In a Political Campaign, City Officials Can Spend Your Money Against You. They Call it ‘Education’

This commentary appeared first in the Orange County Register.

Californians going to the polls on Nov. 8 will find more than 300 measures to raise taxes. And despite multiple legal decisions limiting the practice, municipal officials in California may be paying outside consultants to run the campaign to sell you on your local tax measure.

In short, government officials use the public’s money to persuade the public to give government officials more money.

If you think that’s strange, you have good company. In the 1976 case Stanson v. Mott, the California Supreme Court established the principle that would seem to govern the space where government reaches out like the muscular and fully clothed God in Michelangelo’s “The Creation of Adam” and encounters a single naked, relatively powerless American voter. The judges put it plainly: “A fundamental precept of this nation’s democratic electoral process is that the government may not ‘take sides’ in a election contests or bestow an unfair advantage on one of several factions.”

The justices allowed that providing information and opinion – educating the public – is a legitimate function of government officials.

But how do we decide what’s political and what’s merely educational?

In the 2009 landmark case Vargas v. City of Salinas, the court returned to the distinction between information and campaigning, and the “style, tenor or timing” standard, says Thomas Brown, city attorney for St. Helena, California, and a partner in the Oakland offices of Burke Williams & Sorensen.

“The potential danger to the democratic electoral process is not presented when a public entity simply informs the public of its opinion on the merits of a pending ballot measure or of the impact on the entity that passage or defeat of the measure is likely to have,” says Brown. “The threat to the fairness of the electoral process arises when a public entity devotes funds to campaign activities favoring or opposing such a measure.”

But throughout the state, public officials increasingly turn to campaign consultants. Wave a magic wand and you can declare that politicking “educational.”

Take the city of Stanton. In the run-up to a controversial 2014 local sales tax measure, city officials in Stanton made 16 payments totaling $85,970 to Lew Edwards Group, an Oakland-based political consulting firm.

The consultant’s Stanton proposal indicates the relationship was always about winning a campaign. Sent to city officials on March 18 of that year, that document declares Lew Edwards Group “the California leader in Local Government Revenue Measures.”

“Lew Edwards Group has successfully enacted more than $30 billion in California tax and revenue measures with a 95 percent success rate, including $2.34 billion in successful tax and bond measures in Orange County alone,” the proposal says. In a separate PowerPoint document prepared for the city, company officials said they achieved political success in Orange County despite “the opposition of the OC Register in all cases.”

The company’s 2011 presentation to the California Society of Municipal Finance Officials is equally political. Titled “New Taxes: How to Get to Yes,” the presentation features a section on transforming informational studies into what sounds remarkably like campaign material. That section is called “Turning Theory into Reality: How to Convert Your City Studies and Polling Results into a Winning Campaign.”

The consultants’ website warns, “A Public Agency cannot, at any time, engage in a partisan campaign.” But the site goes on to offer advice about turning over campaign responsibilities to an outside group.

In the months leading up to Election Day 2014, Stanton residents were invited to community meetings where local elected officials, city staff and county firefighters and sheriff’s deputies warned them about Stanton’s crippled finances. When they returned to their homes, residents were hammered by official mailers predicting a public-safety catastrophe if the sales-tax measure failed. Invoices show the city (i.e., the taxpayers themselves) paid Lew Edwards for at least three mailers in the last six weeks of the campaign.

Supporters of such spending – generally public officials themselves – say government has a responsibility to educate. And now it’s possible for government officials to argue further, that they have a First Amendment right to support ballot measures. In the Vargas v. City of Salinas case, Salinas officials ultimately filed an anti-SLAPP suit against the plaintiffs, two local citizen watchdogs who had filed suit to stop the city from spending public dollars on a campaign. Revealing how far we’ve drifted from a fear of government power, a court ultimately sided with Salinas, and ordered the watchdogs to pay the city’s $200,000 legal bill. The plaintiffs have since declared bankruptcy.

There may yet be a new ending in Stanton. There, critics of the 2014 sales tax rallied, and late last year qualified a repeal measure for the November ballot.

But once again, those citizens will be fighting more than City Hall. Records obtained by the California Policy Center show Stanton officials signed a new contract with Lew Edwards Group. This time, officials say they’ll spend no more than $25,000. But like the last big contract, this one ends just days before Election Day.

Will Swaim is vice president of communications at the Tustin-based California Policy Center, and was founding editor of OC Weekly.

Contra Costa needs more road capacity, but we don’t need new sales taxes to build it

Along with the grandeur of Yosemite and the beauty of the California coast, there’s our state’s epic rush hours. But sales taxes on the Nov. 8 ballot, like Contra Costa’s Measure X, aren’t the way to solve them.

Measure X would add 0.5% to local sales tax rates to fund a variety of transportation projects around the county. But it would raise something other than revenue — like concerns about equity and efficiency.

Measure X would hike the overall tax rate in El Cerrito to 10.50% and in Richmond to 10.00%. Working class people in these neighborhoods – many of whom do not have cars – will be expected to pay more for clothing and school supplies to subsidize the commutes of affluent Tesla drivers living in Blackhawk and other wealthy communities.

Because Tesla’s and other Battery Electric Vehicles (BEVs) don’t use gas, their owners don’t pay the gasoline taxes that traditionally fund road construction and maintenance. The increased popularity of BEVs has contributed to the sharp decline in gas tax revenues collected by the state and distributed to counties. This reduction in gas tax funding is one reason county officials are asking voters to double the transportation sales tax from its current 0.5% level.

But by funding transportation improvements from general tax revenue, we are subsidizing drivers who most often travel the highways in single-occupancy vehicles. A better option is to fund highway improvements through toll revenues. Although we are starting to see toll lanes in Contra Costa County, much more can be done.

In Orange County, public agencies operate four toll roads as well as four express lanes in the median of SR-91. Agencies maintain these arteries with toll revenues; no taxpayer funding is required. The SR-91 express lanes, opened 20 years ago, have been a model for express lane projects elsewhere around the nation. The nearest example to us is a stretch of I-680 in Alameda County that includes a High Occupancy Toll (HOT) lane – one that can be used by carpools for free and by solo drivers for a fee that varies with the level of congestion. In California, express lane tolls are paid with FasTrak, just like bridge tolls.

The Metropolitan Transportation Commission is converting a carpool lane on I-680 between Walnut Creek and San Ramon to an HOT lane. But beyond conversions, drivers also need new lanes on portions of I-80, I-680, SR-24 and SR-4. Under Assembly Bill 194, these new lanes can be financed by bonds backed by toll revenues – reducing or eliminating the need for tax subsidies.

Budgeted costs and the risks of cost overruns (like the one experienced by the Bay Bridge replacement project) can be limited by contracting with private firms to design and build new express lanes. This is the approach the Orange County Transportation Authority is taking for new toll lanes it is adding to I-405, a project now out for bid.

Other states are leveraging the private sector even more. In the Miami suburbs, the Florida Department of Transportation has recently added three tolled, reversible express lanes to I-595. The successful project was not only designed and built privately, but the concessionaire is also operating and maintaining the new lanes.

In the Washington, D.C. suburbs, an Australian company owns and operates express lanes in the Capital Beltway, I-495. The same company also owns 13 tollways in Australia.

By correctly pricing our highways, we can attract private capital and the toll revenues needed to maintain and expand them. By asking drivers to fund the highways they use, we can relieve the burden on the county’s often disadvantaged sales taxpayers.

Will the BART Bond Fund Pensions?

This fall, voters in San Francisco, Alameda and Contra Costa counties will consider a $3.5 billion BART bond measure. Proponents argue that the measure is required to ensure the system’s safety and reliability. Critics are concerned that bond proceeds will be used to support excessive employee salaries and benefits.

BART management denies that claim. In an August 12 press release, BART management stated, “Not one penny, under any circumstance, can or will be used to pay for operating expenses, salaries, or benefits.” Indeed, using bond proceeds for such purposes would be illegal.

But there is an indirect way of using the bond to increase employee compensation. As Daniel Borenstein reports in The East Bay Times, BART currently devotes about 16% of its operating revenue to capital improvements. Once the bond measure passes, BART could reduce the amount of operating revenue it devotes to capital purposes, backfilling the shortfall with bond proceeds. BART management insists that it will not perform this sleight of hand, stating in its release:

To suggest we would use the money for salaries and benefits directly or “indirectly” is flat out wrong.  Cutting spending from the Capital Investment Plan in order to increase salaries would undo decades of financial projections and do immense damage to BART’s capacity to improve in the future.

Borenstein is unconvinced, noting that BART directors and staff have refused to make a commitment to continue the 16% annual operating revenue transfers. And the Times editorial board shares their columnist’s concern:  they have now advocated a no vote on the BART bond.

No one can be certain whether BART management or its critics will be correct, but it is useful to review the data on BART’s operating cost pressures. If BART management can’t restrain the growth in operating costs and are unwilling to offset these costs at the farebox, they will be obliged to skimp on capital investments.

As Chart 1 shows, BART labor expenses have risen sharply over the last five years. Budgeted labor costs have increased from $364.3 million to $499.6 million between FY 2012 and FY 2017, representing a constant annual growth rate of 6.52%. The amounts shown come from annual budget resolutions posted on BART’s web site.

Chart 1

Chart 1

Pension benefits are major sources of cost pressure. The system’s safety plan, administered by CalPERS, is only 63.3% funded. The employer contribution rate rose from 47.9% in Fiscal 2015 to 56.5% in the current fiscal year, and will rise again to 57.4% in Fiscal 2018. Most BART employees are in the system’s Miscellaneous employee plan. Contribution rates for this plan are lower but also escalating.

Chart 2 shows total BART employer pension contributions for the fiscal years ending June 30, 2014 through June 30, 2023 as projected in the most recent CalPERS actuarial reports. The projections beyond 2018 rely on optimist assumptions that CalPERS assets will return 7.5% and that BART’s covered payroll will rise by 3% annually. Still we see BART’s contributions rising from $35.7 million in Fiscal 2014 to $99 million in Fiscal 2023.

Chart 2

Chart 2

BART’s employer contributions are so high because benefits are generous and the retirement plan is carrying a lot of beneficiaries. BART police hired before December 30, 2014 are able to retire at age 50 with pensions of up to 90% of final salary. Newly hired PEPRA members must wait until age 57 and can only get up to 81% of final salary. PEPRA’s implementation for BART employees was delayed by the U.S. Department of Labor (DOL) because PEPRA interfered with collective bargaining. Citing Section 13c of the Urban Mass Transit Act, DOL refused to certify federal grants to BART if PEPRA was implemented. A Federal District Court overruled DOL, but the federal agency is continuing to challenge PEPRA on other grounds. (For more on this, see page 16 of BART’s 2017 Resource Manual).

As of June 30, 2015, the BART Safety plan had 275 beneficiaries – almost half again the number of active members. Many of the beneficiaries are under age 50, having earned retirement benefits due to disability.

Many retired safety and management employees draw very generous pensions. According to Transparent California data, 112 BART beneficiaries received $100,000 or more in 2015. Like many public employees, BART staff members are not eligible for social security, but unlike most agencies, BART provides an offsetting benefit. Employees can contribute to a 401(a) Money Purchase Pension Plan and receive an employer match. BART employees thus have a plan similar to a 401(k) on top of their generous defined benefit pension.

In addition to pensions, BART offers Other Post-Employment Benefits (OPEBs) including medical benefits to retirees and surviving spouses, retiree life insurance and survivor dental and vision benefits.  According to its most recent audited financial statements, these benefits cost BART $26 million in Fiscal Year 2015. On the plus side, BART has pre-funded a large portion of its OPEB obligation. Further, BART’s actuary has found that an increasing proportion of eligible retirees and spouses are not participating in the OPEB plan, reducing the rate of cost growth. In fact, BART expects to pay less for OPEBs in Fiscal 2017 than it did in in Fiscal 2016. (For more on this, see page 19 of BART’s 2017 Resource Manual). But if medical cost inflation picks up in the years ahead and more beneficiaries take advantage of BART’s OPEB benefits, the system could experience rapid increases in its OPEB expenditures.

In summary, it is impossible to know whether BART will fulfill its stated intention of maintaining the current flow of operating revenues to capital needs, thereby avoiding a scenario under which bond proceeds are effectively diverted. We do know, however, that the system faces high and rising labor costs. Looking into the future, it is all but certain that pension costs will rise rapidly given current underfunding and the generosity of benefits. These escalating pension expenditures will be a source of pressure on the BART board to scale back much-needed maintenance expenditures.

Just in Time for Halloween, City Manager Uses Official Letter to Scare Voters

Faced with the potential repeal of a controversial one-percent local sales tax, Stanton City Manager James Box mailed voters two weeks ago to warn that passage of a sales tax repeal will “terminate funding approved by Stanton voters” and result “in cuts to essential city services.”

The timing of Box’s letter, just weeks ahead of November 8, could be a problem for the city. Box justified his voter contact as a response to “many questions about Measure QQ.”

State Attorney General Kamala Harris stated in a legal opinion that “it is illegal to use public funds to influence the outcome of an election.” Government officials can inform the public, but cannot directly engage in campaigning. But there is a razor-thin margin between information and campaign activities.

Measure QQ, on this November’s ballot, would eliminate the sales tax increase approved by voters in 2014, and return the sales tax in Stanton to a combined state and Orange County base rate of 8%.

In his letter, Box claims the tax increase has allowed the city to “enhance existing programs” and “rebuild the city’s financial reserves.” He did not refer to the city’s decision in 2012 to issue bonds to build Central Park, a project that ballooned from $6 million to $24 million, and annual interest payments on debt totalling some $42 million over 30 years.

In 2014, Stanton claimed the city’s budget shortfall would lead to cuts in public safety spending. In order to convince voters to raise their own taxes, the city issued a series of mailings and a feedback survey – all of it, officials said, aimed at collecting residents’ priorities. In practice, the communications functioned as a push-poll – a campaigning tool used to manipulate public opinion.

Days before the 2014 election, Stanton city manager James Box mailed voters under a similar claim of the “number of phone calls from Stanton residents” he had received. He used the opportunity to hold up the feedback survey as proof that voters wanted to raise their own taxes when, in fact, the survey was biased toward a predetermined pro-public safety response.

City officials claimed that failure to approve the sales tax would lead to deep cuts in public safety. Yet, they chose not to create a “specific tax” that would have legally limited the tax revenue to public safety spending. Instead, they chose a general one-percent sales tax increase that would fill the coffers of the city’s general fund. In the two years since the measure’s passage, the city has spent millions on new park construction, expanded city services and raised public employee compensation.

Andrew Heritage is a California Policy Center fall Journalism Fellow. He is a doctoral student in political science at the Claremont Graduate University.

Is $288 Million the Right Price for Orange Unified High School Upgrades?

Given declining enrollment, Orange Unified School District’s $288 million bond measure may fund more school upgrades than students need.  There is also a risk that the taxpayer cost of debt service for the bond issue will exceed the district’s forecast rate of $29 per $100,000 of assessed valuation.

According to statistics from Ed Data, enrollment across the four OUSD high schools fell from 9,311 in the 2010-2011 school year to 8,936 in 2014-2015, the latest school year for which figures are available. The district projects continued enrollment declines through 2018-2019, but does not provide a breakout by school. Total OUSD enrollment – excluding charters – fell from 27,344 in 2014-2015 to 26,685 in 2015-2016, and is expected to reach 26,135 in 2018-2019.

Using the current enrollment of 8,936 students, proposed renovations to the four high schools would cost over $32,000 per pupil (excluding interest). By contrast, Orange Lutheran High School completed its own upgrade in 2014 at a cost of less than $12,000 per pupil.

CAFETERIA PLANNING: The cafeteria at private Orange Lutheran, part of a recent $12,000 per pupil upgrade. In the same city, union-controlled Orange Unified wants to spend $32,000 per pupil to renovate four high schools.

CAFETERIA PLANNING: The student cafeteria at private Orange Lutheran High School, part of a recent $12,000 per pupil upgrade. In the same community, union-controlled Orange Unified wants to spend $32,000 per pupil (plus interest) to renovate four high schools.

Nationally, the median cost of building a new high school was $45 million in 2014 according to School Planning and Management (although the median high school housed 1,000 students, about half the number in OUSD schools). This suggests that the cost of renovating OUSD’s four high schools, at an average cost of $72 million each, may not represent a savings over building new facilities.

Further, the district may spend more than $288 million on the renovations if it is able to obtain Proposition 51 matching funds.  If Prop 51 passes in November ,the state’s Office of School Construction will have $9 billion in state general bond proceeds that can be allocated to school districts renovating and building schools.

With a shrinking student population and the potential availability of state matching funds, it appears that the district could borrow much less than $288 million to ensure that high school students have an appropriate learning environment. This raises the question of how the board decided to ask for $288 million in borrowing authority.

The district hired an opinion research firm to poll voters on a possible bond measure. In one survey, the research firm asked voters whether they would approve bond measures at four different tax levels – $25, $29, $34 and $39 per $100,000 of assessed valuation. They found than less than 55% of the electorate would support a bond measure that added $34 or $39 of taxes per $100,000 of assessed value, but that 59% favored a $29 measure and 62% supported a $25 measure. Thus, it would appear that the bond measure was sized on the basis of voter appetite – not on an objective assessment of actual renovation needs and costs.

On October 4, the district’s financial advisor presented a financing plan consistent with the proposed $29 tax increase per $100,000 of assessed value. The plan assumes that $79 million of bonds would be sold shortly after the election and the remaining $209 million would be sold in 2021. Projected debt service rises from $9.5 million in 2017 to $28.8 million in 2046 – representing a 4% annual rate of increase. For the tax rate to stay at $29 per $100,000, assessed valuations will have to also rise by 4% annually. According to the financial advisor’s data, OUSD has experienced annual assessed value increases of 4.26% over the past 15 years. If this trend continues, the tax rate for the new bonds would actually decline slightly – as the tax base expands slightly faster than the debt service costs. If, however, the valuation increase does not materialize, perhaps because of depressed economic conditions or an earthquake, the tax rate would have to increase.

$288 Million Orange USD Bond Measure Would Add to Large Pile of Existing Debt

If Orange Unified voters approve Measure S this November, newly authorized bonds will be added to an already large district debt. A California Policy Center review of OUSD financial reports finds that the district owed $120 million to bond investors as of June 30, 2016.

The largest portion of OUSD’s bond obligations takes the form of an unusual OPEB bond. While many California public agencies have issued bonds to cover their pension obligations, few have borrowed to cover Other Post Employment Benefit obligations. OUSD is a pioneer in this area, but it is not clear whether innovation in OPEB funding is desirable.

In April 2008, OUSD’s board approved the issuance of a variable-rate bond to cover the district’s estimated $93.8 million OPEB obligation. The plan was to invest the proceeds into an actively managed portfolio of bonds and stocks. The bond proceeds and investment gains would be used to pay retiree healthcare expense, freeing the district’s general fund to cover educational expenses.

In May 2008, the district issued $94.8 million of “Index Rate Taxable Retirement Health Benefits Funding Bonds, Series A.” One million dollars of the bond proceeds went to various service providers including California Financial Services, who acted as the financial advisor on the deal for a fee of just over $450,000.

The remaining proceeds were invested in a vehicle called Futuris Public Entity Investment Trust, which is managed by Keenan & Associates. The investment got off to rocky start due to the Great Recession. In the fiscal year ending June 30, 2008, the trust lost $3.3 million; it shed another $7.3 million in the year ending June 30, 2009.

The investment losses exacerbated a fiscal crisis confronting OUSD at the time. The board engaged the state’s Fiscal Crisis and Management Assistance Team to assess district finances. In its report, FCMAT recommended that the board “seek advice from an independent investment advisor regarding strategies to address the decline in OPEB bond program asset values.”

It is not clear from board minutes whether this recommendation was followed, but the stock market rebound that started in 2009 raised the value of OUSD’s investments and relieved its fiscal distress. Last year, Standard and Poor’s upgraded the OPEB bonds from A+ to AA- citing the district’s “very strong available general fund reserves.” The district also benefited from its choice to issue variable rate bonds, with interest rates periodically reset based on changes in the London Interbank Offer Rate (LIBOR). Although banks attempted to manipulate LIBOR, it fell during the Recession and has remained low ever since. Consequently, debt service costs for the OPEB bonds have been lower than expected.

That said, it does not appear the bonds have provided the general fund relief originally intended. Each year the district pays about $2.9 million in debt service on the OPEB bonds, and it remains unclear whether the invested bond proceeds can shoulder the district’s mounting retiree healthcare costs.  In some recent years, the district has transferred additional money into its Retiree Benefits Fund to support OPEB payments.

In addition to the $83 million still outstanding on the district’s OPEB bond, OUSD also owes $28 million on Certificates of Participation and $9 million on Capital Lease obligations. OUSD also has two Mello-Roos districts that have issued bonds. The $12 million in outstanding principal on these Mello-Roos bonds (issued by Community Facilities Districts 2005-1 and 2005-2) is technically not an obligation of the school district, but debt service payments are funded by taxes on certain homes within OUSD.

Officials Ditch Claim About ‘Benefits’ of High Property Taxes

Flyers distributed in Capistrano Unified School District schools and the main office promote the district’s upcoming $889 million property tax increase as a benefit to homeowners.

That claim would appear to be a political response to criticism of Measure M, the controversial bond on the South Orange County district’s November 8 ballot. Critics have said Measure M, which will be paid off by increased property taxes, will dampen home values.

Under the headline “Community Benefits,” the flyer distributed in schools and offices asserts that higher taxes will actually be good for home sales. “We believe that improving neighborhood schools will ultimately increase local property values and add to the real estate market value of homes in our community,” the flyer reads.

The district’s claim that higher property taxes will boost home values is not included in the version posted on the CUSD website.

The headline in the online version is also different – just the word “Community,” not “Community Benefits.”

The flyer was produced for the district by a political consulting firm.

In a legal opinion, California Attorney General Kamala Harris said, “State law prohibits school districts from campaigning in support of a bond measure.” Numerous state courts, including the California Supreme Court, have said government bodies may provide information.

District officials did not respond to several requests for comment on the change. But critics say the change is consistent with the district’s practice of promoting Measure M in ways that come close to breaching the legal standard.

“I believe school district officials have been routinely engaging in illegal express advocacy,” said Rancho Santa Margarita Mayor Tony Beall.

Even that statement is likely to elicit a response from district HQ. Beall and his counterpart, Mission Viejo Mayor Frank Ury, made a similar claim in an August 9 letter to Capistrano Unified officials. The district responded to the letter by voting 6-1 to sue Beall, Ury, and their cities.

Beall said no complaint has been filed.

The South Orange County Economic Coalition, an association of business and other institutions, including the Orange County Association of Realtors and Saddleback College, opposes Measure M. Last month, they announced Measure M “will make prospective home buyers think twice before buying in this District.”

Catrin Thorman is a California Policy Center fall Journalism Fellow. She is a graduate of Azusa Pacific University, and a former Teach for America corps member. 

UPDATE: This article was updated on October 24 to reflect a request for clarification from the South Orange County Economic Coalition. Though that organization opposes Measure M, a spokesperson said some of its members (in this instance, Saddleback Community College and the Orange County Association of Realtors) may not necessarily oppose the measure. —Editors

San Francisco Parcel Tax Opponents Censored by Supervisor, Bureaucrats

 

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Editor’s Note: Members of the Libertarian Party of San Francisco (LPSF) tried and failed to include an opposing argument to an extension and increase of a Community College parcel tax in the Voters Handbook. Here Party Chair Aubrey Freedman describes the process by which the San Francisco Department of Elections silenced not only the LPSF, but anyone opposed to the measure. CPC does not support political parties, but we believe this is an important story about how the deck is often stacked against groups opposing dubious new tax measures.

For the last year or so, CCSF (Community College of San Francisco) bureaucrats have been talking about extending the “temporary” parcel tax the voters approved in 2012.  We were the official opponent of the measure back then, but we were overpowered by the “Save CCSF” movement.  At least we warned the voters.  Now 4 years later, not much has changed at the community college, except enrollment is about 25% lower, but they’re still in need of more “funding”.  Hence the birth of Prop B, a 12-year extension of the tax to 2032 and an increase of $20 from $79 to $99 per parcel per year.

In a recent meeting of ours, one of our members offered to write an opposing argument to Prop B for submission to the DOE (Department of Elections) for the “free” lottery on August 18.  About a week prior to the deadline, we called the DOE for clarification on the pre-empting process, whereby members of the Board of Supervisors get first dibs at being the official opponents of ballot measures.  With all the free publicity and media attention they get just from being on the Board of Supervisors, which they can use for their political agendas, this pre-empting business is a travesty in itself since bona fide organizations and individuals only get the leftovers (paid arguments).  The manager at the DOE told us all official “pre-empters” are listed on the DOE website under “Local Ballot Measure Status”.  With limited resources (ballot measure argument writers), it didn’t make sense to waste time on writing arguments that would be rejected by the DOE on August 18.  Much to our surprise, we noted that Supervisor Aaron Peskin (a left-leaning supervisor) had pre-empted the opposing argument to Prop B.  One of our members joked that perhaps Peskin opposed the tax because it wasn’t high enough.  At any rate, we decided not to submit our member’s solid argument (listed above) on August 18, and we would decide after the lottery what to submit as paid arguments the following Monday.

To our utter shock, when the DOE ran the lottery, DOE Director John Arntz announced that no argument was submitted against Prop B and moved on to the next one.  What happened to Peskin’s opposing argument?  We checked with the DOE the next day, and they confirmed that Peskin was the official opponent but had in fact submitted nothing.

The LPSF reassessed its position, and decided to pay the $764 necessary to submit a paid 282-word argument (which appears at the end of this article).  We waited in line for three hours on August 22 with all the other individuals and groups submitting paid arguments (stations had been set up to streamline the process and handle the expected deluge of paid arguments for 25 local ballot measures, but in typical government fashion, the whole process was hopelessly bottlenecked due to the lack of checkers at the final step, despite an army of government workers sitting around on the taxpayers’ dime), submitted our paperwork, and paid our fee.

Afterwards we paid a visit to the SF Ethics Commission to lodge a formal complaint against Supervisor Peskin.  We were hopeful that an agency with the word “Ethics” in its name might actually be interested in dealing with what looked like abuse of a privilege granted to a public official to silence the opposition.  We were wrong.  Though the bureaucrat we tried to file our complaint with was pleasant and seemed sympathetic, she informed us that the commission has no jurisdiction in a case like this.  She recommended that we go back to the DOE and press them on the issue.  There you have it:  another useless club of bureaucrats on the taxpayers’ backs.  When you really need them for something legitimate, they’ve already checked out.

The plot thickened.  Three days later we received a call from the DOE.  In reviewing all the documents received for the paid arguments, they discovered that Prop B is actually a “district” measure, not a regular ballot measure, and as such no paid argument can be accepted.  They sent us a form to sign to request a refund of the $764 paid for the argument.  Needless to say, we will not be signing any such form any time soon—if at all—as it would signify our agreement with the DOE that all is well, the matter is closed, and the voters will never get to hear the other side of the issue.  The emails between the LPSF and John Arntz flew furiously back and forth for a week or two about the legality of no paid arguments being accepted for “district” measures.  We checked both the state and county election codes regarding this issue and could find nothing forbidding the SF DOE from accepting our paid argument.  In fact, Arntz confirmed, “There is no explicit statement in the state election code stating that paid arguments cannot be submitted”.  Unfortunately, he still insists that they cannot accept our paid argument because the code doesn’t specifically mention paid arguments.

Yet another bombshell dropped about a week ago.  We contacted the newspapers, a law firm, and various individuals in and out of government who might be able to help out.  Only one individual (whose name will remain confidential because that person stepped out on a limb for us) persisted in getting to the bottom of things.  The person found out that actually Peskin had wanted to submit an opposing argument, but he was not allowed to because CCSF is considered a state institution and the Board of Supervisors is not allowed to submit any arguments on state issues.

If that’s the case, why did the DOE list Peskin’s name on their website as the official opponent when he was not allowed to submit such an argument?  Don’t they know their own rules?  These rules are so vague that even the folks who pass one ordinance after another without blinking an eye seemed to have no clue at all as to when they can and can’t pre-empt a ballot measure, so how can the average citizen be expected to know the rules?  This was a monumental blunder on the part of the DOE to have put Peskin’s name up as the opponent when they should have known better—and that blunder ended up discouraging us (and possibly others) from submitting an opposing argument for the lottery.  We went back to Arntz with this latest bit of information; we would imagine this is an embarrassment to the DOE, so we suggested that this could be rectified by printing our paid argument so the voters hear the other side on this issue and making the rules clearer in the future to avoid such hassles.    Not a word back from him.

The voters have a right to hear both sides of this and every ballot measure.  As it appears right now, when the voters take a look at Prop B in the Voters Handbook—if indeed they do take a look in a year with 42 ballot measures—they will see the usual background information, the Controller’s statement, a ¾ page argument by the San Francisco Community College Board of Trustees touting all the wonderful things that CCSF does that warrant an extension and increase of the parcel tax, no rebuttal underneath, and then an almost blank adjoining page stating that no opposing arguments were submitted against this ballot measure.  Even a diligent voter would be inclined to vote YES since no one bothered to speak up against the measure.  If only they really knew!

Our blood is boiling over this issue, and we’re not throwing in the towel yet!  We did submit an official letter to City Attorney Dennis Herrera this week requesting a ruling on this whole issue.  We noted at the end of our letter that the City Attorney’s office protects tenant and consumer rights—and we hope that they will also protect voters’ rights.  We’re not holding our breath.

District has Paid Consultants Over $400k to Promote Bond

State law prohibits government officials from using taxpayer dollars in political campaigns. But on June 8, Keith Weaver of Government Financial Strategies stood before the Capistrano Unified school board, coaching trustees on how to pass an $889 bond measure on the November 8 ballot.

“November elections do better,” said Weaver, whose Sacramento-based firm has been paid at least $400,000 to manage what the district calls an outreach campaign. Weaver went on, telling the board that November is “when we have a lot of turnout. I would encourage us to focus on voter registration and focus on getting people to the polls because turnout helps bond measures.”

Under California law, government officials are allowed to provide information to the public for the purposes of voter education. They are prohibited from engaging in direct campaign efforts for tax increases.

But throughout the state, public officials are blurring the line between information and advocacy – often paying firms like GFS to run point on political campaigns, and especially campaigns involving tax hikes like Capistrano’s Measure M.

Capistrano Unified contracted with GFS for the purpose of “community engagement,” according to district documents. On its website, the company says it operates to assist the public sector in generating revenue – what most people call taxation. GFS’s website provides information on how to organize efforts to pass bond measures such as: “centrally organizing publicity efforts, involving students in volunteer activities, and reaching out to the senior citizen population.”

Capistrano USD has also contracted with another public affairs organization, Los Angeles-based Cerrell. That company’s website boasts Cerrell has “financed billions of dollars of public projects” through its “public communication” efforts. The website highlights Cerrells’ April 2015 role in passing Glendale’s Measure O, a two-percent increase of Glendale’s hotel tax: “strategic guidance, messaging, materials development and multilingual communications successfully educated Glendale voters… While voters rejected the other three measures on the city’s municipal ballot by wide margins, Measure O passed with nearly 60% support.” Cerrell credits the victory to its “comprehensive and compelling public education program.”

Since September, the district has paid Edelman some $24,000. At a September 28 meeting of Capistrano trustees, the district claimed Edelman would not be working on Measure M though documents indicate they’re being paid for “community engagement” efforts from October 1 through December 31. One of the nation’s oldest public relations companies, Edelman has managed marketing for such corporate giants as Hewlett-Packard, Microsoft, Johnson & Johnson, and Starbucks. 

Andrew Heritage is a California Policy Center fall Journalism Fellow. He is a doctoral student in political science at the Claremont Graduate University.

Survey Says! How One City Used a ‘Poll’ to Raise Taxes

On Halloween 2014, Stanton, California, city manager James Box wrote to the city’s residents. City officials were at the end of a year-long campaign to stampede residents toward acceptance of Measure GG, creating a one-cent city sales tax, the first of its kind in Orange County. They had warned residents that failure to approve the new tax would lead to something like the apocalypse.

Just days before the Nov. 4 election, Box spoke to them one last time.

“I’ve received a number of phone calls from Stanton residents about the city’s budget, employees, service challenges, and Measure GG which is on Stanton’s November 4, 2014 ballot,” he wrote.

In the face of obvious public concern, Box said, he was ready to meet residents immediately – or, rather, not immediately, but in three months, long after the election, in a public park clubhouse, on a Friday morning at 9 o’clock.

Box’s nonchalant response to the “number of phone calls” is evidence that the real purpose of the communication was what political consultants call “Get Out the Vote.” That Box invoked his determination to provide “helpful information on issues of interest and concern” and “accountability and transparency” reveal how upside-down City Hall had become: he used the language of open government to obscure his real interests and to shape public concern.

Look for a similar October surprise this year. Residents this year qualified a measure to repeal the 2014 sales tax, and that measure will appear on the city’s Nov. 8 ballot.

City officials paid Lew Edwards Group throughout the first campaign, and it’s likely they drafted the letter that came over Box’s signature. They’re still on contract with the city, running a campaign for which Stanton officials have now paid them well over $100,000.

Papers, please: Spanish-language version of Stanton survey.

Papers, please: Spanish-language version of Stanton survey featuring scary cop.

 

California law allows public officials to provide nonpartisan information to the public in the course of government business. In several high-profile cases, state courts have ruled that public education campaigns like Stanton’s must not be intended to influence the outcome of a political campaign.

The landmark 1976 case Stanson v. Mott established the standard: “A fundamental precept of this nation’s democratic electoral process is that the government may not ‘take sides’ in election contests or bestow an unfair advantage on one of several competing factions. A principal danger feared by our country’s founders lay in the possibility that the holders of governmental authority would use official power improperly to perpetuate themselves.”

Despite that and other court decisions, Stanton officials have run a three-year campaign to persuade its citizens to raise their own taxes – and keep them raised. They’ve paid for that campaign with the public’s money.

The 2014 campaign featured a number of official-looking letters as well as a push-poll in disguise as a community survey. Like Box’s Halloween letter, a push-poll pretends to be one thing while being another. It’s a method of communicating (or pushing) a political message under the guise of a scientific effort to collect public feedback.

The science behind surveys is complex. That’s why it’s fairly easy to determine that the city’s survey wasn’t a survey at all.

The Stanton “Community Feedback Survey,” released to CPC following a Public Records Act request, was mailed to voters in June 2014. It featured photos of children posing alongside firefighters and police. Inside the brochure, city officials warned residents that budget shortfalls would likely lead to cuts in budgets for police and firefighters.

City officials sent a more disturbing version of the push-poll to their Spanish-language residents. That official-looking document features a severe-looking clip-art policeman at the top, and a request for compliance in responding to the survey.

The one-sided push-poll is designed not to solicit meaningful feedback, but rather to lead citizens to answers that support the council’s conclusion: the proposed sales tax is essential to maintaining public-safety. By limiting responses to nine pre-packaged “priorities,” five of which were public-safety related, unsuspecting respondents would easily come to the conclusion that public-safety spending is important and balancing the city budget (which is a constitutional requirement) is good. If framing the response they sought was not enough, Stanton went a step further by selectively placing those photos of children playing around police and firefighters — hardly appropriate for a mere a purely informational campaign.

Despite that framing, some respondents thought outside the box. Nearly one in five told the city other issues were important to them. These respondents were not primarily concerned about public safety spending, but about attracting business, homelessness, code enforcement of noise complaints, and graffiti removal. One respondent suggested encouraging marijuana clinics to relocate to the city; another said, “I wish I were a genius with ideas that could help. Maybe a lot of prayer.”

The result of the survey was not a meaningful assessment of resident’s priorities – not a dispassionate interest in public sentiment – but rather a pseudo-scientific “study” that local politicians then held up as a justification for more public spending along with tax increases.

A month after the June mailer, the city council placed Measure GG, a 1-percent sales tax, on the ballot claiming it would raise $3 million annually to avoid public-safety cuts. As part of its contract with the city, the consultant actually helped draft the measure’s ballot description. Two months after that, in September, city officials mailed residents again – this time to tell them the survey results had been tabulated and showed that huge majorities of residents agreed that public-safety spending critical and so was balancing the city budget.

The city has responded to this coming November’s repeal measure on the ballot with neighborhood meetings called “Talks with the Block” to attack the repeal effort. Once again, the 2014 feedback survey has played a prominent role in that campaign, with city officials insisting that residents asked and voted for the controversial sales tax. And once again, the Lew Edwards Group’s contract with the city ends just days before the election.

Andrew Heritage is a California Policy Center Journalism Fellow. He is a doctoral student in political science at the Claremont Graduate University.

Keep Breaking the Law: Your Government Needs the Money

This column appeared first in the Los Angeles and San Francisco Daily Journal.

My colleague Matt Smith recently observed that Huntington Beach is following the model of Ferguson, Missouri: raising fines on misdemeanors in order to generate more revenue for a cash-strapped city. The Department of Justice found that strategy was a contributing factor to rioting that followed the police shooting of Michael Brown in Ferguson on August 9, 2014.

But more punishing than the fines themselves is the schedule of fees associated with each fine. In Amador County, in the Sierra Nevada just east of Sacramento, the superior court notes that its practice is to hit the guilty with a “penalty assessment” – $26 “for every $10 of the base fine amount or portion thereof as set forth by the California State Legislature.” The court helpfully directs unbelievers to Penal Code 1464 and Government Codes 76000, 70372, 76104.6, 76104.7 and 76000.5.

That means the penalties associated with misdemeanor fines are far more expensive than the fines themselves. It gets worse: Counties can even – and do – add additional penalties.

The penalties imposed by state legislators are remarkable for their randomness. There’s money for the DNA Identification Fund and the State General Fund. The state gets more money from the penalties – for its “Penalty Fund,” its “State Court Facilities Fund” and money for “Building/Maintenance for Courts.” Some of the money pays for court security and a big chunk goes to court automation and city funds. There’s even money for the Department of Motor Vehicles. The Amador court shows you how, through the magic of the state legislature, your $25 jaywalking ticket becomes a $193 fine.

The Orange County Superior Court follows the same formula, but adds bonus penalties for lawbreakers. In addition to the state menu, OC adds fees to fund Emergency Medical Air Transport, Emergency Medical Services, and a fee “to fund Night Court operations.” That, Orange County says, is how a $35 speeding ticket becomes a $238 fine.

The bottom line: Keep breaking the law, your government needs the money.

Matt guessed the Ferguson model will do nothing to lubricate relations between police and Huntington Beach residents. In fact, it places cops between cash-hungry government officials and residents. Last month, as the Orange County Register reported, the City Council approved a plan to hire a city prosecutor to handle all those tickets.

“A significant number of misdemeanors go unprosecuted,” City Attorney Michael Gates told the Register, adding that the prosecutor will “add a lot of teeth to our laws.”

“There will be a whole class of crimes that will now be prosecuted where the DA may not have gotten to them,” Gates said. “We will prosecute every one of them until conviction.”

Huntington Beach isn’t alone, of course. All across California, pressed by the rising costs associated with government employees, cities are following Ferguson – increasing government regulation of human activity and then monetizing infractions, turning citizens into a crop harvested for its cash. When the citizens can’t pay up, they are torn from their homes and workplaces to serve time – a process that sounds more like Victor Hugo’s Les Miserables than Alexis de Toqueville’s Democracy in America. The guilty often lose their jobs and families. In the end, their communities lose productive individuals.

“It’s a vicious cycle that hits people with limited income especially hard,” says Hieu Vu, a criminal defense attorney in Orange County. “If you can’t pay your traffic ticket, the court suspends your license. But you have to work so you end up driving with a suspended license. Eventually you get pulled over by the police and have your car taken away for 30 days and end up having to pay the impound fee of over a thousand dollars – and you now face the new criminal charge of driving on a suspended license.”

If you can’t afford to pay, you can agree to alternative community service, like picking up trash on freeway shoulders for Caltrans. Even that has its perils. Paul William Nguyen, an Orange County criminal defense attorney with Shield Litigation, recalls a single mother “sentenced to 10 days of Caltrans, in lieu of 10 days of jail for a minor driving offense.

“This poor woman and her toddler came to court on the deadline date and asked the judge for a short extension – she had completed eight out of the 10 days of Caltrans and indicated that she was a single mother and the sole breadwinner in her family.

“The judge was not moved,” Nguyen says. The woman had made a contract, the judge said, and he expected her to honor it. He sentenced her to “the whole 10-day jail sentence and remanded her immediately. Her toddler was ripped out of her arms and she was handcuffed and transported to jail.”

“While she was ‘honoring’ her agreement,” Nguyen says, “her child was handed over to Social Services.”

Straitjacketed by constantly rising public employee compensation, local officials are raising taxes, fees and fines. In Ferguson, it took only one substantial conflict – the shooting of Michael Brown – to set off the chaos that followed. No right-thinking person supports the rioters; no right-thinking person can ignore the political context in which that riot took place.

Will Swaim is the VP of Communications at the California Policy Center.

School District’s Bond Controversy Reveals Rising Concern About ‘Pay-to-Play’

Vital force.

CUSD’s Kirsten Vital 

In the space of just a few months, state officials have suddenly turned their attention to a problem in the public-educational shadows: insider dealing among California school district officials and outside vendors.

In a January opinion, state Attorney General Kamala Harris concluded that school officials had become too cozy with companies that stand to benefit from passage of high-ticket school bonds.

“A school or community college district violates California constitutional and statutory prohibitions against using public funds to advocate passage of a bond measure by contracting with a person or entity for services related to a bond election campaign if the pre-election services may be fairly characterized as campaign activity,” Harris wrote.

In July, California Treasurer John Chiang warned districts about the same problem. And in August, Gov. Jerry Brown signed into law AB 2116, creating financial oversight committees for the spending of bond revenue.

Despite the scrutiny, companies looking to do business with the Capistrano Unified School District are major contributors to the district’s massive $889 million bond, Measure M on the November ballot.

Contributors include construction, engineering and architecture firms. Documents first published by Dawn Urbanek, a South County activist, show Tilden-Coil Constructors gave $25,000; $15,000 came from WLC Architects; computer giant Dell gave $4,000 to the effort.

Some of the contributors have already worked for the district. WLC Architects designed the Capistrano Valley High School Performing Arts Center. School officials approved five payments to WCL Architects (total: $43,781.03) during a September 14 meeting.  

At the center of the controversy: CUSD’s top administrator, Superintendent Kirsten Vital.

Vital ran into similar trouble at her job in the Alameda Unified School District. Her highest-profile collision in Alameda involved an Oakland-based political consulting firm with multiple ties to the district. That firm worked for Vital to promote the district’s Measure H Bond in 2008. The next year, the school board appointed the firm’s two partners to a Master Plan Advisory Group that year. That same year, Vital paid the firm $14,000 for “design and programming of AUSD website redesign.” In the same year, Vital created a webmaster position and hired AUSD Board Trustee Mike McMahon’s daughter Rebecca McMahon to fill the position. Her salary, depending on tenure, ranged from $41,000 to $51,000 per year.

At the same time, Vital faced a series of pay cuts in Alameda. She earned $273,908 in 2012; dropped to $262,823 in 2013, and to $214,031 in 2014. In three years her pay dropped 22%.

Interestingly, Joseph M. Farley, her predecessor at CUSD, rode a more dramatic financial downhill. Documents provided by Transparent California show Farley earning $287,073 in 2013. In 2014, he made just $203,773, a one-year drop of 29%.

 

vitalsalary-2

 

Vital’s original CUSD 2014-2018 contract gave her an annual salary of $305,000 – a huge bump over her Alameda salary (and Farley’s in CUSD). She also received a $15,000 relocation assistance stipend. That four-year deal was amended after just two years, in 2016. The new contract, extended through 2020, gave her an annual salary of $319,244 and another bonus, this one a $14,244 “discretionary payment.”

Conor McGarry is a graduate of California State University–Dominguez Hills, and a Journalism Fellow at California Policy Center.

 

Controversial ‘Education Center’ Schools Parents in Bond Pitfalls

Capistrano Unified HQ: District staff staff labored in something that looked more like a Four Seasons resort.

Capistrano Unified HQ: More like a Four Seasons resort.

Anyone looking down the barrel of an $889 million school bond should consider what the Capistrano Unified School District did with its last bond, in 2002.

After issuing the bond – called a certificate of participation (COP) – the district began constructing a $35 million administration building in San Juan Capistrano, east of I-5. Opened in 2006, Capistrano USD called it the Education Center.

Critics called it the Taj Mahal. In a recall notice some of them delivered to trustees, they sounded as if they were attended by men in short pants, tri-corner hats and a fife-and-drum corps. “You are are recklessly spending $52,000,000 on an administration building … while our schools are in dire need of repairs and students are crammed into substandard portable classrooms with non-functioning restrooms,” they wrote.

Meanwhile, Superintendent James Fleming’s staff labored in something that looked more like a Four Seasons resort. Controversy was probably inevitable. Fleming didn’t make things better when he went on the offensive, tracking his critics on what some called an enemies list, and either blaming others for the overbuilt Education Center or suggesting it was actually an entrepreneurial marvel – a revenue-generator operated by a government agency.

“In terms of the design of the building, it was put together by a committee of people and built to accommodate tenants that would pay rent,” Fleming told the Orange County Register.

That last piece – that Fleming and other district officials planned to pay off the bond in part through leases paid by non-district tenants – became yet another point of criticism.

But the lease revenue isn’t going toward the debt. In 2008, two years after the ribbon-cutting at the Education Center, the Great Recession hit, and government agencies began their feverish search for new revenue. In 2012, Capistrano Unified determined that revenue from tenants leasing space in the Education Center would better serve the district in the general fund – where it could be used to support the salaries of teachers who had gone on strike following a 10% pay cut in 2010.

A bond intended to improve buildings had, in short, become a way to generate income for operating expenses.

Controversy surrounding the Education Center ignited two recalls of school board trustees, in 2005 and 2010. The first recall failed but exposed the enemies list.

Fleming insists the enemies list was a myth created by his enemies.

“There is not now and never was an ‘enemies’ list,” Fleming told the Orange County Register in 2011.

In December 2010, a California appellate court acknowledged the existence of Fleming’s list, but dismissed the charges against him. The logic: it was within Fleming’s purview as superintendent “to research the nature of the discontent and unrest in the district at the time.”

By then, Fleming had already been retired for four years. He sued Capistrano Unified for severance pay, lost future earnings, and legal expenses. An appellate court ruled against him.

The district Fleming fled is asking voters to approve an $889 million bond on the November ballot. Fleming? He’s retired and living in Florida, collecting a $155,540 annual pension from his time at Capistrano Unified.

Catrin Thorman and Andrew Heritage are California Policy Center Journalism Fellows. She is a graduate of Azusa Pacific University, and a former Teach for America corps member. He is a doctoral student in political science at the Claremont Graduate University.

OC’s Measure M Treats Some Homeowners More Equally Than Others

Orange County voters are being asked to approve over $2.4 billion in new school bonds. The largest bond: Capistrano Unified School District (CUSD)’s $889-million Measure M.

The new CUSD bond would be serviced by property owners in most of the school district, but not quite all of it. One community, Rancho Mission Viejo, won’t be voting on Measure M and won’t be paying the new taxes if it passes. CUSD’s Measure M web page says the new community is being excluded on the grounds that it won’t have a school until Fall 2018, when Escenia Elementary will begin serving Rancho Mission Viejo residents. But this ignores the fact that community members can send their children to Tesoro High School, which will receive upgrades from Measure M proceeds.

In reality, district officials removed Rancho Mission Viejo from the Measure M bond district to avoid a political showdown with powerful, sophisticated real estate developers there.

In a June 22 meeting of the district board, Trustee Jim Reardon, a bond opponent, noted that “there are areas of the school district that are large and undeveloped, and privately owned, and we are going to face opposition from the landowners in those areas.”

“Then carve them out,” responded Trustee John Alpay, a Measure M supporter.

Alpay had earlier argued for using a “Swiss-cheese model” to design a district in which well-organized opposition might torpedo the district.

“You need to go through, you need to start with the whole district, and then you need to start cutting out those areas that you know that we could live without in terms of finance,” Alpay said, according to transcripts of that meeting. “They’re not gonna support it. Any rational political person is gonna do that … Get rid of them. Carve them out. There is no reason to have them in there. And I could make the same argument of other parts of the district, and that’s what we should do. I’m not saying it should be, or should be Mello-Roos districts, but this idea of one unitary is wrong. The idea of six is also wrong. It has to be something in between.”

But to exclude Rancho Mission Viejo and other potential opponents, the CUSD board needed to create a special district for the purpose of enacting the bond. In July, with a Rancho Mission Viejo Co. official in the audience, officials approved the bond district – minus the Rancho Mission Viejo Co.

Known as Capistrano Unified School District School Facilities Improvement District No. 2 (SFID No. 2), the new district will be layered atop a hodgepodge of existing special taxing districts within CUSD. The school district already has an SFID – SFID No. 1 – and it also has 10 Community Facilities Districts (CFDs) – also known as Mello-Roos districts.

Creating and administering special districts imposes extra costs. Also, special district bonds may attract lower ratings and be harder to sell to investors than more easily understood and better diversified district-wide general obligations. This should be a concern for CUSD, most of whose SFID No. 1 bonds carry a surprisingly low A+ rating from S&P – four notches below the agency’s maximum AAA rating.

CUSD is unusual in that some homes can be in multiple districts – the existing SFID, the proposed new SFID and a Mello-Roos district. Such is the case for homeowners in Whispering Hills Estates. As the 2015-16 tax bill for one lucky owner shows, total taxes are almost $16,000 on an assessed value of $837,000. About $7250 of the taxes go to servicing two SFID bonds (listed as CAP USD ID1) and the Mello-Roos obligation (CFD 2005-1).

More expensive properties draw even higher tax bills. This second tax statement, for a property assessed at $1,080,000, shows a total of $19,000 in taxes.

And these taxpayers will be paying more in the years ahead – with or without Measure M. The Whispering Hills Mello-Roos district just issued a new bond that will further increase the Mello-Roos tax there. In 2016-2017, the CFD tax alone will range from $6820 on the smallest homes to $9500 on the largest (see page 21 of the bond document).

According to CUSD, Measure M will add $41.81 of new taxes per $100,000 of assessed valuation in the first year after enactment, climbing to $42.99 per $100,000 in fiscal 2032-33. By law it can rise no higher than $60 per $100,000. This may not sound like much – until you consider the impact on a property over the 30-year typical life of a bond program. At $42 per year for 30 years, total taxes are $1260 per $100,000 of assessed value. If your house is worth $1 million – not atypical for the area – the lifetime tax is $12,600. And this is on top of the hefty tax bills CUSD residents already pay.

Finally, it is worth noting that the district is issuing the bond after years of flat to declining enrollment. In the 2011-12 school year, 50,538 students were enrolled in CUSD. In 2015-16, the figure had fallen to 49,120 (as shown on page A-2 of the bond document mentioned above). While new construction may stall this trend, it seems unlikely that the area will be hit by a wave of new students, making one wonder whether it would be possible to get by on something less than $889 million in new construction.

Marc Joffe, a policy analyst with the California Policy Center, was a senior director at Moody’s Analytics. He earned his MBA from New York University and his MPA from San Francisco State University.

 

What’s Wrong With the Economy?

Why are so many people unhappy and angry? Why is the electorate turning to populist candidates like Bernie Sanders and Donald Trump? Why are they so mad at the Washington D.C. establishment? What’s the problem?

Perhaps the biggest problem is the low growth of the economy leading to fewer job opportunities and little or no growth in family incomes coupled with the rising cost of two family essentials: health care and education. Housing costs have also risen faster than family incomes.

In this first of a series of articles, we will discuss the rapidly rising cost of health care and education. Subsequent articles will discuss the reasons for the low growth of the economy and family incomes.

Attached is a graph from a Foundation for Economic Education article “Why luxury TVs are affordable and health care is not.” It provides some of the answer.

Price Changes 1996 to 2016:  Selected Consumer Goods and Services

20160915-cpc-fletcher

The chart shows that over the past 20 years inflation has averaged about 2.2% per year so that something, on average, that cost $1.00 in 1996 would cost about $1.55 today.

Is inflation of 2.2% per year a problem? It’s very close to the inflation target the Federal Reserve is trying to maintain via monetary policy, 2.0% per year.

There’s more to the story and inflation is a big problem for a lot of people.

First, the inflation rate is based upon consumer purchases of a standard basket of goods and services. This doesn’t measure inflation in financial assets such as stocks, bonds, and commercial real estate. Inflation in housing is measured indirectly looking at a rental equivalent for owner occupied homes. When these financial assets go up, it’s considered a good thing, investors are making money, and is not thought of as inflation by most people. To the extent that the prices of stocks, bonds, and commercial real estate are increasing due to fundamentals such as increases in company earnings, market driven interest rate changes (not manipulated by the Fed), or increases in rental rates for commercial properties this is not inflation but a real increase in value. However, we don’t separate out real versus inflationary increases in financial assets.

Inflation of financial assets increases wealth differentials since it’s high income people who already own most financial assets and gain the most from asset price inflation.

Second, all consumer goods and services are not increasing at the same rate as shown on the chart. Thanks to improving technology, advanced manufacturing methods, low cost labor from China and Mexico, and other factors, most products and services are getting cheaper and better such as flat screen TVs. There are often significant improvements in quality, performance, and features that aren’t even captured by measures of inflation. For example, car prices haven’t increased much in the past 20 years but there have been major improvements in performance, features (mainly electronics), safety, reliability, and durability.

It was only one generation ago that a long distance phone call was very expensive and we counted the minutes we were on the phone. Now, we have portable cell phones and the cost of communications, data as well as voice, is low and decreasing.

Thanks to technology, innovation, and other factors, most of the things we need or want are getting more affordable. However, some things are getting much more expensive in spite of new technologies and other factors that should dramatically reduce their cost. The biggest are education and health care.

Why doesn’t the cost of health care and education exhibit the same trends as most other things we buy? Compare the experience of buying something where companies compete for your business (automobiles, clothes, consumer electronics, entertainment, etc.) to your purchases of health care and education.

A major problem in sectors where there are rising costs is a lack of choice and real competition in the marketplace. Users of health care, for example, are not in a position to act as customers and make intelligent choices based on price, quality, and other measures, choosing from suppliers who have to compete for their business. Health care is increasingly being delivered by large, bureaucratic, highly regulated, near-monopolies.

For health care and education, there are substantial barriers to real competition, innovation, new technologies, and potential new competitors. Is it even possible to have an Uber, Amazon, or Google equivalent for education or health care?

Why can’t a patient communicate with their doctor via e-mail or talk to them by phone? Because in most cases, they aren’t paid for answering an e-mail or talking on the phone. They have to see the patient to get paid.

Why did we even need the Affordable Care Act anyway? If we wanted to cover an additional 30 million uninsured, why not expand Medicaid? Medicaid already covered millions and an estimated 9.0 million of the uninsured were already eligible for Medicaid but hadn’t signed up. Most of the coverage expansion under the ACA is from adding more people to Medicaid anyway. Did we really have to overhaul the health care industry to accomplish this?

Also, health insurance is not health care. Under the ACA, insurance premiums for low income people are subsidized to reduce their cost. Taxpayers pay the difference and hide the true cost of the program. Even then, the low-income insured have to pay often unaffordable co-pays and deductibles. Some services are excluded and there are often narrow provider networks that limit access to many physicians and hospitals.

Similarly, student loans did little or nothing to improve education or even give many additional people access to a college education or other training. We now have about $1.3 trillion in outstanding student debt, more than total credit card debt. All this money has allowed educational institutions to increase their prices without improving their product (inflation) or to substitute student debt for taxpayer support in the case of state universities. In addition, the national statistic is that it now takes six years on average for someone to earn a four-year BA or BS degree. Even then, less than 50% graduate. This is a major loss of productivity when it comes to a getting a college education.

The cost of K-12 education probably has a trend similar to higher education. The cost per student hasn’t gone up as much but more of the money available is being spent outside the classroom such as for higher teachers’ pensions and health care expenses, more administration and reporting, etc. Programs such as music and sports have been cut to divert funds to other purposes.

In our high-tech world, why don’t students have tablet computers with state-of-the-art, interactive educational software? Most have cell phones. Why don’t we teach computer programming in primary school?

We can see why there is a lot of voter dissatisfaction. In addition to rapid inflation of health care and education costs, average family income hasn’t been growing very fast since about 2000. The cost of educating children or paying for health care is growing much faster than it should be and is rapidly becoming unaffordable to more families.

Raising the minimum wage or providing “free college” isn’t the solution. All this does is shift costs, someone else pays. We need to address fundamental problems that prevent education and health care from benefiting from technology and innovations that would significantly reduce costs, improve quality and convenience, lead to better health care and education outcomes, and make basic, affordable health care and education available to everyone.

What needs to be done? Slowing the growth of health care and education costs isn’t enough. We need major changes that will fundamentally reduce the cost of health care and education. If we don’t solve the cost problem, we can’t afford to give everyone the access to health care and education that most of us would support as policy objectives. Why not try for a 50% decrease? We need creative thinking and some very bold initiatives.

Health care in the U.S. already consumes 18 percent of our GDP compared to 10 to 12% for other developed countries who manage to have universal coverage in spite of spending less. At 18% of GDP, the U.S. spends about $10,000/person on health care, $40,000 for a family of four. Where does all this money go?

For college, why can’t someone get a BA degree in three years attending school full-time, twelve months/year? That should be enough time to take the credits required. What about practical, cost effective job training and apprenticeship programs for careers that don’t require a college degree? Do students need to attend class when most course content can be delivered online? Why can’t they get together for workshops, labs, and discussion groups but get their lectures over the Internet on a schedule of their choosing?

We can’t achieve the goals of universal health care and quality education for all unless we are open to revolutionary improvement in how these services are delivered. Uber anyone?

About the Author:

William Fletcher is a business executive with interests in public finance and national security. He retired as Senior Vice President at Rockwell International where most of his career was spent on international operations and business development for Rockwell Automation. Before joining Rockwell, he worked for Bechtel Corporation, McKinsey and Company, Inc., and Combustion Engineering’s Nuclear Power Division, and was an officer and engineer in the U.S. Navy’s nuclear program. His international experience includes expatriate assignments in Hong Kong, Europe, the Middle East, Africa and Canada. In addition to his interest in California’s finances, he is involved in organizations dealing with national security and international relations. Fletcher is a graduate of Tufts University with a BS degree in Engineering and a BA degree in Government. He also graduated from the U.S. Navy’s Bettis Reactor Engineering School.

LAUSD Spends More Even as Enrollment Drops

Editors Note: By almost every objective standard, the educational outcomes delivered by the Los Angeles School District are among the worst in the nation. The following article documents how LAUSD has spent millions, hundreds of millions, on budget items that have little impact on the quality of classroom education, all the while attempting to blame charter schools for their budget challenges. We’ve dug into this issue in other articles published this month: “LA Story: The Poorer You Are, the More Likely You Are to Support Charters” documents how, ironically, it is the wealthy enclaves of Los Angeles where voters support union backed school board candidates, and how voters in underprivileged communities are more likely to support reform candidates and charter schools. In “ACLU Turns its Back on LA’s Poorest Students in Attack on Charter Schools” we describe recent efforts by the ACLU, surprisingly, to discredit charter school performance using biased statistics. In “Anti-Charter-School Rhetoric Isn’t Helping L.A.’s Kids,” a board director of the nonprofit Alliance College Ready Public Schools debunks the unfounded anti-charter school claims that are relentlessly pushed by the teachers union. There is a war in Los Angeles for the future of the next generation of citizens. The war is not between unions who care about students and “millionaires and billionaires trying to hijack education for profit.” The war is between innovative charter school operators, nearly all of them nonprofits, who are logging impressive successes against a teachers union that is bent on their destruction.

The Los Angeles Unified School District is hemorrhaging cash, and the teachers union wants you to believe the problem is charter schools. The real problem is closer to home: district officials and teachers union leaders who systematically raid the coffers with no regard for the consequences.

LAUSD’s new $7.6 billion budget, issued in June for the coming fiscal year, adds $700 million in new spending. Most of that new spending will fund expenses outside the classroom as the district struggles to pay for increased benefits. This new budget comes just after state officials ordered the district to stop misallocating funds intended for high-­needs students. Local advocates say the new LAUSD budget continues to violate the state order.

LAUSD continues to spend more even as the district has lost over 100,000 students since 2006 – a drop of more than 20%. Despite the exodus, union leaders have pressed the district to add teachers and administrators. The district has seen a 22% increase in administrative staff over the last five years. Those teachers and administrators earn relatively generous salaries and benefits despite the abysmal performance of LAUSD schools overall. That generosity has produced unfunded pension liabilities of roughly $13 billion – about 1.5 times the district’s annual operating budget. Its operating budget runs a deficit of $333 million and rising, projected to exceed half a billion annually by 2019-­2020.

Then there are the district’s laughable, myriad budgeting failures. LAUSD has spent $73 million for a new ethnic studies program that was supposed to cost $4 million. The district will have spent more than $200 million for a new computer system by 2018 – for which they originally budgeted $27 million. That miscalculation was so severe that it required a temporary district­wide hiring freeze.

The truth, then, is that charters are not the problem.
The problem is that LAUSD schools are consistently
among the worst in the United States – and that residents
pay a premium for those miserable results.

Last year, the district clocked several financial disasters. In April 2015 alone, Superintendent Ramon Cortines asked the school board to set aside $1 billion in additional funds for a union health care agreement – and wanted the board’s approval before they’d even been presented with the district’s annual budget. This being the LAUSD, the school board agreed, even refusing board member Monica Ratliff’s request for a 10­ year analysis of the district’s future obligations.

At the same time, the LAUSD school board unanimously approved a teachers contract that included a 10.36% pay raise and added $278.6 million a year to the district’s budget deficit. Board president Richard Vladovic, endorsed by the teachers union, claimed the contract was “the right thing to do” because teachers “are worth every penny, and more.” A good idea, but can the district afford it? Vladovic said the superintendent would figure out the math. In the same agreement, the school board agreed to hire 139 additional teachers and allowed teachers to collect 14.3% of their annual salary in back pay over the next two years.

Despite this assortment of imprudent financial decisions by the union ­controlled school board, United Teachers Los Angeles, the LAUSD teachers union, blames charter schools for the district’s problems. As part of their propaganda effort, the union funded a study claiming charter schools have cost LAUSD $591 million in lost revenue due to declining enrollment. Many district officials and charter school leaders disagree, pointing to numbers that suggest charter schools actually bring LAUSD money.

The truth, then, is that charters are not the problem. The problem is that LAUSD schools are consistently among the worst in the United States – and that residents pay a premium for those miserable results. Instead of solving its financial problems, Los Angeles Unified makes them worse with every new budget. LAUSD requires serious financial reforms to maintain fiscal solvency, and these reforms must start with reining in unions, not attacking charters, the only part of Los Angeles Unified that is successful.

David Schwartzman is a junior studying economics and applied mathematics at Hillsdale College. He is a Journalism Fellow at the California Policy Center in Tustin.

LA Story: The Poorer You Are, the More Likely You Are to Support Charters

Los Angeles school teachers gathered in August in the posh, iconic – and for the group, weirdly ironic – Westin Bonaventure Hotel. They heard their union’s leaders extol their role as revolutionary defenders of the city’s poorest communities against the wealthy.

But that’s not how the city’s poor have seen it. The poorer you are, it turns out, the more likely you are to believe LA school district leaders have stranded the poor, data reviewed by the California Policy Center suggests.

It’s actually the rich who tend to like the teachers union – a fact that seems to turn the whole class-conflict paradigm on its head. While wealthy Angelenos on the north and west sides of the Los Angeles School District support the teachers union, generally poorer neighborhoods in the south and east often elect reform-minded candidates to the board of education.

CPC evaluated school district representatives – rating them either reformers or union supporters – and overlaid LA Unified’s seven local school districts with a neighborhood income map. The results are conclusive: Voters in the highest-income areas, namely Bel-Air, Porter Ranch, and Beverly Crest elected Steve Zimmer, Scott Schmerelson and Monica Ratliff – all union supporters. Voters in the poorest-income areas – downtown, South Gate and Wilmington elected Monica Garcia, Ref Rodriguez and Richard Vladovic – all reformers backed by charter school advocates.

The split between the high- and low-income voting preferences also correlates with the Academic Performance Index of schools (API). Wealthy families have access to better schools and are therefore likely more satisfied with the status quo. Conversely, poor families send their children public schools that provide a lower level education and therefore have more reason to hope and vote for change. Large neighborhood high schools in LAUSD’s three northern districts averaged an API of 702. Their counterparts in the poorer southern districts averaged 660.

(Perhaps the worst news: even the best public schools are underperforming. California’s state target API score is 800 – 98 points above the north LA average.)

Sean Corcoran, a professor of Educational Economics at New York University, has seen this phenomenon before

“We find that low school quality – as measured by standardized tests – is a consistent and modestly strong predictor of support for charters,” Corcoran observed in a 2011 paper on Washington State Charter Schools.

It’s obvious – but jarring if you listen teachers union leaders.

At their July 31 conference, United Teachers Los Angeles president Alex Caputo-Pearl depicted a Los Angeles in which the wealthy are working overtime to destroy public education.

“Billionaires across the country are looking at Los Angeles as the next and biggest opportunity to privatize and profit from the education of children,” he said. “From late August to late September, over 70 billboards, signs, bus benches and more will carry our messages that billionaires should not be driving the public school agenda, and that amazing people work in our public schools every day.”

Caputo-Pearl mentioned “billionaires” six times in his speech and “money” five times.

Ironically, the billionaires running charter schools occasionally represent LA’s best educational hope. In a 2015 comparison of union schools and charters, my colleagues at the California Policy Center found that charters cost less and teach students more effectively than union schools. In standardized testing, study authors Marc Joffe and Ed Ring noted, “Charter students outperformed the LAUSD traditional students with average [SAT] scores of 1417 to 1299.”

That performance difference might explain more than anything the preference among less wealthy voters for charter schools. Now, at last, those poorer Angelenos have a choice in schools, just like parents in LA’s richest neighborhoods. The poor are finding their voice, and they’re using it to say they want real education for their children.

Their votes have a tangible impact on the board, where the union/reform divide appears frequently. On March 8, the WISH academy (a network of two charter schools operating just west of Inglewood) petitioned to form a high school. Union-backed Steve Zimmer, the district board’s president, moved a motion to deny the petition on alleged financial grounds. When the motion was not seconded, second district trustee Garcia, a reformer, moved a motion to approve the academy charter. Third-district trustee Rodriguez, a public proponent of charters, seconded Garcia’s motion immediately.

After a two-hour debate, they voted. Garcia, Rodriguez, and Richard Vladovic (all reform-funded) voted yes. Monica Ratliff, a young, former teacher from the sixth district, joined them. George McKenna III and Scott Schmerelson voted no. As candidates, both were funded and endorsed by United Teachers Los Angeles. Zimmer had the last vote – and at 4-2, he could safely take a bold stand either for or against the charter school. Instead, Zimmer abstained.

Adam Jacobs is an intern at the California Policy Center. He attends George Washington University in Washington D.C.

ACLU Turns its Back on LA’s Poorest Students in Attack on Charter Schools

The ACLU has aimed its considerable legal firepower at charter schools. The reason? They aren’t enough like our failing traditional public schools.

In a recent report, the ACLU condemns 253 California charter schools for what it sees as a violation of discrimination law, citing examples of charter schools requiring consistent attendance and, in some cases, prerequisites for admission. Although the schools on the ACLU list represent only 20 percent of all charter schools in California, the ACLU declares that these exclusionary practices are likely only the “tip of the iceberg.”

The ACLU is right to focus on the challenges facing low-income students. But charter schools are generally better than traditional, union-controlled schools — and inarguably prefered by charter students and their parents. Studies consistently show that charter schools generate better results for low-income kids.

Yet, in choosing to critique charter schools, the ACLU is once again failing to address the real problem with public education: teacher union control of public education.

20160915-cpc-acluACLU headquarters at 1313 W 8th St. in downtown Los Angeles
Whose side are they on? The teachers union? Or underprivileged students?

Consider the group’s high-profile 2010 case Reed v. California. Reed began in the aftermath of the Great Recession, when the Los Angeles Unified School District pink-slipped thousands of teachers. Because of its agreement with United Teachers of Los Angeles, the district canned the teachers based on seniority alone – not because of performance. Where do the least-senior teachers begin their Los Angeles teaching careers? In its worst-performing schools.

The ACLU, citing equal protection concerns, asked a superior court judge to stop the madness.

In 2010, the judge allowed the ACLU and LAUSD to work out a settlement that, ACLU said, “marks a departure from the LAUSD’s long-standing ‘last hired, first fired’ policy that determines layoffs solely by seniority.” The settlement banned the practice of seniority-based layoffs in 45 under-performing “Reed schools.”

Because the settlement struck at the heart of the union seniority system, it was probably predictable that United Teachers of Los Angeles filed an appeal to overturn it.

The Court of Appeals granted the union’s request on a technicality: UTLA, the court said, was not given a proper hearing in the original trial, even though the settlement directly affected a core policy of the teachers union contract.

When it became clear that UTLA would dedicate its vast resources to fighting the ACLU in court, both parties decided to settle. By April 2014, the ACLU, LAUSD and UTLA had reached an agreement that preserved the union’s power: taxpayers in the district would pay $25 million per year for three years to support “additional assistant principals, counselors and special education support staff, expanding professional development for teachers and administrators, offering a bonus to retain and recruit principals to these high-need schools, and selecting experienced mentor teachers from school staffs,” the ACLU proclaimed.

Was the real headline – as the ACLU’s April 2014 press release had it – “Settlement of Reed lawsuit delivers for students at 37 struggling L.A. schools”? Or was it that the ACLU, LAUSD and UTLA had forced district taxpayers to pay more to sustain the union’s system of seniority, a system that the ACLU had previously asserted was violating the equal protection guarantee of the California Constitution? Evidence points to the latter.

This wasn’t the first time that LAUSD had committed to providing more resources to schools in low-income neighborhoods. In fact, an earlier court case had resulted in a very similar policy to address a very similar problem.

Rodriguez v. LAUSD was filed in 1986 and argued that schools in low-income neighborhoods suffer because they often lack a stable corps of veteran teachers. The case resulted in the Rodriguez Consent Decree, which ruled that LAUSD must make efforts to achieve an equitable balance of veteran and new teachers across all schools. In addition to filling vacancies in schools in high-income areas with new teachers and filling vacancies in schools in low-income areas with more experienced teachers, the district committed $11 million per year on teacher training for schools in low-income areas.

Sound familiar?

Unfortunately, the strategy of committing more resources didn’t work then and it isn’t working now.

Over a decade after the Rodriguez Consent Decree took effect, the nonprofit Education Trust-West published a report claiming LAUSD still had not achieved an equitable distribution of experienced teachers among its schools. Academic results remained poor. But in 2006, rather than ramping up efforts to achieve educational equality, the courts rejected efforts to renew the Rodriguez Consent Decree for an additional five years. Judge Joanne O’Donnell apparently agreed with district lawyer John Walsh, who declared that an extension was unnecessary because “we have outlived it.”

And today, two years after the Reed settlement, schools in low-income areas are still primarily staffed by new and inexperienced teachers, and the district still targets those teachers for layoffs.

If the ACLU really wants to help students in low-income neighborhoods, it should return to the root problem: the “last in, first out” system perpetuated by UTLA. The ACLU has the opportunity to do so by supporting the plaintiffs in Vergara v California, a suit that argues children have a right to effective instructors, and among other things, challenges the constitutionality of seniority.

There’s ample evidence that this modest change would dramatically change the lives of individuals and transform communities. Stanford economist Raj Chetty, for instance, estimates “students would gain $2.1 million in lifetime earnings if California used effectiveness-based layoffs instead of seniority-based layoffs.”

However, instead of supporting the students in Vergara, the ACLU has turned its attention to charter schools, the only part of the public education system which functions without union interference. The ACLU has sued charter schools time and again. Meanwhile, it settles for a status quo in public schools that has repeatedly proven ineffective.

ACLU rose to prominence as an organization that defended the indefensible and challenged established institutions. Charter schools are a continuation of this entrepreneurial spirit, and their success represents what other public schools could be if freed from the demands of government-union control.

David Schwartzman is a junior studying economics and applied mathematics at Hillsdale College. Blake Dixon is a senior at Yale majoring in economics. They are journalism fellows at the California Policy Center in Tustin. This article first appeared in The Daily Journal.

Anti-Charter-School Rhetoric Isn’t Helping L.A.’s Kids

As the son of poor sharecroppers from East Texas who came to California to work as migrant farm workers, I greet the new school year as a time of hope and possibility for my family.

Neither of my parents was able to complete elementary school in the segregated South, but they knew education was the ticket to a brighter future for my brothers and me. With their encouragement, I went on to graduate from UCLA and Harvard law school. I was lucky to have been raised in a small town with few minority students and an excellent Public School system. Many of my relatives and friends who lived in Los Angeles did not receive the same education opportunity I was afforded.

As a result, I have spent the greater part of my adult life committed to expanding educational opportunity, especially for poor black and brown kids who are just like me. I am increasingly dismayed at the nasty polarization in education politics. For those of us who say we are concerned about public education, we urgently need to change the tenor and discourse about how to improve all of our schools.

20160907-CPC-Alliance
Alliance charter high schools have a 95% graduation rate

Regrettably, this new school year has begun amid ill-informed denunciations of charter schools by the NAACP and Black Lives Matter; a skewed and misleading piece by TV comedian John Oliver; and closer to home, a hyperbolic call to arms by the president of United Teachers Los Angeles, the teachers’ union for Los Angeles Unified schools, against charter schools more broadly and specifically against Alliance College-Ready Public Schools, of which I am a founder and on whose board I still sit.

Missing in all the critiques of charter schools is any mention of student needs and achievement. Instead we are fed abstract arguments about the need to protect bureaucratic government systems that have shortchanged minority families for decades. Missing has been the voices of hundreds of thousands of parents who have found a better opportunity for their children in innovative, autonomous public charter schools.

At Alliance schools, neither our students nor their parents care about the governance structure of their school. Like my parents, what they care about is if their school is safe and welcoming and whether it lives up to the promise to educate all students regardless of how they walk in the door. At Alliance, we have lived up to that promise.

The average Alliance student enters our middle and high schools four to five grade levels behind in reading. Yet, 95 percent of Alliance students graduate in four years and 95 percent of those graduates are accepted to college.

It is highly insulting to the 12,500 families and 1,200 teachers, school leaders and staff — who have worked tirelessly to build Alliance into one of the largest and most successful public school networks in the nation — to dismiss their hard work and dedication to student success as a nefarious conspiracy led by a secret cabal of “billionaires” determined to destroy public schools. It’s also an offensive distortion of reality.

When I hear the president of UTLA regularly condemn Alliance specifically and charter schools more broadly, I feel that I am living in an alternate reality. In any rational universe, Alliance schools would be celebrated, studied and asked to share what we have learned.

There is a strong case to be made for the positive impact charter schools like Alliance have had on traditional public schools. In Los Angeles, we have helped to change the debate and expectations about what is possible, especially for black and brown students in our city’s lowest-income communities.

More important, we’ve made a difference in the lives of our students and their families. Beyond the exceptional results of Alliance schools, the 2015 research study by Stanford’s Center for Research on Education Outcomes found that the academic gains in math and reading for African American, Latino, low-income and special education students in urban charter schools are significantly higher than traditional urban public schools. The example of what is possible at high-performing charter schools has helped spur the LAUSD to increase graduation rates as well as strengthen its commitment to college-ready education for all students.

I applaud LAUSD Superintendent Michelle King’s effort to cool the heated us-vs.-them rhetoric fueled by the teachers union, and instead turn her focus on charters and traditional schools learning from each other, increasing high-performing schools of all kinds and offering low-income families the school choice that more affluent families have.

As we begin the new school year, let’s focus on the wonder and promise that can be seen in eyes of every child who walks into a school — any type of school. It is long past time to turn down the bombastic rhetoric and divisions driven by adult politics and focus instead on what works to provide all of our children a high-quality education.

Virgil Roberts is an attorney at the law firm of Bobbitt and Roberts, and a member of the board of directors of Alliance College-Ready Public Schools. This commentary originally appeared in the Los Angeles Daily News and appears here with permission from the author.

California Court Ruling Allows Pension Changes

On August 17, 2016 the First Appellate District Court ruled on the lawsuit brought by the Marin Association of Public Employees against the Marin County Employees’ Retirement Association (MCERA) and State of California. The case was brought after MCERA eliminated pay items considered pensionable following the States enactment of the California Public Employees’ Pension Reform Act of 2013.

The Act mostly just enacted lower benefit formulas for employees hired after 2013. For existing employees, the Act did little of substance other than attempting to eliminate pension spiking, which is the practice of increasing an employee’s retirement allowance by increasing final compensation and including various non-salary items such as unused vacation pay, pay for uniform allowances, pay for equipment or vehicle use, and adding service credit for unused sick time, vacation time or leave time.

The Marin County Employees Association sued claiming they were entitled to those benefits because they were a “vested right” based on the legal theory that once a pension benefit is enhanced it can never be taken away, something commonly referred to as the “California Rule”.

The California Rule has been used for years to prevent the state, cities and counties from modifying pension formulas for existing employees.

The conclusion of the Appellate Court was that the only constitutional protection provided to employees was for a “reasonable” pension and that until the employee retires, their pension benefits are subject to change to keep the plan flexible and that this flexibility is necessary to permit adjustments in accord with changing conditions and at the same time maintain the integrity of the system and carry out its beneficent policy.

BACKGROUND

Each county plan is administered by a retirement board, which is required to determine whether items of remuneration paid to employees qualify as ‘compensation’ and therefore must be included as part of a retiring employee’s ‘final compensation’ for purposes of calculating the amount of a pension.

In the aftermath of the severe economic downturn of 2008–2009, public attention across the nation began to focus on the alarming state of unfunded public pension liabilities. Pension funds for state and local government workers throughout the country are underfunded by approximately a trillion dollars according to their actuaries and by as much as $3 trillion or more if more conservative investment assumptions are used. The Federal government also has $3.5 trillion in unfunded pension liabilities.

The Growing Pension Crisis

The Court in their ruling stated the depth of the pension crisis in California quoting the results of the  Stanford Institute for Economic Policy Research which calculated the total unfunded liability for all pension systems in California.

The Institute determined the California Public Employees’ Retirement System, the California State Teachers’ Retirement System, and the University of California Retirement System, and County systems throughout California had $281 billion in unfunded liabilities assuming a 7.5% rate of investment return. This amounts to $22,000 worth of unfunded liabilities per California household. They also calculated the liability using the same rate of return CalPERS uses if an agency wants to leave their system, which is a 3.7% rate of investment return. This increased the total unfunded liability to $946 billion or $75,000 per household.

It is also important to note that as staggering and unaffordable as these numbers are they do not include the past 2 years of lower than assumed investment earnings. In addition, this debt is interest bearing because it is money that is not in the system earning investment returns. And since there is no money available to pay down the debt (if required to be paid right away it would bankrupt most municipalities) it will be paid back over the next 20 to 30 years at 7.5% interest which will double or triple the actual cost to taxpayers and move hundreds of billions of dollars from taxpayer services to pension costs.

The Little Hoover Commission Report Cited

The court in their ruling also cited the 2011 Little Hoover Commission report which advised the Governor and the Legislature that California’s pension plans are dangerously underfunded, the result of overly generous benefit promises, wishful thinking and an unwillingness to plan prudently and stated unless aggressive reforms are implemented now, the problem will get far worse, forcing counties and cities to severely reduce services and lay off employees to meet pension obligations.

The Commission urged a number of structural changes that realign pension costs and expectations of employees, employers and taxpayers.  The situation was described as “dire,” “unmanageable,” a “crisis” that “will take a generation to untangle,” and “a harsh reality” that could no longer be ignored.

According to the Commission the money coming into the pension funds is nowhere near enough to keep up with the money that will need to go out and stated that the state must “exercise its authority—and establish the legal authority—to reset overly generous and unsustainable pension formulas for both current and future workers.”

To provide immediate savings of the scope needed the Commission stated “state and local governments must have the flexibility to alter future, unearned retirement benefits for current workers.”

One feature of the system that drew the Commission’s critical attention was “pension spiking,” which the Commission defined as the practice of increasing an employee’s retirement allowance by increasing final compensation or including various non-salary items (such as unused vacation pay) in the final compensation figure used in the employee’s retirement benefit calculations, and which has not been considered in prefunding of the benefits. The commission found the practice had become “widespread throughout local government,” and had generated “public outrage that cannot continue to be ignored and pensions must be based only on actual base salary, not padded with other pay for clothing, equipment or vehicle use, or enhanced by adding service credit for unused sick time vacation time or other leave time.

THE LAWSUIT

Reaction to MCERA’s change in policy was almost immediate.  On January 18, 2013, less than three weeks after the Pension Reform Act took effect, five recognized employee organizations and four individuals commenced a legal action against their retirement association MCERA.  Plaintiffs alleged that on December 18, 2012: The MCERA board voted to implement AB 197 effective January 1, 2013 and announced a new policy for the calculation of retirement benefits.

Under the new policy, MCERA would begin excluding standby pay, administrative response pay, callback pay, cash payments for waiving health insurance, and other pay items from the calculation of members’ final compensation for all compensation earned after January 1, 2013.

Plaintiffs prayed for declaratory and injunctive relief that AB 197 and MCERA’s “actions are unconstitutional impairments of vested rights and therefore unenforceable.”

The State of California was granted leave to intervene, as expressly directed by the governor, in order that it could defend the constitutionality of AB 197.

THE PLANTIFFS ARGUEMENTS

The crux of this appeal is whether MCERA may eliminate benefits previously treated as compensation earnable from the calculation of the pension formula for what plaintiff’s term “legacy members”—employees who were hired prior to January 1, 2013.

The second ground for reversal advanced by plaintiffs is that MCERA did not follow the correct procedural requirements of AB 197 for excluding payments made to ‘enhance a member’s retirement benefit.

The court ruled that Section 31542 of the County Employee Retirement Law (CERL) is clearly intended to serve as the mechanism for calculating the pension of an employee about to retire and there is nothing to indicate the statute was intended to govern the situation here—a shift in policy by the retirement board in compliance with a new command from the Legislature, clearly intended to be applied in the future to plaintiffs’ so-called employees when they put in for retirement.

Plaintiffs’ essential position is clearly set out in their opening brief: Public employees earn a vested right to their pension benefits immediately upon acceptance of employment and such benefits cannot be reduced without a comparable advantage being provided.

A corollary of this approach was the employee’s argument that they are entitled to any increase in benefits conferred during their employment, beyond the pension benefit in place when they began and since they are performing work under the improved pension system, the terms of that system become an integral part of their compensation, and therefore immediately become vested in the improved benefit.

Plaintiffs candidly admitted in practice, this means that for existing employees, any changes must generally be neutral with regard to the overall benefit provided and cannot represent a net decrease in the pension benefit.  Less ambiguously, they assert neither MCERA nor the Legislature can now curtail those benefits.

Plaintiffs insist that if their position was not vindicated on this appeal, California will have returned to the view that public employee pensions are mere ‘gratuities’ to be granted or taken away at the whim of the employer.

But the Appellate Court provided a review of principles governing public employee pensions that showed that much of plaintiffs’ reasoning is not controversial, but their ultimate conclusion cannot be sustained. 

 THE APPELLATE COURTS RESPONSE

Some General Law of Pensions States are prohibited by the United States Constitution from passing a law “impairing the obligation of contracts.”  (U.S. Const., art. I, § 10.)  Article I, section 9 of the California Constitution states a parallel proscription: “A law impairing the obligation of contracts may not be passed.”   Public employment gives rise to certain obligations which are protected by the contract clause of the Constitution, including the right to the payment of salary which has been earned. The court ruled that “Earned” in this context obviously means in exchange for services ALREADY performed. In accordance with this view, a pension is treated as a form of deferred salary that the employee earns prior to it being paid following retirement.

The court concluded that an employee does NOT earn the right to a full pension until he has completed the prescribed period of service and although vested prior to the time when the obligation to pay matures, pension rights are not immutable.  For example, the government entity providing the pension may make reasonable modifications and changes in the pension system.  This flexibility is necessary to permit adjustments in accord with changing conditions and at the same time maintain the integrity of the system and carry out its beneficent policy.

REVIEW OF PREVIOUS SUPREME COURT RULINGS

The Supreme Court stated in the Kern v City of Long Beach case (supra, 29 Cal.2d 848, 854.) “the rule permitting modification of pensions is a necessary one since pension systems must be kept flexible to permit adjustments in accord with changing conditions and at the same time maintain the integrity of the system and carry out its beneficent policy.” Thus the Appellate Court ruled it appears that an employee may acquire a vested contractual right to a pension, but that this right is not rigidly fixed by the specific terms of the legislation in effect during any particular period in which he serves.  The statutory language is subject to the implied qualification that the governing body may make modifications and changes in the system and that the employee does not have a right to any fixed or definite benefits, but only to a ‘substantial’ or ‘reasonable’ pension.  There is no inconsistency therefore in holding that he has a vested right to a pension, but that the amount, terms and conditions of the benefits may be altered.”

The Appellate Court also cited Casserly v. City of Oakland (1936) 6 Cal.2d 64 as one of the authorities for the proposition that “it has also been held that a pension could be reduced prior to retirement from two-thirds to one-half of the employee’s salary, and modifications have been approved in some cases when made after the happening of the contingencies upon which the payments were to commence.”

The “Must” versus “Should” Debate

With respect to active employees in the Allen v Board of Administration case the Supreme Court held that any modification of vested pension rights must be reasonable, must bear a material relation to the theory and successful operation of a pension system, and, when resulting in disadvantage to employees, must be accompanied by comparable new advantages.

However, the First District Appellate Court stated they did not believe the word “must” was intended to be given the literal and inflexible meaning attributed to it by plaintiffs.   The Supreme Court in the 1983 Allen opinion cited three decisions as support for the quoted proposition.  The two Supreme Court decisions cited employed the word “should” be accompanied by comparable new advantages; Abbott v. City of Los Angeles, supra 50 Cal.2d 438, 449. It is only a 1969 Court of Appeal decision, which cites the same two Supreme Court decisions that use “must.”

The Appellate Court stated “only the least authoritative of the three sources cited supports the word ‘must,’ while the two Supreme Court decisions employ ‘should.’  Second, barely a month later, the Supreme Court—speaking though the same justice—filed another decision which used the ‘should’ formulation from the 1955 Allen decision as quoted in Abbott.”

The Court went on to say “there is nothing in the opinion linking the reduction to provision of some new compensating benefit.  If the court intended ‘must’ to have a literal meaning, the retirees would have won.  They lost.  In light of the foregoing, the Appellate Court could not conclude that Allen v. Board of Administration in 1983 was meant to introduce an inflexible hardening of the traditional formula for public employee pension modification.”

A New Benefit WAS Provided

The court also determined there was a new benefit provided because MCERA’s change in policy resulted in each of those employees’ paychecks no longer being reduced by deductions to cover those sums in funding the employee’s retirement.  Put simply, the new benefit is an increase in the employee’s net monthly compensation.  Put even more simply, it is more cash in hand every month.

APPELLATE COURT’S CLARIFICATION OF THE “CONTRACTS CLAUSE” OR “CALIFORNIA RULE”

Plaintiffs’ initial premise, and the centerpiece of their oral argument, is that the moment each individual plaintiff commenced working for a public agency in Marin County, that person acceded to a “vested right” to a pension.  To a large extent, that premise is correct.  As already established by Miller, the “right” to a pension “vests” when the first portion of wages or salary already earned is deferred by being withheld for a future pension.  But to call a pension right “vested” is to state a truism.  As one Court of Appeal sensibly noted, “ALL pension rights are vested” in the sense they cannot be destroyed. However, until retirement, an employee’s entitlement to a pension is subject to change short of actual destruction. 

That same Court of Appeal characterized that entitlement as only “a limited vested right” and not every change in a retirement law constitutes an impairment of the obligations of contracts.  Nor does every impairment run afoul of the contract clause.  The United States Supreme Court has observed, although the Contract Clause appears literally to proscribe any impairment, the prohibition is not an absolute one and is not to be read with literal exactness like a mathematical formula.  Thus, a finding that there has been a technical impairment is merely a preliminary step in resolving the more difficult question, whether that impairment is permitted under the Constitution.

Courts Must Determine What is a Reasonable Change

Modifications to pension benefits the court stated must be reasonable, and it is for the courts to determine upon the facts of each case what constitutes a permissible change.  To be sustained as reasonable, alterations of employees’ pension rights must bear some material relation to the theory of a pension system and its successful operation, and changes in a pension plan which result in disadvantage to employees should be accompanied by comparable new advantages.

Past court rulings have found that “Reasonable” modifications for future benefits eared can encompass reductions in promised benefits.  These include:

  1. A change of retirement age
  2. A reduction of maximum possible pension
  3. The repeal of cost of living adjustments
  4. A reduction of the pension cap
  5. Changes in the number of years of service required to qualify for a pension
  6. A reasonable increase in the employee’s contributions
  7. A reasonable change in what is considered pensionable compensation

The Court’s ruling stated “thus, short of actual abolition, a radical reduction of benefits, or a fiscally justifiable increase in employee contributions is allowed before the pension becomes payable and that until that time the employee does not have a right to any fixed or definite benefits but only to a substantial or reasonable pension.”

THE COURT’S CONCLUSIONS

The Appellate Court stated that it is without dispute that (1) up to January 1, 2013, there was a contract between MCERA and certain public employees concerning how those employees would be compensated, and (2) that after January 1, 2013, under compulsion of the Pension Reform Act, the agreement was unilaterally altered by MCERA to reduce the scope of compensation that had been accounted as “compensation earnable.”  The issue here is whether the amendment of section 31461—of CERL, the only part of AB 197 challenged by plaintiffs and addressed here—qualifies as an “unreasonable” change, a “substantial” impairment, and thus a violation of the state and federal constitutions. We conclude the dual answer is NO:  MCERA’s implementation of the amended version of section 31461 does not qualify as a substantial impairment of plaintiffs’ contracts of employment with its right to a “reasonable” and “substantial” pension.  Thus there is no violation of the state and federal constitutions.

The Ventura Decision and Changing Pensionable Compensation Post PEPRA

The Supreme Court’s Ventura Decision in 1997 added items to what was considered pensionable pay for counties makes clear that before the Pension Reform Act that compensation paid in cash and which was not overtime was required to be included as compensation earnable.  And while it is true that the retirement boards have some discretion to interpret and apply CERL—this discretion is limited by the contours of the statute and the constitution, including the Contracts Clause.

However, the Appellate Court stated that the “Supreme Court’s discussion of compensation earnable in Ventura County would appear to have little, if any, relevance to the scope and meaning of the subsequently amended language of section 31461 we are considering here.  The utility of Ventura County is also weakened because none of the words ‘constitution,’ ‘contract,’ or ‘impair’ were used in the opinion, so it is no authority for an unchanging constitutional dimension to a statute as substantially amended as was section 31461.  The permanence plaintiffs attribute to MCERA’s exercise of discretion in allowing certain payments to be included in compensation earnable is troubling because it seems to deny MCERA the discretion to change that decision.”

They also stated that “Plaintiffs’ insistence on retaining their claimed ‘vested rights’ measured by the former version of section 31461 and Ventura County has hindered their appreciation of how that right is only to a ‘reasonable’ pension, that the public employee does not have a right to any fixed or definite benefits that may be fixed by the specific terms of the legislation during any particular period.”

“The qualification is a necessary one since pension systems must be kept flexible to permit adjustments in accord with changing conditions and at the same time maintain the integrity of the system. Restricting their unyielding focus to only their “vested rights” has led plaintiffs to pay insufficient attention to the ever-present possibility of legislative involvement, one of the essential attributes of sovereign power that is always to be consulted.”

The Appellate Court thus ruled that an employee does not have a right to any fixed or definite benefits, which can mean that any one or more of the various benefits may be wholly eliminated prior to the time they become payable, so long as the employee retains the right to a substantial pension. 

They went on to say that “plaintiffs have failed to make out a clear case, free from all reasonable ambiguity and reasonable doubt, that they are the victims of a constitutional violation. Put another way, after January 1, 2013, payment of any of the items specified in section 31461, subdivision (b), could not be deemed salary already earned pursuant to a contract that enjoyed constitutional protection.” 

Pension Changes Must Be Prospective

The Appellate Court emphasized the limited nature of their holding stating “the Legislature’s change to the definition of compensation earnable was expressly made purely prospective by the Pension Reform Act and MCERA’s responsive implementation was also explicitly made prospective only and nothing altered the status of compensation or payments accrued prior to January 1, 2013.”

THE BOTTOM LINE

The Appellate Court ruled that as long as they are prospective and reasonable and do not destroy the pension system, the pension changes that can be considered and implemented by governmental agencies may include:

Increasing the minimum retirement age,

Increasing the number of years of service required to qualify for a pension,

Reducing the pension cap as a percentage of salary,

Eliminating retiree cost of living adjustments (COLA),

increasing employee contributions,

Lowering the maximum pension dollar amount; and

Changing what is considered pensionable pay.

 *   *   *

About the author:  Ken Churchill is the author of numerous studies on the pension crisis in California and is also the Director of New Sonoma, a pension reform group.

The Unions’ Favorite California State Senator

Money in politics has been a recurrent theme in this election cycle. Campaign finance reform advocates, mainstream media and certain candidates have repeatedly driven home the idea that corporations and rich conservatives are biasing the political process by making big-money donations, often without disclosure. Much of the narrative – advanced by authors such as New Yorker writer Jane Mayer and politicians like Nevada Sen. Harry Reid – has focused on the Koch Brothers, who are blamed for everything from financial deregulation to global warming.

This narrative misses a couple of key points. First, following the Supreme Court’s 2010 Citizens United decision, liberals predicted a wave of unleashed corporate spending would transform the political landscape. But after spending a combined $6 billion in 2012, Republicans and Democrats produced a federal government that looked remarkably like the one that prevailed before the election. In this cycle, spending by the Koch Brothers and other right-of-center billionaires was not enough to prevent a Donald Trump nomination or the rise of Bernie Sanders, the U.S. senator from a tiny state who occupies the extreme left fringe of the political spectrum.

Second, the Koch Brothers and their allies are not the only major donors trying to influence the process. Such left-of-center billionaires as George Soros, Tom Steyer and Mike Bloomberg also have a large impact. And government union donations are a far bigger factor in certain campaigns in California, as research by California Policy Center and the Freedom Foundation reveals.

If money doesn’t always win elections, it can indeed shape the agendas of the winners. One of the best examples of money that makes a difference is the case of Connie Leyva.

Leyva: Look for the union labelLeyva: Look for the union label

Since 2014, Leyva has represented California’s 20th Senate District, a bow-tied shaped district covering parts of San Bernardino County and northern Los Angeles County. According to Secretary of State data, her campaign committee received 324 contributions totaling almost $746,000. Of this total, we estimate that 79 percent came from unions and union-related committees.

(Our review found possible duplicates among Leyva’s contribution records. Our reporting assumes that each record shown on the Secretary of State’s site is correct and non-duplicated.)

In 2014, California limited contributions to Senate and Assembly candidates to $4100, but also provided a higher limit of $8200 for “small contributor committees.” These committees bundle large numbers of small, individual contributions and then dole them out to various candidates. Connie Leyva received the maximum $8200 contribution from 35 such committees, of which 34 were union-sponsored.

Of the 53 entities contributing the general $4100 maximum, 40 were union-related.

Leyva’s union donors included a broad spectrum of public and private labor organizations. In many cases, several locals and affiliates of a single union donated to her campaign – magnifying their support and influence. Among the unions with multiple contributors were the International Brotherhood of Electrical Workers (IBEW), the Service Employees International Union (SEIU) and the United Food and Commercial Workers (UFCW). Contributions from UFCW locals, PACs and other related entities totaled $83,900, 11% of Leyva’s 2014 campaign receipts. This is especially notable given the fact that Leyva was a UFCW union representative and president of a UFCW local before her election to the state Senate.

Although impressive, Leyva’s 79% union contribution proportion actually understates the degree to which labor interests underwrote her campaign. For example, Leyva received just over $25,000 in contributions from individuals, most of whom reported their employers. $7950 of these individual contributions came from employees of UFCW, the AFL-CIO and other labor organizations.

Leyva also received contributions from other candidate committees, including those for Anthony Rendon, Kevin De Leon and Roger Hernandez. All of these candidates received significant union support, so their ability to contribute surplus funds to the Leyva campaign is attributable in no small measure to organized labor.

Finally, Leyva benefited from a union-backed Independent Expenditure Committee. Committees of this type can campaign for or against a candidate, but must operate independently from that candidate’s campaign committee. There is no limit on the size of contributions to Independent Expenditure Committees, which makes them quite popular with large donors.

In the 2014 cycle, the Committee for Working Families spent $290,000 on behalf of Connie Leyva. This committee is sponsored by the California Labor Federation, AFL-CIO. A review of the Committee’s contributions shows that almost all of its money came from union sources (although it did receive a donation from Sean Parker, a billionaire who leans left).

The same committee also spent $44,000 on mailers opposing Democratic rival Alfonso Sanchez in May 2014. Although relatively small, this expenditure may have been especially decisive because Leyva defeated Sanchez by only 1148 votes in the primary to take the second spot on the November ballot. In the general election, Leyva defeated Republican Matthew Munson by a wide margin.

Leyva’s funding far exceeded that of her rivals. Sanchez’s committee received $44,000 in contributions – about 6% of Leyva’s total. That said, Sanchez did benefit from independent expenditures by JOBSPAC, a committee primarily funded by corporate contributions. JOBSPAC spent $269,000 for Sanchez and $66,000 to oppose Leyva.

Munson, the Republican, collected only $260 for his committee and did not receive any support from Independent Expenditures Committees.

What the Unions Got for Their Money

In the state legislature, Senator Leyva has returned the investment unions made in her election.

The California Labor Federation issues an annual legislative scorecard, rating State Senators and Assembly-members on their union-related votes. In 2015, Leyva received a perfect 100% — taking the union-endorsed position on all 25 votes the Federation considered. Nine of these bills were vetoed by Governor Jerry Brown, a Democrat.

For example, Leyva voted for AB 787, which would have banned for-profit companies from running charter schools. As Brown noted in his veto message, the bill contained ambiguous language which could have been interpreted to prevent charters operated by not-for-profits from buying goods and services from for-profit companies. Handicapping charter schools and thereby restricting school choice is an ongoing priority for education unions that contributed to Leyva’s campaign.

Brown also vetoed Leyva-supported AB 251, which would have compelled more developers to pay high state-mandated prevailing wages on infrastructure projects. Brown expressed concern that the measure was “too restrictive and may have unintended consequences.” While the bill would have benefited trade unions, it would have further increased the high cost of real estate in California.

Leyva was one of 11 state senators to receive the Labor Federation’s perfect legislative score, so her record could be seen as unremarkable. But Leyva isn’t only voting for widely-supported pro-union legislation; she is also writing and advocating new, more radical measures.

Recently, she sponsored SB 1015 which would compel disabled and elderly individuals to pay time and a half to their caregivers when they work more than 45 hours per week. This overtime pay requirement has been in place since 2014, but would end on December 31, 2016 in the absence of Leyva’s legislation. When combined with the escalation of the minimum wage to $15 per hour between now and 2022, the time-and-a-half pay requirement will become onerous for many patients who live on fixed incomes. Finally, and without disparaging the important work that caregivers provide, their long hours can be a deceptive, since the people in their charge are often sleeping or watching TV and thus not requiring active support.

Earlier in 2016, Leyva introduced SB 1167, the Worker Heat Safety Act which would require Cal/OSHA to develop new regulations to limit high workplace temperatures. However, employers are already required to safeguard employees against hazardous workplace conditions including excessive heat. Economist John Husing told the Riverside Press-Enterprise that Leyva’s bill could hurt the inland empire’s warehousing industry, which employs over 33,000 workers. “My fear is, this is organized labor going after a sector where it has not had much success in organizing,” Husing said. “They are going the legislative route.”

Conclusion

In the Inland Empire, organized labor pushed aside a business-friendly Democrat and elevated a union executive to the state legislature. They did this by injecting over $850,000 into the campaign, dwarfing spending by rival candidates. The incumbent has repaid her labor paymasters by doing what she was undoubtedly already inclined to do – maintaining a perfect pro-labor voting record and pushing the envelope in the unions’ direction with new legislative proposals.

While readers may differ about the wisdom of the legislation Leyva sponsored and supported, it is hard to debate that union money was essential to advancing her candidacy and agenda. A defense of union behavior is this regard requires one to either reject the notion that “money in politics” is necessarily bad or to argue that big campaign donations are only acceptable when they support a progressive agenda.

If those who wish to defend union support for Leyva and other Assembly and Senate Democrats adopt the latter view, they should not couch their opinions as a call for institutional improvement. Instead, they are advancing a highly partisan belief that “money in politics” is bad only when deployed by people they don’t like.

Will Swaim is vice president of communications for the California Policy Center, former vice president of journalism for the Franklin Center, and founding editor and publisher of OC (Orange County) Weekly.

ABOUT THE CALIFORNIA POLICY CENTER
The California Policy Center is a non-partisan public policy think tank providing information that elevates the public dialogue on vital issues facing Californians, with the goal of helping to foster constructive progress towards more equitable and sustainable management of California’s public institutions. Learn more at CaliforniaPolicyCenter.org.

Higher Taxes = Business Departures = Lower Tax Revenues

State Controller Betty Yee’s just-released July Cash Report shows state personal income tax revenue falling behind estimates by 6.9 percent, or $323 million lower than projections. While some will argue that one month does not make a trend, these figures are significant because they represent revenue in the first month of the new state budget, a budget that is based on much higher income estimates.

Should these below projection income tax revenues really be a surprise to anyone with even a minimal understanding of basic economics? Economists tell us that if you want less of something, tax it more, and California has the highest marginal income tax rates in all 50 states.

When upper income individuals were slammed with tax rates on steroids as a result of Proposition 30, approved by voters in 2012, they had little immediate choice but to pay, and the tax revenue poured in. (It should be noted that the tax, approved in November, was retroactive for the entirety of 2012 so there was an almost instantaneous infusion of cash into state coffers.) Still, many compelled to pay these higher taxes took some comfort in knowing the exorbitant tax rates were scheduled to end in 2018.

However, lawmakers viewed this extra revenue as the new normal and they partied on in Sacramento with ever higher state budgets — they have increased spending by 42 percent in the last five years and there is no end to the spending spree in sight.

While the Sacramento politicians are loath to give up this additional cash next year as scheduled, the report from the Controller’s Office shows that the negative consequences of higher taxes, like proverbial chickens, are coming home to roost.

Most high income individuals are savvy and, given time, those penalized with a confiscatory level of taxation will respond by using legal methods that allow them to keep more of their own money. I personally know a veterinarian who cut his salary while retaining the unpaid wages in his business, a small animal hospital.

Sadly, over time, other successful individuals have packed up and left the state. This helps to explain the exodus of businesses, and the jobs they create, to other areas of the country with a more attractive tax climate.

A recently released study by Spectrum Locations Solutions estimates that over the last seven years, 9,000 business have either divested in California, or, while maintaining their headquarters here, have chosen to expand elsewhere.

“Gov. Jerry Brown’s office routinely denies that business departures is a serious issue,” says Joseph Vranich, a site selection consultant, who prepared the report. Brown’s denials are consistent with State Senate and Assembly leaders who see no down side to ever higher taxes.

Of course those businesses leaving the state are not just fleeing higher income taxes, high taxes in almost every other category are a factor, as are the costs of suffocating regulations.

But for those paying the ultra-high income tax rates, no relief is in sight. California government employee unions, who represent the highest paid public workers in all 50 states, are fielding a ballot measure – Proposition 55 – that will extend the Proposition 30 tax increases for another 13 years.

There is little doubt that just the threat of extending these hyper income taxes, will spur more high earners to depart. If Proposition 55 passes this November, there will be consequences for the California taxpayers who remain. When Sacramento runs out of higher income individuals to tax, they are certain to shift their attention to those of more modest means.

 *   *   *

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization, dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.

The Last Safe Places to Invest Are Dwindling

Editor’s Note:  In this analysis by economic strategist Michael Lebowitz, more evidence is presented that returns on investments, all of them, everywhere, are plateauing. Investors who are searching for yield can no longer turn to bonds, which have rates at or near zero, or in some cases, rates that are negative. Investors searching for yield can no longer rely on stocks appreciating in value, because – if nothing else – the price/GDP ratios of publicly traded equity assets are at historic highs. Now investors are flooding into one of the last supposedly safe places, stocks that pay dividends. But as the value of these stocks go up, providing one last burst of asset appreciation, the dividend payouts stay the same, and the yields drop proportionally. Lebowitz doesn’t just rely on logic – which is immutable – to make this point, he also presents the evidence. For at least ten years, and arguably for over twenty years, unsustainable fiscal tactics – primarily the relentless lowering of interest rates to a point where they are now at zero – have artificially boosted asset prices. This analysis, along with many others, are presented as a sobering reminder: Policies that assume this can continue indefinitely are doomed to catastrophic failure.

No U.S. bond trader under the age of 56 has traded in a prolonged bear market. That striking fact is a function of steadily falling bond yields since 1981. Over this era, investors have been increasingly mesmerized into trusting that yields may never go materially higher. That belief seems stronger than ever in the U.S. as yields are dropping to levels not seen at any point in American history (since at least 1790). In the U.S., one can still find Treasury bonds with a positive yield but globally over $13 trillion of sovereign bonds have negative yields. The poster child for this insanity is a 50-year Swiss sovereign bond which yields negative .023%. Try to make sense of intentionally investing your money for 50 years with the guarantee of losing money.

As described in prior articles, when yields are lower than appropriate, capital gets mis-allocated. The result is economic distortions closely followed by hostile economic and financial consequences. This article offers two examples intended to highlight market distortions resulting from abnormally low interest rates.

The Hunt for Yield

With “risk free” U.S. Treasury bonds and other relatively safe investment-grade bonds offering yields in the low single digits, “conservative” investors are struggling to find investments that provide decent credit quality and respectable returns. The result of this quest for yield has been a mad rush by investors into dividend yielding stocks.

The following two graphs highlight how those stocks with the highest dividend yields are clearly most in demand this year. The first graph below plots the average, non-weighted, year-to-date returns for the stock of each S&P 500 company, categorized by their respective dividend yield ranges.

Year to Date Total Returns per Dividend Yield Ranges

Data Courtesy: Bloomberg

Data Courtesy: Bloomberg

The following scatter plot shows the S&P 500 by sector, highlighting how sectors with the highest dividend yields are also the best performing.

Dividend Yield and YTD Return by Sector

Data Courtesy: Bloomberg

Data Courtesy: Bloomberg

The data in both graphs strongly suggest that in 2016 equity investors have a strong preference for companies and sectors with higher dividend yields.

Campbell’s Soup

Campbell’s Soup (CPB) provides great insight into this phenomenon. CPB currently trades at a Price to Earnings ratio (P/E) of 23. As shown in the graph below its P/E has spiked over the last two years and stands at a 50% premium to its average since the 2008 recession. Over the course of just the last 7 months, CPB’s stock price has risen 25% while earnings remain flat. As a result the dividend yield was reduced from a somewhat respectable 2.50% dividend to 2.00% currently.

Campbell’s Soup (CPB) Price to Earnings Ratio

Data Courtesy: Bloomberg

Data Courtesy: Bloomberg

Investor demand for CPB appears to be a function of investor appetite for yield. We deduce this because CPB is not a growth company. Since 1991 its annualized revenue growth has been 0.97%. In the last 5 and 10 years revenue growth has slowed to 0.63% and 0.82% respectively. This concept of a no-growth soup company with soaring valuations is alarming. The price of CPB would have to drop 30% to return to its post-recession average P/E. If that were to occur, it would take 16 years’ worth of dividend payments to recoup the price loss, assuming dividends remain stable!

Utility Stocks

Utility stocks offer another poignant case study. These providers of electric, gas, sewage and water services are well known for higher relative dividends, low revenue growth and reduced price volatility. Year to date, the popular ETF representing utility stocks (XLU) has risen 20%, and in the process its dividend yield dropped from 3.70% to 3.00%.

Not only are current investors of utilities receiving a lower dividend yield, but they are paying an extremely high valuation in order to earn 3.00%. Consider the graphs below showing the Price to Sales ratio and the Price to EBITDA ratio for the utility sector.

Price to Sales Ratio

Data Courtesy: Bloomberg

Data Courtesy: Bloomberg 

Price to EBITDA Ratio

Data Courtesy: Bloomberg

Data Courtesy: Bloomberg 

As the graphs show, the Utility index now trades at valuations that are at or near three standard deviations away from the average. Both readings dwarf any prior level since at least 1990. As is the case with CPB, these valuation anomalies are a function of investors demand for yield and not the potential growth of the underlying companies. In fact, revenue growth in the utility sector is worse than that of CPB. Revenue per share has declined in each of the last eight quarters and is currently the lowest in over a decade.

The Bottom Line

The bottom line as shown through two examples, is that insatiable demand for stocks with above average dividends is forcing valuations to diverge significantly from historical norms. Investors buying the equity of these and many other companies with high dividend yields are seeking the perceived safety of dividends and reduced price volatility. However, in our opinion, what many of these investors will receive is low absolute dividends and more price risk. Beta driven strategies, and some so-called “smart beta” portfolios, may be in for a rude awakening if, as we suspect, many of these safe dividend stocks exhibit a larger draw down than their historical betas would predict.

The valuations of many companies providing higher dividend yields have changed drastically in a relatively short time period. This is not an imminent warning to sell but an alert to monitor valuations and not just dividend yields. The grab for yield could easily persist driving prices even higher, but do not lose sight of underlying valuations. At some point, as is true throughout the history of financial markets, regression to the mean will occur.

Summary

Negative and zero interest rate policies are creating significant distortions across the global economy and financial markets. The examples in this article are just two of many instances. For those who say that we should not worry about the current state of monetary policy, this article provides further evidence of the distortions these aggressive monetary actions create and makes the reader aware of the wealth destruction that will eventually occur as a result.

About The Author: Michael Lebowitz, CFA is the founder of 720 Global, a macroeconomic and strategic investment strategist serving the needs of investment managers. Throughout his career, Michael has been involved in trading, portfolio construction and risk management involving some of the largest and most active portfolios in the world as well as comparatively small individual RIA portfolios. He has proven expertise in trading, risk management, macroeconomic analysis and relative value analysis across many asset classes. 720 Global would like to thank Sapere Wealth Management for their meaningful contributions to this article.

California’s Economic Picture is Not as Rosy as Commonly Believed

The prevailing wisdom in Sacramento on the Democrat side of the aisle is that the ruling Democrat Legislature can do no wrong with the economy because the California economy is exceptional and can handle extraordinary tax rates and regulation that far exceed national and international standards.

But my new analysis of economic data from the U.S. Department of Commerce suggests that the California Democrat approach to the California economy may be finally taking a significant toll on the California economy in terms of reduced growth and business activity.

Moreover, the data shows that California’s long-term economic growth is roughly equal to the average of United States metro areas.  And when the Bay Area’s economy is excluded, California’s economic growth, as measured by real gross domestic product (GDP), actually averages only 0.3% for the 2008-14 period—equal to only 1/3 of the 0.9% growth for all metro areas in the United States over the 2008-14 period.  (Note: real means inflation adjusted dollars, 2009 base year)

According to the U.S. Dept. of Commerce Data, it is clear that in terms of economic growth the Bay Area is the exception, not California.  The two Bay Area metro areas represent just over ¼ of the state’s economy in dollar terms, but more than half of the state’s economic growth, even more depending on the time period.  The two Bay Area regions used for the analysis are “San Francisco—Oakland—Hayward” and “San Jose—Sunnyvale—Santa Clara.”

Alternatively, the two Bay Area metro areas recorded significantly higher real GDP growth rates than both the state and the nation.  The San Francisco–Oakland–Hayward economic region recorded an average 1.9% annual growth rate for 2002-14, and 1.6% for 2008-14.  The San Jose–Sunnyvale–Santa Clara economic region recorded an average 4% annual growth rate for 2002-14, and 4.1% for 2008-14.

For all California metro areas combined, economic growth was very similar to the nation for both 2002-14 and 2008-14.  All California metro areas combined recorded a 2% average annual economic growth rate for 2002-14, and only 0.9% for 2008-14.

But if you exclude the two Bay Area metro areas from the analysis the combined economic growth for all State of California metro areas declines significantly for the 2008-14 period in particular–to only 0.3% for 2008-14 for all California metro areas, excluding the two Bay Area metro areas.

Economic growth for the state and nation has improved in 2015, with California recording real economic growth of 4.1% in 2015, compared to 2.4% for the total United States.  This is the statistic that has generated a lot of attention, with many left-leaning commentators concluding that everything is rosy because California recorded 4.1% real GDP growth in 2015.

But economists agree that economic statistics need to be examined over the long-term for structural changes and trends that stand the test of time.

Even if this 4.1% figure is incorporated into my real GDP model, California still only slightly outperforms the nation over the 2008-15 period, with an average of 1.3% growth for California, compared to 1.1% for the nation.  And then if the two Bay Area metro areas are excluded, the remaining 75% of the California economy still underperforms the national economy for 2008-15 by an estimated 20-40%.

California routinely had growth rates of 3% or higher in the late 1990s but most economists agree that we are not likely to see a return of these growth rates any time soon.  The UCLA Anderson Forecast estimates California’s growth rate at 2% for 2016, and 1.6% for 2017, according to the Los Angeles Times.

According to the data for 2008-09, California’s economy tends to be slower to respond to economic recession, but when the recession comes the recession is far deeper in California, compared to the nation, as businesses decide to pull back in areas that are the most costly and detrimental to their interests.

Perhaps what is most troubling by my analysis of the federal data, is how poorly many of California’s metro area economies have performed since 2008.

Only seven of the 26 California metro areas examined, recorded average real GDP growth rates that equal or exceed the national average for the 2008-14 period.  The remaining 19 California metro areas recorded economic growth, or in many cases, negative growth or economic contraction, for the 2008-14 period.

For example, the Los Angeles—Long Beach—Anaheim area has only grown an average of 0.3% per year since 2008, compared to the national economy which has growth at 0.9%.  This is less than a percent real GDP growth, very anemic growth by anyone’s standards.

The California Center for Jobs reports that of the 10 metro areas with the worst unemployment rates nationally, eight are in California.

So the real question is not whether California’s economic policies, or rather lack of them, are having a negative impact on the state and regional economies?  It is really a question of how big is the negative impact on the economy and what can state policymakers do to improve the economic conditions of the 19 of the state’s 26 metro areas that continue to underperform that national economy.

The first step is to get honest about the data, which clearly shows that roughly 75% of California has underperformed the national economy since 2008.  Second, real long-term, structural solutions must be examined to try to turn the tide back in favor of creating jobs in the Golden State, as opposed to sending them elsewhere.

But with less than three months to the November 2016 election, it is not a convenient time for the Democrat majority party to admit that there is a major structural problem with the California economy.

 *   *   *

David Kersten is president of the Kersten Institute (www.kersteninstitute.org).  He has a master’s degree in public policy from Georgetown University and teaches a master’s course on public budgeting at the University of San Francisco.

Unaffordable California – It Doesn’t Have To Be This Way

July 2016 Update:  Here’s a documented comparison of California taxes and economic climate with the rest of the states. The news is bad, and getting worse. But it doesn’t have to be this way! The state and local government policies that created an unaffordable California can be reversed.

PERSONAL INCOME TAX: Prior to Prop 30 passing in Nov. 2012, CA already had the 3rd worst state income tax rate in the nation. Our 9.3% tax bracket started at under $50,000 for people filing as individuals. 10.3% started at $1 million. Now our “millionaires’ tax” rate is 13.3% – including capital gains (CA total CG rate now the 2nd highest in the world!). 10+% taxes now start at $250K. CA now has by far the nation’s highest state income tax rate. We are 34% higher than 2nd place Oregon, and a heck of a lot higher than all the rest – including 7 states with zero state income tax – and 2 more that tax only dividends and interest income. CA is so bad, we also have the 2nd highest state income tax bracket. AND the 3rd. AND the 4th! http://taxfoundation.org/sites/taxfoundation.org/files/docs/ff2013.pdf  Ref. Table #12 http://tinyurl.com/CA-income-tax-graph and http://tinyurl.com/CA-2nd-CG

IncomeTaxGraph

SALES TAX:  CA has the highest state sales tax rate in the nation.  7.5% (does not include local sales taxes). Two 2015 bills sought a combined $10 billion++ CA state and local sales tax increase (failed to pass that year).
http://taxfoundation.org/article/state-and-local-sales-tax-rates-2011-2013

GAS TAX:  CA has the nation’s 4th highest “gas pump” tax at 58.0 cents/gallon (June, 2016). But add in the unique 10-12 cent CA “cap and trade” cost per gallon, and CA is #1 (about the same as Pennsylvania). National average is 48.0 cents. Yet CA has the 6th worst highways.
http://www.api.org/oil-and-natural-gas/consumer-information/motor-fuel-taxes/gasoline-tax  (CA has nation’s 3rd highest total diesel tax)  http://reason.org/news/show/21st-annual-highway-report

PROPERTY TAX:  California in 2015 ranked 14th highest in per capita property taxes (including commercial) – the only major tax where we are not in the worst ten states.  But the 2014 average CA single-family residence (SFR) property tax is the 8th highest state in the nation. Indeed, the median CA homeowner property tax bill is 93% higher than the average for the other 49 states.
http://tinyurl.com/go89o6u
http://tinyurl.com/hf6phjz
http://linkis.com/blogspot.com/Yq6cx

“IMPACT FEES” ON HOME SALES:  Average 2012 CA impact fee for single-family residence was $31,100, 90% higher than next worst state. 265% higher than jurisdictions that levy such fees (many governments east of the Sierras do not). For apartments, fee averaged $18,800, 290% above average outside state. The fee is part of the purchase price, so buyer pays an annual property tax on the fee!
http://www.newgeography.com/content/003882-california-homes-require-real-reach

“CAP AND TRADE” TAX:  CA has now instituted the highest “cap and trade” tax in the nation – indeed, the ONLY such U.S. tax. Even proponents concede that it will have zero impact on global warming.
http://tinyurl.com/WSJ-CA-cap-and-trade

SMALL BUSINESS TAX:  California has a nasty anti-small business $800 minimum corporate income tax, even if no profit is earned, and even for many nonprofits. Next highest state is Rhode Island at $500 (only for “C” corporations). 3rd is Delaware at $175. Most states are at zero.
http://tinyurl.com/CA-800-tax

Based just on GDP, CA ranks as the 6th largest economy in the world. But adjusted for population and cost of living, CA ranks lower than all but 13 U.S. States.
http://riderrants.blogspot.com/2016/07/updated-2015-figures-ca-per-capita-gdp.html

CORPORATE INCOME TAX:  CA 2016 corporate income tax rate (8.84%) is the highest west of Iowa (our economic competitors) except for Alaska.
http://www.taxfoundation.org/sites/taxfoundation.org/files/docs/CITmap.png  Ref. Table #15   – we have the 8th highest rate in the nation.

BUSINESS TAX CLIMATE:  California’s 2015 “business tax climate” ranks 3rd worst in the nation – behind New York and anchor-clanker New Jersey. In addition, CA has a lock on the worst rank in the Small Business Tax Index – a whopping 8.3% worse than 2nd worst state.
http://taxfoundation.org/article/2015-state-business-tax-climate-index
http://www.sbecouncil.org/wp-content/uploads/2014/04/BTI2014Final.pdf

LEGAL ENVIRONMENT:  The American Tort Reform Foundation in 2015 again ranks CA the “worst state judicial hellhole” in U.S. – the most anti-business. The U.S. Chamber of Commerce ranks CA a bit better – “only” the 4th worst state in 2015 (unfortunately, sliding from 7th worst in 2008).
http://www.judicialhellholes.org/2015-2016/california/
http://www.instituteforlegalreform.com/states/california

FINES AND FEES:  CA driving tickets are incredibly high. Red-light camera ticket $490. Next highest state is $250. Most are around $100.
http://reason.org/blog/show/red-light-cameras-and-the-enigmatic

CA needlessly licenses more occupations than any state – 177. Second worst state is Connecticut at 155.  The average state is 92. But CA is “only” the 2nd worst licensing state for low income occupations.
http://cssrc.us/publications.aspx?id=7707  
http://bit.ly/1ff0OGu

CA has the highest/worst state workers’ compensation rates in 2014, up from 3rd in 2012. CA rates 21.3% higher than 2nd highest state, 88% higher than median state. Yet we pay low benefits — much goes to lawyers.
http://riderrants.blogspot.com/2014/10/california-has-worst-workers.html

OVERALL TAXES:  Tax Foundation study ranks CA as tied for the 7th worst taxed state in 2016. But the CA taxes are the most progressive of all states, hammering the upper third of the populace. The top 1% pay 50% of all CA state income taxes.
http://taxfoundation.org/article/tax-freedom-day-2016-april-24

UNEMPLOYMENT:  CA unemployment rate is improving, but we are still ranked 34th (May, 2016) – 5.2%. National unemployment rate 4.7%.  Nat’l rate not including CA is 4.6%, making the CA unemployment rate 13.0% higher than the average of the other 49 states. NOTE: We were at 4.8% in Nov, 2006 – vs. national 4.6%.
http://www.bls.gov/web/laus/laumstrk.htm

Using the lagging but arguably more accurate U-6 measure of unemployment (includes involuntary part-time workers), CA is tied for 3rd worst – 12.0% vs. national 10.1%. National U-6 not including CA is 9.9%, making CA’s U-6 21.2% higher than the average of the other 49 states.
http://www.bls.gov/lau/stalt.htm

EDUCATION:  CA public school teachers the 3rd highest paid in the nation.  CA students rank 48th in math achievement, 49th in reading.
http://www.lao.ca.gov/reports/2011/calfacts/calfacts_010511.aspx  (page 36) http://www.nea.org/assets/docs/NEA_Rankings_And_Estimates-2015-03-11a.pdf

California, a destitute state, still gives away community college education at fire sale prices. Our CC tuition and fees are the lowest in the nation.  How low?  Nationwide, the average community college tuition and fees are more than double our California CC’s.
http://trends.collegeboard.org/college-pricing/figures-tables/tuition-and-fees-sector-and-state-over-time

This ridiculously low tuition devalues education to students – often resulting in a 25+% drop rate for class completion.  In addition, because of grants and tax credits, up to 2/3 of California CC students pay no net tuition at all!
http://tinyurl.com/ygqz9ls

Complaints about increased UC student fees too often ignore key point — all poor and many middle class CA students don’t pay the UC “fees” (our state’s euphemism for tuition).  There are no fees for most California families with under $80K income. 55% of all undergraduate CA UC students pay zero tuition, and another 14% pay only partial tuition.
http://www.universityofcalifornia.edu/blueandgold/
http://tinyurl.com/UC-zero

WELFARE AND POVERTY:  1 in 5 in Los Angeles County receiving public aid.   http://www.latimes.com/news/local/la-me-welfare22-2009feb22,0,4377048.story

California’s real poverty rate (the new census bureau standard adjusted for COL) is easily the worst in the nation at 23.4%. We are 57.3% higher than the average for the other 49 states (up from 48.8% higher last year). Indeed, the CA poverty rate is 17.0% higher than 2nd place Nevada.
http://www.census.gov/content/dam/Census/library/publications/2014/demo/p60-251.pdf (page 9)

California has 12% of the nation’s population, but 33% of the country’s TANF (“Temporary” Assistance for Needy Families) welfare recipients – more than the next 7 states combined.  Unlike other states, this “temporary” assistance becomes much more permanent in CA.
http://www.utsandiego.com/news/2012/jul/28/welfare-capital-of-the-us/?print&page=all

California ranks 48th worst for credit card debt and 49th worst for percentage of home ownership.
http://riderrants.blogspot.com/2013/02/more-dismal-california-economic-rankings.html

GOVERNMENT INSOLVENCY: California has the 2nd lowest bond rating of any state – Basket case Illinois beat us out for the lowest spot. We didn’t improve our rating – Illinois just got worse.
http://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2014/06/09/sp-ratings-2014

Average California firefighter paid 60% more than paid firefighters in other 49 states. CA cops paid 56% more. CA 2011 median household income (including gov’t workers) is 13.4% above nat’l avg.
www.tinyurl.com/CA-ff-and-cop-pay
www.en.wikipedia.org/wiki/List_of_U.S._states_by_income

HOUSING COSTS:  Of 100 U.S. real estate markets, in 2013 CA contained by far the least affordable middle class housing market (San Francisco). PLUS the 2nd, 3rd, 5th, 6th and 7th. San Diego is #5 (with “middle class” affordable homes averaging 1,056 sq. ft.)
http://riderrants.blogspot.com/2013/10/the-us-least-affordable-housing-market

TRANSPORTATION COSTS:  CA has 2nd highest annual cost for owning a car – $3,966. $765 higher than the national average.
http://tinyurl.com/lmxnucs

WATER & ELECTRICITY COSTS:  CA residential electricity costs an average of 40.7% more per kWh than the national average. CA commercial rates are 66.5% higher.  For industrial use, CA electricity is an astonishing 94.4% higher than the national average (Sept, 2015). The difference is growing between CA and the national average. NOTE: SDG&E is considerably higher.
http://www.eia.gov/electricity/monthly/epm_table_grapher.cfm?t=epmt_5_06_a

A 2015 U-T survey of home water bills for the 30 largest U.S. cities found that for 200 gallons a day usage, San Diego has the 3rd highest cost – 73.7% higher than the median city surveyed. At 600 gal/day, San Diego was again 3rd highest – 81.7% higher than the median city.
http://www.sandiegouniontribune.com/news/2015/jul/27/drought-water-prices-rise/

BUSINESS FLIGHT:  In 2012, our supply of California businesses shrunk 5.2%. In ONE year. NOTE: That’s a NET figure – 5.2% fewer businesses in CA in 2012 than were here in 2011. Indeed, in 2012, CA lost businesses at a 67.7% higher rate than the 2nd worst state!
http://riderrants.blogspot.com/2013/07/in-2012-ca-lost-businesses-at-677.html

The top U.S. CEO’s surveyed rank California “the worst state in which to do business” for the 12th straight year (May, 2016)
http://chiefexecutive.net/california/

From 2007 through 2010, 10,763 manufacturing facilities were built or expanded across the country — but only 176 of those were in CA. So with roughly 12% of the nation’s population, CA got 1.6% of the built or expanded manufacturing facilities. Stated differently, adjusted for population, the other 49 states averaged 8.4 times more manufacturing growth than did California.
http://www.cmta.net/20110303mfgFacilities07to10.pdf — prepared by California Manufacturers and Technology Association

OUT-MIGRATION:  California is now ranked as the worst state to retire in. Easily the lowest percentage of people over age 65. We “beat” ’em all – NY, NJ, etc.
https://www.fidelity.com/insights/retirement/10-worst-states-to-retire-2014
http://riderrants.blogspot.com/2015/12/kiplinger-ranks-california-as-worst.html

The median Texas household income is 10.9% less than CA. But adjusted for COL, TX median household income is 31.6% more than CA.
https://www.census.gov/hhes/www/income/data/historical/household/2014/h08.xls
https://www.missourieconomy.org/indicators/cost_of_living/index.stm

Consider California’s net domestic migration (migration between states).  From 1992 through mid-2015, California lost a NET 3.9 million people to other states.  Net departures slowed in 2008 only because people couldn’t sell their homes.  But more people still leave each year — in 2015 we lost 77,219. Again, note that these are NET losses. Sadly, our policies have split up many California families.
https://twitter.com/SenTedCruz/status/464827967747526656/photo/1
http://riderrants.blogspot.com/2015/04/were-california-real-estate-prices.html

It’s likely that it’s not the welfare kings and queens departing.  They are primarily the young, the educated, the productive, the ambitious, the wealthy (such as Tiger Woods) – and retirees seeking to make their nest-eggs provide more bang for the buck.

*   *   *

Richard Rider is the chairman of San Diego Tax Fighters, a grassroots pro-taxpayer group. Rider successfully sued the county of San Diego (Rider vs. County of San Diego) to force a rollback of an illegal 1/2-cent jails sales tax, a precedent that saved California taxpayers over 14 billion dollars, including $3.5 billion for San Diego taxpayers. He has written ballot arguments against dozens of county and state tax increase initiatives and in 2009 was named the Howard Jarvis Taxpayers Association’s “California Tax Fighter of the Year.” Rider updates this compilation of statistics on California every month; they are updated here quarterly.