Friday, September 30, 2011

Coming Soon to California: Fewer Public Services, More Public Debt Service

One of the things that's always puzzled us about California politics is the sense that debt somehow equals free money. No matter how much elected officials might wax poetic about the need to spend tax dollars responsibly (remember how Jerry Brown told us back in May that he needed to raise taxes to take on California's "wall of debt"?), nothing gets them hot under the collar like the idea of issuing bonds to pay for new projects. These days, in spite of the perpetual $20 billion hole in our budget, we're told that the path to greatness and prosperity involves borrowing billions more to build a useless high-speed train from Los Angeles to San Francisco and a giant canal to bypass the Sacramento-San Joaquin Delta. While the purpose of these projects, transparently, is to throw more paychecks at the state's construction unions and environmental regulators, the bonded debt will ultimately be paid by California's long-suffering taxpayers. More specifically, the debt service on these bonds will be yet another item that Sacramento has to account for in its spending plans. And according a report in today's LA Times, that item is already consuming a non-trivial and growing portion of the state's general fund. According to Treasurer Bill Lockyer, debt service now consumes more than twice as much of the state budget as it did in 2003-04; this year, almost 8% of California's general fund, about $6.7 billion, went to paying off old creditors. To put this in perspective, the average debt per Californian is now $2,542; this is against a national median of $1,066 per person, keeping in mind that the Golden State's population is much larger than anywhere else in the country. We'd like to think that Brown and the Legislature will take Lockyer's warning seriously, and refrain from spending hikes that chain taxpayers to billions in interest payments. Unfortunately, we know better.

Thursday, September 29, 2011

California's Schizophrenic Economy Revisited

Back in July, we wrote about the schizophrenic character of California's economy. That is, while the unemployment rate and other aggregate statistics look absolutely ugly in the Golden State, the flood of venture capital dollars has created a far different existence in Santa Clara County and the San Francisco Peninsula. The soaring home prices in places like Palo Alto, six-figure starting salaries for software programmers, rising rents and hotel occupancy rates, and the absurd pre-IPO valuations of firms like Facebook and Twitter all suggest that Ben Bernanke's effort to breathe life into the nation's economy via money-printing is having an effect. Yet even as this has occurred, the unemployment rate in these places has actually gone up. Well, right on cue, Bob Wenzel clues us in on the fact that this phenomenon is starting to spread southward. Looking at the rate of absorption of office space in various parts of California, it looks like activity is picking up briskly the Orange County cities of Irvine, Costa Mesa, and Newport Beach, and in parts of San Diego County as well. In other words, even as the state's unemployment rate rose and Orange County lost jobs last month, the next bubble already looks to be picking up steam. To be followed predictably by the next bust.

Housekeeping Note: Golden State Liberty is Moving!

No, not to Texas. For job-related reasons, we're relocating our global headquarters (i.e., my apartment) from the ghetto to the wine country over the weekend. Somehow, we think we'll be happy with the move. But our posting schedule is likely to be sparse to non-existent over the weekend and into early next week, as we get ourselves situated and our web connection set up in our new digs. Not to worry, though. By mid-week at the latest, we expect to be back to our normal routine. Your patience and continued readership are greatly appreciated.

California's Budget Faces an Army of Lawyers

On Tuesday, we noted yet another ominous sign for California's beleaguered budget: the threat of a lawsuit from, of all places, the state's public school districts. Given that its assumption of $4 billion in magical revenues hasn't panned out, that it's $200 million short as a result of the agreement with Amazon, and that it's being sued by the state's redevelopment agencies, more bad news is probably not a good thing. Yet apparently the Golden State's legal professionals were just getting warmed up.

According to the Sacramento Bee, two new lawsuits are also coming soon to a state budget near you. First up, Arc of California and the United Cerebral Palsy Association of San Diego have announced plans to sue the state, in order to block the budget's 4.25% cut in reimbursements and 14 days in annual furloughs for programs that serve 250,000 developmentally disabled Californians. The plaintiffs' argument is that the state failed to properly evaluate the impact of the cuts, as required by federal Medicaid regulations. They also claim that the cuts violate California's 1977 Lanterman Act, which declares that the developmentally disabled have the right to live in their communities and receive rehabilitative services. We'll admit that we're not as familiar with the laws relating to these service cuts, but any black eyes that Jerry Brown and the Legislature get over them are well-deserved, given their unwillingness to cut more superfluous expenses elsewhere.

Second, you might remember the almost-certain insolvency facing the new Riverside County cities of Menifee, Jurupa Valley, Eastvale, and Wildomar. When the budget was passed, it called for Sacramento to raid local vehicle license funds in order to fund part of Brown's county realignment plan. This was terrible news for these newly incorporated cities, insofar as vehicle fees typically comprise a large chunk of a new town's budget. After failing to get an exemption from the raid via the Legislature earlier this month, the League of California Cities has stepped in, and is suing the state on behalf of these cities and a number of police departments. The League's director, Chris McKenzie, says he believes the budget is unconstitutional, presumably referring to Prop 22. This wouldn't surprise us, insofar as we (and others) made a similar observation back in July.

Jerry Brown, Pension Reformer

Back in April, Governor Jerry Brown released a little-noticed proposal for tackling California's out-of-control public pension liabilities. Part of the reason this attracted little notice was that it was half-finished; many of its proposals were rough outlines for things like a benefit cap and the introduction of "hybrid" defined-benefit/401(k) plans. One of the sketchy ideas called for "limit[ing] post-retirement public employment," better known as double-dipping. Today, we have a somewhat better sense of why Brown is having a tough time coming up with clear ideas of how to curb this practice: according to the LA Times, double-dipping is a big part of how the Governor does business.

According to the Times, since taking office nine months ago, Brown has appointed a number of retired government officials to state jobs that allow them to collect public salaries on top of their public pensions. For example, between her pension and the job Brown gave her on the Fair Political Practices Commission, Ann Ravel takes home over $300,000 a year. Robert Dresser, an appointee to the Unemployment Insurance Appeals Board, "earns" $234,000 in combined wages and pension payments. Ravel defended herself by playing partisanship: "The Republicans were doing it too." While this is true, it's beside the point. We applauded Brown for pushing to abolish many of these state commissions back in April, and lambasted the state Senate for killing legislation to abolish the six-figure salaries commissioners get. While people like Dresser and Ravel might wax poetic about the public service they provide by serving on these boards, we have to stress that they receive lucrative salaries in return for almost no work. Dresser, for example, gets $132,000 for sitting on a Board that met just 14 times all of last year. In other news, California's government is inexplicably out of money.

Wednesday, September 28, 2011

Pension Reform Jeopardized in Los Angeles

It's a sign of the times that pension reform is even a topic of discussion in Los Angeles, insofar as Antonio Villaraigosa has run America's second-largest city as a full-employment program for organized labor in his time in office. Yet LA's massive retirement obligations have made it unavoidable; this year, the City of Angels will give an astounding $769 million to people who don't work there. As such, Villaraigosa and the City Council moved this summer to rein in retiree health care spending by linking inflation adjustments in benefits to greater contributions from police and firefighters; basically, unless these folks kick in an extra 2%, their health care benefits won't increase with inflation. Unfortunately for the city's taxpayers, a legal opinion obtained by the city's Fire and Police Pensions board has concluded that the increases are guaranteed benefits that Los Angeles is obligated to cover.

For what it's worth, the mayor doesn't believe the pension board's arguments will stand. His labor relations committee has apparently obtained its own legal advice, and believes the city's decision is on firm legal ground. But representatives of Los Angeles' retired firefighters and police aren't persuaded, and want the pension board to overturn the benefit freeze. Yet with a majority of the board's members being Villaraigosa appointees, it's not clear that that's going to happen. As such, a lawsuit against the city might be in the offing.

Having the new policy overturned would be a disaster for the city's finances. According to administrator Miguel Santana, having to pay for the health care increases would create a $100 million hole in LA's budget. But taking a step back, the board's ruling is a setback for cities like San Jose, which is also wading into uncertain legal territory by proposing reductions in the retirement benefits of current employees. If this is the precedent that's set, insolvency could be heading to many more places than Los Angeles.

Berkeley's Affirmative Action Bake Sale Remembered

Last week, we wrote about the controversial plan of the College Republicans at UC Berkeley, who attempted to call attention to an affirmative action bill, SB 185, now awaiting Jerry Brown's signature. They proposed a bake sale on Sproul Plaza at which the prices would depend on the customer's race and gender; ethnic minorities and women would pay less. The Facebook post announcing the event was greeted with threats and vehement criticism, as well as pushback from other student groups and University leadership. Well, the bake sale went forward on Tuesday; though there was heavy protest, there were fortunately no violent incidents. Thankfully, the Daily Californian was on scene, and live-blogged the event. Some highlights:

  • As the College Republicans set up their table at 9:45 am, there were more media and police on hand than actual attendees.
  • When the sale began at 10 am, political science professor Wendy Brown tried to buy all the goods at the table, but wasn't allowed to do so. "I thought the Republicans were free enterprise, but they won’t let me buy all the cupcakes." Because, after all, the point of a sale at which prices vary by race and gender is clearly to make money.
  • By 10:30, BAMN and other protesters had arrived. By 10:34, people were already missing the point. "If (the Berkeley College Republicans) were serious about the issue, they would have done something serious," said Elia Kritz. "I think this bake sale is pretty counter productive," said junior Byron Hunt. "They could have sent their message without causing such a controversy." Um, the College Republicans were trying to draw attention to a controversial issue. A non-controversial way of "sending their message" would've been ignored.
  • At 10:46, the University's Vice Chancellor for Equity and Inclusion, Gibor Basri, spoke to the crowd. The fact that Berkeley has such a position should tell you how desperately needed the bake sale was. As did Basri's words: "We’d be ready for race blind admissions if, when you looked through the K-12 system and the academic performance indexes for the different races, you saw no correlation. Currently we are not there." Note #1 to Basri: you can't legislate outcomes. Note #2 to Basri: more racial discrimination is not a good solution to racial discrimination.
  • Just before 11, BAMN lined up across from the bake sale table and a number of conservative students protesting SB 185. Their attorney shouted into a megaphone, "They have not answered [the] opposition or called for debate."
  • At 11:21, the protesters began chanting slogans like "It’s our duty to fight for our freedom," "We have nothing to lose but our chains" and "It is our duty to win." So, not getting preferential treatment from an elite university's admissions committee = slavery. Good to know that Berkeley students in no way lack perspective.
  • Also at 11:21, a former Berkeley student named Andre Louis arrived to offer the first breath of sane air to the Plaza: "(UC Berkeley) demonstrates on a daily basis that it cares much more about politics, political correctness and demagoguery than either free inquiry or education, which is what I stand here defending. I don’t see how the means (of the BCR bake sale) are offensive. Satire is a much used and successful political tactic historically." Thank you for that, Andre.
  • Just before noon, a group of about 300 black-clad, silent protesters marched into the Plaza, and joined hands. As the carillon tower struck noon, they laid down on the bricks. Former UC Regent and Prop 209 architect Ward Connerly, who was in attendance, said, "I hope it’s comfortable for them." An upright protester near the bake sale table said, "The Republicans’ basic message is that people of color and women would benefit most from SB 185. But Governor Brown’s weak ass bill doesn’t even come close to making amends for hundreds of years of slavery and exploitation." Because it makes complete sense to punish anyone currently living for the slavery era.
  • At 12:28, BAMN was chanting directly in front of the Republicans' table. "Affirmative action is a must. We won’t go to the back of the bus" and "Hey hey, ho ho, this racist bake sale’s got to go." So, not forcing other people to the back of the bus means going to the back yourself? Anti-SB 185 protesters, in turn, formed a human wall around the table.
  • At 12:42, the head of the College Republicans gave an entirely reasonable response to the chants from BAMN: "[It’s] free speech. They have just as much of a right as us."
  • By 1:02, the bake sale was sold out. Around the same time, the protesters in black got up from the ground and left the Plaza.
  • At 1:48, BAMN representatives challenged the College Republicans to an affirmative action debate. Let's get it on!
  • By 2, the demonstrations had died down, though a lively discussion of affirmative action and other issues was taking place at the bake sale table. Mission accomplished. By 2:30, the Republicans had packed up their table and departed.

Tuesday, September 27, 2011

Livin' It Up at the Hotel . . . Fresno?

If we've learned anything from reading the pronouncements of California politicians, it's to run in the other direction any time we hear a spending initiative described as "risk free." Yet that's how Fresno Mayor Ashley Swearingen is describing a plan to use millions of taxpayer dollars to restore the Hotel Fresno downtown. "This is a significant project for downtown," Swearengin said Monday. "It says downtown is headed in the right direction. . . It's kind of difficult to even make the case that there is risk [to the project]."

We'll preface all this by reminding you all that Fresno is in the grip of a terrible recession, having seen its tax base devastated by the housing crisis and many businesses hit hard by the water crisis in the Central Valley. Moreover, the city has gotten itself in trouble before, throwing taxpayer money at such white elephants as Granite Park and the Metropolitan Museum. As such, you'd think its political class would want to keep a close eye on its money. But then, you'd be guilty of assuming the best of government. Like a lot of California cities (Sacramento, San Jose and Los Angeles come immediately to mind), Fresno's mayor believes that a revitalization of the downtown district will ultimately revive the city. At the heart of Swearingen's vision is a plan to turn the 1936 hotel into a mixed-use project with 72 apartments and ground-floor retail.

Since we weren't born yesterday, we have to ask how much this is going to cost. Well, the total is about $16.5 million. The developers, Romi Baghgegian and Jake Kojikian, have pledged $2.7 million of their own money, and the city council has approved a $1.9 million loan from the redevelopment agency. Swearingen also believes they'll be able to get an $11.1 million loan from HUD. The last piece in the puzzle, then, is $860,000 of federal housing money that needs to be allocated this week or returned to DC, which the mayor hopes the council will approve this week. She doesn't, apparently, see the danger in a building project that's almost entirely reliant on public dollars. Fortunately, City Council President Lee Brand is skeptical. Given the recession in the region, he thinks the developers are being overly rosy in their projections of the rents they'll get once the project is done. We would also add that a divided Congress trying to cut discretionary spending might not be as excited as Swearingen to make an $11 million loan.

Crony Capitalism and Union Jobs Defeat Environmentalism, 2-0

Normally, you'd think it was a great day for California libertarians if Jerry Brown announced the signing of two bills with the following statement: "We're going to protect the environment, but we're also going to do it in a practical way. There are too damn many regulations, let's be clear about that." Was this another glimpse of "not every human problem deserves a law" Jerry? You know, "libertarian" Jerry? Well, no. Once all the details of the story became known, it was obvious that this was another appearance by "union shill" Jerry.

Hey look! It's an environmentalist who'll vote for us no matter what!

A few weeks ago, we dropped the dime on the latest bit of crony capitalism worming its way through the California Legislature: SB 292, which granted exemptions to the California Environmental Quality Act to the developers of the Farmer's Field stadium in downtown Los Angeles, and AB 900, which extended this exemption to any development project with a pricetag over $100 million. Supporters of both bills say that they're about jobs, which seems suspect to us: projects like this, especially in cities like LA, are largely completed with union labor, and unions have hardly been suffering in the current recession. The biggest beneficiaries of these moves are likely to be the politically connected developers like AEG, the group building Farmer's Field. Losers would include small businesses, who have complained for years about CEQA, particularly the cost of litigating the frivolous environmental lawsuits that these bills will exempt the crony capitalists from. Not to mention, of course, environmentalists. Yet in spite of these concerns, Brown happily signed both bills into law today.

We're not sure what galls us more: the blatant crony capitalism, or the hypocrisy of Brown's signing statement. As we said at the beginning of September, either a law is a good idea, with benefits outweighing its costs, or it's not; as such, either everyone should be made to abide by it, or no one should. Instead of granting an exception to all California businesses, which would be, you know, consistent with his statement, Brown and the Legislature are essentially giving their union supporters work and lowering their friends' cost of doing business. Insofar as projects like stadiums nearly always fall short of financial expectations, it's likely that the CEQA exemption won't do nearly enough for jobs in the state as its small businesses and entrepreneurs could, if they could build anything without years of CEQA lawsuits to look forward to. As far as the hypocrisy goes, we'll look forward to the Governor delaying or granting exemptions to things like AB 32, or the requirement that 33% of the state's energy come from renewables. For that matter, we're sure he'll start vigorously opposing Obamacare any day now. After all, we really do have too damn many regulations.

Yet Another Challenge to California's Budget

Back when Jerry Brown signed California's latest budget into law at the end of June, we couldn't tell what was more laughable: the assumption that California's anemic economy would somehow serve up $4 billion in extra tax revenue, or all the provisions that seemed expressly designed to invite legal action. In the months since, we've seen we were right about both things. Tax revenues have fallen short of expectations, and lawsuits and ballot initiatives have already begun to push back against things like the revenue backfill from the redevelopment agencies, the Amazon Tax, and the new fire fee. And now another salvo is being fired at the budget from, of all places, the public schools.

According to the Sacramento Bee, a number of school districts, the California School Boards Association, and the Association of California School Administrators have announced plans to sue the state over the budget's "trigger cut" provisions. At issue is one of the more disgraceful acts the Legislature perpetrated during the budget negotiations: a last-minute gift to the teachers' unions, which came largely at the expense of the districts. The gift (better known as AB 114) essentially prohibited the districts from considering the trigger cuts in their financial planning for the year and removed mandatory county oversight, in exchange for a promise that the state would cough up $2.1 billion in new money next year. Yet the $2.1 billion was intended as a reimbursement for funding that Sacramento shifted away from education to pay for other plans, including the Governor's county realignment plan. In other words, the state is technically in violation of Prop 98. And it sounds like the schools aren't willing to trust Brown and Legislature to keep their word. We can't say we blame them: for any supporter of the goals of Prop 98, the precedent set by the original deal was awful. Insofar as temporary arrangements in California politics have an unfortunate way of becoming permanent, it's probably best that we get this challenge out of the way now.

The Solyndra Fallout Continues in California's Solar Industry

Perhaps unsurprisingly, the collapse of Fremont solar panel maker Solyndra and the ensuing scandal over the loss of half a billion dollars in taxpayer funds has had a chilling effect on the idea of trying to will a viable green-energy industry into existence by government fiat. With Congress considering freezing the loan-guarantee program that gave us the Solyndra disaster, the effects are already starting to trickle down in California, as two news items demonstrate.

First up, you may have heard that the Department of Energy, under fire for obvious reasons these days, withdrew a $275 million loan guarantee to SolarCity, a solar tech firm based in San Mateo. While this might seem like a problem for the company to deal with, renewable energy and government are so deeply entertwined that, according to the San Jose Mercury News, the hit to SolarCity's fortunes is actually a problem for the city of San Jose. You see, when he isn't trying to slash city workers' pensions, Mayor Chuck Reed is trying to implement his Maoist-sounding "Green Vision." One component of this vision is the installation of SolarCity panels at 28 sites owned by the city. Here's the problem: because San Jose is still flat broke, it could end up closing 23 of those sites, which include rooftops and parking lots in many of the city's libraries and community centers. As a result, the City Council will decide today whether to move forward with its agreement with SolarCity, under which San Jose will buy the power generated by the project for 20 years in return for the free installation and maintenance of the panels by the company. Somehow, this was supposed to save the city money over the life of the contract. Now, they'll have to decide whether the project is still worth pursuing if it means scaling back to just five sites, or installing panels on shuttered buildings. Trouble is, it might not be worth it to SolarCity.

Second, like a broken clock that's right twice a day, it appears that state Treasurer Bill Lockyer is making sense again. After raising some entirely sensible objections to the looming waste of money known as the California High Speed Rail project, Lockyer is now calling for freezing the state's tax credits for renewable-energy programs. This is less than surprising in light of the Solyndra scandal, insofar as Arnold Schwarzenegger was happy to throw $34.5 million at the company through this program. Since the Fremont company went under, it's apparently occurred to Sacramento that they might want to do a small bit of due diligence before offering these tax credits again. Better late than never, right?

Not Even Declaring Bankruptcy Will Make the Mendocino Coast Recreation District Solvent

Last month, we wrote about the Mendocino Coast Recreation and Parks District, which is threatening to become the next California municipality to declare bankruptcy. After incurring massive debts in the construction of its Regional Park, the district is essentially relying on a fundraising effort to close a $600,000 budget hole. As a result, they've begun exploring their options for a Chapter 9 filing. Yet those options, if you can believe it, might not get the district anywhere close to financial health.

According to the Santa Rosa Press Democrat, Chapter 9 might help Mendocino Coast to get rid of $182,000 in annual payments on its Regional Park debt, but this wouldn't close even a third of its expected annual budget deficit moving forward. Put simply, the district still plans to spend way, way more money than it expects to collect, mostly on its hopeless boondoggle of an Aquatic Center. The 42,000 square-foot, $24 million Center, which opened last year, has swallowed the district's general fund, and has only stayed open because private citizens have donated more than $200,000. At this point, we'd suggest they consider selling the Center to a private operator, but there are reasons we don't work in government: district officials are now exploring tax hikes to generate the $400,000 or so in additional revenues they need to avoid spending cuts. These include new property and sales taxes. Yet given that many residents thought the Aquatic Center was a horrible waste of money, it's not clear they'll be willing to give the hopelessly spendthrift district the benefit of the doubt.

Jerry Brown: No New Taxes Without Voter Approval. Well, Except for These

Has any campaign promise in recent memory given a politician more grief than Jerry Brown's 2010 pledge not to raise taxes without voter approval? Because of it, the Governor spent the winter and spring in a fruitless effort to sell Republican lawmakers and voters on a ballot measure proposing a five-year extension of higher income and sales taxes. Ultimately, of course, this promise was broken in May, when Brown proposed a so-called "bridge tax" to hold the higher rates in place via legislative fiat, with voters then "ratifying" the increase in November. And again in late June, when he signed into law a budget with new vehicle license and fire fees and a tax on online retailers. Just weeks ago, he broke the promise again by proposing a $1 billion tax on out-of-state businesses and a re-authorization of California's electricity surcharge. Well, today that promise is looking as worthless as ever, as the Governor has found two new ways of hiking taxes.

First up, the LA Times reports that Brown has signed AB 1215 into law. This bill raises the fees associated with processing auto purchases and leases to $80; for new cars, this is a $35 increase, while for used cars it's a $45 increase. Moreover, dealers will be required to run the VIN of any used car they purchase, and to place a red sticker in the window of any car that's been totaled, suffered some catastrophe, or been bought back via the state's lemon law. Insofar as services like Carfax already provide this information, we're not sure why any sort of consumer protection is needed here. Unless the collection of the fee is the real purpose. Surprisingly, AB 1215 passed the Legislature with strong bipartisan support. Looks like some taxes aren't a sexually transmitted disease to Republicans in Sacramento.

Second, apparently no doesn't mean no when it comes to that electricity surcharge. The Times reports that, having failed to get the Legislature to renew the fee, Brown is trying to bypass them. Now, he's turning to a regulatory agency whose members he appointed, the California Public Utilities Commission, to find a way to impose the tax without even lawmaker approval. The surcharge typically shows up as a $1 to $2 item on your electric bill, and goes to pay for things like retrofitting buildings for energy efficiency, green-energy subsidies, and research activities. According to a letter the Governor sent to the commission's chairman, "We cannot afford to let any of these job-creating programs lapse." Which makes sense, as long as you leave out the "job-creating" part. Put another way, if Brown really thinks this program is making a dent in the state's jobs crisis, there's a newly empty solar panel plant just up the road in Fremont that we'd like to sell him.

Monday, September 26, 2011

Steven Greenhut on Jerry Brown's "Libertarian Impulse"

We enjoy the writing of Cal Watchdog editor and Orange County Register columnist Steven Greenhut like that of few other columnists working today. As such, we really want to share the hope he expresses in his latest Watchdog piece, in which he urges California's Governor to heed his "libertarian impulse." We like where Greenhut is going with this, but we think he's reaching a little.

Greenhut makes clear that Jerry Brown is not to be confused with Ron Paul; on all the big issues, he's on the wrong side. He opposes meaningful reforms to public pensions, and is a paid employee of organized labor. He appears to believe that raising California's already crushing taxes are the cure for all its ills, and has only signed on to symbolic, ineffective cost-cutting gestures. But Brown has, admittedly, shown signs of being an independent thinker, capable of charting a course apart from the rest of his party, sometimes for the better. His effort to shut down California's awful redevelopment agencies was a move many libertarians welcomed, as was his veto of Darrell Steinberg's "card check" bill to ease farmworker unionization. He's also said many libertarian-ish things in recent weeks. In discussing the pile of bills sent to his desk this month by the Legislature, Brown said this: "A lot of what people think the governor does is consider new bills . . . and, unfortunately, that’s a lot of what I have to do, even though we have more laws than we need, many more laws than we need, we keep getting more. . . Every year, on average about 1,000 new laws are enacted, and most of the laws are solutions to the same problems. . . [I]t means that no matter how many solutions are provided every year, we have the same number of problems." And, of course, his veto of a bill to fine parents when their children don't wear skiing helmets contained the memorable phrase "Not every human problem deserves a law." For Greenhut, these are signs that Brown understands that paring back the size and intrusiveness of government are the key to fixing California's problems. He closes by saying, "Call me a dreamer, but there aren’t many options left."

Okay, Steven: you're a dreamer. We'll concede that Brown is more open-minded than almost any Democrat in California, and that he views a good bit of his colleagues' work as an exasperating waste of time. But you can believe that California has too many rules and regulations without believing in anything resembling personal or economic freedom. If we had to guess, we'd say that Brown believes as strongly as ever in the capacity of the state's centralized government to solve its economic woes, right its social wrongs, and clean its air and water whatever the cost. Silly laws designed to address "every human problem" do absorb Brown's and lawmakers' attention and distract them from tackling more critical issues. Yet nothing about Brown's approach to big issues is consonant with individual liberty. He followed his veto of the card check bill by embracing of a slightly watered-down version of the same idea. Even his more libertarian-ish actions, like wiping out the RDAs and devolving responsibility for low-level criminals to the county level, can be interpreted a bit more cynically, as attempts to raid local-government funds and make a tax-hike-less world look as unappealing as possible. More to the point, California needs more than a slight dose of liberty from its Governor, and there's no indication that Brown will offer more than a faint suggestion of it.

This Day in Vital Government Services: Settling Lawsuits with Fired Workers

As regular readers of this blog doubtless realize, we're spirited advocates of aggressively cutting the size of government, particularly the bloated ones in California. With poverty and unemployment on the rise, taxes at crushing levels, government throwing money at failed green-energy firms, and a massive bureaucracy strangling the private economy via regulations, the case for spending cuts at this moment is unassailable. But if you needed more of a reason to think the government isn't spending your money wisely, a pair of stories from Oakland and San Diego are here to confirm it.

Oh, the vital services that'll be lost if we cut government spending!
First up, the San Francisco Chronicle reports that the cash-strapped city of Oakland has devoted $1 million of the public's money to the critical government function of . . . defending its decision to fire two at-will employees in court. Back in 2008, then-City Administrator Deborah Edgerly and her assistant, Cheryl Thompson, were fired by the mayor for allegedly tipping off Edgerly's nephew, a convicted felon also working for the city, of a gang sweep by Oakland police. Both Edgerly and Thompson were at-will employees, meaning they could be fired without cause by the mayor at any time. Yet this didn't stop them both from filing lawsuits against the city, alleging sex discrimination and public corruption on the mayor's part. While the city felt initially that it could win both cases, it's already spent almost a million dollars defending itself, and has agreed to a $500,000 settlement with Thompson. Many on the City Council are upset about the settlement, insofar as it opens the door to future lawsuits from disgruntled employees and is far in excess of the $100,000 that Oakland could've agreed to earlier. We're sure the city's taxpayers will be thrilled to see their money spent this way.

Still, $500,000 is chump change compared to the settlement that San Diego just agreed to. Back in 2007, the city was under investigation for fraudulent accounting practices, and its credit rating was taking a beating; as such, it agreed to pay Axon Solutions Inc. $18.8 million to install a new software package to replace its fragmented and obsolete accounting systems. At that time, the completed project was expected to cost $36.6 million. Unfortunately, it doesn't look like due diligence was performed: after a series of missed deadlines, San Diego fired Axon in late 2008 and hired the software's manufacturer to complete the job. Ultimately the project ran some $15 million over budget. A year later, however, Axon sued the city, claiming it was owed almost $6 million in unpaid invoices. As in Oakland, San Diego figured that it would cost less to settle than to litigate the issue. So, San Diego's taxpayers will surely be thrilled know that $1.9 million of their money went to a firm whose spectacular failure wasted a great deal more of their money.

Brown on Brown: Willie Warns Jerry of Trouble Ahead

Willie Brown's latest rambling, fairly pointless column in yesterday's San Francisco Chronicle should remind us all of the dangers of flattering a politician with celebrity. We learn that giving half a billion dollars of someone else's money to Solyndra, even though we could've told him it was a bad idea, shows that President Obama is "snake-bitten." And we learn that Drive is more of a guys' movie. Nevertheless, he does have some interesting words of caution for another former Bay Area mayor, now-Governor Jerry Brown. Though the Governor has surprisingly strong poll numbers these days, the budget he signed relied on revenue projections that Willie calls "several billion dollars short of accurate." As such, the state of the budget will ultimately force him to pull the triggers and create more cuts. In the words of San Francisco's former mayor, "Brown is on the brink - and legislators are becoming concerned because they don't think he knows it."

With all due respect to Willie Brown, we still think Jerry knows what he's doing. It's not like the problems with the budget weren't abundantly obvious when it was signed. The Governor had to know that the revenue projections were absurd given the shaky state of California's economy, and he had to know that there was a decent chance that the plans for abolishing the redevelopment agencies and imposing new fees and the Amazon Tax were likely to be tied up in court. An honest balanced budget was never the goal; the goal was to use fee hikes and public service cuts to extort higher taxes out of voters, by making the alternative as painful as possible. Of course the trigger cuts will hurt, and will upset the public. That's precisely the point.

Sunday, September 25, 2011

The Orange County Register Considers Ron Paul

Over at the Orange County Register, Brian Calle takes up the question of explaining Ron Paul's commanding victory in California's GOP Presidential straw poll. Calle's portrait of Paul is less flattering than many libertarians would like; he repeats the assertion that Paul's victory was the result of heavy spending rather than a fair look at the opinions of California Republicans, and refers to Paul as being "like the crazy uncle" during the debates. But he is, in the end, trying to answer a serious question for the Register's largely conservative readership: how did a 76-year-old Congressman from Texas win the state party's straw poll in spite of significant antipathy from the national GOP and a number of policy positions (e.g., pro-drug legalization, anti-war, anti-crony capitalism) that are absolute heresy in Republican circles?

In general, Calle gets half of the answer correct. On one hand, Paul's support is consistently underestimated by publications like the Register; he may hold positions they consider hopelessly far from the mainstream, but his steady fundraising and broad support (especially among younger voters) usually translate into success at the ballot box. Yet libertarianism is an important part of the history of the Republican Party, and even Calle admits that it's where the GOP's future lies. Where he swings and misses is in failing to consider that the people not showing up are just as important in the results of elections (even in things like straw polls). After the Bush presidency and six years of Arnold Schwarzenegger, do the party faithful really expect large numbers of people to come out to support empty suits like Mitt Romney or Rick Perry? In other words, there's a reason why a guy like Paul can be star of the party's convention: increasingly, his ideas are the only ones that matter to anyone who dislikes California's Democrat-dominated politics.

Are Humans Reclaiming their Right to California's Water from Fish in the Delta?

If you live in the Central Valley, or you've driven through it on the 5 at some point in the past few years, you might be aware of the federal government's ongoing effort to create a generation of libertarians there. We're of course referring to Congress's 2007 decision to curtail 80% of water deliveries to farms on the Valley's west side, in order to restore the migration of salmon, smelt, and other fish through the Sacramento-San Joaquin River Delta. By any measure, this policy has been a horrendous failure: thousand of jobs have been lost and hundreds of thousands of acres of farmland idled in the Valley, contributing to the Great Depression-like recession there, wastewater from the urbanized San Francisco Bay has continued to suppress the Delta's fish population, and a recent report suggests that the long-term solutions being proposed (a canal or tunnel around the Delta) will end up poisoning the Bay. Fortunately for the forces of good sense, U.S. District Court Judge Oliver Wanger has water on the brain, and might be helping to re-assert the rights of humans against those of fish.

On September 16, Judge Wanger issued a blistering ruling against the federal government's request for a stay to preserve the so-called "X2" line at 74 km from the Golden Gate Bridge. This line, which marks the spot where fresh water and salt water are supposed to mix in the Delta, is used to determine how much fresh water is pumped through the Delta into the Bay. As such, the X2 effectively shuts off the water going anywhere else any time a drought in declared. In a dry year, this means that 300,000 acre-feet of water don't get down to the Valley or to southern California, enough to supply the city of San Diego; in a wet year, it's more like 670,000 acre-feet, enough to supply Los Angeles.

Given the stakes, you'd think that the state would want to be sure they were setting the line at the correct place. But Judge Wanger doesn't seem to think they have. In his ruling, the judge declared that the Interior Department's case for setting the line at 74 km had no scientific merit. What's more, he concluded that the scientists involved had acted in bad faith: "The only inference that the court can draw is that it is an attempt to mislead and to deceive the court into accepting what is not only not the best available science, it's not science. There is speculation." So, if you're a farmworker or small business owner put out of work by the artificial drought in the Valley, you probably won't be happy to learn that the government chose to destroy your livelihood for what a federal judge thinks is an entirely fictional line in a pool of brackish water.

GSL Movie Review: Moneyball

We don't write a ton of film reviews, but we just saw the new film Moneyball and felt it deserved a mention. The 2003 bestselling book, on which the movie is based, has captured the imagination of sports fans and Bay Area residents alike for years. As such, many of you may be asking: does Moneyball hit a home run, or just work a 14-pitch at-bat into a force-out at second?

Moneyball is more of a pure sports film than almost any other we've seen, so in a sense it's easy to dispense with the usual elements of rating a movie. Brad Pitt is generally okay playing Oakland A's general manager Billy Beane: if you've liked Pitt in other movies, you'll like him here; if you haven't liked him before, this won't change your mind. Jonah Hill is a delight playing Beane's assistant Paul dePodesta (called "Peter Brand" in the film): the brainy awkwardness he's brought to other films works splendidly here. The only miscasting is that of Philip Seymour Hoffman; we're big fans of Hoffman's work, but his turn as A's manager Art Howe is very weak. Otherwise, the human story in Moneyball (Beane's relationship with his daughter and ex-wife, and with various A's players and staff) sits on the periphery, beside the point. Because Moneyball is the story of an idea, not of the people involved.

The story's events concern the 2002 season of the Oakland Athletics. Following a 102-win season, star players including Johnny Damon and Jason Giambi left for bigger money in free agency, leaving Beane and the A's the task of rebuilding an elite squad with a fraction of the money available to teams like the Yankees, Red Sox, Dodgers, and Mets. On the face of it, the task was hopeless: in Giambi alone, the A's were trying to replace an AL MVP in the prime of his career with another player making far less money. That offseason, Beane and dePodesta turned to what became known as "moneyball." In contrast to traditional player scouting, which relies on skill fundamentals (e.g. a "pure" swing, throwing motion, bunting, power, running speed) and numerous "intangibles" to evaluate players, the moneyball approach relies on statistical analysis. (As a player, Beane was considered a can't-miss "five-tool" prospect by scouts, yet never distinguished himself on the field.) The basic idea, generally credited to baseball historian and Red Sox advisor Bill James, is to identify measures of player performance more closely correlated with run production and prevention than traditional statistics like RBIs, batting average, and ERA. By focusing on measures like on-base percentage and slugging percentage, the argument goes that a team like Oakland can put together Giambi-like run production by identifying lower-cost players with a demonstrated knack for getting on base. In other words, Moneyball is about discovering an innovative way of solving a problem. In a way, it's about entrepreneurship.

So, did "moneyball" work? It's not an easy question to answer. In 2002, the A's astonished the baseball world by winning 103 games, including an AL-record 20 straight, in spite of a (comparatively) low player payroll of $41 million and the unconventional approach of Beane and dePodesta. On the other hand, they were bounced from the playoffs in the first round, and haven't had a 100-win season since; they haven't even had a winning year since 2006. But is that the end of the story?

On one hand, the movie wildly oversells the "moneyball" idea. True, the A's did fill out their roster with players that other teams had overlooked or cast aside, and those players were a key part of a squad that ultimately saw playoff baseball. But the 2002 A's were hardly the Cleveland team from Major League. They had arguably the best starting pitching in baseball, with Mark Mulder, Tim Hudson, and Cy Young winner Barry Zito, and they had Jermaine Dye, Eric Chavez, and AL MVP Miguel Tejada. Remarkably, Moneyball makes almost no mention of their contributions. In contrast to what the film would have you believe, you do need great players to field a winning team; if you want to see what a low-payroll team without great players looks like, we hear there's still one in Pittsburgh. On the other hand, though, it's hard to call "moneyball" a failure. As the film notes, other teams have emulated Beane's approach and accomplished what the A's haven't. The Boston Red Sox have won two World Series since hiring James and incorporating sabermetrics into their approach to player evaluation. This year, the moneyballing Arizona Diamondbacks have won the NL West. Even teams like the Yankees have discovered the value of working long at-bats and getting on base. In the end, history might say that Beane's effort to change the game was too successful for his own good: with even big-budget teams playing moneyball, finding undervalued players has gotten harder than ever.

For us, "moneyball's" biggest flaw is the limits of statistical analysis. The avalanche of player metrics available, and the large numbers of games and at-bats in the baseball season, make it possible to identify particular metrics that correlate strongly with run production. But this approach has two problems. First is the assumption that empirical relationships observed in the past will hold in the future. Put simply, it's not safe to assume that any player will perform predictably from season to season. But the bigger problem is that statistical averages won't necessarily predict anyone's performance in a small number of games, and some games are just more important than others. An outstanding player can still have a terrible game at a terrible time; witness the epic stinkbomb in the first game of last year's World Series by Cliff Lee, a superlative pitcher by any standard. In other words, playing "moneyball" might get you the number of wins you expect, but it doesn't guarantee you'll win the games that matter most.

Saturday, September 24, 2011

Authoritarianism, LA Times Style

One of the things that never seems to change about politics in California is the bad news regarding medical marijuana. The heady, pungent-smelling days of 1996, when Prop 215 supposedly enshrined the use of pot for medicinal purposes into law, seem far away whenever the Obama administration declares its contempt for state law, or another city votes to ban dispensaries within its limits, or cultivation for medical markets is subject to raids by law enforcement. But the prospects for medical pot get even more bleak when you consider things like this editorial in today's LA Times.

The purpose of the editorial, as far as we can tell, is to undermine the recent study, conducted by the non-partisan RAND thinktank, which poked a hole in law enforcement claims that these dispensaries are magnets for crime. (Full disclosure: I have worked for RAND, though not on this study or with anyone involved in it.) The authors do acknowledge that the study isn't "completely without value," and point out that it undermines the strong claims of people like Los Angeles County Sheriff Lee Baca, who say that medical marijuana "has been hijacked by underground drug-dealing criminals who are resorting to violence in order to control their piece of the action" without any evidence. But it seems that tightening the noose around medical pot dispensaries is the greater good, so the study really doesn't matter. We quote the editorial:
Whether or not these rogue dispensaries attract crime, they are a nuisance. A lack of oversight means they could be selling anything, including marijuana laced with dangerous drugs or chemicals. California voters intended them to operate as nonprofit collectives, yet it's not clear they're all doing so. Also unclear is the extent to which they're selling to minors or people with no legitimate medical need. L.A. is right to try to crack down; now its lawyers just need to figure out a way of doing so that passes court muster.
So, never mind that people are trying to alleviate suffering, and not harming anyone in the process? Never mind that absolutely no evidence exists that the dispensaries are a "nuisance." This is such a serious problem that the city's lawyers just need to figure out how to make the law say whatever they want it to say? With "progressive" friends like these, medical marijuana truly needs no more enemies.

(H/t to Matt Welch)

The Affirmative Action Bake Sale at UC Berkeley

In just the past week, the various campuses of the University of California have provided an interesting window into the nature of college student activism in 2011. On one hand, Thursday night saw Berkeley's Tolman Hall occupied by hundreds of students protesting its closure due to budget cuts that prevented it from being retrofitted to meet seismic standards. The protesters attacked the police who arrived to close the building, throwing chunks of concrete at them and hitting them; in the end, two students were arrested. Today, of course, the protesters are demanding an apology from the cops. On the other hand, yesterday saw ten students charged and convicted in an Orange County courthouse for the "crime" of non-violent protest at an appearance of Israel's ambassador at the Irvine campus. Based on these incidents, one might be tempted to conclude that violence is permissible if carried out in the service of the university's (and the government's) interests, while Constitutionally protected freedoms can be made illegal if they anger the wrong people. If this is the case, God help the Berkeley College Republicans.

The Berkeley community is apparently abuzz over a Facebook post by the conservative student group. Few Californians are aware that a bill now on Jerry Brown's desk, SB 185, would punch a hole in the 15-year-old Prop 209 by allowing the UC and Cal State systems to reinstate affirmative action into their admissions policies. In order to draw awareness to the issue, the College Republicans announced a bake sale next Tuesday on Sproul Plaza. Prices for the pastries on sale will vary depending on the customer's race: $2 for white students, $1.50 for those of Asian descent, $1 for Latinos, 75 cents for black students, and 25 cents for American Indians, with a 25-cent discount for women. To be fair, the UC has had its share of black eyes on racial issues in the past year. In 2010, UC San Diego students posted racial slurs on Facebook and on campus TV; a noose was even found hanging from a light fixture in one of its libraries. Last March, a UCLA student posted an anti-Asian rant on YouTube. Swastikas were carved into walls and doors at UC Davis, and a YouTube video mocked the Chicano studies program at UC Merced. So it's fair to say that the Berkeley "bake sale" is in very poor taste. But the response the Facebook announcement drew from opponents was far uglier than anything said by the conservative students. Many threatened the College Republicans with attack at the event.

As we've said before, affirmative action is a good example of why we find politics so detestable. It's never made sense to us to try to right past instances of racial discrimination with . . . more racial discrimation, but that seems to be the principle at work. Yet the more worrying thing about this story is the UC's apparent willingness to suppress the less popular side of an honest discussion of a political issue. The College Republicans might not be saying things that the university likes to hear, but they seem to be the only party in this that doesn't want to violate the rights of anyone else.

Jerry Brown's "Jobs" Day Falls Flat

We have to admit that we were expecting more out of the Governor's office yesterday. In the morning, we were promised that Jerry Brown would be signing bills aimed at boosting jobs. Naturally, we were curious: his grand bargain to offset a $1 billion tax hike on out-of-state businesses with an expansion of tax credits and cuts in corporate sales taxes died in the state Senate, and his plan to subsidize renewable-energy firms by re-authorizing the state's electricity surcharge didn't even get that far. But we were willing to believe that there were jobs bills buried in the avalanche the Legislature had sent to his desk. Unfortunately, it looks like "jobs day" fell flat.

Check it out. More businesses leaving California.

By the end of the day, Brown had only signed one bill that could be loosely linked to employment in the state: the agreement to put off the Amazon tax for a year. We say "loosely" because the Legislature rejected Amazon's original offer to build two large distribution centers in California in exchange for a two-year moratorium on the tax. But the new compromise brokered by the online retailer said nothing about distribution centers. So, at the end of a day that the Governor promised would be about jobs, he couldn't even manage another centrally-planned makework program to keep union workers' paychecks coming (you know, like this one in Los Angeles County). But then, that would presume that Brown cares more about improving economic conditions than raising taxes.

Friday, September 23, 2011

Tale of the Tweet: Golden State Liberty vs. Senator Ted Lieu

In order to keep up with political and economic developments in California, the social-networking service Twitter is one of our favorite tools. We follow a number of news outlets and individual reporters, but oftentimes the best sources of breaking news are lawmakers themselves; as such, we also follow a number of elected officials on both sides of the aisle. Well, last night we had our first back-and-forth discussion with one of them: state Sen. Ted Lieu (D), who represents the South Bay communities in Los Angeles County.

Yesterday afternoon, Lieu tweeted the following: "A reason dow dropped is b/c White House implementing austerity measures in recessionary times. This is wrong econ solution & Obama knows it."

We were feeling some late-week snarkiness, so we tweeted this: "Fed policy? Euro crisis? Bank downgrades? @tedlieu: dow dropped b/c White House implementing austerity measures in recessionary times".

Somewhat to our surprise, the Senator responded this morning: "@GoldenStLiberty My tweet said "a reason". My prior tweets have mentioned Fed policy. History teaches us that downsizing now is wrong time."

Fair enough. We answered: "@tedlieu It has an economic impact, but had next to nothing to do with yesterday's Dow drop."

Then came this: "@GoldenStLiberty It would be the height of arrogance to say you can read the minds of investors."

Oh, snap, we thought. Our response: "@tedlieu Yes. But that's true for both of us."

We also got this: "@GoldenStLiberty Investors consider all sorts of factors of which lack of consumer demand driven by austerity measures is a factor."

Our response: "@tedlieu RE: lack of consumer demand, then accompany spending cuts with tax cuts."

Then we saw this: "@GoldenStLiberty NYT article showing one reason for market drops due to governments not doing enough to support growth".

Since the Times piece was about central banking, we replied: "@tedlieu NYT talking about monetary policy, not spending cuts. Makes sense: loose money -> more lending -> higher equity prices. Short term."

And that was about it. See what you're missing if you don't already follow us on Twitter?

While we've written critically of Lieu in the past, we do want to thank him for being willing to publicly engage in an unscripted policy debate with some California voters. Most people in his position would've blown us off. We promise to remember this the next time we're tempted to write that Sacramento is deaf to the concerns of average Californians. Moreover, we assume that Lieu isn't a regular reader of Golden State Liberty, so we hope he understands that our swipes weren't intended as partisan jabs (it hardly matters, but our thoughts on the California GOP are here). So, Senator, if you're reading this, we enjoyed the debate, and we think you're a good guy. We just don't agree with you. Since we have this forum, and since it's easier to make an economic argument without the 140-character limit, we'll explain why we disagree with Sen. Lieu. (While apologizing in advance for misstating his argument in any way; we realize it's hard to make complex points on Twitter.)

Lieu's argument seems to have two pieces: that President Obama is pursuing "austerity measures" at the wrong time, and that those measures are an important reason for the recent drop in the Dow. We have problems with both of these ideas. As far as "austerity," we're not sure what he's referring to. As we speak, the president is flogging a new spending plan of almost half a trillion dollars; nothing austere about that. Could he really be referring to the debt-ceiling compromise last month, in which the government agreed to borrow trillions of new dollars in exchange for miniscule cuts in discretionary spending that might occur at some point in the next 10 years? If that's "austerity," the word has truly lost its meaning. Whatever Obama is or isn't doing, it's apparently not driving enough "consumer demand." But it doesn't follow that government spending creates demand for privately-produced goods. Remember: between TARP, the ARRA stimulus, the auto bailout, Cash for Clunkers, and the immense monetary stimulus of the Fed's quantitative easing plan, DC has thrown about $5 trillion in stimulus at the American economy since late 2008. If this is the way to create wealth, shouldn't you start seeing some wealth once you'd blown through a third of GDP to create it?

As far as the drop in the Dow, it's important to make the distinction between economic recovery and robust gains in stocks: they're not the same thing. The Dow is just a measure of what investors think a particular set of equities is worth, and is a function of many more things than just consumer demand. But the real question here is what President Obama could've done in recent days to produce the drop. The Dow, after all, had shown steady gains in the days prior to the most recent declines. This was why we pointed to factors like the sovereign debt crisis in Europe, the downgrades of Bank of America, Citi, and Wells Fargo by Moody's, and the Fed's decision to eschew QE 3. The latter two events, both occurring this week, had to suggest to investors that America's largest banks may be allowed to go under in the event of a cascade of defaults in Europe. While we're not presuming this to be a complete explanation of the mindset of all investors, it seems more plausible an explanation of the drop than any phantom "downsizing" coming from the White House.

BREAKING: A Bad Day for the First Amendment in Irvine

Bad news today out of Orange County: the LA Times reports that ten of the so-called "Irvine 11" students have been found guilty of misdemeanor disruption of a meeting and misdemeanor conspiracy to commit a crime. As such, they could face up to six months in jail for, essentially, peaceful protest of a public figure.

The trial stemmed from a February 2010 speech at UC-Irvine by Michael Oren, Israel's Ambassador to the United States. Eight UCI students and three UC-Riverside students, all Muslim, protested the appearance: for about 60 seconds, they shouted Oren down with slogans like "propagating murder is not free speech." And then they walked out. If you're not sure where the crime was in all this, or why it's different from what college students do all the time, we're right there with you. Nothing we've read about this story suggests it's anything other than a perfectly legal and Constitutionally protected (if rude) act of protest. The University has already disciplined the eight students it had authority over; in our view, that should've been the end of the matter. Many in the community have suggested that DA Tony Rackauckas singled these students out because of their religion. We'll welcome anyone to come up with a better explanation for his decision to use county resources in this way.

UPDATED: There's at least a small bit of good news in this: none of the students will do any jail time.

Past Experience Should Help Solyndra's CFO Cope with Scandal

Two months ago, we wouldn't have guessed that we'd feel like we were driving past the Watergate every time we headed down the 880 through Fremont. But with the CEO and CFO of failed solar panel maker Solyndra pleading the fizzif before Congress today, and serious questions regarding the Obama White House's actions in providing taxpayer assistance just months before the firm declared bankruptcy, things only seem to be getting uglier. When all is said and done, Solyndra's dealings could make Enron look like a pillar of business ethics by comparison.

First up, we have this interesting report from California Watch: to CEO Brian Harrison's credit, he's being a lot more careful with his words today than he was when he spoke to Congress in the summer. Back in July, Harrison was traversing the Capitol Dome touting a huge surge in business in 2011; record-breaking numbers of panels had been shipped, and revenue on the year was expected to double. Who they were supposedly selling to is another matter; a large broker of solar products in San Francisco said, "We traded more than 200 solar panel brands, and Solyndra wasn't one of them." Given its collapse in late August and the fact that it had never shown a profit since 2005, we have to wonder whether Harrison's rosy assessment of his company's future was deliberately misleading.

As if that wasn't Enron-esque enough for you, we have the latest report from the Bay Citizen's Aaron Glantz. If ex-Governor Schwarzenegger and President Obama had been interested in any sort of due diligence prior to showering Solyndra with taxpayer money, they might have uncovered this: in his last job before becoming the solar firm's CFO, Bill Stover was at the heart of one of the biggest price-fixing scandals in American history. Between 1994 and 2007, Stover was CFO at Micron, which was found to have colluded with Samsung, Infineon, Hynix Semiconductor and Elpida Memory to drive up the price of memory chips. As a result, the five firms have paid $1.8 billion in civil and criminal fines, and 37 employees have done jail time. It's certainly not clear what role Stover played in the Solyndra collapse, and for what it's worth, his was not one of the homes raided by the FBI earlier this month. But it's certainly not a good sign.

California Voters May Get a Chance to Destroy Their Housing Market Permanently

File this one under "solutions that are exponentially worse than the original problem." One of our friends on Twitter tipped us to news of the so-called "Foreclosure Modification Act." This proposal, which has received an okay from Attorney General Kamala Harris, could appear on a statewide ballot in November 2012 if it gets enough signatures. But as bad ideas go . . . well, they really don't get much worse than this.

If it gets to the ballot and gets two-thirds voter approval next year, the Act would amend California's constitution to declare home ownership a fundamental human right. Yes, you read that correctly. Foreclosure would be prohibited by law. Banks would be required to help borrowers in default on mortgage payments due to hardship or illness; if local property values drop more than 10%, lenders would have to reduce mortgage principal and interest rates, and reschedule payments and refinance without a fresh review of credit. If a loan has been maintained for three years, banks would have to refinance home loans at minimum cost within 45 days, at the homeowner's request. Finally, the government would be required to assist homeowners with payment of back property taxes.

Obviously, this initiative is appearing because many, many Californians have lost their homes since 2007, and many more are underwater on their mortgages. And it's not the first example we've seen of a willingness to screw lenders (who do, you know, own the home until you've paid the mortgage off) in favor of residents. But it's hard to fathom how awful the consequences would be if this initiative became law. For one thing, if it's illegal to foreclose on a delinquent loan, why would anyone pay their loans back? To put it more directly, you'd probably see a massive wave of foreclosures just before the act took effect, and an end to mortgage lending afterward (presumably, any loans that took place would carry sky-high interest rates). Moreover, even if you're a lefty statist who doesn't care about banks, requiring lenders to reduce principals would cost local governments billions in property taxes and other assessments. If you think California's public schools are lousy and underfunded now, they'd get a lot worse if this law took effect.

Ultimately, our guess is that this won't happen. A lot of powerful interests in the state (businesses, public employee unions, teachers) would likely mobilize against it, and we'd suspect that it conflicts with federal banking regulations. But still, it's a reminder of how much economic ignorance is in the air out here.

Thursday, September 22, 2011

What Caused the September 8 Blackout in San Diego?

Today at Cal Watchdog, the always-interesting Wayne Lusvardi examines the causes of the September 8 power failure that blacked out the entirety of San Diego and Imperial Counties, along with sizable parts of Orange County, from about 3:30 in the afternoon until the following morning. While the immediate cause was, apparently, an accident on the North Gila-Hassayampa transmission line in Arizona, Lusvardi takes a hatchet to this brain-dead (and factually-challenged) investigation by the British Economist rag, which attempts to find the fault in the statist's favorite bogeyman: "deregulation."

We'd provide a detailed description of the Economist's argument, but it's hardly worth the bother. The whole of it rests on the presumption that deregulation in energy has created "a complex, competitive, national, free-market business"; the problem, of course, is that this free market is fictional. Retail energy prices are still tightly controlled by the California Public Utilities Commission, and contrary to the Economist's assertion that laissez faire "has removed what little spare capacity the grid once had," the CPUC mandates that all power plants maintain "spinning reserves" to manage emergencies. The wholesale energy market? Carefully regulated by the Western Regional Energy Council, the Federal Energy Regulatory Commission and the National Electric Reliability Corporation. What's more, the state's 2001 energy crisis led the energy market to be structured around short- and long-term contracts to prevent operators from having to scramble to manage grid congestion; in other words, spot prices are no longer used to allocate power. The magazine argues that power companies lack the incentive to upgrade the grids; no s**t, because they don't own them, and haven't for a while. The transmission and distribution companies that run the grids are regulated monopolies in their own right. Finally, while the Economist is correct that a lack of base-load generating capacity in urban areas contributes to its energy problems, it ignores the fact that the EPA and the public want generating plants as far away from cities as possible.

In other words, the Economist piece seems written with propaganda rather than analysis in mind. As we've also seen with the lefty activists decrying the fictional deregulation of Wall Street as the primary culprit in the housing meltdown, getting at the truth really isn't the point. The real goal is to give the political class a new set of talking points, so that they might attack private industry for their own ends. But the numerous factual errors in the piece leave the impression that the magazine simply doesn't know what it's talking about.

Atherton: Seeking Donations for Crony Capitalism

One of the surest signs that the crisis facing California government is one of out-of-control spending, rather than inadequate taxation, is that this crisis is hardly confined to large cities with significant numbers of poor residents. The extremely wealthy Orange County town of Newport Beach, for example, is currently cutting staff and outsourcing services in an effort to save money. Even more interesting, however, is the city of Atherton, on the San Francisco Peninsula. It may be one of the richest cities in the United States, but Atherton's city council is currently trying to outsource its public works and buildings departments. And today, the San Jose Mercury News reports that it's asking its wealthiest residents to donate money for the construction of a new town center.

Facing a budget deficit of over $850,000 in the coming year, Atherton is limited in its ability to engage in the typical crony capitalism that the construction of a new government building and surrounding structures would normally call for. So far, they've set aside $1.8 million in buildings revenues to get the project started, but the finished product will likely cost a lot more than that. So, the city will begin asking private citizens for donations to cover the remaining costs. "Clearly the town doesn't have the money and we are not ready to decide to burden the town with any long-term debt. We just don't have the financial resources," said Council Member Elizabeth Lewis. "Either the town people will step up for a new town center and police department or they won't." Of course, the residents of Atherton could be forgiven for wondering what they pay taxes for.

This Day in Government: Montebello Improperly Spent $31 Million

Back in April, we caught the first whiffs of another political scandal in Los Angeles County, this time in the San Gabriel Valley town of Montebello. The abrupt resignation of City Manager Peter Cosentini and the announcement of an audit by state controller John Chiang were soon followed by allegations of accounting irregularities and rumors that the city was broke; a debt downgrade by Moody's and new investigations by the FBI, the Department of Housing and Urban Development, and Los Angeles County came after. Since then, Montebello has been ordered to return millions in HUD funds due to numerous regulatory violations. And today, the results of Chiang's audit have been released.

According to the Controller's office, Montebello has misspent some $31 million over the past five years: "At the expense of local job development, street repair and schools, Montebello has made it a habit to tap legally restricted funds to cover its budget and cash shortfalls. It appears the city moved money wherever it wanted, whenever it wanted, regardless of the law." Apparently, the city took gas tax and redevelopment money and used it on things like expensive dinners in Las Vegas, Dodgers tickets, embroidered shirts, and golf course registrations. Chiang also accused the city of authorizing over $20 million in forgivable loans to political contributors, including developer Hank Attina. The audit recommended that Montebello pay back $3.6 million in inappropriate charges to its RDA, including $20,000 in golf fees and $3.4 million in unspecified "administrative costs."

We'd probably guess that the audit digs Montebello into a slightly deeper hole: if the city can't secure a loan soon, it's expected to run out of cash next month. Between the Moody's downgrade and this news, they'll likely have to pay through the nose, interest-wise, to get that money. So it's probably fair to view the loan as a stopgap that will only delay insolvency, not prevent it.

Los Angeles: Where Porn is a Responsibility of the Fire Department

We're starting to see a pattern of sorts among our selfless public servants in the city of Los Angeles. Back in April, two traffic cops were the subject of a disciplinary investigation by the LA Department of Transportation, stemming from their on-duty appearance in a pornographic film. Officer John Dancler (an excellent porn name) was fired over the incident, though he is appealing his dismissal; only in Los Angeles can you claim you were fired without cause after you took part in a porn film while at work. Yet apparently the crossover appeal of the adult film industry and city government isn't confined to LADOT. According to a report in today's LA Times, the Fire Department is investigating the use of some of its trucks in other pornographic movies.

Excuse me while I pull this out. Of the garage.

No allegations against any specific firefighters or chiefs have been made public; rather, the issue is whether the stations in Venice and Hollywood allowed their trucks to be used in porn shoots. Whether any LAFD personnel knew about the shoots or participated in them is unclear, although the NBC 4 report that broke the story alleged that firefighters participated in the films and helped to set up the shoots. As of now, no one has been fired or placed on leave. According to Captain Jaime Moore, "They're trying to determine whether the firefighters really knew this was going to happen, did they participate, and why wasn't someone on the engine?" It seems unlikely, to us, that no firefighters were involved in this. Which is pretty offensive, if they were collecting a taxpayer-funded salary in the process.

San Jose: Yep, We're Still Broke

Back in the spring, the city of San Jose took the first serious steps toward addressing the fundamental weaknesses of its public finances. Hundreds of city employees were laid off, proposals for outsourcing public services were discussed, and Mayor Chuck Reed began a plan to tame the city's looming pension nightmare through a ballot initiative targeting current workers' retirement benefits. These moves are the result of a towering wall of pension debt, which could capsize San Jose's government in only a few years. This year, the city will pay $263 million in retirement benefits; next year, the figure will jump to $323 million, and could be as high as $650 million in five years. And after 10 straight years of budget deficits, the reserves aren't there to cope with these kinds of obligations. As such, the San Jose Mercury News reports that the City Council is getting an early start on tackling next year's budget.

At a meeting Tuesday night, San Jose's managers warned elected officials of the consequences of failing to either raise taxes or claw back pensions in the coming year. In the view of administrators, these will likely include closing the city's libraries and community centers, laying off crossing guards and park rangers, and possibly losing more cops. The estimated budget shortfall for the coming year is somewhere in the neighborhood of $78 million to $115 million, and only $15 million is available from reserves and elsewhere to cover it. With voters still hostile to higher taxes and little chance of savings from moving its pensions into CalPERS, it's starting to look like Reed's pension reform plan is the only alternative to deep service cuts and layoffs. Unfortunately, it's not clear that Reed's plan will work either: while we like the idea of aggressively curbing pensions for the benefit of the taxpayers, such a move would almost certainly be challenged in court, and San Jose doesn't have the luxury of spending years litigating the plan. So, just as we said back in June, the most likely outcome is still austerity. In five years, San Jose will probably be a shell of its current self.