Saturday, April 30, 2011

California Entrepreneurs on Surviving the Recession

We dug this piece from the Orange County Register, in which Jan Norman interviews three small businessmen from southern California on the steps they took to adapt in the face of the 2007-2008 economic recession. While it's not about politics per se, we're convinced that entrepreneurship is an essential component of individual liberty; the more value you can create in the world, the more independent you can become. While we know many people convinced that today's economic climate offers no opportunities for starting their own businesses, Norman's interviews suggest that hard-working, capable people still have options, even today and even in California.

They say the darkest hour is right before the dawn.
First up in the article is David Link, owner of Precision Pet Products in Costa Mesa. In 2007, his company had a staff of 47 and revenues of almost $30 million; now, they're down to 32 people and revenues are around $21 million annually. Precision started out making wire dog cages back in 1985, and two years later landed a contract with Petco; as Petco grew, of course, so did Precision. But 2007 brought them back to earth, as many of their customers found cheaper products through suppliers in China. Says Link, "We had to step back and re-evaluate what was our strength. We can't be a commodity products company anymore. Innovation was our weakness and we had to change." Precision has become focused around innovating new products, including an edible dog toy that should hit stores this year.

Next is Prestige Software of Yorba Linda. According to its President, Paul Simmons, Prestige had a staff of 12 and $4 million in sales four years ago; now, the company is down to two people, and may lose money this year. Prior to the recession, Prestige designed custom software and focused on providing billable support services. When the recession hit, Simmons made serious personal sacrifices, including selling his home, to keep the firm going, and re-imagined Prestige as a cloud-computing provider.

Finally, we have Darin Kruse, managing partner at Cobalt Construction, which is headquartered in Simi Valley and has offices in Tustin, Long Beach, and LA. Like many construction contractors in California, Cobalt's business shrank quickly as state's housing market collapsed. In order to keep going, Kruse said the company needed to drop its "auxiliary" activities and focus on its strengths. In particular, Cobalt has found that its expertise in underground construction and heavy engineering has set it apart in the installation of solar units, as companies are now required to set large units on the ground rather than on rooftops.

Steven Greenhut on California's Unaccountable Public Servants

The Orange County Register has a typically no-holds-barred editorial from Cal Watchdog's Steven Greenhut on the various ways in which the rhetoric of public employees' defenses of their salaries and pensions diverges from the reality of their abuses of public trust and lack of accountability. He cites some examples of these divergences:

1. State employees retiring with as much as $800,000 in unused sick time. This is entirely against the rules, but no one is stopping it.

2. The case of Maj. Gen. William Wade, who illegally padded his salary by $155,000 while heading the California National Guard, and is not facing any punishment for it.

3. To quote Greenhut, "Try to find any effort to deal with massive disability fraud that goes on at police and fire stations, as majorities of public safety union members discover a back injury or knee injury just in time to protect half their retirement pay from taxes."

4. The two Orange County social workers who lied to the Orange County Social Services Agency in taking two Seal Beach children from their mother. As we've noted, neither were disciplined, and one, Marcia Vreeken, was promoted and now trains new social workers for the county.

Greenhut's point is that one can go on and on with examples. And why?
In government, officials typically circle the wagons. The unions stand up to protect the worst of the worst. The disciplinary rules are so cumbersome that it's generally not worth trying to do anything about misbehavior. That's why the public schools have "rubber rooms" – places where allegedly bad teachers wile away the years receiving full pay and benefits as their cases are adjudicated at a glacial pace. That's why police officers accused of wrongdoing and misjudgment – even misjudgments that lead to unjustified killings and violations of individual rights – end up with months of paid leave (i.e., additional vacation time), before eventually being returned to the streets after a closed process that tilts heavily in the officers' favor.
Dude, how did my summer job from high-school end up giving me a six-figure pension?
Hopefully Greenhut wasn't reading the Register on Friday when he was pulling his editorial together, because he would've seen this piece from Barbara Venezia on the compensation Newport Beach gives its lifeguards. We've already given Newport a fair bit of crap for bumping its lifeguards' pensions while the state's economy was melting down in 2008. And Venezia's article only emphasizes our point: we're sure the lifeguards do a good job, but there must be a correlation between (a) paying your lifeguards an average of $102,000 a year in pay and benefits, with many retiring at 50 with six-figure annual pensions, and (b) having a budget crisis severe enough to require slashing 55 city jobs and outsourcing numerous public services. But no one will blame Newport's bureaucrats for enriching its f***ing lifeguards even as the bursting of the housing bubble devastated southern California's economy.

Ultimately, Greenhut thinks it's a great thing that public employee unions and elected officials are feeling the heat from the public, and we couldn't agree more. There's never been a more pertinent time for questioning the necessity and even the morality of California's bloated government. Even if you're on the side that believes government can be a force for good and equality, you should demand that your government start earning your trust.

San Mateo Assemblyman Unwittingly Fights Economic Ignorance

Today's San Francisco Chronicle has an editorial on the crusade of Assemblyman Jerry Hill, who represents a San Mateo County district stretching from Foster City, San Mateo, and Half Moon Bay to the south, on up to Daly City in the north. Hill's AB356 will go to the Committee on Business, Professions, and Consumer Protection next week, in the face of opposition from the cities of San Francisco and Los Angeles, as well as at least 18 community organizations and civil rights groups. Why the fuss? Because AB356 proposes gutting local-hire ordinances throughout the state.

Jerry Hill wins friends and influences people.

What got Hill moving was the local-hire law passed recently in San Francisco, which directly abuts his district and requires contractors on city-funded projects to hire at least 20% of their workers from San Francisco, increasing up to 50% by 2017. In order to counter the San Francisco law's effects on hiring in his district, he included provisions in AB356 to prevent local-hire laws from applying to city projects that extend beyond the city's boundaries, and to penalize cities if such laws cause public works projects to go over-budget. Given the pending upgrade to San Francisco's water system, a massive project that will extend down into San Mateo County, it's hard to imagine what kinds of projects Hill has in mind. The critics of his bill cite California's high unemployment and, in the case of the civil-rights folks, the difficulty non-white workers have securing construction work without local-hire provisions.

Even if he's just doing this to keep San Francisco contractors from firing construction workers from Daly City and South San Francisco, we're thrilled that he might cripple all local-hire laws in California in the process. In our view, local-hire laws exist so that high-cost, high-tax municipalities (like, well, Los Angeles and San Francisco) can avoid the exodus of productive individuals and businesses that their policies deserve, while awarding taxpayer-funded contracts to crony contractors. While an end to these laws might well deepen the unemployment woes in cities like this, no one ever said bad public policy didn't have predictable consequences.

California Democrats: We Can't Let the Voters Influence Elections Too Much

The LA Times PolitiCal blog reported yesterday on a proposal by California Democrats to allow local party insiders to choose legislative and congressional candidates. One problem with this: it would subvert Prop 14, which voters approved in 2010.

You see, Prop 14 changed the election primary system to allow candidates from all parties to compete in open primaries, with the top two vote-getters then proceeding on to the general election. Primary candidates don't even have to list their party affiliation on the ballot. The idea is to create electoral competition by blunting the effects of hyper-partisan voters on primary outcomes.

Well, apparently the beneficiaries of hyper-partisan party primaries are not amused. Under the proposal, which was developed by the rules committee during the party's convention this week, small groups of party insiders would choose Democratic candidates in a caucus-style system, completely neutering the will of primary voters. Committee members quoted seemed most concerned about the idea that someone could win the Democratic nomination without labeling him/herself a Democrat (because, you know, you've got to protect that great brand). But we think the real issue is an unwillingness to give up on an ideologically homogeneous Democratic Party. After all, if you can't count on every Democrat in Sacramento to think alike, what can you count on?

Celebration of Communism in San Jose on Sunday

And no, we're not referring to the Soviet Red Army hockey team, who will be in town Sunday to play Game 2 against the Sharks (just kidding, Wings fans). According to this story in the San Jose Mercury News, a local immigrant-rights group called the San Jose May 1 Coalition plans to hold its fifth-annual May Day march from East San Jose to downtown. The rally's purpose is to raise awareness of the treatment of immigrant workers, and to support unions in some way.

Guess who else celebrated May 1?
A few things are confusing us here. For one, are these folks aware that May Day (also known as International Worker's Day) is an explicitly communist holiday? Without turning this into the Glenn Beck Show, if the organizers are communists, what's the connection to immigrant rights? People immigrate to the United States for a lot of reasons, but its socialist economy is generally not one of them. And what's the connection between immigrants and unions? Unions have traditionally detested immigrants for eroding their wages, and antipathy toward immigrants is gripping Europe these days as state employees face the new austerity.

Our guess is that the rally's intentions are only loosely socialist. That is, they're hoping for a show of numbers to signify their solidarity with public employees in Wisconsin, Massachusetts, and elsewhere, who may lose some collective bargaining rights to the current budget turmoil. And they're trying to show California's immigrants that they care about their cause, partly as a way of pandering to a large group of not-yet-union workers, and partly out of distaste for new anti-immigrant government policies (they'll complain about Arizona, but leave it to the Obamatons to fail to mention Secure Communities). Which doesn't, by itself, bother us much; these folks can spend their Sunday afternoons however they like. But nostalgia for 20th-century communism is not something we understand, and we can't stand May Day. We would be appalled by marches and rallies celebrating the legacy of Nazi Germany, and we guess most other people would be too. So why is it okay to celebrate the legacy of a movement that led directly to the murder, torture, and imprisonment of far more innocent people than the Nazis ever touched?

Friday, April 29, 2011

LA Traffic Cops to Porn Star: We'll Do to You What Our Pensions Do to the Taxpayers

Just in time for the weekend, a light-hearted reminder that government employees don't always have public service in mind when they're at work. The LA Times reports that two Los Angeles traffic cops have been suspended pending an investigation into their conduct on the job. At issue: their participation in a pornographic video while on duty.

We're assuming you were expecting a different type of picture.
Apparently the video, available on an adult website, shows an actress approaching the two traffic cops, who were in uniform and on-duty, and includes lewd acts performed in their city-owned car. The investigation was sparked by a report from KNBC Channel 4, which has been looking into the allegations for some time, and the Department of Transportation has now put them on administrative leave while it looks into the matter. Although they weren't as interested in looking into the matter two months ago when they first became aware of it; the officers were not disciplined at the time.

The DOT has been under fire recently for lax collection of parking-ticket fees. Guess now we have a better idea of the kinds of distractions they're dealing with.

County Bureaucrats "Weather" California's Housing Crisis

The Orange County Register has a great story on yet another perk some county executives across California are getting: home loans and housing allowances straight from the agencies employing them.

Michael Scanlon, selfless public servant.
The most egregious case in the Register article appears to be that of Michael Scanlon, CEO of the San Mateo County Transit District. Scanlon is the highest-paid local transit executive in California, scraping by at an annual salary topping $458,000. Now, you might think that someone making almost a half-million dollars a year could afford a house, even on the Peninsula, but fortunately for Scanlon, his employer disagrees. The Transit District has given Scanlon a $1.2 million housing loan out of its own funds, at a low, low 2.5% interest rate. But that's not at all. Starting in 2002, the district began "forgiving" Scanlon's loan at a rate of $40,000 a year; so yes, $360,000 (and counting) will never be repaid to the district. In addition, the district has forgiven interest on $200,000 of the loan, so Scanlon only pays interest on $1 million. In addition to that, Scanlon gets a monthly housing allowance of $2,000 from the district. In addition to THAT, he gets $55,000 a year for his work on the Peninsula Corridor Joint Powers Board (which runs the Caltrain) and the San Mateo County Transportation Authority.

The article also points a finger at Orange County Transportation Authority CEO Will Kempton, who had a $75,000 housing loan at 2 percent interest written into his contract (which pays him $384,000 a year to begin with). And at Art Leahy, who manages the MTA in Los Angeles County. Leahy receives an annual stipend of almost $20,000 for his living and transportation expenses on top of his $415,000 annual salary; in addition to that, the MTA bought his house in LA county, paid all the costs of selling his home in Santa Ana, and will be giving him an extra $66,000 a year in retirement (on top of the hefty pension he's already expecting) if he can work for the MTA for four years. Granted, these sound pretty outrageous by themselves, but no one is getting ripped off like the taxpayers in San Mateo County here.

Once again: Governor? Any chance we look at this before talking higher taxes?

Bay Area Schools Struggle with Budget Cuts . . . By Paying Political Consultants

The Bay Citizen's Jennifer Gollan has a report on one of the ways cash-strapped school districts in northern California are spending their money: hiring political consultants to push local parcel-tax increases.

It's not that I'm lazy about spending public funds within my limits. I just don't care.

You see, public school districts don't have many options for raising revenue when they find themselves short of cash. One of those options, however, is the parcel tax, a temporary flat tax on property owners in the district. According to the article, a number of Bay Area districts are counting on parcel-tax increases to save them from having to lay off teachers and other staff. But since school administrators don't know the best way to sell local voters on tax increases, they're turning to people who do: pollsters, lawyers, and political strategists who specialize in getting parcel-tax measures on local ballots and selling them to voters. Next week, parcel taxes will appear on mail-in ballots in 11 Bay Area districts; nine of those districts will have spent more than $400,000 on the services of these consultants, hoping that the costs will be offset by the revenues a successful campaign would bring. For example, the Cupertino Union School District spent over $48,000 of general operating funds in the hope that passing a $125 parcel tax will generate over $4 million per year in the next six years. The highest such parcel tax being proposed is the $193 tax in Los Altos; to push that, the Los Altos School District has apparently paid political consultants $75,000.

This, of course, comes at time when everyone from Jerry Brown on down seems to be warning that more state-level budget cuts will force a crisis of apocalyptic proportions in California public education. Yet it doesn't totally square with reality to say that public schools are on the edge of catastrophe when they still have money to gamble away on political consultants. And frankly, this shouldn't sit well with the property owners in these districts, who will effectively be taxed twice by their schools.

Caltrans: "Our Willful Stupidity Has Ruined Us!"

Apparently State Auditor Elaine Howle has some answers for the Governor on the massive cost overruns on Caltrans projects. According to an LA Times report, her answers boil down to this: Caltrans' management of those projects was mind-bogglingly incompetent.

The logo of the future . . . today!
At issue: over the past three years, Caltrans has overspent its staff-support budget for construction projects by an astonishing $305 million (the agency's entire budget for such activities in that time was $1.1 billion). Staff support refers to the preparation and oversight of construction work, and is supposed to account for about a third of a given project's budget. In her audit of 766 projects, Howle found that 62% had run over their staff-support budgets. How did that happen? Well, apparently in two important ways.

First, many construction managers apparently monitored only the hours spent on staff support for projects, not the costs. Amazing! Is it possible that paying no attention to a project's costs, and making no effort to hold individuals accountable for their spending, actually makes those people less sensitive to increasing costs? But that's not all. Apparently, many Caltrans employees got large raises, some as high as 40%, over the four-year period ending in July 2009. And you can understand why: the managers had to notice how many hours those folks were putting in. So, basically, lots of Caltrans' workers were getting huge salary increases at the same time project costs were ballooning.

All in all, just another reminder that Jerry Brown and California Democrats have yet to prove their case that the state needs tax increases to survive.

Jerry Brown Shelves Super-Mega-Awesome Death Row at San Quentin

The San Francisco Chronicle reports that Jerry Brown has cancelled his plans to build a controversial new Death Row facility at San Quentin, citing the state's budget crisis. Qouth the Governor: "At a time when children, the disabled and seniors face painful cuts to essential programs, the state of California cannot justify a massive expenditure of public dollars for the worst criminals in our state".

This is one of those rare moments in Sacramento when both sides of the aisle stand up to applaud a Governor's failure. While the guards' union and some prisoners-rights groups decry the safety and cleanliness of San Quentin's current, decrepit Death Row, both Republicans and Democrats inside the Capitol have fought the costly new facility for years. And you can hardly blame them. The project's construction cost had ballooned from a 2003 estimate of $220 million all the way up to $356 million (guess the guards shouldn't have asked for that second waterslide). In the next fiscal year alone, taxpayers would have spent $125 million on the new buildings. And looking into the future, the project would've cost $28.5 million every year in debt payments, and the cost of additional staffing was estimated at $1.2 billion over 20 years.

We'd just as soon see the state abolish its death penalty and obviate the need for such a facility altogether. But until that happens, we're glad to enjoy a small victory along with all the other abused taxpayers in California.

Corrupt California Bureaucrats, Friday Morning Edition

You have to get up pretty early in the morning nowadays to sneak these things past us. Today brings us two stories suggesting that, despite the received wisdom of California's Democrats and the LA Times editorial board, there is still some wasteful spending to be cut before tax increases become necessary to balance the state's budget.

We haven't seen a mother-son relationship this disturbing since 'Manchurian Candidate'.
You may recall our dismay a couple days ago at the Legislature's failure to rein in the salaries of bureaucrats sitting on various state commissions. Not only are many of these salaries exorbitant considering the amount of work involved, but the appointment process is easy to abuse. For an example of this, we need look no further than the small Kern County town of Shafter. According to the Sacramento Bee, the California Senate has appointed a Shafter woman named Frances Flores to a $56,000/year post on the state's Medical Assistance Commission. To be clear, that's $56,000 for about 24 total days of work. Why is this odd? Well, because Sacramento insider and former Senator Dean Flores is her son.

In addition to that, we have the curious case of J. Clark Kelso, the appointed head of the prison system's medical program. Now, as an appointee of a federal judge, Kelso draws his $225,000 annual base pay from the federal government. So, while Kelso is in CalPERS from prior work for the state, it wouldn't make much sense to count his current work toward his state pension. Well, that's exactly what's happening, because he's worked out a sweet deal in which he technically serves as a consultant to the state-level Administrative Office of the Courts. He's been named in a lawsuit that's currently unfolding against CalPERS, so we'll see where this going, but to us it looks like a clear case of pension spiking.

Thursday, April 28, 2011

News That Surprises No One: Equities Markets Crushed California Pensions in 2009

The Sacramento Bee reports today on a new Census Bureau report confirming what we were expecting: downturns in the stock and property markets hammered California's public pensions in 2009. The total value of the CalPERS, CalSTERS, and UCRP funds dropped from $476.2 billion in the 2007-2008 fiscal year to $340.2 billion in 2008-2009. Interestingly, California did worse than other states; our losses accounted for 21.2% of all state pension fund losses.

CalPERS Headquarters: Where Magic Happens.
According to the Stanford study of California's unfunded pension liabilities, these three funds were short over $500 billion dollars as of July 2008. And now they've lost $136 billion of their value. We'd like to hope that this news will add pressure on Sacramento to institute meaningful pension reform. At the least, we'd like to believe it could revive talk of Jerry Brown's decent start at a reform package (the proposal has rapidly disappeared down the memory hole in Sacramento). But, sadly, we're still betting that California's pension time bomb needs to explode before anyone in government starts to take it seriously.

BREAKING: California Assembly Approves Bill to Dissolve Vernon

The Assembly in Sacramento has approved Speaker John Perez's bill to disincorporate the tiny city of Vernon, making it a part of Los Angeles County.

Enjoy this logo while you can, folks.
The bill now moves to the Senate, where it's expected to face a great deal of pressure from the L.A. County Federation of Labor and the L.A. Area Chamber of Commerce. We've written plenty about Vernon already, so we'll just reiterate the point we keep trying to make: disincorporating Vernon has nothing to do with good government. It's about the political elites in Los Angeles (Perez is, coincidentally, the cousin of LA Mayor Antonio Villaraigosa) trying to seize tax revenues from one of the few centers of actual productive industry in the county. And with many businesses threatening to leave due to anticipated increases in their utility and insurance rates, we expect there will be losers all around if this bill goes through.

Things Get a Little Worse for Montebello

Say you're a middle-class city in Los Angeles County. Say you're facing bankruptcy later this year, even though you took out a possibly-illegal $17.3 million loan from your own redevelopment agency. And say you're being audited by the state controller over severe accounting irregularities stretching back for a number of years. How could things get any worse for you? Well, how about a federal agency abruptly suspending the funding it sends your way and demanding you return money you don't have?

Unless you work for HUD.
The LA Times reports today that the Department of Housing and Urban Development has pulled affordable-housing funds to the city of Montebello, and is demanding that the city repay $5 million in previously awarded grants. HUD apparently smacked Montebello down in a report so harsh it reduced outgoing city adminstrator Peter Cosentini to tears. Then again, when you give away $1.3 million of HUD's money without documentation, and record the project as "complete" before it's even been started, you should probably expect them to be upset. That initial irregularity led HUD to demand repayment of both the $1.3 million and an additional $898,000 related to the same project. And once they started taking a careful look at how HOME funds were being spent on other projects in Montebello, it became clear to HUD that the city couldn't account for another $2.7 million of their money.

Let's put this in perspective: even before this news, Montebello was facing severe financial difficulties in 2011. If the loan from the redevelopment agency isn't repaid by the end of June, bond default is a real possibility. And the city was already facing the real possibility of running out of cash in September. And this was all before getting the news that their budget hole just grew by $5 million.

Are Tough Days Ahead for California's Dirtbag Politicians?

Apparently Sacramento is starting to notice what's going on in places like Bell and Montebello. The LA Times reports today that several bills aimed at increasing government transparency have been pushed through the committee stage by state lawmakers.

Admit it, you all miss me now.
According to the Times, yesterday saw a dozen bills move through that, if passed, will require public disclosure of government officials' compensation (including benefits and perks), improve public notice in advance of meetings where officials' pay decisions will be made, require performance reviews before large pay raises can be awarded, restrict automatic renewal of government contracts, and increase the state controller's authority to look into municipal finances.

Naturally, representatives of many counties and cities oppose the bills, and they're joined by at least some legislators. The mayor of Lakewood noted that the state controller already requires officials' salaries to be posted on its website (though it doesn't require disclosure of perks and doesn't name specific officials). Others, including Assemblyman Chris Norby (R-Fullerton), worry that the changes may go too far, and punish all municipalities for the misconduct of a handful of cities. For his part, Norby helped to kill a measure that would prohibit automatic renewals in managers' contracts, as well as automatic raises that increase at a rate faster than cost of living.

Of course, here at Golden State Liberty we love the idea of public officials having increasing reporting burdens. Any time they spend meeting duplicative transparency requirements is time they can't spend making citizens poorer. And given that eleven more anti-corruption bills are working their way up the ladder in Sacramento now, that might be exactly what's coming to them.

Four Unions Discover Los Angeles is Broke

We had a feeling this was coming. On Wednesday, a group of four unions representing 6,300 full-time city employees (including 911 operators, traffic cops, airport security officers, deputy city attorneys, and clerical workers) rejected a labor contract that Mayor Antonio Villaraigosa had negotiated with the Coalition of L.A. City Unions. If you haven't been following this story, Villaraigosa and the Coalition had agreed to contracts that cut workers' pay, with the understanding that the cuts would mean an end to unpaid furlough days and preserve health care benefits. Fourteen other unions, including those representing librarians, garbagemen, zookeepers, and landscapers, approved the deals. In the backdrop, of course, is L.A.'s projected deficit of roughly $438 million.

Why?! Why ?! Why?!!!

The deal is expected to save the city some $200 million. As for the workers in the four unions that rejected it? On the same day they turned down the deal, Villaraigosa ordered their managers to impose 42 unpaid furlough days on them in the next fiscal year. Yikes! Isn't that like losing 8 weeks' worth of salary? Then again, maybe that's what happens when you trust the government to take care of your interests at the expense of others. Particularly when the government in question has unionized landscapers and librarians it has to take care of too.

Food for Thought: What If Voters Reject Jerry Brown's Tax Extensions?

Let's review where we stand on Jerry Brown's proposal to close part of California's budget gap by extending income, sales, and other taxes for five more years. Republicans in the Legislature are balking at any increases, and negotiations have broken off. The Governor, for his part, is still pushing the extensions but holding to his promise to let the voters decide whether to implement them. Labor unions, lefty journalists, and some Democratic lawmakers aren't happy about this, and have started pressuring Brown to break his promise and pass the tax extensions through the Legislature, without consulting the voters. While it would likely be political (and economic) suicide for Brown to force higher taxes through the Legislature in the midst of a recession, he hasn't talked about what he'll do if the voters get their chance to speak on the tax extensions, and turn them down.

Don't do me like that, people!
And there are reasons to believe voters are in no mood for higher taxes. While the LA Times crowed about recent poll results suggesting voters had swung support behind Brown's plan, our analysis of the poll suggested that they're far more supportive of correcting the remaining gap with spending cuts rather than taxes. And today, the Public Policy Institute of California, hardly a conservative-leaning body, released the results of some polling that suggest the tax extensions are in trouble. According to PPIC, support for the special election is increasing, but solid majorities of the likely voters polled oppose increasing the state's personal income tax (66% of likely voters) or its sales tax (61%). To us, it sort of sounds like voters want the chance to say "hell no" to the increases. They did voice support (62% of likely voters) for increasing the top income tax rate, but this alone wouldn't bring in the kind of revenue Brown needs, and Republicans would almost certainly block it from reaching the ballot.

So what happens if Brown gets his special election, and voters turn down the tax extensions? We don't see any way around an all-cuts budget at that point. It's a fair guess that Democrats in the Legislature would push harder for what they want now: tax increases without voter approval. (Hmm. What's the best way of investing in pitchfork and flaming-torch futures around Sacramento?) But that would take time, and the state would likely be out of money before they could get them passed (assuming they could get them through). Oddly enough, given these poll results, it may be that hammering out an all-cuts budget at this point would be the responsible thing for Sacramento to do.

Wednesday, April 27, 2011

A Note On Comments

We've heard that some folks are having trouble leaving comments in this blog. We're not entirely sure what the issue is, but it looks like script-blocking browser add-ons like No Script disable the comments. If you're having a problem commenting, try temporarily allowing www.goldenstateliberty.com in your script-blocker. Hopefully this fixes things.

The Economist On the Failure of California's Democracy

The latest issue of The Economist dedicates a special 14-page report (summarized here) to the state of California's government. While we've criticized the British rag's shallow analysis of state politics, this report is worth reading. They get all the important facts right; unfortunately, blind faith in expert technocrats and the idea of "good government" seems to be a requirement for working at The Economist, so they mostly draw the wrong conclusions.

On the plus side, the report correctly identifies the role of voter-driven ballot proposals in creating California's dysfunctional and spendthrift government. They note the centralization of power and money that resulted from Prop 13, and the disastrous effect this had on local government. But this doesn't lead them to ask some important questions. Like: aren't the local governments somewhat complicit in this, insofar as they've never considered alternatives to the annual bailout they get from Sacramento? And why did none of the great statesmen in "California's School for Politics" in the late 70s and early 80s not move to end that annual bailout, given that it enables so much irresponsible (if not criminal) behavior at the local level? Could our political system, in fact, be venal and incompetent enough to deserve the approval ratings we give it?

Instead of asking these questions, The Economist spends most of the 14 pages blaming the voters for the state's problems. In turning referenda, ballot initiatives, and recalls into a cottage industry, and creating a hopeless mess of spending mandates and contradictory regulations, Californians tied the hands of the good souls in Sacramento, who presumably would've had all these problems well in hand. In this way, The Economist blames the voters for everything from the budget crisis to the partisanship in Sacramento to the destruction of public education to the end of constitional republican government. (Plus, we're yokels who don't understand California politics nearly as well as we think.) The solutions recommended at the end basically amount to empowering Sacramento and disempowering voters: they want to ramp up the number of seats in the Legislature, place new limits on ballot initiatives, and either call a constitutional convention or reform with the guidance of a smorgasboard of political elites calling itself the Think Long Committee for California.

To be clear, we're not fans of voter referenda. In California especially, they're just another avenue by which people try to control your life without your consent; there's certainly nothing libertarian about them. But handing more power to the political establishment is not the answer, and a constitutional convention would almost certainly be a catastrophe. The only real solution to California's problems is one it's never fully embraced: a smaller, less intrusive, less ambitious government, and a freer, more tolerant society. And that's not something that can be imposed by fiat from Sacramento, despite what The Economist might have you believe.

Miscellany: Some Good (and Bad) Things Happening in California

Glancing through the headlines these past couple of days, we noticed a few miscellaneous nuggets of good news for libertarians in California. As you'd probably expect, we also noticed some bad news. Rather than asking you to scroll through a half-dozen or so interminable posts, we thought we'd discuss all of them at once. So, without further ado, the good and the bad this week.

I giveth, and I taketh away.

Good: A ban on non-essential travel by state employees. After the executive order Gov. Brown issued yesterday, all in-state travel not "directly related to enforcement responsibilities, audits, revenue collection or other duties required by statute, contract or executive directive" will require approval from agency heads or department directors; similar travel outside California requires the approval of Brown's office. It's not going to swing California back into solvency, but it's nice to see the Governor ending a government perk that's clearly open to abuse.

Bad: State Commissioners will get to keep six-figure salaries. Ah, where Sacramento giveth, Sacramento taketh away. Yesterday, the state Senate killed a bill that would have replaced the highest commissioner salaries with a $100 daily payment. The state commissions in California are little more than a way to give termed-out legislators six-figure salaries for doing almost no work. For example, the Unemployment Insurance Appeals Board met just 14 times in 2010. How much did its six members make for those 14 days of work? $128,000 apiece. We don't normally praise California Republicans on this site, but we'll tip our cap to Sen. Tony Strickland of Moorpark, who fought for this bill. He was voted down by the Democrats on the Senate's Governmental Organization Committee. Which is something to keep in mind the next time these same Democrats tell you the state can't possibly cut any more spending without triggering Armageddon.

Good: The soda tax is dead. Nanny-state haters, lift up a glass of Dr. Pepper and celebrate. AB 669, which would have taxed sodas, sports drinks, and other tasty beverages, has apparently died in committee.

Bad: The California Air Resources Board is alive. Assembly Bill 1332, which would have abolished the Air Resources Board and at least one instrument of environmental regulation in California, died in committee on Monday.

Good: Economic regulation may soon have to clear a new hurdle. Not dying in committee this week was SB 688. Under this bill, state agencies would have to conduct economic evaluations of proposed regulations, and those with an impact exceeding $10 million would be subject to review by the Legislature. While lawmakers couldn't overturn these rules, they could delay their implementation for at least a year. The bill still has a way to go before becoming law, but it could prevent unelected bureaucrats from having the authority to arbitrarily write rules that ruin private industry.

Econ 101: Why Health Insurance Regulation is a Bad Idea

The AP reported yesterday that the California Assembly's Health Committee has put off a decision on AB52, a bill from Mike Feuer (D-Los Angeles) that would give the state's insurance regulators considerable new powers, most notably the power to reject rate increases it deems "excessive". We suppose this is good news for the moment: any day without this piece of crap in force is good day. But just for fun, let's take a closer look at insurance rate regulation.

And so is actuarial science!
According to the Democrats on the Committee, the regulation is needed because the rates set by many private health insurers in California are "too high". This suggests an obvious follow-up question: how is "too high" defined? In a free market, the answer would be straightforward. Health plan actuaries would take data on the characteristics of their members (things like age, gender, diagnosed illnesses, and so on), and use the plan's claims history to estimate the expected costs of paying for members' health care. After accounting for patient cost-sharing (deductibles, co-pays, etc.), the "correct" premium would be the plan's expenses divided by the number of members. This would be the lowest premium the plan could offer while still providing insurance and remaining solvent. Would everyone be happy with this rate? Of course not, and they would be free to find an insurer who could give them a better price.

We can already hear your objections. "Come on, GSL," you're saying, "These health insurance companies make huge profits. They could drop their premiums if they took less profit." First of all, that isn't entirely true. But whether a health plan turns a profit from year to year isn't really the question. Remember how those actuaries estimate the plan's health care expenses? Those kinds of analyses carry a lot of uncertainty. And not just the statistical, "our standard errors sure are big" kind of uncertainty. Actuarial work in health insurance is fraught with what Donald Rumsfeld would call "known unknowns". You know that some of your members are going to leave the plan during the year, and other people are going to join up, but you don't know how many of each you'll get. You know that some of your members are going to develop serious illnesses they haven't had before, but you don't know how many or what illnesses. You know that any increase in plan premiums could cause some young, healthy members to jump ship and do without insurance, but you don't know how many. You know that the costs of drugs, materials, and medical devices will increase at a rate greater than inflation, but you don't know what that rate will be. You know that new treatments will become available and that some of your members and contracting physicians will want them, but you don't know how much they'll cost. And you know that the federal government may pass a sweeping health care law, but you don't know what it'll cost the plan to comply with the new regulations. All these things aren't just unknown, they're unknowable; so it's not a question of hiring the best actuaries and firing the bad ones. The point of all this is to emphasize that actuarial forecasts of the plan's expenses could be wildly wrong. Granted, a plan could have luck on its side, gain more members than it loses, keep its costs under control, and see a huge profit. But it's more likely that incorrect guesses regarding many of these unknowns will lead to losses.

"So what?" you might say. "Sure, they take losses sometimes, but why not pass the profits on to customers whenever they have a good year?" Here are three arguments to consider. One, like it or not, shareholder equity is a big part of how health insurers survive bad years. If you take away their ability to earn profits, their stock won't be worth anything to an investor, and having omniscient actuaries will become essential to staying in business. Two, insurers do have to compete with one another, so if one is taking "excessive profits", doesn't that mean a competitor could offer the same level of benefits to its members at a lower cost? In other words, doesn't competition imply that the market would punish excessive profits without any rate regulation? And three, what's so bad about a health insurer earning a profit? Think about it: when someone sells you health insurance, they basically say, "We're going to let you buy something you want with someone else's money, and if you spend more than we anticipate, the loss is on us". Um, if someone's offering us that deal we're taking it, and if they can turn a buck that way, more power to them. But more importantly, if someone's providing you with something you value, they have a right to earn a profit from doing it.

Of course, we expect AB52 will ultimately become law, and that regulators will start rejecting rate increases. Then what? The insurers will respond to the law, probably by increasing patient cost-sharing (e.g., higher deductibles, co-pays, and co-insurance rates), cutting payments to doctors and hospitals, cutting benefit offerings, or closing up shop in California. Or possibly all of the above, and in that order. The politicians and regulators will be unaffected, but everyone else, including the patients, the doctors, the hospitals, the insurers, and the thousands of Californians who work for hospitals and insurers, will get screwed. All in all, just another Tuesday at the office in Sacramento.

LA Times: The Solution to Corrupt Vernon Politics is . . . Corrupt LA County Politics

The LA Times has a story today describing the lavish lifestyles and questionable ethics of City Councilmembers in the small LA County city of Vernon. Is this a case of our faithful news media speaking truth to power and exposing the corruption of those in high places? Well, no. As we've been discussing for weeks, Los Angeles elites have a different interest in government corruption in Vernon: they want to forcibly disincorporate the city so the county can get at its tax revenues.

The face of evil.

We're not going to sit here offering a spirited defense of the Vernon City Council. The article makes clear that they've been enjoying good salaries, enormous health care benefits, travel junkets paid for by taxpayers, below-market rents on homes and apartments in the city, and virtually no accountability for their actions. In other words, we wouldn't shed a tear if they found themselves unemployed. But it is worth noting that the City Council provides something that's rarer than the condor in California these days: a business-friendly municipality. In spite of the corrupt government, Vernon has quietly become one of the wealthiest cities in LA County, largely by offering lower taxes, low rates for water and power, quick response times from local police and fire services, and low insurance premiums. And the business community in Vernon is very pessimistic about its viability if it has to operate in an unincorporated part of the county. Yesterday, the Sacramento Bee reported on mounting business and labor opposition to the disincorporation bill. Here's hoping they're successful. Otherwise, it looks likely that Vernon will become more like the rest of LA County: higher taxes, mediocre public services, and businesses going under or going elsewhere.

Bring It On, Bill Lockyer

Launching yet another volley in the "war of all against all", Democratic state Treasurer Bill Lockyer came out swinging yesterday in an interview with the Bay Area News Group. His target? Republican legislators who want to fix California's budget deficit with cuts alone.

This is what Bill Lockyer believes California will look like without higher taxes.
There's a lot of nonsense in the interview. At one point, Lockyer says, "The dirty little secret is that neither D’s nor R’s know what creates jobs", and declares that public spending is better at creating jobs than allowing the wealthy to keep their money. Um, Bill, historical facts are not on your side there, but please consider reading this if you actually believe that. And if you don't believe Bastiat, your local paper in Sacramento had some ideas on job creation recently. He claims that general fund spending has been flat in California for forty years (because, you see, that shows that California doesn't actually have a spending problem). Uh, Bill, that doesn't prove anything except that government spending has grown explosively in tandem with the state's population; those data are here.

But Bill didn't come to talk about the past. The main point of the interview was to challenge those awful Republicans to implement all-cuts budgets in their districts first. "The people who want less government ought to be at the front of that line to get less government", the idea being that voters in those districts will be so upset at the resulting cuts in vital services that they'll pressure their representatives in Sacramento to go along with Jerry Brown's plan for tax extensions. To which we say: bring it on. Why not give small government a try in California? It's not like our current government operates with Switzerland-like efficiency, and its about time Sacramento started learning to live with less. Plus, we're confident that, media wailing notwithstanding, the average citizen wouldn't notice much difference.

Tuesday, April 26, 2011

California Parents Embrace Private Schools

The San Jose Mercury News offers us this weepy editorial from Sharon Noguchi on California parents bolting for private schools, as Sacramento contemplates more cuts to education funding.

Run away as fast as you can!
According to the article, enrollment and applications are up significantly at private schools all over Silicon Valley; one school, Calvary Christian Academy in San Jose, is even reopening after being closed for years, due to the jump in demand. Many parents are exploring this option because no one knows what public schools will look like after Sacramento resolves its budget gap. While the state has yet to impose any cuts to K-12 schools (cuts to education thus far have only affected the UC and CSU systems), such cuts are certainly on the table, and could only be implemented via increased class sizes, cuts to teachers' salaries, or, as California Watch discussed today, a shorter school year.

But that's about all the analysis Noguchi offers. She fails to consider that parents may be responding to the abysmal quality of public education in California. She includes a terrible quote from Karen Fuqua of San Jose Unified, to the effect that "if parents would invest the private tuition they pay, from $5,000 to $30,000 a year, in the district instead, class sizes wouldn't have to be raised". Really? A government bureaucracy with unionized teachers would use that money as efficiently as a private school? And homeowners without children wouldn't mind the giant jump in their property taxes? We'll go ahead and call bulls**t on that, and if you want an example of why, the San Francisco Unified School District is in the process of providing one. Noguchi also explains that seeing parents exiting public schools is an awful thing because . . . well, she never really says why. Citing a UCLA professor named Gary Orfield, she says, "When middle-class families are the mainstay of public schools, they lend stability, raise standards, pursue accountability and anchor city neighborhoods." Um, what? First of all, what unique quality of private schools makes them incapable of doing these things? Second, what California public schools have raised standards or increased accountability? This is the biggest problem with the editorial: it appeals to a romantic ideal of public schools that doesn't resemble current reality, one in which the best interests of children are an afterthought.

Good News: Eminent Domain Smacked Down in National City

If you're like us, you think property rights are pretty cool, and you can't stand the concept of eminent domain. For those not in the know, eminent domain is the policy instrument by which governments seize private property they consider "blighted", and turn it over to developers. As you might guess, this process is a tad vulnerable to corruption and cronyism, to say nothing of the fact that it's just wrong to steal someone's land. As an example of eminent domain in action, National City in San Diego County recently tried to take over a large chunk of private land to turn over to a condo developer. Fortunately, a Superior Court ruling last week put a stop to it.

National City's eminent domain claim was challenged by, among others, the Community Youth Athletic Center, a boxing gym for high-risk youth. What's especially significant here is that California's 2007 eminent domain reforms appear to be working, insofar as they aimed to put a greater burden on government to prove "blight". National City, evidently, assumed that their word would be good enough, as they failed to provide (in the judge's words) "specific, quantifiable evidence about the location and prevalence of the alleged blighting conditions." In addition to being a boost to property-rights advocates, the ruling also nods in the direction of government-transparency watchdogs, as National City was found to have violated the Public Records Act. And, of course, a group of kids from troubled backgrounds get to keep a popular community center.

Damon Root from Reason Hit & Run has his own take here.

How Much Money Did Robert Rizzo Steal, Anyway?

Today brings us more news from the LA County city of Bell, where there appears to be no end to the revelations of corrupt dealings by Robert Rizzo, the disgraced ex-City Administrator, and his colleagues. The latest? Apparently Rizzo set up a secret pension fund for himself and his chief deputy, Angela Spaccia, above and beyond their state pension and a second city-level pension. Because this special fund covered only two people, Rizzo and Spaccia were able to evade IRS regulations capping these pensions. The total amount in this fund? $4.5 million.

Next up for Bell's new City Council: trying to get at that money to help cover the city's $13 million budget shortfall. (That's right, Bell taxpayers: get to the back of the line!) But we're really starting to wonder how many other schemes Rizzo had going to enrich himself at taxpayer expense. At this point all the revelations remind us of the uncashed paychecks Manny Ramirez allegedly left in his locker in Boston; how many more "secret funds" are lying around in Bell?

S&P; Maintains "Negative" Outlook on California

As reported in the LA Times today, Standard & Poor's is sticking with its "negative" rating for California debt. While they're impressed with the strengths of our economy, they're very concerned that the stalled budget negotiations will cause the state to run out of money later this year. For an excellent rundown of where these negotiations stand and how we've gotten there, check out Dan Walters today in the Sacramento Bee.

Wow, we made it to Sacramento already?
We'll see how much attention this news gathers, but for us it's yet another ominous sign of what's ahead. To us S&P; seems, if anything, too optimistic about the immediate future of the state. While the budget impasse is undoubtedly a serious problem, it's odd that S&P; sounds otherwise upbeat. Yet, in recent weeks, we've treated our readers to an awful lot of bad news: evidence that the state hasn't cut nearly as much as it says it has, unfunded pension liabilities totaling $500 billion, an impending bankruptcy in Montebello, widespread pessimism about the state's business climate, and a debt downgrade in San Francisco from Fitch. And that's just off the tops of our heads. Of course, S&P; hasn't exactly been swift to recognize bad debt in recent years, so maybe we shouldn't be surprised.

Sacramento Tries Its Best to Run California's Health Insurance Market

HealthyCal.org has this interesting piece on a bill that would give the state authority to reject increases in health insurance rates if it feels they're excessive. The bill is currently being discussed by the Assembly Health Committee. This hearing comes six days after the first board meeting of California's Health Benefit Exchange, a new government body intended to help people find low-cost insurance plans as part of ObamaCare. The article questions whether the state can effectively negotiate rates with health plans participating in the exchange while also regulating those rates.
There are many unanswered questions . . . If the state negotiates a rate with insurers, how could it deem that rate to be unfair? But if the exchange is effectively exempt from rate regulation, how is that fair to the rest of the market?
The broader point being made here is that the state doesn't have a clear understanding of how its own regulations and programs are supposed to work (we're sure that's strictly limited to health care). Which by itself should be troubling. But the article doesn't go nearly far enough. How are insurers supposed to operate when they're being squeezed by benefit mandates on one end and rate caps on the other? And what is the state's Plan B if their restrictions on premiums cause insurers to exit the market altogether?

If only there were some set of arrangements by which people could pay for the medical care they wanted, and that wouldn't be affect by the mistakes of bureaucrats in Sacramento. If only.

Monday, April 25, 2011

GSL Movie Review: Waiting for "Superman"

We recently saw the education-policy documentary Waiting for "Superman", directed by David Guggenheim of Inconvenient Truth fame. The film interviews a number of noted reformers, including New York charter school pioneer Geoffrey Canada and former DC Public Schools chancellor Michelle Rhee, and follows children hoping to gain admission to charter schools in New York, Los Angeles, and elsewhere. The admissions in question are decided by lottery, which is the movie's central drama: the one chance these children will have to escape failing schools and enjoy a bright future comes down to the lucky bounce of a lottery ball.

Tell everybody waiting for a Superman, that they should try to hold on the best they can.
The failure of public schools is one of the tougher public-policy questions in America today. And to its credit, Waiting for "Superman" gets its critique largely right: contrary to public opinion, the failings of our schools aren't due to lack of money, but to the absence of any incentive toward excellence and to unions' protection of awful teachers. Union contracts and soft tenure standards make it almost impossible to fire teachers, even those guilty of gross incompetence and even criminal behavior. Many districts even go through an annual ritual that Canada calls "the dance of the lemons", in which bad teachers are shuffled around to new schools within the district. In New York and elsewhere, they have what's called "the rubber room", in which teachers sit doing crosswords and sleeping for days on end while waiting to be reassigned. And because it's almost impossible to reward good teachers financially in public schools, their performance tends to reflect the regression to the mean you'd expect. Further, this isn't a phenomenon limited to poor, inner-city public schools; one of the students the film follows attends a high school in uber-wealthy Woodside in Silicon Valley, trying to get into a charter school that doesn't "track" students (i.e., funnel them quickly into less-challenging curricula). Underlying all of this is the basic fact that the system produces the outcomes that most of its stakeholders seem to want: the teachers have unlimited job security and, in many cases, very generous compensation; the unions have a large and enthusiastic membership; the bureaucrats have power; and the parents get their children educated for free. And the voices of those speaking for the children in these schools are too far and few between to be heard.

Nonetheless, we had two main criticisms of the film. One is its assumption that fixing public schools can somehow solve this problem. Waiting for "Superman" makes no mention of homeschooling, and treats private schooling like a shameful (if necessary) evil. (As we do at every opportunity, we'll recommend John Taylor Gatto's fabulous book on American public education.) In Waiting for "Superman", a private academy in New York, which one of the children attends before her mother can no longer afford the tuition, is depicted as effective but heartless. This tempts the cold-hearted bastard in us to ask: since when is a free education for your child something you have the right to demand? We (okay, I) say this as the child of parents who put us through private schools despite being not at all rich. You have the right to demand that schools educate your children to your satisfaction if you send them there, but only if you actually pay for that service; if your school gets its money from bureaucrats who couldn't care less about your children, you should expect the results you get.

Our other criticism concerns the assumption that American children are effectively doomed if they can't escape these failing schools. They even trot out Bill Gates to explain why American children need a full college education so that "we" can compete in the economy of the future. We want no part of the bleak idea that anyone's existence is predetermined by bureacratic institutions inflicted on them without their consent. Kids, if you're reading this and you go to a crappy school, trust us: your life isn't over already. You're just going to have to do a little more work to figure out how to get ahead in the world. But the film also fails to point out that the Bachelor's degree is up there with mortgage-backed securities as one of the world's most overvalued assets. As this excellent piece from the Ludwig von Mises Institute points out, the flood of easy college loans over the years has created a glut of students graduating with marginal skills and six figures' worth of debt, and it's reasonable these days to ask whether these kids might be better off starting small out of high school, learning simple trades, useful skills, and personal responsibility, especially if the soft, high-paying jobs they've been led to count on don't exist anymore.

Ofcourse, the film's title did remind us of a tremendous Flaming Lips song, which should be worth at least an extra half-star. So, let's just call it an even three out of four stars for Waiting for "Superman".

Liberty's Progress: Golden State Liberty Quoted By Reason.com

A huge tip of the cap is due to Tim Cavanaugh at Reason.com, for extensively quoting Golden State Liberty in his Hit & Run post on the LA Times' claim that California voters now want their taxes to be higher.

We've been big fans of Reason for a long time, and consider their Hit & Run blog daily required reading. They stay on top of international and domestic politics, and provide incisive, entertaining analysis at a rate we envy. And in the universe of people currently writing about politics in California, Tim is one of the sharpest guys around. We particularly enjoyed his cover story from the magazine's March 11 issue, on the strange path of pension reform in California. So, we really appreciate having Tim as a reader, and having him nod towards our blog today; thanks much, Tim.

If you have the means, please consider subscribing or donating to Reason.

Let's Make a Deal, San Francisco

The SF Chronicle reports today on the various pension reform proposals making their way toward appearing on a ballot near you in November. As you might expect (this is San Francisco, after all), the proposals are virtually identical, and likely far too weak to address the city's $11.2 billion gap in unfunded liabilities.

You can split San Francisco's pension problem into two basic issues: health care liabilities, and everything else. Assuming historical rates of investment return, the city's Employees Retirement System (SFERS) has an unfunded liability of $6.8 billion. Separate from that, however, is an unfunded health care liability of roughly $4.4 billion. The key problem here? The city hasn't saved a penny towards the health care expenses. These problems clearly suggest a need for dramatic reform, so that pensions don't end up, you know, swallowing the city's entire budget at some point. Unfortunately, the three plans on order make Jerry Brown's recent proposal look like an act of political suicide.

Two of the plans are being developed by Mayor Ed Lee and a number of labor unions represented by the Public Employees Committee. Since the two sides are currently negotiating, it's safe to characterize Lee's ideas as less-fleshed-out versions of what the unions are proposing. They include raising the retirement age, limiting "pension spiking", marginal increases in employees' pension contributions, and no firm commitment regarding employee contributions to health benefits. Behind Door Number Three, Public Defender Jeff Adachi also has a plan. We like his idea of a sliding scale for employee pension contributions that would kick in if pension holding perform poorly. But he has no thoughts on addressing the health care shortfall. And that's all. When it comes to eliminating abuses like retroactive pension increases, "air time", and pension holidays (elements of the Brown proposal that we thought so obviously corrupt and wasteful we couldn't believe they were real), the three plans are silent. This suggests that any increases in employee contributions may end up getting shifted back onto the taxpayers, as agencies are able to do nowadays. And none of the plans considers meaningful reforms like shifting to defined-contribution retirement plans.

UPDATE: Social Worker Who Helped Orange County Kidnap Two Girls Still Works There

Last week we reported an awful story with a happy ending: a Seal Beach woman spent over six years trying to regain custody of her children after two Orange County social workers lied to the county Social Services Agency to get them removed from her home. Ultimately, she successfully sued the county, and her children are back at home today. But this story from the Orange County Register confirms what we'd suspected: the social workers in question never faced any consequences for their behavior.

Where taking children from their mother and costing your employer $5 million means never having to say you're sorry.
According to the report, neither Marcia Vreeken nor Helen Dwojak were ever disciplined, either for harassing Deanna Fogarty-Hardwick or for filing false statements and concealing evidence from the SSA that would've exonerated Fogarty-Hardwick. Dwojak retired from the agency in 2006, while Vreeken was promoted to supervisor, and last year pulled down a salary of $103,000 from the county. All of this in spite of the fact that their reprehensible actions may ultimately cost Orange County over $9 million. SSA Director Michael Riley stands by Vreeken and Dwojak, though perhaps that's his agency's only way of avoiding additional legal action. Fortunately, Appeals Court Justice William Bedsworth disagreed last week, and some measure of justice was done.

Two things to always remember about government: "social services professionals" do not always have your best interests in mind, and they're not accountable to the law in ways the rest of us are. And, when we talk about public pension reform in California, remember that we'll likely be going without to ensure that these women have a very comfortable retirement.

The Hits Keep Coming in Montebello

We've been keeping a closer eye on the San Gabriel Valley city of Montebello ever since state Controller John Chiang ordered an audit of the city's finances last week, amid signs of corruption and fears that the town may go bankrupt later this year. Our interest was further piqued on Saturday, when an LA Times report suggested that the city has no idea how much money they actually owe to creditors. In both pieces, we've been cautiously drawing parallels between this situation and those in the simlarly-disgraced governments of Bell and Maywood. Well, it turns out we may be on to something.

We've got your car right here!
According to California Watch, Montebello may have made extensive use of a revenue-generator that both Bell and Maywood are notorious for: impounded every car they could get their hands on. According to Ryan Gabrielson's report, during the last fiscal year, Montebello police impounded 100 cars for every drunk-driving arrest at checkpoints on holidays alone (the state average is 6 cars per arrest), and failed to conduct sobriety tests in four out of every six checkpoints at any time. Apparently, because it gets a cut from local tow operators, checkpoints brought Montebello about $95,000 last year.

One school of thought may view this without protest: so many Californians these days seem to calmly accept whatever their governments choose to put them through. But it bothers us. For one thing, the city is in grave danger of bankruptcy, so it's a fair question to ask what the hell they did with all that money. For another, Montebello operates some of California's least effective sobriety checkpoints, in terms of getting drunk drivers off the road, so it's also fair to ask whether this nonsense helped to protect the public safety. But mostly it bothers us because, you know, we take the concept of property rights seriously. What we have here is a city seizing innocent citizens' cars to make them pay to get them back: explain to us how that isn't carjacking?

The FiveForty-Year Plan in San Diego

Today's Fatal Conceit Award for confident central planning has to go to the city of San Diego, which today launched its plan for the city's transportation infrastructure. The plan is, well, slightly ambitious. It's over 650 pages long, not counting roughly 2,400 pages of appendices, and calls for nearly $200 billion to be spent over a forty-year time frame. Because, after all, an unresolved $46.5 million budget deficit shouldn't stop anyone from thinking about massive new infrastructure projects.

The plan is very much in line with the pipedreams floating around other parts of California: building a huge network of interconnected bike trails, new high-speed bus routes, and a number of new rail and trolley lines, including a train running under downtown, while constructing no new highways. The goal is to try to meet pollution targets, assuming the city's population grows by over a million and adds hundreds of thousands of new jobs and homes (they may want to revisit their numbers based on Census data showing the city's growth slowing sharply). The hubris of this, of course, is breathtaking. Not only do these folks believe they can accurately forecast the city's transportation needs over four decades, even though these needs will arise from millions of individual decisions that haven't taken place yet, they think they can predict exactly how all the individuals in California's second-largest city will want their transit needs met. (Well, either that or they don't care, and this is nothing more than bureaucrats wanting to take their green-planning visions for a test drive in the real world.) And then there's the $196 billion they'll need to build all those bike paths and rail lines. Because they're funded by tax dollars and run for the benefit of politicians, large public works projects are more about employment statistics than value creation. As such, they almost always go many orders of magnitude over budget. One only has to look a couple hours north on the 5 to see this happening in light-rail construction.

Sunday, April 24, 2011

LA Times: Our Poll Means What We Say It Means!

The LA Times today reported the results of a poll they conducted with USC. Apparently, California's now "support tax hikes" to help close the budget. Except that it doesn't quite say that, and it says a lot of other things as well.

I know, I'm as surprised as you are!

The actual poll results are here. The set of questions pertaining to the tax hikes essentially ask subjects which approach would be best for covering the state's remaining budget shortfall. 54% of subjects said they favored a combination of spending cuts and higher taxes, which is what the Times is referring to. But, importantly, if you believe Sacramento's Democrats, that's not the option the voters need to consider; prominent Democrats are talking tax increases and new spending pretty much exclusively these days. Of those who preferred to see a mix of taxes and cuts, the majority hoped to see them in roughly equal proportion, which is certainly not what's on the table in Sacramento. So how many respondents supported balancing the budget with tax increases only? 9%. Interestingly, poll respondents favored closing the deficit with spending cuts only at three times the rate others favored a tax-only solution.

Also left out of the Times story is the incredible pessimism the report reveals. Californians are in a smack-talking mood as regards the state's direction, political institutions, business climate, and immediate prospects (i.e., most believe the state's economy has yet to hit bottom).

(Hat tips to Tim Cavanaugh and Rob McMillan.)

How to Keep Businesses from Leaving California

Today's Sacramento Bee features an excellent op-ed from Andrew Puzder, the CEO of CKE Restaurants. CKE owns, among other chains, the ubiquitous Carl's Jr, and is headquartered (for now) in the Santa Barbara County town of Carpinteria. Puzder draws an explicit comparison between the business climates of Texas and California, and offers several recommendations for ways that California could make itself more attractive to employers.

Part of the difference in business climates between the two states is cultural, of course. Puzder recalls that, after recently expanding the number of restaurants the company operates in Texas, he received a personal thank-you call from Gov. Rick Perry; no California governor had ever made a similar gesture in his 10 years as CEO. Which makes sense: California politicians only value businesses as a source of tax revenue, whereas Texans tend to view business success as a critical part of a prosperous society. Puzder makes this clear: "California is the most business-unfriendly state we operate in. While we kept our corporate headquarters here, our company's real job-creating engine has already moved." Further,
Our current plans for domestic development are principally centered in Texas, where it is easier to build and operate restaurants. Each restaurant we open creates about 25 permanent jobs, not to mention the numerous outside jobs supported by our business. It's no coincidence Texas' unemployment rate remains below the national average while California has one of the highest.
So what can California do to make itself easier to succeed in? Well, Puzder has a variety of suggestions. For one, the state can reduce the costs and regulations associated with construction, which Puzder estimates add $200,000 to the cost of building a single restaurant in California. For another, it can simplify its rules regarding manager pay, working hours, and breaks, all of which are difficult to understand and erode productivity. He also recommends limiting the ability of lawyers to file frivolous class action suits. And, of course, lower taxes are an essential piece of the puzzle.

This, of course, implies that California wants businesses to succeed here.

Why Are Some California Municipalities Hiding Their Spending?

Four years ago, the California Supreme Court ruled that the salaries of government employees are a matter of public record, and the Bay Area News Group has spent much of 2011 requesting information on the pay, pensions, insurance, and deferred compensation given to workers in northern California. Yet according to this story from the Contra Costa Times, many cities, special districts, and school boards throughout California are stalling in complying with the requests. As of now, the Group has only received responses to about half their requests. Among the entities not responding to requests on employee spending are the Mount Diablo, Berkeley, Oakland, Kentfield, and San Rafael school districts, as well as the cities of Menlo Park, East Palo Alto, Daly City, Atherton, Woodside, Sausalito, Corte Madera, and Fairfax. Other government bodies in cities such as Oakland, San Francisco, and Palo Alto have only partly complied with the requests.

Since recent experiences with cities like Bell, Maywood, and Montebello have shown the importance of being suspicious, we'll go ahead and ask: what exactly are these agencies hiding? Is it possible they want their true costs disguised at a time when an all-cuts California budget is still on the table?