Thank you so much—it is such a pleasure to be here for my second State of the City address.

Now some of you may recall that last year I remembered to thank everyone…except the most important person in my life. Call it a rookie mistake...and fortunately she is still with me. So before I recognize anyone else, please welcome my wife of 30 years and my best friend, Julie Tait.

And while I’m at it, let me introduce the other members of my family—two of our four kids are with us today, Whitney and Colin. Whitney is joined by her fiancé Adam DiFrancis. I’d also like to introduce my parents, Ken and Val Tate. I’d like to especially recognize my brother Rich and members of the Tait and Associates team that are here. Their management of the company allows me to spend all those hours at City Hall performing my duties as mayor and I appreciate them.

It is hard to fathom that it has already been a year since I took office. Although the year went by so quickly, let me tell you that we accomplished quite a bit. And by “we” I mean the city staff and the city council. Please join me applauding the hard work and dedication of my fellow city council members—Mayor Pro Tem Lorri Galloway and Council Members Harry Sidhu, Gail Eastman and Kris Murray. For those of you who might not know, this is one fantastic council. It has been more than a pleasure to work with you all this year and I’m already looking forward to what we will accomplish in 2012.

I’d also like to ask our acting city manager, Bob Wingenroth, to stand up and be acknowledged. Bob is doing a great job at the helm of Anaheim and we’re lucky to have him.

I’d also like to acknowledge the Anaheim Chamber of Commerce for hosting this event today. Ben Seybold, the outgoing chairman, has been a strong leader, and I look forward to working with Jeff Farano, the Chamber’s incoming chairman And we can’t forget the hard work and dedication of the Chamber’s executive director—Todd Ament.

Now, down to the business at hand. What is the state of our city?

In a nutshell, Anaheim is strong, it’s healthy and it’s happening.

Just take a look at some of the exciting developments in our city in this past year:

Anaheim Milestones

- We dedicated a new park in honor of Ronald Reagan, one of America’s greatest presidents in celebration of his 100th birthday.

- CalTrans and OCTA have begun new improvements to the 91 and 57 freeways. The widening of these freeways is welcome news to area drivers, as it will shorten people’s commutes and provide more time with their families.

- Anaheim also became the global headquarters for Fisker Automotive, the producer of the coolest electric vehicle I’ve ever seen. In fact, you may have seen the car on your way in today—isn’t it something?

- The Angels signed two new players – Albert Pujols and pitcher CJ Wilson. I know I’m not the only one in the room who is excited for spring training.

- And we love our Anaheim Ducks. They are back to their winning ways. How great was it that Corey Perry won the Hart Trophy? And we’re being treated to another year of Teemu Seelane.

- Now on parks—we celebrated the opening of Anaheim Coves. This mile-long natural park and walkway along the Santa Ana River is a beautiful new space for our community to enjoy.

- On our schools, great progress has been made in all of our districts. Scores have improved at all levels and students are thriving. Let me tell you, Anaheim Union High School District saw 83% of its seniors bound for college, a record high for the district—pretty impressive. With the state’s fiscal problems continuing to squeeze our schools, now more than ever is the time for the city and the schools to work in partnership for the benefit of our children. We cannot have a great city without great schools. As mayor I will do everything I can to help the schools and our children continue to be successful as possible.

- The arts—I’m pleased to say that the arts are thriving in Anaheim. We’re lucky to have the Anaheim Ballet, the Chance Theater, MUZEO, the Orange County Symphony, events like the Art Crawl, groups like APAC and many, many other artistic endeavors springing up throughout the city. The arts are moving forward fast in Anaheim.

- Do you know that we have a CNN hero in Anaheim? I’d like to take a minute and applaud Anaheim White House’s owner, Bruno Serato, for his work feeding motel children at the Boys and Girls Club. In December, Bruno was honored as a world-wide CNN Hero of the Year. I believe that since Bruno started this program, he has fed a half million children. This is an amazing example of what impact the kindness of one man can have in the lives of many less fortunate.

- And last but not least, I was excited and honored to tap the first keg of the two breweries that opened their doors in Anaheim this year. As a big beer fan, that was a major highlight of my year. Being mayor definitely has its perks.

Now, in the interest of time, I’ve only been able to mention a handful of the highlights of my first year in office. But each of you will receive a booklet that provides more detail on our accomplishments this year. Please take a look at it when you can. Not now, while I am speaking.

So 2011 was an incredibly productive year in Anaheim and we have much to be proud of. But I have to tell you, I’m already looking forward to what is to come in 2012.

This year, the new Convention Center Grand Plaza is expected to open by the time the NAMM convention rolls around next January. This new outdoor space will show off our beautiful Southern California weather and give visitors yet another reason to choose our convention center.

We will also celebrate the opening of the new Canyon power plant, which will provide an additional source of reliable energy and help keep our utility rates as low as we can.

Personally I can’t wait to watch the U.S. Women’s National Volleyball team at the Olympics in London this summer. I applaud the women’s team on their early qualification and am confident that the men’s team will soon follow in their footsteps. We’re all so proud to that both of these teams call Anaheim home.

The Disneyland Resort will celebrate the opening of the remodeled California Adventure, including the new Cars Land. Let me tell you that I’ve been privileged to have some sneak peeks at this and you’re all in for a real treat. Their cars are out in front, Lighting McQueen and TowMater.

We also planning to begin construction on the highly anticipated ARTIC project which will create thousands of jobs for the region. When completed, this station will be Orange County’s Grand Central Station and will provide residents and visitors with a central hub to move around the region.

The Anaheim Rapid Connection system—the proposed fixed guideway system in the resort district—is still in the planning phases. We’re tackling issues like route options, available technology and fiscal challenges as we work to move this project forward.

Enterprise Zones And Redevelopment

2012 is going to be an exciting year for our city. But if you own a business in Anaheim, there is another reason you should be really excited. On February 1st, 80% of Anaheim businesses will benefit from the city’s new status as an official state enterprise zone.

What this means is that a majority of all Anaheim businesses will be able to take advantage of up to $37,000 in state tax credits for each qualified new hire. With that, employers will have the opportunity to use tax incentives to invest in their business, creating more economic activity and more jobs. We have high hopes for the economic impact of this new program.

But, as the state giveth, the state taketh away too. This past year, the state moved to eliminate redevelopment agencies. With this new policy change, the state is taking away a big chunk of property tax dollars that otherwise would be locally controlled and locally reinvested.

This revenue loss is a challenge for our city’s economic development efforts. Going forward, we must revitalize blighted areas without the use of government funds. It is what it is. But we have a plan.

In Anaheim, we’ll attract new businesses with tools of economic freedom, such a reducing red tape and regulatory delays. By utilizing the power of free market , we will revitalize our community by making Anaheim the best place in the state to start a business.

NBA and OC Identity

Now I’d like to change gears and spend a few minutes talking about something that all of my buddies want to talk about these days—and that’s bringing the NBA to Anaheim.

Anaheim made headlines when the owners of the Sacramento Kings announced their desire to move their team to Anaheim. However, the NBA gave Sacramento more time to build a new arena for the Kings, but they set a March deadline. That deadline is approaching and we’ll know more in the next month or so about where the Kings future stands but, regardless, there is no doubt that Anaheim is NBA ready. I’m confident that we will get a team.

In pursuing a NBA team, we faced the argument that Los Angeles already has two teams and doesn’t need a third. This argument is wrong and, I’ve got to tell you, it really bugs me.

Why? Because we’re not LA.

Everyone in this room knows that Orange County is not Los Angeles. We have our own unique identity and population. A county of three million people can easily support an NBA franchise. By the way, three million people is more than the population of the city of Chicago.

However, unfortunately, much of the world looks at Orange County as part of Los Angeles. Being looked at as a suburb of Los Angeles not only hurts us with the NBA process, but also with federal and state government spending and business relocation.

Three million people in the County of Orange should not be suburb to anybody. One of the challenges we face, however, is that in our great county there is no place one can point to and say, “There’s the center of the county.” It’s vague… LA doesn’t have that problem. When you look at Los Angeles and say, “where’s the center of Los Angeles?” you naturally point to downtown L.A.

I would argue that Anaheim is, in many people’s minds, the center of Orange County. Disneyland, the Convention Center, Angel Stadium and the Honda Center together attract more than 25 million people every year. There are few places in the world where so many people flock to such a small area. In the next couple of years, I intend to work with the Visitors and Convention Bureau, with Disney, the Angels, the Ducks and a new local NBA team to bring recognition to Orange County as its own entity—not a suburb of Los Angeles.

Reg Relief

My friends, when I ran for mayor, I told the voters that my administration would be governed by two core values: freedom and kindness. And it is. Every policy, every program, every decision we make at City Hall is looked at through the lens of freedom and kindness. I talked about this last year but this is not a one-year program. This is a commitment and I’m going to talk about it every year I’m here.

One of the most important areas to expand freedom is entrepreneurial freedom.

Everybody has a dream. And many people, to fulfill their dreams, are required to pass through City Hall. People who have the drive and passion to start a business should be supported, not stymied, by their local government. That is why I’m very excited by the work of Anaheim’s Regulatory Relief Task Force.

I announced my intention to create this body in last year’s State of the City. I was honored when Dr. Thomas Turk, an associate professor of business management at Chapman University, agreed to chair the task force last spring. I asked Tom to focus on ways the City of Anaheim could reduce costs, decrease delays and improve certainty for local businesses. In other words—cut the red tape. And I can tell you, they delivered.

The Task Force announced their initial set of recommendations just last month. I’m very pleased with their work and believe that their recommendations will have huge impacts.

I would like to thank Professor Turk and all of the task force members for their hard work this year. With unemployment rates as high as they are, the taskforce’s work is critical. I’m looking forward to Regulatory Relief 2.0 later this year as we continue to work to make Anaheim the place to do business.

My goal is to have Anaheim be the island of freedom in this overly regulated state.

Budget And Pensions

Now I’d like to discuss something that some may consider mundane—our city budget. But while budget issues may not be a lot of fun to talk about, they are important and deserve our attention.

For a variety of reasons, the city needed to cut $15 million from its budget in the last fiscal year. Having managed my own business for many years, I thought I was experienced at making tough fiscal choices.

I really believed that reining in the city’s budget would be easier than it ultimately was. In our efforts to cut spending, we encountered real passion from a variety of people in our community. Let me tell you that when you have to reduce a city budget by millions of dollars, you hear from many, many concerned people.

When we started this process, we were losing $56,000 a day. I’m proud to say that through a lot of hard work, innovative ideas and real partnerships, we are now at a point where we are breaking even. And, in the course of this work, I must tell you that I’ve developed a good layer of thick skin.

Since 75% of the city’s budget is spent on personnel, there was no way around the fact that a $15 million cut had to result in less people working for the city. Simple math tells you that there is no other way to make these kinds of cuts without affecting the workforce.

Having a balanced budget this year, however, doesn’t mean our problems are solved. Our city still faces a major, long-term fiscal challenge.

Let me better explain.

General Fund Revenues Graph

This first graph shows the tax revenues coming to the city for the past ten years. As you can see, it has been a relatively stable incline. There was a little bit of drop off in 2009, but mostly an upward trend.

Average Number of General Fund Employees Graph

This next chart shows for the same period of time the total number of General Fund employees for the city of Anaheim. As you can see the recent trend is steady decline.

Average Employee Count Compared to General Revenue Funds Graph

This third chart puts the last two charts together—and you can see that something looks odd. We have relatively stable revenue and a sharp decline in personnel.

The city, for the most part, provides its services through people. The police officer, the fire fighter, the engineer, the planner, the maintenance worker, the inspector, the list goes on. When those numbers drop, it is difficult to maintain the same level of service.

So, with revenues relatively stable, why is it that personnel numbers are dropping? It’s simply because, year to year, we don’t have the money to maintain the same number of employees.

Here is why we don’t have the money.

Average Cost Per Employee Graph

This chart shows the cost per employee over the past ten years. As you can see, it has risen dramatically. To state the obvious, the higher cost per employee, the fewer employees you can have. I know this is something that every business owner in this room knows, and has faced in this recession.

This chart begs the question: why have costs increased so much for city employees?

On this chart, the blue is salaries, the red portion is pensions, the green tracks retiree medical costs, the purple is health care costs, and the orange represents other miscellaneous benefits. As you can plainly see, all of these costs have increased. What is most striking, though, is that the red pension costs have skyrocketed. And the trend is not good.

As pension costs continue to go up—and I believe that they will—this problem will only get worse. Pension costs for the last 10 years have gone up five fold so that they now account for 28% of individual salaries. And if we do nothing, they will continue to rise.

Taking all of this together, even with an economic recovery, our employee costs will continue to outstrip any growth in tax revenues.

So what can we do about these pension costs?

First, we need to do what we can to fix it. This year we begin contract negotiations with our employee groups. Of course nobody wants to give up past bargaining ground. But these times are different. We need to work together in a partnership with our employee groups on this issue. The fact is that it is in everyone’s interest to get control of these numbers. The Anaheim way is to work together to solve problems and I’m confident that we will work together to solve this challenge as well.

But the unfortunate truth is that we are also limited in what we can do. This issue needs to be addressed on a statewide basis to allow us the local flexibility and creativity to come to solutions that work for everybody.

I believe, I hope, that there will be some progress on pension relief this year, whether it is in the legislative arena or via the ballot box. Governor Brown has proposed a 12-point pension reform plan, and there is at least one proposed ballot measure that seeks to address this issue on the November ballot.

Our economic future as a state will certainly be determined by how seriously the legislature, the voters and employee groups take these issues. If this problem isn’t solved, there is no doubt that services, at all levels of government, will drop. Therefore, in any event we should be prepared.

Kindness

So what can we do?

I was intrigued the other night when President Obama paraphrased Abraham Lincoln when he said that government should do for people only what they cannot do better by themselves, and no more.

I have always believed that government assistance should be a safety net, not a way of life for people

When I took office just over a year ago, I startled some people by talking about kindness as a core value for this city. I said that I wanted Anaheim to be a city that is both free and kind.

Kindness is equally as important as freedom. Our founding fathers knew this and wrote about it often, extolling the need for the new nation to be both free and virtuous. As John Adams wrote, “Liberty can no more exist without virtue and independence than the body can live and move without a soul.” I think our city’s soul is developed through acts of kindness.

Government leaders are always working on a community’s physical infrastructure needs; what I would also like to address in my time as mayor is something that is equally—if not more—important: our community’s social infrastructure needs. A city with a core virtue of kindness is a city that is in much better shape to deal with shrinking budgets and reduced services.

As Hubert Humphrey once said, “The impersonal hand of government can never replace the helping hand of a neighbor.” Neighborhoods, charities, service organizations, community groups and other locally created organizations are really the backbone of any community, including Anaheim. My goal as mayor is to get people to look first to each other—instead of government—when there is a problem to solve.

There is no doubt that our economic problems are affecting families in a very real way. A government doesn’t know when a particular family is in need. But the people in our lives generally do—whether it is one of our neighbors, another parent at our kid’s school or a friend from church. And when people are in need, friends and neighbors can step up with small or large acts of kindness. Anaheim has a rich tradition of this, but we need to improve—now more than ever.

Hi Neighbor and Resiliency

We have taken this idea and applied it with a new initiative we have launched in Anaheim called “Hi Neighbor.” The Hi Neighbor program works by asking Anaheim residents to connect with their neighbors for three core purposes: neighborhood watch, emergency preparedness and community building

This program has really resonated with people in our community. Neighborhoods have held community gatherings, flashlight walks and more. I often hear from people about how glad they are that the city is supporting and encouraging strong neighborhood connections.

Let me give you a real life example of the Hi Neighbor program and the power of kindness at work:

An Anaheim resident Keith Oleson embodies what the Hi Neighbor program is all about. Last year, Keith discovered that one of his neighbors, he barely knew, had a 9-year-old daughter who was battling brain cancer. After making a personal connection with the family, starting with a simple hello, Keith reached out to his other neighbors and raised money to help little Adela and her family with some bills. That simple act of kindness brought the neighborhood together. The money raised was secondary. That connection moved the neighborhood to rally around Adela and her family.

Adela’s support group expanded exponentially. To really drive home the power of kindness, little Adela organized a team in the annual CHOC Walk at Disneyland where she and her new friends raised more than $12,000 for the children’s hospital.

Work prevented Keith from being with us today, but I’m so happy to have Adela here. Adela, can you please stand?

Ladies and gentlemen, this is what a community, a neighborhood and kindness are all about.

But some of you may still be asking yourself -- are neighborhood connections really are so important?

In fact, studies have shown that knowing and caring for your neighbors drastically improves a person’s quality of life. Having a connection with your neighbors has been proven to reduce crime, improve safety, reduce loneliness, save lives—I could go on and on.

Our Hi Neighbor program actually caught the attention of a federal program aimed at improving homeland security through community resiliency. Last fall, I received a call from Washington--Warren Edwards, the national head of the Community and Regional Resiliency Institute funded by the federal government. They have asked our city to be one of seven cities to lead the country in an effort to create a more resilient nation through community strength.

Anaheim is honored to be part of this effort and I’d like to acknowledge the head of CARRI, Warren Edwards, who is with us today. Warren, if you would, please stand.

While we work with Warren and his program, we will continue to take the Hi Neighbor program to the next level.

In the near future, the City of Anaheim will be partnering with a new Silicon Valley company called Nextdoor. Nextdoor is a free, private social network which allows residents to connect with their neighbors and exchange all types of pertinent information. Whether it is organizing a neighborhood party, selling a bicycle that their child has outgrown, finding a local babysitter or alerting their neighbors to a recent car break-in, Next Door is an innovative, new way to help people connect. And when people connect, good things happen.

You can think of it as a type of Facebook for neighborhoods. So starting this month, the City of Anaheim and Nextdoor will be working together to encourage Anaheim neighborhoods to sign up and take advantage of this free, easy-to-use tool to connect.

I cannot overstate the need to improve our social infrastructure. It is what a mayor should be talking about. It is what a city should be doing. When people are connected, a city is resilient. And resiliency is built by people through acts of kindness.

A city that is not connected in the neighborhoods is a city that is brittle and vulnerable. It is a city that cannot withstand challenges like natural disasters or economic upheaval.

That’s not Anaheim’s past and it is not going to be our future. But we do have work to do.

And so, what are we working towards?

Imagine an Anaheim that is truly connected where neighbors know neighbors, where people work together to keep their neighborhoods safe, where there are no lonely senior citizens, where there are many watchful parent eyes on neighborhood children—keeping them not only out of harm’s way but keeping them on the straight and narrow.

Imagine an Anaheim where problems are solved by people face to face, rather than demanding a government solution.

Imagine an Anaheim where people empathically connect with each other and eagerly lend a helping hand to a fellow resident in need.

When we lean on each other, life is easier. When we are kind, life is better.

My friends, we are blessed to live in a great city with so much potential. We are working together to create this connected, resilient city that I know Anaheim can be.

Now, let’s take a look at some Anaheim residents who are helping us send this message.

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Artists, please stand. Thank you

Ladies and gentleman, God bless you all and thank you for coming.