Tuesday, May 31, 2011

Assisted-Suicide Entrepreneurship in El Cajon

The LA Times reports on the growing federal investigation into the business activities of 91-year-old Sharlotte Hydorn. From her ranch-style home in the San Diego suburb of El Cajon, Hydorn runs a unique sort of mail-order business: inside the butterfly-decorated boxes she sends are a set of plastic bags and metal tubing that, when connected to a helium tank, allow the user to asphyxiate him- or herself in minutes.

We realize this is more ghoulish than the things we usually write about, but Ms. Hydorn's story is intriguing. In December, she sold one of her "kits" to a 29-year-old man in Eugene, OR, whose subsequent suicide triggered a wave of publicity. While her orders swelled to over 100 per month, scrutiny from law enforcement agencies and politicians grew as well, and last week her home was raided by the FBI. Dozens of kits were seized, and Hydorn is now being investigated for everything from mail and wire fraud to violations of laws concerning adulterated or mishandled medical devices. Yet behind all of this is a much more troubling and difficult question: do people have the right to end their own lives, and if so, do they have the right to purchase a product that enables them to do so in a relatively peaceful and painless way?

Hydorn, for her part, is unapologetic about what she does. After watching her husband succumb to a long struggle with colon cancer in a hospital bed, she regretted not honoring his wish to die at home. She claims to regularly receive letters of gratitude from the family members of customers. Her critics, however, complain that she dispenses the product without knowing anything about her customers. Alan Berman, executive director of the American Association for Suicidology, says, "What if this was a young person masquerading as an adult? What if this was a person with a totally treatable psychological condition who was not otherwise given the opportunity to get treatment?" And the brother of the Oregon man claims that the packaging hides the deadly nature of her device, and that its instructions tell users how to buy helium without arousing suspicion.

Yet these complaints still don't get at the basic question of whether people have the right to take their own lives. While we obviously view it as a last resort, and would want someone considering suicide to explore every other alternative, we still believe that people should be free to pursue courses of action that we don't approve of. And we'll be the first to admit that we don't understand what it would be like to live with terminal disease or severe mental illness. Hydorn's business troubles us, but even we have to admit it would violate a person's right to do as they wish with their body to prohibit them from buying her kit. Just as we'd have to admit that those kits probably bring a merciful end to the suffering of many people.

Riverside Learns that It Bought High During the Education Bubble

Given how heavily Riverside County was hit by the collapse of the housing bubble a few years ago, the sight of a newly constructed building sitting empty is an all-too-familiar one in the Inland Empire. Today's LA Times has a story suggesting that the public education bubble may not be far behind.


Of course, public education lacks many of the characteristics of a true economic bubble. It's true that during times of growth and easy money, funds tend to flow into public schools without regard to realistic calculations of profit and loss. And people tend to believe that these funds are well-spent, despite the schools' poor quality and the absence of an economic rationale for much of the instruction that takes place. But a real bubble requires a bust, in which people stop pouring money into an obviously misguided venture, and in California that doesn't really happen with public schools. At least, until now. The Times story concerns Hillcrest High in the city of Riverside. Built thanks to a $196 million bond measure passed in 2007, Hillcrest is supposed to be the high school of the future: full wifi, a robotics lab, digital smartboards in every classroom, wintertime views of the surrounding mountain peaks, and a first-rate performance hall and athletic fields. Unfortunately, the future is a bit further off than originally believed: after losing $25 million in state funding over the past three years, and laying off over 40 teachers, the school board has voted to shutter Hillcrest for the upcoming school year. Does this story remind anyone else of Mises' famous "Master Builder" analogy?

Stockton Discovering that Wasting Money Can Lead to Bankruptcy

Today, Dan Walters at the Sacramento Bee gives us our latest case study in government overspending in California: the Central Valley city of Stockton.

Unfortunately, all of this cost way too much money.

Even though it's the seat of San Joaquin County and California's 13th-largest city, Stockton may soon become known for something else: declaring bankruptcy after failing to close a $37 million hole in its budget. Though Mayor Ann Johnston is promising to do everything to avoid it, the fact that municipal bankruptcy is being openly discussed should tell you a lot. The fact that the city has no clear plan for fixing its budget should tell you something else. Walters compares Stockton's circumstances to those that prevailed until recently in Vallejo: rapid population growth during the housing bubble, and higher tax revenues that led to generous new contracts for public workers and to a foolish downtown revitalization effort, complete with a new marina, baseball park, and sports arena. The city has made numerous cuts, including police layoffs, to stem the flow of red ink, and relations with many of its unions are poisonous now. But that huge deficit remains.

Walters is right to point out that Stockton's predicament mirrors that of many other California cities, and indeed the state as a whole. As many others have pointed out, the highly progressive tax structure in California means that revenues can be highly volatile, and since that structure is unlikely to change soon, governments throughout the state need to start embracing a radically smaller vision of their function, complete with reduced spending, unless they want these sorts of crises to become the norm.

FBI Widening Its Investigation of the Los Angeles Department of Building and Safety

Just in time to welcome everyone back to work, we have the latest on the investigation into corruption and bribery at the Los Angeles Department of Building and Safety. Earlier this month, we wrote about two building inspectors in South LA, Raoul Germain and Hugo Gonzalez, who have pled guilty to accepting bribes in return for building permits. Both men were caught by an undercover FBI agent posing as a contractor. Well, today's LA Times has the latest on the growing federal investigation into the agency's activities.


The FBI is apparently looking beyond the rank-and-file inspectors and now including supervisors in its probe. In a memo to LA Mayor Antonio Villaraigosa that was accidentally sent to hundreds of department employees, General Manager Bud Ovrom also placed Koreatown inspector Samuel In and West LA engineer Frank Rojas on administrative leave in connection with the investigation. In (who had worked for the city for 37 years) filed for retirement two days later. Currently a federal grand jury is demanding access to records for 12 employees, including Germain and Gonzalez. The federal investigation began over a year ago with an affidavit from an informant, alleging systemic, widespread bribery in the department. FBI agents began their work in earnest last August, and by January the Building and Safety Department had received 52 anonymous complaints, all in relation to building sites in South LA. The department's own investigation began at this time.

Ovrom is understandably eager to deflect blame for this scandal, but so far his only defense is that staffing cuts and early retirements by many supervisors meant that many new supervisors weren't adequately trained to catch this sort of misbehavior. Which is, of course, a very lame excuse, and one that could be exploded if the federal investigation reveals corruption higher up in the food chain.

Monday, May 30, 2011

Two Views on Schwarzenegger's Legacy as Governor

He's been back in the news these days for reasons unrelated to politics, but Arnold Schwarzenegger's recent mishaps in his personal life have caused us to think back on his many mishaps as California's governor. And we're not the only ones: the Sacramento Bee's Dan Walters and Cal Watchdog's John Seiler have also been thinking about the legacy Arnold left us.

Sadly, this was not Arnold's worst performance as Santa Claus. That is found in his policy-making record.
According to Walters, Schwarzenegger's failings as a husband have nothing to do with his failings as Governor. "Schwarzenegger's record as governor, positive and negative, stands on its own and has nothing to do with the child he fathered before entering politics." Furthermore, Walters credits the Kindergarten Cop with tackling the difficult issues of infrastructure spending, redistricting, and water policy, and largely waves away his mistakes. "Mostly, Schwarzenegger failed not because of his own lapses, but because California's political structure generates failure regardless of who occupies the office." In other words, California is impossible to govern, and you can't blame that on Arnold.

Seiler, however, is less forgiving, explaining that Schwarzenegger refused to restore the Gann Limit in November 2003 despite being repeatedly urged to do so. This limit would've prohibited the state's budget from growing at a rate greater than population growth plus inflation. "Had he done so, voters overwhelmingly would have approved it, the budget would have been balanced every year, and Arnold would have left office a political hero." Instead, Schwarzenegger decided to borrow $15 billion to pay expenses until revenues rebounded, and pushed Prop 58, a toothless balanced budget law. Moreover, Seiler points out that Arnold ignored the fragility of the real-estate boom and jacked up government spending at astounding rates, hiking it 15% to $91.6 billion in 2005-06 and another 10% to $101.4 billion in 2006-07. By this standard, Jerry Brown's California is Galt's Gulch. In spite of being pushed into office with the mandate to reverse Gray Davis's tax hikes, by 2009 he was raising taxes by $13 billion himself. For these reasons, Seiler isn't nearly so willing to let Schwarzenegger off the hook.

Our feelings fall somewhere in the middle. We agree with all of Seiler's criticisms, of course, but in a way Walters has a point. California's government is broke and corrupt because nearly everyone involved in government here wants it that way. And no matter how great a leader you put into the Governor's mansion, he or she would still face the reality of being one politician among many in Sacramento. And he or she would be just as tempted as Schwarzenegger was and as Brown has been to throw new taxpayer money away. To the extent that no one can be trusted with the power Schwarzenegger had, it's silly to call him out for using it in an entirely foreseeable way. Even if his mistakes were truly awful ones.

Embracing Smaller Government in Menlo Park

According to this report from the San Jose Mercury News, the Silicon Valley town of Menlo Park is slowly, slowly embracing the virtues of small government. Menlo Park, you see, spends almost three quarters of its budget, some $26.9 million, on personnel, so trimming that spending would seem to be an obvious way of balancing its budget. As such, the city's plan for its 2011-12 budget calls for greater outsourcing of custodial services and proposes contracting out the maintenance of street medians. As City Manager Glen Rojas puts it, "The budget reflects a balanced budget but most of the impacts are internal to the organization. We're absorbing a lot of the workload and keeping our service level to the community to the highest level that we can." In addition, Rojas wants to convert two vacant police-officer positions to non-sworn posts, freeze a vacant post for a part-time teacher, and make payments to CalPERS ahead of schedule to save on interest.

We can already hear the hand-wringing over Rojas's proposal. City Councilman Andy Cohen says, "It's a slippery slope we're on, where we let the least advantaged people go because that is, shall we say, the weakest link in the chain." Because, clearly, city-paid janitors are the only thing holding back the tides of Hobbesian anarchy. And Councilwoman Kelly Fergusson frets that contractors, who have to earn their salaries by performing at a high level, will offer inferior service compared to city employees: "You pay in administrative costs, you pay in having quality monitoring, making sure that any contracted-out work meets our standard. There's just nothing that can substitute for the care and quality that we see from our own city staff." Given our experience with government services, we're not at all sure that second statement is true. In their defense, however, the Council had suggested a 3% pay cut for all city workers making over $100,000 a year. Since one in every four Menlo Park employees would be affected by the cut, it's likely it would've generated considerable savings, but Rojas rejected it: "We can cut salaries, you can do all those things, but if you want an organization that is top quality, we've got to make sure we have the right people in place." Because, of course, money is no object when it's taxpayer money.

If we had our way, of course, both the salary cuts and the outsourcing would be going forward. But still, this is a positive sign of the times: it may not have hit Sacramento yet, but many in California government are starting to realize that scaling back now may save them more trouble down the road.

San Francisco Tech Investor Taking Short Position on Higher Education

Peter Thiel is a man who knows entrepreneurship. The San Francisco-based venture capitalist has already made his name many times over, founding the Thiel Capital Management fund and the Paypal digital payment service, and becoming the first significant investor in Facebook. Now, he's gaining national attention for his newest project: paying promising high-school graduates not to go to college.

Peter Thiel
Through his "20 Under 20" fellowship, Thiel is offering twenty promising youngsters $100,000 to pursue entrepreneurial ideas for the next two years, in lieu of attending college. Their ideas are primarily technology-oriented. One wants to create cheaper biofuels, while another wants to create mobile banking systems for use in developing countries. Thiel is spending $2 million on this because, in his words, "Turning people into debt slaves when they're college students is really not how we end up building a better society."

Thiel is, of course, not the first person to openly question the value of higher education. Yet given the absolutely brutal job market many new graduates are facing these days, we're thrilled to see such a prominent figure openly supporting young people who want to pursue an alternative path. As the economic recession drags on without noticeable improvements in job numbers, it's starting to look more and more like the promise of easy employment in America's "creative economy" is a thing of the past, and the only guarantee of steady work is the ability to create real value. As such, it's probably better for these kids to get a head start on learning how to do that.

Being Broke Doesn't Lessen San Francisco's Desire to Borrow Money

You might think that the city of San Francisco would be leery of taking on more debt, at a time when it faces multi-billion dollar unfunded pension liabilities and a $306 million hole in its budget for the upcoming fiscal year. In particular, you might think they'd be leery of borrowing to pay for things that most normal people would assume are paid for with tax revenues. Yet according to the San Francisco Chronicle, city voters are likely to pass a new $248 million bond in November to pay for, of all things, street repair.

The city apparently spent $29,000 to commission a poll on the bond issue, and found that the proportion of likely voters favoring it sits right on the two-thirds threshold needed to pass it. Of course, the most obvious question goes unasked in the article: how bad are San Francisco's finances if it can't even fund street repairs on a pay-as-you-go basis? For us, this is an ominous sign of either the depth of the city's troubles or its inability to prioritize spending properly. The article also fails to ask a less obvious question: given that the Fitch agency just downgraded the city's debt last month, what sort of appetite is the market likely to have for these bonds, and what sort of interest rates are city taxpayers facing to service the debt? Either way, one can only imagine how the people supporting this measure expect these bonds to be paid off. Of course, therein lies the problem with government in a city like San Francisco.

Happy Memorial Day

We hope everyone's taking a nice break from hating on the government today. Memorial Day is a great moment for spending time with friends and family, and remembering the ideals that this country was founded on. So cheers to everyone up and down the Golden State today.


Sunday, May 29, 2011

Irvine Republican Reminds Us That Stupid Housing Policy is Bipartisan

Today's Orange County Register has an interview with Rep. John Campbell of Irvine regarding his new bill, HR 1859, which would reform mortgage lending in the United States and abolish the Fannie Mae and Freddie Mac GSEs. If this guy is leading the reform effort, the American housing market is in more trouble than we thought.

Campbell's bill, which is being cosponsored by Michigan Democrat Gary Peters, would replace Fannie and Freddie with a network of "private" entities. Each of the "associations" in this network would guarantee mortgages, though they would be prohibited from securitizing them, and the government would direct the establishment of the first five associations. There doesn't appear to be any clear safeguard against taxpayer money being used to bail out the associations in the event of a crisis similar to the one that devastated Fannie and Freddie. In other words, Campbell really doesn't explain how his proposal would result in a substantively different system from the one we have now.

To put a finer point on it, Campbell's thinking seems to be very much in line with the establishment consensus in DC, which is determined to fight economic reality to the death to preserve the status quo in mortgage lending. When asked why lending can't simply be left to the private sector, this is Campbell's response:
Throughout my lifetime, we have always had some government support for home mortgages. Without some support, the 30-year mortgage will go away. Investors will simply not make loans of that duration, with a fixed rate, and additionally take the 30-year risk that you might not ever pay them back.

If we were to wind down the GSEs without some viable replacement system, home loans would likely require 25% down or more and mortgage durations would fall to 15 years or less. This would easily trigger a 30% decline in housing prices as the payments for any home loan would rise dramatically. This decline would plunge the economy into a major recession/depression and greatly reduce the number of people able to own homes in the future. This is a disaster scenario which is completely avoidable.
If that was too long for you to read, here's our short summary: housing prices must be kept above the level at which most sane human beings would buy them, and the only way that's going to happen is if the government continues to underwrite bad loans. In other words, if you're hoping that someone in DC understands that the bad investments of the past decade need to be liquidated before a real recovery can take place, keep looking.

It's Not Accounting Fraud When the Government Does It: California Pensions Edition

Ever wonder why broke states like California have such a hard time doing anything about their monstrous unfunded pension liabilities? In addition to the usual corruption and irresponsibility we've come to expect from our government, Daniel Borenstein finds an interesting culprit in today's Contra Costa Times: sketchy pension-accounting practices. In general, differences in federal accounting rules between public and private pensions allow government plans to overstate their assets, understate their liabilities, and spread out debt payments over ridiculous lengths of time.

When determining how much money they have, pension plans typically "smooth in" the effects of gains and losses in investments, so as to minimize the impacts of market volatility. By the law, private pensions are only allowed to spread out the effects of changes over a two-year period, and only if the adjusted portfolio value doesn't differ from its actual value by more than 10%. In contrast, CalPERS spreads its gains and losses out over a 15-year period, and has allowed the adjusted value to deviate from the actual value by as much as 40%. As such, CalPERS has yet to account for the losses in investment holdings that occurred in 2008-09, and is assuming it has much more money than it actually does. When it comes to liabilities, private pensions are required to assume a conservative market return on their existing holdings in calculating the value of those assets toward future payments. According to people like Warren Buffett and the 20th century's record of returns, a reasonable rate of return would be about 6%. Yet CalPERS assumes a 7.75% rate of return, based on similar returns over the past 20 years (though it's only gotten a 4.3% return in the past 10). In other words, CalPERS is almost certainly assuming that the value of its assets will be exceedingly high when they're needed to pay retirees. And finally, when it comes to unfunded liabilities, private pensions are required to amortize these payments over a seven-year period. CalPERS, in contrast, amortizes them over a 30-year period, which pushes down the amount of each individual payment against these liabilities.

It's depressing enough that California's unfunded pension liabilities are now estimated at a half-trillion dollars. What's especially sad about Borenstein's analysis is that accounting for those liabilities in a straightforward way is probably politically unacceptable. As he points out, if CalPERS and other public pensions in California held to the same accounting standards as private retirement plans, the required payments would likely triple and devastate government budgets at all levels. Yet we're not so sure that that wouldn't be a better approach to continually whitewashing over the problem. Somehow we think the consequences will be much harder to accept when the money literally runs out.

Not Even Private Auditors Want to Touch Bell's Finances

When your city is engulfed in corruption as deeply as the city of Bell was, digging your way out can take time. As this report from the LA Times suggests, nothing is coming easy to the beleaguered Los Angeles County town these days.


Bell's new City Council is currently trying to find someone to do a thorough audit of the books its prior leaders thoroughly cooked. Yet after asking at least 30 private accounting firms for proposals for a new auditing contract, the city found no one was interested in the scrutiny that would come with taking on a basket case like Bell. As a result, the town has no budget for the upcoming fiscal year; it is believed to face a deficit in the neighborhood of $4.9 million, and may have only $100,000 in reserves by the end of June after officials like Robert Rizzo misappropriated over $5.5 million. The city has also contacted state controller John Chiang's office to ask for help in finding an auditor; since the controller conducted several audits of Bell's finances during last year's corruption investigations, they should be able to help. But this report is just another chapter in the grief that can come when you trust your government too much.

San Jose Offers an Example of How Redevelopment Agencies Waste Money

It's still not clear whether Jerry Brown will ultimately get his way and see the end of California's 425 redevelopment agencies. While the state clearly needs to stop wasting money on local-level political graft, the RDAs have proven remarkably resilient in the face of scandal after scandal. If you needed another reminder of why the RDAs need to go, fortunately we have one this week in the city of San Jose.

The San Jose Mercury News reports that Zanotto's market in downtown San Jose will be closing next month. Back in 1996, the San Jose RDA gave Zanotto's a $1.65 million loan to open its 14,000-square-foot gourmet grocery on Second Street downtown; at the time, everyone hoped that the market would have customers in droves as people moved into new residential highrises nearby. Unfortunately, this scenario never quite materialized. The dotcom bust and the slow economy that followed led to the market closing temporarily in 2003. It reopened with a restructured loan in 2004, and finally began turning a profit in 2006, but the good times didn't last. A newly wobbly economy coincided with the RDA's 2009 decision to subsidize (via a loan of $1.85 million for a massive parking garage) a new Safeway store just a half-block away. For Zanotto's, this was the last straw.

Moving forward, Zanotto's will be opening a downsized deli on First Street, and its other markets in San Jose will be unaffected. The city, unsurprisingly, will lose money on their decision to subsidize one business at the expense of a competitor that also owed them money. Which illustrates that RDAs can hardly be essential to economic development, if their understanding of economics is this poor.

Saturday, May 28, 2011

At Least Now We Know Something About City Employee Bonuses in Burbank

Today isn't the first time we've had occasion to write about the bonuses of city employees in Burbank. Earlier this month, the entertainment-business hub made news by refusing a public records request regarding the mandatory bonuses it gives its workers. Now, the Burbank Leader is reporting that the City Council is stalling a plan that would freeze bonuses to its highest-paid workers.

The plan would've suspended merit bonuses to city executives and managers, which would've been a nice thought for a city facing an $8.7 million hole in its budget. To be fair, the council also tabled a plan that could've given mid-level managers 25 more hours of vacation time, even if the proposal was only drawn up due to the possibility of salary cuts.

The Council is now directing city officials to explore alternatives to cuts in bonuses. One Councilmember offered the possibility of salary cuts equivalent to the bonus amounts, for example. Yet Councilwoman Emily Gabel-Luddy seems to be thinking more critically about the issue: "When the economy is bad, how can you even consider merit pay or bonuses, or whatever you want to call it?” Of course, this is a municipal government in Los Angeles County, so her question does kind of answer itself.

Two Unions Accept the Reality that Los Angeles is Broke

Last month we wrote about the four Los Angeles city unions that rejected Mayor Antonio Villaraigosa's call for concessions in contract negotiations. The same day they turned down the deal, which would have ended unpaid furlough days but cut salaries, Villaraigosa responded by imposing over eight weeks' worth of unpaid furloughs for the upcoming fiscal year. Well, the LA Times is reporting that two of these unions have reconsidered Villaraigosa's offer.

Gridlock.
The 5,500 city workers represented by the two unions, which include city clerks and security guards, will now avoid any unpaid furloughs, though they will receive a 4% pay cut and a temporary wage freeze, as well as trading off additional salary to have days off during Christmas week. A third union, representing about 300 workers, failed to ratify the contracts on the second vote; the other union, representing city attorneys, did not hold another vote.

The agreements help, but the city's budget is still tens of millions of dollars out of balance. Villaraigosa and the city council are pinning their hopes on being able to extract $41 million more from the police union, but that outcome is far from certain. Of course, given that everyone from police and firefighters down to librarians, landscapers, and zookeepers are unionized in Los Angeles, it's hard to feel that bad for the city's government. Bankruptcy under those circumstances is, after all, hardly an unexpected outcome.

One State Senator's Mission to Destroy California's Economy

The Contra Costa Times brings us the story of a freshman state Senator out to make a name for himself: Democrat Mark DeSaulnier of Concord is currently trying to push 32 bills through the Legislature. Lest you think this ambitious goal is about noble public service, DeSaulnier makes it pretty clear that making a name for himself is his primary objective: "A lot of lawmakers come to Sacramento and they are only interested in making home runs. I'm interested in singles, too." Unfortunately, many of his ideas would have terrible effects on the state's economy, and thus on the welfare of its citizens.

The Times clumsily tries to make these pieces of crap smell better by framing them in DeSaulnier's baseball terminology. The set of terrible bills it calls "home runs" includes SB 201, which would allow corporations the legal right to consider the societal and environmental impacts of business decisions without worrying about the fiduciary interests of shareholders. This sounds like an open invitation to corruption without consequences. Another bill in this group, SB 360, would tighten the already cumbersome regulations associated with sales of prescription painkillers, likely leading to greater harassment of chronically ill individuals and physicians. Finally, DeSaulnier's SB 575 would ban smoking in cigar bars and tobacco shops, a gesture meant clearly to target such businesses and violate their property rights along the way.

Which just goes to show: no one ever went down in history as a great leader by respecting property rights or human freedom.

U.S. Rep Wants Mandatory E-Verify for California

We were dismayed that the Supreme Court chose this week to uphold Arizona's law revoking a business's license if it's found knowingly hiring illegal immigrants: we don't like to think about the intrusions the government might visit on private businesses in the course of enforcing this law. But apparently Corona Representative Ken Calvert feels differently: he's pushing a law in Congress to mandate participation in E-Verify by all businesses in the United States, and is calling for California to pass such a mandate on its own.


E-Verify is a database program that allows employers to check the immigration status of potential hires. It is currently mandatory in some states and for firms that contract with the federal government. Of course, any errors in immigration data or delays in processing the paperwork of legal immigrants would be reflected in it, so it's likely to lead to harassment of innocent workers. And it's yet another regulatory burden for businesses (particularly those in California) that are having a hard enough time as it is.

California Assembly Takes Care of Highest-Paid State Workers. Again

Right on cue, today brings us another reminder of why California does not need five more years of higher taxes: the Assembly Appropriations Committee has killed Anthony Portantino's bill to freeze pay increases on state employees making over $150,000 a year.

This is at least the 8th time the Committee has stalled Portantino's bill, AB 7, which would apply to employees of the executive, legislative, or judicial branches of state government, appointees to state boards and commissions, and employees of the Cal State system. Portantino estimates that his measure would save the state $20 million against its budget deficit. (The Sacramento Bee doesn't say so, but the measure would also positively impact the state's unfunded pension liabilities.) The measure is opposed by representatives of California's large pension funds. We get tired of saying this, but keep this story in mind the next time someone in Sacramento tells you that California's budget can't possibly be cut any further.

Taxes, Taxes Everywhere!

According to the San Jose Mercury News, the lovely East Bay city of Richmond is looking to hike its sales tax next month. If a pair of city ballot measures passes on June 7, the city's sales tax rate would be an astounding 10.25%, the highest in the East Bay (hardly a business-friendly part of the country to begin with), with the extra revenue going to schools and services for low-income residents. Not to be outdone, the Santa Rosa Press Democrat reports that the city of Healdsburg is considering bumping its own sales tax up to 9.5%, which would bring it up to the level of the other highest-tax towns in Sonoma County. They may also raise the bed tax on hotels and B&Bs.; Unlike Richmond, Healdsburg just wants more money, and has no real plans for what to do with it. Which is nice work: at a time of recession, these two struggling towns want to implement the most regressive tax increase possible.

Friday, May 27, 2011

Wait, There's a Tea Party in Northern California?

Given the role it played in the 2010 Congressional elections, the Tea Party's absence in California politics is worth noting. So we were surprised to come across this story in the Bay Citizen, which describes an anti-urban-planning effort by a group calling itself the East Bay Tea Party.

The group is targeting the Sustainable Communities Strategy now being developed by the Metropolitan Transportation Commission and the Association of Bay Area Governments. The Strategy is a grand plan to reduce sprawl, car use, and pollution by encouraging housing construction in close proximity to mass transit and job centers, as part of AB 32's mandate to reduce greenhouse gas emissions to 1990 levels by 2020. The East Bay Tea Party opposes the effort on the grounds that it is biased against those who want to live in suburban areas and drive their own cars. And they're not being subtle about it. Its leader, a Danville realtor named Heather Gass, wrote an alarmist blog post saying that the plan suggested a future of "working at your government-assigned job on the bottom floor of your urban transit center village because you have no car and who knows where your aging parents will be but by then it will be too late!" Gass and 12 others also attended a public meeting last hosted by the two agencies last Tuesday, and turned it into a raucous affair.

While we're ambivalent about their tactics, and we're not convinced that the Tea Party is a particularly libertarian movement, we have to appreciate the fact that an alternative is emerging to the boilerplate liberal agenda that dominates political discourse in the Bay Area. And for what it's worth, we agree with the sentiment that livable communities are about choice, not about the choices that a statist elite want to force on everyone else.

Awful Internet-Privacy Bill Dies in California Senate

A couple weeks ago, we wrote about state Senator Ellen Corbett's proposal (known as SB 242), which essentially would have destroyed web-based social networking in order to save it. Specifically, the bill would have required any website that allows users to create a publicly-viewable profile to force them to choose all their own privacy settings. This would make sites like Facebook cumbersome for new users, who would likely either opt for the quickest (and least restrictive) settings possible, or give up on the site entirely. Unsurprisingly, firms like Facebook, Twitter, and Google were opposed to the legislation, with Facebook being its most outspoken opponent; if you're wondering, the California Chamber of Commerce did include it on its list of job-killing legislation this week. Well, today brings us the good news (courtesy the San Francisco Chronicle) that the bill died in committee, although Corbett plans to bring it back for debate again next week.

As we said in our original article, we think concerns about the privacy practices of firms like Facebook are legitimate. But this is a problem begging for a free-market solution, rather than the blunt instrument of extermination by the government.

Cal Watchdog Agrees With Us on SB 653

Last month we began writing about SB 653, Darrell Steinberg's crafty proposal to allow county governments to implement a wide array of tax increases. Because the bill specifically targets private businesses, the move is widely viewed as a ploy to get these businesses to pressure Republican lawmakers to go along with the state-level package of tax increases now being pushed by Democrats in Sacramento. Insofar as the bill would reduce local governments' dependence on state government and encourage people to vote with their feet into lower-tax counties, we wouldn't be all that upset if the Republicans called Steinberg's bluff on this. And apparently, John Seiler at Cal Watchdog agrees with us.

In a blog post titled "Local Tax Hikes Would Split CA", Seiler makes essentially the same argument. "Well, just let Democrats pass SB 653 into law. At this point, I don’t care. I live in Orange County, which would rebuff any local tax increases. So would most Republican areas." The tax increases would likely be focused in places like San Francisco, Los Angeles, and Sacramento, which would lead successful businesses and entrepreneurs to flee those areas for more welcoming counties. This would thus erode the tax and voting base of the Democrats over time. Seiler, unfortunately, doesn't follow this through to its final implications: with localities able to raise revenue independently of Sacramento, it would be harder to justify increases by threatening cuts to services; and local governments would have a more difficult time raising those taxes against the will of residents, insofar as local officials are inherently more accountable than state-level ones.

Nevertheless, we agree with the general thrust of his argument. Republican legislators should call Steinberg's bluff and keep resisting Jerry Brown's tax proposal. As we said before, Free County Project anyone?

Yogurt Wars: One Family's Struggle Against California's Nanny State

The British news magazine The Economist has the tragicomic story of Homa Dashtaki, an Iranian immigrant in Orange County who attempted to start a gourmet yogurt business with her family. If you've been wondering why so many people think California is an awful place for private business, this story is for you.

The story begins with Dashtaki's father, who brought with him to California a traditional and delicious recipe for yogurt. Homa had the idea of turning the yogurt into a small business: preparing it painstakingly in a rented space in an Egyptian restaurant's kitchen, and selling it in small quantities at local farmers' markets. While it lasted, Dashtaki took in about $300 in revenues every week, not quite enough to see any profit. And yet, while she spent a year getting all the required permits from Orange County, she was unaware of another source of red tape, the California Department of Food and Agriculture's "milk and dairy food safety branch", who recently threatened her with prosecution if she didn't stop selling the yogurt. When she started doing research to form a response to CDFA, she discovered just how thick that red tape was.

For one thing, the rules regulating sales of yogurt date back to 1947, and have only been modified in the case of soft-serve or frozen yogurt. As such, the regulations all assume that regular yogurt is made from raw, not pasteurized milk. Dashtaki, however, was making her yogurt with pasteurized milk, and even produced the gallon jugs containing the milk, which were purchased from an approved grocery. If you think that would've been enough for the state to grant her a waiver, well, you clearly don't understand regulation in California. Dashtaki was instead ordered to set up a "Grade A" dairy plant, which would include a pasteurizer "with a recorder", a culture tank, and a filler with a mechanical capper to screw on jar lids. To cap it off, the inspector agreed with her objection that changing the manufacturing process would ruin the taste of her father's yogurt. Soldiering on, she then discovered that the inspector's order conflicted with another CDFA regulation against re-pasteurizing milk; so she would've needed an exemption from this rule to comply with the first one. Her proposal to label the yogurt containers "This product does not meet CDFA codes" was also shot down.

At this point, Dashtaki is deciding whether to move to a state with less onerous regulations, or to give up altogether. In all, just another day at the office for California's job-killing bureaucracy.

California Senate Gives Itself a Gift: More Gifts

For California legislators, there will still be a Santa Claus.
Worried that the judgment of your elected representatives in Sacramento might be compromised by special interests who wine and dine them, give them free tickets to concerts and sporting events, and pay for their vacations? Well, rest easy: the people receiving these gifts aren't worried at all. According to the LA Times, a Senate committee has killed a proposed measure to ban such gifts to legislators.

The committee cited SB 18's enforcement cost as the primary reason for scuttling it. The estimated cost was $204,000, less any fees collected; in other words, the total cost would be less than what Sacramento typically wastes in a morning. As such, its failure suggests an unwillingness to live by principles of transparent government, as well as a contempt for a voting public that despises the Legislature these days.

California Assembly Opts Out of Secure Communities

Thursday was an exciting day in California's Assembly, as legislators debated and then approved a bill to opt out of the federal Secure Communities program.


Secure Communities is a program run by the Immigration and Customs Enforcement office of the Department of Homeland Security. It requires local law enforcement agencies to fingerprint anyone suspected of residing in the United States illegally, and to turn over anyone with uncertain immigration status to ICE agents. As we discussed last month, the program's successes in deporting illegal immigrants with criminal backgrounds have been offset by its harassment of non-criminals and (in some cases) legal immigrants. More generally, requiring local police to arbitrarily detain and deport anyone constitutes an uncomfortable step backward in immigrants' right to live peacefully (and legally) in the United States. Jurisdictions around the country, including the city of San Francisco, have begun opting out of it. After the passage of Tom Ammiano's AB 1081 yesterday, law enforcement agencies throughout California may now opt out at their discretion.

Thursday, May 26, 2011

Straight Outta Compton: Possible Insolvency

Pour out a 40 on the curb, Dre: the LA Times is reporting that the city of Compton is facing potential insolvency as it grapples with a $25 million general fund deficit without any reserves. Layoffs are likely, but this is yet another case in a troubling trend of municipal insolvency in Los Angeles County.

A Slow Day at Golden State Liberty

We're traveling today and our laptop is low on battery. So our posting might be spottier than usual until tomorrow.

Wednesday, May 25, 2011

Oceanside Residents Fight Economic Reality

The San Diego Union Tribune reports today on the interesting dealings going on in the north county: the town of Oceanside is trying to abolish its rent control policy in mobile home parks. While City Council has approved the measure, some residents are fighting to have the policy repealed or, at a minimum, put before voters.

According to the "vacancy decontrol" policy passed by the Council last Friday, the rent of a mobile property being sold or vacated cannot be set by government fiat. The renters, of course, respond that this lowers homes' resale value and makes their financial future less certain. A resident of one mobile-home community, Barry Mylar, says, "I’m going to need that income to go into assisted living, but the writing’s on the wall for me. We came here because we so desperately needed the rent control. It scares me to death. It’s not only me being out on the street, but my wife would be out there, and we can’t let that happen." Other residents are planning to contact people who live outside these communities, in order to target the three Councilmen who voted in favor of the new policy. Many accuse these particular members of pursuing the policy on behalf of developers who want to turn the mobile-home communities into condos and apartments. (To be fair, Jerome Kern, Gary Felien, and Jack Feller have all been supported politically by local developers.)

While we're certainly sympathetic to folks like Mr. Mylar, the fact is that abolishing rent control would only be a good thing in Oceanside. It would mean more space being rented, which would doubtless benefit the mass of people who can't afford to live in an otherwise delightful town because they're priced out of any place that's not controlled.

Vernon Tries to Appease its Tax-Hungry Critics

We haven't heard from the tiny Los Angeles County city of Vernon for a while. At last count, the California Assembly had approved a bill to allow the town to be swallowed by LA County for the benefit of the political elites there. Well, the LA Times reports that the City Council will consider a sweeping reform proposal tomorrow that's intended to demonstrate its commitment to fighting corruption.

This logo not coming soon to a non-city near you.
The plan would slash the salaries of City Council members down to $25,000 a year, and reduce their medical benefits; the salaries of other top city officials would be capped as well. The oversight of all city-owned residential property would be shifted to an advisory committee with one Council member, two residents, three owners of local businesses, and one local worker. Finally, Council members would be subject to term limits. Opponents, of course, view the proposals as cosmetic. John Vigna, spokesman for John Perez (the Assembly Speaker leading the effort to disincorporate the city), said, "This is just another example of Vernon saying or doing anything to protect their corrupt status quo." We're guessing the irony of this statement, coming from a California Assemblyman's mouthpiece, was lost on Vigna.

We're not expecting this proposal to have much effect on the push to disincorporate Vernon, for the simple reason that the push to dissolve the city has nothing to do with political corruption. Perez is only moving on this because Vernon's businesses produce a large chunk of tax revenue, and constitute one of LA County's few centers of productive enterprise. Unfortunately, people like Perez's cousin Antonio Villaraigosa want that tax revenue, and aren't concerned that the disincorporation would cause many of those productive businesses to close up or leave California.

Budget Crisis Averted! California Democrats Propose More Spending. Again.

We couldn't believe this headline until we'd read the article the whole way through. We go on and on ad nauseum on this blog about how California needs to embrace drastic spending reductions as a way to avoid its semi-annual budget deficits. Indeed, this is one of our biggest reasons for opposing Jerry Brown's proposal to extend California's income, sales, and other taxes for five more years: there's simply no reason for anyone to believe that that money won't disappear down the rabbit hole just like all the other dollars we send to Sacramento. Well, right on cue, here are Sacramento's Democrats to prove our point.

Keeping in mind that (a) California's budget is still not balanced, (b) no deal is in place to pass tax extensions that would do so, and (c) there's no back-up plan for balancing the budget should that deal fall through, Democrats in the Assembly are already thinking of new ways to spend the $6.6 billion in unexpected tax revenues. Specifically, they want to use the money to reverse cuts they agreed to in March: one Assembly committee is already debating a proposal to reverse the $440 million cut to state-funded child care, and another has already voted to restore $86.3 million in welfare payments to children. Others want to direct $550 million more to K-12 schools and community colleges, even though their funding hasn't been cut as yet, and also hope to restore at least some of the $1 billion cut from welfare-to-work programs.

Just consider this today's little reminder that Sacramento has yet to take the state's fiscal crisis seriously.

San Francisco is not Unique: Santa Monica to Vote on Male Circumcision Ban as Well

Apparently busybody liberals in California have a new preoccupation. We noted last week that an activist group in San Francisco had succeeded in getting a measure to ban male circumcision on the city's November ballot. At the time, it seemed like a somewhat amusing invasion of privacy and yet another embarrassing moment of nanny-statism for California. However, today brings us news that San Francisco is not alone: apparently the same group of activists has gotten their ban measure on the ballot in the city of Santa Monica.

As in San Francisco, the measure would make it a misdemeanor crime, punishable by a fine of $1,000 and up to a year in jail, to perform circumcision on any male aged 18 or younger. No exemptions for religious practice would be permitted. And as in San Francisco, the local Jewish community is fighting the measure, calling it an infringement on their religious practice. In any case, the arrogant paternalism of ban supporters is already becoming nauseating. Santa Monica activist Jena Troutman had this to say about the related issues of hygiene and transmission of sexual diseases: "If you raise your child to be smart and practice safe sex," circumcision is unnecessary. "If you're raising a dumb kid who won't use a condom, then go ahead and cut off two-thirds of his nerve endings and one-half of his penile skin." Well, except that you want to take away the parents' right to decide the best interests of their child, because you think they should suffer if they don't behave in a way that's acceptable to you.

The End of Property Rights in Salinas

We've written a lot about California's 425 troubled redevelopment agencies, which Jerry Brown wants to wipe out as part of his plan to balance the state's budget. Given the long history of corruption, cronyism, and eminent domain abuse from these agencies, you'd think they might be trying to keep a low profile while Sacramento decides their fate. In the Monterey County town of Salinas, that is apparently not the case.

According to this article in The Californian, Salinas is planning to expand the city's redevelopment area from 6% of the city to almost a third of it, and to subvert the laws governing RDAs to do so. Their targets include an open agricultural area in the middle of town called Carr Lake (which they want to convert to parkland), a developed stretch of Market Street, and some stretches of Main Street and Alisal. In the case of the Alisal property, Salinas is looking to reinstate the eminent domain authority of its RDA. While it might be able to make an argument that the Main Street and Alisal properties are suitable targets for redevelopment, Carr Lake in no way meets the definition of blight, nor does it have serious infrastructure needs. In other words, while its conversion to a park would enhance the value of surrounding properties, redevelopment would require stretching the law to the point of being unrecognizable. The Market Street property, as well, would seem to stretch the law significantly; some of its properties are vacant, but that's more likely a feature of the weak local economy than "blight". You've got to admire the nerve of the redevelopment folks in Salinas, but our guess is that they've chosen a poor moment to return to business as usual.

This Day in California's Green Jobs Delusion

Today's example of comically uncritical acceptance comes courtesy of Rick Daysog and the Sacramento Bee: in this piece, Daysog parrots the absurd claims of Next 10 (a non-profit organization dedicated to promoting renewable-energy technologies) regarding the economic benefits of tougher fuel economy standards. According to Next 10's latest analysis, the new standards will create 236,000 jobs in California by putting more electric, hybrid, and otherwise-efficient cars on the road.

Where they get this figure is unclear. The California Air Resources Board, the EPA, and the National Highway Traffic Safety Administration are currently working on standards that would apply to cars built between 2017 and 2025, but they won't announce their recommendations until September; the agencies are said to be considering rules that would cut emissions by 3%-6% per year. Next 10's argument is, essentially, that fuel efficiency creates other economic efficiencies: according to the report's author, Berkeley professor David Roland-Hurst, "Efficiency fuels growth by saving consumers and businesses money and allowing them to spend it on things they really want." Just another nugget of brilliance from the "experts" in academia.

Let's look at what they're leaving out. For one, the savings associated with using a more fuel-efficient car evaporate if you relax Next 10's assumption that gasoline will cost $4 a gallon for the foreseeable future. Even setting this aside, it's not clear that electricity prices won't be just as volatile as gas prices in the future: if the state shuts down nuclear power and its various green-energy boondoggles don't pan out, it could experience skyrocketing electricity costs. How this would be anything other than catastrophic for economic growth isn't clear to us, and having half the state driving electric cars wouldn't help. Next 10 also assumes that people are willing to account for hypothetical future savings in purchasing very expensive cars; the Chevy Volt goes for roughly $40,000, making it far more expensive than any car we've ever owned. Moreover, since carmakers will likely need to devote considerable resources to developing cars that comply with the new mandates, and will likely pass the costs onto consumers, the mandates will almost certainly make all new cars more expensive. The report also doesn't mention the lost productivity associated with driving less-powerful cars and trucks. And don't get us started on the massive investment in charging stations that would be required to enable widespread adoption of electric vehicles; these costs would almost certainly be paid by taxpayers. All of these things will be a drag on economic progress.

Sacramento Continues to Prosecute the War on California's Economy

We've been meaning to comment on this piece from Katy Grimes at Cal Watchdog, which describes a slew of bills the Assembly passed last week. All of these bills would make life even more miserable for private businesses in California, mostly through financial penalties and new mechanisms for enforcement by cash-starved state agencies.

First up is AB 22. If passed, this bill would prevent employers from using credit reports to screen job applicants. While most instances of shaky credit can be easily and innocently explained, there are people out there with mountains of debt resulting from a long history of bad financial decisions, and if you're hiring in areas like banking and accounting, you'll certainly want to know this. This is following by AB 325, which mandates bereavement leave; another mandate is just another reason for employers to think twice about hiring. And, of course, we have AB 551, which increases the penalties assessed to contractors and subcontractors who fail to pay the prevailing market wage on public works projects. In other words, it strengthens labor unions by adding a financial incentive to increased enforcement. Finally, there's AB 818, which requires the owners of apartment buildings with at least five units to provide recycling services and containers; this will either cause rents to rise or fewer apartments to be rented.

Next is AB 688, which would prohibit retailers from selling expired baby food, formula, or over-the-counter medicines. While you can debate the health benefits of this legislation, the real beneficiaries would be trial lawyers, who will have a glut of new opportunities to sue small pharmacies and markets. Then we have AB 246, which bolsters the state's ability to prosecute water polluters. Since water code violations are always hazily defined, the law may ultimately be used to broaden the definition of pollution, and will certainly be another boon to trial lawyers.

Not to be outdone, the California Chamber of Commerce released a list today of 28 Assembly and Senate bills it considers job-killers. AB 22 and AB 325 made this list, which is divided into five broad categories:
1. Costly Workplace Mandates. This group includes AB 22 as well as Darrell Steinberg's "card check" bill (SB 104), and includes an inflation-indexed minimum wage and new regulations on worker's comp and employer rights.
2. Economic Development Barriers. This includes Steinberg's SB 653 tax bill as well as a long, long list of other tax increases. It also includes AB 350, which would make it more difficult for contractors to fire employees, and a proposal to prohibit the use of cost-effectiveness criteria to evaluate alternatives to AB 32's cap and trade program.
3. Employee Benefit Mandates. This includes AB 325 and two other proposals to mandate benefits.
4. Expensive, Unnecessary Regulatory Burdens. This includes the health insurance rate regulation bill as well as proposals to ban polystyrene food containers, to mandate an unrealistic drop in petroleum fuel consumption, and to micromanage web-based businesses.
5. Inflated Liability Costs. This includes four bills that would disrupt the functioning of courts and expose technology companies to unlimited civil liability.
In other words, that's a nice economic recovery you've got there. Sure would be a shame if anything happened to it.

Reducing Prison Overcrowding Not as Easy as It Appears

The LA Times helps us out today by stating the obvious about reducing overcrowding in California's prisons: the problem is largely a self-inflicted one, and absent changes that address the underlying causes, the prisons are likely to fill right back up even after the state releases thousands of inmates.


The simple fact is that tough sentencing laws, recidivism, and broken budgets have a lot to do with overcrowding and inadequate medical care. First, there's the three strikes law: about one in four inmates are serving long sentences (many at least 25 years) for second and third offenses that would be punished far less severely if they were first offenses. In many cases, these are people convicted of low-level and nonviolent crimes. Second, 70% of paroled inmates end up back in prison, sometimes serving life sentences for similarly trivial offenses; according to Stanford law professor Michael Romano, some inmates are doing life for stealing $2 in socks or a single pair of $20 work gloves. Compounding this problem is Jessica's Law, which makes it difficult for a released sex offender to live in a large city without violating a condition of parole. And finally, the state's chronically broken budget doesn't have room for substantial prison construction. Even Jerry Brown's plan to shift thousands of low-level offenders to county jails could fall apart, as the Governor has no solid plan to pay for them.

While we're sure that any debate over sentencing and parole policies would be highly contentious, the recent Supreme Court ruling likely means that avoiding that debate is no longer an option. While we'd offer ending the three-strikes law, drug decriminalization, and the shifting of low-level offenders to local jails as three possible steps toward reducing the crowding issue, it's clear that this problem will not go away absent difficult choices.

California Budget Expected to Keep Growing, "Austerity" Aside

To hear the wailing coming from public employee unions and Democratic lawmakers these days, you'd think that the era of big government was well and truly over in California. Yet according to Wyatt Buchanan at the San Francisco Chronicle, you'd be mistaken: in spite of the state's troubled economy and bloated spending, the general fund budget is expected to soar from $88.8 billion to $112.5 billion in the next four years. In the next year alone, Jerry Brown is proposing a $12 billion increase in spending, the largest year-on-year increase in the state's history.

Hmm, should we spend more money moving forward, or a lot more money moving forward?
Given that government at all levels in California has been shedding employees, you might be tempted to ask what gives? Well, the planned budgets don't include dollars to restore those jobs. Per Prop 98, over half of the new dollars will be spent to massively hike funding for education at the K-12 and community college levels. Brown is also anticipating a large increase in Medi-Cal spending. California is also expected to sell $20 billion worth of bonds, thus increasing debt service, and to spend almost a billion more on prisons. The rest of the spending hike comes via accounting maneuvers intended to increase the amount of federal money the state claims.

The rationale for boosting government spending, apparently, is the belief in Sacramento that the economy is on the mend. In other words, Brown and others see the unexpected $6.6 billion in tax revenues as a call to get back to business as usual. And while not everyone is on board with the idea (state Senator Bob Huff is pushing for a spending cap tied to rates of population growth and inflation), not even these folks are discussing an actual decrease in spending. To us, this is short-sighted foolishness on a grand scale. For one thing, it's generally conceded that the revenue surge is attributable to capital gains realized by the state's wealthiest residents. Given the one-time nature of these gains (i.e., rebounding from the historic collapse in equities markets in 2008-09) and the general volatility of investment income, it's by no means certain that the upward trend in revenues will continue. Since the overly-progressive features of California's tax structure aren't going away any time soon, it would seem that reducing spending is necessary to avert future budget crises. Moreover, given the ongoing economic troubles and uncertainty in most parts of the state, an awful lot is riding on the presumption that the current boom in Silicon Valley is more than an illusion created by the Fed's easy money, as well as the presumption that renewable-energy technologies will succeed in the absence of massive government subsidy. If either of these assumptions is wrong, the breezy optimism about the budget is likely to end in tears.

Tuesday, May 24, 2011

"Zombieland" California

We've been meaning to touch on this for a few days: in Sunday's Sacramento Bee, Dan Walters quoted California Lutheran University's William Watkins, who stated that California is "something like a zombie state, not quite dead, but certainly not vigorous, moving but with no clear direction." The implication being that, if the state's current economic conditions represent something worse than a transitory effect of the housing bubble's collapse, political leaders may need to embrace a radically smaller vision for California's government. As Walters puts it, "If California's destiny, at least for the next decade or two, is a semi-permanent economic stagnation, it will require governors, legislators and local officials to abandon their notions of temporary tax increases and short-term spending cuts and seriously downsize government at all levels." Which is, of course, what we've been calling for since we started this blog.

In this, of course, Walters is right on the money. Where he goes slightly awry is in writing, "Certainly if the rest of the nation emerges from recession and California is left behind with Michigan, Nevada and a few other economic basket cases, we'll know that we have fundamental competitiveness problems." Because, of course, the comparisons to Nevada and Michigan only make California look bad, and only underscore how dim the state's prospects are. As John Seiler points out at Cal Watchdog, both Michigan and Nevada are actually moving in the right direction these days by cutting taxes and spending. Which suggests that these troubled states will stand a better chance of recovery than California, which will seemingly never be satisfied until it's succeeded in stamping out all traces of personal freedom and economic growth within its borders.

Finally, a Pension Reform Proposal We Can Get Behind

Political Blotter reports that former Sacramento Assemblyman Roger Niello has gotten the Secretary of State's approval for his dramatic proposal to reform public employee pensions in California. Niello now has until October 20 to collect the 800,000-plus signatures he'll need to get his proposal on the November ballot.

And pure evil.
Niello's proposal would strip public employee unions of their right to negotiate pensions in collective bargaining sessions. It would also set the retirement age at 62, cap benefits at 60% of the employee's highest three-year average wage, and require that workers match agency contributions to their pensions. All of which we'd love to see. Of course, the Legislative Analyst and the Director of Finance estimate a positive impact on local and state finance, though even they acknowledge that reductions in government spending "would be offset to an unknown extent by increases in other compensation costs for some public employees, depending on labor market conditions and future decisions made by governmental entities." In other words, however much the public favors this measure, taxpayers shouldn't really expect to ever see lower taxes, nor should they expect anything by way of government services while they watch DMV clerks driving around in Bentleys.

San Francisco's "City Family" Declares Victory Over Insolvency

As we noted yesterday, today was San Francisco's deadline for submitting a pension reform proposal for this November's ballot. Well, the Bay Citizen reports that the deadline was met, as Mayor Ed Lee reached agreement with the city's unions and Public Defender Jeff Adachi on a reform proposal that represents months of consensus building. Unsurprisingly, there were kind words all around at the press conference announcing the deal. Investor Warren Hellman, who brokered the agreement, said, "This is truly a historic day for San Francisco," and called the deal a feather in the city's cap (really). The proposal now goes to the Board of Supervisors, and from there to likely approval in November.

There's only one problem we can find with the reform proposal: its savings won't come close to fixing the city's $11.2 billion shortfall in retiree benefit obligations. According to Lee, the proposal will save a total of $800 million to $1 billion over the next decade, with only $60 million in savings in the next fiscal year. Yes, this is the same Ed Lee who told us, back in February, that pension reform needed to save the city $300 to $400 million every year to avert bankruptcy. Of course, given that Lee has decided not to run in this fall's mayoral race, it won't really be his problem. Even more alarming, this inadequate plan doesn't have the support of the city's SEIU chapter. So there's a decent change that the "sacrifices" of public employees will be negotiated even further downward as the measure moves through the Board of Supervisors.

Will California Shut Down Its Nuclear Power?

Josh Richman at the Political Blotter reported yesterday on yet another effort to constrain energy supply in California: a proposed ballot initiative from Santa Cruz County activist Ben Davis Jr., which would shut down nuclear power plants in the state.

Specifically, the measure would require the California Energy Commission to certify the technologies employed at Diablo Canyon and San Onofre for disposal of nuclear waste and reprocessing of fuel rods. Neither plant would be allowed to produce energy until the Commission finished its findings, and the findings could be subsequently rejected by the Legislature. According to the Attorney General's summary, the proposal would likely have major negative effects on state and local finances, as it would lead to billions in new costs via electricity disruption and higher prices. It would also cost Sacramento a fortune to compensate utilities for investment losses arising from the shutdown. On the other hand, in the extremely unlikely event of a major nuclear accident, the proposal would end up saving the state a bundle in costs and lost revenues associated with site clean-up. Secretary of State Debra Bowen has given Davis approval to begin collecting petition signatures.

This isn't the first time Davis has tried to shut down nuclear power: in 1989, he drafted a successful petition to shut down a proposed plant near Sacramento. And his current project, filed on March 30, seems timed to take advantage of public anxiety arising from the nuclear disaster that followed the Sendai earthquake and tsunami in Japan. (Never mind that the Sendai quake was a once-in-100-years sort of crisis, that the forty-year-old plants withstood the damage far better than expected, and that the cost in human life is still expected to be minimal.) If we had to guess, though, we'd assume that the motives were even more nakedly political than the fear of nuclear winter. Since this is California, it's likely that crippling the competitors to solar and wind is a basic part of a strategy to promote those "renewables".

Let the Character Assassination of San Jose's Mayor Begin

Yesterday we wrote that Mayor Chuck Reed was about to gain national scrutiny for his tough approach to reining in San Jose's mounting pension obligations. Well, as reported in the San Jose Mercury News today, we were not mistaken: the local unions denouncing Reed have now been joined by labor leaders at the state level and at least one Democratic State Senator from Wisconsin.

According to Spencer Coggs, who was one of the Democrats who fled Wisconsin to prevent Governor Scott Walker from implementing a measure to reduce collective bargaining rights, Reed's proposal "pushes the nuclear option." Following that awkward mixed metaphor, Coggs went on to say, "Your mayor is saying 'My way or the highway.' He's trying to make public employees the scapegoat for the city's financial problems." We're not clear on why that makes it completely fine to ignore those problems, but okay. He was joined by Art Pulaski, chief officer of the California Labor Federation, who opined, "I'm here because we're shocked at the conditions the mayor of San Jose is trying to create." Both men spoke at a rally organized by the South Bay AFL-CIO Labor Council.

Once again, let's put all of this into perspective. San Jose has a staggering budget deficit of $115 million, and currently spends half its budget on paying retiree benefits. Under any realistic scenario, those pension obligations are expected to mushroom in the next few years, to the point that the city would have to drastically scale back its workforce and eliminate many services altogether. The impetus for Reed's proposal is to prevent San Jose from becoming a retirement fund that happens to have a City Hall, and which would be pretty unlivable for its working population. The unions' response to this, essentially, is denial. They don't accept that the current crisis is anything more than the result of a temporary market downturn. Which makes sense, of course: if you're collecting a six-figure salary and can expect to collect even more from your pension once you're 50, we can't imagine why you'd find a problem with the current state of affairs. We'll also reiterate that Reed is a Democrat; hence, this is not a question of partisan politics.

Monday, May 23, 2011

Another Day, Another Jerry Brown Rationale for Tax Hikes

The media are abuzz today with news of a Supreme Court ruling that California must reduce prison overcrowding by releasing approximately 46,000 inmates over the next two years (currently, the state incarcerates over 143,000 people). In a 5-4 decision, the Court ruled that the strains on the prisons' medical care system were creating a violation of the Constitution's safeguards against cruel or unusual punishment. (Reason's analysis of the ruling is here.) While we won't argue that prison overcrowding isn't a problem, we're still dismayed that Jerry Brown and others in California's government seem to be drawing the worst possible conclusions from the ruling.


Did the ruling, perhaps, lead California's leaders to ponder whether its three-strikes law, which leads to countless incarcerations of non-violent, low-level drug offenders, is related to its overcrowded prisons? According to this LA Times piece, not a chance. Commenting on Brown's plan to shift thousands of inmates to local jails, a spokesman for the Department of Corrections and Rehabilitation said, "Our goal is not to release inmates at all." So yeah, the plan is to shift the costs of housing these folks onto localities rather than address the underlying problem.

And what was Sacramento's reaction? According to the Sacramento Bee, the decision became, almost instantly, a new rationale for five years of tax increases, replacing the tired old "debt reduction" reasons that weren't going over well last week. Hmm; we can't imagine why no one was bringing this up before today. Does this mean that our "responsible adult" Governor had no plan for responding to this ruling while he was promising an all-cuts budget if he didn't get his tax increases? And more to the point, doesn't his promise to require voter ratification of tax increases only make the prisoner transfer more uncertain and difficult (assuming, of course, that the ruling doesn't turn into a reason for breaking that promise as well)? That is, assuming that the new call for tax increases is anything more than a craven attempt to bully the public into submission.

Something Cool that Probably Won't Be Coming to California: Competing Currencies

We were intrigued that the San Jose Mercury News, of all papers, chose to report this story: the state of Utah has passed a law to legalize the use of gold and silver coins as currency. The law will also exempt the sale of such coins from state and local sales taxes. Already the new law is drawing entrepreneurs: Craig Franco, who owns the Utah Gold and Silver Repository, hopes to make money by allowing people to store their precious metals in a vault and issuing debit cards that allow account holders to draw against their reserves. The states of Minnesota, North Carolina, and Idaho, as well as nine others, are exploring similar laws. We're going to go out on a limb and guess that California isn't one of them.

This is certainly an interesting development. Of course, given the mercy the federal government showed to Bernard von Nothaus, we'll wait and see whether the Federal Reserve and its allies in DC are really willing to tolerate competing currencies in the US. But we're very curious about growing skepticism towards the Fed's monetary policy, and the growing acceptance of alternatives to the use of green paper as money.