Matt Fong has an unexpected background for a Republican: experience as campaign manager for one of California's longest-established Democratic officeholders.
The officeholder was Fong's mother, March Fong Eu, who served as secretary of state from 1975 until her appointment as ambassador to Micronesia early this year. Her son joined the Republicans in 1988 and became a candidate in his own right when he ran against Gray Davis for state controller in 1990. Fong lost, but Gov. Pete Wilson appointed him to the state Board of Equalization the next year, and Fong's colleagues elected him vice chairman of the board in December 1992. He is running for treasurer after winning his party's June primary without any opposition.
In the private sphere, Fong, 40, has operated MKF Enterprises, an import-export marketing business, and was a business lawyer specializing in international law for Sheppard, Mullin, Richter & Hampton in Los Angeles.
Q: Do you have a policy about accepting campaign contributions from people who do business with the state. treasurer's office?
Fong: My general rule is not to accept campaign contributions from underwriters with whom I would be negotiating bond transactions on Wall Street. I do accept contributions from all others.
Fong: In and of itself, getting a contribution from an individual does not have an impact on anybody's decisions. Lawyers and judges accept them. In my current position [on the Board of Equalization], I accept campaign contributions.
The one area where it does create a problem -- or the appearance of a problem -- is in an adversarial context where you are trying to negotiate the best possible deal. In that framework, you should have one focus -- how to shave off the maximum number of basis points, to get the best deal. You should not be wondering, "Gee, will that person come to my dinner tomorrow night?" That is where the conflict lies.
Of course, the Municipal Securities Rulemaking Board has issued guidelines that limit contributions from underwriters. In some cases, you can accept up to $250. My policy is to not even take that amount.
Q: Are you extending the wall you have built between yourself and investment bankers to bond counsel firms?
Fong: There is an essential difference. Orrick, Herrington & Sutcliffe or any other bond counsel firm goes through a request for qualifications process before being retained by the state. So I cannot just go out and pick a law firm. Once retained through the RFQ process, they are on your side. They help you negotiate the best deal. They are your advocates.
In other states, the abuses that are occurring are in the awarding of bonds to the underwriters. That is the area I am focused on.
Q: Have you accepted donations from Orrick?
Fong: Yes, I have.
Q: How is your fund-raising going?
Fong: I've raised over $1.5 million to date. My goal is to raise $3 million. We have no debt.
Q: How do you explain spending so much money for an office that pays a salary of $90,000 a year?
Fong: I make $95,000 on the state Board of Equalization. I have to take a $5,000 pay cut. You can apply the same question to the governor's race or to the U.S. Senate race -- it is even more ridiculous. It is a function of how much money you spend in a media market. It will cost us at least $500,000 a week to go on TV, and that is the bare-minimum market penetration. Candidates for governor and U.S. Senate are spending a lot more than that.
Q: If elected, would you push to see a higher percentage of competitively bid issues?
Fong: My personal philosophy is if something can be handled on a competitive basis, it should be. Because I do not accept contributions from Wall Street, I don't feel the political pressure if it is in the best interests of the state to go negotiated. I don't have to worry that my future political opponent is going to criticize me. By not taking money from Wall Street, I have a greater flexibility to do what is in the best interest of the state, whether it is negotiated or competitive. But my philosophy is to always look competitive, and negotiated will be the exception.
Q: If elected treasurer, what goals will you set for yourself?
Fong: I have written a "Taxpayer Protection Plan," which is my blueprint for improving government efficiency. That plan will make it clear that I have a track record I established on the Board of Equalization where we have cut spending and increased service. I will do the same as treasurer.
Q: The state's pooled money investment account is now annualizing 4% to 5%, and Orange County's investment pool, by using reverse purchase agreements, is up to 8%. Are you satisfied with the state's return?
Fong: I am not yet in a position to evaluate whether Orange County took on more risk than is warranted, or whether the treasurer's office has been too conservative. I will examine that. If I determine we're getting passbook account rates when we should be getting money market rates, I will be a little bit more aggressive.
Q: How good a job has Kathleen Brown done?
Fong: She has done an average job.
Q: Could you elaborate?
Fong: She has not taken a hands-on role and led the [Public Employees' Retirement System and State Teachers' Retirement System] pension funds to reinvest more in California.
On the Street she is known as the Wall Street treasurer, not the California treasurer. By her taking over $1 million from Wall Street in campaign contributions that tied her hands from being as aggressive as she could be .... that could have made it difficult for her to be as tough a negotiator as she should have been.
Q: Do you think Brown was right to comment on the likelihood that the state's credit rating would be downgraded just before California issued $7 billion of short-term borrowings in July?
Fong: She might argue that the sophisticated Wall Street houses already knew that. But one step from Wall Street is the secondary market, and those are the customers who buy from the houses.
If people perceive that the state's top fiscal leader is trashing the economy, that doesn't make them want to buy our product. She should not mislead, but she could put a positive spin ... on the facts. That would be better for the state.
Q: Do you fault Brown for the state's downgrade by the rating agencies in July?
Fong: As an activist state treasurer, and as a financial leader, I will encourage the legislature to trim its spending. She should have been doing this during her years as treasurer.
It is incredible for Kathleen to go to Wall Street and say, "That's the governor's fault, not mine." Come on, she's the fiscal leader for the state. Do I think she is responsible for the downgrade? No, but she certainly didn't help it.
Q: What is your thought about easing pressure on the general fund by not selling voter-authorized general obligation debt?
Fong: Kathleen was elected on a platform that she was going to increase it. She did. In 1990, we were at 2% of the general fund. Now we're at 5.5%. We were in the lowest quartile in 1990. Now, we're in the highest quartile. Our per capita debt in 1990 was $221. Today, we're at $604.
The 5% is not a magic threshold. It is a warning flag. If you have a favorable trend in state financial operations -- if there is a structural balance in the budget between operating revenues and expenditures --and the local economy is getting better, it is prudent to issue more debt. But, we're not there. As treasurer, I would start slowing [GO debt issuance] down until those favorable trends show up.
Q: How will the state reach structural soundness in its budget?
Fong: We're going to have to look for ways to cut more state spending. If they combine the Board of Equalization and the franchise tax board into one tax agency, that would save $20 million. I have a laundry list of examples that add up to over $2 billion.
Q: What do you think is the best way to eliminate the annual carryover deficit? Do you support Brown's proposal to issue deficit-reduction bonds?
Fong: The problem with deficit-reduction bonds is that Kathleen has not identified a dedicated source of revenue -- where the money is going to come from. The Brown plan is not a realistic plan, it is political posturing. You have to bite the bullet, make tough budget cuts, and balance the budget.
Q: What would you emphasize in terms of bond-financed infrastructure needs?
Fong: I have a strong concern about higher education, so I will put a priority there. I also will place a priority on prisons. We have to keep the streets safe. It is pretty hard to entice business into California when businessmen on a tour here have to duck bullets. They have to know they are going to have a safe environment for their families and their workers before they want to come here.
Q: What would your election mean to Asian-Americans?
Fong: Asian-Americans are the second-largest minority population in California, second to Hispanics. Blacks are third. As Americans of Asian ancestry come onto the political scene, they are going to play a more important policy role in government. In the past they have always been relegated to academia and business.
My mother is a Democrat. My mother was a pioneer. I am hoping to follow that blazing path, just in a different party.
Q: What's your opinion of the law requiring the state to set goals for firms owned by women, minorities, and disabled veterans?
Fong: I support the letter of the law. But the spirit of the law should not empower firms to get a percentage of the business if they are not qualified, or if they don't do the work. There is an abuse in the current system. I intend to review the process and focus on supporting the letter of the law: If you are qualified, and you're a woman-owned firm, a minority-owned firm, or a disabled vet firm, the state can give you business. I'm not in the business of giving work to unqualified firms.
Q: In January, the treasurer's office established underwriting pools for state negotiated offerings. The pools expire at the end of 1996, unless the new treasurer decides to get rid of them earlier. What will you do?
Fong: I don't have enough information to say I am going to throw out [the pools]. As treasurer, I will thoroughly review the list of pools and if I conclude that we should start from scratch, I have no qualms about doing that. If 50% of the operation is fine, we'll tackle the 50% that's bad. I do have the sense, though, that there is tremendous abuse in this process, and I think it's costing taxpayers money.
I am an advocate for minority empowerment. My track record is long. No one can say I am lip-synching these words. As a lawyer in a major downtown Los Angeles law firm -- Sheppard, Mullin, Richter & Hampton -- I served on the ethnic minority relations state bar committee. Our focus was to look for ways that minority lawyers and law firms could get more business.
Q: Are you going to run for governor some, day?
Fong: The financial community deserves somebody in this office who is a financial professional, not somebody who is looking at this job as a political stepping-stone. If I wanted to look for a political steppingstone to governor, I could have gone through a lot less pain and run for the office of secretary of state. It would have been a lot easier.
Q: Because of your mother's name recognition?
Fong: It would have been a shoo-in. Jerry Brown went from secretary of state to governor. Nobody has yet gone from treasurer to governor in California. I focused a long time ago on the goal to be treasurer because it is consistent with what I've done in the business sector, and the Board of Equalization.
Phil is running for treasurer like Kathleen ran for treasurer -- to be governor. I'm running for treasurer to be treasurer. And, if I do a great job as treasurer, I hope I will be promoted. But my focus is on doing the job that I am in. That is a big, important difference between my opponent and me.