 58 74-A V I I P O S T W A R ISSUES - g e t t Postwar Reserve PI Concerns f o r *he Economy 1948: Annual Budgets Introduced Salary Increases F is c a l Controls Highways and Other Construction Inf latfon Welfare Costs 1949: F i r s t Billion Dollar Budge* Changing Tax Rates V I I I INFLUENCE O F THE D E P A R T M E N T O F FINANCE Technical Developments Executf ve Departments ' Spending Legislative Committees Thouahts on Reorganization INDEX INTERVIEW HISTORY E l l i s J, Groff w a s interviewed by the Regional O r a l History Office i n order t o preserve his observations as a career c i v i l servant of the workings of the State Department of Finance i n relation both t o the preparation of the governor's budget and supervision of the expenditures of administrative departments i n the 1930s and 1 9 4 0 s ~ Conduct of the Interviews were recorded on February 17, Harch 2, 9, Interview: 23, and April 6, 1972, shortly a f t e r M r . Groff retired as Contracts Officer f o r the University of California, f o r which he l e f t the Department of Finance i n 1949, Long familiar with the Berkeley carnpns, Groff seemed t o enjoy meeting in the odd, vacant rooms i n the Doe Library i n whfch these sessions were held, Describing his boyhood i n Californiaes Sacramento Valley, he conveys the sense of the s t a t e e s agri- cultural heritage and i t s reliance on transportation and water that he acquired in accompanying his father on engineering t r i p s , Alexander Heron, family friend and longtime Republican theoretician, turned the young man's eyes t o the promise of then- new ideas of expansion and improvement i n state services and brought Groff into the Department of Finance fresh from his studies a t Stanford. Heron is an interesting supporting player i n the drama of s t a t e government, having served with distinction and some controversy i n the administrations of Governors Young, Merriam, and Warren. Grof'f recounts the difficulties of coping with s t a t e finances during the years of the Great Depression , H e then goes on t o d e t a i l , budget by budget, the growth daring E a r l Warren 's governorship of s t a t e expendihres and some of the technological and administrative changes entailed, including des- criptions of the major special funds and t h e i r rationales , Particularly interesting a r e his comments on inker- action between the finance department and the legislature, as the senate and assembly increased t h e i r own auministrative staffs. In the position of chief of division &budgets and accounts, he seems t o have had ample opportunity f o r development of f i s c a l administrative techniques, and t o have been aware of, but not involved in, the more political aspects of the department 's work. He refers only briefly t o what one suspects were his considerable a c t i v i t i e s i n the early stages of professional public administration societies. The scope of the present study also did not permit continuing the memoir with discussion of Groffas work with federal grants f o r the University i n the years of t h e i r greatest flow. Hopefully, a future interviewer w i l l remedy t h i s lack. A t r i m spare man, remarkably youthf'ul in retirement, Groff was affable and responsive in working through the many topics covered, and patient in explaining t h e i r more i n t r i c a t e aspects. His patience was put t o the t e s t by recurring malfunction of tape recorders. T h i s seriously affected the first interview, which i s reconstructed from notes. H e went over the rough- edited transcript with care, verifying s t a t i s t i c s and making minor revisions. His o f f i c i a l governmental s t y l e of capitalization has been followed i n typing the interview. In the Warren Archives are press releases on s t a t e budgets and finances from the governor's offices f o r 1951, 1952, and 1953, giving further data on the years following Groff 's departure f o r Berkeley and an indication of Governor Ehrl Warren's own views. Unf ortmately , budget l i m i t a tions prevented interviews with other knowledgeable officials of the Department of Finance who were s t i l l available i n the early 1970s. Gabrie l l e Morris Interviewer-Editor Regional O r a l Hisbory Office 1 1 December 1973 The Bancroft Library University of ~alif'ornia/~erkeley I PERSONAL BACKGROUND ÿÿ ate of Interviews February 17, 1972) Morris: W e l i k e t o start with a b i t about your family background, education, and other influences which affected your ideas, and then your decision t o go i n t o s t a t e service, Groff: I was born i n San Francisco, i n 1906, i n April, at S t , Francis Hospital. Morris : You were an earthquake baby! Groff : That 's right, And then f o r about a year, at the age of f i v e , we lived i n Nevada and Utah, where m y father was a construction engineer f o r Southern Pacific. They were double-tracking the railroad then, and our living quarters were i n a reconstructed boxcar, In 1912 we moved t o Sacramento, where m y father worked as a c i v i l engineer f o r t h e Natomas Company. Morris: W a s Natomas then dredging f o r gold along t h e American River? Groff : No, t h i s w a s reclamation and development of land north of Sacramento that had been flooded regularly by the overflow of the Sacramento and American River. Most of it w a s sold off f o r farming. In 1917, m y father transferred t o t h e Natomas Water Company and we moved out t o Folsom. It was quite a small town i n those days, Morris: What about sqhool? Groff: I went t o San Juan Unlon High School f o r three years, W e rode school busses from Folsgn t o Fair Oaks, about twelve miles. Morris: D i d you mind moving out i n t o the country, leaving your school f r f ends? 1 Groff a Not particularly. I used t o go along with my father when he made inspection t r i p s around t h e water system, which supplf ed water t o the town of Folsom, t h e Matomas gold dredgers and f o r t h e farmers from Salmon Falls t o M i l l s . Morris r W h a t were your father's interests? Groff : Oh, largely practical engineering and farming. I remember helping him when he was working on t h e Salmon F a l l s diversion system. Natomas was still doing a good deal of gold dredging then and even a l i t t l e placer mining of gravel was t o be seen i n t h e back country. Morris t That must have been fascinating. D i d you ever find a nugget ? Grof f : There wasn't any of that l e f t , t o speak of. The dredgers worked mostly on flake and fine grain gold. Morris : And then where did you complete your education? Groff : I transferred t o Sacramento High School f o r m y senior year, then went t o Sacramento Junior College f o r two years. That would be from 1923 t o 1926. Morris : I didn't realize Junior colleges went back that far. Groff : This w a s an early one. It was ably adminfstered. Morris t What kind of curriculum did it offer? Groff : It w a s purely academic, and it was under t h e local board of education . Morris: How about brothers and s i s t e r s ? Groff : Three. I was t h e eldest. Then there w a s m y brother who i s s i x years younger and two sisters. I n 1926, I transferred t o Stanford University from which I graduated in 1928. Morris : Had your father gone there? Grof f : No, my father went t o the Universfty of Nebraska and m y mother went t o t h e Universfty of Kansas. Morris : And what did you study at Stanford? Grof f : I majored in economics, took a l o t of accounting. Morris : H o w about extra-curricular a c t i v i t i e s ? Groff : Well, I was i n t h e glee club, with several people I already knew. Morris: Friends had come t o Stanford with you? Grof f : Yes, there were eleven o r twelve of us who transferred from Sacramento J . C . t o Stanford together and most of us lived i n Sequoia Hall. Morris : W a s t h i s a fraternity? Groff: No, t h e majority of us were non-fraternity. Morris: Who do you r e c a l l particularly from the faculty during your years? Groff: Well, l e t ' s see. There w a s Harley La Lutz, professor of economic history, and i n accounting, J. Hugh Jackson, who l a t e r became t h e dean of the School of Business. And, of course, D r . Ray Lyman Wilbur, who was then president of Stanford, and David S t a r r Jordan, president emeritus. A l l of these were standouts i n m y recollections of Stanford. Morris: H o w did you become interested in s t a t e service? Grof f : I'd say primarily through Alexander Heron, who was a f r i e n d of the family's i n Sacramento. H e was really a missionary s p i r i t i n s t a t e government at t h a t time and impressed m e very much as a young man with the opportunities i n s t a t e service f o r college-trained people. Morris: I should imagine so! H e is one of the people who i n t e r e s t me on i n t o the Warren years. W h a t , i n general, were h i s ideas? Grof f : Primarily, he w a s a n t i t h e policies of t h e close-fisted Friend Richardson era. And he believed i n upgrading s t a t e service throughout. H e saw t h a t government w a s expanding rapidly and that new methods needed t o be introduced in m ~ l y areas. Much of h i s thinking went back t o the reforms that Hiram Johnson had begun. Morris : Grof f : Morris : Grof f : Morris : Grof f : Morris : Groff : Morris : Grof f : Morrf s : H o w had Heron started i n the government? I believe he s t a r t e d as an accountant o r auditor f o r the State Board of Control, which superintended financial and business affairs before the Department of Finance w a s created. Then he interrupted that service t o become deputy superintendent of public instruction under W i l l C. Wood, who was the superintendent during Governor Richardson's term. It was there t h a t he became convinced t h a t penury practiced did nothing but harm t o s t a t e government, particularly in education. He had become well-known i n s t a t e f i s c a l and administrative c i r c l e s , and this gave h i m a base of howledge from which he was able t o prepare financial material f o r C. C. Young when he ran f o r governor i n 1926. Then M r . Heron was appointed director of finance when Young ms elected. I've seen M r . Heron's name on budgets drawn up by the Board of Control and wondered how it related t o the Department of Finance. It predated the department. From l 9 l l t o 1927, the Board of Control was the central financial administration of the state. It supervised a l l the accounting, and was the agency f o r preparation of the budget on a biennial basis. So the Department of Finance was relatively new when you joined i t 7 Yes, I had graduated from Stanford in 1928, and M r . Heron took m e right onto his staff. H o w long was M r . Heron your chief? He l e f t the department i n 1929, and was succeeded by Lyman King. Is t h a t when he joined Crown Zellerbach? Yes. H e had made many banking and financial contacts i n the course of h i s State duties and, of course, the Zellerbach firm had a California origin. I believe he w a s controller and vice president, We've been interested i n M r . Heron's role l a t e r on during World W a r 1 1 , when Governor Warren succeeded i n Morris: gettipg the military to l e t hfm come back t o California t o head dhe Reconstruction and Reemployment Commissf on. Groff: T h a t w a s 5.n about 1943. H e was rather a senior statesman as a chairman of t h a t commissfon. A very striking man i n appearance; i n his 60s then, and he was prematurely white-haired. I1 D E P A R T M E N T O F FINANCE ORGANIZATION (Date of Interviews March 2, 1972) Morris: Kenyon Scudder, whlle talking about developing the program at Chino, referred t o another young Stanford graduate, Robert Harkness, whom he said had been a big help t o h i m i n the finance unit of the Department of Instftutions. D i d you know him? Groff c Yes, he and I had been friends and classmates at Sacramento J.C. and Stanford, and he started work at the Department of Institutions immediately upon graduation from Stanford, almost the same day I went t o work f o r the Department of Finance. Three o r four years l a t e r , I managed t o recruit h i m f o r the Division of Budgets and Accounts staff as m y principal assistant. H e took m y place when I l e f t the Department of Finance and subsequently became chief of the division and then Assistant Director of Finance. Governor Brown l a t e r appointed h i m as Director of the Department of General Services. Morrfs: So he was the first Director of the Department of General Services? Groff: I thinkhewas. Morris: A t one point there was a Division of General Services f n the Department of Flnance. Groff: There had been a Division of Service and Supply in the Department of Finance. Morris: And haw does a Department of General Services d i f f e r from the function it had within the Department of Finance? Groff: Well, the new department w a s broader. In the Department Grof f : of Finance Division of Service and Supply, purchasing and printing were the two principal functions. Morris : Printing? Gmf f : Yes. The s t a t e printing p l a t had been under the Depart- ment of Finance ever since the department*s organization and remained there u n t i l the Department of General Services was established. Morris : And this is the s t a t e printing plant that prints a l l of the b i l l s of the legislature? Groff : That's right; and also forms and other institutional printing f o r s t a t e agencies. Its other principal function is, you know, the printing of s t a t e text books. Morris : Text books -- yes, t h a t was m y next question, I thought at some point, and maybe it was before your years, there had been some kind of a problem i n the s t a t e printing operation. Grof f : There were a succession of problems with the s t a t e printing plant at various times, some technical and some having t o do with management. Then, of course, there was constant opposition t o the s t a t e printing plant as a competitor of private industry; continual effort on the part of the printing industry and others t o abolish the s t a t e printing plant and have the S t a t e t s printing done by contract, especially the publication of text books. Morris: Yes, I can imagine this would be a lobby, Would this be national publishers? Grof f : Yes, and local. The national publishers were principally concerned with the text book situation, and the local publishers were concerned with the routine job printing business . Morris: If I remember correctly, f o r a while the State bought the textbook plates from ther publishers. Groff : Yes, yes, that's right. I believe they leased the plates from the publishers and the s t a t e printing plant then did the actual printing,and the binding. Morris: Groff : Morris : Groff : Morris : Groff : Morris: Groff : Morris : Groff : Were there any comparative studies made, as t o whether there were any differences in costs? Yes, there were a number of studies made at various times by legislative committees and by various administrative agencies. What kind of conclusions did they come to? Well, as I r e c a l l it, the studies usually showed that the State did save money on the printing of text books. It w a s alleged -- with some truth t o it -- that the saving was accompanied by a certain amount of inadequacy and delay in distribution of the books t o the schools. There were complaints from school people on that score, but as t o how serious they were, I wasn't i n a position t o evaluate. There was much debate about the merits of it Yon were talking e a r l i e r about when you joined the department, t h a t there was a missionary s p i r i t i n the s t a t e service, and that Alexander Heron, particularly, personified t h a t missionary s p i r i t . It w a s present in other areas of s t a t e government too, but of course as a very young person starting out I wasn ' t as well-inf ormed i n those areas. It w a s present i n the C i v i l Service Commission, the recruiting f o r s t a t e service was quite impressive. W h o was in charge of the c i v i l service? T h i s i s the Personnel Board? What has since become the Personnel Board. It's called the Civil Service Commission these days, and i n those times it was an independent agency. Nova J. Beal was the chief examiner f o r the C i v i l Service Commission i n those days. He interviewed everyone applying f o r a s t a t e job? It was a lady. No, her staff prepared the c i v i l service examinations, and the Civil Service Commission, along with the s t a t e agency concerned, interviewed the appointee before he was actually appointed. So, as a result of the c i v i l service examinations, the commission s e t up eligible lists with the applicants' ranking in the examinations and o r a l interviews, Groff : I'm just trying t o think. There w a s a J. C. Whitman -- I don't remember exactly -- I think his t i t l e was executive secretary of t h e Civil Service Commission. H e w a s the administrator statewide. Morris: You said you f e l t t h a t the Department of Finance was at t h e forefront of the new ideas i n s t a t e government, and t h a t the r o l e of the Department of Finance w a s as t h e business w a g e r f o r s t a t e affairs, and I wondered if you could sketch i n what some of these new directions were, and w h a t the new s t a t u s meant* Groff: I think the principal area where t h e Department of Finance was in leadership was i n t h e development of the s t a t e budget. Their r o l e was one of implementing and of developing t h e actual operation of the budget. The idea of a comprehensive, unified s t a t e budget came about gradually. It was embodied in the constitution by t h e constitutional amendment of 1921 which w a s sponsored by the Commonwealth Club. It was an i n i t i a t i v e measure. But the development of t h e budget and i t s improvement came about largely through the e f f o r t s of M r . Heron and the staff i n the Division of Budgets a d Accounts. Morris: I ' m interested i n the t i t l e being Budgets and Accounts -- you think of a budget as being a document which says "we're going t o have so much money and we're going t o spend it in these ways: A, B, and C." There's more t o it than t h a t , i s n ' t there? Groff : Oh yes, yes. I think I mentioned last time t h e f a c t that the staff of t h e Division of Budgets and Accounts is responsible f o r post-auditing of s t a t e agencies, i n addition t o doing staff work i n preparation of t h e governor's budget They a r e a l s o responsible f o r prescribing and developing t h e accounting system t h a t i s used by a l l s t a t e departments. Now, i n order t o have a single budget -- a uniff ed budget -- f o r an operation as large and as complex as the s t a t e of California, you have t o have the same accounting system, the same definltion of terms, and t h e same way of handling financial transactions i n effect in a l l departments and agencies across the board. There has t o be a common nomenclature and usage i n department finances. Part of its mission f o r Groff: developing accounting systems incorporated in that accounting system these common d e f i n i ~ i o n s which then could be used i n relation t o the budget. The budget, of course, i s dependent upon the financial inf ormathon, statements of expenditure and revenues, produced by the various s t a t e agencies. Morrist Before this unified budget began, had departments had different categories and different terminologies f o r t h e i r expenditures? Groff : Yes and no. They were unified t o an extent, t o the extent that they had t o report t o the State Controller, who i s chief disbursing officer of the State, and who maintained the State's central accounts, and made annual s t a t e financial reports, But those a r e just i n large, overall categories. The minutiae of accounts maintained by the several operating agencies were quite disparate, although they had been evolving into a more unified system through the efforts of the State Board of Control, exerted a more persistent effort, and more successful effort in devising and establishing what they called the "unifom system of accountsn f o r s t a t e agencies. Morris: Does the "accounts" part of it mean that a f t e r the budget has been developed by a l l the various agencies within the Department of Finance and approved by the legislature, then the Department of Finance keeps an accounting of those various budget areas and says, "you can spend some more, or you can't spend some more?" Groff: No, the Department of Finance did not maintain accounts i t s e l f , but it supervised the accounts that were maintained at the separate agencies which recorded and incorporated f o r each particular agency, and kept track of expenditures, and served as the basis f o r determining that the expenditures kept within the amounts appropriated i n the budget. The accounting systems maintained by the separate agencies were the means by which the budget was kept under control a f t e r appropriations were made, And also, those same accounts provided the information as t o what exactly had been spent and w h a t was likely t o be spent in the current year, and served as the basis, then, f o r making the estimates as t o what would be necessary f o r the ensuing year. There was a budgetary cycle there that depended very heavily on the information Groff: gleaned from the agencies' accounts. Morris: W a s t h e Department of Finance able t o say t o an operating department, "you've overdrawn your account, you can't spend any more f o r t h i s year," o r was there any kind of a relationship administrat+vely? Groff: Yes, i f the agency constantly kept track of how much it w a s spending and w h a t it had t o spend, when it reached a point of overdrawing i t s appropriated funds it had t o come t o the Department of Finance f o r permission t o t r a n s f e r funds from some other category within the appropriation so that it wouldn't be overdrawing as a whole. And t h e Department of Finance, exercising that control, was able t o influence and control t h e operation of t h e budget. I11 UPS AND D O W N S O F STATE REVENUE Depression Budgets Morris: The year you joined the department was the beginning of t h e Great Depression. Groff: The stock market depression, but it hadn't reached the l e v e l of actual extensive unemployment. The consequences hadn't manifested themselves t o any great exbent then. It w a s 1928, actually, and that w a s just before -- as a matter of f a c t , everything was considered quite rosy at t h a t time. Morris: S t a t e revenues were considered t o be adequate at that time? Groff: T h a t * s right. A t that time, i n the '29-'31 budget, there w a s projected a t h i r t y million d o l l a r surplus and that had been building up over several years. It w a s considered a generous and substantial surplus. It was something that people were very proud of. It was so l a r g e it actually began t o be a problem t o conserve it so it wouldn't be wasted. Morris: W h y w a s it maintained as a surplus? Were there not agencies hollering f o r program expansion? Groff : Yes, but it w a s thought advisable t o maintain a surplus against contingencies that might occur. The s t a t e w a s growing quite rapidly at t h a t time and it was f e l t t h a t t h e surplus would be necessary t o help meet t h e conse- quences of that growth. Morris: But it w a s kept as a surplus rather than in the kind of earmarked reserve thatWarren used l a t e r ? Groff : Morris: Grof f : Morris : Groff : Morris : Grof f r Morris : Grof f : Morris: Groff c Morris r Yes, it was an unearmarked surplus, that's right, It wasn t dedicated t o any particular kind of purpose. And t h e governor and t h e l e g i s l a t u r e hadn't worked out how it should be spent? No, no. T h a t w a s wise i n view of w h a t happened, wasn't it? Yes, I should say so, It proved t o be a very wise move and very useful when t h e Depression actually struck. The succeeding budget, '31-$33, was the one where t h e revenues a c t u a l l y did fall off very markedly, I'd l i k e t o sketch these budgets i n just b r i e f l y before we tackle t h e d e t a f l s of t h e Warren years, The '31-'33 budget r e a l l y absorbed t h e whole surplus within a two year perf od? Yes, '33 actually ended with an eleven million d o l l a r d e f i c i t , W a s t h i s a l l due t o d i r e c t r e l i e f payments? I don't think t h e s t a t e r e l i e f payments i n any volume s t a r t e d u n t i l 1933-*35, The first thing t h a t happened w a s that t h e S t a t e ' s revenues f e l l off very markedly, substantially below the estimates, So t h e previous biennium surplus would have gone i n t o plain s t a t e operating, absorbing the -- Absorbed the diminution i n current s t a t e revenues, Without any s h i f t i n s t a t e a c t i v i t i e s that you r e c a l l , Groff : Nothing of consequence m t i l 1933, under t h e Riley- Stewart plan. Morris: That w a s t h e s a l e s tax, wasn't , i t ? Grof f : Yes, t h a t was t h e advent of the sales t a x and the return of public u t i l i t y property t o local governments f o r taxation, Until t h a t time u t i l i t i e s had been taxed exclusively by t h e s t a t e f o r s t a t e purposes on a gross r e c e i p t s basis, T h a t system w a s abandoned by t h e s t a t e i n 1933 and the public u t i l i t y properties became Groff : part of the tax base f o r local governments, c i t i e s and counties, A t the same time, the county portion of the public schools' support -- the counties and s t a t e had each put up one half of the statutory s t a t e school support -- was taken over by t h e State, Thus, the counties no longer were responsible f o r school support and the State took over the whole responsibility f o r supporting the statutory program which was designed t o provide the minimum acceptable standard of public education. Morris : You donst happen t o r e c a l l what the minimum standard f o r public education w a s conceived t o be i n those days? Groff : I think it w a s t h i r t y dollars f o r ADA* f o r elementary and s i x t y dollars f o r high schools. Morris : And then t h i s burden assumed by the State was t o be paid out of funds collected from the sales tax. Groff t Yes, i n effect t h e sales t a x took the place of the gross receipts tax on t h e public u t i l i t i e s and also took up the added burden of financing the schools, Morris I That's an interesting kind of musical chairs. When you say t h e local governments retrieved the public u t i l i t y property f o r a t a x base, that would be largely the counties? Groff : Counties and c i t i e s because public u t i l i t i e s property then became a part of t h e i r local t a x base. Morris : What costs did t h e counties assume? D i d the counties take over any costs t h a t the s t a t e had borne? Grof f : No, t h i s was a form of property tax r e l i e f . The same c r i e s f o r r e l i e f of the property taxpayer were heard i n those days t h a t have been voiced several different times since then. Morris: The s a l e s t a x was a new kind of a revenue device at t h a t time. Did t h e Department of Finance have any *Average Daily Attendance. Morris: position on what a sales t a x could do? Groff: Yes, they were involved i n it although it was largely a l e g i s l a t i v e matter. The Governor and the Director of Finance were very substantially concerned i n t h e determina- tion of the legislation at t h a t time, Morris: In other words, did they support it i n t h e process of g e t t i n g it passed? Grof f : A s I recall, they did. Morris: And M r . Riley and M r . Stewart were t h e legislators? Groff : No, M r . Riley was State Controller, and M r . Stewart w a s chairman of t h e S t a t e Board of Equalization, both constitutional officers. The State Controller w a s an ex o f f i c i o member of the S t a t e Board of Equalization at that time. But they were the prime movers on this thing . Morris r And were responsible f o r getting t h e b i l l introduced and -- Grof f : Yes, yes. Morris : T h a t ' s an interesting kind of a procedure and one that we're not familiar with at t h e moment. The names almost always mean t h e men who were i n t h e Legislature, Groff : This was a movement that w a s originated by t h e s t a t e ' s t a x people. Morris : A s a separate e n t i t y concerned with s t a t e money matters from t h e Department of Finance. Groff r Yes, that's right. The S t a t e Board of Equalization administered t h e gross receipts t a x on public u t i l i t i e s , and they also had t h e function of equalizing property assessments f o r t a x purposes, primarily between t h e u t i l i t i e s and other property. Morris r The Board of Equalization became such a sticky issue that we haven't r e a l l y talked t o anybody about that, and M r . Bonelli i s n ' t around anymore t o t a l k t o about it. Groff r Dixwell Pierce i s gone, too. He w a s t h e secretary of the S t a t e Board of Equalization and was t h e i r top administrator. Morris : Groff : Morris: Grof f : Morris : Gross: Morris : Grof f : Morris : Back as f a r as t h e Riley-Stewart b i l l ? He w a s secretary at t h e time it was passed, I s m pretty sure, O n t h i s equalization aspect, w a s there a sense among the public u t i l i t i e s that they would get a lower over- a l l t a x burden i f t h e i r property was taxed by the counties rather than i f t h e i r gross receipts were taxed by the s t a t e ? The gross receipts, presumably, would continue t o r i s e as they l a i d more railroad tracks and b u i l t more power plants. By t h e same token, as they expanded t h e i r physical plant, t h e i r base f o r local property taxes would increase, a l s o , T h a t would mean they would be dealing with fifty-eight boards of supervisors and county assessment boards, Yes. I can't remember now w h a t t h e position of the public u t i l i t i e s was on this question, Mary Ellen Leary recalled that the Riley-Stewart Act only provided enough money f o r that base snpport of public education f o r one two-year period, Again, I wondered i f it might have been a matter of revenues not being as big as w a s expected, o r was it a matter of t h e programs of t h e Department of Education suddenly mushrooming -- I can't remember t h e chronology, but there was an amendment t o t h e constitutional provision f o r s t a t e snpport of public schools that increased very markedly t h e amount of t h a t support, I can't remember the exact timing of it, whether it came, say, i n 35,* and by @ reason of t h a t , t h e s t a t e ' s public school support increased substantially and outran t h e revenues from the s a l e s tax, o r whether there w a s only the rapid growth i n school enrollments, T h a t growth may have outpaced t o some extent the growth of the sales t a x collections, W a s t h i s growth i n population the migration west of *See California Constitution, A r t , X I , Sec, 20, adopted June 27, 1933. Morris: people looking f o r jobs, o r was t h i s older people looking f o r retirement homes, or was it the people who were already here raising another generation? Grof f : Well, the s t a t e growth has come largely from migration. Morris : In those years it was w h a t -- one o r two percent per year, something along that line? A l i t t l e l a t e r , by 1943, population rose t o three t o five percent. And it had been going on that way f o r some time* Groff a Yes, the growth continued even during the Depression, m y recollection i s that the growth continued contrary t o expectations. It was thought the Depression would stop the growth from migration, but it continued. Morris: Would t h i s be the migrants from the middle west who'd been wiped out by the drought there? Grof f : Let's see, the in-migration of the so-called Okles and Arkies came s t i l l l a t e r , I think, in '37 o r '38. Morris : Now, the next budget would be 1933-35. Groff : 1933-'3.5 was the l a s t Rolph budget, Merriam succeeded Governor Rolph, who died in office around a year before the end of his term and Lieutenant Governor Meprim succeeded him. Morris: Was there a continuity of ideas from Governor Rolph as f a r as budget? Did Merriam have any new Ideas either f o r s t a t e services or f o r -- Grof f : I ' m trying t o think. Yes, Governor Rolph tended t o be more socially minded. H i s own inclination tended to be l i b e r a l in the expenditure of funds and i n recognizing the need for s t a t e services. However, his Director of Finance was Rolland A Vandegrift, a former director -- Morris : -- of the taxpayers association, Groff : Yes, executive director of the California Taxpayers' Association, who w a s quite tight-fisted and conservative as f a r as expenditu~es were concerned. A very sound, intelligent man who didn't i n s t i t u t e his economies in an arbitrary way. Rather, he analyzed, and weighed, the problems quite carefully, H e was given wide responsibility Groff: and a rather f r e e hand by Governor Rolph i n managing the financial aspects of s t a t e government. So he acted as s o r t of a check on Governor Rolph's spending tendencies. Governor Merrian, on the other hand, was himself conservative, especially i n s t a t e f i s c a l matters. So, there was a significant change i n the philosophy of the chief executive. Morris t Plus the f a c t t h a t Merrian would have inherited a d e f i c i t which continued t o be troublesome. Groff: Yes, it continued t o get worse i n Merrian8s administration. Registered Warrants Morris: W a s it i n his administration t h a t the State at one time issued warrants? They f i n a l l y ran out of money, Groff: Yes, they ran out of cash i n the General Fund. I'll have t o look up just when the issuance of registered warrants actually came. I ' m inclined t o think it was during the Rolph administration, in f a c t , I know it was. I remember coming along a s a d e t a i l , resource person with Governor Rolph and Vandegrift on an occasion when they paid a c a l l on A. P, Giannini of the Bank of America t o seek h i s help i n arranging f o r acceptance of these registered warrants. Morris: In other words, f o r the warrants t o work the banks had t o -- Groff: They had t o accept them. Morris: A s l e g a l tender. Groff: They had t o be willing t o cash them, so t o speak, They were used i n the manner of checks -- given in payment of s t a t e b i l l s , and s t a t e salaries. They were drawn on the s t a t e treasury, and the registered aspect of them denoted the f a c t that there w a s no money i n the treasury t o pay them, They were checks drawn by the State Cbntroller on the s t a t e treasury, and when they were then presented t o the State Treasurer f o r payment, there was no money in the fund, therefore he registered that Groff: warrant as an obligation of the state. And the w a r r a n t then drew interest from the date of registration, The interest was s i x percent. Morris: And the registration in the State Treasurer's office also included the name of the bank or the person -- Grof f : The person who received a registered warrant would take it t o his bank f o r deposit, And the i n i t i a l effort of the s t a t e financial people had t o be toward getting the banks t o accept these warrants notwithstanding that there wasn' t any money -- that i s on faith, that the State would eventually pay them. The registered warrants were called f a r payment as monies became available i n the General Fund. A mechanism was worked out so t h a t the banks actually held the warrants u n t i l the money came i n . Morris: Like short-term -- Groff : They became short-term obligations, so t o speak. Morrf s: On a time basis? A s the monies came i n the warrants out longest would be paid f i r s t ? Grof f : That 's right. They were called and retired in the order of t h e i r registration. Morrf s: Would the s t a t e contact a l l the holders of warrants and say, now we have money t o pay them? Groff : Yes. They'd issue a notice, Morris : B y m a i l or in the press? Groff ': By m a i l and also i n the press. Morris : I've heard t h a t M r . Giannini was a pretty tough bird on money matters. H o w did he receive t h i s delegation? Groff : A s I remember it, he was quite cooperative at that time, H e was tough, but he did cooperate. A s I say, I was in a very subordinate capacity, and while I r e c a l l some of the conversation afterword, I didn't actually participate in the negotiations. Morris : Were s i m i l a r negotiations carried on with other Morris: Groff : llorris: Grof f : Groff " Morris : Grof f : Morris: bankers, or was G i a i n i important enough then so that i f he agreed t o something, the other banks would, too? Negotiations were carried out with representatives of the other banks, also. W a s s i x percent a pretty good interest r a t e then? It w a s the statutory interest rate. Later, however, more sophisticated arrangements were worked out f o r the handling of these registered warrants i n volutnd without putting them actually i n circulation. Instead of issuing individual warrants payable t o the person t o whom the s t a t e owed money, they set up a revolving fund mechanism whereby the State's creditors were paid by checks drawn on t h e revolving fund, which w a s then reimbursed by r e g i stered warrants of large amounts drawn on the General Fund. These lump sum registered warrants were then sold t o the banks on the basis of the lowest i n t e r e s t rate bid. I gm interested i n the development of more sophisticated arrangements f o r handling the warrants fn large amounts. I wondered i f t h i s use of warrants was i n any way a forerunner of the kind of credit arrangements that have become the custom. In other words, nowadays very few people actually use cash and businesses, by and large, seem t o work on the basis of massive transfers, as you say, o r paper obligations rather than actual transfer of assets. T h i s actually represented the use of checks, rather than warrants, f o r t h e payment of b i l l s before the more complicated transfers of credit. The registered warrant meohanism was one that w a s provided f o r i n the s t a t u t e s at a much e a r l i e r time. It w a s an already existing mechanism -- That's right, coming out of the early history of the State, as I r e c a l l . The State had no authority t o issue bonds and it was impossible t o print money, of course, so there was no mechanism f o r the State t o borrow money t o meet current bills. The State's power t o incur indebtedness Biithout vote of the people w a s limited by constitutional provision t o three hundred thousand dollars, I remember that, yes. Grof f : So that the only thing that w a s open t o the State was t o issue these warrants and then register them f o r lack of funds. Morris s Before thls time, had the clerk o r secretary working f o r one of the s t a t e departments received her pay i n actual money? Groff : No, she received her pay by a warrant -- actually a check drawn on the s t a t e treasury w a s issued by the State Controller, a f t e r he audited the payroll, and sent t o t h e individual. Morris : Did things ever reach a sufficiently bad condition t h a t those warrants would be discounted? Grof f : Yes, t h a t was t h e great f e a r at t h e time, t h a t these warrants would be cashable only at a substantial discount. A good deal of t h e effort i n negotiations between the State and t h e banking community was t o persuade the banks t o accept these warrants at face value without discount. Morris: Someone recalled t h a t they did get paid i n warrants up north and that they were discounted. D i d she remember accurately? Grof f : I think at the very outset, with the uncertainty and f e a r s that were f e l t at t h e time, that there was a period of time (the length of which I cannot recall, but I don't think it w a s very long) when the warrants were discounted i n some l o c a l i t i e s by some banks. I think very soon t h e banks agreed t o accept them at face value. In n o t too long a period they were able t o work out arrangements f o r handling t h e warrants i n bulk, without issuing them t o individuals and/or employees. Morris: D i d anybody ever become reluctant t o deliver goods t o t h e State? Grof f : A t t h e outset there was some indication of that, too, before they got t h e situation stabilized. Governor Olson 's Fiscal Difficulties Morris: A t what point did things begin t o turn the corner, wasn't t h a t the phrase? R a d things begun t o improve by the time Olson took office? Groff : No, not really. Governor Olson inherited a very serious financial situation. Morris: A l l Merriames e f f o r t s hadn't -- Groff : N o -- l e t ' s see -- at the end of '33, when Rolph succeeded Young, the actual General Fund d e f i c i t was about eleven million dollars. In '35 it had risen t o nineteen million dollars, and in '37, it dropped t o about twelve million, s i x hundred thousand. In Merriam's first budget, 1935-37, he had proposed a hundred seven million d o l l a r s worth of new taxes t o balance the budget. Morris : It passed? Groff: I haven't been a b l e t o check that out. By 1939, the end of Merriamls administration, the d e f i c i t had risen t o thirty-six million, f i v e hundred thousand. By t h a t time i n the Merriam administration, the State expenditures f o r r e l i e f , through the State Relief Administration, had become rather substantial. Actual expenditures i n the '35-'37 biennium were forty-seven million, s i x hundred thousand. Morris : Plus some federal money? Grof f : Yes, a very substantial amount of federal money. Morris : That's a remarkable sum. This is, again, i n addition t o previous level of s t a t e services. Grof'f: The f i r s t impact of unemployment through State expenditures f o r unemployment r e l i e f w a s met by bond issues amounting t o $20 million i n 1933 and $ 2 1 6 million i n 1934. The problem soon became so substantial, however, they realized they'd have t o fund it out of current revenues. Morris: Were these bond issues within the Legislature's a b i l i t y t o authorize? Grof f : No, it must have gone t o a vote of the people. Morris: And voters passed it. That's interesting. I suppose everybody who w a s unemployed would have voted f o r it w i t h enthusiasm. Groff : [Laughter] Sure. Morris: You s a i d t h a t at t h e end of Merriam's administration, he had a d e f i c i t of t h i r t y - s i x million, f i v e hundred thousand Groff t That 's r i g h t . Morris r Now, i n t h e budget analysis that I read f o r t h e 1939-41 biennium, I have a note t h a t Olson inherited t h e prev4ous administration's d e f i c i t t o t a l i n g forty-five million d o l l a r s . When you're t a l k i n g Fn millions, t h a t ' s not a l l t h a t much, but i t ' s s t i l l an i n t e r e s t i n g discrepancy. Groff: I t h i n k t h a t f i g u r e w a s p a r t i a l l y estimated -- an estimate of t h e s i t u a t i o n t h a t would obtain at t h e end of t h e 1937-39 period. It w a s worked out i n December, 1938, s i x months i n advance, you see. The a c t u a l d e f i c i t turned out t o be t h i r t y - s i x million, f i v e hundred thousand, Morris: A variation of t e n million i n a gross f i g u r e of forty- f i v e million -- does t h a t alarm a professional finance person? Groff: No, because t h e forty-five million is r e a l l y a ten million variation on t h e t o t a l volume of General Fund recef p t s and expenditures, which produce t h e surplus o r d e f i c i t , The variation i s r e a l l y very s m a l l i n terms of t h e t o t a l amount of income and expenditure involved. Morris: This question occurred t o me a number of times i n reading about t h e mid-1940s when there were vast surpluses. I w a s curious i f from a f i n a n c i a l wizard's view this kind of variation of ten million plus o r minus r e a l l y upset t h e planning . Groffr Well, it did. It w a s very disconcerting, and it was t h e subject of many a t t a c k s on t h e administration, on t h e Governor, on t h e Director of Finance, on t h e Department of Finance, f o r having overestimated o r underestimated t h a t much. But a c t u a l l y , when you put the amount of the variation against t h e t o t a l amounts t h a t a c t u a l l y were Groff : involved, it w a s a rather small variation i n accuracy. The estimates were rather accurate against the e n t i r e background. Morris t Were you attacked on t h i s i n years of surplus as well as years of d e f i c i t ? Groff: Yes, it worked both ways, In years of surplus you a r e attacked because, on t h e one hand, people who a r e interested i n expenditures and services say, "You held us down. You wouldn't l e t us spend t h i s money and you vetoed our b i l l s because you said you didn't have t h e money, and here you had the money a l l t h e time. W e could have done t h i s , that and t h e other thing we were interested i n , " O n the other hand, we faced t h e argument from t h e more conservative point of view, t h a t here t h e State had extracted unnecessary funds from t h e taxpaying public, The taxpayers, they said, could have used that money t o much greater advantage if they'd been allowed t o r e t a i n it in t h e i r own hands, Morris: That's a very common reaction on an individual level, Grof f : That 's right. Morris: So M r . Olson came i n as gwernor with this tremendous d e f i c i t and both he and M r . Gibscn were pretty much dedicated t o meeting s o c i a l needs. How did they cope -- how d i d they propose t o meet new s o c i a l needs i n a time of very reduced revenues? Groff: In t h e first place, I should say that Governor Olson and h i s Director of Finance addressed themselves very vigorously at the outset t o understanding and coping with t h e budget situation, The Governor attended a l l t h e budget hearings i n t h e fall of 1938, r i g h t a f t e r h i s election -- between, that is, h i s election and h i s taking office. When t h e budget was i n preparation he w a s not Governor, but,as you know, the incoming governor has t h e right t o c a l l upon the Department of FFnance and t h e agencies f o r any information and service necessary f o r h i m t o prepare his budget, Actually, Governor Olson and his Director of Finance, Phil Gibson, moved r i g h t i n t o t h e Department of Finance off i c e s , and conducted hearings with d a t e agencies from morning u n t i l way i n t o the night, Day i n , and night a f t e r night, And Governor Olson actually sat i n on Groff : most of them himself. N o governor had done t h a t before and few governors since. Morris : Olson had been i n the legislature; where had M r . Gibson been? Grof f : He was an attorney and he had a practice i n Los Angeles, as I r e c a l l it, and a l s o taught on the faculty of a l a w school. Morris: W a s he a tax attorney, particularly? Groff : No, not that I recall. He was active i n Governor Olson's campaign -- as was George Killion, who headed up Olson's public relations staff during the campaign, Morris: Killion was i n the Department of Finance, also, wasn8t he? Groff : Not at first, no, he came i n as, I think it was, executive secretary t o the Governor, and had handled public relations f o r the governor's office, M r . Gibson i n i t i a l l y didn't have much information on State affairs other than t h a t he was very close t o the governor i n h i s campaign, and associated wfth him i n e a r l i e r days. He proved t o be a very astute man, however, W e were a l l amazed at the f a c i l i t y with which he picked up an appreciation of the problems of s t a t e agencies and t h e i n t r i c a c i e s of s t a t e finances, Morris : Yes, i t ' s such a technical subject t h a t i t ' s curious the number of people without a particularly f i s c a l background who were directors of ffnance. Groff : Thatos right. The job essentially c a l l s more f o r general good judgement and the exercise of a s t u t e common sense, rather than the detailed knowledge of the technical aspects of s t a t e finances. Morris : Because there i s a career s t a f f ? Grof f : There i s a career staff t o do the technical work. It's amazing, you indicated, the range of background of the various directors of finance. Morris : And yet they're very key people, too, t o any governor. Are there ever times when the technical side disagrees with, you might say, the p o l i t i c a l side? Groff: Yes, almost constantly, Most directors of finance instructed the technical staff t o express themselves f r e e l y from t h e i r awn technical, professional viewpoint, and appreciated t h e clash of opinion that resulted -- the clash between the professional !point of view, the career point of view, and the p o l i t i c a l point of view. That sharpened up the decisions, actually, Morris: Did t h is work i n the Olson case? The legislative end of things seems t o have been rather resistant t o Olson as governor, H e had strong opposition t o his spending policies i n the Legislature from the beginning, You f e e l he w a s sound financially, even though he wanted t o spend a l o t of money? Groff: I think he w a s f o r the most part sound. There were several large issues on which he had strong opinions, where he went off the deep end, but on the whole, i n h i s basic approach, he was usually quite sound, He gave much more weight t o sound advice that he received from professionals than had been expected on the basis of what most of us knew of him before then, Relief Expenditures Morris : In the budget document, the statement was made that in order t o balance the budget and cut the d e f i c i t , Olson would have t o move either t o reduce pensions and categorical r e l i e f aids, because only i n these large areas could sizeable reductions be made, o r t o propose additional tax programs. I wondered how Olson and Gibson reacted t o the suggestion that they cut the categorical aids and expenditures f o r the public schools, That must have been a hard nut, Groff: I think Governor Olson w a s not actually advocating those courses or those measures, but w a s pointing them out as unacceptable alternatives t o increased tax programs which he was recommending, H e w a s saying t h a t the alternative t o t h i s tax increase i s t o cut expenditure programs, and the only place t o cut the budget i s in those places where the large expenditures occur, In the areas of welfare, public schools, and so forth, Morrisr And what success did he have? The budget he proposed w a s f i v e hundred and fifty-seven million dollars, and w h a t Morris s Groff : Morris : Grof f : Morris; Groff : Morris: Groff : Morris : was f i n a l l y approved by the Legislature? F i r s t , it should be noted t h a t seventy-three million, s i x hundred thousand of that t o t a l was f o r unemployment r e l i e f . T h i s is one of those notes t h a t i s s t a r t l i n g , looking at it t h i r t y years l a t e r . It w a s said that the cash doles were running at twenty percent of the General Fund expenditures but that only half of the unemployed i n California were receiving any aid. That seems a remarkable thing. Did people not apply f a r the r e l i e f ? Yes, they did, but there w a s rather s t r i c t administration. They were denied r e l i e f in l o t s of cases. And, of course, t h e federal government was meeting part of the problem with its programs. So t h a t possibly what this means is t h a t although the State was only making payments t o half of the unemployed, f ; b t didn't mean that t h e other half were getting no aid, they might have been getting federal aid? They might have been getting federal aid. Many of' them didn't get any aid. They just stumbled on without relief. You said e a r l i e r t h a t one of the things that was impressive when you joined the s t a t e government, was t h a t the c i v i l service was upgrading i t s e l f . Yet ten years l a t e r , when Olson was -governor, there w a s continual criticism that he apparently t r i e d t o circumvent the c i v i l service, particularly in c i v i l defense and i n the r e l i e f administration. W a s Olson really asking t o have his p o l i t i c a l supporters hired regardless of t h e i r qualifications? A s I recall it, I think t h e criticisms came mostly i n the area of the State Relief Administration, which was set up as an emergency agency, It developed very rapidly, and due t o the emergency situation, there wasn't always time t o go through a l l the c i v i l service procedures. There w a s probably some t r u t h t o the allegations t h a t the administration took advantage of the emergency situation t o put i t s friends and cohorts i n these relief jobs. But this is quite natural, and the thing which always happens when yon have an emergency agency s e t up outside of c i v i l service. You want t o staff it -- Groff : Morris : Groff r Morris : Grof f : Morris : Groff : Morris : Grof f : You want t o staff it right now. Naturally, you staff it with t h e people who come t o yon and they tend t o be your p o l i t i c a l cohorts. So, both because of the emergency and because of some p o l i t i c s , the performance of SRA wasn't always as good as it should have been. There w a s a l o t of criticism, It was a thankless job, anyway. Yes, it must have been. Solomon-like decisions were called f o r and it w a s just an impossible situation t o administer. And there was a turnover also, wasn't there, i n the d i r e c t o r s of the r e l i e f administration? Merriam had two o r three and Olson had two o r three, and philosophically they sounded l i k e a wtde range of individuals, t o put it mildly, Yes, they were, rkughter] They'd get a liberally-minded person i n there mid SRA would become too l i b e r a l i n t h e i r interpretation of the regulations and the policies. That would bring down criticism on them, so that person would be f i r e d and a conservative type would be put in t o bring order out of chaos, you know, then they would get c r i t i c i s e d by the other side, Thus, p o l i t i c s would enter i n t o it, inevitably. Your feeling i s that there was more sound and fury around it than actual substance? I think p o l i t i c a l considerations entered into it unduly and p o l i t i c a l decisions were made, undoubtedly, However, considering the problems they had t o deal with, I don't f e e l they did too badly. One other point on t h i s '39-'41 budget, the comment was made that one thing t h a t contributed t o the d e f i c i t w a s t h a t debt service was up twenty-five percent due t o the financing policies of State Treasurer Charles Johnson. W a s there a question that early about h i s policies In depositing s t a t e funds i n banks and selling bonds ? There w a s c r i t i c 1s m of State Treasurer Johnson from time t o time f o r his handling of the deposit of s t a t e funds i n banks, over-large deposits in accounts on which the banks did not pay any i n t e r e s t , and allegations of favoritism, The timing of those I can't quite recall. Morris: This w a s a note from that '39 t o '41 budget. It was about 1949, I think, that he f i n a l l y resigned under some pressure on these l a t e r points. Groff: I don't r e c a l l w h a t the 1939-41 budget had reference to. Morris: The l a t e r incident w a s the discovery that he was depositing long term funds as demand deposits and not getting any i n t e r e s t from banks f o r holding the reserve funds, you know, the wartime surpluses, but on t h f s e a r l i e r one it was debt service t h a t was refered t o . Groff: I think I r e c a l l a l i t t l e glimmering of that, You see, Olson had recommended tax increases justified partly on the unemployment r e l i e f requirements. I think I remember that Gus Johnson advocated the use of bonds instead of taxes t o finance unemployment r e l i e f . Johnson opposed the Governor on t h a t policy question, and I think that the legislature may have followed Johnson's lead and voted t o submit a bond issue t o the people f o r unemployment r e l i e f instead of voting new taxes. O f course, legislatures a r e always reluctant t o vote tax increases -- t h a t ' s the hardest thing they do -- and so Gus Johnson, with ostensible authority, you see, gave them an out i n suggesting a bond issue. Morris: Which has t o be decided by the citizens so that the burden of decision could be passed t o them. Groff: The debt service on those bonds, while it added some t o the d e f i c i t , was such a small outlay i n those days, that increase of even twenty-five percent would not have been a l l t h a t major. - Health Care Proposal Morris: Did you r e c a l l i n t h f s Olson budget an item f o r a medical c l i n i c program? He proposed about a hundred thousand dollars, which wasn't very much, but he was concerned about health care f o r the working man, and he proposed clinics. T h i s w a s a new program i n the middle of t h i s dreadful financial bind. Groff: Yes, he proposed t o the legislature some kind of a s t a t e health care plan. I can't remember now if the c l i n i c program w a s actually a p i l o t program toward a Groff : s t a t e health care plan, o r whether it w a s a program designed f o r other purposes connected with the r e l i e f situation. In any event, I think it was outvotede Morris: It was deleted. Groff: I think one of t h e arguments that forced deletion was t o couple it with "socialf zed medicine. Morris: It kind of signals what was t o come with Warren and health insurance, which i s one of the major issues f o r study in Warren's administration. Also from the Depart- ment of Finance's point of view, i f they had talked it over with the Governor with great care, how could he have proposed a new program such as this i n a time of financial stringency? Groff: I can't remember, M y guess would be that it w a s one of those items t h a t t h e Governor made h i s own decision upon without reference t o the Department of Finance. Morris: A t Governor Warren's suggestion, I checked even further back on health insurance legislation, and in 1935, there w a s a very complex, comprehensive b i l l introduced by Senator Tickle, from Camel; he w a s chairman of the Senate Flnance Committee, which makes him a very powerful senator, doesn't it? Groff : That would be during Merriamas administration. Morrf s: The advice we have i s t h a t the 1935 b i l l , introduced by Senator Tickle and a couple of other Republicans on the Banking Committee, was put together at the request of t h e medical association. I wondered if you r e c a l l the Department of Finance testifying on it o r being aware of i t ? Groff: I doubt we did. That rings a very f a i n t bell, but I can1t r e c a l l any specifics on it. Kind of incongruous, the association or' Senator Tickle and the medf c a l assocition with a health plan . Morris : Yes. It was s o r t of right where we're at now, It s e t up a provision f o r health insurance f o r everybody who w a s not covered by a private plan, and it s e t up standards f o r f e e s , quality of care, and sapervisfon of medical professionals, and provided some s t a t e diagnostic services f o r people needing t o be put i n various categories of thf s plan. The legislatfon could be considered a model bl.11. It could be presented right Morris: now, but it seems t o have dropped without a ripple. W e wouldn't have tracked it down if Warren had not polnted it out and said his b i l l s were not t h e first. The original draft, as introduced, s e t up a s t a t e advisory board which e x p l i c i t l y included a member of t h e executive council of t h e California Medical Association. T h a t vanished i n t h e first amendment, Grof f : Weren't they g e t t i n g t h e i r Blue Cross established about that time? Morris : In '37 it was authorized and i n _'38 it w a s founded. Grof f : I ' m astounded that Senator Tickle would lend his name t o it. He was a conservative of conservatives. Morris : Well, he's there. M y general assumption i s that the chairman of t h e Finance Committee is conservative. Grof f : Tended t o be -- i n those days, especially. -m Tickle was conservative i n matters other than financial, as I r e c a l l him. Morris : T h i s was before t h e days of the l e g i s l a t i v e analyst. D i d t h i s mean t h a t Finance people worked more closely M t h the Legislature i n those days? Grof f : Yes, that's r i g h t . The department would be called on t o make analyses and provide information t o t h e l e g i s l a t i v e committees. O n a professional and somewhat impartial basis, the staff considered i t s e l f obligated t o serve t h e Legislature as well as the Governor when called upon. Morris : Were you surprised when the Legislative Analyst position w a s created? Grof f : Yes, yeswe were. I think the staff tended t o be i n opposition t o the concept of it. However, the Director was i n the position of havfng t o maintain good relations with t h e Legislature and t h e concerns of the Governor f o r h i s l e g i s l a t i o n program made it impolitic f o r the Administration t o oppose the concept, Morris : And then t h e first Legislative Analyst was a former Director of Finance. Groff t Yes, well, the clash between the former and the current Directors of Finance became part of the larger battle between Governor Olson and the Legislature. Economy Bloc Morris: W a s the Economy Bloc a visible, recognizeable force at t h a t time? Groff: Yes, it was. I h a v e a l i t t l e trouble distinguishing between that economy bloc and an earlfer one, I think the term economy bloc w a s first applied t o those who were In oppositfon t o Rolph's spending during the Depression. Morris: That s only a ten year span, and some of the same people were probably s t i l l around, Groff: Yes. I think t h i s w a s kind of a revival of the earlier economy bloc. Morris: It's unclear whether t h e i r concern was over ffnance o r whether it w a s philosophical disagreement with the way the particular governor was spending money. Groff: I think both factors entered in. Wartime Recovery Morris: Going on with our s t a t e budget highlights, 1941-3 overlapped the Olson and Warren administrations, and a l s o the turnaround from a deficit t o a wartime surplus, In 1941, California income w a s the record high for the pre-war years, and 1942 w a s the first year of budget surplus, and then -- Groff: That i s , since *29-*31, with the famous t h i r t y m i l l i o n dollar surplus, which evaporated during the depression, Morris: Yes. This 1942 surplus w a s the first of five years of surpluses. So, as soon as Warren came i n he proposed a tax reduction. Groff : That was very peculiar and very significant because it followed so closely on Governor Olsonls proposal of a rather large tax increase. Morris: Olson had proposed an increase f o r '41-'437 Groff : That 's right. Morris: And did he get very far with t h a t ? Grof f : Not f a r , he got some, but not anywhere near al? of his tax increases. Before the proposal could be renewed, the war-fnfla~edeconomy came about and started gener- ating increased revenues from existing sources. T h i s eliminated the need f o r increased taxes, Morris : Right away. Groff : Almost right away, and then, as you say, in Governor Warren's f i r s t year he was i n a position t o recommend a reduction in s t a t e taxes. Morris : W a s there a change in the federal tax structure at t h a t point. Did the federal government increase taxes t o develop revenues f o r w a r m a t erkl?.] Grof f : Yes, they did. There w a s a rather sharp increase in income tax rates. N e w excises were imposed on telephones, automobiles, entertainment, and a l o t of other things, W a r economies were put i n t o operation. In fact, it became kind of a patriotic thing t o reduce s t a t e taxes i n order t o enable people better t o pay the wartime increases in federal taxes. Morris : In that immediate budget before Warren took office, was M r . Killion working f o r tighter budget controls? Grof f : In a twelve month period w e shifted entirely away from a r e a l l y drastic d e f i c i t and huge demand f o r s t a t e funds f o r unemployment . Morris: It must have been a strange time t o be working with finance . Grof f : You had t o s h i f t gears suddenly from a chronic deficit situation and feeling of desperate need f o r additional taxes and f o r stringent economy, t o a situation where the money began t o r o l l i n , and you weren't able t o increase s t a t e expenditures. There were wartime I Groff t constraints, shortages i n materials and people and everything e l s e . And, of course, not only were t h e r e shortages, but it was just unpatriotic t o greatly expand services, e$>ept those that were f e e l i n g t h e d i r e c t impact of t h e w a r . There were a number of these l a t t e r areas that had t o be expanded. Morris: W h a t would those be? Groff: Various kinds of training a c t i v i t i e s i n t h e Department of Education, and t h e u n i v e r s i t i e s and s t a t e colleges, although these were more than absorbed by t h e very d r a s t i c decrease i n enrollments due t o people going i n t o wartime service. Morris: Did t h e increase i n revenues happen i n 19411 I n other words, had thf s begun before December 7th? Groff : Yes, because t h e stimulation came wfth t h e defense preparations, which preceded by a year o r so our a c t u a l entry i n t o t h e w a r -- t h e gearing up of our own defenses, and t h e growing supply of t h e Allies. Even before we entered t h e w a r , t h e Roosevelt policy of lend-lease s t a r t e d stimulating t h e national economy and California, of course, w a s d i r e c t l y benefitted . Morrfs: Did we lag behind t h e r e s t of t h e nation? Groff: No, as I r e c a l l , r i g h t from t h e beginning we became one of t h e centers f o r w a r production, f o r various kinds of defense production. The a1r c r a f t industry at t h a t time w a s p r e t t y firmly established i n Southern California, and I think w a s t h e beneficiary of wartime expansion. I V SPECIAL FUNDS (Date of Interview: March 9, 1972) Horse Racing and Agricultural Fairs Morris: Today, I'd l i k e t o ask you about t h e s t a t e budget and s p e c i a l funds. One of t h e ones I looked up specifically i s t h e horse racing revenues, and I wondered i f you could r e c a l l how much of t h i s i s a p o l i t i c a l issue and new l e g i s l a t i o n , and w h a t was t h e economic and f i s c a l policy? The f i g u r e s t h a t I picked up were t h a t i n 1945-46, t h e revenues were twenty-two million dollars, approximately, and t h a t t h e following year, i n '45-'47, t h e revenues were twenty million d o l l a r s , and that i n t h e following year, '47-'48, t h e projected revenues were down t o just under sixteen million d o l l a r s . Groff: In respect t o t h e former, I don't r e c a l l any effective reform o r constraints on horse racing that were enacted during that period. There were surges of agitation against horse racing from time t o time, but it's m y recollection t h a t it never eventuated i n t o any r e a l l y r e s t r i c t i v e l e g i s l a t i o n . M y guess would be that some kind of economic constraints probably produced t h a t r e s u l t . Morris: Economic constraints i n t e r n s of fewer people going t o t h e race tracks, o r -- Groff : Yes, general economic conditions, although I think t h a t time, l e t ' s see, t h a t w a s immediately a f t e r t h e war, wasn't i t ? Morris: Those t h r e e years were t h e last year of t h e w a r and then t h e postwar era. Grof f : During t h e w a r , horse-racing ranked as a r e l a t i v e l y Grof f : non-essential a c t i v i t y , and I think t h e r e were various n a t i o n a l constraints put on it, t h a t probably resulted i n reduced volume of wagering, although I don't have any vivid recollection on that point. I see i n t h e second Warren budget covering t h e biennium 1945-47, they s t a t e a c t u a l s t a t e revenues from horse racing at two million, seven hundred eighty one thousand f o r t h e 1941-43 biennium, an estimated s i x and a half million f o r 1943-45, and s i x million, nine hundred thousand from 1945-47. Morris : Those a r e t h e a c t u a l revenue? Groff: The f i r s t f i g u r e w a s a c t u a l , t h e other two figures were both estimated. Morris: Is t h i s from a l l of t h e race tracks i n t h e s t a t e ? Grof f : That w a s t h e S t a t e ' s share. In other words, t h e s t a t e license f e e s imposed on t h e tracks f o r t h e privilege of conducting betting. Morris I The county fairs -- do they a l l have a racing a c t i v i t y , too? Grof f : Only t h e l a r g e r ones, I think. Pomona, t h e Los Angeles County Fair, and some of t h e l a r g e r a g r i c u l t u r a l counties l i k e Fresno and t h e S t a t e Fair. But they were r e l a t i v e l y unimportant as revenue producers. The great balk of s t a t e revenue came from t h e l a r g e racing tracks: Santa Anita, Hollywood Park, Golden Gate Fields, Tanf oran, Bay Meadows. Morris: One point t h a t I came across i n m y reading w a s that t h e r e w a s some push and haul here with t h e s t a t e people concerned about keeping t h e a c t i v i t y good at t h e county fairs and S t a t e F a i r , and t h a t t h e r e w a s some pressure from t h e fair boards who didn't want t h e private tracks t o g e t too much of the action. That t h e r e was t h f s kind of a r i v a l r y sftuation that would -- Groff: I can't r e c a l l that being a very effective determiner of s t a t e polfcy as f a r as overall regulation, and control, of -- Morris : M y f i g u r e s must be the revenues of t h e tracks. Grof f : That 's probably it . Morris: So t h e s t a t e revenues stayed within a million dollars of each other over those years you mentioned. Grof f : They were down rather markedly during the w a r years. rLooks through papersd Yes, two million, eight fiundred thousand i n ' 1-'43, as against s i x and a half million and s i x million, nine hundred thousand f o r the next two bienniums. Which indicate, you see, that they f e l l off about half during the war. Morris : Well, t h i s would be explained, as you mentioned by gas rationing, and of all those people who go t o the race track being e i t h e r in the service o r a w a r plant. Grof f : That 's right. Morris: But then the track's own revenue dropped markedly i n those years r i g h t a f t e r the war, from twenty-two million i n '45-'46, t o f i f t e e n million nine hundred thousand i n 1947-1948. Grof f r Now, it well may be that these expectations, budget estimates were not actually realized, I donut happen t o have figures right at hand showing the actual revenues in subsequent years -- Morris: Now, did the revenues from the taxes on horse racing go i n t o t h e General Fund, o r a r e they earmarked into a special fund? Groff : The bulk of them went i n t o special funds, and the General Fund shared revenues over a certain amount. I can't r e c a l l now exactly what the formula was, but t h e General Fund shared in the revenue. I think it was a kind of skimming the cream when revenues at the larger tracks reached a certain point. Morris t I think the f a c t t h a t there w a s a formula i s an interesting aspect of the special funds. Now, w h a t was the special fund for? Grof f : The special fund w a s used t o provide s t a t e assistance t o s t a t e and county agricultural a f f a i r s , and, at l e a s t i n t h e e a r l i e r days, f o r the support of California Polytechnic College, Morris: Is t h a t the school-at San Luis Obispo? Groff : That 's right, although t h e i r original campus w a s in San Luis Obispo, they l a t e r established a second campus near Pomona, the former Kellogg horse ranch, which was given t o the State. orris: Is t h i s primarily f o r livestock breeding? Groff: No, I think there were some courses i n animal husbandry but it provided a second campus t o extend that particular kind of vocational education t o a more southern Calif- ornia area, Morris: So t h a t part of the racing revenues that went into the special fund could only be used f o r agricultural f a i r s , and the agricultural f a i r s could spend a l l that money, Groff: Yes, t h e r e w a s a n a l l o c a t i o n formula set u p i n t h e a c t t h a t gave each fair a certain percentage return based on the amount of premiums that they offered t o exhibotors at those agricultural f a i r s , Morris: I see, so t h a t the higher prizes you awarded t o the best c a t t l e , and so on -- Groff: The more you got back from the state. Morris: That's interesting. This whole business of the s t a t e and county f a i r s came under some attack from the legislators, as I recall. Groff: Yes, it seemed t o many, especially those interested i n the overall s t a t e financial picture, t h a t the s t a t e and county fairs were reaping a kind of bonanza, especially in the more parlous times f o r State finances, Because as horse racing revenues came pouring i n , they were automatically channeled t o these f a i r s , which t o many did not represent a very high priority of state expenditure. To agricultural interests and others, however, they were very, very important, and apparently enough legislators agreed, so that the l a w s stayed on the books Groff: and t h e a s s i s t a c e has continued, O f course, they financed a l o c a l a c t i v i t y t h a t was run by local boards composed of l o c a l c i t i z e n s , and they had q u i t e a l o t of influence. Morris: Did t h e Department of Finance take a position in t h i s ? Groff: No, not really, because it w a s more a matter of public policy than it w a s f i s c a l policy. It depended how much t h e s t a t e wanted t o assist t h i s particular a c t i v i t y . There were private opinions -- Morris: Yes, I was thlnking of it i n terms of your comment about overall s t a t e p r i o r i t i e s . One of t h e specific challenges, as I r e c a l l , w a s t h a t horse racing revenues should be directed toward education. Did that kind of a recommendation come out of t h e Department of Finance? Grof f : I can 't remember, specifically, but I think I remember t h e tenor of thinking w a s toward channeling more of those revenues i n t o the General Fund of t h e treasury as general revenue of t h e State, rather than dedicating it t o other p a r t i c u l a r purposes. The general thlnking of t h e department has been h i s t o r i c a l l y i n the direction of' avoiding the dedication of particular revenues t o s p e c i f i c purposes, especially by formula, and i n favor of directing v i r t u a l l y a l l of the s t a t e revenues i n t o t h e General Fund f o r budgeting and evaluation and appropriation by t h e Legislature. Highway Bonds and User Taxes Morris: Another big area i n terms of dollars i s t h e hlghway funds. They're a whole separate accounting and disbursing body. Grof f : That 's right. Morris: How d i d that come t o be and how does t h i s f i t i n t o a smoothly functioning State Department of Finance? Groff: O f course, t h e original s t a t e highway system w a s financed by a s e r i e s of bond issues. Morris s T h i s would be World W a r One-ish? Groff r Oh, sometime before that. Let's see what t h e date of those highway bond issues were. [Checks document] Yes, t h e first highway bonds were-authorized i n 1909, and t h e second issue i n 1915, and t h e t h i r d issue i n 1919. Those were f o r eighteen million, f i f t e e n million, and f o r t y million, respectively. And those bonds were serviced by the general revenues of t h e State, and charged upon t h e General Fund f o r i n t e r e s t and redemption. Morris : Serviced by t h e State. T h a t means -- Groff : I mean the i n t e r e s t and redemption on them were a charge against general revenues of t h e State. They were general obligation bonds of the s t a t e . Morris a And they were charged t o the S t a t e ' s General Fund? Groff t That 's right. They were, i n most cases, f o r t y year bonds, and they were paid off f i n a l l y i n 1965, the last of them. Morris : Oh, you do come t o the end of f o r t y year bonds! [Laught er) Groff : [Laughter) Yes, it f i n a l l y runs out. So these bonds financed the i n i t i a l s t a t e highway system. Then, l a t e r , the gasoline t a x w a s established and devoted t o t h e financing of s t a t e highway construction and maintainance, and t o county roads. S t i l l l a t e r , a portion went t o c i t y s t r e e t s . These gasoline t a x monies a r e deposited i n t h e State Highway Fund, a special fund, dedicated t o and r e s t r i c t e d t o a particular purpose, namely highways. Morris: And, if I remember correctly, i t ' s t h e State Highway Commisslon which authorizes the expenditure of the funds on t h e specific project. Grof f : T h a t ' s right. Morris : Again, from t h e point of view of statewide finance practice, w a s t h i s questioned at a l l by the Department of Finance? Grof f : I don ' t think so -- not strongly, because -- Morris: Did you have an auditing function over those funds at a l l ? Groff: Yes, the S t a t e Department of Finance post-audit included t h e S t a t e Department of Public Works and t h e Division of Highways, which expended those monies. Then, of course, the a c t u a l disbursement of these monies w a s pre-audited by t h e S t a t e Controller before they were paid out. But the issue arose around the f i s c a l wisdom of s e t t i n g aside specific revenues, and these gasoline t a x monies i n particular, f o r highway purposes without any a b i l i t y on t h e part of t h e Statees executive and l e g i s l a t i v e a u t h o r i t i e s t o evaluate those expen- d i t u r e s over and against i t s other expenditures, especially those advanced from General Fund sources. The question arose, inevitably, i n times of shortage of s t a t e funds when t h e S t a t e w a s i n tough f i s c a l condition, as t o whether o r not those gasoline taxes should be tapped f o r general s t a t e purposes. There were frequent debates on that score. Morris: W h o were the l e g i s l a t o r s who would r a i s e t h i s issue? Groff: Well, I think they tended t o be the urban area legislators. Morrist If t h e gas t a x from t h e beginning has been earmarked t o t h e S t a t e Highway Fund, could this ever be diverted? Could the S t a t e Legislature ever say "We're going t o continue t o c o l l e c t the gas tax, but i t ' s not going t o go i n t o highways, i t ' s going t o go i n t o the General Fund, and then t h e Legislature each year w i l l make t h e determination as t o how much w i l l go t o highways and how much t o schools o r hospitals?" Groff: The original provisions f o r t h e S t a t e Highway Fund and t h e dedication of gasoline t a x revenues t o those purposes were statutory, and could have been changed by t h e Legislature. However, i n 1938 there w a s a consti- t u t i o n a l amendment passed which dedicated these highway user revenues t o t h e construction and maintenance of highways and related purposes -- it was quite r e s t r i c t i v e . So, a f t e r that time, the highway user revenues could be diverted t o general purposes only by an amendment of t h e constitution, Morris: And highway user i s a very broad term. Grof f : Yes, it includes gasoline taxes, the motor vehicle registration f e e s , and -- Morris: And a r e n ' t there over t h e road taxes on trucks and commercial vehicles? Groff : Yes, that's r i g h t . It included those imposed on truck usage; those imposed on trucks as property, however, a r e not r e s t r i c t e d . Likewise t h e i n l i e u t a x on motor vehicles -- t h e s t a t e t a x i n l i e u of local property taxes -- those a r e not r e s t r i c t e d . Those monies go back t o the c i t i e s and counties. Morris: Again f o r road purposes, locally? Groff : No, f o r general purposes. They a r e state-collected, locally-shared revenue. Morris : You s a i d that t h e challenges t o t h e use of gas taxes f o r highway and s t r e e t purposes came from the urban areas. Is t h e other side of it t h a t the highway proponents were generally t h e r u r a l people? I think of George Hatfield as being a name associated with highways. He l e d t h e 1947 gas t a x legislation i n t h e Senate. Grof f : Yes. And the more recent leader of s t a t e highway forces has been Senator Randolph Collier from Siskiyou County. However, m y statement, I concede, i s contradicted by the f a c t that the e a r l y leader of forces i n favor of s t a t e highways, and t h e pioneer missionary i n t h a t f i e l d , w a s Senator Breed, Senior, from Alameda County. Morris : When Senator Breed, Senior, was making h i s highway s t u d i e s i n the l9ZOs, southern Alameda County was fruf t orchards and farms. Grof f : True, I don't know what motivated Senator Breed at t h a t time. He w a s popularly denominated as the f a t h e r of t h e s t a t e highway system, and w a s active i n enacting t h e gasoline t a x method of financing highways. Morris : That w a s in 1921 -- and then i n 1947 George Hatfield wanted a gasoline t a x increase? Grof f : Yes, there were several increases i n the r a t e of gasoline t a x from time t o time. There were several successive studies made, a l l of which seemed t o indicate that there were deficiencies developing i n the s t a t e Grof f : Morris t Grof f : Morris : Grof f : Morris : Grof f : Morris: Grof f : Morris : Groff : highway system, that they were not keeping up with the needs i n time with the very rapid growth i n number of vehicles and trucks using t h e highways. On the basis of those studies then, the tax r a t e w a s increased from time t o time, I think Senator Hatfield l e d one o r maybe several of those f i g h t s f o r increased highway revenues. Governor Warren a l s o was f o r this. W h y did it develop i n t o such a major b a t t l e i f both the governor and leading l e g i s l a t o r s were f o r i t ? Would the Department of Finance have become involved; your people t e s t i f y t o l e g i s l a t i v e committees? The o i l companies were usually opposed t o such increases i n the price of t h e i r product. The Department of Finance did not become involved, because the Adminis- t r a t i o n was represented by the Division of Highways, which had i t s own f i s c a l expertise. Randolph Collier w a s from the northern counties. Any particular strong men i n t h i s area from southern counties? Senator Ben Hulse from Imperial County comes t o mind. I f I remember correctly he was active. He w a s the Caterpillar Tractor man i n his private business l i f e , wasn 't he? He may have been t h e Caterpillar dealer i n Imperial Valley. I think he was a farmer there, too. That's Interesting. I've heard him spoken of as a very hard-working l e g i s l a t o r , who studied every b i l l . He w a s . He was a very well-informed man and he was a very a b l e man. He was a l s o hard-fisted and tough-minded, l e t ' s say, but studied the issues very carefully. H e w a s chairman of t h e Senate Finance Committee, f o r quite some time. Would he have turned up i n the finance department t o question and suggest? Yes, he was chairman of t h e Senate Finance Committee before whom the s t a t e budget was heard -- the committee before whom the administration had t o defend i t s budget proposals -- and obviously w a s i n frequent contact with the Director of Finance. I Business Taxes and Regulatory Fees Morris: O n s p e c i a l funds, do insurance company and other business revenues go i n t o t h e General Fund o r do they go i n t o the s p e c i a l funds? Groff: Well, t h e gross premiums t a x on insurance companies goes i n t o t h e General Fund, as a general purpose State tax on those companies. Morris: How does that d i f f e r from t h e general business, corporate tax? Groff: The general corporations and the banks a r e taxed now on a n e t income basis, t h e so-called bank and corporation franchise tax. But t h a t t a x does n o t apply t o insurance companies, which a r e taxed instead on t h i s separate, s p e c i a l basis, on t h e i r gross premiums. Morrisr T h a t i s w h a t they do business in. Groff: That's r i g h t . It represents s o r t of a gross income t a x r a t h e r than a n e t income tax. The general corporations and banks a r e taxed on a n e t income basis, a f t e r expenses, you see. Morris: And t h e insurance companies don't have any expenses? Groff: Well, they have expenses, but they're not taken i n t o account i n t h e t a x except by the lower r a t e of tax. I don' t know what it i s now, but something l i k e four and a q u a r t e r percent. Morris: That's a layman's question, but some of t h e terms a r e confusing. The gas taxes and the horse racing revenues a r e t h e special funds most thought of. What other categories of s p e c i a l funds a r e there? Groff: Our other large category, n o t so much i n terms of d o l l a r s involved, but i n t h e widespread nature of t h e a c t i v i t i e s , would be t h e so-called professional and vocational regulatory boards -- those s e t up f o r licensing physicians, d e n t i s t s , chiropractors, so on and so forth. The costs of those regulatory boards a r e defrayed by l i c e n s e f e e s collected from t h e people regulated. Morris: Is t h e intent t o make them self-supporting? Groff : Self -supporting, t h a t ' s r i g h t . The general intent i s t o finance t h e c o s t s by fees levied upon t h e profession o r vocation being regulated. The same i s t r u e of t h e general investment f i e l d s such as building and loan, banks -- Morris : Stock brokers? Groff : Stock brokers, yes, they a r e regulated and financed i n t h e same way, by fees levied upon t h e industry. Now those monies -- each category of them -- a r e deposited i n a separate special fund, whose revenues a r e continuously appropriated by l a w f o r t h e support of those boards, commissions o r governmental agencies, who a r e concerned with t h e regulation of those industries, Morris r Is t h e idea t h a t these a r e being regulated i n t h e public i n t e r e s t ? Groff: In t h e public i n t e r e s t , yes, but that t h e cost should not be borne by t h e public generally, but by t h e profession being regulated, Of course these license f e e s become an expense of doing business, and a r e passed on t o t h e general public i n that form, but n o t as general taxes. Morris: And these professional and vocational regulatory boards have increased over t h e years, i n t h i s last twenty-five years? Groff : Yes, rather s t e a d i l y , Questions of Policy Morris: I w a s thinking of a p a r t i c u l a r instance: cannery inspection fees. I wonder i f you could comment on' t h i s . I was t a l k i n g t o people i n t h e Department of Public Health, who s a i d i n t h e public i n t e r e s t t h e canneries were routinely inspected, and then i f there was any kind of a question from year t o year they would make additional inspection of t h e canneries, Originally t h i s cost w a s borne by canners. Grof f : That's right, t h e r e w a s t h e Cannery Inspection Fund, i n t o which those f e e s went. Morris! The l a r g e r canneries paid a larger f e e , and then i n t h e '40s, t h i s charge w a s shifted l i t t l e by l i t t l e over t h e Department of Public Health. I wondered i f you recalled how t h i s process came about, and how did t h e canners -- I shouldn't put it t h a t way. [laughter] If it was a matter of the public i n t e r e s t , -how did it cease t o be borne by the canners who, a f t e r a l l , i n t h e i r own i n t e r e s t (they couldn't s e l l t o t h e public i f there was any question about the canned goods) would not want t h e i r economic position damaged. H o w did they manage t o s h i f t t h i s f a i r l y hefty fee over t o the State Department of Public Health? This apparently was gone i n t o each time around with t h e people from t h e Department of Finance. I wondered i f you recalled t h i s specific -- Groff: The S t a t e hasn't been e n t i r e l y consistent i n t h i s matter of assessing t h e costs of these regulatory functions d i r e c t l y against t h e industry regulated. Even when t h e c o s t s a r e assessed against t h e industry, i n a minority of cases, they've deposited these f e e revenues i n t h e General Fund of' t h e State and made appropriations from t h e General Fund f o r t h e support of t h e regulatory function. The endeavor has been, at l e a s t i n the long run, t o keep t h e f e e s assessed against the industry i n l i n e with the c o s t s of performing t h e regulatory function. This a l t e r n a t i v e procedure i s mainly a matter of mechanics, and r e s u l t s i n the revenues and expenditures, i n t h i s l a t t e r case, showing up i n t h e General Fund r a t h e r than as a special fund transaction, It becomes a matter of policy sometimes as t o whether o r not you assess regulatory costs d i r e c t l y against the industry o r profession, o r whether you l e t t h e cost be borne by general revenues of t h e State, which although paid i n part by industry, a r e not assessed on a quid pro quo basis. Morris: Is t h i s the kind of policy decision t h a t ' s made within t h e Department of Finance? Groff: No, t h e decision i s made by the Legislature. The Department of Finance might have a recommendation t o make t o t h e Governor and t o t h e Legislature on t h e matter. The Department of Finance policy, at l e a s t i n the days when I was with it, was these costs should be borne i n t h e f i r s t instance by t h e industry regulated. But, number two, t h a t f o r f i s c a l f l e x i b i l i t y it would be b e t t e r t h a t these monies be deposited i n t h e General Fund of the State. Nevertheless, it was often a rather Groff: narrow decision, because as a practical matter we recognized t h e danger w a s t h a t the fees would not be increased commensurate with changes i n t h e costs of performing t h e regulation, and that the temptation would be t o s h i f t those costs t o the general taxpayer. T h a t tendency i s more d i f f i c u l t t o combat i f those monies a r e put in the General Fund. O r , put the other way around, i f those fees a r e segregated i n a special fund and the expenditures f o r regulation a r e limited t o monies i n t h a t fund, there's an automatic regulator e f f e c t , you see. They can only spend what they take i n . I f the costs of regulation aren't being met, then there's a b u i l t i n necessity f o r increasing the fees. Morris: Either t h a t o r reducing t h e amount of regulatory service. Grof f : That 's right. r h u g h t er] Morris: That's a very interesting aspect of special funds I hadn't thought of, particularly since you hear so much nowadays of the regulatory function serving the pro- fession o r the industry originally intended t o be regulated. T h i s cannery one w a s I thought an interesting case i n point, since agriculture has been f o r so long and s t i l l i s a major part of the California t a x base. Groff : T h a t 's right. It' s kind of a borderline area, a l l right. Where there's a general public i n t e r e s t akin t o the public health function of the s t a t e , the Department of Public Health i s in general supported out of general tax funds. But t h i s particular aspect of the public health i s being assessed against the industry involved. The question would be: whether it w a s a more peneral public health problem, theref ore supported l i k e other public health functions out of general tax revenues, o r whether it w a s a specific aspect of the general health which ought t o be assessed against the industry giving r i s e f o r t h e problem. Morris: Which w a s in business t o make money. Yes, t h a t sounds l i k e i t might well have been the way the discussion went. Groff: O f course, i n general, no matter which way you do it, the c o s t s end up being paid out of the consumer's pocket book. Liquor Taxes and Licensinq Morris: This i s true, i n t h e long run. One of t h e other areas t h a t came i n f o r considerable controversy w a s liquor. Now, i s t h i s a special fund? Groff: Well, yes and no. The costs of s t a t e a c t i v i t i e s in- volved i n the regulation and policing of the industry and i t s licensing a r e borne by license fees levied on l i q u o r stores and dispensers, both wholesale and r e t a i l . However, the industry has t r a d i t i o n a l l y been a source of general s t a t e revenue, a l s o , with the excise taxes levied on the liquors sold. Such excise taxes go i n t o t h e General Fund of t h e S t a t e. A s a s t a t e t a x levied on luxuries, it is a source of general s t a t e revenue, i n t h e same category as the c i g a r e t t e tax, Morris: And because i t ' s considered a luxury, this is why i t ' s s o easy t o look t o them when we need more revenue? Groff: That's r i g h t . rlaughter] It's s o r t of a fat c a t when it comes t o -- - Morris: I n t h e later years of t h e Warren administration they were referred t o as "sinw taxes, and horse racing and tobacco and l i q u o r were a l l lumped together. Is t h e business in these three areas sufficient t o bring i n a sizeable amount of revenue i f you add a penny t o t h e tax? Groff: Yes, t h e volume i s so great t h a t a small r a t e of t a x r a i s e s a considerable amount of money. Again, I don't know what the current consumption figures are, but I do remember, and i t ' s t r u e increasingly now with the r i s e i n population of the s t a t e , t h a t the liquor taxes could produce q u i t e a considerable amount of money. Morris: When t h e s t a t e i s looking f o r more money, they're usually looking f o r l a r g e quantities? Groff: Liquor taxes weren't one of the largest. In t h e perspective of t h e whole s t a t e budget, they couldn't take care of a d e f i c i t s i t u a t i o n on t h e i r own; they could make a s i g n i f i c a n t contribution t o s t a t e revenues. In 1941-43, actual: receipts from the d i s t i l l e d s p i r i t s excise tax, beer and wine excise t a x and liquor license fees, was about f o r t y million dollars. rchecks budget s t a t i s t i c a l page .] Morris t Grof f : Morris : Grof f : Morris : Groff: Morris : Grof f : Morris : Groff : So t h e volume of those s i n taxes could be used t o start a new program o r t o expand a program, but they r e a l l y couldn't carry a whole program? I don't r e c a l l t h e i r ever being linked up t o particular programs. I always thought of them more as being i n s t i t u t e d in response, and most of the changes in the r a t e of levy as geared, t o general s t a t e financial conditions r a t h e r than particular programs. They were looked t o f o r general financing. A t one point when there was one of the recurring c r i s e s i n education, t h e thought w a s that a good way t o finance education would be t o penalize the drinkers and get another penny on t h e liquor tax -- but again, it sounds l i k e t h a t is more of a l e g i s l a t i v e maneuver than a sound f i s c a l policy. I think so. While we're on t h e subject of liquor, did your department get involved at a l l i n the Artie Samish lobbying investigations t h a t s t a r t e d i n the '30s and were still going on in t h e 'jOs? Not i n any substantial way t h a t I r e c a l l . However, whenever there w a s t h e necessity f o r a t a x program that might involve or did involve the taxes on the liquor industry, of course Artie Samish w a s right there on the job t o oppose any such increased levy. In that sense a representative of the Governor arguing f o r a t a x program that he recommended would be i n opposition t o A r t Samish and would encounter, so t o speak, his wiles and h i s e f f o r t s t o maintain his point of view f o r his industry. And i n a number of those encounters, Samish w a s consfdered t o be the G t e n o i r of the situation, even going back t o M r . Heron's day. I can't remember w h a t t h e issue w a s -- as I r e c a l l it, it wasn't liquor i n those days. Samish w a s a l s o a representative of the trucking industry. Truck taxes -- that was it. According t o h i s own reports, he w a s a lobbyist f o r a half a dozen groups including, I think, a couple of employee s' associa'l;ions? Yes. County employees o r something l i k e that. Morris: Re always seems t o have had strong t i e s i n Los Angeles. There's a l s o a l o t of concern expressed t h a t he influenced t h e l e g i s l a t i v e process i n general, and his connections permeated and had an unethical effect on many aspects of s t a t e government. Groff: I don't know i f Fred Links mentioned anything about A r t i e Samish o r n o t , but I r e c a l l M r . Links t e l l i n g of several incidents o r encounters with Samish where Samish was i n opposition t o something that M r . Links was advocating and t r y i n g t o put over on behalf of t h e administration on t h e Department of Finance. O n a couple of occasions Fred Links took h i m i n t o camp, and bested him. Morris: Is it t r u e t h a t Samish, himself, never appeared before a l e g i s l a t i v e committee? Did it a l l through lieutenants? Groff: That was m y understanding, m y impression at the time. Morris: That's a marvelous picture of M r . Links maneuvering at h i s end and M r . Samish maneuvering at t h e Senator Hotel. Groff: r k u g h t e r ) Yes. V O T H E R FISCAL AUTHORITIES Board of Equalization Morris: Another piece of t h i s i s , of course, the Board of Equalization. Although M r . Bonelli came t o a sad end, apparently when he first w a s on the Board of' Equaliza- t i o n , he w a s f a i r l y strong and outspoken i n saying "there's a p o s s i b i l i t y of trouble i n the liquor license administration, and we need t o be on the lookout f o r corruption." And I wondered if the Department of Finance was concerned about t h i s over t h e years and had any thoughts about how M r . Bonelli got from being a good guy t o being a bad guy? Groff: I don't think at my level we had other than our personal reactions. Maybe M r . Links o r the directors of finance would have had opportunity t o observe M r . Bonelli at close range. Morris: The Board of Equalization i s another piece of s t a t e administration having t o do with money coming i n , and the Controller's Office controls money going out. And where does the Department of Finance sit i n relationship t o these other financial bodies? Groff: Well, taking t h e Board of Equalization first. The Board of Equalization administers i n a ministerial way t h e levy and collection of certain taxes. Its mission i n that respect has varied over the years. From the early days of the s t a t e gross receipts taxes t o the present day it has been the principal t a x collector of t h e s t a t e , i n terms of dollars. Its influence on policy has varied from time t o time with the s t a t u r e and aggressiveness of the people Groff : Morris : Grof f : Morris : Grof f : Morris: Grof f : Morris : making up i t s membership. It a l s o varies, of course, with t h e kind of t a x being administered, Some a r e much more ministerial and routine In nature and c a l l f o r few i f any policy decisions t o be made. Others involve more discretion and exercise of influence on policy. A s a constitutional body elected d i r e c t l y by the people, they were independent of t h e Governor's office and frequently tended t o be at odds with t h e administration i n terms of t a x policy. Then t h e i r staff director, Dixwell Pierce, on an organ- i z a t i o n a l chart would be at about the same level of influence and authority as the director of the State Department of Finance? On paper, yes, but I think t h e actual scope of the functions of the Director of Finance a r e much wider, Not only the revenue and tax collection aspects of s t a t e government, which would be t h e concern of Dixwell Pierce, and t h e Board of Equalization, but the whole expenditure side of s t a t e government, as well, w a s the concern and province of the State Department of Finance as the chief f i s c a l o f f i c e r of the Governor, For instance, i n t h e case of M r . Pierce and James Dean, w a s it important f o r these two t o work closely together? Oh, I thlnk it would be an advantage, but I don't think i t ' s of any great importance. I think, again, the Board of Equalization functions, especially nowadays, a r e much more ministerial. I think i n recent years they haven't even bothered themselves much i n the area of s t a t e t a x policy, T h a t ' s interesting, because, as you say, they a r e seen as s o r t of ministerial and removed, and yet they can exert a very important function i f they choose t o , Yes, although -- as I say -- i t ' s varied from time t o time. Some members of t h e Board of Equalization a r e willing t o go out on a limb and recommend t o the Legislature i n regard t o State policy. But it seems t o m e t h a t Increasingly i n recent years they've been l e s s and l e s s i n f l u e n t i a l i n shaping State tax policy. To what extent does the Board of Equalization serve as an appeals body? In other words, t o me, the concept of equalization means that somebody i n Alameda Comty, o r Morris: t h a t Alameda County in general, should bear a similar t a x burden t o Imperial County. And i f someone's assessment in Alameda County or a t a x r a t e i n Alameda County seems t o be unfair, it could be appealhed t o t h e State Board of Equalization, / Is t h i s so, and i f so, how much i s this appeals function used? Groff: You see, a property tax r a t e is the resultant of the amount t o be expended, divided by t h e assessed value of the property subject t o tax. The Board of Equalization has jurisdiction only on the second, t h a t is, on the assessed value of the particular property t o be taxed. So it doesn't concern i t s e l f a t a l l with t h e level of county expenditures, but only as t o whether o r not the l o c a l l e v e l of assessment of property f o r taxation is r e l a t i v e l y equal with the levels at which similar properties a r e assessed i n other counties of the S t a t e . I think i n e a r l i e r times, the original functions of t h e Board of Equalization were more heavily concerned with t h i s equalization matter. In recent times, they've only been concerned with seeing t o it t h a t t h e general l e v e l of assessments made by counties were on a reason- ably similar basis. Ex Officio Responsibilities of Constitutional Officers Morris: Then where does t a x policy evolve? Groff: Well, it comes p a r t l y from the Board of Equalization, and p a r t l y from t h e Franchise Tax Board, Morris: Is t h a t under the Board of Equalization? Groff: T h a t ' s a separate s t a t e agency, It i s now the Franchise Tax Board. Morris: Is t h a t an ex o f f i c i o board? Groff: An ex officio board, yes. I believe it consists of the chairman of the State Board of Equalization, the State Controller, and t h e State Director of Finance, I ' m not positive. They administer the personal income tax, and the bank corporation franchise tax, The State Controller Groff : administers t h e s t a t e inheritance tax. Morris: He doesn't have an ex o f f i c i o board? - Groff : No, he does that by himself. Morris: It may be light-minded f o r m e t o say so, but i t ' s a marvel t h e number of ex-officio boards involving t h e same people t h a t supervise the various pieces of t h e s t a t e financial operation. I assume t h a t t h i s i s because it has grown over t h e years and pieces were added here and added there, but I wonder t o what extent they do check and balance on each other, and how much i s just t o t a l confusion? How can t h e Director of Finance sit on a l l of these boards? Grof f : Actually, i n terms of time, t h e Director of Finance couldn't do it a l l . It's made possible by t h e f a c t t h a t t h e Director of Finance w i l l assign a deputy t o s i t i n f o r him on certain occasions, so that he himself doesn' t have t o . Even on t h e more important boards. not a l l of t h e meetings a r e important; The ~ i r e c t o r of Finance w i l l tend t o attend t h e important meetings and send h i s deputy t o the more routine ones, and that' s t h e way it works out. And most of these boards a r e con- cerned with only occasional policy o r semi-judicial functions -- t h e day-to-day administrative matters can be handled by t h e deputy. Morris : But when you're talking about t h e disposition of millions of d o l l a r s i n s t a t e revenue, t h i s has never been questioned? Grof f : Let's see -- not many ex-officio boards a r e concerned with disposition. Morris: I think of highway funds, because again t h i s is another of those ex-officio things -- Groff r No, t h e State Highway Commission is appointed by t h e Governor. I don1t think there a r e any ex-officio. Morris: During Warren's years, a f t e r , I think, about '46, '47, there w a s an Allocations Board. This was the Director of Finance, t h e Controller and t h e Director of Public Works. They apparently operated f a i r l y indepen- d e n t l y of t h e Legislature -- w a s t h e i r function t o approve contracts, o r t o say "the highway w i l l go here, Morris: w i l l go north and south, rather than east and west?" Groff : T h a t w a s t h e Public Works Board. It was not concerned with highways, but r a t h e r with t h e allocation of t h e post w a r employment reserves f o r construction of buildings and s t r u c t u r e s f o r S t a t e agencies. The S t a t e Allocation Board w a s t h e one that w a s concerned with t h e allocation of a s t a t e bond issue f o r school buildings. These bond funds were augmented by an allocation from one of t h e postwar employment reserves. When that money ran out, t h e r e were additional s t a t e bond i s s u e s , which that board allocated t o individual school d i s t r i c t s f o r individual projects . That judgmental function was t h e one that was exercised by t h i s ex o f f i c i o board. Morris: It may be that, as you say, they have primarily a s o r t of j u d i c i a l review function. From outside, it looks l i k e they have p o t e n t i a l l y a great d e a l of power i n terms of decisions on expenditures. Groff: Yes, those were important decision-making functions they exercised, a l l r i g h t . Formation of Tax Policy Morris: T h a t w a s a s i d e i s s u e from m y o r i g i n a l question of "where does t a x policy evolve from," and we s t a r t e d with t h e Franchise Tax Board and t h e Board of Equalization. Groff: The Franchise Tax Board and t h e Board of Equalization, yes. But t h e Governor and) advising him, t h e Department of Finance, exercise a very important policy-making r o l e through t h e medium of t h e budget. And then, of course, there i s t h e policy-generating r o l e played by t h e Legislature i t s e l f , i n both i t s regular committees and i t s interim committees operating between sessions, and sometimes through special commissions appointed by t h e Legislature. I should have mentioned, i n reference t o t h e executive branch, t h e Governor has from time t o time on his own i n i a t i v e appointed blue ribbon commissions t o study the S t a t e ' s t a x o r f i s c a l situation and bring in recommendations. Morrist Usually we've got t o overhaul the S t a t e t a x structure. Morris : I s n ' t t h a t the way the newspapers report the recommen- dations -- Groff : [ aughter] Yes, t h a t ' s right. Morris : W h y i s t h i s so d i f f i c u l t t o do, t o "overhaul the s t a t e t a x structure?" Grof f r You 've got tremendously important i n t e r e s t s involved, i n t e r e s t s concerned with who bears the burden of State taxes and t o what degree. And those i n t e r e s t s have t o be composed and s a t i s f i e d o r overcome through legislative o r p o l i t i c a l force, you might say. The stakes a r e quite high, also, t o the State government. From the basic standpoint of adequate support alone, the issues a r e very important. Morris: From t h e point of view of the ongoing State government. Groff : -- t h e f i s c a l soundness of State government, that's r i g h t . It must see t h a t i t s t a x resources a r e going t o be stable, but even more than being stable nowadays, with t h e inflationary situation t h a t obtains, it must make sure t h a t S t a t e t a x yields w i l l expand with inflation, and w i l l expand commensurate with t h e growth of the State, too. They must not be regressive, you see, o r lag behind population growth o r inflation in the economy. Morris: Is there another part t o expansion -- i s it higher expectations of t h e citizens f o r service, o r i s it t h e development of t h e various arts of government t o provide more elaborate services? Groff: Well, both of those factors operate, but i n terms of t h e revenue of t h e State, hopefully, the t a x system can expand at l e a s t commensurate with t h e growth of the economy and ideally, it would be hoped t o expand at a somewhat higher rate. In some taxes, a f i v e percent growth i n t h e general economy might well produce a ten percent r i s e in revenue. Especially if you have a tax measure related t o prof i t s . Morris: That would be your business taxes? Grof f : Yes, very frequently a f i v e percent growth i n the volume of sales w i l l produce a more than commensurate increase in p r o f i t s , therefore, at a given r a t e schedule, Groff t w i l l yield a l a r g e r than f i v e percent increase i n S t a t e taxes from corporations. In personal incomes, too, t h e r a t e s t r u c t u r e is progressive, so that with l a r g e r income, you pay n o t only a l a r g e r t a x , but a progressively l a r g e r tax. Morris: I ' m - painfully aware of t h a t . Groff 8 r ~ a u g h t e r ] Yes, t h a t 8s right. So, those a r e some of the considerations t h a t go t o make problems with t h e S t a t e t a x structure. Morris: If t i e d t o t h e l e v e l of t h e general economy and t h e amount of revenues, both expected and needed, it must be an ongoing process. There must be a need f o r constant review of t a x policies? Groff: Yes, I think t h e r e is, i n the a b s t r a c t , a need f o r constant review of t h a t . It almost comes about because of t h e frequent swings i n t h e s t a t e of t h e economy, t h e pulse of t h e economy. You almost always have e i t h e r too much o r too l i t t l e revenue. Seldom do you have just enough. If you have too much revenue, then there i s a demand on the p a r t of taxpaying groups and organizations generally representative of taxpaying groups, t o reduce S t a t e taxes, and t h a t brings about a certain amount of review of your t a x structure. The questions then become how much reduction, i n which taxes; w i l l there be a general reduction i n a l l State taxes, o r which taxes w i l l g e t t h e benefit. So, t h e interplay of those forces seems t o bring about a certain amount of continual review of the S t a t e t a x structure -- not every year t o be sure, but every two o r three years a n examination of t h e situation seems t o be required. Morris : Next time we meet, I ' d l i k e t o ask you i n some d e t a i l about M r . Warren8s r o l e i n s t a t e finances. V I EARL WARREN AND FISCAL POLICY ate of Interview: March 23, 1972) Issues with Governor Olson Morris: Warren w a s Attorney General i n t h a t four year period t h a t Olson w a s Governor. Would he as Attorney General have had any comments on budget matters, o r any opportunity t o develop h i s ideas i n State finance? Groff: Not t o m y recollection, other than i n regard t o budgeting f o r h i s own office. I don't r e c a l l any comments o r any influence that he had on t h e overall State budget picture prior t o h i s entering the gubernatorial campaign. Morris: In his budget message i n 1943, he commented on several reorganization studies t h a t were already underway. They were c i v i l defense, the Departmert of Public Health, the S t a t e Guard, which w a s being studied by the Adjutant General, and the Division of Forestry. I wonder i f you r e c a l l w h a t the problems i n Forestry and t h e State Guard were that indicated the need f o r a review of costs? These sounded l i k e things t h a t were already underway before Warren took over, Groff: I don't r e c a l l specifically, but I do r e c a l l t h a t there were differences of opinion between Olson and Warren as t o t h e operation of the S t a t e Guard. You see, Governor Warren got into the defense picture early, as Attorney General. And I gather, from skimming through Robert Burke's book on Olson's adminis- t r a t i o n , t h a t one of the e a r l i e s t differences between Governor Olson and E a r l Warren arose over the matters Grof f : of defense.* The s p l i t got p r e t t y wide towards t h e end of t h e Olson administration and it became a campaign i s s u e , yes. Morris: Well, part of that was t h e cost f a c t o r , too, wasn't i t ? The amount of money f o r s a l a r i e s ? Grof f : Yes, but I can't remember t h e d e t a i l s of that situation.. Morris: M r . Killion w a s t h e Finance Director i n those years and was from Oakland. Grof f : Yes, about t h e last two years of t h e Olson administration, a f t e r John Re Richards resigned. Olson's first Director of Finance w a s P h i l Gibson, and he served oh, l e s s than a year u n t i l t h e F a l l of '39, when Olson appointed h i m t o t h e S t a t e Supreme Court. The directorship then w a s f i l l e d by John R e Richards. Morris: Had Warren and Killion known each other i n office? In o t h e r words, when they were working together on that '43 budget, were they already familiar with each other? Grof f : Yes. I don't know w h a t t h e i r personal o r previous contacts were of course, but they had grown t o know each other t o some extent, when Warren was Attorney General, over budget matters and that s o r t of thing. And even e a r l i e r , Killion had occasion t o contact t h e Attorney General's o f f i c e from time t o time. So, t h a t t h e r e w a s t h a t relationship with Warren as Attorney General. Morris : W h a t would the Department of Finance go t o t h e Attorney General's o f f i c e on -- w h a t kinds of business? Groff : Oh, l e g a l matters involving S t a t e finances. There were frequent matters a r i s i n g of a l e g a l nature, involving i n t e r p r e t a t i o n of t a x laws, appropriation a c t s and other aspects of S t a t e f i s c a l affairs. Morrisr Like on the order of -- 'Is this a b i l l that we can pay?' *Olson's New Deal f o r California, Robert Eo Burke, University of California Press, 1953. Groff : Morris : Groff : Morris: Groff : Morris : Grof f : Morris : Well, not as much that as, f o r example, 'Would t h i s method of handling registered warrants be legal?' o r matters of authority over expenditures -- such as, 'Would it be l e g a l f o r t h e Department of Finance t o t e l l Department X t h a t they can't spend the money that t h e Legislature appropriated t o them f o r t h i s , t h a t o r t h e other function?' And what kind of answers would Warren have? Well, he o r h i s o f f i c e would just analyze t h e question and give a l e g a l ruling. Sometimes it would be a w r i t t e n request f o r opinion and other times it would be a matter of o r a l consultation with t h e Attorney General's O f f i c e . Usually, not with t h e Attorney General, himself, but with one of h i s deputies. The other point of contact w a s , of course, t h e analyses, hearings and recommenda- t i o n s t o t h e Governor on t h e Attorney General's own o f f i c e budget. M r . Warren w a s a vigorous administrator and was pressing f o r ways and means f o r doing h i s job b e t t e r and f o r new things. O f course, t h a t required expanding t h e budget f o r h i s o f f i c e and t h a t would involve hearings and conferences with t h e Department of Finance and t h e Governor. They would turn down some of h i s budget items? Yes, I think t h e Governor held down h i s requests, somewhat. Not very vigorously, because Governor Olson seemed t o f e e l t h a t t h e Attorney General and t h e other e l e c t i v e o f f i c e r s were e n t i t l e d t o a l i t t l e more indepen- dence i n t h e formulation of t h e i r own budget requests than t h e s t a t e departments d i r e c t l y under t h e control of t h e Governor. Naturally, i n a period where the Governor w a s t r y i n g t o effect economies i n the budget, t h e elective o f f i c e r s couldn't be permitted t o be overly generous in t h e i r departmental expenditure demands. Out of proportion t o t h e other -- Out of proportion, that's right. They couldn't get out of phase with t h e general tone of t h e governor's f i s c a l p o l i c i e s . Well, t h e attorney general's o f f i c e and budget had taken Morris: q u i t e a sharp jump, hadn't i t ? There had been a constitutional amendment t o expand t h e A G 8 s o f f i c e i n '34? Groff: Yes, I think that's due t o formally designating t h e attorney general as t h e chief l a w enforcement o f f i c e r of t h e State, and giving him general supervisory powers over l o c a l l a w enforcement o f f i c e r s . Morris; Warren had worked f o r that through t h e various l a w enforcement associations. Groff: Yes, that's r i g h t . He had been d i s t r i c t attorney i n Alameda County and was a c t i v e i n t h e organizations f o r d i s t r i c t attorneys and t h e administration of justice. So M r . Warren as Attorney General pressed f o r implemen- t a t i o n of that constitutional amendment through additional budgetary provisions. Morris: You say that you often d e a l t with a deputy on routine matters when you wanted a l e g a l opinion on something f o r t h e Department of Finance. W a s t h e r e an attorney general's o f f i c e i n Sacramento? Groff: Yes. There were several a s s i s t a n t s and deputies head- quartered i n Sacramento. Morris: How d i d it happen t h a t t h e Attorney General w a s based i n San Francisco? Groff: It's q u i t e h i s t o r i c a l , as I understand t h e matter, and p a r t of t h e same reasoning that l e d t h e supreme court t o e s t a b l i s h i t s o f f i c e s and s e a t of action in San Francisco. The Attorney General, as far as I know, had always been headquartered i n San Francisco. I think t h e r e w a s recognition of t h e f a c t that San Francisco had been t h e principal place where t h e l e g a l business i n t h e S t a t e w a s transacted, at l e a s t i n t h e e a r l y days before t h e growth and development of Los Angeles, Since t h e supreme court w a s headquartered there, t h e Attorney General's o f f i c e wanted t o be headquartered there, too. O f course, it w a s a b e t t e r situation, also, because more important business and more banking and financial headquarters were there. This resulted i n a higher c a l i b e r of l e g a l work being carried on t h e r e than i n Groff : Sacramento, t h e S t a t e Capitol, Morris: Did it cost noticeably more t o have t h e supreme court and Attorney General i n San Francisco, rather than near t h e Governor's o f f i c e i n Sacramento? Groff: Well, that was a matter of debate and controversy that arose from time t o time when proposals were made t o bring t h e headquarters of a l l t h e departments and agencies t o Sacramento, It probably was, on balance, somewhat more expensive, but not significantly. There were other considerations t h a t could very well outweigh t h e r a t h e r small amount of additional costs involved, Morris : W h a t other departments had t h e i r primary headquarters away from Sacrament o ? Groff: The Department of Public Health i n t h e early days w a s headquartered i n San Francisco, but about 1940, at t h e outbreak of t h e w a r , they moved t o Berkeley. The Department of I n d u s t r i a l Relations, the S t a t e Banking Department, Building and Loans, Insurance,were t h e p r i n c i p a l departments, as I r e c a l l . The S t a t e Compen- sation Insurance Fund, a l s o , Morris: W a s t h e r e ever a temptation f o r t h e Department of Finance t o move t o San Francisco where a l l t h e other -- ? Groff: No, t h a t would have been probably t h e last s t a t e department t o relocate out of Sacramento, as long as t h e Governor's o f f i c e and t h e Legislature were i n t h e s t a t e capitol of Sacramento. They a l l had a close relationship with t h e Governor, Morris: It's probably l e s s of a concern now t h a t transportation i s so much speedier, but it must have slowed down t h e processes of government -- Governor Warren 's F i r s t Budget Morris: Back t o t h e budget processes -- When Warren was elected as Governor, George Killion from Oakland w a s Director of Finance, Groff: Olson's Director of Finance, Morris : Grof f : Morris : Groff : Morris: Groff : Morris t Groff : Morris : Yes. And Warren brought i n with him, Jack Hassler, a l s o from Oakland. Jack Hassler had been c i t y manager of Oakland. Yes. And I wondered what s o r t of -- There was some overlap there. One of the first things Governor Warren had t o do immediately upon h i s election w a s t o start formulating h i s own budget, and he had t o have it ready f o r t h e Legislature by January. To do that, he had t o make an early appointment of h i s Director of Finance designate. I don't remember just when M r . Hassler reported -- It w a s December of '42, We've got some clippings on it. Yes, December, t h a t ' s it, In t h e meantime, t h e Department of Finance and t h e outgoing Director of Finance, M r . Killion, went ahead with g e t t i n g the budget requests i n from t h e departments and giving them a preliminary review, Many of t h e actions needed were r e l a t i v e l y routine and non-policy. The f a c t s could be established and t h e analysis made, and matters prepared f o r decision on t h e part of t h e new Governor and his designated Director of Finance. That would be under M r . Killion, of course. When M r . Hassler was appointed, and even before that time, I r e c a l l that there were numerous conferences between George Killion and Governor Warren t o provide a preliminary review of the situation. W e talked a b i t about M r . Killion's background and how he ended up i n Finance, I wondered if M r . Hassler had a p a r t i c u l a r reputation amongst c i t y managers and o f f i c i a l c i v i l servants as a financial expert. Yes, he was considered a very a b l e c i t y manager i n c i t y managers' c i r c l e s . I don't think t h a t he had had any p a r t i c u l a r contact o r experience i n t h e wider affairs of s t a t e government, however. Ris area of operation and competence l a y almost e n t i r e l y i n t h e f i e l d of c i t y and l o c a l government, Would he have been a recommendation of t h e League of California Cities? Groff : I don't know, he could have been. I would imagine that it grew more out of t h e f a c t that M r . Hassler w a s t h e c i t y manager of Oakland, where M r . Warren w a s a resident, I don't know whether he knew Hassler personally o r n o t , but he c e r t a i n l y knew h i m by reputation, Morris r Had he been c i t y manager f o r some time? Groff : Yes, f o r some time. I can't r e c a l l how long. Morris : That w a s t h e time of t h e great expansion of the c i t y manager f o m of government, wasn 't i t ? Groff : It w a s active at t h a t time, yes. The c i t y managership w a s growing i n importance and i n professionalism and t h e c i t y managers were considered t o be f o r t h e most p a r t an a b l e group of men doing a good job i n running t h e i r c i t i e s , So, t h e c i t y managers had a f i n e reputation f o r competence at that time. And there w a s an assumption that t h e c i t y manager of a c i t y t h e s i z e of Oakland would have some competence and some experience that would qualify h i m -- Morris : P~rof essional methods of governmental work. Groff : Yes. Furthermore, Governor Merriam' s Director of Finance, Arlin Stockburger, had been a c i t y manager. So yes, t h e r e w a s some precedent i n that respect f o r selecting a c i t y manager as Director of Finance. Morris: I ' m looking f o r a l i n e on w h a t kind of a person he w a s and how comfortable he f e l t i n s t a t e government. Groff : He w a s s o r t of an abrupt person. Not many words, and a man with r a t h e r fixed opinions. I think M r . Hassler's handicap was that he found it d i f f i c u l t t o t r a n s l a t e h i s l o c a l experience i n t o t h e wider sphere of S t a t e government a c t i v i t y . Also, he wasn't as f l e x i b l e i n meeting the new s i t u a t i o n s as he might have been. Morris: The new s i t u a t i o n s being t h e change i n t h e revenue p i c t u r e and t h e demands on t h e S t a t e government? Grof f : The whole picture -- t h e greater involvement of s o c i a l matters and t h e wider impact of policy i n the S t a t e government was something he wasn't able, quite, t o contend with as he might have. I n f l e x i b i l i t y made it Groff : d i f f i c u l t f o r him t o make t h a t adjustment. A t t h a t time c i t i e s were not involved with social matters of wider import as much as they have since become. Morris : Well, one of the issues that goes back and f o r t h i s the c i t y i n t e r e s t s versus the r u r a l i n t e r e s t s . We've talked about that a l i t t l e b i t and I wondered if a c i t y manager, given a choice, would opt f o r an urban solution taken f o r an urban area o r whether he could be statewide and impartial. Groff : I don't r e c a l l anything that would give a clue t o the operation of t h a t factor. Morris: He again, w a s director of finance f o r about a year? Groff : Yes. Quite a short time. PIorris: Did he leave by mutual consent, do you recall? Grof f r I just can't remember a l l t h e circumstances now. H e seemed quite unhappy i n t h e job, but I don' t know what f i n a l l y determined the decision. Morris : There wasn't r e a l l y any record of h i m ; a l l of a sudden t h e r e ' s M r . Dean i n h i s place. Groff : Yes. M r . Dean had been Deputy Director under Hassler. M r . Dean w a s another c i t y manager and w a s personally and professionally acquainted with M r . Hassler. Morris: We've talked with Richard Graves, too, and he told us q u i t e a b i t about the growth of influence of the California League of Cities i n about t h a t same period. And of course, the League was an advocate of c i t y manager government. I didn't think t o ask him if the League had a role i n the selection of two of t h e i r shining l i g h t s . Groff : I r a t h e r imagine t h a t it w a s the personal influence of Dick Graves and perhaps some of his directors and officers, r a t h e r than the League as such. Dick Graves got t o be quite a notable person i n h i s own right in State a f f a i r s because of his position and because of his growing experience and a b i l i t y . I r e c a l l that Dick, himself, w a s mentioned from time t o time, as a prospect f o r Director of Finance. Morris: He would have been quite a colorful Director of Finance. Groff : Yes, I agree. Morrisr T h a t ' s an i n t e r e s t i n g speculation. He had been t h e head of the c i v i l defense f o r a while, as administrative head. Grof f : That would have been during t h e l a t t e r part of Olson's administration, before t h e outbreak of the w a r , I guess. Morris: He w a s the administrative head of C i v i l Defense f o r Olson and then he became concerned about t h e adminis- t r a t i o n of t h e c i v i l defense program; so he l e f t . Then he came back on a temporary basis f o r Governor Warren and had the job of f i r i n g a l l of t h e c i v i l defense s t a f f t h a t had been declared surplus. So t h a t he must have been very much a presence i n Sacramento. Groff: Yes, hewas. Morris: And concerned with new ideas i n government procedures. Early Studies by UC Interns Groff: M y recollection of Dick Graves goes q u i t e a ways back, t o when he w a s an intern i n t h e Bureau of Public Administration at U.C. and came up t o Sacramento t o make studies of SRA and t h e s o c i a l welfare agencies. Morris: That' s right. Were these well received? Groff: I think on t h e whole that depended upon t h e individual. Some of t h e o l d established administrators resented these young k i d s coming i n with t h e i r bright ideas, but some of we younger people i n t h e professional side of S t a t e government r a t h e r welcomed them -- found them kind of 'kindred s p i r i t s , ' so t o speak. They were a good influence. Dick Graves and M i l t Chernin, "Hump" Campbell, Malcolm Davisson and Frank Kidner were young i n s t r u c t o r s , o r a s s i s t a n t professors, I think, and they came t o Sacramento, as experts, t o do various t a x surveys and administration studies. Morris: D o you r e c a l l a l i t t l e more about t h e t a x studies? Groff: There have been so many of them, I can't focus on which Groff: ones Malcolm Davisson and Frank Kidner were working on, I think they were made f o r t h e Legislature and m y guess would be t h a t they were f o r a special revenue and t a x committee chairmanned by Senator Hulse, Morris: This w a s Sam May's Bureau of Public Administration. How did he s e l l t h i s idea t o t h e Legislature? Groff: Well, one of h i s early e f f o r t s w a s t o i n t e r e s t t h e Legislature i n using t h e Bureau of Public Administration t o make research studies on problems of i n t e r e s t and concern tQthe Legislature, as a means of making t h e University in general, and t h e Bureau of Public Adminis- t r a t i o n , i n p a r t i c u l a r , useful, and valuable t o t h e State, It w a s a mutually beneficial proposition because it provided opportunities f o r t h e bureau and graduate students i n public administration and p o l i t i c a l science t o make meaningful research studies i n t h e i r areas of i n t e r e s t , And a l s o , it provided research findings and analysis of use and benefit t o t h e S t a t e , After D r , May had done a number of these studies f o r t h e Legislature, h i s bureau became well understood i n Sacramento as a resource available t o t h e Legislature and t o other departments and o f f i c e s of t h e State government and a l s o as a place where people from the University could be secured t o work on some of the S t a t e ' s problems, Morris: And would most of them just come and do a specific study and then when they graduated go off i n t o another l i n e of work, o r did many of them come i n t o the State government? Groffr Some of them did come, In t h e days of unemployment r e l i e f , there were several people from the University who a s s i s t e d t h e Legislature and the S t a t e government i n researching problems i n that area, which, of course, were quite acute, There w a s a dearth of expertise i n these matters and t h e S t a t e turned t o t h e University f o r help, And people from t h e University, graduate students and others who worked on some of those problems, afterwards came t o work f o r t h e S t a t e i n t h e State Relief Administrat ion and t h e Department of Social Welfare. Morris: Would t h i s have been t h e research t h a t then came back t o t h e campus and involved a number of publications on s o c i a l policy? I ' m thinking of Emily Huntington. Groff : Yes. She w a s involved, too. I've concentrated on D r . May and t h e Bureau of Public Administration, maybe, because I knew them b e s t ; but they were n o t t h e only elements of t h e University involved i n t h i s research. A s a matter of f a c t , I r e c a l l now t h a t Frank Kidner and Malcolm Davisson probably were not with t h e Bureau of Public Administration, but r a t h e r with what i s now t h e I n s t i t u t e of Business and Economic Research. And Miss Huntington, t h e people from t h e l a w school, and others from time t o time, contributed much i n t h e same ways t h a t t h e i r counterparts get involved now. But these were some of t h e e a r l y beginnings. Morris r You might c a l l it a 1940's e f f o r t i n relevant education? W a s it planned t h a t way? Groff : You'd have t o ask someone who was more familiar with t h e University s i d e of it; however, t h e i n i t i a t i v e came from t h e University, I think -- Morris I Professor May had some very strong ideas, it seems, t h a t he r e a l l y wanted a chance t o g e t across i n a meaningful way t o t h e Legislature. Groff : That 's r i g h t . In '35, o r '37, around i n t h e r e , t h e r e w a s t h i s development of management research i n government. It s t a r t e d i n l o c a l government, growing out of t h e c i t y manager movement, but i t w a s spreading t o s t a t e govern- ment c i r c l e s , too. Professor May i n t e r e s t e d himself i n t h a t movement i n an e a r l y stage. A s a matter of f a c t , i n 1937, he organized t h e Western Governmental Research Association and gathered together people engaged i n i n s t i t u t i o n a l research a c t i v i t y within government and within t h e u n i v e r s i t i e s and colleges. Morris I Were you a member of t h i s ? Grof f : Yes, I w a s a c h a r t e r member of WGRA. Morris: And what kinds of a c t i v i t i e s did it undertake? Grof f : It w a s a professional association of governmental researchers and fostered t h e presentation, publication and exchange Groff r of research, reports and t h e communication of current ideas and developments among practitioners i n t h i s developing f i e l d . And I think t h i s involvement of the University i n broad problems of s t a t e government w a s part of t h a t general movement, Morris: Do you f e e l that t h i s movement, and the specific work of the interns, did have some-positive e f f e c t on bringing new ideas into the administration? Groff: O h yes, definitely. Because of the a b i l i t y of these knowledgeable people t o spend time focusing on a p a r t i c u l a r problem, without the interruptions of day-to- day administrative work, enabled a more f e r t i l e analysis of t h e problem and better-based solutions t o come out. Morris: That's a good point. D o you think it hastened the expansion of the State's r o l e i n providing additional services? Groff: Yes, I think i n some cases t h a t w a s true. Some of these studies were made by t h e bureau at UC, but similar organizations at t h e University of Southern California and at UCLA were a l s o prominent and active at the time . Those studies, I think, in some cases led t o the expansion and development of State government a c t i v i t y i n certain l i n e s . I can't remember any of the specifics but a run-down of the list of studies of those two organizations would seem t o indicate t h a t the State had subsequently moved i n t o areas those studies recognized. Morris: I remember t h e f i r s t major project that M r . Graves recalled from Sam May's shop was correctional reform, and Emily Huntington's work w a s closely related t o social insurance. Groffr Yes. - Further Details of the 19163-5 Budget Morris: Which a r e maybe two areas i n which there's been tremendous Morris: expansion i n s t a t e cost and service. Let's get back t o t h e budget documents, and some of t h e specific questions they bring up. Warren noted t h a t t h e Social Welfare budget f o r people needing r e l i e f had dropped considerably, but t h a t there w a s no comparable decrease i n administrative expense, so that although t h e caseloads were down, t h e Department of Social Welfare budget w a s s t i l l q u i t e high. I w a s interested that a drop i n case loads should n o t reduce t h e administrative expense, proportionately. Would that have been something that w a s questioned by t h e Department of Finance? Groff: I ' m sure it w a s , although I can't remember t h e p a r t i c u l a r circums&ances. Very frequently what happened i n that kind of situation w a s t h a t t h e department would use t h a t circumstance as an occasion f o r i n s i s t i n g that a b e t t e r degree of supervision over its operations w a s necessary -- as it probably had been contending f o r some time. Many times t h e argument would run that they hadn't been doing as good a job as they should have been doing, and that the' investment of more e f f o r t i n supervision of caseload would yield r e s u l t s i n terms e i t h e r of b e t t e r service o r more economical service. Morris: Did you have any kind of guidelines f o r how you could judge t h e q u a l i t y of supervision? This must have been a kind of thing you had t o ask a number of departments. Groff: Yes, t h a t ' s r i g h t . Well, it was mainly a matter of t e s t i n g t h e soundness of t h e grounds advanced by t h e department, t h e thouroughness of t h e thinking that l a y back of t h e i r requests. However, i n some areas objective standards and comparisons had been developed by the departments, by our own management analyses, o r by other agencies. When a department w a s not impressed by our counter proposals, often t h e first r e t o r t would be that t h e Department of Finance w a s out of sympathy with the administration's policies i n t h a t department. When that question arose, of course, the matter became one f o r t h e Director of Finance t o resolve on t h e policy l e v e l -- e i t h e r d i r e c t l y with t h e d i r e c t o r of t h e department concerned o r with the Governor, o r both. The s t a f f w a s concerned with r a i s i n g relevant, frequently skeptical questions, not with making t h e policy d e c i s ions. Morris: That's a good point. Were any departments particularly f e e l i n g put-upon by the Department of Finance? Groff: Oh, it varied with the times and with t h e individuals concerned. There w a s always a bete n o i r o r two among the departments from t h e view of t h e Department of Finance -- those whose requests seemed t o be out of l i n e , f o r one reason o r another, and those who appeared t o be i n e f f i c i e n t l y run. There were t h e good boys and t h e bad boys, but t h e i r characters would change from time t o time with individuals and with t h e times. Bond Sinking Funds Morris: One f u r t h e r question, t h e r e i s a note t h a t there was a bond sinking fund established i n '43. W a s t h i s Warren 's doing? Groff: That w a s one means of disposing of the war-swollen surplus that w a s developing at t h a t time. There w a s a considerable s u m of general obligation bonds that had been outstanding f o r some time and it seemed l i k e one of the first things t h a t should be done with the surplus funds would be t o pay off t h a t debt. It wasn't possible t o pay off t h e bonds d i r e c t l y since they had a s t a t u t o r y period t o run, so the goal w a s t o establish a sinking fund t h a t would provide t h e money i n hand t o pay them off as they became due. Morris: A bond cannot be paid off early? Groff: Not unless, by i t s specific terms, it i s made c a l l a b l e -- with a non-call bond, you have t o w a i t f o r it t o mature before you can pay it. These S t a t e bonds, at t h a t time at l e a s t , were non-callable. Morris: W a s t h i s something that developed i n t h e Department of Finance that Warren concurred with? Groff: Probably. The Department of Finance, f o r some time, had t h a t in mind. Morris: A s soon as you s a w t h a t the surplus w a s beginning t o develop? Groff r Yes, that's right. A part of that debt consisted of the old, so-called funded debt bonds of 1870-73, of which there was $2 ,'277,500.00 outstanding which the Legislature had voted not t o pay off but t o keep paying interest at 6 percent. Most of them were being held by the University Endowment Fund as an investment. Morrist Does that mean that at one point the University had loaned money t o the State government? Groff: No. Let's see. I ' m going t o read from the footnote on the bond statement -- "These bonds a r e held f o r the School Fund and the University Fund. They matured i n 1892, but the people voted not t o redeem them. B y Chapter 65, Statutes of 1893, interest w a s continued on the bond and Chapter 533, Statutes of 1931, provided that they be redeemed out of any money received i n payment of the w a r claims of the S t a t e of California against the United States. Chapter 606, statutes of 1943, appropriated #2,277,500,00 t o be used upon direction of the Director of Finance on o r a f t e r July 1, 1945, f o r the retirement of t h i s funded debt, provided it i s not liquidated from other sources p r i o r thereto. It's a long and complicated story, those bonds, but It's better told elsewhere. Morrisr I found one item i n the sinking fund that was several thousands of dollars, but nobody had ever presented the bond t o be paid, Groff : Yes, those were Indian W a r Bonds of 1857-1860 i n the amount of four thousand dollars that had never been presented f o r payment. Although barred by the statute of limitations, i f they were presented, the Legislature w a s willing t o pay them, Then, there w a s an additional fourteen and a half million dollars t h a t w a s appropriated t o the bond sinking fund of 1943, by Chapter 611 of the Statutes of 1943, f o r the purpose of paying the principal and i n t e r e s t which matured i n the next four years, on the general obligation bonds, which had not otherwise been provided for, including the building bonds of 1913 and 1915 f o r s t a t e and university buildings, and the park bonds of 1927. Morris t And then there were two big issues f o r s t a t e relief? Groff: Yes. The issues of '33 and '34, of twenty million dollars and twenty-f our million dollars, respectively. The unemployment relief issue of 1934 was included i n the sinking ;fund, but not t h e issue of 1933, which was t o be repaid by the counties. Morris: That four year period wouldn't have paid a l l of those bonds, would i t ? Groff: No. Morris: It w a s just a prepayment plan. Groff: Prepayment, yes, f o r four years only, That fund w a s increased t o cover the whole remaining indebtedness l a t e r -- probably i n 1945, o r thereabouts -- as part of the further development of the post w a r reserves. Surplus Wartime Funds Morris: There's a question t h a t puzzles me: there's the postwar unemployment reserves and then there's the postwar construction reserves. The sums were almost the same. W a s t h e thinking that postwar construction would provide WPA-like employment f o r people who couldn't find other jobs? Groff: That w a s part of t h e thinking, yes. To alleviate w h a t w a s anticipated then t o be a potential unemployment r e l i e f problem a f t e r the war, by providing public works employment. The thought was that the State's accumulated need f o r capital outlay projects would provide at l e a s t part of t h i s public works employment. It was antfaipated that public works alone probably would not be enough, but that it would be wise, also, t o s e t aside a fund that might possibly be used f o r unemployment r e l i e f . A s a matter of f a c t , it was at first proposed as a d i s a s t e r relief reserve. Morris: Warren had that as another separate item. Groff : Yes, that was one of the reserves, alright. The idea on that w a s that during the w a r it would serve as a fund from which the cost of any war-caused disaster might be met, but then, i f not needed f o r that urpose, it provided a fund that could be used a f t e r ehe war, Grof f : i n meeting possible needs f o r unemployment r e l i e f , Morrisr Is that what has come down i n t h e textbooks as t h e Rainy Day Fund? Groff: Yes. S t i l l another reserve was s e t up t o help meet t h e needs of l o c a l government a f t e r t h e w a r , representing a s o r t of sharing of t h e State's surplus with t h e c i t i e s and counties, Morris: That w a s the C h r i s t m a s Tree B i l l , , which became s o r t of a contentious matter between Governor Warren and M r , Graves. Grof f : Right, it a l s o became a grab bag, Morris: That w a s a ninety million d o l l a r item, W a s t h e idea t o put i n a safe place a l l revenues that were coming i n so that they wouldn't be f r i t t e r e d away? Groff: Yes, That surplus funds wouldn't be f r i t t e r e d away, Morrisr The assumption seems t o have been t h a t t h i s wouldn't go on forever and that lean times would come again, probably sooner than l a t e r ? Groff : Yes, that 's r i g h t , Morris: The assumption on that 1943-45 budget was that t h e w a r would continue through t h e biennium and then, reading t h e '45-'47 narrative material on t h e budget, t h e assump- t i o n w a s t h a t the w a r would be over within that two year period and that it would be time t o d i r e c t t h a t s t a t e ' s economy, Grof f : That 's right, Table I: Growth of California State Budget and Expenditures1 , Year Budget Actual Expenditures Population* 1935-1937 $ 342,313,000 $ 425,345,000 (1930) 5,677,251 1937-1939 446,467,000 528,228,000, 1From budget documents. * S t a t i s t i c a l Abstract of t h e U , S , **The 1941-43 biennium included $38,706,000 budgeted f o r unemployment relief and $1,897,000 a c t u a l expenditures f o r this purpose. State r e l i e f ended by the conclusion of this period. ***First annual budget. With the legislature's s h i f t t o a two-year session i n 1973, it w i l l be interesting t o see i f the s t a t e returns t o a two-year budget period. ****Plus $1,543,133,949 expenditures from special funds, which are included i n e a r l i e r t o t a l s , V I I P O S T W A R ISSUES 1945-47 : Postwar Reserve Plans Groff a I think the Germans were pretty much i n r e t r e a t at that time and the Norman invasion w a s going pretty well. The thought was that the European war would be over within a year, and the Japanese w a r i n the following year. Morris: Yes. I ' m impressed. From hindsight, that was right on the nose. [Laughter] I could see t h a t the Departmennt of Finance could be right there with economic prediction of expansion of physical industrial plants, o r growth of population and crop yields. But t o be right on t a r g e t with a global military prediction, I find very impressive. Groff: That was done i n consultation with people who had a much b e t t e r appraisal of the overall conditions than did Department of Finance people. M r . Currie, M r . Dean, and others i n the department were i n frequent touch with people i n the national government and other people i n a position t o know. Morris : Were there federal regulations on how the State monies were spent? Groff: No, I don't think so, except f o r t h e general price and other economic controls which were i n operation then. I don't r e c a l l that they had any specific control on s t a t e governments. Morris: But that wouldn't a f f e c t t h e Department of Finance. Groff: No, no. However, the federal government was so much i n control of affairs at t h a t time, that you could hardly Groff: operate if you were a business o r a large government e n t i t y of any kind, without gearing your a c t i v i t i e s into the w a r effort , Morris: T h i s was a new departure during the w a r years, There hadn't been that much contact with Washington earlier on? Groff: Well, I think it was greatly intensified. In that overall respect, it was a new development, Morris: W h a t federal agencies were the contactswith? Groff : I can't remember now, which ones they were, They were made mostly by the Director of Finance, M r . Dean. H e l e f t shortly a f t e r E a r l Warren went t o the Supreme Court, And then Governor Knight appointed John Pierce as Director of Finance. 1945-47 Budget Morris: In the '45-'47 budget, there is an interesting discussion on the level of revenues under the different wartime conditions and the relation of s t a t e revenues t o spendable income. That led m e t o wonder, what happens physically t o the revenue receipts as they come in? D o the businesses pay in the sales t a x monthly, quarterly? Grof f : Quarterly, as a general rule. Morris: Quarterly. And the income tax comes in annually. Groff: That came in annually i n those days. Morris r Then the other kinds of revenues, the motor vehicles -- Groff: Well, the gasoline tax, I think, was paid monthly, but it may have been quarterly. The motor vehicle registration fees were paid annually. Morris: And then the business and francise taxes -- Groff: The bank and corporation francise tax, which i s the Statees corporate income tax, was paid annually, I think. They may have changed these times of payment now t o even up the flow of cash into the treasury. Morrisr Yes, I ' m aware of t h i s concern with cash flow, In the fiorties that would have been very erractic kind of a thing, The revenues would come i n on s -- Groff: Seasonal and rather an uneven basis, Morris; W a s t h i s part of your responsfbilfty, t o keep track of this money as it came in so it was where it needed t o be when the State needed t o pay it out? Groff: It was primarfly up t o the State Controller and the State Treasurer t o regulate that cash flow. To meet the problem, the Controller and the Director of Finance and the State Treasurer were authorized t o temporarily borrow monies from the State's special funds t o meet shortages of cash i n the General Fund Administratively that w a s handled by the State Controller and the Treasurer, although the Director of Finance w a s required t o approve such borrowings and therefore the department monitored the whole thing, Morris: W a s this mostly a bookkeeping thing, most of the receipts already i n the Forties came i n checks of various kinds --7 Groff: It didn't affect t h e a c t u a l disposition of monies as they came i n the treasury, rather it required certain transfers between funds, bookkeeping transfers , Morris: Just bookkeeping, I think, would cover a very complex accounting procedure, wouldn't i t ? Groff: Well, it wasn't particularly complex, The borrowing among funds was a matter of making a bookkeeping entry debftfng one and crediting another, It didn't involve any transfer of cash or securities or anything l i k e that. Morrist Because this would a l l go through the Controller and Treasurer and then into banks. Groff: The treasury cash was actually kept i n banks o r invested i n short term government bonds or treasury notes, But the business of having money doesn't mean a large fund of cash, but rather having what is needed at the right time, These cash resources were managed primarily by the State Treasury with the controller kee ing the accounts the entries on the books. il and doing the administrative work invo ved i n making Groff : The Department of Finance, as I think I mentioned before, maintained no books, o r records of account. T h a t was a l l done by the State Controller. The Department's job was one of management over finances. Morris: And not even of t h e physical fact of disbursing. Groff: T h a t w a s a l l done by t h e Controller. The Controller drew the checks and the Treasurer paid them, Morris: Going back t o t h i s continued great revenue surge in 1945-47, I w a s interested t h a t the r i s e i n revenues, based on f a c t s as the department saw them, could be from four hundred and twenty t o s i x hundred million dollars, depending on the way events developed, And I wondered why an immediate o r sooner cessation of t h e w a r would mean a more violent economic reaction? Concerns f o r the Economy Groff : Well, the assumption was, of course, that there would be an immediate shutdown of the defense activity; the unknown had t o do with the extent t o which the accumulated consumer needs and pentup demand f o r consumer products would take up t h e slack, o r w h a t the hiatus would be f o r retooling and redirection and that s o r t of thing, the demobilization of the armed forces and the a b i l i t y with which jobs could be secured f o r them, There w a s a l o t of speculation at t h e time as t o w h a t the effect of a l l these would be, Morris: Originally the prediction had been that as many as a million people would have t o find new jobs, different from wartime industry or, of course, from the military. Apparently that did not materialize i n '46-'47; did it come along a year or two l a t e r ? Groff: Well, there were some recessions from time t o time a f t e r the w a r , but I can't remember t h e i r timing. A s I recall, they didn't occur i n enough depth t o have an adverse impact on State finances, at l e a s t not u n t i l a f t e r the Korean w a r , By t h a t time, I w a s out of the picture and Ralph Currie would be a better source of information. Morris: Another concern w a s that there might be a rapid use of Morrisr savings which would cause an immediate inflation. W a s t h i s one of the reasons f o r getting slowly started on the postwar construction? That seems t o have s t a r t e d with about a thirteen million dollar item f o r t h e '46-'47 year. Grof f : The postwar i n f l a t i o n w a s rather substantially under- estimated, as I remember it, i n the early forecasts. The postwar construction reserves were inadequate f o r t h e i r job because of the rapid r i s e i n costs of construction. A t t h e same time, of course, the very i n f l a t i o n which produced those increased costs w a s producing even greater postwar revenues than had been anticipated. So they were able t o augment the postwar reserves out of surplus postwar revenues. Morris: I f you got bigger revenues but had t o augment your planned costs, was there any net gain i n the State f i n a n c i a l picture? Groff : Well, I don't think there was, because not only did t h e c o s t s of the postwar construction program r i s e , but the c o s t s f o r the ordinary operations of the State governments, f o r s a l a r i e s and everything, went up tremendously with t h a t inflation. There wasn't very much net gain, but I do think that as f a r as the S t a t e government finances a r e concerned, there tends t o be a s m a l l n e t gain i n an inflationary situation. Prices go up and the immediate effect is t h a t State revenues go up; but State cost increases tend t o l a g somewhat behind t h e revenues because so many of these costs, such as school apportionments, welfare payments, debt service, etc., a r e fixed, at l e a s t f o r the short term. Morris: Well, there w a s a l s o a comment that the use of the reserves might require refinancing once t h e reserves were used up; t h a t some things in t h e State government would have t o be refinanced. I assume the implication w a s at a higher l e v e l of i n t e r e s t , Grof f : Aren't they referring there, perhaps, t o the building program? Morris: I suspect so, This w a s t h e biggest d o l l a r item. This w a s i n the revenue estimate i n ,'45-'47, It's related t o rapid use of savings. Grof f : "Rapid and disorderly liquidation of savings would a f f e c t these forecasts materially, principally because that development would almost certainly cause i n f l a t i o n due to t h e necessary refinancing by the governmentn -- the f e d e r a l government, t h a t means. Morris I I see, Groff : " -- and t o t h e competitive bidding by individuals f o r a limited volume of goods and property,'' Morris : But production continued high, Grof f : Yes, If savings you see, became liquidated rapidly, then it would mean that people would be s e l l i n g treasury notes and government bonds and t h a t s o r t of thing, Morrls : And then the government would have t o s e l l more at current r a t e s . Grof f : Yes, ref inance , With savings becoming scarcer, t h e i n t e r e s t r a t e s would r i s e and the government would have t o refinance at higher i n t e r e s t costs, Morris I Their own notes f o r current cash flow. Grof f z The government would be i n the market trying t o buy a l o t of money and t h a t would tend t o drive t h e i n t e r e s t c o s t s up, you see, Morris : And t h i s would eventually have an effect on State funds, Grof f : Yes. Inflationary. Morris : Now, i n the things t h a t Warren was concerned about, i n addition t o g e t t i n g t h e reserve funds moving out t o the postwar construction, he commented t h a t i f he were going t o undertake t h i s big postwar building program, t h e S t a t e should s e t up a f i r e and earthquake reserve because t h e S t a t e is prohibited by l a w from carrying Insurance on these. I wondered i f you had a comment as t o how this came t o be and how the S t a t e solved t h e problem of w h a t -- self-insurance? Because i t ' s become a big issue again today , Groff : Well, t h e thought there w a s t h a t since t h e State was self-insuring f o r these hazards, it would be wise and prudent t o s e t up a specific reserve of a considerable amount f o r t h a t purpose. Morris: Why w a s t h e S t a t e not allowed t o insure? Grof f : Morris r Grof f : Morris : Groff : Morris I Grof f : Morris I Grof f : Well, it was f e l t that the State is such a large operation it can more economically insure i t s e l f . If it loses a hospital or building o r two by f i r e , it w i l l appropriate t h e money t o replace them. T h a t ' s a f a i r l y contemporary idea. Yes. Self-insurance was t o be accompanied at t h a t time by at l e a s t some reasonable reserve against the contingencies involved. O n an actuarial basis -- we have so many buildings through- out t h e s t a t e and we're l i k e l y t o have some f a l l down, e t cetera? Even the replacement of large buildings wouldn't have too great an impact on State finance i n any one year. Money could be readily appropriated by the Legislature f o r an individual building or so l o s t by f i r e o r earthquake damage. O f course, i f the disaster was general o r widespread, it would present a problem; but then it would be d i f f i c u l t t o insure against that anyway. Is t h i s related t o a planned replacement of a l l of the physical plant f o r the State? No, t h i s was e n t i r e l y a contingency reserve. In the Department of Finance you had begun t o have a feeling that the State w a s not maintaining an adequate reserve t o provide f o r t h i s kind of hazard? The proposition w a s discussed from time t o time judged t o be a prudent use of surplus funds. Usually, i n ordinary times, i t ' s d i f f i c u l t t o get t h e money t o s e t up a reserve i n the f i r s t place. It's the kind of thing you'd l i k e t o do, but it has too low a priority a c t u a l l y t o be funded. But when you're i n a surplus situation, it seemed a very good means of s t e r i l i z i n g p a r t of that surplus and preventing i t ' s being f r i t t e r e d away on other purposes. The existence of a surplus sit= tion i s somewhat singular i n S t a t e finances. The usual background is one of scarcity of funds. But t o have an actual surplus, an abundance of funds, puts a whole new l i g h t on the concepts and the thinking about State finances. Morris: I should think it would stimulate ideas. Grof f : It tends i n that direction and i t ' s f o r that reason t h a t taxpaying groups and other conservatively-minded individuals and organizations a r e very loathe t o see, o r allow, a surplus situation t o develop i n government. It's much healthier and more realistic,from t h e i r standpoint, f o r t h e State t o be i n a condition of fund s c a r c i t y . Morris: A s a chronic condition, it must a l s o have it's effect on thinking and planning? Grof f : Yes, it does. r m t e - of Interview: April 6, 19721 1948: Annual Budgets Introduced Morris: Two weeks ago, when we finished up, we were talking about t h e '45-'47 budget which covered t h e end of the w a r period, the wartime economy. I ' d l i k e t o go on through the f i n a l two o r three budgets that you worked on under Governor Warren, Then I've got a couple of general questions on some ideas t h a t run across individual budgets. The first annual budget w a s f o r 1947-48. Grof f : Right Morris: Now, how did t h i s come t o be? Grof f : It w a s a constitutional amendment proposed by the l e g i s l a t u r e , I think, and adopted by t h e people. Morrist This i s something that t h e Department of Finance had been leaning towards? Grof f : Yes, they had been advocating t h a t change. I think M r . Links probably covered that p r e t t y well i n his interview, Morris: Only t h a t it w a s a sound finance measure. I wondered if Morris : Grof f : Norris : Groff : Morris: Groff : Morris : Grof f : Norris : Grof f : Morris : t h e legislative process of getting it on the ballot and t h e election aappaign, if t h a t produced any contro- versy o r discussion? M y recolleotion was t h a t there wasn't much controversy o r extended discussion of w h a t had been pretty well accepted by the Legislature. It was endorsed by t h e Legislative Auditor at that time, with the backing and advooaay of t h e Governor and the Director of Finance; it w a s well accepted i n the Legislature and t o m y knowledge, it received rather overwhelming voter approval. So, that would have been approved i n w h a t , 19461 Yes, it was. It would have been i n the November, '46 election, I would think, H o w did t h i s a f f e c t the preparation of the budget? I think we had prepared a two year budget, but then it had t o be converted t o a one year budget, O f course, practically a l l of the budget requests were regularly prepared on a single year basis, with a t o t a l of the two yearly periods constituting the biennial budget. So, it wasn't too much of a job t o recast the budget into a single f i s c a l year basis. I'd l i k e t o check your figures against t h e figures that I got from t h e Governor's budget message on the switch from the two year budget t o the one year budget. The figure I got f o r '45-'45 was that Warren's budget request . was $684 million dollars plus o r minus -- T h a t 's right, yes a Then f o r 1947-48, the first o n e year budget, the figure I've got is $641 million dollars? T h a t 8s right That I find r e a l l y s t a r t l i n g . I wonder i f you could t e l l me how t h i s came t o be, because that '47-'48 figure f o r a one-year budget i s within ten per cent of the previous two-year budget. That seems an incredible jump i n spending i n one year. In other words, the economy- minded Legislature pushed f o r that s i z e budget f o r = years Grof f : A part of the increase had occurred i n the '45-'47 period so that when the expenditures were finally reported f o r the two f i s c a l years of '45'47, they totaled $811 million, 800 thousand, as compared t o the original budget recommendations of $684 million, you see, Morris : In other words, expenditures ran over i n that '45-"47 first budget. Groff r Yes. Morris : And w h a t did the actual expenditures run f o r '47-'481 Groff : The actual expenditures i n '47-'48 ran $657 million, 700 thousand, which is only $16 million more than the Governor's budget. That was pretty close. It still represented about a two hundred million dollar increase over the actual expenditures of the preceding f i s c a l year, ' 4 6 ~ ~ 4 7 . Morris t Yes, about a one-third increase, Groff : Yes, from $470 million t o $658 million. Morris : W a s t h i s inflation i n the costs or was t h i s -- ? Groff : It was partly the usual growth i n State population and numbers t o be served and partly inflation, but there must have been some rather large new areas of State expen- diture that counted f o r the bulk of the increase. The governor's budget i t s e l f , as proposed (the $641 million dollar budget), represented a $154 million dollar increase over the expenditures f o r the preceeding year as then estimated. Morris: And some of it was not new money, it was some of the post-war reserves being activated. Groff : Yes. The Governor pointed out three areas of principal increase accounting for the $154 million dollar increase t h a t he had projected, F i r s t , an $85 million dollar increase i n payments t o local government. T h i s included a $53 million increase for public schools resulting from the i n i t i a t i v e measures adopted by the voters i n November of *46, which made a rather substantial increase i n the statutory Grof f : amounts of S t a t e school support, Morris: For operating expenses, o r f o r capital? Groff : This was f o r t h e regular State apportionment on per pupil basis. I don't remember the exact figures now, but it was a very substantial increase, resulting from an i n i t i a t i v e measure sponsored by the California Teachers' Association. The seoond major area of increase t h a t the Governor mentioned was a thirty-nine and a-half million dollar increase in c a p i t a l outlay expenditures, representing the appropriation of the f i r s t of the post-war construction reserve funds. And, t h i r d , he mentions $27 million, 800 thousand i n operating expenses f o r higher costs and resumption of normal peaoetime a c t i v i t i e s and expanded services necessitated by an increased population and necessary replacement of worn out equipment that was heretofore unobtainable. Salary Increases ~vlorris: And were there salary increases at that point? Grof f : Yes, there were significant salary increases involved i n t h a t postwar period. Morris: Were there any breakdowns i n those years of what percentage of the budget w a s going f o r salaries? Groff : In the paragraph i n regard t o cost factors he points out t h a t there had been several recent increases i n s a l a r i e s of S t a t e employees t o keep the State pay scales on a par with those prevailing i n private industries, which had been rising rather rapidly during a d a f t e r the war. And he pointed out that of the $122 million dollars budgeted f o r s a l a r i e s and wages during the ensuing f i s c a l year, $28 and a half million could be traced t o the salary increases granted since the beginning of the w a r period. Morris: When was the decision made t o make government salaries Morris : Grof f : Morrf s: Groff : Morris : Grof f : Morris: Grof f : competitive with private industry? This has always been the guiding principle i n State salary-setting , In the Governor's '49-'50 budget message, he refers t o House Resolution #80 of the 1948 Legislature; he apparently requested the Personnel Board t o make a detailed comparison of State salaries with those paid by private industry and other governmental agencies, I think that there was a subsequent statutory enactment requiring the Personnel Board t o report annually t o the Legislature as t o the amount required t o make the State salaries competitive with those being paid by private industry and other governmental agencies, but that came along later. Would t h i s mark the beginning of a noticeable increase i n the budget f o r salaries? Well, I think it took place a l l during the w a r and the immediate postwar period, It wasn't parallel, lagged about a year behind private industries because first, the Personnel Board had t o survey the outside salaries and once the comparable State salary levels were ascertained then the Personnel Board had t o seek money from the Legislature t o make the necessary salary increases, So the State salaries always were a b i t behind those of industry and other governmental agencies, Nevertheless, the same basic r i s e took place i n State salaries and represented a very material increase i n the cost of conducting State government, Would increases i n State salaries then tend t o push up comparable salaries in industries? Actually, State salaries followed those of private industry and other governmental agencies, I think, perhaps, i t s most noticeable effect was on agencies of local government, the small ones. They may have waited f o r the State t o raise i t s pay. In other words, you'd be competing with county and municipal government agencies? Actually, the big counties and c i t i e s -- Los Angeles City, Los Angeles County, San Francisco City and County, Grof f : Morris: Groff : Morris : Groff : Morris: Grof f : Morris : Grof f : San Diego -- were among t h e e n t i t i e s that were used f o r comparative purposes i n s e t t i n g State salaries, W a s this t o please the California State Bnployees Association -- t o establish the fact that you were annually reviewing salaries? Yes. This pleased them although it didn't s a t i s f y them, They would advocate the State making an estimate of what t h e course of private s a l a r i e s would be i n the next f i s c a l period and appropriating t h e money accordingly, so that the money would be there t o keep State salaries actually current with those of private industries. The Personnel Board could then a c t on t h e basis of t h e a c t u a l developments of the salary picture and increase State salaries rather immediately. The employees association w a s growing i n importance as a bargaining agency i n those years. Yes. Fiscal Controls The main thing t h a t I noticed about the budget of '48-'49 i s that inflation i s the thing that begins t o be commented about. This i s from t h e budget document, T h a t year the budget estimate was up again , to- $920 million d o l l a r s i n the Governor's message. And what was the a c t u a l expenditure? The actual expenditures turned out t o be $883 million dollars. About $36 million dollars less. Probably due t o not having expended a l l t h a t was budgeted f o r con- struction. D o you r e c a l l a particular effort from the Department of Finance t o hold down expenditures? Because t h a t year and t h e year before, you had l e s s actual expenditure than budgeted . There was a constant e f f o r t on the part of the Department of Finance i n exercising it's current budget control over State agencies t o eliminate any items of unnecessary Grof f : expenditure and hold the l e v e l down t o minimum proportions, even though appropriations of larger amounts had been made. Because, very frequently, especially i n the case of newly expanded services, the programs can't be gotten underway immediately and the e f f o r t of the Department of Finance is t o see that the expenditures a r e not pyramided -- that is, that the savings accruing from the lag a r e not plowed into an increased l e v e l of expenditures that require further addition t o appropriations i n subsequent years, Morris: D o you have any kind of working estimates of what the percentages a r e going t o be of jobs actually f i l l e d from new authorizations? Grof f : They've run studies of t h a t and accumulated experience as t o what kind of savings a r e made i n provisions f o r s a l a r i e s through not f i l l i n g jobs, There a r e two factors operating here, F i r s t there's t h i s matter of lag that I speak of, where new positions needed f o r new services, o r just f o r growth, a r e provided i n t h e budget f o r the f u l l year but a r e not f i l l e d u n t i l l a t e r , thus producing savings, Second, additional savings result from normal turnover i n positions -- resignations, retirements and things l i k e t h a t . The people coming i n a r e at lower levels -- and there's frequently a time lapse between the vacancy of a position and i t s r e f i l l i n g , A l l those factors tend t o produce a savings within budgeted funds f o r s a l a r i e s . A l l these factors a r e anticipated t o some extent i n t h e budget through provision f o r what they c a l l s a l a r y savings, whfch i s a negative amount, a lump sum deduction so t o speak, introduced i n t o the budget as an off s e t against the aggregate of the detailed provisions f o r f u l l salaries, which otherwise would be excessive, Morris: I was aware of that i n recent budgets, When was the concept introduced and -- ? Grof f : I just can't remember. Morris: W a s i t your innovation? Grof f : Well, I was part of it. I wasn't primarily responsible, but t h i s kind of evolved through actual experience and w a s put in gradually, I think, and refined and elaborated upon i n Erter years, Groff : Morris t Grof f : Morris t Grof f t Morris: Grof f : Morris : Grof f : The purpose w a s merely t o remove from the budget t h e inherent excess provision f o r s a l a r i e s because of the f a c t o r s I mentioned. These excess funds a r e always a temptation t o an agency t o use f o r unplanned purposes, o r pet projects, s o t o speak. I have heard that t h i s salary savings procedure produced a response i n t h e departments in that they would allow f o r your salary savings f a c t o r but overstate t h e i r requests i n order t o provide a cushion f o r just what you're talking about -- t h e emergency needs of t h e agency o r t o provide a cushion f o r an experimental program. T h a t endeavor is constantly being made by operating agencies. It i s countered by t h e Department of Finance by means of examining which jobs a r e f i l l e d daring t h e year and i f t h e jobs were vacant f o r an extended period of time, the budget makers might propose that the positions be eliminated from t h e list of authorized positions. It w a s intended that t h e authorized positions, t h e t a b l e of organization, would r e f l e c t only positions t h a t would actually be used t o conduct t h e budgeted l e v e l of operations of t h e agency. Would these f a c t o r s of turnover and personnel increments vary from department t o department? Oh, yes. They would a l s o vary from period t o period, depending upon whether t h e agency was an expanding one, a s t a b l e one o r experiencing a contraction. Were there agencies that were contracting? Not very many -- very few In such a period of overall growth. There were p a r t s of agencies and a few agencies themselves where workload w a s contracting. But, as you indicate, it w a s very, very unusual. T h a t ' s interesting. Which kind of departments do you r e c a l l as having been p r e t t y stable i n your experience? Oh, maybe certain special fund agencies l i k e Banking, Insurance and Building and Loan tended t o grow rather gradually over t h e years. Some of t h e other regulatory agencies didn't experience t h e same kind of rapid growth as t h e other agencies. There were variations i n the pattern, however. Morris: I ' m thinking of Highway and Mental Hygiene and Public Health and the Youth Authority as being ones, i n terms of service, that were really expanding postwar. Groff : Yes. They constantly expanded postwar. The Division of Highways was an e n t i t y unto i t s e l f as far as the budget w a s conc'erned. They were controlled only in gross t o t a l s as far as t h e i r as t h e i r budget w a s concerned, They were governed primarily by the volume of highway user revenues that came i n , Morris I But they had control over t h e i r own spending? Grof f : T h a t ' s right. They were controlled internally, primarily. Morris: T h a t seems unusual, given the volume of money t h a t went through the highway budget. Grof f : S t i l l , it was basically money that was collected from the users of the services and savings there didn't revert t o the benefit of the State's General Fund where t h e State's overall financial problem lay. Furthermore, they had constitutional and statutory control over t h e i r own expenditures. Morris a This wasn't questioned by Department of Finance people? Groff : Ok) yes. W e had periodic spirited discussions [laughter] with the Highway people over that. Morris : W h o were t h e i r finance people? Groff : Well, Roy Higgins, a former Department of Finance auditor, was t h e i r controller during the years. And a succession of directors of public works and State highway engineers, Morris r It w a s Charles Purcell, wasn't it, during Warren's years? Groff r Yes, Charles Purcell, a former State Highway Engineer, w a s t h e director. Morris : What was the nature of your spirited discussions? Highways and Other Construction Grof f : Well, it amounted t o a general debate over the extent t o which the highway expenditures should be subjected t o current budgetary control by the Department of Finance, They took t h e position that t h e i r mission was t o building highways and t o maintain them, t h a t the funds f o r that purpose were levied against t h e highway users, and t h a t the monies collected were intended t o be spent; thus, there was no point i n holding back on highway expenditures. Morris : If we have the money, we should spend it -- 3 Grof f : It wasn't quite as crass as that. Morris : Sorry. Grof f : They were always able t o point t o studies, which were continually being made, as t o the highway's needs and those studies always came out with a rather substantial deficiency of resources i n relation t o the established need. They maintained that t h i s large excess of need i n relation t o finances meant that everything that could be saved through more e f f i c i e n t operation, construction and maintenance of our highways was needed t o meet t h e i r deficiency. There w a s a built-in and inherent incentive f o r highway people t o conduct t h e i r operations e f f i c i e n t l y , they agreed. And t h e i r other main point was t h a t those operations were of a very specialized character and required the expertise of t h e highway engineers and economists -- t o put it i n the popular phrase, t o evaluate -- and t h a t t h e Department of Finance couldn't possibly understand o r deal with t h e problems inherent t o t h e i r operations. Morris: W a s t h e question of thq overall burden on the taxpayers ever raised? Groff r Yes, that was raised. But again, it was answered i n the minds of highway people by these studies of the needs. Morris: Who did the studies of the highway needs? Groff : Well, there w a s usually an interim committee of the Grof f t Morris: Grof f : Morris r Groff: Morris: Grof f : Morris : Groff : Legislature. But t h e Highway Commission i t s e l f , s t a f f e d from t h e Division of Highways, made in-house s t u d i e s , too. The o v e r a l l evaluations were usually made by interim committees of t h e Legislature. Members of the Transportation Committee? Usually, yes. But, sometimes by c i t i z e n ' s committees, s e l e c t e d by t h e Legislature. You never offered t o do any of t h e s e studies, yourself? No. From t h e standpoint of t h e o v e r a l l concerns of t h e Department of Finance, it w a s a r a t h e r peripheral issue, a c t u a l l y . But we did b a t t l e from time t o time t o t r y t o g e t a more s p e c i f i c and d e t a i l e d p i c t u r e of t h e highway expenditure program embodied i n t h e budget document. That w a s our more immediate concern. W e f e l t that it w a s s o r t of a useless b a t t l e t o c a r r y on, t o argue t h e inherent matter of control of expenditures. W e concentrated more on t r y i n g t o g e t Highways t o give a more specific and more enlightening p i c t u r e of w h a t t h e i r program w a s f o r inclusion i n t h e budget. That w a s a hard enough task because, t h e r e again, they s a i d t h e i r plans weren't developed t o any great degree of s p e c i f i c i t y at t h e time we had t o prepare t h e Governor's budget, They pointed out that t h e i r plans, a f t e r a l l , weren't reviewed by t h e Legislature, they were reviewed and decided upon by t h e Highway Commission, under t h e l a w , It's very curious. Did you have t h e same kind of reaction from t h e Department of Public Works? Wouldn't t h a t department have been under t h e Department of Finance c o n t r o l ? Theoretically, yes, But t h e Department of Public Works w a s overwhelmingly t h e Division of Highways and tended t o be overborne by t h e highway considerations, even during t h e accelerated postwar cons$ruction of s t a t e i n s t i t u t i o n s and such, The d o l l a r amount w a s a c t u a l l y more i n highways? Oh, yes. Morris: And a l l the commissions and review boards had sort of an overlapping personnel, didn't they? Grof f ; Within Highways? Morris t Highways and the Public Works and some of the allocation boards. M r , Purcell's name turns up on many of them, Groff r Yes, It w a s overlapping as far as the top management of the Department of Public Works w a s concerned, but not below t h a t level. The Division of Highway personnel seldom was called upon t o participate in the decision-making on the State public works program. The Director of Public Works, because he was the Governor's appointee in the whole area of public works, architecture and water resources, as well as highways -- he, and perhaps hf s immediate deputies and a s s i s t a n t directors were the only ones t h a t participated in t h e policy-making on State public works, Morris : I read the other day t h a t because the level of our postwar construction in California w a s so great, a number of out-of-state contractors came i n , looking f o r some of t h e business, W a s California ready t o go sooner than other s t a t e s on t h e postwar catching up, do you recall? Groff : I would expect that they were because of our intensive postwar planning effort. I don't r e c a l l any d e f i n i t e figures in t h a t regard, although the general proposition of s e t t i n g up postwar construction reserves, I think, w a s r a t h e r widely discussed among s t a t e government c i r c l e s i n those days, And California wasn't entirely e l i t e at that time; other s t a t e s did the same thfng. H o w extensive it w a s , I don't r e c a l l . Morris t Were you t r a v e l l i n g around, going t o i n t e r s t a t e meetings on t h a t ? Groff r To some extent, yes. I attended some of the meetings that were held i n association with other s t a t e budget officers -- t h e National Association of State Budget Officers, Morris t The top men! Groff: Yes. W e met annually and there w a s discussfon in t h a t Grof f : group on the general widsom of s t e r i l i z i n g some of the wartime surpluses f o r postwar oonstruction purposes. Inflation Morris: Getting baok t o the '48-l49 budget, by that time w e were already getting indications that costs were going up. The thing t h a t interested m e most is that, I guess it was M r . Currie, doing the revenue estimate, raised the question as t o whether these price levels were going t o be a permanent factor, resulting from new scales of values. And I thought t h a t w a s a very perceptive remark t o come at that stage when revenues were so high and I wondered i f t h i s caused some consternation in the Department of Finance? What w a s meant by the new scales of value and w h a t was the thinking as t o what you could do about i t ? Groff : Well, the question annually recurred a s t o w h a t levels t o anticipate in the way of prices f o r the next f i s c a l period. W e relied on M r . Currie t o advise us in that respect, plus input from the Division of Purchasing, as t o what the probable course of prices might be. Morris: They would be buying things on a long-term future delivery basis? Grof f : Not very much. It was a matter of getting t h e i r judgment and other judgments t h a t M r . Currie assembled and evaluated -- and from the l i t e r a t u r e from businessmen and from reviews by other economists with whom he w a s i n contact -- as t o what the course of prices might be. W e usually t r i e d not t o venture too far i n these assumptions. W e t r i e d t o make them quite conservative and, especially i n the detailed budgets of the agencies themselves, we usually budgeted on the basis of current conditions and then s e t up a lump sum provision i n the budget f o r probable price increases i f the outlook w a s f o r increased prices. You'll notice in several of the Governorls budgets items, from a million t o two o r three million dollars, f o r price increases. You might notice, also, that in several years the amounts provided f o r price increases were not suffioient , Morris : They were wiped out. Grof f : They were wiped out and had t o augment l a t e r by deficiency appropriations from the legislature. It was very d i f f i c u l t t o estimate the course of prices, at that time. Right at the end of the war, we didn't know what course prices would take, although everybody recognized t h a t during the w a r there'd been a eertain amount of temporary inflation, but held in check by governmental price controls. Morris: Which kept the prices down. Groff : T h a t ' s right. That was operating; yet, i n spite of those controls, there was a t e r r i f i c pressure upon prices during the war and immediately a f t e r . And there w a s a demand f o r relaxation of those controls, of course, at the end of the w a r . So, there was a good deal of difference of opinion as t o w h a t the course of economic a c t i v i t y would be -- whether there would be a severe and prolonged contraction o r whether the pent-up demand t o f i l l i n the wartime gap rather rapidly would result in the driving of prices up rather sharply. T h a t whole matter of timing w a s very d i f f i c u l t t o foresee. So, there was a good deal of uncertainty. Morris: I can see uncertainty i n '46 and '47, but now we're talking about '48 and '49 and prices continued high. What do you think were the reasons that we ended at a permanently higher level of prices, and one which has continued t o increase over the years? Grof f : Well, that r e a l l y requires a much greater depth of economic perception than I have, but m y own feeling has been that it i s p r i m r i l y because the political and governmental machinery has not been willing t o take the hard decisions necessary t o actually control inflation. Such decisions have just been potentially too ruinous, from the p o l i t i c a l standpoint, t o make it feasible t o exercise effective governmental controls. O n one hand government has not been able t o refrain from participating In the economic decisions, therefore the governmental influences were quite important and Groff : quite significant. Yet in making the judgments that they did make i n the economic sphere, the political considerations have forced some decisions that were not sound, economically, at l e a s t from a long range paint of view. Morris t Would t h i s be a case of not listening t o a l l the advice? Persistently, i n C a l i f o h i a , there's been a very hard- headed bunch of legislators, who did not wish t o increase taxes and increase State spending and reach into new areas of service. Grof f : Well, I was really referring t o the national scene, because state decisions have a very small influence In shaping the course of basic economic conditions, i n m y opinion. Morris: You're thinking of the national scene i n terms of things l i k e i n t e r e s t rates and -- ? Grof f : Interest rates, yes. Eoen wage rates, the banking and currency situation, the level of governmental spending, and a l l those national determinants of the economic s t a t e of affairs. Morris : These have t o do with the money supply, availability and cost of money. I was thinking of something that Warren referred t o over and over again i n his adminis- tration: the pressure from "the peopleH f o r expanded services as an inflationary factor and, in his case, a wish t o use the resources of the State f o r what he s a w as human needs. Groff : W h a t was your question? Morris : Would t h i s be why the costs continue t o r i s e , that the p o l i t i c a l decisions were i n favor of expanded services. If you only have X amount of money coming i n , and you're going t o spend more than t h a t , l i k e M r . Micawber, you're going t o get into financial trouble. Groff : Yes. The constantly expanding demands on the part of "the people1' f o r governmental services i s a long term f a c t o r that operates, of course, t o increase governmental spending and, t o t h a t extent, may influence inflation. Morris: W e both use 'Ithe people'' i n quotes. Does that indicate t h a t there is some thinking that some public services a r e not needed o r expand too rapidly both i n relationship Morris: t o need and t h e relationship of the a b i l i t y t o pay f o r them? Grof f : Well, I agree that it's the old question of just who a r e "the people?" In the long run, t h e aggregation of individuals i n t h e i r homes and businesses a r e effective, I believe, i n determining the l e v e l of public services; but t h e r a t e at which they become effective i s influenced very greatly by organized groups. "The people'sw effectiveness i s stimulated o r inhibited by e f f o r t s of organized special i n t e r e s t groups, so that not always, over a short period of time, i s it t h e desires of the individual c i t i z e n s (or t h e i r agonies) which a r e i n t h e direction of these expanded services, but rather t h e e f f o r t s t h a t a r e made by the organized groups. Such groups a r e very freauently i n the minority, but a r e very effective i n s e l l i n g given programs and expansions of programs t o t h e Legislature and t o the people. Morrisr These organized s m a l l groups were operative i n the postwar years? Grof f : Well, they were always operative. T h i s is a continuing situation. Welfare Costs Morris: I w a s thinking about Proposition 4, on the 1948 b a l l o t , which produced a big change i n State s o c i a l welfare organization -- and Myrtle W i l l i a m s came i n as the d i r e c t o r i n 1949. Grof f : Yes. T h a t ' s r i g h t . Her proposition transferred welfare c o s t s and welfare administration from the counties t o the S t a t e and at the same time increased the l e v e l of those payments rather substantially. Morrisr This was primarily t o elderly people? Grof f t Yes, aged and blind, and dependent children, too, I think. So, that whole expenditure w a s transferred t o S t a t e responsibility. There w a s q u i t e a large expenditure difference i n t h e '4gL '50 budget. Morris: Yes, the '49"50 budget was a jump. You mentioned that Morris: the federal social security payments were also increasing i n those days, weren't they, i n categorical aid? Grof f : Yes. They exercised an upward influence i n expenditures i n that area, too. But Proposition 4 proved t o be just a temporary aberration i n the course of welfare; it w a s reversed i n the next election. Morris: W h y w a s it an aberration? The principle of providing public funds f o r the blind, the aged and the needy children had been established, and has continued t o be the l a w of the land. Gmff: T h a t ' s right. The aberration w a s i n the direction and the nature and the history of welfare, which had been continually increasing i n scope and amount and scale of systems, accompanied by a greater and greater financial participation on the part of the State, and the federal government and a smaller and smaller financial partici- pation, at l e a s t proportionately, on the part of the counties. But that more gradual trend was significantly interrupted by Proposition 4, which took a l l of the remainder of local costs and administrative, responsibility and transferred them immediately t o the State, at the same time substantially increasing the individual payments, When the correction w a s made i n the next general election, the administration and division of financial responsibility returned t o about where they were. However, the higher level of payments established i n Proposition 4 w a s retained; they didn 't dare reduce those levels t o t h e previous point. Morris: I f i n d it puzzling that t h i s was considered alarming, in view of what happened over the years. You say the State increased t h e i r amount of money i n it, but the control and administration was shifted t o the county. Now, this is what we have come t o i n Mental Hygiene community services and the Youth Authority probation subsidy program, The early discussion of both of these began i n the Forties, t o s h i f t the control of services back t o the community t o provide b e t t e r services t o people, with the idea that the State would increase its subventions i n order t o provide better and cheaper service. Grof f : Of course, most of the welfare programs started locally, with t h e county governments and were administered and paid f o r locally, almost entirely, When Old Age Assistance came along there w a s equal financial participation by t h e State and by the county. Soon, e l i g i b i l i t y standards were broadened and payments increased t o the point where greatly larger numbers of people became eligible avld the burden became too large f o r the counties t o bear, Then, State participation w a s increased and broadened constantly. A t first, local administration was retained, but with the advent of S t a t e participation came establishment of statewide standards, statewide regu- l a t i o n s , statewide policies, which had t o be enforced upon the local government; that meant State supervision and s t a t e review of administration. Morris: The Department of Finance would be pushing f o r these things, wouldn 't it? For the supervision and standards? Grof f : Well, yes, i n a gross sort of a way. The specifics, of course, were worked out by the State Department of Social Welfare. Morris: So, t h a t you f e e l t h a t i n the '49-'50 budget (that was t h e first b i l l i o n dollar budget) a good s u m of the increase was due t o t h i s additional expense from Proposition 41 Grof f r Yes, A s a matter of f a c t , the Governor pointed out i n h i s message t h a t the budget t o t a l included $153 million d o l l a r s of increased expenditure f o r school and social welfare, traceable t o i n i t i a t i v e measures approved i n the last three years, School apportionment increases went back t o t h e general election of '46 and welfare t o t h e election of '48, He pointed out that some $88 million, seven hundred thousand additional expenditures f o r old age and blind assistance were added as a result of Proposition 4 i n the 1948 election, In addition there w a s about $29 million dollars required t o operate the program between January 1st and June 30th of v49, Morris: In other words, Proposition 4 became operative immediately? Grof f : Yes. It was voted on November of '48 and became operative i n January 1st of '49, apparently. Morris: T h a t must have been a remarkable piece of i n i t i a t i v e legislation; most legislation doesn't take effect that fast. Grof f : NO, not usually. F i r s t Billion Dollar Budgett 1949 Morris: I have $ 1billion, 60 million for the Governor's request i n 1949. W k t w a s actually spent? Groff : Well, it was very close again, $ 1billion, million was actually expended in that year, with a s i x million dollar difference. Which i s practically right on the button . Morris : It's phenombnal, I should think. Your accounting and predicting machinery must have been improving over the years. Groff : That may have been more accidental than intended. Morris t T w o years i n a row? Groff : Well, it got better, yes. That period worked out very closely. Morris : Did this cause noticeable anguish o r was it a matter of pride t o have the State budget arrive at such a sum? Groff : Well, it was a matter of pride and a goal on the part of the Department of Finance and the Governor, of course. The a i m was always t o make the budget as inclusive as possible and t o plan i n an orderly and balanced way the direction of the State expenditure program. The a i m was t o have a workable and viable budget plan. The thrust i n the Department of Finance w a s t o hold t o the Governor's budget plan. The plan was, i n t h e i r opinion, well thought out and should be adhered t o -- recognizing at the same time that there were contingencies t h a t couldn't be foreseen which had t o be met, Then there w a s always the unprovided-for area of Grof f : Morris: Groff : Morris : Grof f : Morris: Grof f : Morris: Grof f : legislative special appropriations, or new programs not foreseen i n the budget. Those circumstances were also recognized and accepted as a part of f i s c a l reality. This budget notes that the days of surplus a r e ending, Did t h i s mean t h a t revenues were beginning t o drop off? Well, they weren't increasing so dramatically as they were immediately a f t e r the war. The accumulated needs I 1 were beginning t o be met and the enhanced growth factors weren't as significant i n the overall picture. The surpluses, over and beyond those which were s e t aside in various postwar reserves, were beginning t o be used up. And expenditures were catching up with revenue. In those f i r s t postwar budgets, there was both a post- w a r constructiion reserve and a postwar employment reserve, I f i n d no record of a postwar unemployment program; w a s the employment reserve used up i n the rising costs f o r construction? Well, there were three principal postwar reserves: the postwar employment reserve, the so4called Christmas Tree B i l l , and the so-called Rainy-Day Fund reserve. The postwar employment reserve was the one recommended by the Governor and established by the Legislature t o take care of the postwar construction program, and t o a l l e v i a t e anticipated unemployment. With a dnal purpose t o provide buildings the State needed and a l s o jobs f o r unemployed veterans. Yes. Here rrefers t o papers], the Posrt;war Unemployment and Construdtion Fund of $90 million w a s one t h a t was established by t h e Legislature -- the so-called Christmas Tree B i l l -- primarily f o r counties and the c i t i e s . T h a t w a s Dick Graves8 great adventure. Then there was a l s o $75 million dollars -- T h a t w a s the catastrophe, o r Rainy Day, reserve recommended by the Governor in his '47-s48 budget message, as a revenue deficiency reserve in case of a decline of business activity. In the Governor's words: "Ten years of d e f i c i t finance of s t a t e government which preceded the w a r provide a costly illustration f o r thinking in terms of financial preparedness. Brof f : I consider it t o be only a matter of elementary prudence t o create a reserve f o r the rainy day which w i l l come i f history repeats i t s e l f . " Morris: Warren was ridiculed f o r this, a p p a m t l y . I think it's a charming, sensible, thrifty, American expression. Groff : That's right. It w a s opposed -- as I indicated i n one of our e a r l i e r interviews -- by those taxpayer groups and others of that turn of mind, who f e l t that any kind of surplus i n the hands of State government w a s a dangerous thing and would be l i k e l y t o lead t o extravagances, and ill-considered projects, you see. So, from that point of view, this w a s not a wise recommendation. They would have far preferred t o see that money retained i n the pockets of the taxpayers by reducing taxes, rather than being sterilized i n a reserve. Changina Tax Bates Morris: This was w h a t Warren had attempted, had he not, in t a x redaction I n the e a r l i e r years? Grof f : Yes. Well, the Governor recommended and pushed a program of t a x reduction at that time. Morrisr A n d s t i l l got this kind of reaction. Groff : That's right. The taxpayer turn of mind would have advocated s t i l l deeper tax cuts t o eliminate a l l these reserves. Morris: Well, that would presuppose a magical amount of predictive a b i l i t y as t o what the income levels were going t o be f o r various revenues. But by '49 the surplus had ceased t o accumulate. Grof f : Yes. Morris: And i n f a c t , that w a s the first Warren year that there were requests f o r a d d i t i m a l taxes. Groff : Yes. Primarily the recission of the tax reductions and return t o the prewar rates of taxation. Morris : Grof f : Morris r Grof f : Morris r Groff : Morris z Groff: Morris: Grof f : In t h a t budget message, again, the revenue section says "Td meet t h a t billion dollar budget, present revenues would be $85 million dollars short. " Yes, but some $64 million of that shortage, he proposed t o be made up by returning t o prewar tax rates, terminating the temporary reductions i n the sales, corporation, and personal income t a x rates, Now, that closed most of the gap, but not a l l of it, and t o raise the r e s t of the revenue he proposed rather minor increase i n the d i s t i l l e d s p i r i t s excise tax and the parimatuel horse racing tax, together with a new tax on cigarettes. W h o referred t o them as "sin taxes?'' W a s this the press o r w a s t h i s t h e Legislature? ~huckes) Sounds l i k e an -appellation devised -by the press ut I can't remember where it came from. A s the Governor characterized the three sources, " . .a l l of these b taxes rest upon luxury items which enjoy a comparative advantage under California t a x law." The crime commissions were active in those years and I wondered i f it w a s possibly a crime commission recommendation t o get at some of the i l l e g a l a c t i v i t i e s by increasing taxation on them and tightening up the taxat ion regulations? I don't think t h a t t h i s w a s a very significant aspect of these recommendations. This would be the last budget that you worked on, wouldn't i t ? Yes. I l e f t the department in June of 1949. Had the budget been approved by then, o r -- ? Yes, I think so. i V I I I INFLUENCE O F TKE DEPARTMENT O F FINANCE Technical Developments Morris: W a s your job with the State primarily with disbursements and keeping the accounts accurate and making sure t h a t people didn't overspend? Groff r Well, a l l except t h e matter of keeping the accounts accurate; I had nothing t o do with keeping the accounts. T h a t w a s done by t h e State Controller as far as c e n t r a l accounts were concerned, and by the various State agencies, according t o the accounting system prescribed by the Department of Finance, as regards t h e day-to- day operating accounts. Morris: Did t h i s mean t h a t you worked closely with the counties? Groff: No, not really. I did have a brief experience back i n about '38-'40, when I w a s assigned t o help a man i n the Department of Finance who worked with the county auditors i n revising t h e system of county budget-making . An early provision of l a w designated the State Board of Control and l a t e r t h e Department of Finance a s t h e agency t o prescribe the forms on which the counties would prepare t h e i r annual budgets, as a means of establishing a certain amount of uniformity and comparability among the counties i n that respect. The ~epartinentof Finance did the staff work on those forms. And I a s s i s t e d in t h a t work f o r a year o r so, but it w a s a temporary thing. Morris: I ' m interested in the counties' interaction with State government. You said t h a t in s e t t i n g up salary projections and possible increases, some influence came from some of t h e l a r g e r counties. Groff : From the l a r g e r counties, only because they were among t h e l a r g e r employers whose salary r a t e s were surveyed by t h e State Personnel Board as t h e basis f o r determining what t h e State s a l a r i e s ought t o be. Morris: But, again, as t h e larger recipients of the funds that t h e S t a t e was e i t h e r disbursing o r passing along from Washington, I wondered if procedures i n some of t h e larger counties were used t o establish guidelines o r did they develop procedures that influenced t h e Department of Finance i n developing i t s , techniques? O r i f it went t h e other way? Groff: In two general aneas, there w a s interaction, F i r s t , i n t h e specific areas i n which State assistance t o counties and other agencies of l o c a l government took place, there w a s a necessity f o r establishing reporting and auditing procedures t h a t would both serve as a b a s i s of information on which t h e S t a t e could a c t , and insure the i n t e g r i t y of t h e State funds which were being expended by the c i t i e s and counties, The primary responsibility f o r such supervision of l o c a l f i s c a l procedures w a s exercised by t h e agencies which were administering these forms of State assistance, l i k e t h e State Department of Social Welfare, f o r example, t h e S t a t e Department of Education i n t h e area of school finance, and t h e State Division of Highways i n the area of l o c a l expenditures f o r s t r e e t s and highways, The Department of Finance didn't have much direct participation i n t h a t kind of supervision : we were concerned at budget hearings, t o see that adequate provision was made f o r such supervision and the s e t t i n g of standards, but we didn't get i n t o the supervisory process i t s e l f . Then, second, the c i t i e s and counties, especially t h e l a r g e r ones, as rather significant u n i t s of govern- ment themselves, were constantly innovating and making improvements i n methods and procedures, We, i n the Department of Finance, because of our general i n t e r e s t i n t h e improvement of S t a t e f i s c a l procedures, were interested i n what c i t i e s and large counties were doing, In our professional association, we were made aware of what other governmental e n t i t i e s were doing and t r i e d t o p r o f i t from t h k i r innovations, and so forth, Morris: What were the outstanding developments in t h e art of Morris : public finance, would you say, i n the postwar years? Grof f : I think a significant development was in the direction of u t i l i z i n g larger functions f o r comparison and larger units f o r budget decision-making rather than such detailed and finely divided units, The tendency was t o deal with larger and larger units of organization and larger and larger functional comparisons depending mare on the operating departments f o r the finer d e t a i l of decision-making , Morris : On how they actually used funds -- Groff : Yes. In other words, a certain amount of decentralization was taking place i n those years and has continued since, It was a constant process of improving the caliber and methodology of the department managements, And an accompanying greater reliance on the departments f o r control of t h e i r own affairs, rather than finely detailed decision-making on the part of the Department of Finance. Morris : Did many of your people go out t o other operating agencies and become t h e i r finance officers? Groff : Yes, that w a s a continuing process, Professional and technical staff people from the Department of Finance were recruited by operating departments t o f i l l f i s c a l and budget administrative positions and, t o a lesser extent, we recruited personnel from t h e i r staffs, especially f o r our middle level s t a f f , Morris: So t h a t you can have people within the Department of Finance who have had experience i n Public Health o r Agriculture o r -- ? Grof f ; T h a t ' s right. And if they had people who had experience i n the Department of Finance, it furthered on t h e i r part a larger outlook on State government, Morris : In other words, do I hear that some of the operating departments did not have budget departments in e a r l i e r years? Groff : That's right. The budget-making was done as part of the operating-function of t h e i r accountin off ce G a a l l y , as t h e budget r e 9uirements grew more fmpodant anh $Re s i z e and eomplex t y of the agencies themselves grew and Groff : developed, budget-making came t o be a specialty, A t first, a sub-specialty in the larger accounting departments and then, i n some cases, it was taken out of the accounting departments e n t i r e l y and plaoed i n the director's o f f i c e o r as part of t h e management and control unit f o r t h e department, Morris: D i d t h i s come about through the introduction of computers? Groff : No, t h i s actually preceded the introduction of computers, but was enhanced by the a v a i l a b i l i t y of the kind of information that oomputers could develop i n the f i e l d of budget-making, Morris: When did computers first become available f o r governmental use? Grof f : About '55 o r '60, as I reoall, Of course, the punch card and tabulating kind gf machines came i n much e a r l i e r than that, They came i n t o rather wide use right a f t e r t h e w a r , Morris : D i d they make any considerable contribution? Groff : They provided a quantum jump, you might say, i n the technical resources f o r f i s c a l operation and budget- making and budget control, Morris: For accuracy and -- Groff : And comprehension, The main thing that they contributed w a s t h e a b i l i t y t o handle, economically, large volumes of data, so t h a t you could get the budget picture -- i t s aggregations and i t s analyses -- i n more meaningful form, Executive Departments ?., Spendinq Morris: I've got a couple of global things you might want t o comment on. One of them has t o do with the position of Finance i n relation t o other departments, A number of people that we have interviewed i n t h i s project have commented that elected o f f i c i a l s and legislators come and go f a i r l y rapidly, while the career staff stays on, and therefore, through day-to-da 9 operations, the Finance staff could, and they f e t did, control agency Morris: spending t h a t t h e Finance Department s t a f f f e l t w a s unwise. Is t h a t a fair judgment? Do you r e c a l l occasions back i n the Forties when the Department of Finance f e l t that; maybe the Legislature had moved too generously i n expanding an agency program? Groff : Well, the first part of your question as t o the extended control exercised by the Department of Finance -- that was a matter of interaction between Department of Finance administration and operating personnel on one hand and the operating personnel of the agencies and t h e administrative hierarchy of the agencies on the other hand. Now, those interactions were both intradepartmental, within the department, the management on the one hand and t h e operating agencies on the other, and a bridge between the Department of Finance and the operating agencies. The Department of Finance operating staff did make recommendations i n areas of relatively minor importance. I think there w a s some influence and decision-making on t h e part of t h e staff, but more importantly and more typically, there wer e recommendations f o r decisions generated by the staff, but conveyed t o the adminis- - . - t r a t i v e level of the Department of Finance -- first t o t h e Director of t h e Division of Finance himself-and through h i m , of course, t o the Governor's level, i f need be. The Department of Finance had a l o t of influence along that administrative and hierarchal l i n e , but there weren't very many decisions of r e a l significance t h a t were made by the Department of Finance staff i t s e l f , at t h e staff level. It was mostly recommendations t o these higher divisions who then took the decision on t h e i r own responsibility o r went up t o a higher level, c l e a r t o the top, t o the Governor, i f necessary. Frequently, because the operating personnel of the agencies affected by these decisions knew the origin of t h e recommendations, the decisions were ascribed t o the Department of Finance staff, when actually the decision was made by the higher and more responsible echelons of State government. But it was very convenient, always, f o r an agency head who w a s aggrieved by these decisions t o ascribe them t o those pencil pushers i n t h e Finance s t a f f . W e were the scapegoats, very often. Morris: Were there occasions when Governor Warren would overrule o r decline t o accept the recommendations? Grof f : Oh, certainly. W e were constantly batting up t o the Director of Finance and t o the Governor recommendations and ideas that were shot down, and properly so, because they weren't feasible, p o l i t i c a l l y o r philosophically o r operationally. Lord knows, the Department of Finance certainly wasn't the repository of a l l wisdom. And we didn't consider ourselves so, although being i n the position that we were, as s o r t of a managing and controlling agency, probably we were more opinionated than the usual operating agencies. Morris: Do you recall any particular instances where Warren e i t h e r violently disagreed o r heartily responded t o a position the department took? Groff : I can't r e c a l l any particular instances, no. I found Governor Warren, always, very considerate of the Department of Finance s t a f f and I thought he gave greater weight than most governors t o our recommendations, However, i n the larger context that he had t o keep i n mind, his philosophical orientation w a s often i n a direction away from that which may have motivated the Department of Finance and h i s greater concern f o r humanitarian issues frequently led h i m counter t o the Department's recommendations. Morris: A s a family or an individual preparing a budget, you make choices, and the first l a w of economics .is t h a t there i s never enough of what ever it is t o go around, so you make choices. But w h a t seems t o have been operating i n California State government i n those years w a s more construction of buildings and also more i n t h e way of services f o r people; education, welfare and health. And even from Warren, I don't see this making of choices; it seemed t o be more a matter of trying t o provide both, t o keep moving on a l l fronts at the same time. D o these basic economic considerations l i k e supply and demand -- we have t o do something t h i s year so we'll postpone something else until next year -- do those apply i n public finance? Grof f : Oh yes. Definitely. And choices were made. Of course, the choices weren't quite as agonizing as they have been subsequently, and had been previously during periods when revenues were relatively smaller and l e s s adequate. Because Warren had the great good fortune t o be Grof f : Governor when, f o r the most part, the State finances were i n very good shape, The S t a t e economy was i n high gear, and therefore was producing a rather large amount of revenue, so that he was able t o make these choices i n t h e direction of both goods and services -- f a c i l i t i e s and functions, That i s n ' t t o say t h a t many d i f f i c u l t choices were n o t involved i n that process because i t ' s a l s o a l a w of economics t h a t there's hardly any l i m i t t o t h e wants of t h e individual, That i s t r u e of t h e society, corporately, a l s o . So, choices were made and reason and r e s t r a i n t were applied t o the decision-making i n most cases. It was a pleasant surprise t o t h e Department of Finance people t o see the balanced viewpoint which Governor Warren brought t o bear upon these humanitarian measures and a c t i v i t i e s that we knew he had a very great personal and philosophical i n t e r e s t i n . On many occasions, he exercised very admirable r e s t r a i n t i n implementing these desires and causes that we knew he was personally sympathetic with, Morris: W a s t h e Department of Finance located i n t h e capitol building when you were there? Grof f : Yes, continually . Morris: Which means that,physically, M r . Dean would have been a b l e t o have d a i l y informal contacts with t h e Governor i f need be? W a s t h i s t h e atmosphere i n the capitol i n those years? The Governor would drop i n occasionally, i f he had a question, o r c a l l ? Grof f : Occasionally, but usually it was t h e other way. He would ask the Director of Finance and finance people t o come down, Morris: How much of S t a t e government was housed i n t h e capitol i n t h e Forties? Grof f : Well, it w a s a constantly declining percentage. [Laughter] They were continually moving offices out of t h e State c a p i t o l building i n t o other o f f i c e space, The construction we mentioned -- a l o t of it was o f f i c e buildings -- a tremendous expansion of space, When I first came t o work f o r t h e State, a very Grof f : Morris: Grof f : Morris: Grof f : Morris: Groff r Morris: Groff : substantial portion of S t a t e offices were housed i n the S t a t e capitol i t s e l f , and that was the original capitol building, you know, before the addition of the huge annex, constructed, as I r e c a l l , during Governor Warren's administration. I think so, because Pop Small t a l k s of walking around t h e construction and getting dust on his f e e t . So that, when yon were i n S t a t e government, t h e Department of FMance was always housed there i n that building? Right. I think we were i n t h e same location on t h e t h i r d f l o o r at the southwest corner v i r t u a l l y the whole time of m y service, W e expanded t o cover almost t h e whole t h i r d floor. For many years our offices were right outside the Senate gallery. This i s where Alan Post's office is now?* Yes, that 's r i g h t . Would you say that the Department of Finance has become stronger i n i t s influence on S t a t e policy and its supervision of other agencies over t h e years? Legislative Committees I don't know. Relative t o t h e t o t a l s i z e and complexity of the State government, I think its position from Governor Yowlgas time forward has been relatively constant. A s a matter of f a c t , taking i n t o account t h e legis- l a t i v e aspect of S t a t e government i n regard t o the budget, I think perhaps i t ' s r e l a t i v e influence has probably declined somewhat since the advent of t h e Legislative Analyst. T h a t ' s interesting, t h a t you f e e l t h e Legislature has moved i n t o exert greater influence. Yes, definitely. The advent and t h e very existence of t h e Legislative Analyst's office, t h e Joint Legislative Budget Committee, with t h e i r f a c i l i t i e s and t h e staff -- they have moved i n t o the executive a r e a of State government, *In 1973 many s t a t e offices moved out of the old c a p i t a l due t o earthquake hazard. Grof f : operations, t o a much greater extent than the Legisla- ture ever did i n earlier days, prior t o the Legislative Analyst' s creation. A t first, there was very l i t t l e encroachment upon the executive function of the government. But as the office became established and its influence grew, there was more and more exercise of direction and control and more influencing of executive decisions, Morris: Within various agencies? Grof f : Yes, but encroachment, also, upon control functions and management decision-making theretofore exercised by the Department of Finance and the Governor. Morris : Is t h i s through the recommendations and conclusions of the Legislative Analyst's studies, or i s t h i s through the Legislature actually making more specific and detailed legislation? Grof f : Both. But also through a more subtle involvement of the Legislative Analyst and his staff directly with the operating agencies and the Department of Finance. They a r e i n frequent contact and exert a current influence on day-to-day operations of the agencies which i s a subtle, but very powerful, force . Morris: They're actually present i n various agencies? Groff : They're looking over the operating agencies'' shoulders, so t o speak, while operating decisions are being made and there i s a certain amount of intimidation involved, since you know they're going t o carry back t o the Legislature everything and anything they can find out, Morris : In a way that the Department of Finance management studies don't do? Grof f : Well, the methodology i s somewhat the same, but the force behind the conclusions resulting from that methodology is much greater when practiced by the Legislature than when the Department of Finance engages i n it. Morris: Because it sides with the legislature? Grof f : Because of the legislative function. After all, when the chips a r e down, f i n a l control over expenditures rests Groff: . with the Legislature. The result has been, over the years, more detailed restrwction on the expenditure of funds and more burdensome control over decision-making embodied i n f i s c a l legislation. Morris: T h a t ' s interesting in view of w h a t you said a l i t t l e while ago, t h a t the Department of Flnance had developed techniques whereby decisions could be made on the larger units of function and expense. Grof f : Well, t h i s growth of the influence of the Legislature i n general, and t h e Legislative Analyst i n particular, on decision-making has taken place alongside of t h i s other development and trend towards decentralization and toward the conduct of operations in larger units. Morris: Did the Legislature do t h i s intentionally o r was it something that just evolved? Groff : It has evolved, although the legislatnres generally have had a built-in tendency t o encsoach on the executive branch t o the extent that they can. They have been hindered in the past, partly by the lack of supporting staffing units of various kinds, f i s c a l and otherwise. Prior t o t h e i r advent, legislatures were inhibited t o a considerable degree by a lack of detailed knowledge, they Just couldn't be effective except i n isolated instances. But now, they're providing themselves with these staff agencies who furnish them with detailed m d current information and a c t as an on-site a r m of the Legislature which meanders out into the operating agencies -- Morris: T h a t ' s interesting because the idea of providing staff t o the Legislature originated as a way f o r legislators t o do t h e i r job b e t t e r and -- Groff : T h a t ' s right, a sound development from that standpoint, But l i k e other sound developments, it can be perverted. Thoughts on Reorganization Morris: Dick Graves said t h a t at one point -- I d o n q t knowwhether Morris: it was he personally o r one of the League of California Cities studies -- he recommended the whole machinery of the State government be reorganized t o put the Department of Finance on an organizational level above the operating agencies with the intent t h a t the Department of Finance could then speak with greater authority as the voice of the Governor on f i s c a l matters. I wondered i f t h i s idea had been discussed at a l l i n State government and within the department and what happened t o i t ? Grof f : Yes. WelL t h a t represents the "state managern concept of the role of the Department of Finance -- being kind of a superagency. There's a good deal of soundness i n the concept, i n m y opinion. The Department of Finance i n i t s present and historic function has been more than the ordinary department because it's been i n the position of exercising a certain amount of control and management supervision over the other departments; and yet structurally, it has been on the same level as those departments, so t h a t it represented a matter of one department t e l l i n g another co-equal department w h a t t o do, i n respect t o i t s financial and business affairs. The concept has been that the Department of Finance, insofar as it i s t e l l i n g other departments how t o operate, is actually acting f o r and i n the name of the Governor. And i t a sbeen the support and the power of the Governor that has made those supervisory a c t i v i t i e s of the Department of Finance viable and practical. But there i s this structural handicap, you might say, upon the Department of Finance through being just one among the State agencies. Morris: Did the League of California Cities ever make this as a public suggestion? Groff : I think that it has, although probably the suggestion w a s made by t h a t organization a s part of a larger study i n which the League of Cities had been one of a number of organizations called upon t o render advice and consul- t a t i o n , along with the County Supervisors Association, the State Chamber of Commerce and similar groups. Morris: Yes, they do work rather closely together. Groff : There have been frequent examinations of State government i n which such organ1zations have been called upon Groff : t o give recommendations. Morris: W h o a r e they called by? Groff : Sometimes the Governor, but more usually either a committee of the Legislature or a commission appointed e i t h e r by the Governor o r jointly by the Governor and the Legislature. A number of these State government reorganization e f f o r t s have been made from time t o time, over the years. Morris: W e did come t o superagencies, but I don't r e c a l l ever hearing, in recent years, this idea of the Department of Finance as an umbrella kind of agency. W a s there ever any movement t o bring this into being? Grof f : There've been a number of these recommendations i n which the Department of Finance has been variously reconsti- tuted. In some cases it'$ been a matter of making the Governor more the p o l i t i c a l , ceremonial and t i t u l a r head of the government and delegating the management aspect of the executive function t o a s t a t e manager who would take over the control functions of the Department of Finance. The Department of Finance would then become s t a f f agency t o t h a t State manager. That would fundamentally change the character of the office of Governor. It would take the day-to-day administrative functions away and he could be more concerned with the policy making and "head of state" concerns. It amounts t o application of the "city manager" concept t o State government. Morris: There would probably be p o l i t i c a l objects t o that. Grof f : Yes, that's right. The other main l i n e of reorganization proposed has been t o transfer the budget and management analysis functions of the Department of Finance t o the Governor, t o be exercised as a direct am of the GovernorCs office. This would be something l i k e the relationship that e x i s t s i n the federal government, where the Bureau of the Budget, now called the Office of Management and Budget, i s part and parcel of the President's office. O f course, most of the operating functions of the Department of Finance now have been transferred away from it. The control over purchasing, printing and office space and a l l those other housekeeping a c t i v i t i e s and Groff z Morris: Groff : Morris : Groff : Morris: Grof f : Morris t Groff : functions, formerly part of the Department of Finance, have been reassigned t o the Department of General Services. The Department of Finance i s l e f t i n the position of being concerned with the functioas of budget- making, management studies and management audit. The post-audit function w a s also taken away from the Depart- ment of Finance some years ago and recaptured by the Legislature, where it i s exercised by the Legislative Auditor. The Department of Finance w a s thus l e f t with only the internal audit function, usually considered t o be a proper responsibility of the executive branch, T h a t function has since been transferred t o the Department of General Services. When w a s the Department of General Services established as a separate entity? Oh, during Governor Brown's admini stration, So, it sounds as i f there had been various attempts t o keep the Department of Finance from becoming too efficient, Well, from becoming all-powerful and all-pervasive. It w a s f e l t that it was difficult f o r the director of finance t o be at once the operator of extensive house- keeping services and at the same time be responsible f o r planning and managing the financial and business concerns of State government. It emerges as kind of l i v e organism growing and contracting i n responsibilities. How did you happen t o leave the Department of Finance and oome t o the University? Had you a l i f e master plan?* Not really. It seemed t o be an interesting and challenging opportunity at the time, I'd been responsible, when I w a s on the budget staff , f o r the education budget, including University and s t a t e colleges, So, you were already familiar with academic finance? Yes, I always have had a substantial interest i n that side of governmental affairs. The opportunity of working f o r President Sproul and with J i m Corley appealed t o me, The other, more personal consideration was that the constant pressure of the State budget was getting rather over- whelming and it w a s w h a t I thought t o be an opportunity +eMr, Groff joined the University of California staff i n 1949, Groff : Morris : Grof f : Morris : Groff : Morris : Grof f : Morris: Grof f : L t o g e t i n t o a more cloistered sphere of a c t i v i t y laughter]. University l i f e rather appealed t o m e from hat standpoint. It proved t o be q u i t e a delusion on m y p a r t , as events turned out. O n t h e State budget pressure, t h i s gives me an image that you no sooner g e t one budget passed by t h e Legislature, than you have t o start t h e preliminary work f o r t h e next, and that each year got more complicated. Yes. And a c t u a l l y it got t o be almost an overlap, working on a couple of budgets-at t h e same time -- t h e period of preparation got t o be so long and t h e period of l e g i s l a t i v e consideration so extended -- That hasn 't changed! It's gotten worse, actually. Laughter] In t h e case of t h i s last budget, by t h e time Ehey8d prepared t h e budget, and had t o go t o press, they didn't have a l l t h e f i n a l l e g i s l a t i v e decisions. Couldn't even give a complete record of what t h e Legislature had appropriated. They've had t o put through supplements t o t h e Governor's budget t o take i n t o account those f i n a l decisions, T h a t ' s i n t e r e s t i n g . You wonder if i t ' s possible t o , at some point, begin a reverse swing of t h e pendulum, when things become so involved that yau can't complete one t a s k before t h e next one i s upon you. Which i n a way is t h e Legislature's problem. Yes. It has been a prime offender i n recent years i n t h a t area. They8ve gotten f a r t h e r and f a r t h e r behind and seem t o require a more and more extended period of time before they a r r i v e at a budget decision Is it possible, do you suppose, t o bring about any major turnaround i n a public agency o r i n public operations? Theoretically, yes. But practically, perhaps, very d i f f i c u l t . It should be possible, goodness knows, f o r t h e Legislature t o make a decision on t h e budget long before the end of the current f i s c a l year. But they don't seem t o be a b l e t o do that; t h e more they have become f u l l t i m e , t h e more staff and f a c i l i t i e s a r e provided t o them, the more d i f f i c u l t it becomes, seemingly, f o r them t o a r r i v e at decisions. Morris: I hope we'll be a b l e t o t a l k about your work at t h e University at a l a t e r date. It would be something of value t o our University hfstory archives. Your t i t l e here w a s contracts officer? Grof f : Yes. I was Assistant t o t h e Director of Contracts and Grants when I r e t i r e d . Morris: So, t h i s would t i e you again i n t o what was happening at t h e federal l e v e l i n terms of higher education. Groff : Yes, although m y service i n t h a t area has been too recent t o furnish any h i s t o r i c a l perceptions, [End of Interview] Transcribers: Gloria Dolan Marilyn White F i n a l Typist: Gloria Dolan INDEX - E l l i s Groff accounting 9-10,77,105 agriculture, California 1-2,42,45,47 county and s t a t e fairs 36-39 Attorney General, s t a t e 58-61 auditing 9,41,116 Bank of America 18 banking 18-21, 28-29, 61 Beal, Nova J. 8 Blue Cross 31 boards and commissions, s t a t e 5, 8 , 15, 36, 51-55 bond issues 20, 22, 28-29, 39-40, 55 sinking fund 71-73 Bonelli, W i l l i a m 15, 51 Breed, Arthur, Sr. 42 Brown, Edmund G. **Patn 6, 116 budget, s t a t e 4, 9-13, 17, 22, 26, 28-29, 33, 35-37, 48, 58-59, 82-84, 87, 99, 104, 106-107, 115-116 controls 70, 87-92, 105, 108, 112, 112, 114 preparation 24, 30, 43, 60, 63, 116 business taxes 44, 53, 56 California Medical Association 30-31 California Polytechnic College 37-38 California S t a t e Allocatfons Board 54 Banking Department 62, 89 [see a l s o c onstitutional off ices] Board of Control 4, 1 0 , 104 Board of Equalization 15, 51-33, 55 Civil Service Commission 8-9 Department of IHncation 4, 16, 34, 105 Finance 1, passim General Services 6-7, 116 Industrial Relations 62 California S t a t e Department of Mental Hygiene 90, 98 Public Health 45-47, 58, 62, 90 Pablic Works 41, 54, 90, 92-93 Social Welfare 67, 70, 97, 99, 105 F a i r Boards 36 Franchise Tax Board 53, 55 G u a r d 58 Highway Commission 40, 9, 92 Personnel Board 8, 86-87, 105 Public Works Board 55 Reconstruction and Reemployment Commission 5 Relief Administration 22, 27-28, 66-67 Youth Authority 90, 98 California S t a t e Einployees' Association 87 California Taxpayers Association 17 California Teachers Association 85 Campbell, "Hump" 66 Cannery Inspection Fund 45, 47 Chamber of Commerce, California 114 Chernin, Milton 66 Christmas Tree B i l l 74, 101 citizen participation 97 [see taxpayer groups] c i t y managers 63-65, 68, 115 c i v i l defense 27, 58, 66 c i v i l service 8, 27, 58 [see a l s o public employees] Collier, Randolph 42-43 Commonwealth Club 9 Compensation Insurance Fund, State 62 constitution, California 9, 16, 20, 41, 64, 82 Controller, S t a t e 10, 15, 18, 21, 41, 51, 53-54, 77-78, 104 construction, s t a t e 73, 79-80, 85, 91-94, 101, 109-110 Corley, James 116 County Supervisors' Association 114 crime commissions 103 Crown-Zellerbach Corporation 4 Currie, Ralph 75, 78, 94 Davisson , Malcolm 66-68 Dean, James 52, 65, 75-76, 110 Depression (1930s) 12-13, 17, 22, 32 Division of Budgets and Accounts 6 , 9 Division of Forestry 58 Division of Highways 41, 43, 90, 92-93, 105 Division of Service and Supply 7 Economy Bloc 32 economy, California (see Depression, World W a r 11) 35, 49, 56-57,74-75, 78, 94-96, 110 education (public schools) 2-4, 8, 55, 84-85 colleges and universities 34, 38, 116 financing 13-14, 16, 26, 37, 39, 49, 99, 109 junior colleges 2 elections 25, 61 i n i t i a t i v e measures 6 3 , 85, 97-100 expenditures, s t a t e 18-20, 22-24, 26-28, 41, 55, 84, 88, 92, 97-99, 101 postwar inflation 79-80 federal government 22, 75-76, 95-96, 98, 115, 118 finances 22, 27, 33, 80 financial companies 44-45 see a l s o banking finance, s t a t e 4, 6, 9-10, i7, 25, 28, 32, 3J, 54, 59, 110 r e l i e f 13 General Fund 18-20, 22, 27, 37, 39-41, 46, 48, 77, 90 Giannini, A. Pa 18-20 Gibson, Phil 24-26, 59 gold mining 2 governmental reorganization, s t a t e 106-107, 114-116 governor, o f f i c e of 108-110, 114-115 Graves, Richard 65-66, 69, 74, 101, 113 Groff, E l l i s 1-4, 6, 18, 68, 88, 93, 116-118 Groff family 2-3 Hassler, ~ o h n 63-65 Harkness, Robert 6 Hatf i e l d , George 42-43 health care 29-31 Heron, Alexander 3-9, 49 Higgins, Roy 90 highways 39-43 , 54-55, 90-92 horse racing 35-39 ~ u l s e ,Ben 4.3, 67 Huntington, Emily 68-69 inflation, 1940s 79-80, 84-85, 87, 94-97 insurance 80-81 interagency relakionships 104-108, 114 Johnson, Charles ('lGust') 28-29 Johnson, H i r a m 3 J o i n t Legislative Budget Committee 1 1 1 Kidner, Frank 66-68 Killion, George 25, 33, 59, 62-63 King, Lyman 4 Knight, Goodwin 76 l a w enforcement 61 League of California C i t i e s 63, 65, 114 Leary, Mary Ellen 16 l e g i s l a t i v e analyst 31, 63, 111-112, 116 rformerly l e g i s l a t i v e auditor7 legislatu;e 8, 10, 15, 22, 25, 27, 29-32, 38-39, 41-43, 46, 52, 54-56, 62, 67, 72, 81-83, 86, 92, 95-97, 101, 107-108, 111-113, 115-117 lobbying 7 , 49-50, 85, 97 l o c a l government 13-14, 16, 37, 40, 42, 53, 63, 68, 73-74, 84, 86, 97-99, 104-105 Links, Fred 50-51, 82 liquor industry 48-49 May, Samuel C , 67-69 Merriam, Frank 17-18, 22, 28, 30, 64 National Association of S t a t e Budget Officers 93, 105 Natomas Company 1-2 Office of Management and Budget, U , S . 115 Olson, Culbert 22-33, 58-60, 62, 66 pensions 26 Pierce, D i m e l l 15, 52 Pierce, John 76 p o l i t i c s 4 , 9 , 26-28, 56, 95-96. 109 population 12, 16-17, 48, 56 Post, Alan 1 1 1 printing, state 7-8 public administration 3-4, 8 , 25-28, 55-58, 63-69, 85-86, 93, 95, 106-109, 111-117 public employees ' 8, 27, 49, 58, 106-108 s a l a r i e s 85-89 public i n t e r e s t 45-47 public u t i l i t i e s 13-16 Purcell, Charles 90, 93 Rainy Day Fund 74, 1 0 1 registered warrants 18-21 regulatory boards 4-8, 89 relief 13, 22-23, 26-28, 72-73 rsee also welfare] revenues, state 12-13, 16, 56-57, 76-78, 94 special funds 35-55, 77, 91 w a r t i m e surplus 71-74, 79, 81, 84-85, 93-94, 101 Richards, John R. 59 Richardson, Friend 3-4 Riley, Harry 15 Riley-Stewart A c t 13-16 Rolph, James 17-18, 22, 32 Samish, Arthur 49-50 Scudder, Kenyon 6 Senate Finance Committee 30-31, 43 Small, Merrell F. 1 1 1 social issues 64-65, 69 special i n t e r e s t s 46-47, 49, 56, 97 Sproul, Robert Gordon 116 Stanford University 2-3, 6 Stewart, Fred 15 Stockburger, Arlin 64 superagency concept 114-115 Superintendent of Public Instruction 4 supreme court, state 59, 61-62 taxes 13-16, 22, 24, 26, 29, 32-33, 55-59, 66-67, 102-103 collection 51-52 gasoline 40-44, 76 income 53-76 liquor 48-49 property 53 sales 76 taxpayer groups 17, 57, 82, 102 textbooks 7-8 Tickle, Ed 30-32 Treasurer, State 18-19. 28, 77-78 trucking industry 49 unemployment 12-13, 22-23, 27, 29, 33, 67, 73, 101 uniform system of accounts 10 University of California 68-69, 72, 116-118 Bureau of Public Administration 66-67 UCLA 69 University of Southern California 69 Warren, E a r l 4, 12, 30, 32-33, 43, 54, 58-61, 62-63, 66, 70-71, 74, 76, 80, 83-84, 101, 103, 109-111 welfare 26, 66-67, 97-100, 109 rseq also relief] Western Governmental Research ~ s s 6 c i a t i o n 68 Whitman, 3 . C . 9 W i l l i a m s , Myrtle 97 Wood, W i l l C. 4 workmengs compensation 62 World W a r 11 4 , 32-34, 66, 75-76, 85-95 surplus reserves 71, 74 Yo~ng,C.C. 4, 1 1 1 The Bancroft Library University of c a l i f o r n i a / ~ e r k e l e y Regional Oral History OffLc,e E a r l Warren Oral History Project George Killion. OBSERVATIO N S OM CULBERT OLSON, EARL W A R R E N , AND M O N E Y MATTERS IN PUBLIC AFFAIRS A n Interview Conducted by Gabri.elle Morris: a 1 9 7 4 by The Regents of the University of California TABLE O F CONTENTS -- George Killion INTERVIEW HISTORY: PERSONAL BACKGROUND I1 EARL WARREN A S DISTRICT ATTORNEY I11 WORKING WITH CULBERT O L S O N New Deal Concepts The Governor's Staff A s Director of Finance S t a t e Relief Administrat C i v i l Defense Warren Becomes Governor FINANCIAL THINKING S t a t e Budget Decisions World W a r I1 P r i o r i t i e s Relations with the Federal Government LATER VENTURES - American President Lines - Legal Issues Communications S a t e l l i t e Corporation United Nations V I BIPARTISAN FRIENDSHIPS Hoover, Truman and Others Support Tor ~ i ? l i o n Tor Governor APPENDIX A. "Warren Offers Plan t o Cut Taxes 17 Millions, '' Oakland Tribune, August 7, 1942 45 B. "Budget Bequests f o r 1943-45 Biennium, " California Department of Finance Circular Letter No. 213 signed by George L. Killion September 28, 1942 46 C. "Warren Rushes H i s P o l i t i c a l Clean-up, Makes Appointmentw and "Oakland City Manager N e w Finance Chief, I' Oakland Tribune, December 5, 1942 50 D m "Budget Conflicts ," e d i t o r i a l , Oakland Tribune, December 6 , 1942 E. L e t t e r t o Aubrey Drury r e conservation item i n budget, from George Killion, Director of Finance, December 21, 1942 52 F. nKillion Undecided on Governor Race," The San Francisco News, and "APLmsKillion Weighs Race f o r Governor," S .F. Call-Bulletin, both September 12, 1953 53 G . "Killion Issues Almost a 'Yes' on 1954 Racew - San Francisco Examiner and "South Boosts Killion f o r Governor, " S.3'. Chroniole, both September 13, 1953 54 H. "Killion May Yet Lead Demos," The Argonaut, November 6, 1953 55 INDEX 56 INTERVIEW HISTORY George Killion was interviewed i n order t o document t h e t r a n s i t i o n from Culbert Olson's admini stration t o Earl Warren's leadership f o r t h e Regional O r a l History Office's study of California s t a t e government i n t h e 1940s and 1950s. Conduct of t h e Interview: A single interview was held on March 1, 1973, i n M r . Killion's a i r y contemporary o f f i c e high i n the Bank of America building with a sweeping view of San Francisco Bay and t h e c i t y ' s financial d i s t r i c t . A s Democrat Olson's d i r e c t o r of finance, Killion supervised t h e preparation of t h e biennial s t a t e budget presented by Republican Warren only days af'ter being sworn i n as governor of California i n 1943. This d u a l i s t i c position is c h a r a c t e r i s t i c of Killion's long business and public career and enables h i m t o take a pragmatic view of shifts i n economic and p o l i t i c a l conditions. Looking back from this vantage point, he r e c a l l s effective cooperation with D i s t r i c t Attorney Warren on a county bond issue as a young publicis-L i n Oakland. While representing Oakland-based Safeway Stores, he became acquainted with then- senator Olson during a controversy over milk pricing policy between cooperative and corporate marketers, l a t e r working on Olson's gubernatorial campaign and then becoming t h e governor's press secretary. Killion became Olson 's t h i r d d i r e c t o r of finance in 1940, a f t e r a s e r i e s of well-reported, abrasive incidents involving t h e governor, t h e legislature, and the S t a t e Relief Administration , Attractive, agreeable and diligent, Killion seems t o have been a welcome buffer between some of Olson's more outspoken associates and the established legislative leadership. Not only did he win the approval of such Republican powers as Senate Finance Com- mittee chairman Edward Tickle, but a l s o the heartfelt thanks of Warren staff persons f o r involving them in the budget process t o an extent they r e f e r t o as beyond the c a l l of duty, H e is one of the few individuals interviewed i n this s e r i e s t o speak d i r e c t l y of power as a factor i n public l i f e . Asked about the impact of his tenure as director of finance, he replied: For the first time, I was able t o see the public with different eyes because I had the power t o do something about it. In l i f e , i f you're going t o accomplish anything which you hope i s f o r the good, you must have the power t o do it, Either the power of public office o r the power of money. Although t h e Olson administration w a s the center of much dissension i n California, i t s national credentials were such that Killion served as assistant treasurer and treasurer of the Democratic National Committee i n 1944-1947. The interesting development of government-sponsored corporations during World W a r I1 led t o his appointment as president of American President Lines, a post he f i l l e d with vigor and satisfaction u n t i l 1966, contributing a significant chapter, as yet incompletely documented, t o the Mstory of the Bay Area shipping industry. In 1954 and 1958, when California Democrats were recouping from long years of Republican victories, there w a s considerable i n t e r e s t in Killion running f o r governor. A selection of materials on his candidacy appears i n the appendix . Returning t o national affairs, he assisted President Kennedy i n the early 1960s. H i s l i s t i n g in Who's W h o contains considerable other corporate and public service a c t i v i t y , much of it related t o communi- cation, which he underlines as v i t a l t o the successful outcome of human a f f a i r s H e has continued t o be at ease i n bipartisan situations, iii serving as chairman of Democrats f o r Nixon i n 1972 M r . Killion reviewed the edited transcript, making various revisions t h a t show the hand of a trained reporter conscious of digression o r possible misinterpretation, A t a further meeting on September 29, 1973, he went through hfs desk f i l e t o select photographs of significant events i n h i s and the nation's l i f e f o r use as i l l u s t r a t i o n s . Chatting about events of the day, he decided t o add a brief stabement, which appears at the end of the present manuscript, summarlzfng his concern f o r the need f o r reform in the judicial system and p o l i t i c a l fund-raising, and f o r greater responsibility of the news media, Gabrielle Morris Interviewer-Edi tor 29 November 1973 Regional O r a l History Office 487 The Bancroft Library Unlversity of California a t Berkeley R e p r i n t e d from Who's Who i n A m e r i c a , 1972-73: KILLION. GEORGE LEONARD, stcamship cxcc.; b. Steamboat Springs. Colo.. Apr. 15. 1901; s. Jamcs Abraham and Lydia Janc (Harris) K.; shdcnt U. So. Cal.. 1920-21, U. Cal., 1921-22; m. Gracc Ludora Harris. Dcc. 25. 1922 (dcc.); I son, James 1.; m. 2d. 1 Margarctha Rhancbcrg. Mcm. editorial SUIT various West Coart newspapen. 1925-30; pub. !elations. financial cons.. Oakland. 61.. 1930-35; pub. rclat~ons.lcgtslativc cons. Safcway Stores, Oakland. ; 1935-39; commr. Goldcn Gatc Intcrnat. Eapdn.. 1939; dir. offinancc. Slatc Cal.. 1940-43; asst. to petrolcum adminstm. for war, Washington. 1943; chmn. bd. MctreGoldwyn-Maycr, 1957.63. i 6 3 - 6 9 . 7 @ - , vice chmn., 1969- 70. dir.. mcm. cxcc.com.. 1963-; past , pres. Am. Prcsidcnt Lines, Ltd.. San Francisco, now dir.. cons.; chmn. Prcnticc Elcctronics. 1967-; dir. World Airways. Communications Satellite Cotp.; dir. First Western Bank. Ambassador U.S. Mission to UN. 1966-67. Asst. to treas.. Dcm. Nat. Com.. 1944, trcar.. 1945-47; Bd. din. San Francisco Intcrnat. Film Festival. San Francisco chpr Am. Cancer Soc.. Japan Inter-Christian U. Fund. 6 1 . Council Meals far Millions; tmstee San Francisco Maritime Mus.. John F. Kennedy i Library Cotp., Eleanor Rooscvelt Gnccr Found.. Am. Frccdom from Hunger Found.. United Scamcn's Scrvicc; mcm. adv. W.. dir. Pacific Am. S.S. Assn.; mem. San Francisco World Tradc Gntcr Authority; ~, chmn. I I western slates March of Dimcs, National Found.; mcm. nar council Elcanor Rooscvclt Meml. Found.; ad". council Am. Korean / Found.; sponsor, nat. council United Ncgro Coll. Fund. Served as maj. 1 AUS. Stall of Allicd Mil. Gov't.. 1943. Mem. Am. Bur. Shipping (M. 1 mgn.). Nat. Def. Transp. Assn. (life). Nat. Conf. Christians and Jcws (M.adviscn), Greater San Francisco C. ofC. (dir.). Democrat. Clubs: I Bohcmian. Olympic. World Trade b r a . 1957-66). Stock Exchange (San Francisco); Eldorado Country (Palm D c x n Cal.). Homc: 1090 Chcstnut St San Francixo CA 94104 Ofice: Bank of America Gnter San Francisco C A 94 104 San Francisco Chronicle 1/18/83 I PERSONAL BACKGROUND [Date of Interview: March 1, 1973.1 Colorado Boyhood Morris: Let's start with your childhood years, your move t o California and how you began your interest i n t h e varied p o l i t i c a l and business achievements which have marked your career. Who's W h o says you were born i n Colorado. Killion: I w a s born i n Steamboat Springs, Colorado, which is roughly eighty miles northwest of Denver. M y father had t h e pioneering s p i r i t as a young man. He crossed t h e plains from Springfield, I l l i n o i s , decided t o stay i n Steamboat Springs, and began h i s Western career as a cowboy. Later he bought a ranch outside of Steamboat Springs, and at the same time opened a drugstore i n town. H i s partner i n t h e store was Dr. Benjamin Jefferson . D r . Jefferson w a s t h e physician who brought m e i n t o t h i s world. He was a cousin of President Woodrow Wilson. When he was nominated t o be minister t o Nicaragua, he and m y father, of course, dissolved the partnership i n t h e store. A s a youngster, I spent most of m y time on the ranch. I fished and rode and punched c a t t l e . Morris: What a wonderful l i f e f o r a young man! Killion: It was, and often over the years I have wondered if I used good judgment in leaving t h e ranch. But, as you know, events and t h e i r influence on us really shape our ultimate destiny, and there isn't much you can o r perhaps should do about it. T h a t ' s what l i f e i s really a l l about. K i 1 1 1 on : Spending m y youth on a ranch certainly has given me physical endurance and a mental serenity which have helped m e i n dif f i c a l t times, and given m e a joy in l i v i n g l i f e t o the f u l l no matter whether the going becomes d i f f i c u l t o r easy. You know, we had a t r o u t stream on the ranch, and there were grouse and sage hen -- a l l kinds of game. I had a good l i f e as a boy, and I've had a good l i f e ever since, certainly a l i f e which has been and continues t o be f i l l e d with challenges, and that I l i k e . Morris: How did you happen t o leave Colorado? Killion: M y mother's health was not good, and m y father decided she would be helped by a more equitable climate. Re chose San Diego, and there we went. I had m y primary schooling i n Colorado, and when we came t o San Diego I wasn't sure whether I wanted t o go t o work or college. I attended the University of California i n Berkeley f o r a time and then t h e University of Southern California i n Los Angeles. I met a friend who was c i t y e d i t o r of The San Diego Sun. H e asked me, "Why don't you go t o work on a newspaper?" I saw this as an opportunity t o continue my education, t o learn about people, t o learn how they succeed and why they fail, and how they adjust t o e i t h e r victory or defeat. So I went t o work f o r The San Mego Sun, and f o r t h e next ten o r twelve years I was a newspaper reporter. Reporting Lindberah's Paris Flight Killion: A s I look back on t h a t period i n m y l i f e , the highlight w a s covering t h e take-off of Charles Lindbergh f o r h i s h i s t o r i c f l i g h t t o Paris. Morris: How excitting! I had forgotten he began the f l i g h t i n San Diego. Killion; Yes, he did. Newspaper s a l a r i e s i n those days were not as high as they a r e now; I was given permission by t h e paper t o augment m y salary by taking public relations jobs. Killion : One of these jobs involved t h e Ryan-Mahoney Aircraft Corporation. One day T. Claude Ryan, head of the f i r m , received a telegram from Captain Charles A. Lindbergh asking him i f the company was cspablg of constructing a plane with a gasoline capacity sufficient f o r a non- stop f l i g h t from N e w York t o Paris -- specifically from Roosevelt Field, Long Island, t o the French capital. M r . Ryan replied i n the affirmative, and Lindberg came t o San Diego t o supervise construction of the ship, "The S p i r i t of S t . Louis, which now hangs from the roof i n the Smithsonian Institution i n Washington. Morris: He must have been a remarkable man. Killion: He w a s , and he s t i l l is. Although I have not seen h i m i n many years, t h e whole world has followed h i s career as t h e innovator of transoceanic flying, and as a s c i e n t i s t i n other f i e l d s . Morris: Did he actually design "The S p i r i t of St. Louis?" Killion: He w a s at the plant every hour of every day while the plane w a s being b u i l t . The frame of the fuselage rested on two wooden horses. Lindbergh, o r nSlim,n as everyone called h i m , would w a l k around the skeleton of t h e ship, inspect it i n d e t a i l , make suggestions, and confer with the engineers. He did considerable flying i n other planes at San Diego while he was waiting f o r h i s own t o be completed. W e became close friends, and I often flew with h i m . He was a dare-devil p i l o t but an unusually capable one. There i s an old saying that p i l o t s of Lindbergh's a b i l i t y flew by t h e seat of t h e i r pants, meaning they knew precisely t h e capabilities of t h e i r a i r c r a f t , the s t r e s s it could take and never pushed it beyond t h a t point. I remember one time he borrowed a small Hamilton watch which I had bought f o r $60 on a $25-a-week salary. Just before he flew out of San Diego, I said t o him, "Slim, I have complete f a i t h i n your a b i l i t y t o cross the Atlantic, but could I have m y watch back?" [Laughter] H e handed m e the watch and shortly thereafter 6ega.n the first l e g of the air Journey which w a s t o bring him non-stop across the Atlantic. I have the watch at home. N o w I wish I had waited u n t i l his triumphant return t o t h i s country before asking f o r Its return. Morris r It would have been quite a souvenir -- the first watch t o have been carried by air, non-stop from N e w Pork t o Paris. Killion: True -- but I have many splendid memories of m y relationship with Llndbergh at that c r i t i c a l period i n his career. Various Forms of Public Relations Morris: What brought yon t o the Bay Area? Killion: While I was in San Diego, I became associated with a public relations firm which handled the Community Chest. M y job consisted of working with a team t o plan and execute the fund-raising program f o r the Chest. I enjoyed raising money f o r the Chest, and still enjoy raising money f o r charitable causes o r persons seeking public off i c e whose programs a r e i n l i n e wfth m y beliefs. The public relations firm i n San Diego expanded i t s Community Chest a c t i v i t i e s t o Long Beach and Oakland. I was offered the job of head of the Oakland office, and I accepted. I l e f t Oakland t o become c i t y editor of The Sacramento Union. I might point out t h a t nothing i n the newspaper bnsiness is quite so challenging, quite so valuable an experience as working in the capital c i t y of any state, with the legislature and the governor and the whale machinery of government t o be observed, appraised and written about. Subsequently I decided t o return t o Oakland where I opened m y own public relations office, operated it successfully f o r several years, and then accepted a job offer from the J. Walter Thompson advertising agency. If I had t o pick one majar turning paint i n m y l i f e , it would be m y association with this agency, f o r - i t was during that period of employment that I met the president of Safeway Stores. Morris: W h o w a s the company president at that time? Killion: M r .L. A. Warren. H e s t i l l lives at h i s home in Hillsborough. M r . Warren and I met frequently i n the course of business. H e asked m e t o join the Safeway organization, and I was glad t o accept a position as one of h i s assistants. Among other duties, I was assigned t o handle the companygs legislative affairs i n Sacramento, The first piece of legislation with which I w a s concerned involved the price consumers had t o pay f o r milk. Safeway f e l t that persons who went t o a grocery store, paid cash and carried t h e i r m i l k home, should be the beneficiaries of the savlng t o the s e l l e r of delivery and credit costs. A s I recall, we estimated the differential at between five and ten cents a quart. T h a t would be a sizeable saving t o the consumer even i n these days, I would remind you that milk prices i n California a r e fixed by a s t a t e board. Hence a r e a l legislative b a t t l e ensued. In the course of the controversy, I became acquainted with Governor Olson, then a s t a t e senator. Olson agreed with the chain store reasoning i n favor of the consumer and became a strong advocate of the legislation. I admired his stand + wholly apart from m y own position as a paid advocate, and we became close friends. Incidentally, I s t i l l feel the housewife who pays cash and i s her own grocery boy deserves a price break. Well, one day Olson told m e he would be the next Democratic candidate f o r governor. I assured h i m he could count on m y support, and that I would be able t o work i n his campaign with Saf eway*s approval. I had had the experience sf raising money for the Community Chest, and I went out and raised a considerable amount of money t o help defray the cost of Olsonts campaign. You know, there i s only one way t o raise money f o r a cause or a candidate, and that i s t o ask f o r it. Morris: And people w i l l give it t o you? Killion: They certainly did in the Olson campaign. The voters give money i n a campaign f o r a variety of reasons. They sincerely believe t h e i r candidate i s the best man for the job, and f o r the s t a t e or nation, as the case may Killion: be; they a c t from a deep conviction and not i n the hope of receiving favors. Then there a r e those who give because they wand those favors. And there a r e others who contribute as a s o r t of s t a t u s symbol. They l i k e t o t e l l t h e i r friends they were instrumental i n electing a person t o high office. Morris: Then your campaign fund-raisfng f o r Olson was a success? Killion: It was. A major factor which helped was t h a t I think the people were ready f o r a change at Sacramento, and they were fn t h e mood t o bring t h a t ohange about by contributing t o t h e campaign, Olson had established a record as a s t a t e senator of fighting effectively f o r what t h e people wanted. He w a s a forceful speaker, and a handsome man with a shock of gray hair. Here i s his picture i n this book.* Morris: With your candidate elected governor, did you continue t o be active p o l i t i c a l l y ? Killion r The governor-elect asked me t o come t o Sacramento t o have lunch with him, In t h e course of our discussion t h a t day, Olson asked me i f I would prepare a draft of an inaugural address f o r him. I t o l d h i m I would be glad t o , I secured copies of a l l of t h e inaugural speeches I could ffnd -- those of Hiram Johnson, Frank Merriam, C. C. Young, and Friend W. Richardson. I read them all and took off f o r Pebble Beach where I would not be interrupted. Keeping i n mind his philosophy of what s t a t e government should be, I wrote and rewrote, and f i n a l l y turned out an address which I f e l t reflected t h e man and h i s ideas. A s I listened t o t h e new governor make h i s inaugural speech, I was gratified t o find that although he had made many changes i n the draft I had prepared, he l e f t untouched most of m y phraseology and the policy *Who's W h o In The National Democratic Party. Compiled by V. E. Thurman . Published by t h e National Democratic Historical Society. 1940. I I Killion: t h r u s t of m y manuscript, N y work must have pleased t h e governor, f o r he asked m e t o be h i s secretary. thought over t h e offer f o r a time, and accepted. I decided being t h e governor's secretary would be more stimulating than remaining I n t h e chain store business. Before I gave Governor Olson m y answer, I talked it over with President Warren of Safeway. I told him what I wanted t o do, and he said t o me, "Well, George, i f you want a leave of absence t o be the governor's secretary, you have m y b l e s ~ i n g . ~ That was i n 1939 and, as a matter of f a c t , I ' m s t i l l on leave. Morris: You never formally severed your relationship with Saf eway? Killion: No rlaughterl. I mentioned the fact one time t o ~ u e f i t i nReynolds, who was then president and board chairman of Saf eway, and he said, "Why don't you drop by t h e office and see i f we owe you any money?" I1 EARL WARREN AS DISTRICT ATTORNEY Morris: Going back t o your early days i n Oakland, did you have any contact with Ehrl Warren, then Alameda County D i s t r i c t Attorney? Killion : Yes, considerable contact. For example, there w a s a g i t a t i o n among Warren, the judges, and t h e business community f o r a new courthouse. The old one i n which they worked -- it w a s located on lower Broadway -- had been b u i l t twelve o r f i f t e e n years a f t e r t h e C i v i l War. It was a completely outmoded structure. A proposal t o build a new one was voted down principally because it w a s one of many expenditure proposals placed before t h e people and, as you probably know, when the voters have too long a ballot, many a worthy cause i s l o s t simply because of t h e length of the ballot Well, Warren and a man by t h e name of Sherwood Swan, who s t i l l has a department s t o r e i n Oakland called Swan's, asked m e i f I would conduct a campaign f o r a special election with just the new courthouse proposal on the b a l l o t * I t o l d them, "Right -- I'll do it." I prepared t h e language f o r a p e t i t i o n and hired a number of s o l i c i t o r s t o c o l l e c t t h e required number of signatures f o r such an election. I've forgotten t h e exact number needed, but say the f i g u r e w a s a hundred and f i f t y thou,sand. When we had obtained a l l t h e signatures we needed t o give t h e board of supervisors authority t o c a l l a special election, M r . Swan and I bundled up t h e p e t i t i o n s , went t o Warren's office, and placed them on h i s desk. M r . S m , a remarkable man i n many ways and a person of unquestioned i n t e g r i t y , said t o Warren, "Here a r e t h e required 150,000 signatures. And more, too. If you want t o , you may count them, but we swear Killion: there a r e a minimum of 150,000 ." Warren looked at the bundle, smiled, and said, "1'11 take your word f o r it." Morris: I assume the newspapermen were present, Killion: They were. A s a matter of f a c t , t h e newspapers supported t h e proposal f o r a new court house t o be financed by a bond issue. The Oakland Tribune, the Berkeley Gazette, t h e Alameda Times-Star -- a l l t h e papers were with us, an essential a s s e t i n any campaign. Warren, M r . Swan, and I made speeches a l l over the county, and so d i d many others whose opinions were highly i n f l u e n t i a l i n t h e c o m i t y . And we won the bond issue proposal going away, as they say i n horse races. Morris: I have seen t h e courthouse many times. It i s a handsome structure i n t h e c l a s s i c a l manner. I am glad t o know the s t o r y of i t s origin, Did the merchants contribute t o t h e cost of t h e campaign? Killion r With t h e methods we employed, there was l i t t l e d i f f i c u l t y i n obtaining money t o take care of t h e campaign costs . Morris: W a s M r . Swan a contributor? Killion: The merchants were among t h e large contributors. A s I r e c a l l , Earl Warren was a contributor, and so was t h e l a t e Joseph Knowland, publi sher of The Oakland Tribune. I11 W O S I N G WITH CULBERT O L S O N New Deal Concepts Morris: Going on with your work with Governor Olson -- before I turned on the tape recorder, you were t e l l i n g m e your observations of t h e differences between our two major parties. Killion: During the Olson period, it w a s clear t h a t the Democra- t i c party w a s more oriented than the Republican party t o t h e social needs of the country, The Republican party was regarded as t h e party of big business, It was Governor Olson, f o r example, who brought the New Deal t o Calbfornia. He was an intimate of President Franklin D, Roosevelt , and during h i s administration he made numerous t r i p s t o Washington t o confer with the President, Like Roosevelt, Olson espoused the cause of what we a r e accustomed t o c a l l the l i t t l e man, the man who has no one t o speak f o r him, But with the passing of time, both major parties a r e i n tune with the social and economic needs of the people, and both parties seek t o improve these conditions, Morris: Were Roosevelt and Olson acquaintances i n p o l i t i c a l campaigns? Killion: Definitely, Olson backed the programs of Roosevelt when he, Olson, w a s a s t a t e senator, I believe it was when Roosevelt w a s nominated f o r a third term that considerable support developed f o r Olson as his running mate. I was a delegate t o that 1940 Democratic National Convention in Chicago. I remember going back on the t r a i n , there were a number of congressmen on board -- Killion: Helen Gahagan Douglas and her husband Melvyn Douglas -- and they were a l l f o r getting Governor Olson on the t i c k e t . But when we got t o Chicago, the Eastern wing of the party applied overwhelming pressure, and they succeeded i n nominating Henry Wallace f o r Vice- President. Morris: W a s t h i s because they did not think a candidate from the Far West would help the ticket? Killion: That was part of it. Governor Olson w a s a relative newcomer in a t i t l e role on the p o l i t i c a l stage i n California, and thus i n the nation. Morris: A s I read about the Olson administration i n California, one phase I find historically interesting i s the r i s e and f a l l of h i s program of cooperatives. Would you explain that t o me? Killion: Certainly. California w a s and i s the largest s t a t e i n the production of agricultural goods -- a l l the way from r a w products such as lettuce and grapes t o processed food, which appears i n our larders i n canned and packaged forms. You w i l l r e c a l l , I t o l d you Governor Olson brought the New Deal of President Roosevelt t o California, The one thing he wanted t o avoid w a s the dole -- a huge, self-defeating bureaucratic welfare program , So the governor went ahead with the agricultural co-ops -- a sound and very much needed program at t h e time of i t s inception. The problem came when the co-ops grew l i k e Topsy and began competing with private business . T h i s w a s economically unsound then just as it would be now and always w i l l be. The private industry sector of our economy invariably does a better job than the government. Someone once said the business of the government is business, meaning that private industry -- r i s k capital, private ingenuity -- provides jobs, Jobs provide purchasing power, and thus we have a healthy economy. To take one phase of these co-ops, they grew t o a point where they were competing with Foremost and Borden f o r t h e consumer dollar which was spent f o r milk, For another example, they began selling hogs and beef on the open market t o the chain stores. Morris: What assistance did the s t a t e give these co-ops? Killion: Well, suppose you were going into the dairy business. The s t a t e would give you a few cows and a bull, Soon you had more cows and a steer, and before long, you were beyond the self-help status arzd competing with private enterprise and i t s a b i l i t y t o provide much- needed jobs. When I became s t a t e director of finance i n the Olson administration I ordered an all-out investigation of these co-ops, and came up with evidence that they were no longer co-ops but big business. So it became m y onerous job t o shut down these co-ops. Then came the question of what t o do with the surplus. By "surplusn I mean (sticking t o the cow and beef example) the large herds of cows and steers which existed long a f t e r the co-ops had been given a start with the taxpayers' money, and progressed t o the point where they were prosperous ranchers. I contended the people of California were entitled t o this surplus, There was a long and b i t t e r fight i n the legislature, and we won. Morris: D o you recall the names of some of those who led the co-op groups? Killion: State Senator Ralph Swing w a s one. H e led the co-op movement i n Southern California. The individual participants I do not recall, There were several thousand persons involved. Morris$ Did Governor Olson have other depression help programs, such as public works construction programs? Killion: Yes, he did. They served t h e i r purpose but when times improved, the Republican-controlled s t a t e senate regarded them as a pure dole, They had t h e i r fnceptf on, and very properly so, i n order t o get persons off the dole, and t h i s they did, Simply put, a man had a job and h i s self respect, and not a handout. Governor Olson w a s a man who maintained his inborn concern f o r the unfortunate and yet never ignored the practicalities of sound government. I admired h i m , and I revere his memory. Among his many fine qualities w a s his concern f o r the health of the people. H e was the one who w a s responsible f o r the famous Langley Porter Clinic here in San FranGisco. The Governor's Staff Morris: Those must have been exciting days i n s t a t e government with so many interesting men hoping t o t r y out new ideas. Did you have much contact with Earl Warren when you were on Olson's s t a f f ? Killion: Yes, it was. E a r l Warren was attorney general. Stanley Mosk, now an associate justice of the s t a t e supreme court, occupied a desk alongside mine. He, too, w a s one of Governor Olson's secretaries. Phil Gibson, who became chief justice of the s t a t e supreme court, was s t a t e director of finance. Gibson asked m e one day i f I would l i k e t o move up t o t h e third f l o o r of the capitol and be his chief deputy. Money and i t s proper management has always intrigued me, so I accepted* While I was Gibson's chief deputy, a vacancy occurred on the s t a t e supreme court bench. Gibson asked m e if I would back him i f he sought appointment by the governor. I said I certainly would, he was eminently qualified, In addition t o being Gibson's chief deputy, I continued t o take numerous t r i p s around California with Governor Olson. W e were i n San Francisco on one of these t r i p s , staying at the Park Lane Apartments on Nob H i l l W e had breakfast together i n our suite. When it came time f o r us t o go down the hill t o the s t a t e office building, I helped Olson on with his coat. And I said t o him, "Governor, you're under a l o t of pressure on t h a t supreme court nomination. The longer you delay, the more enemies you w i l l make, and i n the end you'll only make one friend*I' Morris: The man who got the appointment? Killion: Exactly. I went on talking t o the Governor and said, "I have the necessary appointment papers here f o r your signature, and I would suggest i f you l i k e Phil Gibson -- he's loyal t o you, he's an able man, he's a good lawyer -- that you name him t o the bench. 'I Olson replied, "Let m e have the papers, and he Killion: signed them standing there i n h i s coat i n the foyer of the suite. Phil Gibson w a s i n the c i t y t h a t day i n h i s office on the top f l o o r of the s t a t e building. I telephoned him and said, "You have just been named t o the supreme court." Phil came down t o t h e Governor's office t o thank him. H e walked i n , and there were t e a r s i n h i s eyes, and he couldn't speak. I excused myself and l e f t him alone with t h e Governor. Morris: It meant t h a t much t o him? Killion: It did, and he became an excellent associate justice and l a t e r an equally f i n e chief justice. He worked hard, H e never l o s t h i s temper no matter how aggressive t h e attorneys before the bench might be. And his opinions were written with sound l e g a l judgment, with a unique grasp of the problem and i n l i n e with his philosophy, which was similar t o t h a t of President Roosevelt and Governor Olson. Despite the heavy responsibilities of being chief justice, Phil Gibson had a quiet, pleasant way about him which made him thousands of friends, He w a s the kind of chief justice no one could hate whether they won o r l o s t a case, John R, Richards, a Los Angeles investment banker, w a s named t o succeed Gibson as finance director, and I remained on as chief deputy. Morris c Richards w a s rather a contrast t o Gibson, wasn't he? Wasn't Gibson considered quite a radical i n financial matters? Killion: A 1 1 N e w Dealers were considered radicals i n the 1 9 3 0 ~ ~ I seemed t o escape that brand because I w a s a conservative at heart. To continue, Richards got i n a row with Governor Olson and quit a f t e r a few weeks. The Governor asked m e t o take the top job. I f e l t honored and accepted at once. I remember the day of m y appointment very well. It was a drsmatic one i n World W a r 11. The marauding and effective German battleship, Killion: Bismarck, was located on i t s evasive escape course off t h e coast of Ireland. It had just sunk the British air- c r a f t c a r r i e r , Hood, the pride of the f l e e t . Churchill had sent word t o the f l e e t t o track down the, Bismarck and send her t o the bottom at a l l costs. I was following t h i s exciting and pivotal chase on the radio, I w a s at the State Fair with Paul Peek, then secretary of s t a t e , with one ear glued t o the radio when word came t h a t the Bismarck had been sunk. I returned t o t h e capitol and F o r took office as s t a t e director of finance. It was a big day f o r m e -- two wins i n a matter of hours. Morris: Which event overwhelmed you the most? A s Director of Finance Killion: That's a d i f f i c u l t question, I wanted them t o sink the Bismarck, but I suppose self-interest prevails with most persons and I guess it did that day. In those early days of World W a r I1 we followed t h e events of t h e conflict with a sense of remoteness. O f course, we were pulling f o r the courageous British agafnst the fanatic Hitler. Incidentally, t h e w a r could have been prevented I f the Allies had stood up t o H i t l e r at t h e Rhineland, N o person o r country can compromise with a ruthless, power-mad rabble rouser. Hitler never should have been treated as a human being. He w a s inhuman -- from house painter t o d i c t a t o r t o h i s inevitable suicide i n the underground bunker, now a mini-park i n E a s t Germany with a g r i l l through which you can look i n t o h i s sub-surface living quarters. Morris: That w a s a fascinating digression from t h e story of your appointment as director of finance. Killion: That night I w a s sworn i n as director-of finance and proceeded t o work on the 1941-1943 budget, It was Governor Olson 's second budget. I can well remember going before the senate f o r a hearing. The s t a t e senate recessed and then reconvened Killion: as a committee of the whole. The senate follows this procedure when it wants t o take up a particular matter not related t o legislation. They wanted t o question m e on m y qualifications. You w i l l remember I had been chief deputy i n the office of the director of finance but when the senate sent f o r me, I had only been director three days. I decided t o be completely frank with the members of the upper house. I determined t o answer questions when I knew the answers, and when I didn't know, say so. I walked down the center a i s l e of the chamber and up the steps t o the podium where the lieutenant governor normally presides, I told the senators, among other things, I would do the best job f o r the people of California I could, I said I would cooperate with the lawmakers t o the f u l l extent. I told them a l l budget hearings would be open t o press and public. When the session w a s over, I received a standing ovation. It w a s one of the most moving experiences of m y l i f e . Morris: It must have been. Did t h i s honeymoon l a s t ? Killion: Believe it or n o t , it did. State Senator Edward Tickle of Carmel, a staunch Republican and the chairman of the Senate Banking Committee, became one of m y strongest supporters when budgetary matters were before the legislature. The same was t r u e of Senator B i l l Rich of Marysville. A s I recall, he w a s chairman of the Finance Comrhittee, Senator Rich had a helpful habit of passing m e l i t t l e notes when I was being questioned about budget items by the members of the legislature. Those were certainly interesting days f o r me. I remember at the end of the 1941-1943 two-year f i s c a l period we wound up with a surplus in the s t a t e treasury of a r o W $40 million -- the first such surplus in nearly forty years. Morris: H o w did you manage t o do that? That i s quite an accomplishment. Killion: A s you undoubtedly know, approximately 70% of the s t a t e budget i s i n fixed expenditures. These a r e funds the Killion: s t a t e i s mandated t o pay either by the legislature or by referendums which the voters have passed, The remaining 30% i s the only place where economies can be effected. M y first move as s t a t e director of finance was t o pick a number of governmental functions i n this 30% category which had outlived t h e i r usefulness t o the people, o r were of such small value t o the taxpayers that they should have been stricken from the budget, In striking out these items, I had the f u l l support of the governor and the legislature. They believed m y selection of bureaus and other subdivisions of the s t a t e government which I proposed be eliminated was wholly warranted. Then the w a r industries were moving along on the West Coast at a rapid pace. Employment was soaring, and the state's share of that industrial growth was appreciable, These two factors -- the economies and the industrial growth -- brought in the N O million surplus. Morris: This net surplus exceeded even your hoped-for proSections, did it not? Killion : That 's right. State Relief Administration Morris: W a s the budget d e f i c i t with which Governor Olson had t o cope with i n his first two years i n office primarily due t o relief expenditures? Killion: Well, I would say the relief expenditures were a major factor in the d e f i c i t , Morris: H o w did you, as s t a t e director of finance, regard the State Relief Administration? Killion: The relief program was a very muddled affair-, Mrs. Morris. When I first examined the operation, and the system f o r dispensing funds, I was amazed. A man by the name of Walter Chambers was the relief administrator, Morris : Morris : Killion : Morris : Morris: Killion : Wasn't there quite a turnover i n reliemf admiq'istrators? I remember Dewey Anderson w a s one, Yes, turnovers i n relief administrators added t o the problem. Sam Yorty, then i n the legislature, recently defeated as mayor of Los Angeles, headed a committee t o investigate r e l i e f procedures, Yorty w a s sincere i n wanting t o end the chaos or, f a i l i n g i n that, bring an end t o the State Relief Administration, Incidentally, you recall Sam Yorty' s p o l i t i c a l career. He served several terms i n the Congress prior t o becoming mayor of Los Angeles, He made several campaigns t o become governor, and even ran f o r the presidency of the United States. [Laughter] I've been told he just plain loves politics, T h a t i s true. He has a very winning personality even though he sometimes s e t s h i s p o l i t i c a l goals too high. Wasn 't he involved in investigating communists i n California? Yes, he w a s a l i t t l e Senator McCarthy, He saw a communist under every bed, W a s the charge made that there were communists i n the State Belief Administration? Yes, Yorty thought there were communists i n the SRA, The difficulty i s you can never be absolutely sure about charges of t h i s kind. Perhaps there were a few communists involved i n the program, I know there were Democrats and Republicans and people without party a f f i l i a t i o n s , just people of good w i l l , who were involved i n the relief administraton, Among the beneficiaries of the program were people who were fighting just t o exist, and then there were those who didn't want t o work and wanted the s t a t e t o support them. Naturally, there were a l l types of persons in the a c t , You know I've been around quite a b i t i n m y lifetime, and I a m satisfied that the great majority of the people i n t h i s s t a t e and nation a r e basically good. The a t t i t u d e and comments of the returning POWS, and the very moving effect it has had on the American Killion: people i s a case i n point .* I shall never forget the remarks of the first P O W t o arrive at Travis A i r Force Base. I was deeply impressed when he said, "We are thankful t o the American people and our Commander-in-Chief f o r this day .It And then, you w i l l r e c a l l , he continued, "It was a privilege t o have been of service t o t h i s country under d i f f i c u l t circumstances. God bless America! I' If the remarks of that first returning P O W do not reflect the basic principles of Americanism, I don't know what does o r could. I w a s glad President Nixon took a tough stand on the P O W issue, and t h a t it paid off. C i v i l Defense Morris: When you were with the Olson Administration, you had t h e beginnings of h o s t i l i t i e s f o r the U.S. i n the Second World W a r t o cope with. It is d i f f i c u l t , I think f o r persons living i n this decade t o imagine the sense of urgency there was i n California i n 1941-0- the f e a r t h a t there would be attacks on our coastline. Tell me about Governor Olson and c i v i l defense, Killion: The Governor w a s deeply concerned about the possibility of w a r , and organized a s t a t e m i l i t i a . Morris! W a s it the Governor's opinion and yours t h a t we would be engaged i n h o s t i l i t i e s within a f a i r l y short time? Killion: Yes. It seemed t o us inevitable. Just as i n the of World W a r I, we were t o l d we would not become involved, but our involvement was inevitable just it w a s i n World W a r 11. And the reason f o r this case as *This interview w a s recorded at the time of the return of the first U.S. prisoners of w a r from Vietnam, Killion: i n a b i l i t y t o stay neutral was that foreign powers were threatening Wpstern freedom and democracy. Governor Olson was concerned about the worsening situation. He was i n almost constant telephonic touch with President Roosevelt. And I had the opportunity t o audit these conversations i n conference c a l l s between Sacramento and Washington. A s I r e c a l l the organization of the s t a t e m i l i t i a , t h e army loaned the governor the services of Brigadier General Ray Hays. I had numerous conferences with General Hays about organizing the s t a t e m i l i t i a and i n making it not a paper organization but a viable organization f o r the protection of people, s t a t e buildings and installations i n t h i s rapidly ending interim period. And as s t a t e director of finance, I handled the finances of the m i l i t i a , seeing there was no waste, and t h a t each dollar of t h e taxpayer's money gave h i m a dollar's worth of protecti an. After the Pearl Harbor catastrophe and our entering the w a r , I had an interesting and, t o a young man, a dramatic evening. The Assembly Ways and Means Committee had asked m e t o appear before them at a night meeting. They had a number of questions they wanted t o ask m e on a variety of subjects. I went home f o r dinner and on the way back t o the capitol, I heard a news report that a Japanese submarine was at that moment shelling an o i l refinery at Goleta, which i s near Santa Barbara. T h i s w a s pretty serious business. When I went before the Ways and Means Committee, they began t o quiz me about the money being expended f o r the s t a t e m i l i t i a . They had apparently not heard the broadcast, so I said t o them, "Gentlemen, the Japanese a r e shelling us at t h i s moment at a refinery on the coast south of San Francisco. I think we a r e quibbling over insig- nificant matters." I went on t o say, "It i s evident we need a strong s t a t e m i l i t i a . " There was a hush and no more rambling questions about money f a r the m i l i t i a . Governor Olson had heard the broadcast and had prepared a strong statement which I read t o the committee. The day was won. The Governor w a s always i n tune with what was going on. For example, t o keep physically f i t , he and I played golf usually two o r three times a week. If Killionr something of importance occured at h i s office i n the capitol, a messenger would ride out t o the course, locate us and hand the Governor a note. He would read it, write what he wanted done about the subject matter, send the messenger back t o the capitol and continue with the game. Before I became s t a t e director of finance, and when I was s t i l l secretary t o Governor Olson, one of m y duties w a s t o take formal messages from the governor t o the s t a t e senate. The procedure was, and s t i l l is, that I would go t o the senate chamber, stand at the r e a r of the center a i s l e , w a i t t o be recognized by the presiding officer, and declare, "I have the honor t o present a message from the governor ." Then I would walk t o the rostrum and hand the message t o the clerk of t h e senate, who would pass it up t o the presiding officer. You might be interested t o know that when I was i n t h e governor's office, one of the secretaries was a woman by the name of Ann Rasich. She returned t o San Francisco when E a r l Warren became governor, and is now secretary t o Mayor Alioto. Warren Becomes Governor Morris: When Warren became governor, who succeeded you as s t a t e director of finance? Killion: Jack Hassler, who at the time of his appointment was the c i t y manager of Odkland. A s a matter of fact, he w a s a very good friend of mine. W e were both members of the Athens Athletic Club across t h e Bay. Morris: W a s there any thought of your continuing as s t a t e finance director under Warren? Killion: The f i l l i n g of t h a t office i s the top appointive position at a governor's disposal. A new governor invariably picks h i s own man t o be finance director. O f course, there must be a carry-over by the incumbent director i n order t o make the operation of the s t a t e government f i s c a l l y sound . For example, I prepared Killion t f o r Governor Warren his '43-'45 biennial budget .* I conducted the usual departmental and public hearings, and prepared the document which became the new governor's first budget. I remember he came i n t o m y office one day and said "I'd l i k e t o keep you on as s t a t e director of finance. Ygu have been extremely co-operative with me, but I have decided t o name Jack Hassler t o succeed you. " O f course, I knew that as soon as I got the budget prepared, i n the normal course of events Warren would name another director, So I told the governopelect h i s decision t o name Hassler w a s f i n e , and on January 3, I w a s on m y way. Morris: Were you active i n the 1942 campaign when Olson ran f o r re-election against Warren? Killion: I certainly was. I made platform speeches and radio addresses, and worked at various other a c t i v i t i e s i n an effort t o re-elect the governor. You notice I said radio addresses. W e didn't have television i n those days. N o other factor in t h i s century, has changed campaigning and the outcome of elections as has TV, It's strange t o r e c a l l t h a t in 1896, W i l l i a m McKinley conducted his successful campaign f o r the presidency from the front porch of hfs house. Morris: W h y didn't Governor Olson cross-file so he would be on both the Republican and Democratic tickets when Warren did t h i s ? Killion: I ' m glad you asked m e t h a t question. The decision not t o c r o s s ~ f i l e w a s indicative of Governor Olson's high ideals and strong principles. H e believed that cross- f i l i n g w a s a deception. H e w a s a Democrat, not a Republican. I and others around Olson pleaded with him t o f i l e on both tickets because we knew t h a t a large number of Republicans would vote for him. But his answer *See Appendix A, guidelines f o r preparation of 1943-45 budget, dated September 28, 1942, while Governor Olson w a s s t i l l i n office. Killion: w a s always t h e same -- "No, t o cross-file would be deceptive, and I won't do it." Morris: What effect do you believe Olson's f a i l u r e t o cross-file when Warren did, have on the outcome of the election? Killion: It had a very substantial effect. There i s no question about that. To put the campaign and Warren's candidacy i n proper perspective, l e t me give you a b i t of history. Then-Attorney General Warren asked Governor Olson f o r a very large increase i n the attorney general's staff. The Governor and I discussed the request f o r what we regarded as too large an increase i n deputies f o r Warren, and the Governor told m e t o take the request out of the budget, which I did. Olson said t o me, "I don't think t h i s increase in personnel f o r the attorney general i s necessary. The legislature has accused m e of spending too much money, and I intend t o economize wherever I ca,n without impairing t h e proper functioning of s t a t e government. " I telephoned Warren at h i s main office i n San Francisco and said, "I'm deleting from the budget t h e l i n e items f o r the number of new deputies you have requested. I a m doing t h i s at the direction of t h e Governor,' Warren came t o Sacramento and pleaded with the Governor f o r t h e restoration of h i s staff increases t o the budget. The Governor f l a t l y t o l d h i m , "I don't think your desired staff increases a r e necessary. I am attempting t o economize and the increases w i l l not go back i n t o t h e budget." And that was that. Years l a t e r , E a r l Warren t o l d m e that turndown by Olson f o r economy reasons convinced him he should run f o r governor. H e said, "When the Garremar. would-not give m e a staff increase and would not aacede t o m y personal request in our confrontation, I decided, t o be a candidate against him. " Morris: They also disagreed on t h e size and purpose of the s t a t e m i l i t i a , didn't they? Killion: Yes, they did. They had two completely opposite Killion: conceptions of what a s t a t e m i l i t i a should be, Olson f e l t very strongly t h a t t h e m i l i t i a should be of s u f f i c i e n t s i z e t o defend only those i n s t a l l a t i o n s which t h e s t a t e -- any s t a t e -- normally protects -- bridges, dams, e l e c t r i c power plant& and so forth, The big job of defending t h e coast l i n e against an enemy l i e s with t h e Amy and Navy and, i n those days, t h e i r air components, Warren thought the s t a t e m i l i t i a should be of s u f f i c i e n t s i z e t o do t h e whole Job, H i s reasoning on this matter escaped me and always has, Olson was on sound ground i n the stand he took, Morris: Richard Graves name comes t o mind i n connection with t h e defense of t h e s t a t e from invasion. He was head of c i v i l defense f o r Olson, and l a t e r f o r Warren, He must have been i n a d i f f i c u l t spot with t h e two men holding opposing posit ions. Killion t I would think so. Morris: So you knew and worked with Dick Graves, Killion: Yes, I did. Morris: Did you have any contacts with him when he l a t e r became executive d i r e c t o r of the League of California Cities? Killion: Yes, I did but only t o t h e extent that M r , Graves w a s interested i n s t a t e budgetary matters, I V FINBNCIAL THINKING S t a t e Budget Decisions Killion: You know t h e S t a t e Department of Finance, through i t s d i r e c t o r and h i s staff, i s the most powerful office i n t h e s t a t e , second only t o the governor, I'm speaking now of those departments which come under the governor. The finance department i s responsible f o r the amount of money paid s t a t e employees, f o r t h e monetary promotions o r demotions of these employees, f o r the budget of t h e University of California and the s t a t e univer- s i t i e s and f o r a l l f i s c a l matters -- the manner i n which the taxpayer's d o l l a r is spent. I remember, f o r example, t h a t at the beginning of t h e w a r , I cut the budget of the University of California, a budget which w a s supposed t o be sacrosanct, by a million dollars. Morris: W h y did you do t h a t ? Killion: F i r s t , I studied the enrollment figures of t h e university a f t e r the United States entered World W a r I. It was c l e a r t o m e t h a t with World W a r 11, because of t h e d r a f t , thousands of young men would be called i n t o t h e armed services, and there would be a d r a s t i c reduction i n college enrollments. A , Pa Giannini, then president of the Bank of America, w a s a member of the board of regents of UC. He came t o Sacramento and asked m e t o restore the million d o l l a r cut t o t h e budget, I re-studied the figures I had drawn up, and replied, "Mr. Giannini, I would l i k e t o grant your request but the Killion: figures do not justify it. M y job is t o reduce the budget consistent with the actual needs of the s t a t e , I f it l a t e r develops the University needs more money, the funds can be obtained from the governor's contingency fund ." W e had quite an argument but m y answer remained, "No," Later, believe it o r not, A. P. Giannini offered m e a position as vice-president of the bank, Morris: Because of your a b i l i t y t o say no and s t i c k with i t ? Killions Could be. A t any rate, I accepted the bank job only t o turn it down before I got on the payroll, It was another turning point i n m y l i f e . The reason I reversed myself w a s t h a t President Roosevelt and Ed Pauley of Los Angeles, asked m e t o assist i n Roosevelt's election t o a fourth term with then Senator Harry Truman as Vice President, I became the finance d i r e c t o r of the national campaign, and a f t e r the re-election of Roosevelt and Truman, treasurer of the Democratic National Committee. It w a s a very rewarding job, Of course, I had known the President from the Olson days, and I had known Harry Truman back when he was a U.S. Senator from Missouri and chairman of the Senate committee which investigated w a r expenditures, You recall that the excellent job Truman did as chairman of t h a t important committee had a great deal t o do with Roosevelt selecting h i m as h i s running mate. The President made an excellent choice i n Truman. A s history has proven, Truman w a s an intelligent, gutsy person and when President Roosevelt died and Truman had the f u l l burden of the presidency thrust upon h i m , he showed his inner strength and his lifetime knowledge of people and how they were thinking. So you see, i n the thick of l i f e , paths suddenly open up t o greater things, M y conviction i s that when these paths appear, a person should s t r i k e out and follow them and not look back, I suppose the old saying, "He who hesitates is l o s t , " simplistic though it may seem, says it a l l , Morris: You have been a fund. r a i s e r and dealt with money most of your l i f e . I ' m interested i n your views on Morris: f i s c a l matters versus p o l i t i c a l necessities, Let's go back t o your incumbency as spate dlrector of fFinance during the Olson 4dministration. Did you think of the job i n terms of career s k i l l s o r were you primarily conscious of being a p o l i t i c a l appointee of the governor? Killion: I never thought of the job of finance director i n terms of p o l i t i c s . To have approached t h e job from that point of view would have been fatal not only t o the economy of the s t a t e but t o m e and certainly t o the Governor. I had a tremendous responsibility, and I made every e f f o r t t o do the best job I could, I had a very fine career staff of c i v i l service employees, and I geared i n with them and kept p o l i t i c s i n the background, This was the best service I could give the people of California and the Governor. If the Governor asked me t o make a speech on some program of his, I would i f it was a program I f e l t was ~ssund,otherwise I would not have made the speech and probably would have l e f t the administration, In any public office, a person must ask himself what i s p o l i t i c s and what is government, Webster defines p o l i t i c s as the science of government, Therefore, a t r u e politician i s a person who is s k i l l e d i n the art and science of government. I think too often the term, "politiciann i s misunderstood, Dan't you? World W a r I1 P r i o r i t i e s Morris: The word can have many meanings, but I agree with you, Let m e go back a b i t t o a subject which has always interested me. One of the decisions which has plagued E a r l Warren over the years has been the internment of Japanese-Americans i n California i n 1941. What was Olson's position on that issue? Killion: Well, as you know, the Attorney General of the United States i s the person who ordered the construction of t h e detention camps. H i s feeling was that since Killion: we were at w a r with Japan, the Japanese i n t h i s coastal s t a t e presented a real and present danger. Certainly there were thousands of loyal Arnerican-born Japanese who should never have been put i n these camps. M y wife and I have a l i t t l e Japanese maid who has been with us eighteen years. She w a s just as loyal t o this country as you or I, but she and her husband were put i n a camp. Her husband died there of tuberculosis. I think you have t o be extremely careful i n determining a person i s disloyal t o the United S t a t e s and a menace-at-large. T h i s i s a picture you cannot paint with a broad brush, Senator McCarthy t r i e d that, and we a l l know the results. These decisions become ineradicable errors i n the history books Morris: D i d you discuss w i t h Governor Olson how you f e l t about the federal government building these detention camps? Son: M y recollection on that point i s not too clear, I know the Governor created the s t a t e m i l i t i a t o protect the s t a t e ' s resources -- highways, bridges and electrical plants. But we both f e l t it was t h e responsibility of t h e federal government t o protect the s t a t e and the people. A sidelight comes t o mind. I w a s designated by t h e Army t o issue travel priorities. One guaranteed you a plane seat. The second gave you a seat if space was available. And the t h i r d l e t you aboard i f you did not replace military personnel. I didn't want t h e job but since it was assigned t o me, I went through with it. The day-to-day routine, of course, was handled by a member of m y s t a f f . I w a s invited by President Roosevelt t o be a member of one of the small groups he liked t o have i n t h e oval office when he w a s making one of his famous f i r e s i d e chats. I got a plane out of Sacramento but I got bumped at Albuquerque, New Mexico, I whipped out one of the top p r i o r i t y forms, f i l l e d it i n and gave it t o t h e boarding agent. He called it a fraud, and there w a s much running around and general confusion, I said, "A11 you have t o do i s c a l l the San Francisco Presidio and verify m y credentials. " They did and I wasn 't bumped. But I w a s embarrased at the time, and I s t i l l am. [Laughter] Morris: Morris : Killion: Morris : Killion : Morris : Killion : Morris : Relations with t h e Federal Government While we have been tallcing, I have been glancing over the Olson budget you prepared as s t a t e director of finance. I see the economic picture was based i n part on ten percent of federal defense contracts being in o r coming t o California, W a s this due t o the aggresiveness of ~ a l i f o r n i a ' scongressional delegation? I'd say it was the combined efforts of Governor Olson and the delegation. Which members of Congress would you say were closest t o the Governor? One w a s Representative Jerry Voorhis. You remember he w a s defeated by Richard Nixon in the President's first p o l i t i c a l campaign. Another was Representative Harry Shepherd. Actually, the Governor was close t o all the members of the delegation and, as I have said, t o the President. ATter Governor Olson l e f t office, did he ever comment on some of the programs Governor Warren introduced, programs which were similar t o those Governor Olson had attempted t o get approved by the legislature? I think there was a feeling on the part of Governor Olson that Governor Warren was imitating him t o a great extent. I maintained a close relationship with Olson f o r many years, and he spoke of t h i s fact many times, Warren did become a l i b e r a l governor much t o the surprise of many people. Then he became a l i b e r a l as Chief Justice of the United States. I know this was a surprise t o many Republicans. W a s it a l s o a surprise t o Democrats? I remember Governor Olson speaking at a luncheon i n Los Angeles during Warren's second term, Olson spoke about Warren not following his e a r l i e r principles of conservatism. What do you f e e l w a s the impact of your work with s t a t e government? I Killion: O f course, we're a l l a product of our environment, It depends on your capacity t o understand t h e impacts of environment. M y position i n the s t a t e government did have a great impact on m y l i f e , For the first time I was able t o see the public with different eyes because I had the power t o do something about it, In l i f e , i f you're going bo accomplish anything which you hope is f o r the good, you must have the power t o do it, Either the power of public office o r the power of money. That position did have an impact, and I enjoyed it, LATER VENTURES American President Lines Morris: H o w did you become president of the American President Lines? Killion: I w a s talking with President Truman i n Washington one day when I w a s treasurer of the Democratic National Committee, and i n the course of the conversation, I said, "Mr. President, i f I had m y choice, I would l i k e t o get back i n t o private business." He had offered m e t h e job of Secretary of the Navy, and t h i s was by way of reply. The President continued, "I've been talking with t h e Attorney General about that, and there i s a position open as president of the General Aniline and Film Corporation. I f you want the job, you may have it." General Aniline w a s a German firm which had been seized by t h e Alien Property Custodian. I f e l t the firm would either be returned t o post-war Germany o r become an American i n s t i t u t i o n . So I said t o the President, "I would l i k e t o make a suggestion f o r your consideration. You have just appointed Dr. Henry Fa Grady, the president of American President Lines, your ambassador t o India" -- he'd a l s o been with the University of California at one time -- "I would prefer t o succeed D r . Grady as head of the steamship company."-% *Dr. Grady w a s a lecturer at UC from 1921 t o 1928; professor of international trade and dean of the College of Commerce, 1928 t o 1937. Killion r Without a moment's hesitation, the President replied, "Yo* have the job." And that i s how I became president of APL, and managed t o run it successfully f o r twenty years. Morris: H o w did APL happen t o be the property of the government? Killion: The company was created as the result of the inability of R. Stanley Dollar t o pay his debts t o the federal government. Prior t o the war, M r . Dollar built several ships at a cost of about $7.5 million. A t that time, the government largely financed American merchant ships which travelled so-called defense routes. These were ships which would become v i t a l t o American protection i n time of war. The company had t o repay a portion of these subsidies, and M r . Dollar could not pay the government. So t h e government stepped i n , took over t h e corporate structure of the Dollar Line, and changed the name t o American President Lines . The l a t e Joseph Kennedy, father of President Kennedy, was then chairman of the National Maritime Commission. William Gibbs McAdoo was an early president of APL. H e w a s followed by Dr. Grady. Morris: That's very interesting. McAdoo, Dr. Grady, and you a r e a l l men who understood finance and business and who have been very much involved i n the p o l i t i c a l l i f e of our country. Killion: I had a deep personal affection and regard f o r Dr. Grady, and his extraordinarily -capable and charming wife, Lucretia d e l Valle Grady. Sometime a f t e r I became president of APL, Dr. Grady's health began t o f a i l . I met him at a party, and he t o l d me he was not feeling up t o par. So I said t o him, "Henry, why don't you take a t r i p and r e s t ? I'll l e t you and your wife have the largest suite on either the President Cleveland or t h e President Wilsonw -- the two flagships of the l i n e I built. They sailed on the President Wilson and m y wife and I went down t o the pier t o see them off. ~ u r i n ~ Dr. W e brought the voyage, Grady died at sea. him home f o r burial here. Legal Issues Morris: When you showed me t h e scrapbook on American ~ r e s i d d n t Lines, I noticed t h a t there w a s considerable l i t i g a t i o n with M r . Dollar; he attempted t o regain control of APL i n 19511 Killion: Let me summarize t h e case f o r you. The government had taken over t h e l i n e shortly before I became i t s president. By 1947, we operated APL i n such a manner t h a t it showed a considerable p r o f i t . And M r . Dollar's debts t o t h e government were paid. A t t h a t time, he said, "My debts a r e paid and I want m y steamship l i n e back." Morris: I suppose he would make t h a t point. Killion: But t h e debts were not paid by M r . Dollar. They were paid by the steamship l i n e operated under government control. And I w a s t h e government-appointed president. So M r . Dollar took the issue t o court. The federal d i s t r i c t court i n Washington, D.C., found against Dollar. He appealed t o t h e U.S. Court of Appeals, and t h a t tribunal reversed t h e lower court and ordered me t o turn over t h e company stock t o Stanley Dollar. I said, "I w i l l not u n t i l t h i s case i s appealed t o t h e U.S. Supreme Court. The Supreme Court refused t o grant t h e w r i t we sought, and I, t h e U.3. Attorney Genera4 and t h e Secretary of Commerce were a l l held i n contempt of court. Finally, at t h e suggestion of L. M. Giannini, who succeeded his f a t h e r as president of t h e Bank of America, we entered i n t o a compromise, Under the terms of the compromise, t h e company w a s sold under sealed bid in Washington f o r $18,360,000. Half of t h e money went t o Dollar and half t o the government. And I became a member of t h e syndicate which bought t h e l i n e from t h e government. Morris: A transaction such as you have just summarized is s o complex t o t h e average person, it is easy f o r him t o think some kind of p o l i t i c a l maneuvering went on. Killion: You a r e touching on something which at t h a t time caused Killionr me considerable concern. I spent m y a sleepless night trying t o figure out a way t o bid on the l i n e myself, a way that would be ethical, I had enough money and f r e e funds of the company t o use, and dividends t o pay back the f r e e funds. But I always came back t o t h e same conviction that i f I, as president of American President Lines, headed a group which bought the l i n e from the government, I could be accused of having inside information. So I joined the syndicate headed by Ralph Davies and Sam Moser of Signal O i l and several other men. And instead of winding up with 51 percent of t h e company, I came out with a minority i n t e r e s t , I b u i l t the l i n e from a handful of ships t o one of the greatest f l e e t s i n the world. I am still a member of the board of APL. Communications S a t e l l i t e Corporation Morris : Tell me about the Communications S a t e l l i t e Corporation and your part i n it. Killion: I think we a r e a l l agreed t h a t rapid and accurate worldwide communication i s essential as a means of preventing w a r , as an instrument by which people of one land can come t o know the people of another, and f o r enhancing our a b i l i t y t o keep up with events i n t h i s fast-paced world i n which we live. President Kennedy, of course, was a space pioneer, H e asked me t o help put together Comsat, which operates the global communications s a t e l l i t e s . Morris: Those a r e the s a t e l l i t e s that send messages around the world? Killion: Yes. I f you watch TV any night, you'll see below the picture the words "Via s a t e l l i t e . " T h a t ' s Comsat, of which I was one of the incorporators. O n August 27; 1962, Congress completed passage of t h e Communications S a t e l l i t e Act, which s e t f o r t h a national policy f o r the establishment of a s a t e l l i t e system in cooperation with other nations. The S a t e l l i t e Act authorized a new, private company t o be formed t o represent the United S t a t e s i n the s a t e l l i t e system. T h a t company is Comsat. The S a t e l l i t e Act became l a w on August 31, 1962, Killion; when the b i l l was signed by President Kennedy at a White House ceremony, The President and the executive department of the government were given special respon- s i b i l i t i e s f o r overseeing the implementation of the national policy s e t f o r t h i n the a c t , Congress provided that the President report t o the membership annually on the a c t i v i t i e s and accomplishments of the new l a w . The President gave recess appointments t o the incorporators, invested them with the responsibility f o r directing t h e i n i t i a l a c t i v i t i e s of Comsat, I think it would be of i n t e r e s t t o you t o know who these original directors were. I was one, and the others .were -- Beardsley Graham, president, Spindletom Research, Inc , Philip L. Graham, president, The Washington Post John T. Connor, president, Merck & Co. George T. ~ e l & G ,vice president & counsel, Mastan Co, Sam Harris, attorney, New York Edgar F. Kaiser, president, Kaiser Industries Corporation David M. Kennedy, chairman, Continental I l l i n o i s National Bank & Trust Company of Chicago Byrne Litschgi, attorney, Tampa Leonard H. Marks, attorney, Washington, D.C, Bruce G. Sundlun, attorney, Providence, R. I. & Washington, D.C. Sidney J. Weinberg, partner, Goldman, Sachs & Co. Leonard Woodcock, vice president, UAW-CIO The incorporators set up the necessary technical and o f f i c e staffs t o bring the communications s a t e l l i t e i n t o being, and proceeded t o put together a $200 million stock issue. The i n i t i a l stock issue w a s over- subscribed the first day. On April 16, 1964, Comsat awarded its f i r s t hard- ware contract t o Hughes Aircraft Company f o r an experimental, operational s a t e l l i t e , t o t e s t the f e a s i b i l i t y of synchronous o r b i t s f o r commercial communications s a t e l l i t e s , The first s a t e l l i t e was named "Early Bird" and l a t e r designated "Intelsat I." So, you see, Comsat i s a private corporation l i k e P G & E o r t h e American Telephone and Telegraph Company, o r Killion: any other corporation. Like other electronic media, it i s subject t o government regulation. In addition, t h e President appoints three of the directors. The stockholders appoint the r e s t , and I a m one of those, This communication s a t e l l i t e i s of extreme importance, Most wars a r e unnecessary and could have been prevented had there been b e t t e r communications between nations, The Guns of August -- I ' m sure you have read it -- points out there was great d i f f i c u l t y i n communicating with Kaiser Wilhelm a f t e r the assassfnation of Archduke Ferdinand i n Samj evo . And there w a s d i f f i c u l t y i n communicating with Prime Minister David Lloyd George, It took hours t o code a cablegram at one end of t h e l i n e , and hours t o decode it on the other. So we had a w a r , Prior t o World W a r 11, there was delay and compromise as well, Hitler should have been stopped when he began reoccupying the Rhineland. Then Chamberlain went t o Munich with his furled umbrella and returned t o Ehgland t o u t t e r a t r a g i c and t o t a l l y incorrect prophecy with a phrase pilfered from the Anglican Book of Common Prayer --"peace i n our time" -- and we had another w a r . The s e r i e s of summit conferences with other countries, I a m satisfied, i s paving the way f o r a peaceful world, The f a c t that there i s a hot-line telephone t o Moscow on the President's desk i s a most valuable means of keeping the peace, United Nations Morris r You were close, were you not, t o President Johnson? Killion: Yes, we were very good friends, and i n 1966 he appointed me a delegate t o the menty-First General Assembly of t h e United Nations. H e subsequently honored m e with t h e rank of ambassador. A s you can well imagine, t h i s w a s an extremely fascinating job because the people with whom I w a s associated were from countries a l l over the world -- countries with a variety of problems, i n t e r e s t s , and l o y a l t i e s , The United Nations i s an organization which gives t h e people of the United States a unique insight i n t o the p o l i t i c a l , economic, and social a t t i t u d e s around t h e world, Killion: While I was serving as a member of the delegation t o the United Nations, I w a s a member of the finance committee and t h e economic committee. I was particularly interested i n the finance committee. A s you know, there has always been a strong feeling among the people of the United States that the other nations of the world should pay t h e i r f a i r share of the cost of maintaining the United Nations and i t s peace-keeping f a c i l i t i e s , instead of the American taxpayer bearing an inordinate share of t h a t b i l l . I fought strenuously f o r this position because I s a w no reason why we should pay so much of the b i l l . A s you know, the UN came into being here in San Francisco when President Truman and representatives of the other nations signed the original charter at a colorful ceremony i n our Opera House. V I BIPARTISAN FRIENDSHIPS Hoover, Truman, and Others Morris: You have worked with some of our country's most distinguished men. Killion: Life has brought me many f i n e friendships, and it i s an ongoing experience. One name t h a t occurs t o m e at t h e moment i s Adlai Stevenson. H e would have made a great President. H e had a most distinguished career as the United States Ambassador t o t h e United Nations, f o r example. Another man I admired greatly and whose friendship I enjoyed was Herbert Hoover. When I w a s president of APL, I bought f o r the company a Panamanian ship called the 8.8. Panama. W e remodlelled it, and I changed the vessel's name t o the President ~ o o v e r . I read that M r . Hoover w a s about t o come t o California t o attend the annual summer encampment of the Bohemian Club on the Russian River. The S. S. President Hoover w a s i n port at Mission Rock so I called M r . Hoover at t h e Waldorf-Astoria i n New York, and said I would l i k e t o give a luncheon party f o r h i m and his longtime friend, Joe Knowland, aboard the ship. M r . Hoover replied, '!I'd love it," I invited the former President t o make up the guest list and he included i n it a number of h i s former associates a t Stanford University. It w a s a grand a f f a i r . Goodwin Knight, George Christopheq and a host of other prominent persons were there. I remember an e a r l i e r party I gave f o r M r . Hoover, During the luncheon I took out of m y pocket a book he had written when he w a s Secretary of Commerce. It i s called American Individualism. I showed it t o him and t e a r s came t o h i s eyes. H e said, "George, you a r e the only person I've met in recent years who has a copy of t h i s book." Killion: Later I was asked t o record m y relationship with the former President f o r the Hoover Library at West Branch, Iowa, where M r . Hoover was born i n the summer of 1874. I w a s delighted t o d~ so.* Morrisr While I have been listening t o you, M r . Killion, I happened t o notice a carving on your desk. What i s a long- time Democrat doing with an elephant on his desk? Killiont When I was president of APL, I thought it would be n i c e t o give each round-the -world passenger a momento of h i s o r her t r i p . W e selected these carved elephants, and on the side we had a plate with t h e i r name inscribed on it, and above the name the eagle, which i s the insignia of American President Lines. I can assure you the elephant has nothing t o do with p o l i t i c s . Morris: I w a s interested i n your supporting the re-election of President Nixon i n 1972 and the active role you played nationally and in California as a prominent Democrat f o r Nixon. Killion: I just didn't think McGovern had t h e capability t o run our government. I made m y decision t o speak out in favor of President Nixon right here in t h i s office, And I wrote a statement saying I was remaining a Democrat but t h a t I would vote f o r and work f o r the re-election of Richard Nixon, I said, i n the course of t h a t statement, that the re-election of the President was in the best interest of the national welfare, I sent word t o the President that I w a s releasing t h i s statement t o the media, and he called me several days later in Palm Springs t o thank m e f o r m y support, Morris: I notice you have a b i l l f o l d i n your hand. Killion: Let me read you the inscription on it, "To George from his friend, Harry Truman." Morris : I would say that i s a very special billfold, one- you wouldn't want t o carry around with you f o r f e a r the *A copy of M r . Killion's reminiscences of M r . Hoover i s i n the Bancroft Library. Morris: inscription might become blurred. One of m y favorite s t o r i e s i s the one about Truman saying that E a r l Warren i s a Democrat, but he doesn 't know it. Killion: That i s interesting that you remember that. W e used t o have a birthday party f o r the former President annually in Kansas City a f t e r his retirement. When the President died, we formed a committee t o memorialize M r . Truman on the date of h i s birth, and t o name an outstanding citizen t o be the recipient of the Harry Truman Award. The first recipient was E a r l Warren. Support f o r Killion f o r Governor Morrist With a l l your experience i n politics and your incumbency i n s t a t e office, did you ever consider running f o r office yourself? Killion: Yes, I did. In 1953, I thought very seriously about running f o r the Democratic nomination f o r governor i n 1954." What made m e think about it w a s that a group of s t a t e senators and congressmen wanted me t o make the run. They appointed the l a t e Senator George Miller as t h e i r spokesman. W e had lunch at the Stock Exchange Club and Senator Miller, who never beat around the bush said, " W e want you t o be the Democratic candidate f o r governor next year," and he l i s t e d practically the e n t i r e Democratic bloc i n the upper house. Morris: Richard Graves w a s the nominee i n 1 9 9 , wasn't he? K i l l i on: That a s Is right. Morris: Having decided not t o run, how did you f e e l about M r . Graves' candidacy? Killion: Dick Graves was then a young and very capable individual but w h a t he lacked was the proper fowldatlon f o r his candidacy. I remember the l a t e Lou Lurie and former Mayor George Christopher said they would organlze Republicans f o r Killion i f I would run. George *See Appendix f o r contemporary press clippings. Killion: Christopher frequently shakes his head when he sees m e even at t h i s l a t e date, meaning, "You should have run," I thought about running f o r governor again i n 1958, and probably would have been the nominee i f Pat Brown hadn't jumped t h e gun on me, Morris: When Dick Graves became t h e Democratic nominee f o r governor i n 1954 did you regret your decision not t o run ? Killion: I w i l l always have mingled emotions about t h a t decision. I would have had t o take a leave of absence as president of APL but t h a t could have been arranged. I think t o have been elected governor of California at that time in history would not only have been a chal1engg;bnt who can say what might have l a t e r developed. But, l i k e a l l decisions we make, you have t o learn t o l i v e with it, not dwell on the past but go on t o something e l s e which is stimulating and productive. Morris: Frequently t h a t is something which is easier said than done, but you certainly didn't l e t it keep you from going on t o many other accomplishmen~s. Killion: Let m e wind up t h i s very pleasant interview with an anecdote which I think may be of i n t e r e s t t o your Warren researchers. W e had brought Crown Prince Akihito of Japan, across the Pacific on the President Wilson, He w a s en route t o t h e coronation of Queen Elizabeth, O n h i s way home, he stopped off i n San Francisco before he s a i l e d f o r Japan. I w a s then t h e president of t h e Japan Society, I reserved the Venetian Room at t h e Fairmont and gave him a huge party, I remember t h e room w a s decorated with l i v e t r e e s and chrysanthemums. Governor Warren w a s supposed t o be present but t h e day before President Eisenhower had named Warren Chief Justice of the United States. Goodwin Knight, t h e lieutenant governor, automatically became governor so he w a s there i n Warren's place. Also at t h e luncheon w a s Mrs. Ambrose Diehl, the widow of a s t e e l executive and the o f f i c i a l S t a t e Department hostess f o r d i g n i t a r i e s passing through San Francisco. She had the same position now held by Mrs. Bernice Behrens, the wife of E a r l Behrens, p o l i t i c a l editor of The Chronicle. Well, a f t e r the luncheon, Governor Killion: Knight and Mrs. Diehl and I were standing together, and Mrs. Diehl said t o me, "George, i f you run f o r governor, I '1 1 support you. " Morris: Did the Democrats f e e l Knight w a s not a strong enough man t o be governor? Killion: Yes, that w a s the feeling among leading Democrats. When you think of the training that resulted from Richard Nixon's many campaigns and his service i n the House, the Senate, and the Vice-Presidency, you know he has t o be strong, experienced and knowledgeable about government. Morris: I see you have a picture there of you and President Nixon when he was a much younger m. Killion: Yes, the ship i n the background is the S.S. Hope. I put it i n service f o r APL. A s Vice-President, he came t o San Francisco t o dedicate with m e that ship of mercy, [when M r . Killion returned his revised transcript t o e h e interviewer, September 29, 1973, he mentioned that there were several things about p o l i t i c a l l i f e that he would l i k e t o add by way of summary.] Killion: Three areas face our nation f o r reform, issues that a r e pressing f o r solution by the American people. Not necessarily i n order of p r i o r i t y , they are: reform of our nation's judicial system, and reform of p o l i t i c a l fund-raising operations of a l l parties and at all l e v e l s -- national, s t a t e , c i t y and municipality. W e must also find some solution toward ensuring t h e responsibility of the news media without resorting t o censorship. I believe i n freedom of the press, but there must be some answer t o t h i s complex problem. Morris: A s a former newsman yourself, do you have any suggestions regarding the media question? Killion: I've thought about that a long, long time. I have concluded t h a t t h e concept of a f r e e press does not mean the freedom t o suppress o r d i s t o r t a story as an individual e d i t o r o r reporter sees f i t . The media has a definite responsibility, t o the public f o r accuracy, responsibility and accountability. Killion: A s it i s now, they can come out with any wild story about an individual, and he has no recourse except a l i b e l s u i t . Morris: That r e l a t e s t o access t o the media, doesn't i t ? Killion: To a certain extent. I've noticed t h a t recently some TV stations a r e giving a l i t t l e b i t of time t o private c i t i z e n s or groups who want t o express themselves on some topic. But that kind of f r e e speech thing is not the answer t o people with the audience and ratings of Cronkite, Howard K, Smith, o r Buckley. They can say w h a t they wish -- and what chanoe does a private citizen o r public o f f i c i a l have t o answer o r correct them? In regard t o our judicial system, we must have reform of the courts so that people accused of a crime w i l l be brought t o trial within a specified time -- procedural reforms. I was playing golf in Washington a while back, a t t h e Comsat Tournament ( I was playing with Ha A. Johnson and Dean Burch) and I said t o Secretary Johnson, "What do you think i s the greatest problem facing our country?" Without hesitation he said, "Reform of the judicial system." W h y , I've read i n the papers about people who have been i n jail as long as eight years and still haven't come t o trial. Morris: And fund-raising f o r p o l i t i c a l campaigns -- w h a t changes do you think might be f o r the better? Killion: Well, again, there a r e so many ideas around: I don't know that we have the answer yet. Perhaps t o do away with a l l private contributions and have those who wish t o contribute designate a certain amount on t h e i r t a x return. Another way might be t o s e t up a fund from public money, based on so much f o r each person who voted i n the last election and then divide that among the candidates. Morris: You've zeroed i n on issues that have become especially significant i n regard t o the present c r i s e s i n Washington. What kind of changes do you think w i l l result from the hearings and court actions now going on? Killion : Doubtless ref o m of p o l i t i c a l financing w i l l emerge Killion: from the present Washington Lnves tigations. But any improvements of our judicial system w i l l undoubtedly await further ssudy and action by proper government agencies, The "freedom of the press" issue w i l l slowly unfold as a r t i c u l a t e groups, including t h e news media i t s e l f , come t o realize mare and mare t h a t responsiblity, adcuracy and accountability a r e essential i f the ideals and objectives of our founding fathers a r e t o be safe- guarded i n the i n t e r e s t of a l l the people, It i s the touchstone of a l l freedom, END OF INTERVIEW Transcriber: Marilyn Fernandez Final Typist: Gloria Dolan APPENDIX A Oakland Tribune, August 7, 1942 , detmhed." ' , 4w-W: - ,. ,,-, m ~ * ~ ~ , f ~ a f & " ' a staternent"fo~lows:, 1 r)ue to business -and industrial ,expansion resblting f r o m the war,' ,State tax revenue6 exceeded State. expenditures durhg the .fCswjyear .just ended by nearly. $70,,000,000,kc- 'cordihg to the:Skte Co,atmller'~ re'-. .port. During thb current fiscal ye*, it Is probable that th@ excess 'of ih- come oyer -6utgo~ i f i be .as great as $100,000,000. .. .,. 'This condition .makes 'it .both feasible and desirable .that some measure of. relief bd accorded our taxpayers % y . reductions in State and local taxes' which-will serve as a partial' offset to the drastic in- creases in Federal taxes which have been occasioned by the war. ''I have previously stated that I iavor repeal of the State personal income tax, 'which will reduce the S t a t e tax load more than $20,000,000 a year. As a recond . s t e pin this . program of tax reduction, I shall recommend to the' Legislature next, January, if I am elected governor,, that the Stnte take over the coun- 46 GEORGE L. K I L L I O N FRED W. L I N K S OF FINANCE DIRECTOR CHIEF OF DlVlSlON C. E. COOPER DEPUTY CHIEF STATE OF CALIFORNIA DIVISION OF BUDGETS AND ACCOUNTS SACRAMENTO September 28, 1942 TO: ALL STATE DEP,BTiiLiXJTS, tOiiIiDS, COUiISSIGNS IIJSTITUTIONS, COLUGES, A D SPZCIAL SCHOOLS SUBJSCT: BBLDGET 33QUE$TS FOR 1943-1345 BIEI;IVIUIJ~ (95th & 96th FISC.& EATS) The Governor has requested tne Department of Finance t o prepiire the executive budzet f o r the lYL3-1945 bienriiui. Sirice the Constitutio~l requires that the budget be presented t o tile Legislature within t h e f i r s t t h i r t y da;*s of the regular session and prior t o its recess, each State agency silould prepare i t s b u d ~ e trequests arid estimates irrui~ediatelyand fonvard them t o the Ue;3alutrnent of ?Lance not l a t e r than Gctober 25, 19.42. In the preparation of your request, consideration should be given t o the policies, procedures, and staterrierits s e t forth herein, POLICY bur nation's all-out war effort demands t h a t every resource and every energy be dedicated t o the high purpose of victory a t the earl-isst ;*ossible moment. To achieve th;:t goal further drastic changes i n the normal 09erat~ionsof government., as well a s i n the private lives of' i t s citizens, are r ~ : ~ u i r e d ,Covermental l u u i - i e s must go ! This is a war not only of Armies and :.,avies, t u t of peoples and a i l of t h e i r govern;nental p o l i t i c a i subdivisions. In order t o ,ear tk~ebudget pro;;ram of the State of Calirornia t o the sterrl r e a l i t i e s and necessities of war, each aLency w i l l be guided by the follov;in; policies i n coinpiling i t s re:luests for 1943-1945 : I ( I ) ilequests should be based upon the assu?kption t h a t the war w i l l continue through out the next b i e m i m . (2) Activities v:hich Ere made necessary by the war effort o r w1;ich contribute directly to the prosecution of the ~ a p should be povided f o r t o the f u l l extent reLluired f o r t h e i r efr'e'ctiveness. Circular Letter Lo. 213 A l l other a c t i v i t i e s and f u c t i o n s , however, must be examined c r i t i c a l l y a s t o t h e i r fiecessity under war time conditioris and ever3- expenditure which does not distinctly serve an essential need i n war time must be e l k i n a ted. Arbitrary reduction i n the quality o r quantity of services rendered is necessary, The public w i l l accept war-time standards of' services and expects the State of California t o adjust i t s a c t i v i t i e s t o changing conditions. Those agencies r:hicl~have assmed additional responsibilities a s a result of the war shou.ld continua t o ir~alteevary effort t o finance the new exge~lditureswithin the agency by curtailriient o r elimination of the functions not essential t o the vxir pro;rar:i. Special items connected with the v:ar effort should be clearly indicated i n the request, . i f distinguishable from regular activities. Such itenis should be provided for o n a n emergent;? basis on1.y 2nd a r e r ~ o t t o be treated a s a permanent a c t i v i t y of the agency, . Lo construction o r ilfi?ro&ieni; i t e l i ~should .be reqilested, except those which are so essential that they c ~ n n o tbe delayed arid v:k~ich can - clearly qualify for p r i o r i t i e s under goverrv~ientrestrictions, A 10- 2ear building program has already been-'subrxitted by the State agencies and i s now bein; fcrmulzted into a :)ost--lvar cons%ru-,tion;;,ro;rm, & . 0 - L L - - - uLlbl brvr =, u,Lc;L i2 x e d t o nake Z.L-~~ZT rc.:-xzts a$ t h i s tii.20. Equipment it,eliis sho-dd lilteviise be limited t o chose obtninable mder present reg-dations, Buddet allowalces v . i i l be limited t o such items. Your budcet should be corn2iled on the basis of presently existing prices, with no allovcance for further i ~ l ~ r e a s e s , .It i s assuiaed that the Federal governrirent. u r i l l exercise a control of both wages arid prices t o an extent sufficient t o preclucie insur:nountaSle increases i n the general level of prices, To offset the f a c t t h a t norm2.1 replaceriient of State-owned w i l l e-,~ui~,~nent not be possible, every maintensnce ?recess should be f > d l yprovided f o r and utilized so a s t o extend the useful l i f e of existing f a c i l i t i e s . fbery effort should be made t o effect operatin; econcmies. This depart- ment offers i t s cooperation i n an advisory capacity t o a l l ajencies on administrative chan~esthat na;r be made, I l l u s t r a t i v e of steps Which may be taken t o curtail expenses are: (a) Lvery position v:k;ich i s now vacant or 1i:ill become vacant should be evaluated i n l i g h t of changing conditions before ally a t t e q t i s side t;o r e f i l l , (bj luecessarjr re?lacernent or' employees now leavin.7 the ,a service t o ,;o t o t,he arrned forces o r into private erni~loymentshould be made, wherever possible, .by transfer from one adl~inistrativeunit t o another, Circular Letter Lo, 213 (c) Lon-essential cublications aqd docun~entsmust be disconiinued t o save gaper arid printing costs.- (d) The mount of travel must be curtailed and the use of automobiles must be reduced t o a minimum, (e) us; of long distance telephone, t e l e g r q h , o r teletype must be reduced. (f ) X~uipmentsuch a s desks, chairs, tables, typewriters, adding machines, etc., should be refinished and rebuilt i n l i e u of replncernent , (11) . Buddet requests should not a n t i c i ~ ~ a t e the adjustments vrhich w i l l be necessary upon the cessation of hostilities, such as return of employees from military leave, the termination of war emer-ency a c t i v i t i e s and the resumption of normal f ~ ~ c t i o n s which 1nay hsve been susperlded f o r the duration of the riar. These zdjust~ientsare so extensive and unpredictable as t o render inpractical any advance preparation therefore i n the budzet, and w i l l inevitably require administrative and legislative action based upon the cor~ditions then e x i ~ t i n g, c , .>~.lr~.?-n?_ tnajnr changes have been made ir, the con~osi1;ionof the 1913-1945 budzet schedules i n order t o simplify the vcorl: of preparation, These include the consolidation of service, expense, materials and suyplies into one category of o;)erating ex2enses; also the elimination of tk~eitenrizat5.cn of prior ;rear exy!enditu3es under the category "Salaries & X a ~ e s and the substitution therefore 11 of the ranzes of par. A f u l l explanation. of these changes w i l l be fort~ardedt o your accounting officer with the ins1;ructions. Frovision f o r salargies and wages should include the recent ,,I5 emergency salary adjust~rlentextended through the next biennium, since appropriations w i l l be requested of the Legislature t o finance the increases from February 1, 1943, thenceforward. Ir,stiti~t.ions~ schools a:nd other acencies v~hosabudtiets are based upon po?d-ation, enrollment or similar measurable units of viork load should confer with t h i s dck~artmentas to their estimate of such work load before f i n a l l y comnpletin~ and subr~sittin;their budgets, STAl'EI~_;I\iTOF JULTIFICATION A statement of justification i n triplicate, and on l e t t e r size paper, is t o be submitted t o the Direc'tor of Yin~tnce, together with the bud',& requests. This statemenL should contain a general smmlar2 of the r:ork prozran of the agency as reflected by the budi;et request: rhnt has been included; changes from the l a s t biennial budget i n terms bf progrm; and the reasons f o r those changes. rlease s t a t e .the reasons f o r your requests. A mere description of bud;et items and the mount of money involved i s not sufficient. Circular Letter iajo.213 Your stateinent should include nork load data, corn;xirative f i e r s ~ n r ~ e l infornation, and l i k e material which i l l u s t r a t e s the character of your bud~et.. In addition, there should be s e t forth a description of the econordes effected during the current biennium and the further economies ;)ro;~osedi n the bud,;et reE3T3 RCK. vided that is esperienced ~ I I LEAVE Ob'ABSENCE * He said that leaders in the goverllrnental, financing and ICillinn, a former treasurer of Democratic Party, a s n7ella s in. business affairs, an5 at the the Democratic National Com- fluential Republicans, have been same time is alert and pro- : ( mittee, is understood to be in a urging him to run for Governor. gressive in all matters affect- 1 position to secure a leave of ab- killion thanked them for their. 'j ing the public interest," Kil- sence from his present job as good will, and promised: lion's stateluent said. "It must. , head of A P L to run for Gov. "Upon 111y return froni a be providecl -irrespective of 1 ernor. brief varation, I shall discuss what a par;y or rv!!at man 1 The job of the ~ e m o c r a t i the situation in detail with I 1s involveil. 7 1 would be to get his name known i, friends ar~d associates, and "I aqree with Govcrnor \Val'- . to the members of their party ! later nlay have a furll~erand 1 ren that periodic char~gesill before next June 3. s t n t c ~ ~ ~ e ~ i t I I more definite to i administration are essential The Democrats also are talk- ( make.!' 1 t o the health of rcpresentn- : / ing of either Dan Kimball, for- ) Killion has been vacationing. j tive goverr~n~ent. mer Navy Secretary, or possibly I and sounding out political sen- j "But; J also feel thai; the 1 ( Rex Nici~olsonof Berkeley, as ~ timent in southern California f voters of Califorl~in should I possible candidates against U. S. ( for a week, and is expected to have a n opportunity to vote j I ~ Senator Thomas H. Kuchel. San in retupn to Francisco a 1 for a, comillete change in,Sac- , , I Kuchel may face the opposi- ~ few days. rzlme:ito, now tllat Gob-ernor I tion of Superior Judge Frecl F. I K3r;IGAT OPTOSExT. IVarren n.ill not seck re-elec- Houser of Los Angeles county. ( If hc decides to run, the big Houser, a former Lieutenant i tion. I feel t!mt thc voter?: will fight in 1951 will be between bc ready for a change in 1934." Governor, ran for Senator once 1 Lieutenant Governo~~ Goodnsii~ 1 Knight, who long since an- Killion said he would be re- nounced he would seek the Re. luctant to leave the "challerlging SPEAKING TOUE rublican nomination, and Ki!- and nbsorbiug positior~ns presi. . Kuifiel is maliing a swing 1 lion, a Democrat. I' rlent of s stear>lshipline." unless : : about, the State in the interest In his statement of yesterday, there was sufficient reason to i ( of $is :candidacy for elgction Killion said he has received rc. believe there were far wider o p j next;;year. H e will speak in &Ia- , i po$ted requests by 1ea.ders of portunities for public service- dera.;$aturday;and in Santa Cruz ~ f t h e Democratic Party in Cali- "opport~rnities wllich w o u 1 fl Sunday. On hfonday the Senator I fornia, and by many persons of make it; possible for Ine t o work : will address acounty-wide Sallta constructively for the further I Clara meetin,g in Palo Alto and clevelop~ncntof o u ~ 'State and 1 on Tuesday he will make a non. the \velfare of its people." political ta!k :to the San Fran- I 1 - . --- - cisco Rotary Club. - -. . - far Governor." -.~. , - . ... .- .- ~ i e u t e n a n t ,-overnonor ~ n i ~ h t / . ... . will be back,irb.)Northerl~~ali-1: fornia next week,;also. He will - ak in Richmond at a luncheon 'day. -- APPENDIX H The Argonaut, November 6 , 1953 - . , :APL Preside"t ~a s/ S. F.'s "B Girl Mess" , "ItIs Possible" i "All Cleaned Up" - (EXCLUSIVE) -But Is It? , : G E O R G E ILL ION, prrricler~t Tire Pmfrc Couct's Famozis Weekly Paper - -. : o f Atnerican Preside~rt Lines. a lorlg time betweet; "B girl" still has his hat i n t h r r i n g - c o n d i - acc~tsations agairrst local tavern ?ionally--as Drmocraric candidate for G o v e r t ~ o ro f California nest fall. NGVEbI8ER 6, 1953 ator of a n est;rblishmet:t a t 590 Pacific Lerr enrrt~rdinnry-porsihl?. hecaure i t Demccratic a>minatisn. .4mrding to poliric~l ohrcrrer,. his m m e m that he wznuld not nrln seek thr ..................... ...... .... , ........... , ~h,,,,~h pIlll R. Irakc. nc,yrpapcr J m e r if. l'urncr, mznaccr of utilities. 125,500,000 milcs far the >car cndini in j 'olcl T ~ t r Aanr,\~vr rhar he i\ now oll~dcr- 1953. On Octalicr j. 3s rcportcd in the Exom- sc.tc ~ f , ~ ~ , , . l i ~ . ~ i , , , , , i , 1ikririu. .ln,nC rrn,ii.1 ralilw pr.p=r=fiott of a m,~cliRrclPn,pr*i- / \\.=.el her. in 1947 were $1.24 an hour. c,,rcd lirhcr and mcmhcr rhr ~ l , , ~ ~ d i n r r , Rn3.d Mrmhcr Paul R. Leak. ac- Fr2ncibn, P,llicr ncp art- date, Killi~lll's h3~kelllllnd ir held to hC tion h 2nd H hallor mcarurc nhich mzy Thcv no\\-arc I1.89+ an hour. mrnc of laxity i n enfurcing thc liquor .hcttcr. ncrr5pzpcr ~~uhli-hers heinu rinxa- I - Ians. l ' h r local DTPS. ha< raised no hue 1.rl.v unsucrcrrf~!li n .reking electire office. j / a n d c r > ; =hour -lizirlr" ;iwc that dare. 0 . I(night Has Oppartunity To ; ; ; ; ,c ; : f d i : : , Rut though he is rhc ohcial hcacl of thr p a w in thc ,t.tc, ir appears unlikclr that I .rrronr: hid for nc,min=~isn. : : : : : ; ; ; : ; : : : : ; ; ; ; ; : : :1 o 'minimum. Cripple State's Dope Traffic ier!! he , . ; i l lmate SO, that mcanr ,hat "grral? h . r own. hare as thcir ehicf fear only chc , , # Hcmrd of Eocnnliration w v n t c n o t much of cllmbersomc British, Gernt~rt Autos''OOjl XI,: o f the nlost ilnportant fronts ~;o,.cr~,or crted h r i l c i a l California in cainl,ainring T h r amount of rffurr that has hccn ex- lmanner of a in in vic'v Ihc ,,.hi& (;nocl,vin Ihe mn\.cr Lowest Priced in S. P. It' cumhcrromence, furthcrnlorc, is not the lidc of hidrolls or ally other in rhat comes frrvrn ,he dope irxffic ha, hepn limirrd lo the xap hct!rrrn arctsatinn and ncClixihlc, cfferlirc .r . ,vould crllatorinl office, can work for the Rritirh aummcbilc~.\rich \\'<.it German hm~ing. Thc hearing oHicerrs finding- arc aa P close rccr~nd.will .pparentls wntinue bcnelit o f all California is that o f hc against a murderer. nor final, the? are cnl? a rccommcndation m undcrpricc American ears i n the San \\'harl\.er Governor does nercrrd in on uhich thc Statr Board mag am when Fr.nci.co market dcrpirc any pricc reduc- conlb"tirrg lhe p ~ s t t i n ~ an end to rhc dope rackerr i. r i r - .I'd as ir sees fit. lions i n 1954 modclr. For ).Cars, in n,,ifcl, Cro,,ing , . . - . . . . anv ~_ at . , . ttmllv awmrrerl of o H i c ~he \vants A lecal car marker check thir \ Y ~ c L re- I I C I I > P~PCI L have carried report) on the the hands , , f .rr.tPf"l peop~r. vraled the l ~ ~ l l o ~ v i n a price rrr..,~i~~ mool,rinn toll which dope rnckc- T o .cc whar Governcr Knieht can do, lVIty the S ~ O ~ U ~ ~ ~ ~ S 2s the lo\rcst O,t I ncrv cars in San Francisco tocla? (ficurrr t~,,, have hcen PIICC~~C frnm I ~ Cpmplr. i f he wants to, turn m p:lze 3 and read i do not i n c l ~ ~ d c tar, liuenhe, radio, healer. ncv ahout i t cun3t.nt~\., ,-\vh.t h i g h 1 DO A ~ O U ~ "B Girl" Heari~tgs? have but \\'ill thc Dapc unless athcr>rirc specified) : nothing cno~rtrtc~ivc ITraffic." har hvcn done. \\'h! is the Sratc Roar4 of E q ~ ~ ~ l i r a t i o n Mnrrir Winnr (Hritirh cnnv't.). $1,515 Volkr~s~gr#r 33) painfully rlo\r nn hcaringr conrcrning (Ccrm;~!, sedan1 .... 1.595 CHIEF GAFFEY, CIVIL SERVICE IN ROW -n girls.. and orhcr accuaariunr againrc t ~ ~ ~ r ? J (~,i,,r m,,pe, 1,n9s .9urti~1 (Hrtiish srdan) 1.795 tavern o\\nerr? t Chrvrolrt (hurine.r c<,"pv)-,-,.. A nlg-of-war has dcrclnpcrnarc>. tnhrr Iwhich r~t~or,.,lthr :\ttl.rncy (;meral i PI\.m ,,,,th (he.i cc,,pe) . 2,000 :ap~,mraI of an a<.irco 2ttnrnrY out with a car ~t arntl~xl 61.1100. rl~irt\.firc ttrw traRc plirrmun. If con- !rtal~rp, #>fprlicrmrn hnlcliar~ a.ho hc.rrs mrat easrr origi!o:ttill~ lorall?. the ~ ~ n j ~ > r i t t , Rccent rp$octinl,s i t ) Hritirh car prices yh: carer, havi n l ix hl.iring 318 rstenaling i. ~crbdrtoo nl:!nr pcllircmrn :)re :a..i~l~c~lto Ilh:k a r ~ ' ~ i s a l ~ l i t q h r r ~ clHiccr for a;":! . are in line with 3 rtaremrnt made hcre rlrrirrl jobs, finscr-printing and the like ~t,)urrdtn Itnc ofdttt,. f n m Crrsrrtu City ro Sitn I.uis O h i v ~ . thi. \rrck hp . 4 ! 8 , 1 1. ! 1 .%!I,!I, Hrifish AIP and which r h u ~ l ~ l held I,? eivilim cm- ' Ar y o , thc rrpon has not hccrn rrccivrcl rrheqll~lrdm hear the case* of i bc hinq, hu~rio~erq vrpcrr. \rho raid Ilritish policy pla>vrr-with thr rc*ult rhnr thrrr me!! (lrv th;. Honrtl of Sttpervirorr. After it Ilmacg nncl Crc~xch.told ant ;\Kcrls.ruT re- \rill cot,rinur m he srlli~wgr>od' rclt~ld lr tratxrlcrrc~lto traffic. 1r&x'?n t h t ~ nit nil1 have a prelirninnry and thc !is- i onc of port~, that prcw a n f hn~ cn the American ~nzrkcton 2 qcaa#*titp Sl;nnr Rtd~izt-t~ti iy rrsnclinr: pat for the (rrwlx!>cawl thru Ilr rrferrrd to thc proper tanrra he ~lrrclralto corrr prrrrllr rlo'llV2 h a i s i n dirl-cr' prirr mmpctirinn. 45. hlddinS that this ir 281 for *ttncl? aud 31, n p r ~ rhr cap hct\wu> awuratinr~rancl hmringr. , cn~r.rge:c.cy! rum~nir~re hcarink . . . . . INDEX - George Killion a g r i c u l t u r a l cooperatives 1 1 Alameda County Board of Supervisors 8 Alameda County D i s t r i c t Attorney's Office 8-9 American President Lines 31-34, 39 Anderson, Dewey 18 appointments t o public o f f i c e , by Olson 6-7, 13-14; by Warren 21 Army, U.S. 28-29 assembly, California Ways & Means Committee 20 Bank of A m e r i c a 25-26 Behrens, Bernice 41 Brown, Edmund G . ("Pat") 41 budget, s t a t e 15-17, 22-27, 29 California Department of Finance 12-17, 20-23, 25-27, 29 Division of Markets 5 S t a t e Relief Administration 17-18 campaigns ( s e e election campaigns) Chambers, Walter 17 Christopher, George 38-, 40 c i v i l defense 19-21, 24 c i v i l s e r v i c e 27 Communications S a t e l l i t e Corporation 34-36 communism 18 Congress, U.S. 29, 35 Connor, John T. 35 consumer advocacy 5 conventions, p o l i t i c a l 10 cooperatives, a g r i c u l t u r a l 1 1 cross-filing 22-23 dairy industry 5, 11-12 Davies, Ralph 34 Democratic party 5, 22, 39-42 National Committee 26, 31 National Convention (1940) 10-11 Depression (1930s) 12 Diehl, Mrs. Ambroae 41 Dollar, R. Stanley 32-33 Dollar Steamship Line 32-33 Douglas, Helen Gahagan 1 1 Douglas, Melvyn 1 1 election campaigns (1938) 5-6 (1942) 22-24 (1944) 26 (1954) 40-41 (1972) 39 fund-raising 5-6, 9-10, 43-44; procedures 8-9 Feldman, George T. 35 federal government 29, 31-36, 39, 43-44 finances, s t a t e 15-17, 20-23, 25-27, 29 fund-raising campaign 5-6, 43-44 charitable 4 General Aniline & Film Corporation 31 Giannini, A.P. 25-26 Giannini, L.M. 33 Gibson, Phil 13-14 Grady, Henry F. 31 Graham, Beardsley 35 G r a h a m , P h i l i p L. 35 Graves, Richard 24, 40-41 Harris, Sam 35 Hassler, Jack 21-22 Hays, Raymond 20 health care 1 2 Hoover, Herbert 38 Japan Society 41-42 Japanese-American relocation 27-28 Johnson, Lyndon B. 36 judges, appointment of 13 judicial reform 43-44 Kaiser, Edgar F. 35 Kennedy, David M. 35 Kennedy, John F. 34-35 Kennedy, Joseph P. 32 Knight, Goodwin 38, 41-42 Knowland, Joseph 38 Langley Porter Clinic 12 League of California C i t i e s 24 l e g i s l a t u r e , California 5, 12, 17-18, 23, 29 (see a l s o assembly and senate) Lindbergh, Charles 2 Litschgi, Byrne 35 lobbying 5, 29 Lurie, Louis 40 Marks, Leonard H. 35 McAdoo, W i l l i a m Gibbs 32 McGovern, George 39 media, p o l i t i c a l r o l e of 43 m i l i t i a , s t a t e 19-20, 24, 28 Miller, George 40 Moser, Sam 34 Mosk, Stanley 13 National Maritime Commission 32 New Deal 10-14 newspapers 2, 4, 9 Nixon, Richard M. 29, 39-42 Olson, Culbert 5-6, 10-14, 19-21, 22-24 a t t i t u d e toward welfare 11-12 controversies with Warren 23-24, 27-2'9 Pauley, Edwin 26 Peek, Paul 15 philanthropy 4 public administration finance 15-17, 20-23, 25-27, 29 publi c works, financing of 8 radio, p o l i t i c a l r o l e of 22 Rasich, Ann 21 Reynolds, Quentin 7 Rich, W i l l i a m 16 Richards, John R. 14 Roosevelt, Franklin D. 10, 20, 26, 28 Ryan, Claude T. 3 Ryan-Mahoney A i r c r a f t Corp . 3 Sacramento Union 4 Safeway Stores, Inc. 4, 7 San Diego Sun 2 senate, California 12, 15-16, 21 banking committee - 16 finance committee 16 Senate, U.S. 26 Shepherd, Harry 29 shipping i n d u s t r y 32 Signal O i l 34 s.-s. ~ r e s i d h t Hoover 38 S t a t e Relief Administration 17-18 Stevenson, Adlai E. 38 Sundlun, Bruce G . 35 supreme c o u r t , California 13-14 Swan, Sherwood 8 Swing, Ralph 12 Thompson, J. Walter Co. 4 Tickle, Edward 16 Truman, Harry 26, 31, 39-40 United Nations 36-37 United S t a t e s Court of Appeals 33 Supreme Court 33 University of California 25, 31 Voorhis, J e r r y 29 Wallace, Henry 1 1 Warren, E a r l as d i s t r i c t attorney 8-9 as attorney general 13, 23-24 as governor 27-29, 41 appointments made by 21 Warren, L. A , 5 Weinberg, Sidney J. 35 Woodcock, Leonard 35 World W a r 11, impact on California 14-15, 17, 19-20, 27-29, 32,36 Yorty, Sam 18 The Bancroft Librqry University of ~alifornia/~erkeley Regional Oral History Office Earl Warren Oral History Project A. Alan Post WATCHDOG ON STATE SPENDING An Interview Conducted by Gabrielle Morris @ 1974 by The Regents of the University of California I TABU OF CONTENTS -- Alan Post INTERVIEW HISTORY FAMILY LIFE AND EDUCATION Western Land Development Family Cultural Interests bank in^, Colle~e and Paintinq I1 NEW WORLDS TO CONQUER Graduate Studies at Prinoeton Cross-Country Experienoes Contemporary Economio Theories Marriage and Career Exploration First Assi~nmentfor California's Leulslative Analyst Utah Taxpayers' Problems I11 OFFICE OF THE IXGISLATNE ANALYST Early Dass under Rolland Vandearift Investigative Studies Joint BudffetCommittee INTERACTION WITH EXECUTIVE DEPARTMENTS OF STATE GOVERNMENT Prison ~ekorms Mental Hospital Bndaet Standards Federal mnds Farm System The Governor's Office under Earl Warren Postwar Reserves School Fundinq Constmotion Program Legislation School Lobby Growth of Urban Problems Senators and Reapportionment League of California Cities Water Planning Issues Defining Eoonomic Factors Merchandising Water Impact of Federal Funding V GROWTH OF LEGISLATM3 ANALYST FUNCTION Program Evaluation Staffing to Keep Ahead of the Issues VI A NOTE ON BUDGET DIRl3CTOR FBED LINKS VII TROUBW SPOTS IN STATE FISCAL CONTROLS Liauor Lioensin~; Banking State Funds Politioal Constituencies Thoughts on Organized Crime Legislative Lioense and Tax Audits VIII CHANGING TIES A New Breed in Sacramento Welfare: From Shenanigans to Support In Conclusion APPENDIX "View from the State of California," address by Alan Post, August 9, 1971. INDEX INTERVIEW HISTORY Alan Post was interviewed.by the Earl Warren Project of the Regional Oral History Office in ord.erto preserve his observations on d.evelopments in state finance during the years, beginning in 1946, that he served.as technical staff to the Joint Legislative Budget Committee. Cond.uc t Interviews were held.on June 11, September 14 of the and.December 6, 1971, in Mr. Post's handsome Interview: h.igh-ceilingedoffice in the old. state capitol build.ing. Tall windows, walls of celad.ongreen and. Post's o m soft-wash watercolor landscapes were a quiet background.for the sometimes turbulent state budget process which required.the legislative analyst's advice and counsel at several points during these interviews. A serene, scholarly man, slend.erand self-assured, Post talked easily and. thoughtfully, commenting that he enjoyed.thinking back over the past. Although he insisted on his own political naivete, one judges that his strategic skill is excellent. Mary Ellen Leary, adviser to the Warren Project and.longtime Sacramento reporter for the Sari Francisco News, has spoken of him as "the one man with continuity from that time to this, with the greatest insight and.the most objective viewpoint and. the greatest reputation for candor ... hired. by the legislature to d-issectand.. improve on the governor's budget ... an interviewee par excellence. " In d.iscussing his youth, he offered a glimpse of the great land.d.evelopmentprojects which swept California in the l92Os, and the d.iscovery of his own intellectual and. creative gifts while he was working and stud.ying in Southern California and at Princeton University. Post joined the Office of the Legislative Analyst in its infancy [1946], a time of new id.easand. strong men in government, and.d.escribeshow its methods and functions have grown over the years. In 1973, h i s o f f i c e not only kept a steady evaluative pressure on the present budget, but a l s o w a s preparing a n a l y t i c a l material on issues t h a t h i s jud.gement ind.icated. were developing. A s Post serves the l e g i s l a t u r e , so t h e Department of Finance serves the governor i n supervising the expenditure of public revenues, t h e taxes people pay f o r services rendered by the s t a t e . In t h i s interview and E l l i s Groffls memoir about h i s years i n the Department of Finance, one g e t s a good. sense of the d.ynamics of interaction between the two branches of government. Post w a s one of the few public servants interviewed i n t h i s project who was willing t o d.iscuss possible shortcomings of the Warren administration. H i s interview provid.es some new insights i n t o i r r e g u l a r i t i e s i n lobbying and. l i q u o r administra- tion, and. r a i s e s a question on banking of s t a t e funds t h a t seems t o have been largely overlooked. by stud.ents of t h e period.. He reviewed the rough-edited. t r a n s c r i p t of these interviews, d.eleting short portions he found r e p e t i t i v e o r irrelevant and clarifying certain points. He a l s o w a s generous i n providing written answers t o questions on the t r a n s c r i p t , including a lengthy summary statement at the conclusion of the manuscript. A s an example of h i s thinking on more recent concerns i n public finance, an ad.dress he gave i n 1971 is included as an append.ix. One hopes t h a t , when he r e t i r e s t o Spain t o paint, he w i l l find a vantage point from which t o do a f u l l and. thoughtful account of the course of s t a t e government i n mid.-century, using California as r i c h i l l u s t r a t i v e material. Gabrielle Morris Interviewer-Ed.itor Regional O r a l History O f f i c e 16 January 1973 486 The Bancroft Library University of California a t Berkeley FAMILY AND CHILDHOOD Morris: Why d.ontt we go back to the beginning, and.start out with where you were born, and what your family was like, what you were like as a youngster. Post: All right. Well, I was born in Alhambra, California in 1914. My father was a land developer, farm land.. He came from a family from Iowa, of some distinction. His father had been offered the position of secretary of agriculture in a Republican administration way back when, A very brilliant man, who was apparently an extraordinary farmer. He had one of the largest, if not the largest, bind.er twine businesses in the country, He was a person who took great interest in farming, and.apparently dominated.the Iowa state fair at a time when Iowa was the great farm center of America. President of the local bank. A man of great integrity, who was killed.in an automobile accident at the age of 65. Interestingly enough, my father was also killed in an automobile accident at the age of 65. That was my grandfather. His name was August Post, and.so that's where I got my first name of August Alan Post. Morris: That's what the first "A" stand.sfor. Post: That's right. I t ' s not for "Anonymous," it's for August. [laughter] My mother came from an English family, the Stickneys, My parents were both born in the same little Iowa toam of Moulton. My father went to the University of Chicago and to Stanford University. He was always a very enterprising sort of person, a tremendous salesman. He went into the Post : land development and. s e l l i n g business. He came out west and went t o Stanford, and wanted. t o make h i s career out here. He borrowed some money from h i s f a t h e r and bought some land, and was very successful as a young man. He developed large agricultural t r a c t s . He was always i n agricultural land. develop- ment. Western Land. Development Post : W e moved a l l over t h e s t a t e , Orland, Marysville. W e lived i n Berkeley, a l l over t h e southern part of the s t a t e ; i n Washington and Arizona. He s t a r t e d t h e Cortero project i n Tucson with some 30,000 acres of desert land south of Tucson, which w a s put i n t o agriculture and. became one of the major agricultural developments of the west, but l o s t t h a t i n the land crash of about 1920. So, it was a period of ups and. downs, with great successes and. f a i l u r e s and then s t a r t i n g over again. Morris: Would t h i s be bringing i n water t o -- Post: This would. be putting water on virgin land., and. then s e l l i n g it. He used t o bring people i n by car1oad.s from Id.aho and. t h a t s o r t of thing. He b u i l t camps and. large houses i n Arizona, f o r example, where they brought prospective buyers i n and sold. th0usand.s of acres of a g r i c u l t u r a l land. It was bare land., and. m y f a t h e r invested, i n Arizona, between a million and. two million dollars i n water development, s o it w a s put under irrigation. Then he sold t h i s t o farmers. So t h i s was h i s l i f e , moving around, developing the t r a c t s of agricultural land. He d.eveloped. land. f i n a l l y i n Palmdale and. Lancaster. This is where he actually end.ed h i s l i f e i n 1949, when he w a s killed. The family s t i l l a r e i n Lancaster. W e s t i l l own land, which is now within the city. It's been d.eveloped i n t o urban development. I have a r e l a t i v e l y s m a l l i n t e r e s t i n it, but with my mother's d.eath a couple of years ago, I inherited. some portion of that. Post : I l e f t . M y brother stayed with it, and m y s i s t e r continued t o l i v e in Lancaster, but I ' m the one who l e f t home. I wanted. t o go on t o graduate school and be an economist. I didn't want t o be related t o the agricultural industry. So we, as I say, lived a l l over the s t a t e of California, i n innumerable c i t i e s . W e always rented.. W e spent most of our l i v e s i n the South Pasadena area. I went t o grammar school and high school i n South Pasad.ena. I went t o college at Occidental, as did m y two brothers and m y s i s t e r . Morris: Are you the eld.est? Post : I ' m t h e second. The others are presently living i n Southern California. M y i n t e r e s t s were primarily artistic--as m y family's were. I came from a musical and. a r t i s t i c family. N y mother was a musician. M y brother is an a r t i s t , although he r e t i r e d from the farm business, but he's also a painter. He has r e t i r e d i n Santa Barbara, where he paints f u l l time. M y s i s t e r w a s a musician, and. her children are musicians. In f a c t , music runs very deeply i n the family. Two of us are painters, as heavy second i n t e r e s t s , very heavy. I went t o Chouinard. I n s t i t u t e of A r t part time, while I w a s going t o Occidental College. I w a s an art minor. I a l s o went t o a l l kinds of art schools at night when I w a s working i n Southern California while I was going t o school. W e had a hard time i n the depression. M y f a t h e r l o s t everything he had i n about 1930-31, and lived essentially off h i s very substantial insurance equities, because the r e a l e s t a t e business w a s just dead f o r a number of years there. He went out and t r i e d t o create business, but it wasn't very successful. So I dropped. out of school and. went t o work a f t e r m y sophomore year i n college, which w a s i n 1933. I worked between 1933 and 1936 In the Security F i r s t National Bank. A l l of us, the children, were out working at some point i n t h a t time. Morris: Would t h a t be d.own i n Santa Barbara? Post: That w a s i n Los Angeles. I was i n the head office of the Security F i r s t National Bank. I s t a r t e d as a runner, and then a t e l l e r , at $65 a month. Worked up t o $85 a month i n three years. Morris: For those days t h a t was quite a .respectable salary. Post: Well, it w a s not too respectable. It w a s b e t t e r than it would have been except f o r NRA. They were required t o h i r e one person when the country went t o the f o r t y o r forty-five hour week, and I got t h a t job. It w a s the base, bottom salary, I think, you could be paid.. But i n those days, any job was a good job. So I worked there during that period., and read incessantly. I went t o night school a good deal. I first s t a r t e d painting very seriously by going t o a l l the night art schools, and a l s o taking a l o t of other courses, at the banking schools, and some University of California extension courses, and t h a t s o r t of thing, For those three years. It w a s a very productive three years f o r me, perhaps as productive as any three years I've ever had. Morris: That's a remarkably f u l l schedule. W a s t h i s t h e origin of your i n t e r e s t i n economics? Family Cultural Interests Post: No, I wanted t o be a doctor a t t h a t time, and I read. very extensively i n medicine. I had no i n t e r e s t i n economics a t t h a t time at all. M y main i n t e r e s t i n those days w a s t o become educated.. I came from a family t h a t w a s extremely interested i n cultural matters. Up t o t h i s time however I had. not been very interested i n reading, frankly. On the other hand m y s i s t e r and brother were e i t h e r valedictorian or salutatorian of t h e i r classes. M y s i s t e r and Glenn Dumke chased each other, one, two, a l l the way through college. Morris: This i s Glenn Dumke of the s t a t e college system? Post: That's right. He w a s generally number one, and she was number two. She worked her way through college while she w a s doing t h a t , and is an extraordinary woman, who is not only trained as a musician but was, i n f a c t , a geology major. She was a reader i n economics on the basis of taking one course of economics f o r a l a t e r presid.ent of the college, Arthur Coons, who i n s i s t e d t h a t she be h i s read.er i n advanced economics, which was a kind of an i n s u l t t o me, I always thought! I don't know i f she knew anything about economics, but he thought she w a s a whiz on the basis of a course she took with him. She's a very practical, i n t e l l i g e n t gal. She took enough economics that she has taught economics i n a junior college since. She a l s o taught drama although she primarily taught music. She a l s o helped t h e dean of t h e college write a h i s t o r y of the college, while she w a s going through. That w a s t h e historian who w a s the dean of the faculty--Robert Glass Cleland., a California historian. She a s s i s t e d him t o write a history of the college. So she had her hand. i n a l l kind.s of things. Morris: What w a s her name? Post : P r i s c i l l a Parker. Her husband was a s s i s t a n t superin- tendent of schools i n the Lancaster d i s t r i c t . He's been professor at t h e junior college there, chairman of the academic senate. They've l i v e d there since. M y other brother, Rudd, which w a s m y father's mother's family name, w a s a l s o a very excellent stud.ent i n high school. He d.ropped out of college a t the end of t h e sophomore year because of t h e depression, went back one year at U C L A and never finished. But he's the brain i n the f a m i l y r e a l l y , and i s p r e t t y good. a t everything. An inventor and. a good musician, and a good. painter. A very i n t e l l i g e n t man. He's r e t i r e d , l i v e s i n Santa Barbara with h i s wife, who w a s a l s o an Occidental g i r l , Phi Beta Kappa, musician. They have three s m a l l g i r l s . M y other brother is Stuart, who l i v e s i n Lancaster, and. has been involved i n some of the a c t i v i t i e s up there. He's not married. Morris: It must have been quite a bunch t o grow up with. Post: It w a s an i n t e r e s t i n g l i f e . W e had a f a m i l y quartet. W e traveled a great deal. They would. take us out of school t o t r a v e l a t the d.rop of a hat, because my mother, who w a s a school teacher, f e l t t h a t she could teach u s and it would be good experience. M y f a t h e r w a s always traveling i n t h i s big old Cadillac of ours. W e would get i n t h e car, and we would have family s k u l l sessions a l l the way up and. down the state. There w a s so much i n t e l l e c t u a l i n t e r e s t on the p a r t of my older brother and s i s t e r , particularly, t h a t it w a s a constant struggle f o r me. Because I r e a l l y wasn't t h a t interested i n it. I w a s t h e poor student of the family. M y i n t e r e s t s were primarily i n a t h l e t i c s i n high school although I w a s s t i l l small and. no star. I w a s four f e e t eight, when I graduated from high school, and grew about t e n inches my first year i n college. I w a s a four year track man, i n Class C, i f you know what t h a t "Ctt was. That w a s the l i t t l e boys. So I w a s always a peanut, but t e r r i b l y interested i n sports. I studied. and mad.e r e a l progress as a v i o l i n i s t . W a s always interested i n art, But I w a s almost a non- reader. It was only when I went t o work i n the bank t h a t I became an absolutely avid. read.er, Primarily out of ambition t o make up f o r l o s t ground., because I at t h a t point became very ambitious, f o r some reason, f o r the first time i n my l i f e , I w a s going t o do something with myself, Banking, College and Paintinq Morris: Were you l i v i n g by yourself? Post : No, I was l i v i n g with my family. W e lived i n Eagle Rock, and then i n Arcadia. During t h a t period of time, I l i s t e n e d t o a great deal of music. I worked a t night i n t h e bank d.owntown a good p a r t of the time, and t h a t made it possible f o r m e t o l i s t e n t o Post: these marvelous music ?rodrams a l l morning, with t h e guides t h a t the-gas company gives you. You know, over the rad.io. I would follow those programs with books t o get t o know a l l about music. In addition I had. a very careful program of reading t h a t would cover t h e waterfront, on l i t e r a t u r e and medicine, and things of that kind t o r e p a i r m y deficiencies. I r e a l l y learned an extraordinary amount i n those three years, by just working day and night, and. enjoying it thoroughly, f o r the first time i n m y l i f e . Morris: Did you make up your own read.ing guid.es? Post: Yes. Interestingly enough, I used some guides, but I became interested i n Spengler's, Decline of the - West, which is so f u l l of so many references that out of t h a t , by spending about a year or a year and a half going methodically through t h a t book, and trying t o identify every one of the references t h a t he used i n it t o t h e Faustian and. other cultures, you know. He would talk about Pythagoras and. so on, so I would g e t books and keep looking up a l l of these references till I could understand what he w a s talking about. It w a s an awfully backward way of doing it, but it w a s one t h a t sustained m y interest. So when I finished Spengler's Decline of the West, I had covered a l o t of territory. W e had a county l i b r a r y nearby i n Arcadla, and I would walk over there with m y dog i n the morning and take baok an armful of books. I went on the Big Red s t r e e t c a r l i n e t o work every day, which was good. f o r read.ing. In the summers we'd go t o Long Beach because we were renting and f r e e t o move and. I would ride those red cars t o Los Angeles t o work. This gave m e a chance t o swim, which I became very much interested. in, and l a t e r w a s on the swimming team at 0ccid.ental. And. then I would also read the forty-five minutes t o an hour a t lunch; I always read. I just did an enormous amount of reading, and. had. a r e a l b a l l out of it. Then I a l s o went t o some night schools i n a r t d.uring t h a t period of time. Morris: Where were these offered? W a s t h i s p a r t of the college? Post: The first one I ever took was a l i t t l e class t h a t was run by the former art e d i t o r of the Los Angeles - Times, who lived i n Sierra Madre, and who had. a class up there. It must have been some adult education class, because I didn't have t o pay any- thing particularly. H e was a man who put us t o drawing i n charcoal a l l kinds of common objects. I remember especially drawing a cello. The old disciplined type of training. It w a s fascinating. He w a s a man who represented the old school, beard and a l l , you know. Marvelous old gentleman. Morris: [laughing] New school. Post : That's right. But he w a s the old. world artist. From there I went t o a l l kind.s of schools when I returned t o college. By t h a t time, I w a s so smitten with art t h a t I took it as a minor. Oh, I a l s o went t o Los Angeles Junior College f o r about one year while I w a s working i n the bank. That was excellent. The teachers were lousy. No, one of them w a s lousy, and one of them w a s excellent. But it w a s a good class, the first time I ever had a nude mod.el, so that t h i s w a s an excellent l i f e class. h e of m y associates--I never knew who he w a s at the time--turned. out t o be Jaak Burroughs, who w a s the son of Edgar Rice Burroughs. He l a t e r became a professional painter. H e w a s a charming person, and. he never told m e who h i s father was. I learned it only several years l a t e r . That's one thing I remember well about t h a t class. So then a f t e r 1936, things improved enough t h a t I w a s able t o go back t o Occidental. I'd already spent two years there as a freshman and a sophomore. M y f a t h e r had negotiated with h i s usual capable salesmanship half scholarships f o r me and m y brother. I rode i n on m y brother's academic reputation. Morris: Two college educations f o r the price of one? Post: For the price of one. They were very generous. They even loaned us the other half, as it turned out, so we got by by the skin of our teeth. W e had dropped out and I worked the three years i n t h e bank. M y brother went back t o Chicago and t r i e d t o s e l l r e a l Post: Morris : Post: Morris : Post: Morris : Post : Morris : Post: e s t a t e with m y f a t h e r t o get a development going back there. Then I went back t o school i n 1936, a f t e r three years i n the bank, -- Did they l e t you pick up as a junior? Yes. I had finished two years. I s t a r t e d as a junior then, and with m y background it w a s very easy f o r me. From that point on I had practically s t r a i g h t A ' s and. w a s able t o turn what w a s a mediocre acad.emic record into Phi Beta Kappa. I n two years. In two years. I w a s a good stud-ent when I went back. I also worked during t h a t time. I had almost a l l the good jobs t h a t were around. I w a s the auditor f o r the stud.ent union, and. w a s a checker at the restaurant. I w a s the reader f o r the chairman of the economics department. I sold Saturday Eveninq - Posts. I was the treasurer f o r m y f r a t e r n i t y , f o r which I got m y board. and room. That w a s a very good job. Yes, it was. I w a s a gardener f o r the school, and I w a s a janitor and swept the chapel and. other buildings a f t e r work. I was--oh, l e t ' s see. A l l kind.s of things l i k e that. Oh, I w a s the a s s i s t a n t t o the graduate manager, handled a l l t h e t i c k e t s and t h a t s o r t of thing f o r a l l the football games. How did. you f i n d time t o go t o classes? Well, as I say, I was pretty well prepared by t h a t time with t h i s reading I had done. I w a s talked out of going i n t o medical shool, which is what I had gone back t o school thinking I wanted t o do, because I was told. t h a t I r e a l l y couldn't afford. it, t o carry t h a t kind of load and. s t i l l make up a l l the deficiencies t h a t I had i n chemistry and physics and so on, because I had no science background a t all. Since m y f a t h e r w a s a businessman, and I had worked i n the bank and had found. the financial world Post: to be quite interesting, I went into economics. I was a major in economics -- Morris: Who talked you out of going into medical school? Post: Dr. Selle, who was the chairman of the physics department, I guess it was. He was the advisor on pre-medical ed.ucation. He seemed to think that it was too much of a burden for me to undertake. It might well have been. As it turned out I was grateful that I did what I did. But I was very much interested in art, and. I took a lot of that too. Morris: Who do you remember from the art department? Post: Well, there was Kurt Baer Von Weisslingen who was a German, who later went to UC Santa Barbara. He was a very interesting man who was personally acquainted with Neutra and the German school. He was very good in music as well as design. To me, this was absolutely fascinating, because he developed the cultural relationships between the German expres- sionists and modern music and painting, and did it in a way that excited my imagination. I found him very interesting. On the painting side, we had extraordinarily capable people. We had a water-colorist who was one of the finest in California, named Tom Craig. He was of the Millard.Sheets, Milford Zorne group, and was about twenty-eight years old at the time, dynamio, vigorous. I worked with him a good d.eal thereafter. We'd go to night classes after school wherever we could get a nude model, to paint from the figure. We couldn't & that at Occidental. We had life drawing, but it wasn't nude. This was more difficult, you know. A clothed model is not nearly so good to work from as a nude model. We'd go up to Glendale, or Muir Tech, or anyplace we oould find a model--mainly up to Glendale. I guess it was generally at the community oollege level where you could get these. Craig thought I was talented, and gave me the only A++ I ever got in any subject, in painting. Morris: Oh, that's marvelous. Post: He was a tremendously exciting and interesting man. He died just about a year ago. He had showed regularly. He had. works i n the Metropolitan Museum, and at t h a t time w a s one of the very bright young painters i n California. The other painter who was very influential w a s the l i f e class man, Onestes Uzzell, who had studied at the A r t Students League i n N e w York. He w a s a student of Robert Henri, and had an extraordinarily well-disciplined approach t o painting, and it w a s from him that I derived,I think, the best instruction I ever got from anybody. The Henri approach through the A r t Students League is i n m y view an extra- ordinarily good method. NEW W O R L D S CONQUER Post: So, Occidental offered, f o r a small school, what i n m y opinion w a s an unusual program i n music and art. When I went back t o Princeton as a graduate student a t the end of m y Occidental career--I graduated i n 1938--I found none of t h a t same kind of dynamic, active art role being played by Princeton. Princeton w a s primarily oriented toward art history. It had a f i n e museum on campus--and they were close t o New York, so t h a t I was able by bumming rides with the faculty t o get i n and out of New York a great d.eal. This w a s a tremendous experience t o m e i n the two years t h a t I spent at Princeton i n the graduate school of economics. I painted then outside of class, t o the extent t h a t one o r two of m y professors were somewhat c r i t i c a l of the f a c t t h a t I wasn't studying a l l the time i n economics. I simply could not have survived. i f I hadn't done that. I used t o go i n t o New York, where I would go t o the l i t t l e gallery t h a t showed John Marin, and Georgia OIKeefe, and Dove, and which w a s run by the great photographer Alfred Steiglitz. S t e i g l i t z , as you know, w a s the husband of Georgia OIKeefe. Morris: And he was running an art gailery? Post: He had the art g a l l e r y originally called. an American Place, but which when I was there had. moved. over t o Madison Avenue. It was a very delightful gallery. It had i t s own group, which is a very famous group, Arthur Dove, John Marin, Georgia OIKeefe,--oh, Marsden Hartley. That w a s about it. And. of course they a l l became greats i n American art. I used t o go Post: i n there as a graduate student, and a very nice young man would l e t m e pore over a l l of the un-matted watercolors of John Marin which they had. i n stacks. And of course, here I was, a watercolorist who had studied from Tom Craig, and addicted t o watercolor, I w a s able t o l i t e r a l l y just run through the works of the master there, who was the great master, of course, of our time, i n watercolor. I w a s constantly dickering /with the gallery t o buy a Marin cheap, But i n f a c t I had absolutely no money when I w a s i n Princeton. I went there without a cent t o m y name, really. I had sold r e a l e s t a t e t h a t first summer i n San Bernardino, going around house t o house trying t o s e l l beach l o t s i n t h a t h e l l i s h climate of San Bernardino. That's where I r e a l l y learned t o have doors slammed i n your face, and how t o be a r t f u l about a l o t of things t h a t I've since regretted t h a t I have become acquainted with-- such as, when you come t o a d.oor and a black person came t o t h e door, you always asked where you could f i n d something r a t h e r than t e l l them you were s e l l i n g r e a l e s t a t e , because you couldn't s e l l t o a black person. Because these were beach l o t s i n Balboa, you see. It always galled me, and made m e come t o appreciate i n a way t h a t I never had. before, the other side of l i f e i n America. In the school t h a t I had gone to, i n South Pasadena, there w a s no such thing as a black person. I had never had any r e a l contact with a black person, except i n Arizona where we had a Negro cook, who had a l i t t l e child who ran around with m y s i s t e r a l l the time, when they were very small children. She was the pickaninny, and t h a t was a l l you knew about the blacks. But t h i s s e l l i n g experience opened m y eyes t o some of those things, and I think r e a l l y colored m y a t t i t u d e i n a very significant way, Morris: [Question added t o rough transcript sent t o Post f o r review.] How d.id t h i s s e l l i n g experience a f f e c t your a t t i t u d e toward blacks? Post : [Written reply. 1 1. It made m e realize how t o t a l l y unfair and b u i l t - i n our discrimination is. Post: 2 . I t made me understand.how difficult it would be to eradicate it. 3 . I began also to realize how white persons accept the discrimination and that moral judgements are not made. White people are not consciously evil in accepting discrimination. They must be mad.e to see the evilness of it. 4. I have tried.in every instance when this issue was apparent to assist in promoting factors which would.establish equality of opportunity. This has been particularly true in recent years when the issue became clearer, in the education field.and.in social welfare and Medi-Cal. These issues are involved in many pieces of legislation and.I merely tried to give appropriate credit to the minority need and claim for equal treatment. Graduate Studies at Princeton Post: So I went back to Princeton with one land sale under my belt that was supposed to produce $750 in commission. We were selling lots at that time in San Bernardino because at this point we had.moved. there. My father was selling land.which had been foreclosed under a bond.issue, and.so as we lived. there, selling those lots that were outside of San Bernardino in the Cajon Pass, we built our own home, largely out of trading commissions on land sales for materials for our house, and for labor. So we built ourselves a very nice, large adobe house on top of a hill 0utsid.e of town, which my brother designed and constructed, actually. In the meantime he--I mentioned that he was inventive--had started build.ing tilt-up concrete build.ings by a method which he had worked out himself. Morris: This would. be in the thirties? Post: This w a s i n 1934, '35, and ' 3 6 . He went down t o the railroad yard.s and got miscellaneous gears and developed cranes so he could l i f t up the concrete w a l l s , t h a t were l a i d on the ground with reinforcing-- crank them up i n place. He sold. the houses f o r $750, t o start with. W e did nothing but lose money, because they were too cheap. He gradually got the price up t o several thousand, I think, f o r the l a r g e r houses, but it never was a very good economic venture. It w a s successful from a technical standpoint, but he r e a l l y didn't know enough about costs, I guess, t o come out very well on it. But i n that way we survived during those years. I, i n the meantime, w a s going t o Princeton. I would come home during the summer, and. help work with him, digging s e p t i c tanks, and. hold.ing strings, doing a l l t h a t s o r t of stuff. I had absolutely no i n t e r e s t whatsoever i n it, it was just a kind. of a chore. Morris: Where had your brother gotten t h i s id.ea f o r t i l t - u p construction? Was anyb0d.y e l s e yet trying it -- ? Post: He always was inventing things. He invented a new baler--we had pick-up balers i n Lancaster, and he developed a torque kind. of device t h a t milled the hay a t the same time it picked it up, and blew it i n t o t r a i l e r s t h a t came along. I was told. t h a t International Harvester came along and. picked it up, and patented. it and developed it. He was always working a t things, ever since he was a small child, inventing things. If he ever came up having t o do anything, he always redesigned the wheel himself, you know. NO, I think he just thought it would be a good idea. I never knew of anybody e l s e who did it before that. During the early w a r years, when agricultural prices s t a r t e d jumping, we decided. we could do b e t t e r t o farm the land. that my f a t h e r was trying t o s e l l a t Lanoaster than t o go on trying t o s e l l it--they moved. up there. That was i n 1941, I think, '40 o r '41. He had h i s own machine shop then and he w a s constantly inventing everything t h a t went on the farm, t o keep t h a t alfalfa going day and. night. Because t h a t ' s what ran a l f a l f a , the mechanical side sid.e of it, you know. Morris: Because the crops grow so fast. Post: You run the water day and night. The pumps went constantly. He'd get up every two hours a l l night long t o change t h e water. When a d i t c h went out, you'd. get up and f i g h t it, because a t times it would break through those sand banks, and you'd have t o go out and r e p a i r the break. You kept going from one l i n e to another. You run i n the water by gravity down these large channels. You have l i t t l e r i s e s of earth between the grain rows t h a t channel it. Checks, they c a l l it. The water came from a ditch t h a t ran a t the highest point along the top, and then you'd flood one, and, then you would put a half c i r c l e metal damming d.evice down and cut off the water and go on t o the next one. And of course when the sand bank went out, why, then you'd stand there and. slug yourself sick trying--by throwing earth in, so you didn't have t o shut down the pumps--to f i l l the break. And t h i s ultimately gave him a heart condition t h a t caused him t o have t o r e t i r e . For example, he invented a machine t h a t used two water barrels, t h a t automatically, as you went along, leveled the land. In other words, the water leveled so that t h e blade would. conform t o any tilt of the water as the land would. tilt. The water would always keep the blade level, geared t o the water. Morris: To plow land? Post: No, t h i s w a s f o r levelling the land when you develop it, new. When you put it i n a l f a l f a you had. t o have it very l e v e l , so the water would run i n a very l e v e l manner d.own the check. The first job i n a l f a l f a land. d.evelopment was t o l e v e l the land.. Well, rather than going out and having people put a l l of these l i t t l e stakes in, he decid.ed t h a t he could build a large blade, and using the principle t h a t water would always seek i t s own level, he d.evised some basis where the b1ad.e would. adjust to the level of water, so t h a t he could. take t h i s thing and just run it along, and. it would always maintain a level without using instru- mentation of any kind. Morris: Did it work? Post t It worked very well. I never forgot t h a t , so when I b u i l t m y swimming pool here i n Sacramento and. being no kind of a construction man myself--(I did some digging, p a r t l y f o r exercise, using a Padd.ock plan some twenty years ago)--when I came t o l e v e l it up, I used the rainwater t h a t had f i l l e d up the bottom and measured up an equal distance from. t h e water t h a t had i n the meantime f i l l e d it, remembering h i s experience. I used. water w a s a level. That way I didn't have t o go out and get the instruments they usually use. It worked beautifully. So I never forgot that. Anyway, I went back t o Princeton. I was there two years. I w a s i n a c l a s s of about f i v e people. It w a s a marvelous experience. The East w a s a tremendously exciting place t o me. Princeton w a s beautiful, absolutely marvelous. W e were a select group. I w a s the only one who came d.irectly from college. A l l t h e others had had at l e a s t one year of grad.uate work, so it w a s hard. f o r m e t o keep up. But I took m y doctoral exams, the general exams, at t h e end of the second year, and passed. them. A t t h a t time I w a s a junior fellow, which made l i f e e a s i e r than the first year, when I almost starved t o death. I l i t e r a l l y a t e one organized meal a day, which w a s m y breakfast and which came with the room. I think I paid $5 a week, and. f o r t h a t I got breakfast with the family, who were very kind t o me. For lunch I had an i c e cream cone, and f o r dinner I had, f o r I think seven o r eight months, [laughing] the same supper, which was a banana and two s l i c e s of bread with a piece of cheese i n between. And a glass of water. That went on f o r about s i x o r seven months u n t i l I began t o g e t kind. of ill, and then began t o g e t some other food. I mentioned, t h a t I made $750 as a s t a r t i n g point, t o start school, but unfortunately t h a t d.eal f e l l through a f t e r I got back t o Princeton, so I r e a l l y then w a s l i v i n g off the charity of my family who would send m e whatever money they could. manage t o scrape together from time t o time on land sales. And. I borrowed. I borrowed. from the school, and I a l s o Post: borrowed from my mother's cousins who I found living back there. They were wonderful Quaker people, and to my great interest I found.that I was remotely related to the Cadwallad.ers of Philadelphia and Yard.ley,which is, you know, a very prominent family like the Cabots and the Lodges in New England. The Cadwallad.ers seem to occupy that same role in Philadelphia. I first found that out when I went to the Princeton theater, McCarter Theater, and we saw the Philadelphia Story. One of the characters in it was a Cadwallader, and I turned to the man next to me, who was one of my five classmates in graduate school, and. said, "Hey, I ' m related to that family." He turned.to me and said., "Is that right? Well, I ' m impressed!" Incidentally, that person is now the treaurer of the Ford Motorcar Company. Morris: He was a classmate in the Princeton graduate school? Post: Yes. Morris: What were the particular economic theories you were studying? Post: Well, I was always a little more conservative than most of the others, because I came from a very conservative, Republican family, who always schooled you on conservative economics. And I had, you know, worked up through the bank, and.had that kind of conservative background. I always found that I was somewhat more conservative in economics than most of my associates. I was primarily interested in banking and inter- national economics. I wanted to go back and.be president of Security First National, or chairman of the Federal Reserve Board., or something like that. Nothing small. Morris: Was Princeton particularly noted for banking? Post: No. It was good, but this is the kind of thing that happens to you in a school like 0ccid.ental. My mentor there was the chairman of the department, who was John Parke Young. He was a distinguished economist. He and Arthur Coons differed over where I should go after I graduated. Coons wanted me to Post : go t o Harvard., and Young wanted m e t o go t o Princeton, where he had come from. Well, I was very close t o John Young. H e w a s chairman of the department, and I w a s h i s reader. So I decided t o go t o Princeton. He t o l d m e it would be a small, very distinguished i n s t i t u t i o n and department, and I believed him. That's the way it turned out. So with h i s good a i d I w a s able t o get in. And t h a t ' s why I went there, frankly. Also, Princeton w a s a school t h a t w a s good f o r fellowships. I f you could get in, everything w a s endowed. The milk on the table was endowed. Everything was endowed. Morris: The fellowship d.id, provide you with some -- ? Post: The second year. The first year I went back there-- as I say, I had. come directly from college, and the r e s t had been at l e a s t one year i n Harvard. o r some other fine school. Some of them had been out two years. So they were able t o get fellowships. Even though I had good. recommend.ations and good grades, they also had them. They were able t o get fellow- ships, and I w a s not. So the f i r s t year, as I say, I l i t e r a l l y got along with nothing. Morris: Bananas and ice cream. Post: That's right! I borrowed what money I had. t o t o pay m y tuition. In those days t u i t i o n t o graduate school was $200 a year or a semester. It was very s m a l l , because t h a t w a s the kind. of endowment situation you had with t h a t very s m a l l graduate school. After a l l , there were only f i v e of us admitted t h a t year i n my class. Morris: To the whole graduate schoo:Z, o r t o the graduate program i n economics? Post: To the economics program. There were two hundred. and f i f t y i n the grad.uate school. The second year, I w a s on a fellowship and I lived. i n the grad school, and. I wore a gown, and I lived the l i f e of Riley. I a t e well, and I enjoyed l i f e much more. Morris: Princeton has a very f i n e academic trad.ition. D o they t r e a t t h e i r scholars well? Post: It's a wonderful school. The classes were small. The largest class I had had seven i n it. In the smallest, there were three. There were very close interpersonal relationships between the faculty members and the students. I s t i l l retained my love of a t h l e t i c s , and used t o play football every day with the faculty and graduate students. W e had interesting people there. Ken Galbraith w a s there a t the time, people of that calibre. Morris: Where was Galbraith i n h i s career at t h a t point? Post : H e w a s an a s s i s t a n t professor, I believe, at Princeton, then. He spent a great d.eal of h i s time going t o Washington. I never had a class from him. I just a t e a t the same dinner table from time t o time at the graduate school, and got t o know him s l i g h t l y there. He w a s disgusted with m e f o r wanting t o go back t o California. Interestingly enough, he got h i s degree, PhaD., from the University of California at Berkeley. And yet when I said I w a s going back t o California, he looked kind of disgusted, and he said, "For the climate?" Because he really i s an Eastern Seaboard man i n every sense of the word.. M y understanding is t h a t he was one of Henry Wallace's bright young men when Wallace w a s secretary of agriculture and vice-president under Boosevelt. After the w a r started, Galbraith became one of the deputy price administrators under Leon Henderson. M y sister-in-law's husband, John Hamm, w a s chief d.eputy, so I got t o know Ken Galbraith b e t t e r i n Washington, D.C., when we stayed briefly with the Hams before I went into the Navy i n February, 1943. Am I t e l l i n g you what you want i n relation t o the l e g i s l a t i v e analyst's office? Morris: Very much. Your youth i n California when much of the land w a s being opened up f o r development is very much a part of how you got t o be t h i s kind of man, and how the land has been developed. has determined Morris: t o a great extent what happens with the government of t h i s s t a t e , Post : Actually, you know, i n t h i s business, one of the first things t h a t Mr. Vandegrift talked t o m e about w a s the f a c t t h a t he liked people who had a disciplined training, so t h a t they could d.eal broadly with any subject, but who a l s o had many contact points with the problems and i n t e r e s t s of society. In t h i s sense I had a great many experiences. The kinds of work, what I d.id as a young man, m y f a t h e r bouncing a l l around California--touched almost every area of California, W e traveled extraordinarily, Morris: How far north did you get i n t h i s process? Post: Oh, m y f a t h e r even investigated land up at Grass Valley, I remember back i n the old days where we used t o t r a v e l back through the mountains, it w a s a l l one lane, You had t o back uphill, it seemed. l i k e miles, whenever you met a car. W e went i n t o the most remote kind of country, W e lived b r i e f l y i n Marysville i n the l a t e 1920's. W e lived i n Orland. M y f a t h e r was involved i n projects a l l over the s t a t e of California. M y brother was born i n Spokane, W e l i v e d f o r a while a l s o i n S e a t t l e , and then again i n Arizona. W e were living and traveling a l l up and down the coast, M y father was president of a corporation t h a t handled land development, and as I say, w a s r e a l l y very successful when times were good, and then because he w a s kind of a plunger, would lose everything when things went bad. A t one time we lived i n a beautiful old e s t a t e up i n Red Bluff, where I r e c a l l we had a dancing pavilion under the black oak trees, W e swam i n the stream, we fished. We'd go up the Yuba River and s w i m i n t h a t beautiful c l e a r water with the marvelous huge rocks and deep chasm; it w a s just so transparent and beautiful, W e were constantly going out i n t o t h e country, into the mountains, i n t o the orchards, This r e a l l y became a great part of what brought m e back t o California, the desire t o touch base with the natural beauty of California, When we lived i n Southern California we spent much of our time swimming at Balboa and Laguna Beach, Post: W e were never fishermen o r hunters o r anything of t h a t kind, but we were always outdoors. M y f a t h e r w a s always traveling o r s e l l i n g outdoors, and we had t o w a i t on him a great deal of the time while he would go i n and t r y t o corral a prospect. So w e would wand.er around the orchards, and. you'd. get the f e e l of agriculture i n your veins that way. Later when the depression arrived I had the s e t of experiences that came with having t o work f o r a living, something I had never experienced at a l l up t o t h a t time--going out and fighting f o r a l l the odd jobs, which, as I say, were so numerous and diverse, at the same time t h a t we were pursuing these cultural interests. M y folks insisted on studying with good people. W e studied with the Zoellner Quartet, which w a s one of the famous f i n e quartets i n Los Angeles. I w a s very much interested i n dramatics i n high school, and w a s i n plays i n Pasadena Community Playhouse. I had a hard decision as t o whether I would pursue drama o r go into art when I went t o work at the bank and had time on m y hands, and. decided I could move out i n t o night school. I went down t o LA J C and I had t o make a decision whether t o join up i n drama or join up i n art. I decided I would rather go into art, so I went that d.irection. But a l l those things s o r t of opened up contact points i n Southern California. When w e lived i n the San Bernardino area, a s I say, I went out t o Riverside, went out t o Colton, painted out i n the country, a l l around there. W e used t o take painting trips. M y brother and I used t o go a l l up Highway 1 t o Point Arena and through t h a t country, painting day and night, living on the beach. W e had. wond.erfu1 experiences driving an old Ford car. N o money, but actually using every resource we had. I remember coming back the last time--I had wanted a l l m y l i f e t o have a leather jacket, and I could. never afford it. Finally the Broadway Department Store had a s a l e on them, and we went down and. bought one. That w a s a d.ream come true! Post: Post: Morris: Post: I wore it f o r a number of years, and when w e got up t o Point Arena, on one of our painting t r i p s and started on back, down through Elk--we were going t o drop over the mountains t o come inland t o come home--we had a f l a t t i r e on t h i s old car. And I used up t h a t leather jacket making boots t o get t h a t car home. Piece by piece by piece, w e wore out t h a t old leather jacket, putting it i n the hole u n t i l we got back t o San Bernardino without two cents i n our pockets. Marvelous trip. Coming down out of the mountains we coasted wherever w e could coast, really. W e had one breakdown--we spent one night i n Santa Rosa under a bridge fixing the car. Just a marvelous experience. W e came back with just a whole battery of water- colors, some of which occasionally I s t i l l see, because people i n Sacramento have bought them. I s t i l l have some of them a t home. Cross-Country Experiences And then when I went E a s t it w a s a whole new experience. The Princeton experience i n the E a s t w a s so different from California. I rode the bus f i v e days and five nights t o get back there. The f i r s t cigaret I ever smoked, the first prostitute I ever saw, were during that t r i p . The first art gallery t h a t had anything l i k e Cezanne o r Matisse-- because the l i t t l e gallery i n Denver where I got off f o r a few hours had a marvelous collection of con- temporary painting. That's where I r e a l l y got m y first t a s t e of the school of Paris. Took a shower there, I remember a t the YMCA. Saw the gallery and. got back on the bus again. There was a two o r three-hour layover. Kept on going. W e arrived i n the East i n the hurricane of 1938. I w a s i n Connecticut at that time; t h a t hurricane w a s a major event of m y youth. That's right. This w a s the hurricane of 1938, and. I said, "Lord, I heard that the weather w a s t e r r i b l e Post: i n the E a s t , but I had. no idea it w a s going t o be l i k e t h i s ! " Morris: That w a s an exceptionally bad year1 Post: Oh, it turned out t o be t h a t way. And the bus driver w a s late. He would only stop t o l e t us go t o the bathroom. W e had nothing t o e a t , as I recall, t h a t whole last day. W e went on and on and on, just driving through t h i s horrible storm. W e got t o Princeton about two o r three o'clock i n the morning. I went and found that l i t t l e hotel on Nassau Street, Frenchy somebody's. Went upstairs and went t o bed. Got up the next morning and went down and asked f o r breakfast. She said, I 1 M y dear, it's four o'clock i n the afternoon!" I had really conked out. A s you know, on a bus l i k e t h a t , a f t e r a while, you just sleep off and on and off and on, but you really are pretty well worn out. So I went out, and oh, it was marvelous. There were t h e corn f i e l d s , and there were the crows. There w a s a lovely old Quaker church. I painted furiously u n t i l school started. And then the snow came, the first time I'd ever seen snow. Princeton i n the snow i s just absolutely delicious. I remember running along the s t r e e t and thinking, "Isn't t h i s great t o run in!" I came t o a place where somebody had swept off t h e i r d.riveway, and I leaped across it, lit on the other side, and went sliding on my t a i l about t h i r t y f e e t down the s t r e e t , embarrassed t o tears. That w a s my first experience i n how not t o behave i n snow. But it w a s really a marvelous experience. Then here were a l l those exciting Easterners. To begin with, however, n0bod.y would t a l k t o you. Here I had gone t o a small Western school where I had been the checker, as I say, at the cafeteria. I knew everybody who came through, because I told them what they owed. I had been deeply involved. i n a l l kinds of things. But a t Princeton, nobody talked t o you. The Easterners were very arch. This w a s a great blow t o me. The only person who r e a l l y showed any personal interest i n me, i n Princeton as such, other than the five students o r so that were with m y class i n the graduate school, w a s a Jewish boy, George Post : Shaskan, whose father owned a seat i n the stock exchange, and. who w a s a very b r i l l i a n t young man. He w a s an undergraduate who was permitted t o take graduate courses and read i n the graduate office t h a t they had. d.own i n the basement of the library, So I used t o go down there and read a l o t , and t h a t ' s where I got acquainted with him, H e w a s very hospitable, He also belonged t o one of the eating clubs. I discovered l a t e r that it w a s t & Jewish eating club. There weren't too many Jews permitted i n Princeton, and a l l of the members of h i s club were Jewish, I believe, It w a s m y first introduction also into the Jewish world, because although I had gone t o school with a Jewish boy, I never knew he w a s a Jew, Jews, as such, just didn't exist i n our life--we had no bias i n our background as t o Catholics o r Jews. Morris: N o contacts? Post : Well, w e had some contact, but we never thought of it t h a t way. M y folks never talked about Jews as such. I never knew there w a s such a thing as a Jew, really, u n t i l I suddenly w a s immersed i n a r e a l Jewish family. George insisted t h a t I go t o Long Island with him. This was a great baronial mansion owned by h i s family on the beach a t Long Island. H i s mother w a s one of these wonderful Jewish mothers t h a t my son talks about with such relish, because a l l h i s roommates i n college seem t o be Jews, and he loves them. She mothered m e and the f a t h e r wanted m e t o come i n t o the firm. It w a s just a wonderful, delightful, but different experience f o r me, A l l these things have some r e a l impact on you as you think back on it. But then there were, as I say, these exciting contacts with Washington, exciting contacts with New York. The foreigners who came t o Princeton, l i k e Oskar Morgenstern, who had. just come from Austria where he wrote one of the world.'^ definitive mathematical economics books with John Maynard. Keynes. Contemporary Economic Theories Morris: Wasn't t h i s about t h e time t h a t Keynes theories were coming -- Post: That's right. Keynes was big. Actually, before t h a t , w e studled Keynes at 0ccid.ental. Keynes at t h a t point just had become part of the l i t e r a t u r e . I remember I had. an awful time with Keynes because I had. no r e a l mathematical background.. It was t e r r i b l y frustrating t o m e t o have t o work m y way through equations t o understand. economic matters t h a t I could und.erstand, very clearly i f you used the English language. But when you moved. over i n t o equations, that was baffling t o me. I remember stand.ing d.own i n t h a t l i b r a r y reading room and. f o r personal satisfaction taking the General Theory of Keynes, and. throwing it the f u l l length of t h a t room just t o get it out of m y system and, t e l l him what I thought of him f o r d.oing t h a t t o people l i k e me. Yes. That was a time when he was r e a l l y very, very important. A s he s t i l l is, of course. But part of Princeton's advantages were that they brought i n famous people. W e met b r i l l i a n t economists from a l l over the world. W e met them i n s m a l l c i r c l e s and. had a chance t o r e a l l y t a l k t o them. It w a s the kind. of experience t h a t you could only, I suppose, d.uplicate i n those days at Berkeley. Morris: In the west. Post: In the west. That w a s commonplace t o those associates of mine i n the east who had d.one und.ergrad.uate work at Harvard, where they knew Schumpet e r , and. Haberler and. other very distinguished economists. In f a c t , one of the f i v e members of m y class had. spent one year on a fellowship i n which he traveled. a l l around Europe, meeting Keynes and, economists of the Cambrid.ge school. H e came back as the most "savvy" member i n the class, because he had had graduate work and. had gone t o Harvard. and. had. t h i s exposure. He knew everyb0d.y. I was just flabbergasted, because I knew Post: none of these names. I remember one of the professors one time asking m e about so-and-so. I explained what he had. said. Well, he said, "Now, who wrote that?" I said., "I d.on9t know." He s a i d . , "I guess t h a t i s n ' t important t o you, i s i t ? " You know, very sarcastically. And I realized t h a t you had. t o not only master t h e logic of economics, but you had. t o know who s a i d . it. It w a s Pigou. I had never been through t h i s kind of training l i k e they had, i n terms of id.entifying people with id.eas. Somewhere along the l i n e , I had. simply gone through the id.eas, and, could work m y way through them. In f a c t , I w a s pretty good at that. I could. sometimes get answers t o problems t h a t others i n the class couldn't. And. yet I couldn't explain it. The professor would. say, "Well, you've got the r i g h t answer. How did. you come t o it. " I would say, "I d.onVtknow. If you think about t h i s thing, the thing s o r t of opens up and. i t ' s perfectly c l e a r how you add. these things together, and t h i s is the way it is." He s a i d . , "That's absolutely right. But you don't know how you logically come t o that." I would say, Wo, I don't. It's just a kind. of--it's just as though your mind opens up, and. there it is, c l e a r as a bell. And. I can't explain it." This happened time and. time again. I could.ngt trace back who said it. I n some cases it w a s because I d.idnmthave t h e mathematics. I couldn't explain the mathematical progression t o come t o t h a t answer. It w a s always kind. of baffling t o m e t o work through that. M a r r i a ~ eand. Career Exploration Post: Then--I met m y wife-to-be at Princeton. She w a s there v i s i t i n g her s i s t e r . Her s i s t e r had. married a very bright young Princeton man who w a s working i n New York with the Russell Sage Foundation, named John Hamm. He l a t e r became the chief deputy i n the Office of Price Ad.ministration d.uring t h e war. He w a s Ken Galbraith's boss and t h e number two man i n OPA. They lived. i n a l i t t l e farm i n Princeton, and. t h a t ' s where I met m y wife-to-be, Helen, who w a s called. "La Belle WillsN--her name w a s Helen Wills, l i k e the t,ennis Post: player, who was a remote relative. The graduate students called her "La Belle Wills" because she was a beautiful girl. She worked in the bursar's office, and everybody used to ad.mireher carriage as she strode to work in the morning. I met her through one of my associates in the graduate school when we went to visit the Hamms one night. We got married.after I came back to work in Southern California and. earned enough money to send for her. Morris: That's a nice Victorian tradition! It really is. Post: Yes. We became acquainted, and then I didn't see her for several months. I had very little money, even though I was then a fellow. Outside spend.1ngmoney was small so I didn' t do any d.ating. However, she had an operation for appendicitis, and I heard about it, so I went to visit her at the hospital and brought her a book that I had bought on art, at a book sale in the Princeton book store. It was so heavy she said that every time she picked it up it hurt her. So this was the way we began our romance [laughing] on a painful note! But we then became better acquainted. I came back west in 1940, after I finished my generals. I decided not to take another fellowship and do the dissertation, partly because I was sick and tired. of school. It had been a long haul for me, seven years undergraduate and. through graduate school. I didn't want to teach, and so I thought I might as well get on back to the world of merchants. I came back and applied to work for the Security First National Bank, who took one look at me and said., "We could never keep you in a million years," which I thought was a dismal appraisal of banking. They sent me down to Schwabacher and. Company, which was an investment house, which I found incredibly dull and stupid and illogical. People reacted on the basis of what they felt, or what they thought was the state of the war, or anything other than a logical economic appraisal of the circumstances. So it seemed to me. Money ran scared every time somebody said something. After about, oh, I don't know, seven or eight months in that, John Parke Young came forward Post: and asked me if I wanted to teach a class at 0ccid.ental College. In the meantime I had gotten married, and we lived in a little place up on the hill overlooking Silver Lake in Los Angeles. I went to work at Occidental on a half-time basis, and worked with another brokerage house in downtown Los Angeles. WhichlIstill found very dull. But since the war was breaking out at that time--this was 1940, *&I-- John Young was called. to Washington to go in the state department and I took over his classes full time at Occidental. From that time on, then, I was out of the banking business, and was in the academic world. Morris: That's interesting, because you had d.ecided you did.nl t want to teach when you were leaving Princeton. How d.id you like it when you -- Post: I loved it. I loved teaching. As you can see, I like to talk. When I went to teaching at Occidental, I found.it fascinating. I enjoyed it immensely, and probably would have continued.,at least for some time, had. the war not intervened. As I said, I resigned and went to Sacramento in 1941. I found myself liking what I found.here in Sacramento. I liked the legislature. I liked the debate before committees. I d.isagreed violently with Rolland Vandegrift on the first issue that I had to handle. This is what happens to people. First Assignment for California's Legislative Analyst Post: He assigned me the job of researching extramural care in the mental hospitals, which was then a new thing. I went over to the predecessor of the Department of Mental Hygiene, which was then under Dr. Rosanoff, who was the first real fresh air I think in that agency.* *The designation Department of Mental Hygiene was first used. in September, 1945, following a major reorganiza- tion of staff, program and. responsibilities of the former Department of Institutions. Post: (It was a relatively new approach to mental hygiene as a matter of fact. ) I should say probably it was the first fresh air in the mental hospitals as such. The first constructive thinking which was later to be associated with the major reforms in the Warren administration. I went over there and became sold. on the concept of extramural care. I came back over here to the capital. We prepared for some meetings with our committee, and I was given the opportunity to present this subject. There was a series of papers on different subjects. Mine was on extramural care. After I started I could see that Mr. Vandegrift was upset with what I was saying, because it was obvious that he, being very economy-minded, had decided. that extramural care was not a good idea. He took the ball away from me, and started to talk in quite an opposite manner from which I had. concluded., and what we had agreed on, and what I had written in the paper, which was that this, in its European application, was a very effective transition between institutions and accomoda- tion in the community. I remember very distinctly sitting there and devising ways in which I could get the ball away from him again, which I did by answering a couple of questions from a member and then swinging right back into my old theme, and never letting him get in again. Vandegrift was a good guy. He saw what I was about, and although he obviously didn't want them to think that he was going to increase the budget of the skate of California, he let me go on through. I had one member of the committee who was also sold on the idea. It was Senator Tickle who helped me get back on the track. Between the two of us, we kept that thing going until I finished it. I thought afterwards, "He's going to fire me, and that's the last experience I'll have in the state of California." But Rolland Vand.egrift wasn't that way. He admired, apparently, my determination to say my piece, and we became extremely good. friends. When I left, shortly thereafter, he said., "If you ever want a job, come back." In fact, he used to write me letters asking my opinion on things when I was in Post: the service and i n the s t a t e department. Then he called m e up one day i n 1945, when I was s t i l l i n the s t a t e department i n Washington and talked. m e into coming back out West t o be the f i r s t research director f o r the new Utah Foundation, i n S a l t Lake. He had been called over there as a consultant'to s e t up t h i s taxpayers' association. Rolland Vandegrift had had taxpayer association background. Morris: H e was head of that before he was s t a t e -- Utah Taxpayers' Problems Post: Director of finance. He w a s the f i r s t secretary of the California Taxpayers' Association. He was a b r i l l i a n t and able man, articulate, d.ynamic, imaginative, ingenious, tough. Really a f i r s t - r a t e , tough guy, when it came t o f a c t s and figures. He was a l s o a wond.erfu1 man t o work with. A l o t of courage, a l o t of enthusiasm. And controversial. So he was involved i n the Utah Foundbationand he got m e i n it. I went there directly from Washington. I knew nothing about what I was t o do. Gosh, it w a s a bum deal f o r them. I really, as they say, invented the wheel on t h a t job. Because I had never had any contact with s t a t e government, how it w a s organized, taxpayers' problems, highway funds. A l l of these things were kind of i n a mess, apparently, they thought. They thought they were getting somebody who w a s going to start taking the place of the old tax- payers' association, which had. been discredited. Utah had a great number of very wealthy industrial firms, i n Salt Lake, many of which were from outside the s t a t e , mining, and smelting, f o r example. They wanted t o keep taxes low i n Utah. The taxpayers' association had been run by a cantankerous old guy who was discredited. because he just said "nov' t o everything. They wanted t o give the organization a new look. So they s e t up a new taxpayers' association, and called it the Utah Found.ation, and kept the old taxpayers' association i n the background.. Post: I had. thought this was to be a research outfit, because this is what Vand.egrift had told.me. We were going to make a tax survey and so on in Utah. Then when I got through I would. come over to California. But when I got there I found.that it was really just another taxpayers' association, in a different guise. I just wasn't equipped.to do that sort of thing. We started out to do certain projects, and. wrote some reports. I had.associated.with me a man who was the general director. He was the old manufacturers' association representative. His idea was to get impact. I was the research d.irectorand my id.eaof it was to be scientifically accurate, you know, as an economist. We had real rows. Morris: That's quite a contradiction in point of view! Post: Well -- . I liked him. He was a nice old gentleman, but I simply would.not give my approval to the reports as he had. changed.them, because I said that what he had. done was simply not factual. He had made some substantive changes in them. So we were locked.up in complete disagreement. So they fired me. They came in and said.,"You know, this won' t d.o. You're the one that will have to go." I said., "That's fine," and. so I came over here and. joined.Vandegrift. I11 OFFICE O F T H E LEGISLATIVE ANALYST E a r l y Days Under Rolland. V a n d e ~ r i f t Post: That w a s i n March o r April of 1946. That's r e a l l y when I s t a r t e d on t h i s job. I was h i s number two man. W e had. a r e l a t i v e l y small staff. He b u i l t it up quite rapidly i n the three years t h a t he l i v e d and there were f i f t e e n people i n the o f f i c e when I succeeded him on h i s death. Most of the patterns of how we were t o operate had. by t h a t time been s e t , such as t h e design of the "Budget Analysis" and much of the way i n which you go about things. Morris: This w a s by you and Vand.egrift i n those three years? Post: With others, yes. But he w a s the one who really s e t t h e pattern. He had great oonf idence and f a i t h i n me. He a l s o would g e t p r e t t y excited sometimes a t hearings, and c a l l f o r m e t o come in and cool people down. Because he w a s so dynamic he r e a l l y got carried away on occasion. I remember he would c a l l and have h i s secretary bring a message in and pretend it was a phone c a l l , and g e t up and. charge out t o take the phone c a l l , and say "1'11 l e t M r . Post carry on while I ' m gone." It w a s simply t h a t he f e l t things were getting out of hand, because he'd been going a t people i n such vigorous fashion t h a t some of the members of the committee were a l i t t l e b i t upset--they didn't l i k e t o see people g e t taken on, o r perhaps because he might be blasting vested i n t e r e s t s ; i n h i s vigor t o g e t d.one what he thought w a s r i g h t , he w a s stepping on people's toes. He w a s marvelous t h a t way. But he a l s o would g e t t o the point where the s i t u a t i o n w a s almost out of hand. Post: 1 I was much more bland about things -- Morris: It sounds l i k e he d.idnlt wish t o embarrass the committee members. Post: Well, that's true. It was a d.elicate balance of pushing hard. on issues, and y e t not making them too antagonistic. This i s part of the work. You push your points. You have t o play it l i k e an orchestra, and know when you're getting too far in, and. reaction i s s e t t i n g in. Then you go back and. t r y t o smooth things out and then push ahead again. It's the s o r t of thing t h a t one who's good. at t h i s dialog learns very early. It's a fatal f l a w t o get somebody so mad t h a t he's on your back too hard. A t the same time, you have t o pursue your point with undiminished vigor and purpose. Morris: Did. M r . Vandegrift ever t a l k with you about how the o f f i c e came t o be i n the first place? Post: Yes. The o f f i c e grew out of an internal f i g h t between t h e Economy Bloc and Governor Olson. Actually, a number of members of the l e g i s l a t u r e had been thinking about an o f f i c e of t h i s kind f o r some time. There were some resolutions which had been introduced i n t h e past t o s e t up an independ.ent audit group. You see, i n those days t h e audit w a s under the Department of Finance, and it w a s not an independent aud.it. You had. a s i t u a t i o n where members of the l e g i s l a t u r e f e l t t h a t they were completely d.ependent on the administration. You had a good s o l i d economy bloc i n t h e l e g i s l a t u r e , which w a s not happy und.er-- c e r t a i n l y und.er Governor Olson, who had. the first Democratic administration i n California--in t h i s century, I guess. What r e a l l y precipitated the o f f i c e w a s t h a t when Olson came i n he soon became a very unpopular governor i n many ways. Morris: With t h e l e g i s l a t u r e ? Post : With the l e g i s l a t u r e , even though he had been a member of the legislature. He got himself i n t o a l l kinds of hot water. He w a s not, i n the opinion of Post: people with whom I've d.iscussed the subject, a good governor--his appointments were often poor, his judgement was not good on matters. Some of -them------- I i say he wasa good leglglator, but a poor governor. He was I n_constanthot water. I So this Economy Bloc was really militant. They were going to cut the budget and.do a lot of things. Vandegrift had.been the director of finance under Governor Rolph. He selected Rolland Vandegrift as his director of finance. People say that Rolland Vmdegrift really,, ran the state, and Rolph was not a strong-governor, Vandegrift was a strong man. Rolph died in office, Soon after, his lieutenant governor, Frank Merriam, became governor and, Vandegrift went out of state sersice, and went into other activities. He went into the newspaper business and didn't do very well. I don't know what happened, but it wasn't too profitable for_ him. Morris: He was d.own in Oakland. Post: Later he was in Oakland. He and his wife were interested in antiques, Californiana, because he was an historian, a California history professor at USC previous to becoming the first taxpayers* association executive secretary, He was interested in Spanish California history, really a very knowledgeable, really dynamic historian. He had done research work in Valencia on the Spanish -- Morris: Origins of the Spanish families in California? Post: I d.on*tknow, All I know is that it was in the archives in Valencia. I have become interested in that, because we now own a house close to Valencia, where I spend.a good part of my vacations and where I hope to spend more time in the future. Morris: You' re talking about Valencia, Spain? Post: I ' m talking about Valencia, Spain, Morris: Oh my, the world is really -- Post t Small, these d.ays. But that's where he had done h i s research into the archives. So then when t h i s group decided. t h a t they were going t o s e t up an office of t h i s kind., they put a b i l l i n , and. Governor Olson, on the ad.vice of the Department of Finance, vetoed it, saying that t h i s w a s usurping the authority of the ad.ministration. The Bloc d.ecided, well, if they couldn't d.o it t h a t way, they'd d.o it by concurrent resolution. So they took t h e i r own funds, and established a committee by a concurrent resolution. They then re-established it every other year by resolution and with legislative funds. They appointed. Vand.egrift as the f i r s t l e g i s l a t i v e auditor, as it w a s then called because it had an aud.it function f o r the legislature. The w a r w a s just starting, and t h i s led t o many of the things t h a t the office became deeply involved in. Like a cut-back i n s t a t e spending, because of the w a r , and investigations into some of the a c t i v i t i e s t h a t were related t o the military situation l i k e the State Guard.--in unemployment programs t h a t were instituted. d.uring the Olson administration. Commod.ity and food distribution a c t i v i t i e s . Things were p r e t t y sloppy, and. they were just the kind of thing t h a t Vandegrift could t e a r apart. There was a scand.al i n the s t a t e printing plant where the s t a t e printer w a s buying paper and apparently selling it outside and pocketing the money, o r something l i k e that. H e was investigated and e i t h e r went t o the penitentiary or resigned.. I think he went t o prison. I d.onlt recall. But anyway, t h a t w a s the s o r t of thing t h a t Vandegrift was extremely good at, along with h i s s k i l l i n the budget, having been director of finance- Morris: So he knew the other sid.e of the coin, i n other words. Post: Yes and. he knew investigation. H e had the kind of mind t h a t was good f o r investigation, and. he hired good investigators. W e had. retired. investigators Post: from the postal department on a part-time basis who would come in. He had. l o t s of part-time employees i n those days, because it was hard. t o get profes- sional employees. The w a r w a s on. This o f f i c e w a s a new kind of thing. So you kind of picked up people who would come i n and then f l o a t out. That w a s t r u e of a l l the l e g i s l a t i v e business i n those d.ays. There were few professional positions. Vandegrift and the o f f i c e of l e g i s l a t i v e counsel, a bill-draf t i n g agency, were the only r e a l professional jobs around. There were as many committees as there were members of the l e g i s l a t u r e and they had l i t t l e pockets of money they could spend one way o r another. They hired employees who were flotsam and jetsam and generally not professionally qualified.. It w a s a very poor excuse f o r a legis- l a t i v e process. So t h i s o f f i c e had t o bring i n part-time people f o r a number of years. I w a s one of t h e first f u l l - time professionals. Vandegrift wanted t o get me, because I did. represent t h a t point of departure, someone who w a s interested. and who a l s o had profes- sional qualifications, and whom he l i k e d and trusted. After I came in, he hired a number of others of the same kind., some of whom a r e s t i l l with us. M y chief deputy, Gilbert Lentz, a former college professor and d.irector of H a w a i i ' s Legislative Reference Bureau, is one. One r e t i r e d t h i s year, Wallace Kelso, who came i n from W a r Assets, when it w a s dissolved a f t e r t h e war. Vand,egrift hired a number of those who had been suddenly dislocated from W a r Assets, men who had good professional qualifications. They formed the nucleus of the o f f i c e under Vandegrift. Investigative Studies Morris: When you say t h a t there were people around. who were good investigators,--I have a picture of someone whose role i s going around and talking t o people, questioning them, "Where were you on t h e night t h a t d.isappeared7" Post: That's exactly right. That's right. One of the first he hired was a man who had been an investigator for General Motors Acceptance Corporation, credit and. that sort of thing. Another was an investigator for the U . S . Postal Service which carries on investigations regularly. So Vandegrift was constantly probing into all kinds of business. We had a whole series of investigations, as I say, in the printing plant, the disposal of commohities, the travel of the Board.of Equalization, and some other shad.y situations. Later on, when I took over, we suddenly became involved in the Samish activities, and.then we really used these investigators. Although it was something in which I had no qualifications at all, I was sud.d.enlyinvolved in an investigation of the state treaurer, because we had.been critical of his invest- ment of funds and one thing led to another including the fact that he and the governor got in a big flap. That was in the Knight administration. We used investigators in that. During the Warren administration, there was the Samish investigation, in which we had no part. Following that, the liquor administration, in which we were very d.eeply involved. We did the research, working for Caspar Weinberger, who was chairman of a subcommittee of Government Organization that mad.e a stud.y of the State Board of Equalization and reorganized that. Took liquor administration out of it, and. put it in the Department of Alcoholic Beverage Control. That was really the major step in the dissolution of the Samish empire within the state, which involved members of the legislature, members of the administra- tion, and many lobbyists. It was a very complex and. major enterprise. There we used investigators with very telling effect, in getting data on illegal transfers of liquor licenses. You see, we had to develop a scandal basis for shaking this thing loose. There's only one way you can reorganize things sometimes, and.that's to really demonstrate that you have a scandalous affair. Governor Warren and other politicians lived.with this situation. It was only when Caspar Weinberger I think almost stumbled.on it, the same way that I know Post : I stumbled on it--quite inadvertently, because I w a s so naive--that the l e g i s l a t u r e moved. and r e a l l y d.id the job of breaking up t h i s unholy s i t u a t i o n i n California. This w a s an accomplishment of Caspar Weinberger and a few members of t h e l e g i s l a t u r e , one member of t h e Board of Equalization, Paul Leake, with help from Professor Dean McHenry and. nobody else. Morris: W a s t h i s the time t h a t one of the members of the Board. of Equalization f i n a l l y l e f t the country? Post: That w a s B i l l Bonelli. He w a s the chairman of the Board of Equa.lization, and. he was the worst of the l o t . He was the r e a l bad. man. The others tolerated him, but he w a s the one who w a s the mainspring i n it. H i s d.istrict i n Southern California w a s where the expansion i n licenses took place. You see, the problem arose largely from the f a c t t h a t there is a l i m i t a t i o n i n the number of licenses t h a t you can have--I think there w a s one per f i f t e e n hundred population. The number of liquor licenses, therefore, w a s limited., and. ownership of one permitted you t o t a p an area i n a very lucrative way. These licenses were very valuable, particularly i n the Los Angeles area. That was where the great expansion i n population w a s taking place, so t h i s w a s where you had most of t h e new licenses. SoBonelli w a s able t o permit the s a l e of these licenses, which were worth as much as s i x t y some thousand. d o l l a r s apiece, i n the market, even though there was a r e l a t i v e l y small amount t o the s t a t e . That w a s where he could. demand. a cut and. skim off some of the money t h a t changed hand.s. In other words, supposing I paid $50,000 f o r m y license i n the open market. When I sold t h a t r i g h t t o d.o business, I g e t $50,000 o r something l i k e t h a t from somebody e l s e who wants t o own t h a t right. But I a l s o would pay under the table, presumably, an amount of money t o g e t that. The same applied. when a new license became available through population growth. That's where the corruption took place. What you had t o prove was t h a t there were t r a n s f e r s which were i l l e g a l , which were done i n various i l l e g a l ways, and make enough of a scandal out of it t h a t you got people t o act. Post: Anyway, t h a t ' s how we used our investigators. W e tracked these license seekers and owners. W e used a l l the standard investigative techniques. W e r e a l l y had good staff i n the office. I have very l i t t l e t o do with that p a r t of it, because I don't know those techniques. But I was working i n other areas of it. W e did the staff work f o r Mr. Weinberger i n t h a t enterprise, a l l the way through. W e wrote h i s reports i n collaboration with him, since he was r e a l l y active. W e appeared as witnesses. W e got some help from Paul Leake, as a member of the Board of Equalization, who I understand w a s appointed with the admonition from Governor Warren t h a t he should do something about t h i s under-the-counter business i n liquor licenses. I inadvertently stumbled on a l l t h i s i n a budget study. There were some figures on workload t h a t didn't make sense and I s a i d . t o a committee that something didn't meet the eye. The newspapermen picked t h i s up and. went r i g h t over t o Warren -- 9 n H e ~ Post says there's something going on i n the Board. of Equalization. What about that?" I didn't r e a l i z e t h i s w a s anything t h a t the governor w a s trying t o d.o something about. I didn't even know who Samish w a s at t h a t point, but I did. before it w a s a l l over. Interesting thing, m y brother-in-law, John Hamm, a f t e r he w a s i n OPA, w a s with t h e Biow Company, an ad.vertising f i r m which handled t h e Schenley account. That was the one t h a t f i n a l l y got Samish into trouble. J u s t the other night, John Hamm and I talked about the whole thing-- he t o l d m e a l l about it, and the Schenley side w a s e n t i r e l y d.ifferent from the way good. old honest Artie t e l l s it i n t h a t new book of his.* The way it worked. w a s t h a t they'd send checks t o Artie's secretary and r e l a t i o n s and friends i n payment f o r services t o Artie, and Artie would cash them and pocket the money. Biow s a i d . he asked f o r it t o be handled t h a t way as a convenience t o those people; he said i n h i s *The Secret Boss of California, by Arthur H . Samish and. Bob Thomas, Crown Publishing, New York, 1971. Post: book he never could understand why the checks came t h a t way, but t h a t Biow wanted t o do it that way. And it was those checks t h a t IRS f i n a l l y got him on. One time w e had. a Samish man i n the office; t h a t w a s really a surprise t o m e when I found out. H e w a s a l s o the speaker's brother and. I didn't know how I w a s going t o hand.le it. Morris: This w a s when Sam Collins w a s speaker of the assembly? Post: Yes, and t h i s w a s h i s brother John--he told m e he had been hired by Vandegrift t o keep an eye on the assembly and I told him that wasn't the way w e did ' things any more. I didn't know what t o d.o w i t h him-- a senator member of my committee said John was the speaker's brother, and w e should. take care of him. So I sent him out t o inspect the purchasing requests i n the budgets f o r institutions. H e w a s f i n e on that, could t e l l you whether things were worth the money, take a look at them and t e l l you whether they'd do what they were supposed to. But I didn't really have enough of t h i s kind of work t o keep him busy f u l l time--and he kept wanting t o go over t o the assembly floor and. make sure the assembly- men were staying i n line. Then I w a s asked t o administer the r e g i s tration of lobbyists when that b i l l passed, and I d.ecided t h i s w a s a good spot, ministerial i n nature, t o put him in. They'd just come i n and f i l l out the forms and nobody could object t o him there. Well, Jack Tenney got up on the floor of the senate and. made a big speech about putting t h i s man i n t h i s job w a s l i k e putting a fox i n charge of the hen house. The meaning was clear--John Collins was a Samish man, and. of course, so was h i s brother. Morris: What w a s consid.ered t o be the connection between Sam Collins and. Samish--and how did you f i n a l l y separate John from your office? Post: Some time l a t e r it came t o my attention t h a t he had bought and sold liquor licenses. I had. asked him, at the time of our liquor investigation, due t o Sam Collins' alleged involvement i n t h a t , whether he had Morris: a t any time had anything t o d.o with liquor licenses. He said he had. not. So when the transfer documents were l a t e r brought t o m e by my own investigators I confronted him with it and he admitted. he had been involved. I severed. h i s employment at that point. It caused m e some serious problems because Sam Collins s t i l l had influence and was a t t h a t time a lobbyist f o r one of the major o i l companies. Some of the l a t t e r were trying t o get greater influence i n m y office and I w a s not i n very good graces with them sinee I w a s resisting these attempts. It was reported. t o m e that they had said I would "have t o go." It w a s about t h i s time that the Democrats (with Governor Brown) came into control of the legislature and the newspapers carried s t o r i e s that I w a s on m y way out. Joint Budget Committee Morris: I thought today we might start with your relation- ship with the legislature and with Governor Warren, and the other pieces of the executive structure the office of legislature analyst r e l a t e s to. Post: A l l right. Morris: W h o i s your boss? Post : (Points t o photographs on w a l l . ) That's Senator Teale, t h e man on the end. George Miller before t h a t , Arthur Breed before that, then Ben Hulse and B i l l Rich. Morris: That takes it right down t o -- Post : To the beginning. Those are the f i v e chairmen of the joint budget committee since its inception i n 1941. B i l l Rich w a s chairman of the Senate Finance Committee. Ben Hulse w a s also chairman of the Senate Finance Committee. Arthur Breed w a s not chairman of the Senate Finance Committee; Miller w a s Post: chairman of the finance committee, and Teale is vice chairman, Morris: So that's usually a senator, Post: It has always been a senator. There has been some feeling that there should.be an assemblyman. Jess Unruh pushed pretty hard on that, but the chairman of the joint audit committee has always been an assemblyman. This is the deal they made. They were really unwilling to give up this plum -- Morris: The assembly? Post: The senate. So they traded another position, the chairman of the joint audit committee, which was established.in 1955. That was to be an assemblyman. And the vice chairman of my committee is an assembly- man. Morris: Now, is this by agreement with the legislature, or is this part of the legislation? Post: The committee selects its own chairman. It was just a matter of agreement that was settled among them- selves, that's all. The senate wanted the chairmanship. They have always considered the budget committee to sort of be their package, in the sense that it was originated by the more conservatively oriented senators. The Economy Bloc created it initially. It's always been located physically over on their side of the capitol. There's always around here a scramble for space in the capitol, and the senate was always willing to allocate from their allotted space to take care of the budget committee. Then when they set up the assembly hegemony over the audit committee, they gave the assembly the responsibility for supplying the space out of the assembly allocation, Because they really allocate this building into two geographical areas. The committees take care of their own allocations for staff space and.for committee chairmen and so forth. It's split down the midd.le, sort of, with the assembly creeping over a little bit, because they've got twice as many members, and they're taking more floors now in the new building. Post: People used to think that the budget committee was in function a senate committee. But in fact it has never been that way, since I've been here. We do as much work for assemblymen as we do for senators. We do a tremend.ous amount of work for them. Morris: In general, d . o you see your role as initiating plans and issues that the committee should consid.er,or do they come to you with their issues pretty well formulated? Post: Well, it's both. It's a mix. Individual members come with proposals. They come with an idea, with a proposal fairly well jelled, and want us to go over it, or else develop it. The legislature by resolution also asks us to make studies, so we get a full-blown request of that kind. Our requests cover the water- front, covering every stage of the development of a proposal, and from every kind of source that is legislative. Nothing executive, but anything that is legislative is likely to come through here, either by resolution, or by an individual or a committee asking that we develop it for them. Morris: That's quite a broad spectrum. Post: Yes, it is a broad. spectrum. Morris: [Add.itional question, submitted with transcript.] You mentioned the Joint Audit Committee which was established.in 1955. That was the same year your title was changed from legislative auditor to legislative analyst. How d.id this come about? Post: [Written reply] We recommended, and the Senate Committee on Government Organization recommended, an independent auditor--independent of the administration. This was good.theory and. is the trend.today. A bill was introduced to create the Auditor General, und.era Joint Legislative Audit Committee. It was opposed by some members and.the controller (unless I was willing to be both positions, which I felt was not a good idea because of the d.ifference in functions and size of the operation-- I may have been wrong in retrospect), but it was passed. and signed.by the governor. Then because of the confusion over titles, Assemblyman Tom McBride agreed to sponsor legislation to change my title. Morris: Could w e go back a minute and t a l k about Mr. Rich and M r . Hulse particularly, as t o what t h e i r picture of s t a t e finance would be, and what t h e i r particular concerns were, Post: Senator Rich, as the first chairman, w a s a rural senator, an autocratic, charming, w i t t y , r e a l l y very delightful individual, He scared people t o death because he had a very rough exterior. But inside he w a s really a very charming and pixie kind of guy. Morris: The picture on your w a l l r e f l e c t s that. Post : Yes, it does. H e had great w i t , He w a s a very easy man, as far as I w a s concerned, t o l i v e with. H e l e f t you alone. H e represented a s m a l l d.istrict. H e came from Marysville, and. he used t o say, "The people i n my d.istrict send. m e up here, and. t e l l m e t o use m y good judgement and leave them alone." He can do almost anything he wants. They d.ontt bug him at all. And he w a s that way, H e w a s a strong chairman of a strong finance committee. You had originally very strong men. Men l i k e Ralph Swing, of San Bernardino, a r e a l canny type, you know, men who were resourceful and tough and knew where they were going. Their i n t e r e s t s very often were ones which were of a personal nature, o r certainly a parochial nature, rather than broad s t a t e interests. They looked a f t e r the i n t e r e s t s within t h e i r d i s t r i c t s t o a high degree. They constituted a tough, strong, rural and conservative finance committee. Rich w a s t h e i r leader, a man of personal integrity, without any question i n m y mind-- of a cut, frankly, considerably above some of the other members of the committee, i n t h a t sense. Morris: When you say t h a t personal interests, o r regional ones, were -- Post: Oh, they were looking after--Ralph Swing looked a f t e r the Orange Show, and business people, and. i n t e r e s t s i n h i s own d i s t r i c t . He looked a f t e r certain lobbyists, H e w a s one of those that w a s accused of being closely linked. with some of the more powerful lobbyists within the state, There w a s more of t h a t i n those days than there is tod.ay. There's a much greater degree of independence on the p a r t of l e g i s l a t o r s now than there w a s i n those early days. Post: The legislator came up here for a hundred dollars a month, and he was to a considerable extent more subservient to these third house interests than are people who get the kind of salaries that they pay now. There's no question in my mind. about that. Morris: You said he was also a man of integrity. Didn't the regional issues get in the way of some of the more -- Post: Bill Rich wasn't interested.much in regional issues. He wasn't a man who was fighting for things in his district. He was a real ind.ependent character. He got his power, in a sense, I think, by his free- wheeling objectivity with respect to all kinds of matters, including money matters. He was conservative, and concerned with rural issues--as most everybody was in those days. But he wasn't out fighting for his own highway, or for his own college, or for his own parochial interests in the business community. He was an independent soul. There wasnlt any question in my mind about that. He was a conservative, farm- oriented legislator. He sincerely believed that not-much-government was good government, and that you should get as much mileage out of the dollar as you could.. He came representing a relatively small-time, modest income, conservative constituency, and he represented them cleanly and faithfully. Morris: And.did.Ben Hulse carry on this kind of -- ? Post: Yes. He was a different kind.of person. Bill Rich was a self-made lawyer, a man who studied at home and took the bar, and.went through that route, and was a member of a small law firm up in Marysville. He represented some of the substantial interests in that general area. Ben Hulse, on the other hand, was a man who had grown up as a machinist. He built one of the first Caterpillar tractors, which had their origin in Stockton. He became a very wealthy man because he moved to the Imperial Valley, where he had the franchise for Caterpillar Tractor, which of course became a tremendous economic enterprise in that area. He accumulated vast holdings of land; oil was struck on part of that. He was a multi-millionaire. He was Post t a strong, very broad gauge man. H e had h i s f e e t i n budgets and taxes, where he was an authority. H e had more grasp of the t o t a l budget than any man i n the state. H e w a s an extraordinary student. He would spend a l l week-end up here, just poring over and reading a l l the reports. I used t o come down here Saturday mornings almost every week-end a t h i s request, and w e would. go over a l l these matters t h a t were on the calendar. He'd want t o t a l k about things, and then w e would go t o lunch together and t h a t would end the Saturday morning. In t h a t respect, he was thorough. So he was a strong leader who knew a great deal about t o t a l s t a t e interests--despite the f a c t t h a t he came from El Centro. Despite the f a c t that he w a s farm-oriented and came from r e a l l y a s m a l l population center, he had more contacts with the major industrial leaders of the s t a t e , because he was a wealthy o i l man, and. because he was a big businessman. He also owned. a franchise i n El Centro f o r motor vehicles, including the Jeep. So he really touched an awful l o t of bases. He was extraord.inarily interested i n everything t h a t went on, p o l i t i c a l l y , i n the state. He was a man who w a s talked about as being a logical cand.idate f o r governor. He never r e a l l y had the p o l i t i c a l base, nor the p o l i t i c a l appeal, because of h i s conservative rural a f f i l i a t i o n s , t o quite pull it o f f - But he was a man who w a s voted by the correspondents i n the capital as being the most knowledgeable senator i n the senate, a t a time when the senate w a s a very strong senate, with people l i k e George Hatfield and that i l k , who were very strong- So t h a t he w a s a somewhat different breed than Senator Rich, although he also was rural. Morris: It sounds l i k e he would be an early example of one of the leaders i n agriculture as a big business. Post: That's right- He w a s agribusiness a l l the way- That's true. Morris: And t h i s would be as early as 1940, o r e a r l i e r than that? Post: He came up in the forties I guess, I can't be sure,* He was here when I came here in 1946, but he hadn't been here very long, as I recall. He became chairman of the committee about 1952. At that point, he had made his niche. He was the recognized authority on taxation and on budgets. He later became chairman of the rules committee, as President1 Pro Tem and was chairman of the joint tax committee, He was the real power in the senate after George Hatfield. died,** George Hatfield and he were very close. Senator Hatfield was the acknowledged brains of the senate. He was one of the smartest men that's ever been in the legislature. Astute, canny, far- sighted, a brilliant lawyer, a man with a tremendous grasp of politics. This small group of individuals really ran the senate. It was only when the old guard was displaced, largely by the growth of the cities and the move to partisan politics, and the development of pressures for reapportionment, that they were kind of swept out. Even then, there was a new kind of old guard. The new guard., the George Miller type, who were liberals, Democrats, took over and became in time the old guard. The people that I've been talking about were the old guard Republicans, you see. But once you establish yourself as the power in the legislature, then gradually you become a guard, because there will be a relatively small number of you, who really run things, and you become entrenched in that power position, and you don't give it up easily, So in that sense, you are old.guard. Now, these gentlemen, Rich and Hulse, were the first two chairmen of the budget committee. Senator Breed who was the third chairman never was really quite *Ben Hulse first served in the state senate in 1933-36. He returned to the senate in 1945 and served through 1956, **Died in office November 15, 1953. Post : a p a r t of t h a t group, because he had a kind. of an independent posture. He wasn't t h e clannish s o r t of person t h a t they were--not a part of the club t h a t t h e 1ead.ership of the senate seems t o be. A wonderful f i n e man--still is. Morris: Is Arthur Breed. s t i l l around? Post: He l i v e s i n Oakland., i n the r e a l e s t a t e business. H i s f a t h e r had been president pro tempore of the senate f o r many, many years. The l a t t e r w a s a very a s t u t e and. successful politician. Arthur Breed, Junior, didn't have t h a t same p o l i t i c a l touch. He w a s a man who just didn't q u i t e f i t the senate club easily. Morris : That's interesting. W a s it f a t h e r o r son, who w a s involved. i n an early study of highway need.s i n California? Post: That would have been the father. The Breed. formula, you're speaking of. That w a s the old.er -- Morris: This would. be i n the twenties, because it w a s referred t o when t h e Collier highway b i l l was being d.iscussed. Post: That's right. That would have been h i s father. That w a s the formula t h a t existed before the Collier-Bums act. The "Breed. formula. " Morris: You mentioned t h a t Ben Hulse w a s talked. about f o r governor at one point. Would t h i s have been about t h e time t h a t Warren himself w a s a cand.idate f o r governor? Post: No, r e a l l y , it w a s more i n r e l a t i o n t o Knight, who followed. Warren. He w a s building up a following. Some people would. have liked t o have Hulse as the conservative cand.id.ate against Governor Warren. But t h i s never jelled., because he w a s a good team man, and. he never pushed t h a t at a l l . It was l a t e r on, when things got a l i t t l e shaky around here among the Republicans t h a t there were papers t h a t kept s o r t of boosting him f o r governor -- Morris: Newspapers? Post: Newspapers l i k e the Sacramento Union and s m a l l r u r a l papers. And Ben Hulse, I think, had a l i t t l e touch of the fever, but he never pushed it a t all. IV INTERACTION WITH EXECUTNE DEPARTMENTS OF STATE GOVERNMENT Morris: In general, how did Senators Rich and Hulse feel about Warren? Post: They regarded.him as being somewhat liberal, a practical politician. Senator Rich's attitude was, "You know a guy has to be a practical politician or he d.oesnatget to the point where he can get things done," and so\he guessed that was okay. But It galled him a good bit to have Governor Warren as liberal as he was on money matters and on social welfare particularly, yet they went along with most of the things, it seemed to me, that Governor Warren was pushing at. They were perfectly agreeable to rebuild.ing the state's mental hospitals, although they found it a little difficult to understand some of the therapeutic approaches that were being taken. That came only slowly, because there was always a great deal of mystery about mental hygiene, which was a very big issue at the time. Prison Refo m s Post: They were perfectly agreeable to upgrading and. reorganizing and. strengthening the penal structure und.er new management, with Richard McGee, so long as he didn't spend too much money and.go too fast in setting -- You see, what McGee did.when he came in, was to clean up a fairly unholy situation in which each of the prisons was run as a provincial empire by individual administrators, some of them in almost Post : a scandalous way. And under a board t h a t was r e l a t i v e l y ineffective. So Warren reconstructed the system under the aot i n 1943 and '44 a s I r e c a l l , of h i s administra- tion--completely redid the prison structure. Richard McGee came i n as a r e a l professional administrator who ran the whole show and. dominated the individual wardens. He s e t up a central structure that governed, and moved i n on certain principles t h a t had. not been applied before--primarily the employing of so-called "free menw--men who were not felons--to do the work t h a t had been previously d.one by felons. Morris: Kitchen work and -- Post: A l l k i n d , ~ of things. Handling the records -- The s o r t of thing t h a t McGee contended would permit one felon t o own another felon. It's very d i f f i c u l t f o r felons t o not come under the domination of other felons i n a penitentiary. There are sexual and a l l kinds of d.ominating-personality kinds of problems of personal intercourse of that kind i n a penal institution. It's a very d i f f i c u l t thing at best. What he inherited w a s what he labeled a s o r t of "kangaroo courtw s o r t of system, i n which the most sensitive records of a man's history were within the jurisdiction of other prisoners, and they could find out a l l about you, and. they could bring pressure t o bear on family and associates t o get things done i n t h e i r own behalf, using you as a tool, t h a t should never have happened. So one of the r e a l issues w e had during those days, w a s the gradual increased costs of prisons, as a result of McGee's determination t o create through staffing by f r e e men of these sensitive functions within the penal system, t o make it t r u l y controlled by the establishment and not controlled by the felons. He also wanted t o restructure the prisons i n order t o eliminate the double-celling as one of the things t h a t create the personal f r i c t i o n s , the sexual f r i c t i o n s , that are such tremendous basic problems i n any prison. Morris: I don't und.erstand the term 'qdouble-cellingw? Post: Double-celling means t h a t you put two felons i n the same c e l l and. t h i s of course leads t o a l l k1nd.s of problems. W e s t i l l have a l o t of that. We're s t i l l debating t h a t issue, interestingly enough. M y o f f i c e has been on record within the last couple of years as saying t o t h i s administration "You r e a l l y ought t o get r i d of a l l t h i s d.ouble-celling, because it's nothing but trouble, and yet if you don't expand f a c i l i t i e s enough, why you're j u s t forced back i n t o it again. Like double sessions i n elementary school. This is the worst of a l l possible situations, really. Morris: It's interesting t h a t you comment about Corrections bringing i n a professional ad.ministrator, and working on cost abuses of one kind and another. These were a l s o p a r t of t h e problem i n s t a t e hospitals, wasn't i t ? Mental Hospital Budget standard.^ Post: S t a t e hospitals followed a somewhat similar pattern. When I first came here, they had a very strong man as head of t h e mental hospitals. This w a s i n 1941, before Earl Warren. They had Dr. Rosanoff, who w a s a private practitioner, who ran a private hospital, and who was r e a l l y a very f i n e man. But the system w a s not up t o date. What Warren s e t about doing with t h e money t h a t oame i n beoause20f the war--he r e a l l y had at h i s disposition t h e tremend.ous advantage of having money accruing i n excess of any established requirements, s o t h a t he w a s able t o provide t a x r e l i e f and at the same time have huge surpluses, and i n i t i a t e an extraordinary expansion i n t h e s t a t e budget. Now, he s e t about rebuild.ing physically the s t a t e i n s t i t u t i o n s , including not only the prisons, but the mental hospitals. The d i r e c t o r was a woman, Dora Shaw Heffner, who w a s not a psychiatrist but an attorney, who was the wife of one of his--as I under- stand i t - - p o l i t i c a l benefactors, but who w a s an i n t e l l i g e n t and sensitive, progressive woman. She w a s t h e d i r e c t o r of the hospitals when I came back a f t e r t h e war. She w a s attacked r a t h e r vigorously by Post: my predecessor in this position to the point that the governor on one occasion chided Mr. Vandegrift by saying that he thought it was somewhat ungallant for him to be taking on a woman, especially when she was ill. Well, the truth of the matter was that she was not a sufficiently strong individual to run that system right. She was sympathetic, very sympathetic, but she did.nqtmeet the test of the tough breed. of legislator who felt that there should be stronger control. Following that, we had a series of qualified psychiatrists running the system. Through that period. of time they completely revamped the physical facilities; they very substantially upgraded.the therapeutic standards in the mental hospitals. They segregated the ward.s into acute and. chronic. They set up pilot projects to see what you could do with the deteriorated patients. They adopted as budget standards the American Psychiatric Association's standards. What we did from the standpoint of budgeting was to move by percentage increments up to a hund.red percent of the APA standards. Now these standards, in the meantime, were also not static. They were also moving up, because we were at a time in which there was a revolution in mental hygiene from the "snakepit," so-called, era, to a therapeutic type of approach using many therapists, using group therapy in many ways. Finally having the introduction of drugs. But even preceding these so-called "magicn drugs which are still largely relied on as a means of getting better control, getting the patient more amenable to psychotherapy, we had the introduction in those times of the other kind of therapy. We had. shock therapy with both insulin and electric shock. The facilities to do that. We had the hot baths and.the other sedative type of things to get these wild, extreme procedures out of the way. Then we had the continuing problem of trying to finance, from a very narrow, limited field, enough professional people to actually put in there. From the old "attendants" as they were called, they reclassified these positions and called them psychiatric technicians, and professionalized them, upgraded them, Post: increased their pay. The turnover was very great previously, because you just pulled. people in and they rolled.right out again. Now you developed a cad.re of professional people who would stay there. We had a continuing battle to get psychiatrists and various types of para-professional personnel in there. Music therapists, you know, all kinds of therapists. Morris: Occupational therapists. Post: Occupational therapists, and so on. All of this was a little difficult for the legislature to understand. They couldn't quite see why you had to have all of these fancy things. At the same time, you had an upgrading of the physical status of the patients, as for example, during the term of D r . Lawrence Kolb as director. He was a psychiatrist who told me he was not primarily a Freudian psychotherapist, but was one who felt (on the basis of his experience with the Veterans' Administration previously) that you could do a great deal by simply improving the physical being, correcting physical ailments, and a reasonable program of psychotherapy and related therapies. So you had increasing numbers of people to look after the physical well-being of these people. People who would look after your feet, because there were many old, senile patients. By the way, one of the real problems we had.was that about twenty percent of your total hospital population was purely a senile group. They were not capable of benefiting by this new change in therapeutic approaches. They simply overburdened the institution with housekeeping problems. So one of the missions of the Warren administration was to set up ways in which these people could either be moved out, or not put into the institution to burden its primary mission. So all of these things were going on. We were putting in places to make people look more beautiful-- beautician shops and so on. The upgrading of the morale. The chiropodists, the physical therapists, the things to make them comfortable and give them the decent, comfortable life that a person has to have from a physical stand.point,if you're going to d . o anything for him mentally. And. in any case, you Post: ought t o , they said, take care of h i s physical comfort. If you're going t o take him out of society, and i n effect incarcerate him, you've got t o give him a decent environment i n which t o live. So there was the physical upgrading of the institution; the upgrading of the personnel t o take care of t h e i r physical needs, recreational and other f a c i l i t i e s t o make l i f e more pleasant; and then setting up a classification basis f o r those patients who would. be receiving acute t r e a t - ment and those who would be receiving chronic care. W e had goals of giving everyone good. i n i t i a l physical examinations when they came in, so you'd have good diagnostic bases from which t o work. There was a constant b a t t l e t o get the professional people t o f i l l these jobs. A constant b a t t l e t o see t h a t t h e bulk of the employees, who were the attend.ants, o r the psychiatric technicians, wouldn't just be turning over and learning the job on the patients a l l the time. A l l these things were going on a t one time. The costs were mounting. There was a certain restlessness on the part of the legislature. W e were c r i t i c a l of some of it--oh, I think rather short- sighted. from t h a t standpoint, again, suffering the same kind of thing t h a t I think most laymen suffer from--not really understanding the importance of moving a s fast as we did move i n the direction of upgrading a l l of these f a c i l i t i e s . By and large we would go along, sometimes with the whole program. But we were "nitsing and liceingn I guess you might c a l l it, at l i t t l e things a l l the time. Chipping here and chipping there. Sometimes we were certainly right, I think. In t h e i r desire t o get ahead, they sometimes did things that they couldn't f u l l y justify, and. you kind of nibbled. at it. But they were relatively small nibblings and not always right. Morris: Portia Bell Hume recalls working with you on the preparation of budgets. How does t h i s work? Post : Well, Portia had responsibility f o r the extra-mural care program, the c l i n i c a l program. She was located, of course, i n Berkeley, and she was the deputy director i n charge of those f a c i l i t i e s which were 0utsid.e the institution. N o w one of the things t h a t I hadn't mentioned was t h i s growing capacity outside Postt the institutions to take care of patients as they left the hospitals, or to keep them from coming in at all by simply having the capacity to take acute cases in the clinic outside the institution and hopefully divert them from institutionalization, which was generally considered (and.I think quite rightfully so) to be a kind of catastrophe. The idea was to keep him in the environment from which he came if you possibly could. Post: And so the clinics were started.by a federal grant. They started in Berkeley, and then we had rive more. Then we used them as the models from which we set up what ultimately became a far-reaching system of community facilities. We reached that by a number of roads, but this was the first one. Portia was in charge of that. We used to work with her to some extent in several areas. She was an important figure in relation to the growing source of federal funds from the National Mental Health Act. These were used for experimental approaches which really were very good, for developing the state of the art within the institutional setting. She had a lot to d.o with setting up projects for evaluation of alternative approaches to handling mental disease. These approaches not only included the institutional type of thing, but they were also separate stud.ies of individuals, from which they could learn about how to treat psychiatric illnesses in hospital settings. Because, as Dr. Kolb used to say, we're still in the Middle Ages in some respects. We work empirically. We know certain things have certain results, but we really don't know why. We don't know whether it's chemical, whether it's psychotherapeutic. We just don't know these things with certainty. They were playing with all kinds of approaches, and.the federal funds were important in permitting Langley Porter Clinic, as the original source of our research within the system, to carry on about as much work as they could handle. It was a legislative Post: a t t i t u d e , supported by us, t h a t anything t h a t Langley Porter Clinic wanted, the Langley Porter Clinic got. Morris: W a s there s t a t e money going i n t o Langley Porter too? Post: Oh, yes. It w a s a s t a t e institution. It was a joint enterprise between the university and the mental hospital system. The university used it as i t s t r a i n i n g center. The mental hospital system used it as a retraining system. Both benefitted by t h e research t h a t w a s done, i n kind of a joint venture. The actual d i r e c t o r was--for many years-- K a r l Bowman, followed by Alexand.er Simon. He wore two hats, really. He had a salary from the university and he had a salary from the s t a t e mental hospital system, you see. So t h a t was our source of research u n t i l l a t e r they began t o put i n a r e l a t i v e l y small, but growing, source of funding f o r research within t h e i n s t i t u t i o n s , so t h a t it would upgrade the a t t i t u d e s and the capacities of the professional people within these institutions. The feeling being t h a t otherwise they simply became involved i n what was unfortunately t o a very great extent the physical features of the system. You had people brought i n there with a l l kinds of problems. Physical--that they had inherited through a l i f e of neglect, and so on, t h a t came with mental disease. And so most of the people were r e a l l y looking a f t e r bodies. The people you put i n there were t o a considerable extent doctors who didn't make it i n psychiatry, and many of them didn't have psychiatric degrees. They were simply physicians looking a f t e r the physical well-being of large numbers of people who were i n bad shape. And so a great deal of the energy of these i n s t i t u t i o n s w a s just keeping body and soul a l i v e f o r a great number of unfortunates who were ill-equipped t o look a f t e r themselves, and who sat on the ward.s and did nothing, and deteriorated. Farm System Post: So we ran hospitals in the traditional sense, for a stabile population. Then we ran a mental institution, on the margins, almost, with those patients that they felt they could reach. You had institutions like Stockton that had a farm where many patients simply sat and.did almost nothing. Many, of course, worked in farm operations. We had a farm system at this time in most of the hospitals, that was abandoned later on in the middle fifties. Early and middle fifties. We began to shear off the institutional, supportive activities. This was a d.ebatable issue with the legislature. One of the things that the public used.to take great pleasure in kind of poking fun at, was the fact that the legislators on the joint agriculture and livestock problems committee would go out and approve the expenditures for capital outlay on all the institutions and never venture near the wards, they would say. You'd go out there because a resolution authored by Senator Hatfield, and religiously passed every other year, required that the committee approve the appropriations for agricultural facilities in these institutions before they could spend the money. So I used to go out with them. This is how I really learned.about the institutions. We did go quickly through the institutions it is true. But the main thrust of the visit was to go with a bunch of agriculturalists and look at the dairy barn and look at the hog farm and other agricultural operations. They would approve expend.itures for the development of the dairy and other supporting activities. Well, this is perfectly legitimate, because these hospitals were total cities. They were citles that were supported in part by funds to buy medical services, but they were also mad.e more economical in operation by having good producing dairies and other agricultural support actlvitles. And they used many of these deteriorated patients as milkers and farmers in the field and the supporting activities. Canneries, et cetera. So like our system of prison industries, there were hospital ind.ustries,and.they were supportive. They provided what was generally in those days regarded as a bona fide therapeutic activity, The argument was that a busy body meant a busy mind, and that was a good thing. Rather than having these people sitting around deteriorating, it was thought far better that they get hustled out in the morning into the fresh air and pick vegetables, and do farm work, and go back, In fact, many of them had so deteriorated that it really probably wasn't all that bad. It sounds awfully short sighted, and I ' m sure there were better ways, But the state of the art in those days was such that they really didn't know much about what to do until the Kansas experiments, the Menningers, people like that, began to revolutionize mental care and d.emonstrate the effectiveness of mental therapy in an institutional setting as against simply running farms. Morris: I wond.er if also, being an agricultural state, many of the patients would have come from farms. Post: Yes, they did, There was no question about it. Many of them were not bright, we'll say, They weren't all casualties of stress and strain, Many of them were kind of not-bright persons, Quite a number of them had environmental occupations, or had occupations that fitted.that kind of environment. So, as a milker--this was what they'd done before they came, they were perfectly content to milk or work in the fields, You know, California was so beautiful, that it was a pleasant thing, frankly, to be able to go out and go through the beautiful farms, These members of the legislature were proud of the farms, The patients oultivated them. They made them beautiful and pleasant places, because this was their life, And really, under the circumstances of their malady, if a person didn't have any hope of doing anything else-- many of these people would go out in the field and maybe that was the best part of the day, When they went back into the institutions with the mass feeding and the stress and. strain of the wards and all that, it was a terribly miserable thing. Post: But you could get a f a i r l y decent picture of l i f e i f you'd see them out there puttering around i n the open f i e l d s under the beautiful skies at the lovely s i t e s t h a t we had f o r institutions. And so I think the members of the legislature, and. I, got a pretty--perhaps distorted view, of the pleasant kind of situation t h a t you were creating f o r mental patients, on the grounds of the instituvion. When you went i n the i n s t i t u t i o n s , you r e a l l y saw what a different kind of l i f e it was. Governor Warren certainly has t o have a l o t of credit f o r having persistently upgraded the i n s t i t u t i o n s with, certainly, good support from the legislature, but a l s o with a l o t of pressure t o not go so fast, and spend so much money, and with us harping a l l the time t h a t you couldn't demonstrate t h a t you were proving anything, Morris: What convinced. t h e l e g i s l a t o r s t o continue t o approve increased budgets? W a s t h e federal funding -- Post t No, I just think it was t h e decency of l e g i s l a t o r s as human beings, t h a t t h i s ought t o be upgraded. The f a c t t h a t these were unfortunates who ought t o have t h e i r l o t improved, There were a l s o some strong ad.ministrators who could make a good case, with t h e leadership of the Warren administration, t h a t you should follow the professionally established psychiatric standards. A general acceptance on our part too, t h a t t h i s w a s t h e current s t a t e of the art, and. t h a t it was appropriate t h a t the s t a t e should a t l e a s t t r y t o buy t h e highest s t a t e of the art t h a t we knew of, and t o push f o r more approaches t o effective therapies versus what was professionally regarded as l e s s effective. There were a l o t of things t h a t were done t h a t were bad, and I think some of us did some good i n pointing out t h a t there were areas of hospital administration where improvements could be made. The Governor's Office Under E a r l Warren Morris: You f e e l administration w a s the area i n which Warren made h i s greatest contributions? Post: Yes, I think that Governor Warren's d.edication t o upgrading the quality of s t a t e government, its administration, its f a c i l i t i e s , its programs, was probably the most important contribution that he made. He w a s an astute politician and he always was aware of the areas that would keep him politically secure. But looking at it from where I sat, working f o r a budget committee, and working within the budget process--writing reports that were an appraisal of administration, it w a s m y feeling that h i s biggest contribution w a s h i s recognition of the need t o upgrade the basic programs within the state. That means education, it means mental hospitals, penal institutions, the court system, the whole level of quality of the programs of the state--along with an ethical considera- tion that dominated h i s thinking, concerning regulatory and other issues, When the chips were down, you could really count on the governor knowing what was right and what was wrong, He played politics, and made decisions of that kind, but he did it within the context of integrity. This is something that really made him a leader, i n every sense of the word, But the budgetary issues of the legislature were very largely determined by the fact t h a t w e had great financial resources that r e a l l y flowed out of the war, the fact that w e had a l l t h i s growth i n the s t a t e , growth i n the economy, along with a limitation on spending because of the w a r , which l e f t us with large reserves, Warren was able t o use these reserves t o get a good running start on a l l the programs that he thought were important: upgrading the university, pushing ahead. i n the s t a t e college system, expanding the community colleges, and t o some extent increasing the s t a t e support f o r them, although they were s t i l l largely locally financed, Upgrading completely the penal and mental hospital systems, strengthening the courts by careful and good appointments t o the bench, Post: at every level. Generally creating a tone of govern- ment that was almost unique i n s t a t e government i n America, Postwar Reserves Morris: This is a point t h a t I think we've had confirmed by every bod.^, his concern with administration, and h i s appointments. YOU mentioned the great resources coming i n from the war. In reading the budget documents put out by the Department of Finance, I get a sense that i n those early years, '42, '43, '44, there w a s a feeling that these funds were not going t o oontinue, that nobody ever expected t o have t h i s kind of s t a t e revenues. Post: Yes, that's true. W e s e t up these reconstruction funds--everybody thought when the w a r came t o an end, there would be tremendous problems of unemploy- ment, and so you should have these reserves s e t up f o r construction and reemployment , Two things conspired against that. Number one, you can't keep a reserve around too long, because people want t o get ahold of it and spend it for one reason o r another. So they used them. Number two, you really didn't have the kind of a situation develop which required unemployment spending, California became a dynamic state. The population flowed in, with, as w e a l l know, the greatest land migration, I guess, i n the history of mankind. The economy went from a rural, agricultural economy t o a growing industrial, metropolitan area economy. Even agriculture became agribusiness, The country prospered generally, and California prospered extraordinarily, so that by virtue of a l l of these growth factors, w e found that money continued t o flow in, i n unanticipated amounts, The governor had t o realign his position from time t o time, H e had f i r s t had tax relief: we had lowered the sales tax, and w e had lowered the income tax, W e had made that temporary, so they went back t o the old levels, And then gradnally he had t o come in and ask f o r some "sin taxes," He wanted t o raise the taxes on tobacco, and on horse racing, and on liquor i n 1953, Post: as I recall, i n order t o maintain the expenditures that had been b u i l t up on the basis of these surpluses. It w a s at t h i s point that the pressures began t o mount a l i t t l e bit. Some of the members f e l t t h a t the governor was being a l i t t l e wild., that social welfare costs were growing too much, and s t a t e government costs were growing too much.* This is where w e suddenly found ourselves i n the business of recommending what i n those days were thought t o be just fantastic budget cuts, l i k e forty million dollars, you know, in a budget. This was chipping away at a l l kinds of things. And the legislature paid attention t o us. They did cut the budget. Most of it w a s i n delayed capital outlay, which is not really cutting government costs, it's simply deferring expansion of f a c i l i t i e s . Some of that wasn't a l l bad either, because although it w a s deferred, a t the same time I think it sharpened up some of our evaluative processes over what was necessary and important. W e really began t o get into trouble at the end. of the Warren period and i n the Knight administration. But the governor did come i n f o r some tax increases, and the legislature w a s beginning t o chip away at-- Morris: By '49 and '50, the s t a t e w a s up t o the f i r s t billion dollar budget. Post: I remember--the 1950 newspapers show that the governor sent a proposed '50-"j1 s t a t e spending program of a b i l l i o n dollars. $970,000,000 w a s the budget. So we're a t a b i l l i o n dollars. And then it went up steadily from there on, and Governor Knight inherited *Senator Ben Hulse proclaimed, "The economic t i d e of the last ten years has gone out and we have the sands of the beaches t o scratch f o r any more money. W e also have t o consider t h a t fellow, the l i t t l e taxpayer, who has been crying i n the wilderness." San Francisco Examiner, September 17, 1953. Post: the problem of trying to juggle the tax system and speed up revenue receipts and.do everything he could to avoid a tax increase. And then, really, Governor Brown got the problem of the first big tax increase. Morris: And the first real deficit. Post: In 1959, I guess it was. Morris: In those years when you were recommending delayed capital outlay, there was kind of a continual dialog between you and James Dean, wasn't there? Dean argued that construction would cost more the longer it was delayed.* Post: Yes. We were very close to James Dean. We were very friendly. I ' v e never been as close to another d.irectorof finance, in a way. Now, Dean was an architect and he was interested particularly in the reconstruction of the physical facilities, institutions, of the state. At the same time, he was a man who kept a good eye on the total picture. But his real forte was in this reconstruction -- Morris: That's a connection I hadn't made before. Of course. Post: And he was deeply involved in building budgets, and in following up on how they carried through with this rebuilding of the prisons and the mental hospitals and parks, and so on. We had very close-working relationships with him, and met with him frequently to work out details of how to proceed on these projects. He was chairman of the Public Works Board, and he was a very strong chairman. But we still were looking for places to balance the budget, and cutting buildings was easier than reducing personnel. So we bumped head-on. *By 1950, Post was reporting that the 1946 postwar construction program had,grown from $154 million to $418 million, plus additional building requests. ( S . F . ~xaminer,July 15, 1950) Debates with Finance Director Dean are reported.in the Examiner for February 23, 1950, February 13, 1952, and January 23, 1953. School Funding Post t A t the same time, Governor Warren had introduced the concept that the s t a t e should. be responsible f o r the funding of school construction at the local level. This w a s a new program. The State Allocations Board. was s e t up t o allocate these bond funds, and some other funds that were out of the General Fund, f o r meeting the local school needs. Here w e had. t h i s great population increase. The local school d i s t r i c t s were ill-equipped t o build the schools t o keep pace. So the state got i n the business of establishing a program basically conceived around the idea that the local d i s t r i c t would first ''impoverish i t s e l f " by exhausting its resources up t o within five percent of i t s t o t a l bond.ing capacity. A t that point, it would be eligible to receive s t a t e funds. It had t o dedicate a certain tax rate--I remember originally it was a t h i r t y cent tax rate, and give the proceeds of that rate t o the state. Beyond that, the s t a t e would pay the d.ebt service. This then became the standard system of the state. W e had many debates about what was the proper unit appropriation amount, what was the right size of the classroom, f o r example the thousand square foot standard f o r the classroom, what f a c i l i t i e s should be given along with that: multi-purpose rooms, f o r other activities -- Because w e found ourselves i n the business of actually building whole schools, as a result of the fact that a d i s t r i c t would. have come into the program only a f t e r exhausting i t s e l f , and then a l l the new schools really i n 'fact came right within the jurisdiction of the State Allocations Board, and w e were building the whole school. So w e had t o decide what was the proper package. H o w many classrooms, what size of classrooms, what supporting f a c i l i t i e s , how much credit did you give f o r inheriting a system that was oversized. f o r our standards. Supposing you had over-built classrooms previously. Did you have t o w a i t u n t i l you had washed out the over-building before you got new ones, o r could you write off some portion of that. A l l these kinds of problems came into focus because it was a new fund.a- mental role for the state. Morris: So that you and the Department of Finance would discuss these details? Post: Oh, yes. W e worked on the legislation cpntinuously. It was constantly being brought in. W e prepared any number of reports. M y staff met regularly with the Allocations Board.. It had really a great deal t o do with revising many of the c r i t e r i a that they used f o r the design of the program. The staff of the Allocations Board knew what was right, but they often didn't have the guts t o say so, i n terms of the conservative approach. The school people had never had it so good. It was kind of free money a s f a r a s they were concerned. They would push f o r everything, so the state was constantly fighting t o keep the reins tight, and the Allocations Board had both administrators and legislators on it. So the allocations staff people would keep throwing us ideas about how t o do it, and w e had the nerve t o go i n and fight t o keep expenditures down. * Morris: To the legislature? Post: To the Allocations Board. And also t o writing l e t t e r s , reports t o the legislative members, which i n fact became the l e t t e r t o the whole board. W e s t i l l do that, on the Public Works Board and the Allocations Board. W e have legislative members. W e write an evaluative report on the Public Works Board, and send it t o the legislative members, but i n fact, it goes t o every member of the board, and they use it a s an independent critique of whether o r not the project should be approved o r trimmed. *At one point, Post reported t o the State Allocations Board. that fourteen of thirty-four school d i s t r i c t s seeking s t a t e construction aid had enrollment declines since applying. The board instructed Post and Dr. Charles W. Bursch, chief of school planning f o r the Department of Education, t o seek a more r e a l i s t i c formula f o r qualifying f o r funds. A legislator commented that school people seemed t o be working t o get as much money a s possible. (S.F. Examiner, December 21, 1950) Construction Program Legislation Morris: You also indicated.that sometimes the results of your studies end.up as part of legislation. Post: In legislation, because the program standards were d.efined in legislation. The guidelines for the Allocations Board as to what they could allocate for projects, how you actually dealt with the consid.erationof existing facilities, unit amounts-- all of that is the law. Then implemented by the determinations made by the Allocations Board. So that we would get involved.in recommending to the legislature that you set certain statutory constraints, that you change certain procedures, and so forth. We've always been involved in a dual role, of working within the area of legislation governing administration, at the same time that we write a critique of administration. As a result of writing that critique, we generally end up making quite a number of recommendations for changes in the laws, where it's appropriate. The governor might come in with some basic program of new legislation, but not be concerned as much as we were with, perhaps, changes in pieces of legislation. Governor Warren did not seem to use his personal position of governor to intervene, except as to vetoes. He worked in another way, in that respect. He would have his legislative lieutenants bring in bills, or the departments would submit bills. They would be changing the laws all the time. It was only under Governor Brown that you had a strong central control over legislation, from departments, where it had to go through the governor's office and be approved. Prior to that, d.epartmentswould bring in their own legislation. But the force of the governor's office through his veto power, through the fact that he had a strong staff, was great. Beach Vasey, now a judge, was a very strong legislative secretary under Governor Warren. He did a fine ,job of advising the governor on legislation, so that since the governor had the last whack at it, he had a sort of control that went full circle. Even though he didn't have approval Post: over legislation to be introduced formally coming through the office, he had such a strong control over review of legislation that it sort of worked that way. Morris: A number of people have commented on his use of the governor's council, in that the executive branch was strong enough that he could meet monthly with all executive department heads, and then get from them informally what legislation they had. in mind. Post: I ' m sure it worked that way. Of course I wasn't familiar with it, in any direct sense. I never was in the governor's office the whole time that Governor Warren was in office -- Morris: That's interesting. Post: I never was in the governor's office until Governor Knight. And then only because I once commented to Governor Knight, who was really a very good friend, that I had never been in the governor's office, and he couldn't wait to see that I saw what it was like. But there was a very impersonal relationship between the governor's office, Governor Warren, and my office. Morris: Did his office object to the function of the legislative -- Post: No, he supported it, in principle, very strongly. He often spoke warmly about the assistance it gave to him in evaluating bills. We used to write letters to the governor, even after bills were passed, recommending whether he should sign them or not. I finally decided that that was usurping the preroga- tive of the legislature, that if I had anything to say about a bill, I should say it before a committee and not tell the governor to thwart the efforts of the legislature. I really felt that this was out of my scope, and we aband.onedthat. We went on then to strengthen our role before the committee. That's why I still appear before Ways and Means and Senate Finance committees, and. our reports are sent to the policy committees to let them have Post: our recommendations there, when theg make the decision, rather than waiting, and then going in to the governor, and saying, "This is a bad bill." Morris: When do you date that change in policy in your office? Post: I think it took place probably during the Knight administration. I inherited it. My predecessor had written very strong letters, and I carried on much of what he d.id.without any significant change until finally I concluded that it was a bum idea. But I didn't do it until, as I recall, the end. of the Warren administration. In part, it may have been because the administra- tion changed somewhat, too. With Governor Warren, you were dealing with a very tight ship, and he did such a good job on that. I think I felt a little bit d.ifferently about some of the changes in office personnel and so on, with the new governor. As I remember, my real concerns were later on. In principle, I began increasingly to think that it was a poor way to do things, but I never really had muoh of a concern, as I recall, until a later administration. Morrist Could.we go back a minute to the education scene? You were involved in the state money for school construction. Wasn't there also in the late forties, new legislation on support of the schools, for the instructional programs? Post: Oh yes. We had. increasing amounts for local school support continuously. When I first came in, there was much more of an emphasis on unit amounts for schools without consideration of the sophisticated equalization program that equated out the differences in assessed valuation among districts. And without as much concern for individual programs, such as the transportation requirement of crippled children, including building classrooms for them. They just fell out of the system, until Senator McBride came along and really plumped hard for including in the bonds and in schoolroom construction something for the child who was really not fully educable. One who either went to an institution or if he wasn't so Post: defective as to go into an i n s t i t u t i o n simply remained i n the house as a fall-out from the system, Morris: This would be the origin of the program f o r mentally retarded.? Post: Yes, When w e had the school bond program, Senator McBride f i n a l l y got them t o dedicate funds (not t o exceed three percent of the school bond funds) f o r construction of the f a c i l i t i e s f o r children who were not normal, It required i n i t i a l l y a higher pay-back rate. A t f i r s t s t a t e fund.s were matched on a f i f t y - f i f t y basis, and. then that led t o introduction of a sharing device incorporated into the school formula, Only t h i s year, on our recommendation, has the legislature f i n a l l y moved t o take t h a t three percent limitation off. A b i l l is going through that says l e t the Allocations Board determine what the needs really are, But that's been a long road, going t o equal s t a t u s f o r t h a t type of f a c i l i t y versus the f a c i l i t y d.edicated solely t o f u l l y normal educable children. Morris: There's a l s o been the running d.ebat.8 on how much the s t a t e should pay towards the cost of operating the schools, Post : That's right, W e had many issues of t h a t kind.. The Strayer Report (Professor George Strayer of Columbia University) established a basis f o r equalization aid t h a t r e a l l y revolutionized school finance. For many years, w e had e f f o r t s made by the school d i s t r i c t s t o get more money, Annual d.ebates over how the funds should be allocated, and the t o t a l amounts required. The d i s t r i c t s were under continuing pressure, because of the growth of the school population, W e had about a seven percent annual increase i n school population, s t a r t i n g i n the f i f t i e s . T h i s w a s very d i f f i c u l t t o keep up with, because it w a s compound.ed. by the need t o devote a great deal of money t o school f a c i l i t i e s as well as t o keep up with the problem of growing class sizes, W e had the problem of double sessions w i t h us f o r a l l those years. W e had a growing concern, l a t e i n the f i f t i e s , w i t h the growing class sizes, The adoption of a stand.ard. of somewhere i n the neighborhood Post: of thirty-five o r less. That w a s between t h i r t y and. thirty-five per classroom. And trying t o reach those goals. I But there were always major issues of getting enough money f o r the schools, and always the school b i l l w a s one of the f i n a l issues of the session. It always came late. It came a f t e r you s e t t l e d the r e s t of the budget. Then t h e school b i l l would move, and weld have an issue of big money with trade-offs as t o how t o fund. these growing school budgets. Morris: When you say "trade-off" -- Post: Oh, I mean how you could work it out with a l l the other need.s of the state. Tax increases versus expend.itures. School expenditures, budget expendi- tures, construction needs. J u s t the whole problem of how you could. fit i n a big school program. The school people were very big. They were strong. There w a s a good deal of t a l k i n those days about t h e school lobby. You had. the CTA which w a s very powerful. They were always a factor t o be reckoned with. School Lobby Morris: Where d.id. the s t a t e Department of Education fit in? Post: The s t a t e Department of Education was rather a neutral force. The superintendent of public instruction dominated the school board. He w a s a good. professional administrator. Roy Simpson had come up through the South Pasadena school system, and was a good educator, a fine, decent school man. Not a strong and dynamic ind.ividua1, but a good, s t a b l e s o r t of person. He told., with h i s professionals, t h e s t a t e board what things ought t o be. They pretty much endorsed everything he said. He w a s a f a c t o r i n the development of school legislation, but he r e a l l y wasn't i n m y opinion a very strong factor. He never r e a l l y did d.eal as vigorously as he might have with t h e problem of equalization, but he always gave h i s blessing t o it. He was always on the right sid.e, but Post: the school people in his department were primarily an aggregation of consultants who went around to the school districts and helped advise in many ways, including institutes and conferences, In this way they touched a lot of bases, but the real powers within the state were the large school district superintendents, Los Angeles, the San Francisco schools, San Diego--and you know, the growing metropolitan areas, It seemed to me that this is where the power really lay, These districts were aggressive, The basic aid (wealthy) districts, like San Francisco and originally Los Angeles, held up any real progress on equalization until Los Angeles got its nose under the tent for equalization aid, Prior to that, since it was a relatively wealthy district, it got basic aid only, It didn't get any equalization aid, So it would have no part of equalization until it came within the formula. Then Los Angeles got on board, and has been a force moving in the direction of improving and.adding to equaliza- tion funds since, San Francisco never has, and they still fight any equalization aid, San Diego was a relatively wealthy district, too, as I recall. So that some of your big, most rapidly growing districts, were relatively wealthy because of their growth in industrial base, and so they held.back the equaliza- tion aid, Moreover, it seems to me that some of the districts that might have benefitted most were kind. of "cow countyw and didn't have the sophistication to press their cases in the same effective way as those big hot-shot superintendents from the big centers, Because they were really sophisticated individuals, with their battery of supporting forces, This may not be entirely true. It's kind of a theory, I guess, that I ' m d.eveloping, Morris: You're suggesting a kind.of a working relationship between the big cities' superintendents of schools and the California Teachers1 Association? Post: Yes, Morris: That's interesting, Post: I think so, Growth of Urban Problems Morris: Were there any citizens groups? Post: Well, you see, the citizens were taking t h e i r cues from t h e i r superintendents, and t h e superintendents came from basic aid, wealthy d i s t r i c t s , and they weren't about t o share t h e wealth. This is what's held a l o t of it back. You don't permit things to happen u n t i l it does some good. Morris: That's a logical point of view f o r any given locality. Post: This is why you had rapid expansion perhaps of the Youth Authority program and the rapid. expansion of t h e mental hygiene c l i n i c s , because the metropolitan areas stood t o gain by it. They were pushing the r u r a l areas out of shape i n those cases. The mental hygiene problem was t o a very considerable extent an urban problem, we were told., the pressures of c i t y l i f e , i n part, but also, and perhaps to a greater extent, the economic dependency that is a product of an urban society. A person falls out f o r mental reasons from the mainstream, and he's caught, i n an urban environment, i n a position where he has t o go i n t o an institution. Out on the farm, i f a person becomes insane o r is mentally slow, they often just kept them there i n t h e farm enivronment, and they were tolerated.. They lived a reasonably comfortable l i f e . But the economic structure of urban society meant that--as i n the case of welfare tod.ay--when the person falls off, he falls hard, and there's no place t o go. And so the i n s t i t u t i o n s of the s t a t e have t o pick up the burd.en. So t h a t the c i t i e s were welcoming the development of urban f a c i l i t i e s , of mental hygiene c l i n i c s , of acute f a c i l i t i e s with a l s o f a c i l i t i e s f o r overnight domiciliary, short-term domiciliary care. They were a l s o willing t o have a rapid expansion of the s t a t e public health budget, and they were eager t o see the development of the s t a t e supported Youth Authority f a c i l i t i e s , which again were an innovation of the Warren administration, separating youthful off end.ers Post: from the adult offenders. The state by law took up the burden of accepting ad.missionsonly to the extent of the capacity, the physical capacity to d.o so, within the Youth Authority facilities. It was a limited responsibility. By law, we didn't have to take any more people than we could, than we were willing to accept, because this was an innovative approach. Heretofore, you'd had primarily only local youth facilities, the juvenile halls, and.the looal jails that took care of these youthhzl offenders. So when the state got into the business of establishing these Youth Authority facilities it was logical that they should accept only to the limit of their capacity to do so. Morris: This would.be based.on the actual spaces--beds, and. so on? Post: Right. And as fast as we could build facilities, we would accept cases from local communities. The metropolitan areas of course, were willing to support programs at the state level that would permit them to be relieved of the local responsibility of taking care of these youthful offend.ers. So, here's a program that was supported.on a broad base. I ' m simply contrasting this with the unwillingness, in many ways, of the local communities in metropolitan areas, to support equalization of ed.ucat ional apportionments. But when it came to equalizing the burden with the state accepting people in mental hygiene clinics, and.accepting people in youth authority facilities, it seems to me, that the metropolitan areas lent their support, and their legislators supported legislation and appropriations for expanding those kinds of facilities. Senators and Reapportionment Post: Interestingly enough, rural legislators (primarily maybe because of philosophical, or idealogical reasons) were leaders in establishing those programs. This became an interesting facet of our review of the issue of reapportionment. Members of the senate had asked us to look at the record, the track record of Post: the senate versus the assembly, i n respect t o l e g i s l a t i o n t h a t affected urban areas. Because the r u r a l senate (whioh of course it was, a r u r a l senate) was r e s i s t i n g reapportionment, t o protect t h e i r o m position, they wanted t o know how good a job they could say they had done In supporting urban area problems. And interestingly enough, when we looked. at the record, we found t h a t it was very good with respect t o the senate. In f a c t , it was b e t t e r than the record of t h e assembly, which was the house where you would have expected urban problems t o have been d e a l t with during t h a t period. The t r u t h of the matter--well, we approached it t h i s way-- W e went t o U C L A where they had an urban affairs orientation i n t h e i r i n s t i t u t e of government d.own there. Berkeley, und.er Sam May and h i s successors, was primarily concerned with problems other than l o c a l government problems." But at UCLA they had. been oriented toward municipal, l o c a l government, research and problems. So we went t o them and said, " W i l l you identify f o r us the issues t h a t you regard as being t h e most significant l o c a l issues over a period. of recent years, and. then we w i l l look a t the b i l l s t h a t have been introduced on those subjects, see who the authors were, see what happened. t o them. W e want t o determine the track record i n the assembly and the senate with respect t o b i l l s which attempted t o deal with problems t h a t you consid.er especially urban problems. fit So we did that. Then w e took another approach. I thought it would be desirable i f we simply took the b i l l s which were introduced by urban l e g i s l a t o r s and. see what kind of b i l l s they were, and what happened t o them. *To the question on the t r a n s c r i p t as t o what were the significant contributions of UC/Berkeley t o the l e g i s l a t u r e , Post replied: regular reports on s t a t e issues, f i n e l i b r a r y a t Berkeley, but overall not enough output--largely because the legislature didn't ask f o r more help. UC not geared t o the l e g i s l a t i v e time frame and need f o r spot help. Post: Did the senate give serious and favorable considera- tion t o those issues which the urban legislators f e l t were important, as well as dealing with the issues whioh an outside authority (UCLA) thought were important t o the urban community. And on both ground.^, we found that the senate had an excellent record. I think t h i s w a s because, t o get back t o my e a r l i e r point, some of the members of the senate, because of t h e i r having come up through the assembly and going t o the upper house, were sophisticated, and had a very broad. view of many of the problems of the state. They were a l s o conscious of the need t o do something t o maintain t h e i r p o l i t i o a l strength, and consequently had. been quite f a i r i n dealing with these kind.s of problems. Anyway. I just throw t h a t in, because it was a kind of interesting experiment i n the role of the two houses i n relation t o the emerging responsibilities and problems of the s t a t e of California, and the f a c t t h a t the senate w a s a reasonably sophisticated, and far-sighted group of individuals, i n many areas. People l i k e George Hatfield and Ben Hulse who came t o have reasonably progressive ideas about welfare, and the Short-Doyle program. Senator Short was particularly concerned with mental hygiene. Morris: Is Assemblyman Doyle s t i l l i n the legislature? Post : No. There were two Doyles. There w a s old Tom Doyle,* and then there was Don Doyle.** Don Doyle is now a vice president of one of the large insurance companies i n the Bay Area, i n San Francisco, as I reoall, and Oakland. He w a s a pretty progressive Republican. Yes, it w a s the Assemblyman Don Doyle who carried the community mental health legislation. But Senator Short was r e a l l y the one who pushed it most, i n m y view. I remember he took m e down t o lunch on a couple of occasions, and battered at m e *Thomas J. Doyle ( D ) , Los Angeles, 1939-57. **Donald D. Doyle ( R ) , Contra Costa, 1953-58. Post: with experts t o point out the real problem. It was very illuminating and very effective. H e was a fellow that went out of h i s way t o see that you learned something about programs i n which he had an interest. W e went t o Stockton with him t o look a t the programs a t the community level f o r the children who are--what w e used t o c a l l , I guess, Point TWO. They're trainable retarded. That 's where they started the program, i n Stockton. He's been very much instrumental i n establishing increased numbers of those programs and strengthening them. They've grown. H e asked m e t o go down there with him, and w e spent a l l one day observing that. Morris: You're t e l l i n g m e that the legislators lobby you1 Post: Some of them. There aren't many, but he's one of them that always did, when he f e l t that there w a s an important program. He t r i e d t o get everybody t o see it better. There weren't very many that did that, interestingly enough. He's one of the few who did.. I've had some of them lobby m e a l i t t l e on other matters. A s a matter of f a c t , they really have l e f t us pretty much alone. This was an education process. M y chairman, Senator Hulse, used. t o be awfully interested i n getting a s t a t e college i n E l Centro, and w e never would. concede t h a t there was any case f o r that. H e was awfully decent about it. He would just ask that w e keep looking a t it. We'd keep looking at it, and come back with, "It just d.oesntt belong there. W e need a good junior college down there. " League of California Cities Morris: O n the business of the senate, and i t s role, a couple of people have suggested that the League of California Cities, when Dick Graves was director, really did an educational job on the senate -- Post : O f course they did.. Morris: And. interested them, o r got them turned i n the direction, of c i t y and county problems. Post : Yes. I think Dick Graves w a s a very important influence i n California. He w a s a protege of Earl Warren, and. a f i r s t - r a t e , strong ind.ividua1. A s a matter of f a c t , i n m y opinion, the League of California Cities has been outstand.ing i n its s t a t e representation. I would. put Bud Carpenter i n t h a t same league. One of the t r u l y outstanding people, educated. and thoughtful. Representing, i n the f i n e s t sense, the interests of the communities. They've had a program of upgrading c i t y government i n California which has been exemplary throughout the country, I think, based substantially on Dick Graves' early leadership, followed. by Bud Carpenter. Morris: And. you f e e l t h a t they've contributed t o the improve- ment of c i t y government? Post : C i t y government and. the relationships between s t a t e and c i t y government. Oh, yes. It's been an in-house upgrading, and t h e i r representation up here has always been thoughtful and appropriate, educational, and very beneficial i n t h a t sense. Graves was an arch, i n t e l l e c t u a l , articulate, sort of guy, who could t e l l you the way it ought t o be. But he did it rightt He told you the way it really ought t o be. He used t o antagonize some of the people, because he d.id. have kind of an arch way about him, but he knew what he w a s talking about. He w a s forceful. He w a s a r e a l leader. He would have been a good governor, no question about it. Morris: It's interesting t h a t Graves himself f i n a l l y took a shot a t the governorship. Post: Yes, he ran under very d i f f i c u l t circumstances. And he r e a l l y didn't have the warmth, the p o l i t i c a l moxie, t o quite cut it. H e had an intellectual approach t o the governorship at a time when other forces were stronger. Morris: You said he could t e l l you the way it ought t o be. How d.id he f e e l s t a t e government, f o r instance, should be? Post: Well, I think really I was thinking about describing the problems of cities in terms of the fiscal relationships between state and local government. The kinds of formulas that would be productive of good equalized efforts, basic concepts of what kinds of flxnctions, and kinds of programs, and kinds of people, should be involved,. He was a pro, and when he got up to speak on a bill, he spoke, as I say, in kind. of an arch way, laying it down with accuracy and forcefulness, that this was the way it ought to be, and this is the way it was. And he was accurate about it. That's all I mean. I don't have any particular examples. I Just remember seeing him get before a committee, making a very accurate and informed, and enlightened presentation of the interests of cities, with his eye on the ball and what kind of city government we ought to have in California. If there were subventions to local government, there were good ways of d.oing it, and bad ways of d.oing it. He was, in my view, on the s1d.e of the right way to do it. Morris: In other words, his thinking about fiscal relation- ships and administration would conform to your ideas? Post: Yes, it would. He wasnlt so much concerned with school legislation, it didn't seem to me, because they had.Bob McKay and.others who spoke for the CTA who were more influential. It was primarily in other municipal functions that, it seems to me, I used to hear him more often. Morris: The Christmas Tree bill was the famous one, on what to do with the governor's Rainy Day Fund. That was sewers largely, wasn't it? Post: Well, it was all kinds of facilities. There were sewers, and there were other facilities. I came in, really, just after that issue was resolved.. Senator Hatfield and.other senators held up the whole proced.ure and.bargained with the governor because they felt that he had structured the program to reflect the view that the needs would.be found to exist in the growing urban areas. They, on the other hand, wanted. some of this surplus money to go out to the small communities they represented. Post: Because the governor also had a functional state construction program that would.go to the upgrading of state facilities, they assumed that this meant the state facilities would be in urban areas where the people were, and.they wanted some facilities in other areas of the state. They mad.e the case that he needed to have a broader grant of funds that would upgrade these local community facilities. They got the so-called Christmas Tree Bill, by simply holding up his total program, so he gave in on the local portion. Water Planning Issues Morris: What was the influence of fed.era1funding on state government during Warren's administration? Highways and water have been mentioned as the big dollar amounts. Post: Federal funding did.ntt have too much influence then. Highways were big in the Warren administration. Water became a big issue in the Knight administration. Then Brown came in, and really--coming down into the legislative halls and getting some real experts to work on it--resolved that issue by might and main, for which I give Governor Brown a lot of credit. Whether you agree or disagree with the water plan, it simply wouldn't have happened if Governor Brown hadn't felt that he had to get this thing off dead center. In the Knight administration, we just wound.up with North-South fights, over and over and.over again. During the Warren administration, there was a planning effort, the development of the state water plan. Now, this was something that had to be done, and it was done by the then Division of Water Resources. But it was a planning and design organization. We never dealt, in the Warren ad.ministration,with the issue of where were we to put our money, or what kinds of things were necessary in order to get in the business of really merchandising water. Post: Now, the first r e a l issue t h a t I was ever engaged in, i n the f i e l d of water, was when I came t o t h e conclusion that the s t a t e w a s mis-spending its resources by trying t o buy out the Central Valley Project. The big farm i n t e r e s t s i n California wanted t o buy out the federal i n t e r e s t , with the use of s t a t e funds, so that we wouldn't be plagued with t h e acreage limitation of fed.era1 legislation. There was fed.era1 money i n the project, and so we were governed by reclamation l a w . This was counter t o the agribusiness interests. Their proposed I \ solution was t o simply buy out CVP,imake it a s t a t e project, then we could run it as we darned pleased. I opposed that. I remember people said at the time t h a t George Hatfield would be twirling i n his grave i f he'd known t h a t I w a s recommending against it. Interestingly enough, many people said that a f t e r I said that they knew the proposal t o buy was dead. It w a s the first time i n my own experience t h a t I ever f e l t , and. I didn't realize it at the time, that something I had said had that kind of impact. The fact t h a t the l e g i s l a t i v e analyst would come out and objectively say t h i s was a bum deal f o r the s t a t e , apparently, according t o many of the experts i n the Bureau of Reclamation and elsewhere, sealed the idea's doom. Defining Economic Factors Post: From t h a t point on, we were concerned. with the problem of where t o go next i n investing our money i n developing and implementing the s t a t e water plan--in exporting water from the North t o the South. W e were concerned with how t o s e t up economic conditions f o r pricing the water, determining what the cost-benefit r a t i o should. be, and who should pay f o r it, and what project benefits are, using the pattern of federal legislation, o r conforming it more t o some of our own experience, and perhaps improving on it. It was at that point t h a t we hired ourselves a very bright young man from Washington, an economist who had had some experience with Bonneville. He came south and. had, I think, a tremendous influence i n the s t a t e of California ( t h a t B s t: was Don ene edict), in shaping a whole new approach to d.etermining the economic interests, as opposed to the engineering and planning features,of water in California. He worked closely as an advisor to the senate and assembly committees, with Carley Porter,* and members in the senate. With his basic background, I think he helped instruct them in the general area of how to approach these problems in a way that was entirely different from what we had experienced in the past. Morris: You're speaking now of the activities of the Water Resources Board established in November, 1945. We' re very interested in this period before water resources became a separate agency in 1956. Post: I remember distinctly during those years the work that was done by Charlie Weber of Stockton,** who had hired with his own personal resources a set of experts who dealt with the whole problem of a water plan for California. You had the experimentation and the discussions with the Reber plan, how to handle the Bay Area, how much water had to be released, studies of ways in which to guarantee that there would.be no saline intrusion in that area, of the development of a policy of sharing costs with local governments in developing aquifers and protecting them, and of stopping saline intrusion in many areas. We saw the development of programs to encourage the use of atomic energy for purification of water. There were arguments and debates as to sources of power for the state water project. *D, Los Angeles, 1950-1972, Assembly Water Committee (ch), Agriculture, Ways & Means. **Ind, R, D, San Joaquin, 1935-1950, chairman, Assembly Conservation, Planning and Public Works Committees; Ways and Means Comm.; civil engineers Don Pedro Dam, Carquinez Bridge. Post: I remember going, at the request of Assemblyman Beaver, to meet with the president of the university, Bob Sproul, and talk about getting their experts to help us develop a new approach to saline water con- version. We wrote reports for a subcommittee that Jack Beaver chaired in that area, sent our people back to Washington with him, and did a lot of work in that area. I'm overlooking the fact that there was a great deal of debate associated.with the planning that went on. When they finally got to the point of deciding how they were going to handle the state water plan, we were involved in that. For example, I was asked to set up the basis for having a joint committee review of the Feather River Project. Knowing nothing about it, I went to the Bureau of Reclamation and others, and got my guidelines as to the kinds of things that you had to have in such a review, such as the best high dam man in the country, a Jack Savage, or somebody of that calibre. You had to have the best geologists in the world, because we had the most difficult geological problems related to our canals. You had the power plant problem of going over the Tehachapis, which in that area represented the most difficult engineering problem of its kind the world had ever tackled. Everything was in ultimates. By that I mean it was the most difficult project in every feature. They helped identify these particular issues for me. I was supposed to lay out a program to get bids from all these engineering firms, bring it before the committee, and.have them make an intelligent decision in selecting the firm to evaluate the work that had been done by our own state division people. Their feeling was, "Before we can launch ourselves in this twelve billion, or whatever it may be, dollar project, we've got to have some outside evaluation by qualified people who say, 'This is sound. It'll work. ' And then we'll commit ourselves to it." So, I interviewed people like Harza and Bechtel, and Porter, and the whole bunch of the engineering fraternity. And on the basis of the assistance that I got from the Division of Water Post: Resources, and thel~ureauof Reclamation, and others, we set up a kind of master plan, a group of specifica- tions, and sent them out to all these experts. They were to come in with their proposals. It was to include identification of the individuals who would be assigned specifically to every one of these project review elements. They would tell me, "You've got to know you're going to get a specific person who has qualifications. You want to know who. So we had a very fascinating hearing on this. Interestingly enough, what they did is what you might have (what I might have) expected beforehand, but was too un~o~~isticated to realize--they picked Kaiser, because it was a local firm. As a matter of fact, they had a pretty good bid., and they had competent people, and I have no reason to feel that they didn't do a good job. But you had entirely different approaches being thrown out. Harza, for example, wanted to forget about the large dams here in the North, and have a kind of water exchange program, in which you would take the water we already had in the high Sierras and.which we were sending down into the lower San Joaquin Valley and send it down into Southern California, and then we would keep the North's water in the northern part of the state--that is to say north of the Tehachapies. There were real issues about the quality of water that would be involved in an exchange of that sort. These kind.s of issues were ones that were debated all through that period. As I say, Charlie Weber kept banging away at his proposals to avoid a large Oroville Dam. We had studies financed to determine the best way of handling the quality of water in the Delta. Alternate sources of water to go into the state system. Relationships with the federal government in their dam-building projects. Because they were big with the Bureau of Reclamation all through this period. How did we relate to them? What should we build, and what should we leave to them? What were the differences in timing that would be involved? The trading that went on between the interests of the North and getting water to develop versus exportlng water to the South so they could maintain their rapid development. Post: The difference in economic interests between the sportsmen and agriculture in the North versus the value of the water to manufacturing and popula- tion consumption requirements of the South. Morris: The recreation issue is a fairly recent one, isn't it? Post: No, they had studies of that quite a way back, because northern people were conoerned about giving up their water, and knew that there were more possibilities, it seemed to me, for development of recreation in many of those areas, than anything else. More money to develop those rights than any other thing that was foreseeable, big business, and orderly development of that kind. So you had Assemblywoman Pauline Davis of Portola fighting for retaining small dams up there that were primarily recreational. Again, they used all these new, sophisticated devices of building in benefit factors that would make the project economically feasible. The State Department of Water Resources funded special studies for allocating benefits for recreation and putting it in the formula in a way that would make these small dams, like Davis Dam, Antelope Dam, feasible. They also fought for a broad, multi-purpose system that would incorporate development of these small projects--along with the development of the major water export functions. These things were part of the total battle. There were battles over how to fund it, the use of state resources from different sources versus bond financing. The use of the reserves. Their dedication to a special water fund. The use of some federal funds, and general fund monies. All of these were issues that were going on at this time. No question about it. Morris: Who were the strong men in the legislature on these continual discussions on water? Post: Well, the people like Hatfield were strong. Let's see. Cobey. James Cobey, of Merced, later on. This wasn't in the Warren administration, really. This was later on. In the early years--I can't tell you Post: who they were, but they would be the Valley senators. I really wasn't too muoh involved in it until later on. These issues really didn't emerge in those years. We simply had regular financing of a state water plan. This was the work of the Division of Water Resouroes, under Ed.monston,and his predecessor, Hyatt, Edward Hyatt, who did the planning for it. You didn't get these iss-uesarticulated until you reached the point of "Now, really, what are we going to & about all this? Are we really going to use this plan? Are we really going to take the water from the north and ship it south?" Because one of the things that they inoorporated in their early planning, as I understand it, and recall it, was that you were going to husband these water resources in the north and have a lot of dams retaining water for local purposes. This would be very beneficial to the north. From Porterville, Howard Williams was very important in this, because he was chairman of the joint water committee. He obviously represented major customers for water, because he came from Porterville, in the Valley, where there were agri- cultural interests. This is what they would be needing, so he was a key figure. He came up through kind of the old school of Valley interests. It was really only, I guess, late in his career, that he became involved in some of these other more sophistioated issues. Morris: The early issue on the Central Valley Project seems to have been whether it was going to happen at all. The state couldn't fund it, and then they appealed to Washington. Post: That's right. You see, because originally they wanted to use what money they had on hand to buy themselves out of the acreage limitation. That didn't leave any money for development of the state water plan. Merchandising Water Morris: I see. For the additional parts of it. Post: Right. And then w e still hadn't dealt with the economic issues of how you get money f o r a project of t h i s magnitud.e. W e still were thinking about the s t a t e funding the project. I mentioned the f a c t t h a t w e hadn't really dealt with merchandising water. By that I mean deciding who pays f o r what and on what basis? H o w do you divide it up between industrial uses and agricultural uses? H o w do you calculate the revenues that come from e l e c t r i c power versus irrigation? A l l these things. These were issues that the Division of Water Resources hadn't really tackled. They didn't have a single economist i n those days. Morris: The idea was that merchandising the water would then produce the money t o build the system? Post: That's right. It meant, how do you spread t h i s over the years? H o w do you put it out on a bonding basis t o give you the capital, and pay that off from the revenues that are produced? H o w do you s e t the price f o r water? H o w do you s e t the price for power? H o w do you allocate between the two equitably? H o w do you determine which pieces of it are feasible i n terms of anticipated revenues? Because you've got t o anticipate what these w i l l be, and you've got t o allocate it t o a multi-purpose project. H o w much of t h i s w i l l be federal money f o r flood control, and f i s h and wildlife preservation, and how much of it w i l l be--in other words, what kind of storage do you reserve f o r that, and how much w i l l the federal government pay for? Beyond that, what can you s e l l ? and t o whom do you s e l l i t ? and under what kinds of contracts? and who's responsible f o r the distribution system locally, a f t e r you get the water down there? A l l these sorts of things really had t o be hammered out. There were new public policies, really, that had never been dealt with i n California, fully. W e didn't have the people t o really deal with it, u n t i l Post: later on. This didn't happen in the Warren adminis- tration. It happened later. But the planning work, the engineering work, was done largely during the Warren administration. And the first skirmishes over how you use your money for what public policies, expansion versus the buying off of the federal government--that generated during the Warren administration. Morris: The 160-acre limitation debate is what reverberates down the years. Post: That's right. This was the first big issue we dealt with. Until we disposed of that, we weren't really in any position to move on with the problem. So that was the first thing that kind of had to fall. Morris: [Additional question submitted with transcript.] From your point of view, what were the merits of the 160-acre limitation? How was the issue settled? Post: [Written reply.] The 160-acre limitation was basic federal law to not give, at public expense, an unearned increment to large 1and.owners. While the small farm was not an economical unit in California, by and large, it was federal policy to encourage it, and.in any case there was no reason to not require the large agricultural interests to pay for water development. The 160-acre limit probably wasn't the right solution for California, but reimbursement contracts did seem to be justified, after deductions for flood control. When the state entered the water development picture it used contracts intended to ~rovide adequate and equitable reimbursement, as I recall for "surplus" water not claimed by the smaller farmers. Morris: I should think that private business, like Pacific Gas and Electric, and some of the big California banks, would have been very much interested in all this policy development. Post: They were. I ' m not sophisticated enough to know exactly how. All I know is that there was great concern when I did. the staff work for that review by the joint committee about what PG&E would be Post: involved. in. One of the real arguments that went on before the committee d.uring its hearing was that Kaiser engineers were also PG&E engineers, and. they therefore had a conflict of interest. Some of the members of the committee felt very strongly that you ought to get s0mebod.ywho wasn't d.oing PG&E work, because it meant that we would be dictated to by PG&E on the policies that would be approved. for the state of California, for appraisal of the feasibility of the project. Others said.that that really isn't a significant factor. They persuad.ed them that it wasn't, but I do remember that PG&E was very large in those consid.erations. But I really wasn't sophisticated enough to know that much about it. Morris: When d.id.you d.o this stud.y? Post: I d.onttremember exactly. It was in the Knight administration, as I recall, which would.be some- where around '55 and. '56, maybe. Morris: He took over in October, '53. And was re-elected.in '56. Post: We had. those big issues on the water plan, the North-South battle during his administration. It was about that time, I would. say. It must have been 1955 or '56. Morris: You would.nVthappen to have the title of it handy, would you? Your study? Post: Oh. We didn't make the study. It was the Bechtel Corporation that mad.e the study. All I was asked to do was to design for the joint water problems committee the basis for the solicitation and presen- tation of proposals for review of the Feather River Project. This was in the Knight administration where that issue became big. I think about 1956. Impact of Fed.era1 Funding Morris: W e started on water when I asked you about federal funding. You said that i n the Warren years there wasn't a l l that much fed.era1 fund.ing. Wasn't t h i s the beginning of public health, mental health? Post: Well, yes, there were many smaller federal items. In terms of t o t a l dollars it was relatively s m a l l , but i n terms of its influence, I think it w a s pretty substantial. I mentioned t h e f a c t that the community mental health program was pushed along rapidly by federal financing of the local clinics, and there w a s fed.era1 financing of numerous research projects, which they would gradually drop, and expect the s t a t e t o pick up. In the field. of public health, t h i s w a s also true. They would. move i n with funding of epid.emiology and morbidity studies, things of that kind. They would, t r y t o upgrad.e the role of s t a t e and. local govenment i n tackling problems that they hadn't really tackled before. Making statewide studies that would. r e f l e c t the incidence of some of these problems, and setting up matching programs of one kind. o r another. So that w a s very influential. It w a s also one of the things t h a t many of the members of the legislature used t o get pretty unhappy about. In fact, our off ice reached a point where we proposed, and. they did. adopt, a limitation on the amount of money t h a t could flow in, and be used, on the grounds that it simply w a s luring us into areas where w e f i n a l l y f e l t there were marginal returns. But t h i s w a s very much l a t e r . So it was r e a l influence money. There wasn't any question about it. Particularly i n those areas of public health and mental hygiene. Then there w a s growing federal money i n public schools, but t h a t came pretty much l a t e r on. It came with t h e a c t s t h a t were t o strengthen the administration of the school system. Morris: That's interesting. What effect d.id the California s t a t e government have, i n turn, on the federal government? Post: I d.onPtthink we had very much. They used to come out and talk with some of our more sophisticated people in social welfare--of course, federal funds were also flowing in to the relief, the welfare program, at this time. We had key people who went back there. There was considerable influence, I think in that area. Morris: Who would those -- Post: Well, the director--let's see. In the Warren administration, the last man of real influence was the attorney who went back to Brandeis University as a professor of social welfare. I can't think of his name. Morris: Charles Schottland. Post: Yes. He was quite influential. I t ' s hard.for me to assess what the influences on the federal government were, because I really don't know. It seems to me we've always had a rather remote connection, or relationship, with our legislative group in the Congress. There has never been a d.ialogbetween the California legislature and the congressional representatives of California. I think that in many respects, California under the Warren administration became kind.of a mod.el of how to do things. People did look to California. A number of our people did go back there. Also the members of the legislature who went back there as members of Congress exerted influence, because there were quite a number of them. Morris: Does your office exist in other state governments? Post: Oh, yes. No state has the size or sophistication, but most of the states now have an office or a man who performs this kind.of function. I t ' s done in many d.ifferentways. A characteristic of legislative organization is that you fit these new things into the legislative services that you have. There was, in the thirties and.forties, a legislative council or research movement, which started in Kansas, in the Midwest, and spread out. Many states set up these general research councils and then only very Post t much l a t e r had the f i s c a l review f i t t e d into them. California, on the other hand, never did establish a legislative council, despite the desire of Professor Harris and Sam May, a t UC, and others, t o go t h a t route, but instead s e t up a f i s c a l l y oriented. office, which became i n f a c t a legislative reference bureau, meeting many broad assignments. Doing the reference service f o r members of committees, not only f i s c a l issues, but many other issues, although never really being the kind of general l e g i s l a t i v e research council that you had. i n Kansas, Oklahoma, I l l i n o i s , and. other s t a t e s where they went into a much broader group of l e g i s l a t i v e policy areas. Morris: M y ear isn't good enough t o hear whether that's " c o ~ n s e l or "council "? Post: "~-i-l'~. a legal counsel, but In California it's the council was a legislative group, l i k e my budget committee, t h a t appointed the staff and i n the case of Oklahoma, it included every member of the legislature. Less members i n some s t a t e s where it became a very select group. The council selected. the subject and. they would research everything, from reapportionment, resource development, e t cetera. The whole battery of things. But w e were the first i n the country t o have a f i s c a l staff of t h i s kind, and w e are s t i l l numero E, by any stand.ards, t h a t you could find. Generally regarded t o be. Developments i n State Budget Process Morris: We've mentioned the s t a t e of the art and i t s develop- ments i n a number of executive d.epartments in Warren's years. I wondered if there a r e any technical advances, e i t h e r i n economic theory, o r f i s c a l management, that have affected the course of government. Post: Well, I think it w a s just a slow acoretion of degrees of sophistication. You didn't have g budget system, o r a PBBS,* anything of that kind. Governor Warren came i n with the constitutional authority t h a t he had when he l e f t . The governor was responsible f o r developing the budget, and had a l l the resources of s t a t e government at h i s command t o implement it. He didn't change the t o t a l structure of government very much. In other words, you s t i l l had the battery of constitutional o f f i c e r s with a certain degree of independence. He d.id. of course, internally, strengthen many of h i s executive departments. So t h a t he came i n with a strong budget mechanism. I think he improved t h a t significantly by having a strong budget director. But he inherited. a good s t a f f , and. he b u l l t up t h a t budget sta$f, and they did a very professional job, and. improved t h a t job. N o question about t h a t , during h i s term i n office. But there wasn't any, as I r e c a l l , any r e a l significant change i n how you d.id things- M y o f f i c e sat i n on the hearings of t h e agencies, a l l through the Warren administration. There was no change i n t h a t procednre. They would meet i n t h i s room, and the director of finance would s i t here, and. the agency people would go d.om the side of the table, and. the l e g i s l a t i v e analyst would sit down at the end of the table. The staff would. ask questions, and they would. submit t h e i r analytical d . a t a , and they would have a discussion of the polioies t h a t t h e agencies were asking t o be implemented. Then the budget staff would take t h a t material and make it i n t o a budget When the budget came along, then Vandegriftls s t a f f , o r my s t a f f , would. review it. That was the proced.ure throughout a l l of the Warren administration. Morris r Your review was based. on t h i s single budget t h a t had. been prepared by t h e Department of pinance7' *Program Budgeting and Bookkeeping System. V G R O W T H O F LEGISLATIVE ANALYST FUNCTION Program Evaluation Post: That's right. It w a s a line-item budget, with reason- able program descriptions. One of the things t h a t did happen during t h i s period--and people i n the Department of Finance have often s a i d this--our report, as it expanded. i n s i z e and depth, as the staff grew i n t h e i r sophistication, incorporated. t h e kind of information t h a t had. never been present i n the governor's budget. So t h a t from a budget of sched.ules, of people, and amounts, and items, it began t o develop d.escriptive material t e l l i n g what the program was a l l about . Most of t h i s was input d.ata, not output data. I n other words they d.escribed what they were putting i n t o the program, and. why they were putting it in. The budget s t i l l i s n ' t too good. on saying, "Now from t h i s we have gotten these kind.s of r e s u l t s , " because it's very d i f f i c u l t t o measure r e s u l t s , and very often, you d.on't l i k e t o t a l k too much, really, about it, because there aren't always those r e s u l t s i n tangible evid.ence. The budget document did improve. It grew sub- s t a n t i a l l y i n s i z e , and it grew i n sophistication and i n content. I think we had a good. deal t o do with t h a t , because we were writing a textual descrip- t i o n of programs. W e didn't have t o be concerned with a l l t h i s business of laying out a l l the l i n e items t h a t would then be administered by the agencies i n an administered. budget. W e could t a l k about the thing, the program evaulation. And they found t h a t Post : t h i s w a s desirable t o put i n t o t h e i r budgets, f o r one reason, because they didn't l i k e t o have us s t e a l a l l t h e i r thunder. If the members would f a i l t o look at t h e budget and instead only use our book, it seemed l i k e an i d l e a c t on t h e i r part t o go t o a l l t h i s work. Many of them were constantly thinking how can we write the budget so t h a t it becomes the document f o r l e g i s l a t i v e use, rather than just t h a t l i t t l e book prod.uced by the l e g i s l a t i v e analyst? W e constantly were trying t o make our product b e t t e r so t h a t they would s t i l l use our book, because if they used our book, we're more productive. We're more persuasive if they can see our story and not just use t h e i r story. W e always had the power of the governor and h i s p o l i t i c a l force t o combat anyway. When t h e chips were down, he had. tremendous pressure. W e have very l i t t l e pressure. So we had t o write an awfully good book i n order to be persuasive. Morris: That sounds l i k e a healthy competitive situation! Post: It was a healthy competitive situation, and I r e a l l y think it w a s productive of good things. Governor Warren used t o say i n public addresses every once i n a while, "The s t a t e of California does a good job, because you've got d i f f e r e n t people looking a t things c r i t i c a l l y . When we have our legislation, it has t o be looked at by the l e g i s l a t i v e analyst, who submits h i s comments on it. This means t h a t it's b e t t e r legislation. I was always grateful, towards the end of h i s terms, t h a t he would. have given t h a t kind of recognition t o what we had. been doing f o r a number of years. Morris: During t h e l a t e f o r t i e s , the Department of Finanoe began t o do administrative reviews of departments. Did. t h a t come about because of the kind of analyses you had been doing -- Post : No, I think t h i s w a s t r a d i t i o n a l f o r them, but I think t h a t we helped. spur it on. There w a s some issue at t h a t time as t o whether o r not we were Post: duplicative of efforts. W e were making stud.ies and they were making studies. W e a t t h a t time attempted. t o get b e t t e r communication, so we knew what they were studying with t h e i r management staff, and they knew what we were studying. The point I would always make w a s t h a t our studies were ind.ependent of t h e i r studies. They were reflecting t h e point of view of t h e d.epartments and the point of view of the administration. W e were reflecting an independ.ent point of view. A t the same time, it would be foolish f o r us t o duplicate t h e factual data t h a t we could agree on. W e ought t o join our e f f o r t s so t h a t we could extract from the same body of information, but give a different interpretation and treatment i n terms of optional approaches, and supplement it maybe with new data. That s o r t of thing. So we worked very closely with Pierce Fazel and h i s staff of people i n Finance. N o w he was not i n t h e budget streaml. He was r e a l l y a management specialist--they had a management analysis staff over there under Pierce Fazel and Bob Smith. They did ind.ependent stud.ies which we read and used, and they read ours. I n those days we had monthly meetings with the budget committee, and we gave them a group of reports almost every time they met. W e would have public hearings, and. I would go through the reports and explain them. They became r a t h e r important documents i n the way of management analysis. In those days we spent so much time s i t t i n g i n on budget hearings t h a t we didn't do as much as we now do i n writing up management reviews i n the budget analysis. When we were cut off from attending these hearings, i n the Brown administration, we used t h a t time t o make an independ.ent evaluation of the administration, and instead of doing it i n a s e r i e s of reports, which we had previously made monthly t o t h e budget committee, we incorporated t h a t i n summary form i n a s e r i e s of reports t h a t we sent t o t h e budget committee and. the whole legislature, o r d.oing it t h a t way i n part, and. then summarizing it i n part and putting it i n the analysis as an annual report on administration and budget. In our budget review we t a l k not only about what the governor is asking Post : f o r , but a l s o about what did they do with the money i n the ourrent year. Where do we stand i n terms of progress on problems? Where do we stand on the higher education master plan? Where do we stand on the water program? Morris: Incredible. Post: So t h a t ' s why the book has grown t o a thousand pages. There a r e , f o r example, a couple of hundred pages on education. Because we discuss every conceivable issue i n education. Copies of our book go t o the university, every regent, every member of the board of t r u s t e e s of the s t a t e colleges. I understand from m y conversation with them, they f i n d it extremely helpful as an overview of c r i t i c a l issues t h a t are of public and l e g i s l a t i v e concern, and somewhat d.ifferent from what they might get looking at the issues from t h e i r narrower point of view. Staffing t o Keep Ahead of the Issues Morris: I should think so. It leads m e t o ask, where do you get your s t a f f ? What kinds of background and training? Post: W e h i r e them from universities and colleges on a non-civil service basis. O n the basis of personnel reviews. Many of them come from found.ations. Some of them come through internship programs. W e have a young man, f o r example, from Princeton here t h i s summer. W e had t h a t internship program last year also, W e hope once i n a while one of these fellows w i l l come and work f o r us. W e recruit through the University of California and. through Stanford. W e go down there and. t a l k t o t h e i r people, and they give us the references and we interview them. Some of them come on t h e i r own i n i t i a t i v e , simply because of interest. I took one i n today, a young lady who i s magna cum laude at Smith, an absolutely sensational young lady. She's finished her master's d.egree, Most of them have bachelor's degrees. Almost a l l of them w i l l have had at l e a s t one o r two years i n some kind. of a post graduate program. The one man at Princeton, Post : f o r example, w i l l have finished. one year i n the Woodrow Wilson School of Public and International A f f a i r s . He'll go back f o r h i s second. year. W e had two such men last year. W e put them on a specific assignment, and simply l e t them work. W e get our money's worth out of them on a project basis, and they get a chance t o see us and some of these days we pick one of them up. W e have a man from Davis who has been working t h i s summer on environmental and. ecological problems, a man who's working on the agricultural impact-- agricultural industry, and the use of ohemicals. He happens t o be specializing i n t h a t , so we went t o Davis, and w i l l probably have an intern i n that area. I think he may s t a y with us, a f t e r he finishes. He's very much interested. Morris: You s e t the guid.elines within which t h i s variety of people -- Post: That's right. I do a l l the hiring and a l l the firing. The committee simply says, "You can have so much money. '' W e ask f o r certain money l i k e everybody else, and. they approve it. But they l e t m e run the staff with a completely free hand. W e s e t up the classifica- tions and w e decide where we need t o put the people i n terms of the demands on the office and the problems as we see it. That's why I went t o Bonneville t o get m e an economist on water, because w e need.ed t o have somebody i n the field. of water. I discussed it with the chairman, and he said, "Well, water is a very dangerous area." I said, "I know, but it's t e r r i b l y important. M y friends i n the bureau simply say the s t a t e of California is missing the boat." H e said, "Well, go ahead.. It 's a tough time, but -- " W e hired ourselves an extraordinary man and he's s t i l l with us and doing an extraordinary job. W e decided. t h a t we needed t o d.o something i n transportation, because I f e l t that the transportation lobby, frankly, was exclud.ing adequate legislative consideration of forms of transportation other than highways, so about five o r s i x o r seven years ago, I asked the committee i f they would permit m e t o Post: establish a unit, even though the highway budget is not in the budget bill. I felt there were areas for surveillance of highway programs that would be valuable for the legislature to consider in terms of how much are we spending and what are we spend.ing it for, going in that way. I didn't really talk about mass transit, but I sure had it in the back of my mind. So we went out and hired ourselves, with their approval, a young highway engineer. We no sooner got him trained than the state of New Jersey hired.him as their deputy administrator for transportation, so we went out and hired another bright young man. BART hired him within a few years as their director of planning, and.he's now the number two man in that organization from the administrative stand.point,under Bill Stokes. Now we got ourselves another man. But the point is that we're in the transportation field, and this has been invaluable to the members. When we got into the BART problems and when we got into the mass transit transportation issues, we had people in the office who knew what they were talking about, and they have been used extensively by both sides, both houses, both parties. It's been a very gratifying development. This attitude on the part of the committee offers us an opportunity to look ahead, see what we think we really need. For example, we're concerned now with getting people who are trained in ecological approaches, whatever that means. We've sent people over to Davis. I've gone over and. talked to them because they have a specialty there. They have D r . Kenneth Watt, and.his whole battei-y of experts, his whole bank of d.ata that's supposed.to be the best in the state. We went over there and tried to set up a basis for doing two things: One, clueing in to some of the things that they're producing so we can feed it through our evaluation of proposals. And also, trying to set up a basis for actually referring bills to them to see whether they can respond.within, say, a week or two, and give us some guidelines on the kinds of things that ought to be looked at, the factors that don't meet the naked. eye of the layman. Postt A bill comes along that might have tremendous implications ecologically. The Davis people say they have the bank of data over there that can pull out these factors, and together maybe we can work it out so we can put those considerations in the bill analysis. This is a very hazardous and difficult kind of thing, for me to put something in that will louse up a bill, or kill it, merely because we say, "Oh yes, this is all in apple-pie order, except it is ecologically unsound." You can see the problems that creates. So, feeling that somehow this ought to be brought into the picture, but not really knowing how it should be done, we've been seeking expert advice from Davis. That's one reason why we've had a couple of youngsters come over here and be interns, hoping that maybe we can develop better communication channels. They need to understand how we have to deal with matters here in relation to what they do there. Maybe after we run this through one or two years, we can start getting some people that will develop a procedure that is viable for us, from a staff standpoint, that's politically viable, that we can live with. Because these are not tangible, easily defined issues. We can put a price tag on a bill, because a department says it costs so much to administer. We can identify certain management problems or certain principles of organization that we think should be mentioned. But it's much more difficult for me to say that the implioations ecologically of doing it this way, versus doing it some other way, can be described and pinpointed and put into balance on a bill. We have no ecological committee. We have no guidelines. We have no real standards. And yet we're told that this is a matter of life and death, to do this thing right. Morris: [Question added to transcript.] You mentioned that the highway budget is not in the budget bill. How did this come about? Are there ha2ard.s to this from your point of view? Does the legislature have any powers of review? Post: [Written reply.] The Collier-Burns Act of 1947 gave the Highway Commission authority over the highway budget. The governor must put it in the budget as presented, and retains only certain approval power over any changes Post: in it proposed later by the Highway Commission. The legislature cannot change it. The funds, by state and federal law, are also earmarked. The legislature could change the Collier-Burns Act, but it ohooses not to do so, to avoid log rolling on highways. V I A NOTE ON BUDGET DIRECTOR FRED LINKS Morris: When I interviewed l?red Links t h i s morning about the Department of Finance, he mentioned t h a t he had worked with you a good deal. Post : Well, when I came t o work f o r the s t a t e , Fred. Links w a s thought of as the man who ran the s t a t e of California. He w a s the c i v i l servant who had been here forever. He grew up through the low ranks c l e a r t o t h e top c i v i l service job, really, i n the s t a t e Department of Finance, which ran the show. And he knew more about how t o get things done than anybody i n the business. He ran the budget process, and he had ways of doing things f o r people t h a t w a s remarkable. He had t h e so-called Fred Links Fund, which bought m e m y desk and. m y chair, when I first came i n here, and when we found out about it, we promptly convinced the l e g i s l a t u r e t o take it away from him, which w a s an ungrateful thing t o do, but the Links Fund wasn't i n our opinion the right way t o handle such business. It w a s a form of special privilege t h a t the Department of Finance would hand t o people f o r small p o l i t i c a l favors, and i n m y judgement t h i s was just wrong. It w a s r e a l l y not the r i g h t way t o do things. If you d.eserved a desk, you should get a d.esk, but you shouldn't have t o go hat i n hand t o get a robe f o r the chief justice. A l l the l i t t l e things you couldn't get i n the budget, would be gotten out of the so-called Fred Links Fund. And t h a t kind of patronage, we f e l t , I f e l t , was not right. Morris: When it's the chief civil servant in the Department of Finance, I can see where it's extra-questionable, but d.onltmost departments have a "slush fund."of some kind? Post: NO. NO. Morris: That's the general opinion of the public. Post: No, they really don't. And this was all centralized in the hands of one man. But anyway, he was my neighbor and. he was a delightful man. He went before the committees on finance, and ways and means. He was the expert on bills. He largely handled the governor's and the Department of Finance's position on bills. He just knew more about state operations than anybody. I can remember seeing him as we both were going home after work. He would go along in that little car of his, zipping like you'd expect him to, and, of all things, reading bills as he drove. Every time he'd come to an intersection, and. I often thought in between intersections, he was reading those bills. He would look at them, see what they were, and throw them out the window if he didn't want them, or if he knew all he needed to know about it. We could almost follow him home by the bills sailing out the window of the car as he read.his homework going home, at about sixty miles an hour. A remarkable man. He really was smart as a whip, knowledgeable, just a ball of fire. I was very fond of him. I am very fond of him. He was the man that I alwayskind of thought I would like to be, the one who had his finger on everything. Everyb0d.y thought of him as Mr. Know- it-all. Morris: That's interesting. I thought of your enjoyment of painting this morning when he was telling me about his years and years of work with the Boys' Choir. This was his avocation, and the music took his mind off the details of finance. Post: Yes, he did. He also built the chandeliers for the church, and he was a man of many talents. He was a great home-builder and.gardener. Did a lot to build Post : his home himself, and everything around his home, Very, very much oriented to do-it-yourself, you know. He was also an institution, We have never really had anyone in the administration who has been able to take his place. VII TROUBLE SPOTS IN STATE FISCAL CONTROLS Morris: I was much impressed. Well, I ' d like to talk a bit more about your comment that two big issues in Warren's years as governor were liquor and the state treasurer. Post: Well, in some respects that's a mis-statement. The problems accumulated, certainly, during his adminis- tration. They actually came out into the open later, one of them at the very tail-end of his administration, to be resolved under Governor Knight, and the other with the state treasurer very early in Governor Knight's administration. The latter was finally straightened around., but it was something that should have been taken care of in Warren's administration, but wasn't! Both of them, really, should have been taken care of in the Warren administration, but they were pushed off. It fell to those who came along afterwards to do it. Governor Knight was willing to tackle it, and signed the bills--although he really didn't have too much to do with the liquor investiga- tion. But he got himself involved quite innocently in the treasurer squabble and wound up throwing that issue, on his own initiative, to the Joint Budget Committee, which made the investigation. It ended up reforming the whole investment structure system of the state, causing the state treasurer to eventually resign. The liquor investigation, was really an almost cancerous situation at the time. It persisted throughout Governor Warren's administration. I don't personally know what he did to attempt to solve it. Liquor Licensinq Morris: W a s it related t o Artie Samish, i n a way? Post: It w a s related t o Artie Samish, and Artie Samish i n a sense blew the whole thing up by popping off one day t h a t he owned. the capitol, and ran the legislature. The press then pushed. the governor f o r a response. Warren said, "Well, it's true that i n matters t h a t r e l a t e t o h i s constituency, he is more powerful than the governor of California." And t h a t , of course, i n time took care of Mr. Samish, because he'd embarrassed everybody. IRS had looked i n t o h i s affairs. So that he went t o prison, and the legislature enacted a lobby l a w , which we got involved in, because m y office w a s named. as the repository of the registration f i l i n g , t h a t they established under Assemblyman Collier's b i l l . Samish was the repre- sentative of the liquor interests, and the r e a l liquor problem, as far as s t a t e government was concerned was i n the administration of liquor licenses. That w a s i n the division of alcoholic beverage control, o r whatever it w a s then called, within the State Board of Equalization. The r e a l problem w a s that we had limitations on the number of licenses that could be issued, related t o population, as a morality factor. In other words, too many licenses contributed t o immorality. So public policy said, therefore you limited the number of licenses. This meant t h a t they had a monopoly price attached t o them. W e also had a l a w which didn't re-issue the licenses each time it w a s transferred, as though it w a s a new license. They became a property value t h a t you bought, and you could transfer it, and. receive money f o r it, from the person who bought t h a t opportunity, that franchise, t o s e l l i n t h a t particular area. These had prices on them that went up t o sixty, seventy, eighty thousand dollars, per license. This meant t h a t there was great economic interest i n the t r a n s f e r of those licenses. It was here that Mr. Bonelli, as a member of the State Board of Equalization, and those who were associated with him i n controlling t h i s , ran into l Post: trouble, He ran into trouble because, frankly, he was dishonest. Because the major population growth in California was in his district, in Southern California, new licenses were available fo* issuance, Therefore the opportunity developed for him to reach out and exact a price (under the table) for the issuance of new licenses. And also the value was very high in the metropolitan areas for those licenses that were already in existence and.available for transfer, My involvement with this came from the work that we d.id investigating it for Mr. Weinberger, who was chairman of a subcommittee of the legislature looking into government organization, It was through this device that Bonelli and his associates were able to skim off some underground pay-offs, This is the problem that existed, I stumbled onto it, speaking from my oxd point of view, quite innocently, We had hired ourselves a certified public accountant who was a former employee of the State Board of Equalization, and he set up an elaborate and quite sophisticated system developing workload standards for the Board of Equalization. He did this with respect to audits, and he did it also with respect to liquor administra- tion, In the last years of the Warren administration, he presented us data that showed there was no proper balance between the numbers of people that were being requested and assigned, and the actual workload of the Board of Equalization. There was very little enforcement, for example, in Los Angeles, So I remember going to a hearing and presenting this data, which was in our analysis of the budget bill, and making the comment, quite innocently, that there was something that didn't meet the eye in the Board of Equalization, The newspapermen, who knew exactly what didn't meet the eye, because they were sophisticated and knew the liquor mess that really existed, went in, so I was told by one of ,them,to talk to the governor about it, and they asked him if he had any comment on Alan Post's comment that there was something in liquor administration that didn't meet the eye, I ' m told that he said he recognized that there was something rotten over there, Post: But then from that point, there was a jump in my own knowledge of the situation arising out of Mr. Weinberger's appointment as chairman of a sub- committee of the legislature to look into the organization of the State Board of Equalization. The whole operation and its structure. We wrote a report in January of 1953, I believe it was, on the organization of the Board of Equalization, and.were highly critical of it.* Let me back up a moment. When I first came up here, in about 1950, the assembly had created a committee on organization of state government. They asked me and my staff to submit to khem a list of topics that should be studied. We put at the top of the list the State Board of Equalization and.the whole state organization for tax administration--because this was a can of worms. We took our proposal to that meeting, and. they said., "No, we're not d.oing anything with that. Well this made us somewhat curious asito why that should.be. But it was just something that nobody touched.. Then when things kind.of broke a little bit--and. for reasons that I d.on9tfully under- stand.partly aid.ed and.abetted.,obviously, by the Samish affair, there was a joint committee on organization set up, with a subcommittee on organiza- tion of the Board. of Equalization, and. Caspar Weinberger, who was a young assemblyman, was put in charge of it. He was a remarkable young man in the way he took hold of that subject. At his request we acted. as staff for him. We also d.id.consid.erable investigative work on the transfer of licenses. There was no responsibility in that agency to any single individual, certainly not the governor, because you see, he d.idnltrun the board., and.yet he in a sense *The San Francisco Examiner reported that this study showed, among other things, that San Francisco and. San Diego averaged less than one arrest per year per staff investigator. In 1951, the legislative budget committee had.authorized a stud.yof the Board.of Equalization regard.ing the high percentage of time spent on non-productive sales tax audits; and Governor Warren had asked for more investigators for the Franchise Tax Board, instituted in 1950 to administer personal income tax and.bank and corporation franchise taxes. Post: w a s responsible f o r t h e quality of ad.ministration i n a l l of s t a t e government. W e tried. t o develop a pattern of how t h i s l i d u o r ad.ministration r e a l l y worked. And. t o make a long story short, w i t h the genius of Caspar Weinberger, who is a b r i l l i a n t person, tenacious, and. who d.id h i s homework, and thus w a s able t o stand. up t o the senators and other assemblymen who were bent on wrecking t h i s investigation, we licked them, t h a t ' s all. He just w a s remarkable. A s a r e s u l t of t h a t , i n the Knight administration, they reorganized the S t a t e Board of Equalization, and put liquor und.er separate control. It r e a l l y wasn't an accomplishment of the Warren administration. In m y view, really, being perfectly candid about it, it was something t h a t Governor Warren should have taken care of. But he didn't take care of it, because it w a s just too big a mess, perhaps i n h i s opinion, t o tackle. It had many ramifications. It ran through the legislature. There were members of the l e g i s l a t u r e who were involved i n ik. Some of them were ind.icted. Some of them went t o prison, a t l e a s t one o r two. Some who had been members of the l e g i s l a t u r e were involved i n it and went t o prison l a t e r , Some i n the very highest positions, you know, l i k e the speaker, Sam Collins, were indicted, Charles Lyons, who had been speaker, went t o the penitentiary, involved i n matters related. t o it. One s m a l l time assemblyman who was involved went t o t h e penitentiary, But i n t h i s system of payoffs f o r lioenses the key figure w a s Bonelli, who f l e d t o Mexico and never came back. Morris: D o you think Warren realized a l l of these ramifications throughout the l e g i s l a t u r e ? Post: Yes, I d.0, In f a c t , when I first got started. on t h i s , I had. a t l e a s t one c a l l from one of the highest positions i n the s t a t e , who w a s very close t o him, who t o l d m e t h a t I was getting i n over m y head, and he always looked the other way, because it w a s d.angerous. But, you know, I w a s a young man, I did.nft worry about that, W e had. a s i t u a t i o n t h a t we f e l t need.ed correction, and we d.id.ntt give it second thought, W e were employed by s0mebod.y who w a s r e a l l y Post: going a f t e r it, and it didn't bother us a b i t . In f a c t , t h i s warning t h a t I r e f e r t o took place before t h a t investigation of Weinbergervs started.. It a c t u a l l y took place when we flrst began t o c r i t i c i z e t h e board f o r the way i n which they were handling t h e i r affairs. And. the man w a s just making a friendly warning, t h a t , you know, t h i s w a s a can of worms. So Governor Warren must have known about it, because he certainly w a s as knowledgeable a man as anybody t h a t ' s ever held t h a t position. He i s j u s t a remarkable man and deserves great admiration. But I r e a l l y do f e e l t h a t t h e r e were two s i t u a t i o n s t h a t existed i n h i s administration t h a t , f o r p o l i t i c a l reasons, everybody kept t h e i r hands off of. This w a s one of them. The other was t h e monkey business t h a t t h e s t a t e treasurer w a s involved in. / Banking S t a t e Funds Post: The moment we got i n t o t h a t , we found t h a t it was q u i t e bad, and nobody r e a l l y wanted t o touch t h a t , e i t h e r . That was cleaned up under Knight's administration, because of prodd.ing, frankly, t h a t came out of m y office. W e c r i t i c i z e d the f a c t t h a t the s t a t e t r e a u r e r w a s putting millions of dollars i n bank accounts, labeling them as demand accounts, i n t e r e s t free. And. they were i n f a c t time accounts, t h a t never moved, and he had agreements apparently with t h e banks t h a t he would.nlt touch the money. W e were talking about hundreds of millions of dollars. Morris: This would be those wartime reserves? Post: That's right. W e had great reserves i n those days. And. r a t h e r than getting any kind. of an investment return from them, the s t a t e treasurer was feathering h i s own ~ o l i t i c a l nest by putting these i n banks at h i s ohoosing. Although it w a s supposed t o be d.ecided on by a board, an investment board, on which the c o n t r o l l e r and t h e d i r e c t o r of finance a l s o were members, they stated t h a t they just l e f t it up t o t h e treasurer. So we had kind of an argument then Post : with a l l of them. For example, Bob Kirkwood. w a s one of t h e people t h a t I was very close t o , and tremendously fond. of, and. who I admired greatly. But I got i n t o a r e a l b a t t l e t h a t hurt him p o l i t i c a l l y on t h a t issue, because it w a s m y position t h a t he had. a responsibility f o r it, since he w a s required t o approve these investments. He s a i d . approval w a s just pro forma. M y position was, it's never pro forma. It's a function of approval t h a t means, "I approve. I agree. I oversee." Morris: "I know what the d e t a i l s are." Post: That's right. And you can't d.elegate this. If you're given an approval power, you oan't logically and legitimately give t h a t t o somebody e l s e and absolve yourself of any responsibility. So, the documentation w i l l show t h a t we claimed. t h a t he and. t h e d i r e c t o r of finance carried a responsibility, and they ought t o have done something about it. That r e a l l y wasn't what we were a f t e r , but you can't g e t i n t o these things without having t o pin responsibility on somebody. In face the treasurer used t o come i n here and. p r a c t i c a l l y cry, because he w a s an old man, and he w a s upset about it. He claimed t h a t we were i n a f f e c t accusing him of being dishonest. I simply had t o say t o him t h a t , well, t h e record would stand f o r i t s e l f on this. I said t h a t he had put millions of d.ollars i n banks, and we knew t h a t he w a s not g e t t i n g any i n t e r e s t f o r the s t a t e , because they were demand accounts. But we a l s o knew, from t h e record, t h a t they i n f a c t were s t a b l e accounts. So we pursued t h i s , and we found, f o r example, t h a t although one of t h e banks had written off a t e n thousand d o l l a r n o t e t h a t he owned, t h e deposits could be the only reason. Well, memoranda i n t h e bank's f i l e s s a i d i n e f f e c t , "This Mr. Johnson has been very good t o us, and we ought t o canoe1 t h i s t e n thousand d o l l a r note." It w a s things l i k e t h i s t h a t we were able t o dig up by send.ing our investigator out i n t o the banks and a c t u a l l y going through t h e f i l e s . Morris: The banks i n t u r n could loan out those s t a t e funds. That would be part of t h e i r reserves? Post: O h yes. O f course. A s a demand account, interest free, they had t h i s money t o loan. But they also knew t h a t it w a s going t o remain there, and( not be subject t o effective demand. so they were able t o make substantial earnings off of it as though it were a time deposit--earnings t h a t the s t a t e should be getting. The reason that it got i n t o the open, other than our criticism i n the analysis, w a s that the treasurer got so uptight about it that he accused., i n a moment of panic, Governor Knight of doing this. He s a i d . the governor w a s playing favorites with bank accounts. And then Governor Knight turned around and. said, " W e ought t o have an investigation t o see who's been playing with these bank accounts. " I had. just come home from my vacation, and they met m e at the plane and said, "Get d.own t o El Centro. Senator Hulse has agreed. t o take on the investigation of the s t a t e treasurer." Morris: You said 'theyH t o l d you t o get down t o E l Centro. The newspapers o r your s t a f f ? O r both? Post : M y staff. Before t h i s f i n a l blowup and as a r e s u l t of our e a r l i e r investment c r i t i c i s m , , w e also developed irs a o g e r a t i o a with the controller, a new pooled, money investment procedure. It w a s placed i n a new l a w , which w a s enacted as a Joint Legislative Budget Committee b i l l , sponsored. by a l l the members of m y budget committee. It s e t up the investment of s t a t e funds on a sound. basis t h a t ' s been working well ever since. Morris: Did. t h i s new b i l l involve the controller and the director of finance? Actively? Post: Yes, they're on the pooled money investment board. So t h a t it i s a board. a c t i v i t y , but it set up along with it a proced.ure t h a t determines exactly how much money should be paid. t o the banks f o r the services they render i n handling our checks and. d.eposits, on a u n i t basis. I remember that very d.istinctly because I had. t o argue t h a t point with the economists f o r some of the banks. Fortunately I had. been a bank clerk who used t o s e t up those charges, the other way around, t o the Post: Morris: Post : Morris: Post: customers, on the basis of so much per check and so much per d.eposit. W e would. calculate what the return on t h e i r average bank balance was, and we would charge them what they owed us--if they cost us more money t o handle t h e i r checks and t h e i r deposits than we received, on t h e b a s i s of an i n t e r e s t r a t e computation t h a t we applied t o t h e i r average bank balance. Because we knew what we earned. off of t h a t , and we knew what it cost them. If it cost us more than we earned, we assessed them the difference. And I s a i d t o the economists, "You know, I've done t h a t with banks, and you know i t ' s legitimate, and you do it a l l the time. Let's turn it around.. W e w i l l pay you whatever we owe you on the basis of an i n t e r e s t computation, only--we w i l l only put enough money i n the bank, sufficient on the basis of a guaranteed. i n t e r e s t r a t e , t o pay the cost t h a t you b i l l us f o r handling the checks and the deposits at a prearranged u n i t figure. And t h i s i s t h e way t h a t the system now works. W e keep a compensating balance, i t ' s called, sufficient t o compensate them f o r these services. The r e s t of the money is invested under a s t a t e policy t h a t d i c t a t e s t h a t it s h a l l be a t the highest r a t e t h a t can b e e a r n e d t o-- -. - -- of \ -- the advantage --- - the s t a t e . The prevailing i n t e r e s t rate. That's right. So it goes not only i n t o d.eposits, time deposits, but it a l s o is placed by the pooled. money investment fund. i n short-term government bonds and. other notes f o r an i n t e r e s t rate. Does t h i s l e g i s l a t i o n have any formula f o r how the s t a t e funds should be allocated. among the banks? No. M r . Button, who came in, appointed. by Knight, t o follow Gus Johnson (who was the treasurer who resigned., the party I've been talking about), s e t up a systematic b a s i s f o r d.oing t h i s . He was a f i n e treasurer. He dedicated. himself t o trying t o s e t up a system t h a t would function properly. He s e t up a reasonable apportionment basis. I can't remember exactly how it worked, but it w a s a reasonable basis f o r d.oing it objectively and not on a p o l i t i c a l basis. P o l i t i c a l Constituencies Morris: I would. think he'd. be und.er quite a l o t of pressure from the banks. Post: The treaurelr is und.er pressure from the banks. That i s something t h a t you have t o watch a l l the time, practically. But Mr. Button was a well-to-do, I ind.ependent, honorable man. He didn't give a hoot about t h a t s o r t of thing. But it is true t h a t the p o l i t i c a l constituency, t o a considerable extent, of the s t a t e treasurer is t h e banks. J u s t l i k e the inheritance tax appraisers were always the prime p o l i t i c a l constituency of the controller, who appointed them. And. they were influential. They contributed. t o h i s campaign, and they were p o l i t i c a l figures. It w a s always a problem with us i n dealing w i t h the controller's function. W e opposed the appointment of the inheritance tax appraisers. It has been a continuing issue with us and. only Flournoy agreed. t o our position. The banks on the other hand. are the problem with respect t o the treasurer. They're closely aligned. t o him, and. t h i s w a s a r e a l problem i n those d.ays. I think t h i s system, as it's now s e t up under t h i s mod.el act-- t h i s i s r e a l l y a f i n e act--has minimized the influence of t h e banks on the treasurer. The treasurer now tends t o run p o l i t i c a l l y on the basis of how well he managed. the investments, plus how well they werea able t o s e l l government bonds, persuad.e people t o buy s t a t e bond.s, and so on. Morris: To s e l l government, s t a t e bonds, you need. the help of t h e banks. Post: Yes, you do. That's right. And they've always said, "You should do something f o r us a s a favor f o r that." M y office (which has got involved i n t h i s on numerous occasions and is, i n f a c t , at the moment) has always s a i d . , "No, you're i n the business of loaning money deposited with you, and we're just a piece of t h a t action. To the extent t h a t we could optimize the earnings t o the s t a t e , we reduce the taxes of ind.ividuals, corporations, banks, and everyb0d.y else. That's the only r i g h t policy, not favoritism t o any Post: p a r t i c u l a r segment because they're doing us favors. "They do us favors, we always s a i d . , "because it's good f o r them. And. when t h e chips a r e down, and it is not i n your b e s t i n t e r e s t t o buy our bonds, you won't do so." And t h a t ' s exactly what happened. When the chips were down, and t h e r e was b e t t e r money t o be made somewhere e l s e , we had trouble s e l l i n g our bonds. We've been saying t h i s lately. We've had t o t a l k t o the banks l a t e l y i n t h a t language. And they have been good about it. But nevertheless, we expected them t o a c t i n t h e i r best economic i n t e r e s t , and we expect the s t a t e t o a c t i n its b e s t economic interest. And we ought t o pay whatever price is necessary t o do legitimate business with banks. But we ought t o do it on a businesslike bas is. W e f e e l very strongly about t h i s . I've had to, as I say, make t h a t l i t t l e speech on a number of occasions, because the banks brought i n amendments t o the investment a c t that I've been talking about which would have given them a preferred position, it would have s a i d e x p l i c i t l y t h a t you d.o not optimize the return t o the s t a t e , but t h a t under special circumstances you can have preferential r a t e s f o r other factors than the income t o the state. Now, we said, "What a r e those other factors?" 4Well, the f a c t t h a t we buy your bonds, things l i k e that." "Well," we s a i d t o t h e l e g i s l a t u r e , "don't ever give t h a t d.iscretion t o t h e treasurer, because t h i s is how we got i n trouble before." And I went through and. explained how we had gotten i n trouble before. I w a s accused of making a cause celebre out of it. But m y feeling w a s t h a t once you depart from t h a t stand.ard., then you're i n t o a never-never land. of putting pressure on an individual t o determine what i s the s t a t e ' s interest. And. I s a i d , here we have a sound. economic b a s i s f o r it t h a t could be determined. W e ought t o s t a y with it. This proposed amendment happened about two years ago, and. the committee k i l l e d t h e b i l l . Morris: Is there a banker's lobby? Post: O h yes. For many years it w a s Edward. Landels, who is an attorney, a very b r i l l i a n t attorney. And then Post: subsequently, h i s f irm--Landels , Ripley, Gregory and Diamond., i n San Francisco--handled it f o r a long time. Then Phil Gregory l o s t it, and it's now being handled. by Ratcliff. Morris: The bank association selected a lawyer as a lobbyist r a t h e r than appointing one of t h e i r own. Post: He w a s an attorney. Yes. He was not a banker. He was an attorney who understood the system very well. He was extremely effective i n handling t h e i r affairs. A s a matter of f a c t , they had d.one awfully well f o r themselves f o r many years w i t h Land.els, but Dick Ratcliff is the person who handles t h e i r i n t e r e s t s now. The California Bankers' Association. And he was the one who brought i n t h i s last amendment--on the grounds t h a t they d.id favors f o r the s t a t e , and. we ought t o d.o something b e t t e r by them. It happened at a time when there w a s a shortage of c a p i t a l and i n t e r e s t r a t e s were high. And so every additional d o l l a r you could. get w a s obviously one t h a t they could make a great deal off of. A s you know, the investment income of banks i n t h e last few years has increased greatly, s o they were very eager t o loosen up the s t a t e ' s investment funds. I may have gone overboard i n making the case as strongly as I did. t o the l e g i s l a t u r e , using history as a b a s i s f o r m y concern. But w e f e l t very strongly t h a t once you l e f t t h i s standard i n the l a w , you l e f t a sound c r i t e r i o n f o r determining what w a s i n the s t a t e ' s best interests. Thoughts on Organized. Crime Morris: There w a s an issue where Warren d.id. a c t t o resolve trouble i n s t a t e government--the investigations of suspected. criminal a c t i v i t i e s around h i s attorney general, Fred. Howser. W a s t h i s something t h a t your off ice got involved. in? Post: No, it wasn't. A s a matter of f a c t , t h i s w a s a case i n which the governor took an end run around Howser by establishing special crime commissions, and he used Post: some very f i n e people t o t r y and deal with these issues. People l i k e Warren Olnsy and Arthur Sherry a t the University of California. But we didn't have anything t o do with that. I remember well going t o budget hearings and having some arguments with Howser, and being astonished t h a t a man who could. speak so forthrightly as he d.id. could apparently be as dishonest as informed people s a i d he was. Because t o hear him talk, you would. think, "This guy is just absolutely solid.." And y e t people were t e l l i n g m e t h a t he w a s corrupt. One of m y very closest friends, who w a s i n the cigar business at t h a t time, t o l d m e a t some length about the crookedness t h a t went on i n the numbers business by Howser and h i s associates. There was no question i n m y friend's mind t h a t it w a s j u s t as corrupt as it could be. And. the governor presumably knew about that. But again, it's a problem of how t o deal with it. You d.onWt attack, you know, your p o l i t i c a l henchmen openly. You run around them as best you can. It's the old problem of not denouncing him publicly. Morris: Is t h i s why there w a s a oommission on organized crime talking about organized mime coming i n t o California? W a s t h i s t o avoid d i r e c t l y attacking Howser? Post: Well, Howser was, on a s m a l l scale, engaged i n organized crime. Apparently there was a good b i t of it i n Long Beach, and the way he operated w a s organized crime. There i s no question, as I under- stand. it, and believe it, t h a t there is a great deal of organized crime i n California. I frankly couldn't q u i t e und.erstand some of Governor Brown's statements t h a t it wasn't here, when from what we were able t o see i n our liquor investigations there w a s the nucleus of a c e r t a i n amount of it then, and it was growing. In the analysis t h i s year, we have c r i t i c i z e d t h e Department of J u s t i c e f o r using its organized. crime u n i t f o r other purposes r a t h e r than, i n our opinion, d.ealing f o r t h r i g h t l y with t h a t issue. Because it i s a sticky and. tough issue. In m y opinion, from whatever I've been able t o gather talking t o people who I think a r e knowledge- able, it i s a r e a l problem i n t h e s t a t e of California. Post: But I don't know how much of it existed a t t h a t time. I certainly d.idntt know much about it then. I w a s a f a i r l y naive person, actually on many California matters. I came i n from an 0utsid.e f i e l d . I didn't even know who Samish was, you see. I w a s teased. f o r going i n t o a hearing and s i t t i n g down next t o h i s chief lieutenant at a hearing. When I came out everybody said, "What were you and "Porky11Jacobson doing t ~ g e t h e r ? ~ I said, "1 don't know what you're talking about." I actually never s a w Samish. I was busy, as a young man doing m y thing here, and it w a s only, as I say, quite innocently, that we ever d.eveloped anything on the S t a t e Board of Equalization. And then people began t o c a l l m e and ask me, "You know what you're getting into?" And then l i t t l e by l i t t l e , I became aware of the ramifications of this. I even found out t h a t I had a Samish man on m y own payroll, who had, frankly, been involved i n liquor licenses. It w a s only when t h a t w a s documented t o m e t h a t I was able t o see what a problem it r e a l l y was. I f i r e d him, but I risked m y own appointment i n doing so, because he was so high up i n the hierarchy. I did. it only on the basis of the knowledge t h a t he had bought and sold liquor licenses a t one time. He was the brother t o t h e former speaker, and w a s on the staff when I came i n here. I w a s t o l d by m y chairman t o hang onto him. But the moment I found t h a t out, I f i r e d him. But, you know, t h i s i s the kind of thing t h a t you just don't know about when you take on a new job. Morris: W a s Samish involved also i n the s a l e of liquor licenses? Post: He must have had something t o do with it. It never came out. He w a s only ind.icted because of a c t i v i t i e s t h a t related t o lobbying, but he w a s the liquor lobbyist. I don't know that he ever w a s implicated i n any direct way with the machinery--you see, that w a s the s t a t e machinery t h a t we were talking about. He w a s outside of the s t a t e government. Bonelli w a s apparently the kingpin i n the s t a t e machinery f o r issuing licenses. That's where t h a t kind of money flowed. Post: There w a s a t i g h t l y k n i t p o l i t i c a l fabric that existed here. Morris: That's the sense you get. That's why I ' m asking the specific question. I had never heard Bonelli and Samish connected i n print anywhere. Post: I never have seen it either, but I assume that there w a s some connection. There w a s such p o l i t i c a l power i n the a c t i v i t i e s of Samish. He controlled so many p o l i t i c a l l i v e s , i f you read h i s recent book, which i n very grand.iose terms t e l l s how he ran things. W e had t h e feeling that he largely controlled the machinery over i n the State Board of Equalization, and people e i t h e r were with him, o r didn't do anything about it. Kept away from it, you know. Looked the other way, as t h i s p o l i t i c a l figure t o l d me. Legislative License and Tax Audits Morris: W a s it at t h i s time or l a t e r that you appeared i n p r i n t on sales tax audits? You were concerned about the s a l e s tax? Post: W e have materials on the State Board of Equalization i n t h i s analysis i n 1954. Yes. Morris: W a s t h i s the same continuing investigation? Post: No. W e hired t h i s young man, and. he started doing the job of evaluating the State Board of Equalization i n 1953. This analysis came out i n December of 1954. For example, i n looking at the enforcement a c t i v i t i e s i n the State Board of Equalization, we found t h a t there w a s 1.31 a r r e s t s per o f f i c e r i n Los Angeles, f o r a whole year. Morris: This i s on sales tax? Post : No, t h i s is on liquor. In some of the e a r l i e r analyses, as I r e c a l l , w e went into the sales tax aud.it on the basis t h a t w e did l a t e r of income tax. W e helped develop a system of weighting them t o r e f l e c t d.ollars of audit recovery per dollar of aud.it cost, so the Post: agency can spend its time in a way that is most efficient, But actually, in 1953, the Board.of Equalization budget analysis deals almost entirely with liquor, And in that case we had. gone into it on the basis, as we say, that there ought to be a critical examination of the function by the legislature because we simply could not understand how they were spend.ing their time on enforcement versus time spent on licensing functions, Morris: In other word.s, there is a procedure by which someone is checked out before he's granted.a license, regardless of how much money he paid. for it? And then there is a routine check about whether or not he's serving liquor to minors, and that sort of thing? Post: That's right. That's the regular ongoing enforcement. "B" girls and so forth, Yes, So there was this question of how much time do they spend on enforcement versus the licensing function. And why would they need six more people? We just couldn't understand this, And so we just sort of fell into the issue of corruption in liquor license administration, V I I I CHANGING TIMES A M e w Breed i n sacramento Morris: Could we t a l k a b i t about Weinberger's role i n t h i s investigation? Post: Weinberger w a s able t o stand up and. t o d.ebate with Bonelli and others, and make h i s case. There w a s a l o t of work t h a t went i n t o t h a t investigation. W e had. t o use every weapon at our disposal t o show t h a t we were not undermining the administration of liquor by giving it t o the governor. There w a s great resistance t o the id.ea of giving such power t o t h e governor. W e f i n a l l y had t o go along with the compromise of creating a-Liquor control Appeals Board, t h a t would l e t some of the f i n a l authority over licensing go t o someone other than the director appointed by t h e governor. Morris: But didn't they give the governor the power of appointing the Alcoholic Beverage Control Agency director? Post: That' s right. Morris: W a s t h a t where it end.ed up? The governor now appoints i t ? Post: That's right. The governor appoints it and runs it just l i k e a department a c t i v i t y , but there w a s great resistance t o t h a t id.ea. Probably i n part because many didn't want it t o g e t out from under the board. where it was, f o r a l o t of reasons. And the other reason f o r opposition w a s t h a t there has always been BIOGRAPHY OF GEORGE R. REILLY George R. Reilly war born in the Miesion Dietrict of San Francisco, edu- cated in the public achools, and completed a couree of studies at Sacred Heart College. He is the father of three children, two married daughter$, Carolyn and Georgina, and a son, Jamee J., a prominent attorney in San Francisco. He waa first elected to the Board of Equalization in 1938, and re-elected , I 4 .'every four yeare thereafter with an outetanding popular vote. In the 1958 and 1962 elections he was returned to office without opposition and is now the Dean Ii of elected state officials. Upon completion of this term, he will have eerved i' : 36 years in hie present elective position. He represents the First Equalization District, comprised of the following counties : Alpine, Amador, Calaveras, E l Ilorado, Inyo, Loe Angeles (northern portion), Madera, Maripoea, Merced, Mono, Monbrey, PIacer, Sari Benito, San Francisco, San Luie Obispo, San Mateo, Santa Barbara, Santa Cruz, Stanislaue, Tuolumne, and Ventura. He ia preeently Chairman of the Aseesr- ment Equalization and Standards Committee of the State Board of Equalization. Mr. Reilly is a licensed real estate broker in California, and.was in the real estate and property appraisal businere for many years. Mr. Reilly is past Vice President of the San Francisco branch of the American Society of Appraisers; member of the Executive Committee, Western States Association of Tax Administrators; member of the California State Aeeocia- tion of County Assessors; Director of the Civic League of Improvement Clubs and Asaociatione of San Francisco, one of California'iu most esteemed, civic-minded organizations; past National President, Ancient Order of Hibernianrs and part Supreme Governor of the World, Loyal Order of Moose. GEOROE R. REILLY FIRST D I S T R I C T . S A N FRANCISCO JAMES H . QUINN S I C O N D DISTRICT. OAKLAND JERROLD I.SEAWELL T H I R D DISTRICT, ROSBVILLE WILLIAM G . BONELLl FOURTH DISTRICT. L O S A N O K L E I OFFICE O F THOMAS H. KUCHEL, CDNTROLLKR STATE BOARD OF EQUALIZATION SACRAYCNTO A STATE O F C A L I F O R N I A 357 S. H i l l St., Los A n ~ e l e s13 December 3, 1948 !-;rrr. .. : :~.~-sr:'~et Piember Vor, Breton Jenocrat i c ;3t.?.te c e n t r a l Committee 350:; C.?.r:~ation2 ~ e n u e Lor; .':il:..cles 25, Calirornia i J - g22. :'-y" JJon Breton: T 2::; enclosing a copy of Resolution proposing .-;. ci>.?~t,iti!~tional amend~nent$0 t r a n s f e r l i q u o r co;lJ~rol t o a noiz-political baord, wllic!i 1 : kol2c w i l l I::e i-:itroduc ed and approved f o r s~tb- icission $0 t h e p e o ~ l ea t t h e cornin session of tlie Legislature. Consid::ration of t n i s kesolution by t h e Atate 3oard of Equalization is s e t f o r Decernber 16. I n view of ;.our a c ~ i v e public i n t e r e s t i n s o c i a l ;.?:ld p o l i t i c a l problems, I would appreciate it if you :;auld , i v e m e your personal reactions t o t l ~ e proposal. Tru.sting you have recovered from your reeding of t h e recent e l e c t i o n r e s u l t s , and hoping t o hear f r o n you i n t h e near f u t u r e , I a m Sincerely yoursj S t a t e ~ o a & of bqualization '.IG;3 :ja e n c l . Gabrielle Morris ' B.A. i n economics, Connecticut College, New London ; independent study i n j ournalism, creative writing. Historian, U.S. Air Force i n England, covering Berlin Air L i f t , military agreements, personnel studies, 1951-52. Chief of radio, TV, public relations, major New England department store; copy chief, net- work radio and TV s t a t i o n i n Hartford, Connec- t i c u t ; freelance t h e a t r i c a l publicity and h i s t o r i c a l a r t i c l e s , 1953-55. Research, interviewing, editing, community planning i n child guidance, mental health, school planning, civic unrest, f o r University of California, Berkeley Unified School D i s t r i c t , Bay Area Social Planning Council, League of Women Voters ,1956-70. Research, interviewing, editing on s t a t e administration, civic a f f a i r s , and industry, Regional Oral History Office, The Bancroft Library, University of California a t Berkeley, 1970-present.