Political leaders and pundits have been quick to link this month’s horrific wildfires to climate change, leading to the conclusion that California should continue and even double down on its carbon reduction policies. But the evidence suggests that these policies will make little difference in the frequency and severity of these disasters, and our scarce resources would be better spent elsewhere.
While lack of rainfall is clearly the major cause of the wildfire crisis, it is less clear that dry weather conditions can be attributed to global warming. According to the Intergovernmental Panel on Climate Change, there is “low confidence” in the relationship between global warming and droughts.
Further, historical records show that California has experienced repeated droughts before anthropogenic climate change became a factor. San Francisco climate records show two years in the nineteenth century with less than 10 inches of rainfall, but no year in the 21st century with so little precipitation. The state experienced a severe drought between 1929 and 1934, with runoff falling to levels below those seen in this decade’s water crisis.
So even if we were able to stop global warming, there is no guarantee that steady rainfall would ensue. Further, we in California, cannot stop global warming by ourselves. Since California only produces about 1% of global greenhouse gas emissions even an outright ban on fossil fuel use within our state would have minimal impact on future warming – and, of course, no impact on the warming that has already occurred.
Further, our policies come nowhere near a total ban (which would cause an economic disaster). Instead, our approaches to climate change often amount to costly tinkering around the edges. Most notably, we’re spending billions of dollars on mass transit projects in hopes of getting people to do less driving – but these efforts are producing dubious results.
Consider, for example, high-speed rail. Ideally, a bullet train linking northern and southern California would eliminate millions of automobile and airplane trips, greatly reducing carbon emissions. But the reality is that the project is way behind schedule and ridership may never reach the lofty heights projected in High Speed Rail Authority business plans.
Worse, construction in the rail corridor is producing greenhouse gas emissions now, which may not be offset for decades – if ever. The High Speed Rail Authority reported that contactor vehicles generated 1400 metric tons of CO2 in 2015 alone. But that is only a small fraction of the impact, which includes energy used to produce concrete and steel. The Authority’s stated intention is to offset these carbon impacts by planting trees, but that could be done without building a new rail system.
With the date of initial service falling back and plans for blended service impacting travel times and train frequency, it is evident that HSR will take fewer travelers off the roads much later than originally planned. Indeed, it appears that California’s passenger vehicle fleet will be primarily electric by the time HSR is ready to transport large passenger loads.
Given the project mismanagement recently identified by the State Auditor, the time seems ripe to truncate the high-speed rail effort. Money saved by downsizing the project could instead be reallocated to two projects that would immediately reduce wildfire risk: separating trees from powerlines and thinning our overgrown forests. Reducing the likelihood of ignitions and cutting the amount of fuel available to forest fires are obvious solutions to the current crisis. By contrast, spending billions on mass transit projects whose carbon savings may not offset construction phase emissions, and which are an infinitesimal fraction of global greenhouse gas emissions, which, in turn, may not even be responsible for current and future droughts, seems like a very inefficient way of saving us from forest fires.
* * *
It is understandable that many California taxpayers are disappointed with the election results. The defeat of Proposition 6 means that last year’s big increases in both the car tax and the gas tax imposed on us by Sacramento politicians will remain in effect and California’s drivers are stuck having the second-highest gas tax in the nation.
Tax-and-spend progressives are interpreting the defeat of Prop. 6 as a green light to impose even higher taxes. In fact, some now believe that the iconic Proposition 13 itself may be vulnerable. But this thinking is faulty.
There are three major reasons why Proposition 6 failed and none of them are because voters were enamored with the Senate Bill 1 tax hike last year. First, the ballot label – which may have been the only thing low-information voters saw – made no reference to the tax hike passed by the legislature last year. Rather, it ominously stated that the initiative would “eliminate certain transportation funding.” This non-specific description ignores that, had Prop. 6 passed, California would still have the fifth-highest gas tax in the nation. In providing a blatantly misleading ballot title, Attorney General Xavier Becerra did the opponents a huge favor.
Second, the financial power of the “rent seekers” — those interests which secure financial advantage through higher taxes on the general public – was on full display during this campaign. Big business, including large construction companies, teamed with big labor to contribute well over $50 million in campaign funds. A one-time $50 million investment for $5 billion in tax proceeds every year is a heck of a good return on investment. Moreover, this amount of money dwarfed the approximately $5 million raised by the proponents. With that kind of spending disparity, the disinformation spewed out by the opponents could not be challenged effectively, particularly in major media markets.
Third, opponents engaged in repeated acts of questionable and even illegal behavior. Beyond just the over-the-top threats of collapsing bridges if Prop. 6 passed, there was the well-publicized use of Caltrans-supervised work crews to stop traffic and hand out campaign fliers urging a no vote on Proposition 6. And the full integration of Caltrans management with opposition campaign operatives was an example of real, not fake, collusion. While legal actions are pending on this kind of activity, it is of little solace to California drivers who are being punished every time they pull up to the pump or write a check to the DMV.
All of this demonstrates that it is not easy to persuade Californians to pay higher taxes. Proposition 6 may have been confusing to many voters because it was not labeled on the ballot as a tax cut. A vote of no was a ratification of the legislature’s tax increase. Even now it’s confusing.
A more accurate test of voters’ appetite for higher taxes is likely ahead in the next election. A proposal that would directly increase taxes on businesses has already qualified for the 2020 ballot. The measure would create a “split roll” for property taxes, triggering immediate reassessments on business properties and imposing billions of dollars in higher property taxes. This initiative is also a direct assault on Proposition 13 by weakening, for the first time, the core protections of that famous initiative.
Unlike the Proposition 6 campaign, the tax-and-spend forces will be asking for a Yes vote. Opposing them will be all the traditional taxpayer advocacy organizations accompanied by an armada of business interests. Many of those groups were part of the powerful coalition that soundly defeated Proposition 10, which would have unleashed rent control in California.
Proposition 6 was a disappointment and taxpayer advocates may be bloodied but they are not broken. To paraphrase Mark Twain, the news of our death is greatly exaggerated.
Jon Coupal is president of the Howard Jarvis Taxpayers Association.
Back in the days of adding machines and manual ledgers, final election results in California were usually done by midnight on election day. Sometimes there would be a few precincts counting ballots into the wee hours of the morning, and you wouldn’t know a result till the next day. Fast forward to 2018, and the age of global interconnectedness, with instantaneous algorithmic management of everything from power grids to Facebook feeds, yet here in California the complete results of the 2018 midterms won’t be available until December 7th. Go figure.
While California’s ability to count ballots runs contrary to the otherwise dazzling march of progress, by now we have enough information to offer a pretty good look at California’s state legislature for 2019-20. The Democratic supermajority has been reestablished. With 28 confirmed seats in the Senate, and 56 in the Assembly, the Democrats hold 70 percent of the seats in both houses. Even if Republicans achieved the unlikely capture of all four Assembly seats that remain too close to call, nothing would change. Overall, so far there are 84 Democratic legislators, and only 32 Republicans.
How Many State Legislators Have Private Sector Experience?
Three election cycles ago, a California Policy Center analysis compared the biographies of California’s state legislators, asking how Republicans and Democrats differ in terms of what they did before they became politicians. To repeat this exercise, 2018 election results were obtained from the California Secretary of States “District Races” page for the Senate and the Assembly. For incumbents who were reelected, biographies were obtained from the Senate and Assembly websites. For newcomers, a trip to Wikipedia, Ballotpedia, or their campaign websites was sufficient.
When one considers the professional background of California’s politicians, a clear pattern emerges. And while compiling this data requires some degree of subjective interpretation, no reasonable interpretation would fail to reveal dramatic differences in experience between Democrats and Republicans.
California State Legislature, 2019-2020 Membership
Business vs. Government Background
As seen on the above table, in California’s 2019-20 state senate, 79 percent of the Democrats have no private sector experience. On the other hand, 58 percent of the Republicans had no public sector experience prior to running for elected office, although most of them ran for local offices prior to running for state senate. The same story applies with California’s state assembly, where 73 percent of the Democrats have no private sector experience, and 55% of the Republicans have at least some private sector experience.
Before continuing, it’s interesting from this perspective to compare this 2019-20 state legislature to the 2013-2014 state legislature. Back then the proportions were generally the same, but there were almost no Democrats – only five in both houses – compared to 14 of them today. Conversely, back in 2013 there were 25 Republicans who had an exclusively business background prior to holding elected office, compared to only 15 today. Over the same period, the number of Republicans with only public sector experience prior to holding office has more than doubled, from four back in 2013 to 11 today. Overall there are now even fewer Republicans – down from a paltry 36/120 six years ago to a vanishing 32/120 today.
California State Legislature, 2013-2014 Membership
Business vs. Government Background
What might explain this tepid drift to the center, at least in terms of more Republican state legislators with public sector experience, and more Democratic state legislators with private sector experience?
One explanation could be the open primary, which makes it less likely an extreme candidate will survive the general election. Another could be the decision made around 2010 by California’s beleaguered business community to start supporting pro-business Democrats. Finally, as Republicans in California fade further into irrelevance, the alliances and allegiances formed in public sector work offer Republican candidates with that background a better chance of electoral success.
Public Sector Unions Pick Public Sector Careerists to Run for Public Office
Back in the 1950’s and 1960’s there were plenty of pro-business Democrats, so called “Pat Brown” Democrats, who worked with Gov. Brown Sr. to build freeways, bridges, power plants, and the finest system of water storage and conveyance the world had ever seen. Those same Democrats cooperated with Republican Governor Reagan a few years later to build the finest public university system in the world. The opportunities available to California’s middle class were unrivaled. What happened to these Democrats?
The problems began in the 1970’s when public sector unions were allowed to form. Steadily acquiring political power through automatic dues deductions, they used taxpayer’s money to lobby for the interests of government workers instead of the interests of the people they serve. Increasingly, business-backed candidates started losing races to candidates backed by government unions. Almost invariably, unions backed Democratic candidates. The more powerful these union-backed candidates became, the more laws they enacted to further consolidate their power. Today government union rule in California is absolute.
The tragedy of unionized government is not merely that they have taken over California’s state legislature and nearly every city, county and school board in the state in order to pursue their membership’s interest above the public interest. It is that most elected officials no longer understand business. These union anointed elected officials come from government agencies, union bureaucracies, nonprofits, activism, and public education. Most of California’s legislators have never had to balance a budget, make a payroll, or convince a customer to voluntarily purchase a product so they could earn a precarious profit in a competitive market.
California’s lawmakers, to the extent they are elected with the support of public sector unions and to the extent they lack business experience, not only face a conflict of interests every time they have to deal with a reform that threatens the power of the unions. They are also less qualified to understand the financial and operational realities that apply in any efficiently ran, productive organization, large or small. They are in over their heads.
To exemplify this, consider how California’s democrats are crowing over a $6 billion budget surplus. Compare that $6 billion surplus to the nearly half-trillion in bond debt that California’s state and local governments have piled up, including another $23 billion on Nov. 6th. Compare that $6 billion surplus to, by most reasonable estimates, the more than half-trillion in unfunded retirement benefits that are going to blow sky high in the next market downturn.
Hint. A trillion is a thousand billion.
* * *
MEDIA ADVISORY from the
LIBERTY JUSTICE CENTER and
CALIFORNIA POLICY CENTER
firstname.lastname@example.org or 847-651-8611
email@example.com or 949-274-1911
EMBARGOED until Nov. 13 at 10 a.m. PST
Janus attorneys and California Policy Center represent Los Angeles teacher in lawsuit against LAUSD, UTLA
LOS ANGELES (Nov. 13, 2018) – Attorneys from the Liberty Justice Center and the California Policy Centerhave filed a lawsuit on behalf of a Los Angeles teacher against the Los Angeles Unified School District (LAUSD) and the United Teachers of Los Angeles (UTLA). The lawsuit alleges that the LAUSD and UTLA violated the plaintiff’s First Amendment rights of free speech and freedom of association.
“After the U.S. Supreme Court’s decision in Janus v. AFSCME, government employees have a choice and a voice when it comes to union membership,” said Brian Kelsey, senior attorney, Liberty Justice Center. “Public employers in California that continue to withhold union dues and fees from employees without clear, voluntary, and informed consent from those employees, are actively defying the Court’s ruling and are violating employees’ First Amendment rights.”
WHAT: Press conference and media availability announcing litigation filed in the U.S. District Court for the Central District of California
WHO: Plaintiff, teacher, Los Angeles Unified School District
Brian Kelsey, senior attorney, Liberty Justice Center
Mark Bucher, CEO, California Policy Center
Mark Janus, plaintiff in Janus v. AFSCME and senior fellow, Liberty Justice Center
WHEN: Tuesday, Nov. 13 at 10 a.m. PST
WHERE: New Los Angeles US Courthouse – outside Broadway Street entrance
350 W. 1stStreet
Los Angeles, CA 90012
INTERVIEWS: Speakers will be available to answer media questions following a brief statement.
The Liberty Justice Center is a nonprofit, nonpartisan public-interest litigation center that fights to protect economic liberty, private property rights, free speech, and other fundamental rights. First and foremost, the Liberty Justice Center seeks to ensure that the rights to earn a living and to start a business, which are essential to a free and prosperous society, are available not just to a politically privileged few, but to all. The Liberty Justice Center pursues its goals through strategic, precedent-setting litigation to revitalize constitutional restraints on government power and protections for individual rights. Learn more at LibertyJusticeCenter.org.
The California Policy Center is a nonprofit, nonpartisan public-interest organization that promotes prosperity for all Californians through limited government and individual liberty. Learn more at CaliforniaPolicyCenter.org.
# # #
Although hundreds of election results remain to be decided across California, thanks to millions of vote-by-mail ballots still being counted, we can already project with reasonable accuracy the total amount voters approved in new taxes and borrowing. At the local level, new taxes nearly always are approved by voters. In 2016, out of 224 local tax proposals, voters approved 71 percent, adding $2.9 billion in new taxes. As shown on the table, if a similar percentage of November 6, 2018 local tax measures are approved by voters, California’s taxpayers will be providing local governments with another $1.6 billion per year.
Total Estimated New Annual Taxes Approved by California Voters
November 2018, $=Millions
While these new local taxes add billions – over time, tens of billions – of additional burden on California’s already beleaguered taxpayers, state ballot measures often offer even more significant tax increases. This November, voters turned down an opportunity, via Prop. 6, to eliminate an estimated five billion in new gasoline taxes. In all, California’s voters enabled another $6.1 billion in annual taxes, in a state that already has among the highest overall tax rates in the U.S.
California’s Total New Debt
The impact of new taxes is immediate. Rates go up, revenues increase, and government budgets swell. Compared to taxes, the impact of bonds is greater in the long run, but harder to recognize. In reality, bonds are just deferred taxes. From a financial perspective, it would almost be preferable to use taxes to fund many projects that currently rely on borrowing, because at least taxpayers would only be paying principal, and not interest. For example, if you assume 3 percent inflation, the present value of the payments on a $1.0 billion bond (5% interest, 30 year term) is $1.3 billion. That is, in real dollars, using a typical example, bond financing costs taxpayers 30 percent more than paying for services using operating funds. But the seduction of borrowing is hard to resist: big money today, while mortgaging tomorrow.
Total Estimated New Borrowing (incl. Annual Payments) Approved by California Voters
November 2018, $=Millions
As it is, this November, voters mortgaged a lot of tomorrows. And as always, the big money in the case of new bonds was almost all local. In 2016, of the 193 new local bond measures, voters approved a whopping 94 percent of them. This added $32 billion in new debt, equating to an estimated $2.1 billion in new annual principal and interest payments. As shown on the table, if a similar percentage of November 6, 2018 local bond measures are approved by voters, California’s taxpayers will owe another $15.5 billion. The principal and interest payments on this new debt will cost taxpayers another $1.0 billion per year.
At the statewide level, despite rejecting Prop. 1, the water bond, voters approved three new major state bond measures totaling $6.5 billion. Adding that to the likely $15.5 billion in local bonds, Californians this November will have added $23.0 billion in debt, costing $1.5 billion per year in annual payments of principal and interest.
California’s Total Accumulated Debt
Who was it that said, “a billion here, and a billion there, and pretty soon we’re talking about serious money”? That would describe California’s total state and local government debt. When you look at what constitutes California’s total debt, accumulated over decades, it puts the relentless drive for higher taxes into context. The next table summarizes California’s total debt, as estimated by California Policy Center researchers Marc Joffe and William Fletcher in a 2017 study entitled “California’s Total State and Local Debt Totals $1.3 Trillion.”
Added in column two of this table is the estimated annual payments on this debt. As can be seen, the conventional debt – bonds, loans, and other contractual debt – paid back over 30 years at an interest rate of 5 percent, is costing California’s taxpayers $27.7 billion per year. Add to that, of course, annual payments of another $1.5 billion on new debt approved by voters earlier this week. But it’s in the unfunded liabilities for public employee retirement benefits where truly serious money burdens California’s taxpayers.
California’s Total Estimated State and Local Government Debt
The story of how California’s taxpayers ended up on the hook for unfunded retirement pension liabilities easily in excess of a half-trillion dollars defies glib explanations. Anyone wanting to dig deep into California’s public sector pensions is encouraged to read the California Policy Center primer “Resources for Pension Reformers” and click on the many links for in-depth analyses of this complex topic. Simply put, an unfunded pension liability is the difference between the assets being managed by a pension fund at any time, and the present value of all promised future payments to retirees and active workers that have been earned up to that same point in time.
Over nearly three decades, some critical mistakes were made in California’s public employee pension fund management. Pension benefits were increased, again and again, by politicians eager to curry favor with public employee unions, but didn’t want to blow their current year budgets by granting salary concessions. Instead, they sweetened future pension benefits which did not incur significant immediate costs. Then the required annual costs to fund pensions were underestimated. Rates of return on invested pension fund assets were overestimated. Life expectancies were underestimated. And as the assets of California’s state and local pension systems began to fall well behind the value of their liabilities, creative accounting was employed to understate the amounts needed to reduce that debt.
Because of all these unknowns, there is a wide range of estimates of California’s total public sector pension debt. At the least it totals over a quarter trillion; at most, about triple that amount. This much is reasonably certain: if there is an economic downturn, and if pension benefits aren’t further reduced, it is likely that payments on pension debt will need to be in excess of $50 billion per year. In all, absent reforms and an epic continuation of the bull market, Californians are likely to be paying over $90 billion per year to service their state and local government debt. More than half of that will be to pay down unfunded pension liabilities.
The Public Sector’s Insatiable Desire for More Money
It is impossible to view California’s relentless pattern of tax increases apart from its public sector pension crisis, which is just beginning. Currently, the estimated annual payments on unfunded pension liabilities in California is estimated at $17 billion. Imagine the impact of that amount soaring to over $50 billion. And, of course, the taxpayer cost for pensions isn’t just to pay down the unfunded liability. The “normal cost,” that amount each year that has to be paid to fund the future pension benefits just earned in that year, is also rising. Based on modest adjustments to the assumptions governing projections of pension solvency, and based on official announcements already made by California’s largest pension fund, CalPERS, the normal costs for pension benefits plus the unfunded payments for pensions are estimated to rise from $31 billion in 2017 to $59 billion by 2024. No tax increase, anywhere so far, not even all of them added up, are sufficient to cover this shortfall.
If analysts find California’s looming pension funding crisis alarming, public employees who receive these pensions find it terrifying. That’s why, when a new local tax or bond measure is on the ballot, local governments use taxpayer funds to engage in “information campaigns” aimed at their voters that come very close to being political advocacy. Sometimes they cross that line. After such activities in support of a local sales tax increase in Los Angeles County, the California Fair Political Practices Commission found cause to charge the county, as well as the individual members of the Board of Supervisors, with 15 counts of campaign finance violations.
Californians had a chance to apply vigorous pressure to its elected officials by passing Prop. 6, which would have repealed the gasoline tax. That repeal would have cost state and local governments $5.0 billion per year. Why wouldn’t Californians seize an opportunity to lower what are the highest gas taxes in the U.S.? The answer reveals more about how far California’s public sector is willing to go in its desperate need for more revenue.
Earlier today and in the aftermath of the Nov. 6th election, Carl DeMaio, a former member of the San Diego City Council, who launched the Prop. 6 campaign, described the tactics of the opposition. California’s attorney general is responsible for reviewing ballot initiatives and approving the final wording of these initiatives as they appear on the ballot. According to DeMaio, rather than objectively describing the intent of Prop. 6, which was to repeal the new gasoline tax, the attorney general’s office used focus group research to compile a title and summary for the initiative that was worded in a manner more likely to get people to vote no. But it didn’t end there.
Not only is California’s attorney general alleged to have doctored the language of Prop. 6 to draw down voter support, California’s public sector unions spent millions on an opposition campaign. Overall, the opposition to Prop. 6 spent $50 million on their campaign, compared to only $2.6 million spent by its proponents.
Even in California, $50 million buys a lot of airtime. Lost on California voters, sadly, was the irony of a veteran firefighter who made $324,000 in 2017, serving as the main television spokesperson opposed to Prop. 6 which would have lowered taxes. California’s public sector unions collect and spend at least $800 million per year. They can, quite literally, spend as much as they need to spend to defeat candidates and propositions that do not favor their own interests.
Why don’t California’s voters and policymakers overcome high taxes and an unaffordable cost of living? Partly it’s due to the grip that public sector unions have on politicians, which prevents the state legislature from ever getting spending under control. Partly it’s the lack of any effective opposition, since the supposedly tax averse Republican party in California is a hollow shell, lacking on-the-ground infrastructure, strong candidates, or a shared and compelling political agenda. Saddest of all, it’s because the media in California is entirely unwilling to make the connection between public sector compensation, the power of public sector unions, and the punitive taxes and living costs that are its consequences.
* * *
There are obvious reasons the median home price in California is $544,900, whereas in the United States it is only $220,100. In California, demand exceeds supply. And supply is constrained because of unwarranted environmental laws such as SB 375 that have made it nearly impossible to build housing outside the “urban service boundary.” These laws have made the value of land inside existing urban areas artificially expensive. Very expensive. Other overreaching environmentalist laws such as CEQA have made it nearly impossible to build housing anywhere.
Then there are the government fees attendant to construction, along with the ubiquitous and lengthy permitting delays caused by myriad, indifferent bureaucracies with overlapping and often conflicting requirements. There is a separate fee and a separate permit seemingly for everything: planning, building, impact, schools, parks, transportation, capital improvement, housing, etc. Government fees per home in California often are well over $100,000; in the City of Fremont in 2017, they totaled nearly $160,000 on the $850,000 median value of a single family home.
This is a shakedown. It has caused a politically engineered housing shortage in California that enriches billionaire property developers that have the financial strength to withstand decades of delays and millions in fees, because they reap the extreme profits when they sell these homes at inflated prices. Also enriched are the public servants whose pay and pensions depend on all taxes – definitely including property taxes – and all fees being as stratospheric as humanly possible. Public employee pension funds also benefit from housing scarcity, as their real estate investment valuations soar into bubbleland.
When litigious environmentalists, insatiable public sector unions, and an elitist handful of left-wing oligarchs control a state, artificial scarcity is the consequence. Welcome to California.
REJECTED POLICY – REAL SOLUTIONS TO THE HOUSING CRISIS
To decisively solve California’s housing shortage, some of California’s more than 25,000 square miles of rangeland, currently occupied by cattle, would have to be approved for suburban development. California is only 5 percent urbanized, although if you listen to environmentalists, you might get the impression it only had 5 percent remaining open space. You could fit ten million people onto half acre lots in four person households and you would only use up 2,000 square miles – that’s only 1.1 percent of California’s land area. Why aren’t massive new housing developments spreading out along California’s 101, I-5 and 99 corridors?
Real solutions to California’s housing crisis would also require increasing the capacity of California’s water infrastructure and transportation infrastructure. In both cases, investment would be cheaper if this expansion was done on raw land. Real solutions to California’s housing crisis would mean rescinding the mandatory rooftop solar requirement on new home construction, and instead recommissioning and expanding the nuclear power complexes at Diablo Canyon and San Onofre, and embracing development of additional nuclear power and natural gas power plants. In a less confiscatory regulatory environment, the private sector could fund all of this while lowering costs to consumers.
Reforming environmental restrictions and unleashing private sector development of homes and infrastructure is the fastest, easiest way for home prices in California to return to near the national average. In turn, that would solve nearly every problem associated with a shortage of housing. California’s families would be able to afford to buy homes, or pay affordable rent. California’s employers, most definitely including government agencies, would be able to attract workers at prices that would not break their profits or their budgets, which would benefit the economy. And far fewer people would be rendered homeless.
APPROVED POLICY – COMPLETELY USELESS “SOLUTIONS” TO THE HOUSING CRISIS
As long as environmentalist litigators, public sector unions, and left-wing oligarchs run California, none of these real solutions will ever happen. What are they proposing instead?
To summarize, all politically viable housing solutions in California involve densification, i.e., cramming ten million more people into existing urban areas, and, predictably, more taxes, bonds, fees, subsidies and government programs.
Rent Control, Government Subsidized “Affordable Housing” and Government Funded Homeless Shelters
California is the epicenter of America’s “progressive” power structure. In California, in addition to controlling the public bureaucracy through their unions, progressive ideologues control the press, social media, search media, K-12 public education, academia, most corporations, the entertainment industry, and virtually all serious political campaign spending. As a result, California’s progressives can use ballot initiatives to con a brainwashed populace into approving their latest housing policy agenda. The common thread? Government control; government funding. For example, on the ballot this November are propositions to permit cities and counties to enact rent control, issue state bonds totaling $4 billion to build “affordable housing,” and use state tax revenues to build more government-run homeless shelters. It is possible all three of these measures will pass.
Already in progress is the implementation of California state laws that took effect Jan. 1 – AB 2299 and SB 1069 – which amend existing state laws governing “accessory dwelling units.” These new laws force California’s counties to streamline the process whereby homeowners can construct additional homes in their backyards. Does that sound good? Not so fast.
Doubling Suburban Population Densities ala Government Subsidized “Accessory Dwelling Units”
There’s a reason people work hard for decades to pay off their mortgages so they can own homes in spacious suburbs. It’s because they value the leafy, semi-rural atmosphere of an uncrowded suburban neighborhood. AB 2299 and SB 1069 will effectively double the housing density in these neighborhoods, violating the expectations of everyone living there who relied on the zoning rules that were in effect when they bought their homes.
If zoning laws in existing suburbs were relaxed at the same time as zoning restrictions were lifted on the urban periphery, the impact of these new rules might be mitigated. But every policy California’s elite and enlightened geniuses come up with is designed to maintain “urban containment.” And to add to the disruption these laws will inflict on quiet neighborhoods, California’s cities – starting with Los Angeles – are providing subsidies to homeowners to build these homes, then encouraging them to rent the properties to low income families wherein the government will pay the rent via Section 8 vouchers.
This is an expensive, utopian scheme that oozes with compassion but is fraught with problems. Doubling the density of suburbs is already problematic. But doubling the density of suburbs by subsidizing the settlement of people on government assistance into every backyard, invites social friction. It is forcible integration of people who, for whatever reason, require government assistance to support themselves, into communities of taxpayers, who, by and large, are working extra hard to pay the mortgages on overpriced homes in order to provide their children with safe neighborhoods.
As usual, when it comes to enlightening the public, neither the media, nor the urban planning experts in academia, ever offer much beyond pro-densification propaganda. A glowing New York Times article, entitled “A Novel Solution for the Homeless: House Them in Backyards,” raves about this entire scheme, already being tried in Los Angeles, Portland and Seattle. The article includes a quote from Vinit Mukhija, a professor of urban planning at UCLA, who says: “The value [of subsidized accessory dwelling units] goes beyond that, though, because it is finally somewhat of a departure of the purity of single-family housing in the region. It’s a good step to change what people here really consider a dogma of private housing.”
The “dogma of private housing.” That epitomizes California’s elitist hostility towards ordinary families owning detached homes with spacious yards.
The incentives created by such a project are perverse. California’s elite has made homes unaffordable. Then, to the people who sacrificed so much to buy these homes despite their punitively high prices, the government offers them subsidies and Section 8 payments, if they are willing subdivide their lots and turn over half their property to people supported by the government. Inevitably, many financially struggling homeowners will be forced to accept this cruel bargain if they want to keep their homes.
Finally, just like in 2008, there will eventually be another economic downturn, when many distressed homeowners will be forced to sell their properties. And when that happens, just like in 2008, investment banking speculators will move in and buy homes by the thousands. This next time, however, these institutional investors will be salivating at the prospect of collecting government subsidies so they can operate two rental units on a single piece of property.
Demolishing Homes to Build High Rises Near Transit Stations
Another way California’s elites – many of whom live in gated communities with homeowner covenants prohibiting nasty things like accessory dwelling units in backyards – propose to solve California’s housing crisis is to force demolition of single family dwellings in the vicinity of mass transit stations. They support this mass destruction of vintage neighborhoods in order to make room for high density apartments and condominiums up to five stories in height. While an attempt in 2018 to enact this draconian solution was beaten back, California’s coercive utopian lawmakers will bring it back in 2019. Some form of this law is likely to pass.
There’s nothing wrong with gradually increasing the population density in the core of large cities. That is a natural and organic process. But it is the job of legislators and local officials to moderate that process, protecting established neighborhoods. Instead, again, the policy consensus in California is to cram ten million new residents into existing urban areas.
Government Subsidized Homeless Shelters on some of the Most Expensive Real Estate on Earth
Perhaps the most misguided housing policies coming out of California concern the homeless. Despite years of bloviating by the compassionate elite, almost no good data is available on homeless populations, much less any good policies. Press coverage of the homeless centers on the family unit; small children, parents forced out of their home by high rents. These are gut wrenching stories. But accompanying the legitimate cases of families or individuals coping with undeserved hardship, there are the willfully indigent, along with criminals, drug dealers, sexual predators and perverts. Again, the City of Los Angeles offers a striking example of bad policy.
In Venice Beach, which is within Los Angeles city limits, along one of the most expensive, touristy stretches of coastline in the world, there are now permanent homeless encampments. To address the challenge, Los Angeles city officials are fast-tracking the permit process to build a homeless shelter on 3.2 acres of vacant city-owned property less than 500 feet from the beach. This property, nestled in the heart of Venice’s upscale residential and retail neighborhoods, if commercially developed, would be worth well over $200 million. Imagine what could be done with that much money if the goal was to truly help the homeless. And by the way, the proposed shelter will be a so-called “wet” shelter, meaning that drugs and alcohol will not be permitted inside the shelter, but intoxicated homeless individuals will be allowed inside. Go in, get a bed, go out, shoot up, come back in.
That a solution so scandalously inefficient could even be considered by the do-gooders running City Hall in Los Angeles offers additional insights into the minds of California’s progressive elite. Solving the homeless crisis isn’t their goal here. Rather the intent is to create additional government-owned properties, hire additional government bureaucrats, while preening in front of television cameras and pretending to solve a problem. Should the Venice Beach property be developed as currently proposed, well connected construction contractors will rake in government funds, so eventually “up to 100” homeless people will find shelter. Meanwhile, thousands will remain outdoors.
California’s housing is unaffordable because of restrictive laws such as CEQA, AB 32, SB 375, and countless others at both the state and local level. At the same time, California’s political elites are are inviting in the world’s poor en masse to come and live here. An estimated 2.6 million illegal aliens currently live in California. But the rhetorically unassailable compassion expressed by these sanctuary policies does nothing to alleviate hardship in the nations where these refugees originate, because for every thousand who arrive, millions are left behind.
The result? While California’s visionary rulers engineer a shortage of housing supplies, their welcoming sanctuary policies engineer a burgeoning housing demand. This is the deeply flawed agenda they have implemented in California and are actively exporting to the rest of America.
The biggest lie of all is the compassionate facade that overlays every housing solution California’s elite promote. Because their solutions, however viable they may be politically, will not work. They defy basic economic sense. They create additional drain on public funds while doing nothing to alleviate the high prices that are caused by scarcity. They are sustained by an impossible assumption, that urban densification, and all the destruction that densification will bring, will in itself be sufficient to restore a supply and demand equilibrium for housing. And they reject the obvious solution, suburban expansion to complement higher densities in the urban cores, based on environmentalist objections that are overwrought. In practice, the solutions being implemented to resolve California’s housing crisis are not compassionate. They are cruel.
Eventually, enough Californians are going to realize they’ve been conned. They will recognize that government subsidized densification is financially unsustainable and ruinous to their way of life. They will support politicians who are willing to stand up to environmentalist litigators, government unions, and the left-wing oligarchy that profits from scarcity. Hopefully that will happen before it’s too late.
* * *
This column has, over the last several years, exposed multiple examples of government entities using taxpayer dollars for political advocacy, a practice that is clearly illegal under both state and federal law. The free speech clauses of the federal and state Constitutions prohibit the use of governmentally compelled monetary contributions (including taxes) to support or oppose political campaigns since “Such contributions are a form of speech, and compelled speech offends the First Amendment.” Smith v. U.C. Regents (1993) 4 Cal.4th 843, 852.
Moreover, “use of the public treasury to mount an election campaign which attempts to influence the resolution of issues which our Constitution leaves to the ‘free election’ of the people (see Const., art. II, § 2) … presents a serious threat to the integrity of the electoral process.” Stanson v. Mott (1976) 17 Cal.3d 206, 218.
While taxpayer organizations have been successful in several lawsuits involving these illegal expenditures, that hasn’t stopped either the state or local governments from continuing to push the envelope into political advocacy. However, there is a secondary legal issue that may actually prove to be more effective when government engages in political advocacy. Beyond the First Amendment implications, California has a strict regimen of campaign finance laws and regulations. These laws both limit a wide range of political contributions and impose strict reporting requirements. Thus, when government agencies engage in illegal political activity under First Amendment grounds, unless they have reported the costs of the activities to the FPPC as campaign contributions, they have violated separate campaign finance laws as well.
In March 2017, Los Angeles County placed Measure H, a sales tax for homeless programs, on the ballot. Whatever one may think of the need for higher taxes — for homeless programs or any other purpose — the county’s use of nearly a million dollars of public funds for the political campaign unquestionably crossed the line into political advocacy.
The Howard Jarvis Taxpayers Association filed a complaint with the FPPC shortly after Measure H passed — by a slender margin — and this past week the FPPC finally took action. Specifically, the FPPC found probable cause to charge L.A. County, as well as the individual members of the Board of Supervisors, with 15 counts of campaign finance violations.
Not only is the “probable cause” finding by the FPPC welcomed by taxpayer advocates, the timing is very propitious. California is just weeks away from the midterm elections and, regrettably, local governments up and down California are illegally using taxpayer funds for political advocacy and failing to report the same as political contributions. Los Angeles County itself is currently running campaign ads, paid for by the taxpayers, for Measure W, a new parcel tax to pay for stormwater projects.
Taxpayers are hopeful that the findings by the FPPC will serve as a huge shot across the bow to all government entities in California not to abuse taxpayers by using public funds for political activity.
In the meantime, using additional FPPC complaints as well as lawsuits can go a long way in stopping this particularly perverse use of taxpayer dollars.
Jon Coupal is president of the Howard Jarvis Taxpayers Association.
* * *
The internet has enabled unprecedented transparency in government, but have governments fully adopted the technology? Specifically, how well are government websites providing the most important information to their constituents? Is the information intuitively categorized on these websites? Are the posted reports and notices easy to understand? Is information posted promptly? Are important categories of information omitted? Are the archives of historical reports and other documents easily accessed and searched?
To begin to answer this question for California’s cities and counties, during the summer of 2018 the California Policy Center conducted an in-depth analysis of the websites of California’s 250 largest cities as well as all of California’s counties. The analysis awarded points in ten categories. Within each category were subcategories, as described below, roughly corresponding to the points available per category. These categories were:
(1) Contact Information (up to 14 points) – For city council and county supervisors, as well as for department heads and senior administrators, is it easy to find their name, email, phone number, biography, and photo?
(2) Public Meetings (up to 16 points) – Are public meeting notices easily accessible from the home page, are they posted at least 72 hours in advance, including agendas and exhibits? Are meeting minutes posted online; are they searchable and downloadable? Are meeting minutes posted within a week or two of the meeting dates? Is it easy to find meeting information? Are meetings streamed live and archived?
(3) Public Records Access (up to 12 points) – Is it easy to find the name and contact of the City Clerk? Is it easy to submit a PRA (public records act) request; are there fees for submitting PRA requests and is the fee policy disclosed? Is the response time to PRAs disclosed? Is there a direct link to a dedicated web page for submitting PRAs?
(4) Budgets (up to 16 points) – Is the current fiscal year budget posted? Are at least five years of prior fiscal year budgets posted? Are they downloadable? Are they searchable?
(5) Financial Reports (up to 16 points) – Is the most recent audited financial report posted? Are at least five years of prior financial reports posted? Are they downloadable? Are they searchable?
(6) Contracts (up to 22 points) – Are all current labor agreements posted? For management, are all individual employment contracts posted? Are all approved vendor contracts over $10,000 posted? Are all current RFPs (request for proposal) over $10,000 posted? Are all of these downloadable and searchable? Are they posted in a timely fashion? Are the interfaces intuitive?
(7) Taxes & Fees (up to 16 points) – Are all taxes and tax rates posted and disclosed; all fees, all revenue sources? Are they easily navigable, searchable, and downloadable?
(8) Expenditures (up to 12 points) – Is employee payroll data easy to find; are expenditures and liabilities easy to find? Are they easily navigable, searchable, and downloadable? Is the information clearly presented?
(9) Facilities and Services (up to 12 points) – Are lists of services provided and terms of access to services all posted in easy to find, intuitive interfaces? Are announcements relating to services available on the homepage? Is service department information easy to find: Contact info, hours, specific instructions, FAQs?
(10) Overall Ease of Navigation (up to 10 points) – Is the city or county website generally easy to navigate and use?
The scoring for each city and county was based on totaling the points awarded to each category. A perfect score would have been 146, indicating a city or county’s website met every evaluation criteria. Even taking into account seven available bonus points, no website garnered a perfect score. The websites were assigned letter grades ranging from A to F, using the traditional academic scoring method wherein achieving 90% or more of the available points earns an A, scoring more than 80% and less than 90% earns a B, between 70% and 80% equals a C, between 60% and 70% equals a D, and any score lower than 60% gets an F grade.
RESULTS AND OBSERVATIONS
Among the 250 cities analyzed, ranging from Suisun City with just over 29,000 residents, to big Los Angeles, with over 4.0 million residents, only two got the top grade of A, Rancho Palos Verdes, located in Los Angeles County, and Poway, located in San Diego County. Grades of F, on the other hand, were handed to 19 cities. In all, only 26 percent of the cities analyzed got either A or B grades, whereas 38 percent got D or F grades.
There is inevitably an element of subjectivity that influences all these scores, despite the elaborate structure of this analysis. Human observers waded through over 300 city and county websites, for each of them checking off over 120 individual criterion. Maybe Rancho Palos Verdes would not be the top scorer, and maybe fewer cities would have ended up with F grades. But what distinguishes the best websites?
Highlights of the Highest Scoring City Website – Rancho Palos Verdes
Rancho Palos Verdes has a home page with a simple navigation bar, offering only six categories: “Government,” “City Services,” “Community,” “City Departments,” “Transparency,” and “How Do I…“. Scrolling over each of these primary categories triggers a comprehensive drop down menu of clickable links. These links are organized in sections, with section titles that make it easy for the viewer to find the particular link they’re looking for.
A good example is the “Government” category on the Rancho Palos Verdes home page. The first section is the link to the “City Council,” which clicks to a page showing a group photo as well as portrait photos of all council members. For each council member, the page provides their title, direct email, biography, and term limits. The page provides a phone number and group council email address and the dates of all city council meetings. It provides means to sign up for council agenda notifications by email, as well as means to submit via email comments or suggestions regarding agenda items.
To the side of the City Council page are additional links that are easy to navigate, including “City Council Meetings,” where dates of upcoming meetings are displayed, as well as links to the agenda, minutes, and video recordings of past council meetings going back by year all the way to 2000.
Another virtue of the Rancho Palos Verdes website is their easily found financial reports and budgets – you can make your way to viewing them by clicking on the Finance link that is found in the dropdown menu of both City Departments and Transparency on the main navigation bar.
Something that ought to be universally adopted is to post searchable PDF documents. Rancho Palos Verdes publishes all of their budgets and consolidated annual financial reports using searchable PDF files, where the user can (using a PC) enter cntl-F and look for all uses of any given search term, ex. “Pensions,” then quickly click to every spot in the document where that term is used.
Assisting anyone trying to get a quick look at the financial status of Rancho Palos Verdes is their use of a parallel 3rd party financial report writer, OpenGov, which offers useful summaries of city revenues, expenses, and personnel costs.
Rancho Palos Verdes was one of the few cities that had all of their outside contracts accessible from a single page, accessed via their Transparency page, then selecting “Contracts and Agreements.” The Transparency page also clearly lays out compensation schedules for city employees, as well as all taxes and fees charged by the city.
The Top Ten City Websites
Among the 58 counties analyzed, ranging from tiny Alpine County with barely 1,000 residents to Los Angeles County with over 10.0 million residents, none earned an A grade. Overall, just 13 percent of the counties earned B grades, whereas 53 percent scored grades of either D or F. The top scorer was Alameda County.
Highlights of the Highest Scoring County Website – Alameda
With nearly 1.7 million residents, Alameda is California’s 7th largest county by population. Only the counties of San Diego, Orange, and, of course, Los Angeles have significantly larger populations. Counties also offer far more services than cities, not only public safety and municipal services, but also including, for example, hospitals, jails, employment development, and welfare administration.
To help users navigate this much larger array of services in this very large county, Alameda’s home page has a simplified navigation bar, with categories “Services,” “Careers,” “Connect,” and “Participate.” Above these categories is a huge search box entitled “What can we help you find today.”
This search box works well. Entering “Budgets” takes the user to a results screen where the first result is “Budget Website.” This webpage offers reports generated by a 3rd party application similar to OpenGov called Socrata. It allows quick visualization of budgets by department, depicted (by user choice) as either bar graphs, pie charts, or trends over time. If the user clicks on any specific department slice, a new graphic is generated showing that department’s detail by sub department.
If “Financial Statements” is entered into the search box, the first result that appears is a link to Alameda County’s most recent Comprehensive Annual Financial Report. If “Building Permit” is entered, the first result is “Permit Portal – your one-stop-shop for County permits.”
Alameda County’s homepage relies on its search box, but the other navigation links are comprehensive. The “Services” button is the most inclusive, showing links to every department, service, and information portal in the county, arranged alphabetically. The “Careers” button provides information for anyone wishing to work for the county. The “Connect” button offers a host of links for citizen’s wishing to receive information about various county programs, and the “Participate” button displays information about Board of Supervisor meetings and offers a portal for members of the public to provide input.
The Top Ten County Websites
The top scorers earned points for easy-to-navigate websites that have most of the information a taxpayer would need to make informed opinions about their city or county’s financial performance and information making it possible to know who their local officials are and how to contact them. The top scorers, Rancho Palos Verdes, and Alameda County, offered contrasting approaches that both facilitated these goals of transparency. Rancho Palos Verdes, by having a thoughtfully designed navigation bar where each category generated a clearly sorted array of links on drop down menus, Alameda, by relying on an even more simplified set of buttons that connected to comprehensive directories, combined with a prominently featured search box.
The combination of easily navigated, intuitive interfaces, along with a complete directory of information as noted in our twelve evaluation criteria, are what distinguishes an excellent local government website. Local governments of all sizes may wish to consider the criteria described in this report, and assess to what extent they may be able to enhance their own websites to better provide a more complete range of information. In most cases, the costs to improve these online resources are minimal. California’s citizens deserve to know how their local governments are performing, and nothing offers them better access than an excellent online portal.
The California Policy Center thanks researchers Rowan Macwan, Kelly McGee, and Kyle Drees for the data gathering and contributions to this report.
* * *
With the 2018 general election a few weeks away, it’s time to review just how many tax increases are on state and local ballots in California. And while media attention focuses on the statewide tax measures, even bigger money is represented by the sum of hundreds of proposed local tax increases.
Every election cycle, the California Taxpayers Association (CalTax) produces a list of local tax and bond proposals. After every election, they provide information as to how many were approved by voters and how many failed. Using CalTax data, it can be seen that in November 2016, California’s local voters approved 181 bonds, mostly for school construction, totalling an incredible $32.3 billion. Annual payments on these bonds will cost California’s taxpayers an estimated $2.1 billion per year. At the same time, local voters approved 159 new tax measures, mostly increases to local sales taxes and parcel taxes, adding another $2.9 billion in annual payments.
If you add up all the voter approved new taxes in November 2016, state and local, you have to include not only $5.0 billion in new local taxes and payments on local bonds per year, you also have to add the voter approved statewide measures. That would include Prop. 51, adding yet another $9.0 billion in school bonds (estimated payments $585 million per year), and Prop 55, the extension of the “temporary” increase to state income taxes on personal incomes over $250,000 per year (estimated collections, between $4.0 billion and $9.0 per year), and Prop. 56, the $2.00 tax increase per pack of cigarettes (estimated collections just over $1.0 billion per year).
Before turning to 2018, it’s important to also note that in 2016 the Democrats recovered their two-thirds majority in the state legislature, meaning they could pass new taxes without voter approval. And in 2017, that’s exactly what they did, adding twelve cents per gallon to the already high state taxes on gasoline and increasing vehicle registration fees. Voila, another $5.4 billion per year in taxes on Californians.
When considering how California’s proposed new taxes will fare with voters in November, history is a good indicator. In November 2016, ninety-four percent of local bond measures were passed by voters, and seventy-one percent of new local taxes were approved. Similarly, this past spring, in the primary elections of 2018, California’s voters approved eighty-three percent of local bond measures ($200 million per year in annual payments), and sixty-five percent of new local taxes ($228 million in new taxes per year). Statewide, Californians approved a $4.0 billion “water” bond (Prop. 68), which equates to another $260 million per year in annual payments.
Which brings us to November 2018. The table below shows 125 new local bonds are proposed. If they are all approved by voters, that will add another $1.2 billion in annual payments. In addition, 259 new local taxes are proposed, which if approved will total another $1.6 billion in annual payments. This time, along with the perennial hikes to sales taxes and parcel taxes, the other popular new mode of taxation is marijuana, with 73 of California’s cities and counties proposing to cash in on sales of recreational cannabis.
California’s Local Tax and Bond Proposals – November 2018
If historical trends apply this time, California’s voters will likely approve four-fifths (or more) of the local bond measures, and two-thirds (or more) of the local tax increases. This will equate to roughly $2.0 billion in new taxes and payments on bonds per year. And then there are the statewide initiatives.
On California’s November ballot there are four bond proposals, totaling $16.4 billion in additional borrowing. Prop. 1 issues $4.0 billion in bonds for housing programs and veterans’ home loans. Prop. 2 sells future revenue from the millionaire’s tax for $2 to guarantee $2.0 billion in bonds for homelessness prevention housing – that’s tax revenue that has to be made up somewhere else, so yes, it counts. Prop. 3 issues a whopping $8.9 billion in bonds for water-related infrastructure and environmental projects. And Prop. 4 issues $1.5 billion in bonds for children’s hospitals. Total payments on these bonds? Another $1.1 billion per year.
To summarize, in 2016, voters approved new taxes and payments on bonds (not including the $4.0 to $9.0 billion per year in “millionaire” taxes that were not new, but were continued by the passage of Prop. 56) totaling $6.5 billion per year. In the 2018 June primary, California’s voters approved another nearly $700 billion in new taxes and payments on bonds. And this November, voters have the opportunity to approve (or reject), $3.6 billion per year in new taxes and bond payments.
For the children. For education. For safety. For safe drinking water. The list goes on, and the stories are compelling. But here’s the problem: Even if all of the 2018 tax and bond payments are approved, and those payments are added to the payments on new taxes and bonds already approved in Nov. 2016 and June 2018, the total is “only” $10.0 billion. Why “only”? Because the estimated payments on public employee pensions in California are estimated to increase from $31 billion in 2018 to $59 billion in 2024, and that is the “normal” scenario, not one reflecting the impact of a major correction in the value of stocks, bonds, and real estate.
Money is fungible. When more tax revenues go to pension funds, vital publicly funded programs are either defunded or new taxes are imposed to keep them alive. Similarly, when more tax revenues go to pension funds, maintenance projects that might have been funded using operating budgets, suddenly become capital projects requiring debt financing.
Californians may expect a deluge of new tax and bond proposals for many years to come.
* * *
California’s policymakers have condemned Californians to endure contrived scarcity, unaffordability, and inconvenience in all of the basic necessities of life.
This is a crime, but it’s not a conspiracy. Rather, it is caused by a collection of powerful special interests whose political agendas align.
At the top of the pyramid are left-wing oligarchs, crony capitalists who want to protect their business interests. Whether it’s renewable energy, “connected” appliances, or homes built on those rare parcels of land that are entitled for development, California’s left-wing oligarchs benefit from artificial scarcity. But these direct beneficiaries are only a segment of California’s left-wing oligarchy.
The indirect financial benefits of artificial scarcity are even greater. As the prices of real estate assets ascend once again into bubble territory, as the earnings per share of public utilities swell on the strength of selling overpriced kilowatts, and as Silicon Valley firms see their stock values ascend into the stratosphere, wealthy individuals and investment funds, most assuredly including California’s public employee pension funds which manage over $800 billion in assets, see their portfolio values soar.
Which brings us to the final subcategory of left-wing oligarchs in California, the high-tech moguls of social media. These left-wing billionaires of Silicon Valley, along with their only slightly less well-heeled entertainment industry counterparts in Los Angeles, are the most influential opinion makers on earth. They shape values and behavior using tools that make the overwhelming mass propaganda breakthroughs achieved by radio in the 1930s appear as primitive as smoke signals by comparison. What is their agenda?
The communications kingpins of California have no allegiance to ordinary Californians—or ordinary Americans, for that matter. To them, ordinary people are Pavlovian proles, expendable parasites that pollute the environment. To the extent these kingpins have compassion, it is to profitably create for the expendable multitudes a benign zoo; smart cities of high rises, contained in areas as geographically minute as possible, so that only wild nature, corporate farms, and private estates of the super-rich exist outside the urban containment boundaries.
In these algorithmically managed metropolises, human values, including their voting behavior, will literally be programmed, using the most sophisticated and individualized techniques of manipulation ever devised. Borgcubes, aesthetically optimized by AI psychometricians, with soothing soft edges of gingerbread. Metaphorically speaking, Matrix-like cocoons. A Brave New World, complete with Sexophones and Soma. Get ready. Another innovation from California.
The Environmentalist Lobby
California’s socialist oligarchy probably can continue to consolidate their power without any help, but help is abundant. Most importantly, they have the help of the environmentalist movement.
Collecting legal fees and settlements thanks to a sympathetic judiciary, California’s environmentalist organizations have amassed immense financial power and political influence. And when all else fails, they now have the boogeyman of “climate change” to stop literally anything, anything that so much as scratches the earth, dead in its tracks.
Public Sector Unions
Enforcing the edicts of California’s socialist oligarchy are public sector unions; their full-time paid armies of lobbyists, operatives, political consultants, PR firms, and litigators. Their membership is both cowed and co-opted. California’s unionized public servants, while not entirely immune to the higher costs imposed on them by the oligarchy, are nonetheless exempted from its worst effects, because they are the most lavishly compensated public employees in America, if not the entire world.
The average total compensation (pay and benefits) for a full-time city, county or state worker in California in 2015 was $121,843. In that same year, the average full-time private sector worker in California made $62,475 (with benefits), which is 51 percent of what the public sector worker earned. That’s not all. This pampered class of public servants also enjoys, typically, 72 paid days off per year (no, that doesn’t include weekends).
How that breaks down is as follows: A veteran employee typically gets 20 vacation days, 12 designated holidays, two floating holidays, 12 “personal days,” and if they are on salary and they work eight hours a day for nine weekdays, through the very common “9/80” program, they get every 10th weekday off with pay. When they retire, if they work 30 years (most private sector workers put in 45 years), their average pension is nearly $70,000 per year, not including health benefits.
Public sector unions, which ought to be illegal, are squarely to blame for “negotiating” pay and benefit packages that threaten to force California’s cities and counties into bankruptcy despite sky-high taxes. California’s public sector unions are the most powerful in America, collecting and spending more than $800 million per year in dues and fees. These unions are, in most cases, avowedly socialistic, and in virtually all cases these unions have a political agenda in lockstep with the California’s left-wing oligarchy. As the most powerful permanent political organizations in the state, they are the brokers and enablers of corporate power.
In stunning irony, these unions also play a vital role in convincing ordinary Californians to vote contrary to their own best interests. There are two big reasons for this.
First, these unions proclaim themselves in solidarity with the working class, despite the fact that they represent workers who are much more likely to have financially transcended the challenges facing ordinary private sector workers. They conflate themselves with private sector unions, despite the fact that unlike private sector unions, they elect their own bosses, they are funded through compulsory taxes instead of through profits earned in a competitive market, and they operate the machinery of government allowing them to use that to intimidate their opponents.
Second, and equally insidious, these unions have taken over public education from kindergarten through graduate school, and they have now infected two generations of Californians with their left-wing ideology.
Thoroughly Indoctrinated Voters
While the elites represented in the above categories do represent millions of Californians, it is the influence they have on tens of millions of California’s voters that give them their political power. This starts with college educated liberals, often living in homes they’ve owned for so long that they aren’t adversely affected by property taxes (Proposition 13), and often living on the coast where they don’t have to spend thousands of dollars per year to heat and cool those homes.
These people live and work in educational, corporate, and media environments that are saturated with left-wing propaganda, and they don’t feel the harmful impacts of these policies enough to question them. Many of these liberals work in entertainment or high-tech, where their business model is primarily virtual, which prevents their exposure to the intrusive, stifling laws and regulations that affect businesses in the real world.
The other voting bloc that determines California’s political destiny, perhaps more than any other, are ethnic voters, or, to use a ridiculous, pretentious, obligatory phrase that makes normal people cringe every time they say it, “people of color.” The POC vote in California overwhelmingly favors Democratic candidates for public office. According to the Public Policy Institute of California, among California’s “likely voters,” more whites are registered as Republicans (39 percent), than Democrats (38 percent). But among Latinos, registered Democrats (62 percent) far outnumber Republicans (17 percent). Among blacks, the disparity is even greater: 82 percent Democrat versus a paltry 6 percent Republican. Among Asians, where the disparity is less, the Democrats still have a nearly two-to-one advantage, 45 percent to 24 percent. But can the Democratic grip on ethnic voters endure?
An Alternative Future for California
If you poke at the supposed unbreakable hold by Democrats on ethnic and racial minorities, you find cracks. Many Latino citizens actually favor immigration reform. Many Asian citizens fear affirmative action will rob their children of opportunities. Black voters in recent polls are supporting President Trump in percentages greater than any Republican in recent history. All “POC” are becoming increasingly incensed at the way the teachers unions have destroyed public education.
It wouldn’t take much to persuade California’s racial and ethnic minority voters that the Golden State’s artificial scarcity and high cost-of-living is something completely engineered by Democrats. California’s current Republican candidate for governor, John Cox, is doing a good job of educating voters on that subject.
And for that matter, what does “people of color” even mean, as greater and greater intermarriage occurs? Who is to say that a Mexican-American, with Christian European roots and a shared heritage of settling the American West, would not, does not, embrace American pride and American patriotism just as much as any other proud member of the American melting pot? Maybe all that California’s kaleidoscopic electorate needs is a coherent and unwavering pro-growth, pro-freedom vision, from a new coalition of patriots.
Something’s Got to Give
The biggest mistake that California’s socialist oligarchs can make is to assume they are unassailable. Their certainty could become their downfall.
It’s true that someday we will need to move beyond fossil fuel. It’s true that someday we will live in a world where borders slowly wither away and we are one global people. It’s true that eventually we will let machines do most of our work for us, and we will need to invent economic models that account for this new reality.
It’s even true that someday we may genetically engineer ourselves into transhuman beings. But those future days are not these present days, and for California’s socialist oligarchy to proclaim they have all the answers to trends this transformative displays stupefying arrogance.
While ordinary Californians are deciding between buying gasoline or paying rent, these elites are inventing new ways to make everything cost more. While immigrants from abroad and indigent Americans from east of the Sierras come to California to collect taxpayer funded benefits, these elites are prohibiting the types of economic and infrastructure development that might create the wealth to sustain them, along with those already here.
While commuters curse their way to work and back in clogged lanes on neglected freeways, these elites continue with their $100 billion bullet train project. While Californians pay more taxes than anyone else in America, California’s Democratic candidate for governor reaffirms his commitment to universal, single payer health care for everyone, free healthcare for non-citizen immigrants, free public pre-schools, and free community college education.
Something’s going to give. Preventing broader private sector participation in competitive development of housing, energy, water and transportation guarantees eventual failure of California’s existing socialist schemes, much less the new ones they’re promising. But so far, California’s elites benefit from and promote these financially unsustainable policies. It cannot stand. Rebellion is brewing. Resistance is not futile. New alignments and alliances are forming. One economic hiccup could be all it takes.
California’s extraordinary potential is diminished by this ruling class of socialist oligarchs, and their coercive utopian supporters. They think they have all the answers when in reality they are flirting with economic and cultural disaster. Republicans, or some new movement, need to offer Californians a vision of abundance instead of scarcity, through competitive development of natural resources, market-driven urban and suburban growth, realistic immigration policies, and a proud, assimilative message to its residents to join together as a united and prosperous people. Concurrent with an agenda of growth that is as pragmatic as it is optimistic, California’s socialist oligarchs need to be exposed for their hypocrisy, their hubris, their venality.
Be warned, America. The agenda of the oligarchic socialists is not incoherent, nor is it mere fantasy. They’ve been building it for years in California.
* * *
Touted as the “fifth-largest economy on Earth,” and recently heralded as delivering the “greatest increase in average income,” these statistics obscure an alarming reality. California has become a feudal state, where the benefits of prosperity are unequally distributed, rewarding corrupt plutocrats and punishing ordinary working families. Joel Kotkin, a fellow in urban studies at Chapman University in Orange, California, characterized California’s current political economy as “Oligarchical Socialism.” This is a perfect description of a system that destroys the middle class at the same time it protects the ultra rich.
California’s leftist oligarchy benefits financially from precisely the depredations they accuse conservatives of committing. They have enacted policies that are designed to make California unaffordable to all but the wealthiest residents, and hostile to emerging small businesses, at the same time as their preexisting wealth and politically connected corporations reap enhanced returns and profits.
Plenty of Land, Impossible to Build
Nowhere are the consequences of California’s oligarchical socialism more evident than in the cost of housing. State legislation has made it nearly impossible for developers to construct new housing outside the so-called “urban growth boundary.” Instead, development is redirected into the footprint of existing urban areas.
While there is a natural tendency as population increases to see higher density redevelopment in urban cores, by restricting outward expansion of urban areas, the value of the limited remaining eligible land becomes artificially inflated. But established landowners and large development firms benefit from these restrictions. They are able to withstand years, if not decades, of expensive permitting delays and endless litigation. They are able to afford millions in permit fees because these costs are offset by their ability to sell residence units—from high-rise condos to detached single family dwellings—at prices far beyond what they would cost in a normal market.
These billionaire business interests get richer, while ordinary Californians who want to own or develop land cannot afford to go through the permit process. Meanwhile, the median cost of a home in California is $539,400—nearly 2.5 times the national average of $216,700. And that’s not even in the tougher markets.
With all land development, environmentalist laws such as California’s Environmental Quality Act (CEQA) create additional barriers. California’s legislature has now made it necessary for new home construction to be 100 percent “energy neutral” by 2020. Not only does this require installation of photovoltaic roof panels, but also more expensive insulation, as well as more expensive appliances that use less energy (and also happen to be less durable and don’t work as well). These mandates make homes less livable, for example, requiring smaller windows in order to make the homes easier to heat and cool.
The amazing fact that California’s legislators willfully ignore is the incredibly abundance of expanses of land that remain virtually empty in this vast state. California is only 5 percent urbanized. According to the American Farmland Trust, of California’s 163,000 square miles, there are 25,000 square miles of grazing land and 42,000 square miles of agricultural land; of that, 14,000 square miles are prime agricultural land. In other words, you could put 10 million new residents into homes, four per household, on half-acre lots, and you would only consume 1,953 square miles. If you built those homes on the best prime agricultural land California’s got, you would only use up 14 percent of it. If you scattered those homes among all of California’s farmland and grazing land—which is far more likely—you would only use up 3 percent of it. Three percent loss of agricultural land, to allow 10 million people to live on half-acre lots!
Instead of allowing land owners to build millions of inexpensive homes on, say, just a small fraction of California’s 25,000 square miles of grazing land, California’s lawmakers want to have “smart growth.” And as prices rise, the solution? On the ballot this November, propositions to enforce statewide rent control, borrow $4 billion to build “affordable housing,” and use state tax revenues to build more government-run homeless shelters. After all, expanding the private sector threatens the oligarchy. Best to expand the public sector.
Plenty of Energy Resources, Unaffordable Energy
While the cost of housing is an obvious example of how California has been turned into an enclave for the super rich and an expensive ordeal for ordinary Americans trying to live there, it is not the only example. California’s legislature has curtailed, if not completely shut down, development of oil, natural gas, hydroelectric and nuclear power.
In the summer of 2000, during California’s energy crisis, as brown-outs were rolling up and down the state, total disaster was averted because two nuclear reactor complexes, San Onofre and Diablo Canyon, were continuously pumping 4.2 gigawatts of electricity—more than 10 percent of California’s peak demand at the time—into the power grid. But instead of retrofitting, San Onofre was shuttered in 2013 and Diablo Canyon is set to shut down by 2025.
And what’s replacing these power plants? Wind and solar farms, with their intermittent output backed up by natural gas power stations.
If the massive amounts of surplus electricity produced when the sun is shining and the wind is blowing could be stored, it might make sense to decommission clean nuclear power plants and ban development of fossil fuel. But despite decades of research, and dozens of promising but failed attempts, grid-scale electricity storage remains prohibitively expensive. But that’s OK. According to the state legislature, Californians can just pay more. And of course, when consumers pay more, utilities—whose percentage profit is limited by regulation—make far more in absolute profits, since they get to charge so much more per kilowatt-hour. The average cost for electricity is 19.7 cents per kilowatt-hour in California, compared to 13.1 cents per kilowatt-hour nationally.
And there’s no end in sight. True to form, California’s state legislature just passed a law that calls for 60 percent renewable energy by 2030 and 100 percent carbon-free energy by 2045. With hydroelectric and nuclear power off the table, that’s going to be a neat trick.
With oil, it gets worse. We’re not talking about California’s aggressive formulation requirements that make tailpipe emissions cleaner. Perhaps California’s geography justifies this, as offshore winds blow the entirety of coastal city smog into the inland valleys where it is trapped and accumulates. But the reason gas is so expensive in California has little to do with that. It is nearly impossible to maintain refinery output in California, and California’s state gas taxes are among the highest in the nation. Gasoline in California costs around $3.87 per gallon, compared to $2.87 nationally.
While ordinary Californians suffer, left-wing oligarchs prosper.
Green technology entrepreneurs flourish, selling products that consumers are required by law to purchase. Not just solar panels and the related “balance of plant” systems. There are also “negawatts,” a good concept that is being taken to extremes. Sensors and chips designed to make appliances more “energy efficient” are designed by Silicon Valley companies whose prosperity depends on legislative mandates that compel Californians to purchase their products. Promoting the “internet of things” is purportedly justified on environmentalist grounds, while in reality it is a lucrative source of income for high-tech manufacturers, as well as a lucrative means of surveillance and data mining. These new appliances save some electricity. But are they durable? Easy to operate? Do they work as well as conventional appliances? Are they easy to use? Are they inexpensive? No to all.
Plenty of Water, Yet Water Is Rationed
Water is another area where ordinary Californians needlessly suffer inconveniences and pay more.
California receives between 150 and 300 million acre feet of rainfall per year, depending on whether it’s a drought year or a wet year. Regardless of the year, most of that water either evaporates, percolates, or runs off into the Pacific Ocean. And of the roughly 65 million acre feet that are diverted, fully half of it is saved for re-release into the environment, to maintain river flow and to prevent saltwater intrusion into the Sacramento Delta. Of what remains, almost all of it is used for agriculture. Less than 4 million acre feet of water each year are used by California’s households, and less than half that much is for indoor use.
You wouldn’t think that were the case if you reviewed California’s new laws regarding water, and the ways they’re going to be implemented. This year California’s state legislature passed a law requiring average daily indoor water use by California residents to not exceed 55 gallons per day, an amount that lowers to 50 gallons per day by 2030. Maybe you’ve encountered the “solutions” that will effect this reduction: Water faucets that spray eight tiny concentrated, 1.0 mm thick jets of water onto your hands, making it difficult to get them wet and nearly impossible to rinse off soap. Or “low-flow” shower heads with the same problem, magnified for anyone who wants to rinse shampoo out of long hair. What about “smart” laundry machinesthat start and stop randomly, ostensibly to save energy and water, that do a poor job of cleaning your clothes. Or supplemental “tankless” water heaters positioned close to your kitchen sink, that cost thousands of dollars and don’t work all that well, in order for residents to avoid running unnecessary gallons down the drain as they wait for the hot water to flow through their pipes.
All this expense and bother, to save what, at a statewide level, amounts to a trivial amount of water. California’s total residential indoor water use represents less than three percent of California’s total water diversions.
And California’s bureaucrats still aren’t done. In a hearing postponed till just after November 6—no coincidence there—California’s State Water Resources Board is expected to mandate increased “natural flows” in California’s rivers, which will create additional water scarcity, especially for farmers.
It doesn’t have to be this way.
Californians could easily escape water scarcity by investing in additional reservoirs, desalination plants, and wastewater recycling. But environmentalists torpedo all of these projects, successfully lobbying for laws that tie every project up in permitting delays that cost millions, if not tens of millions, and take years, if not decades, to overcome. When permits are finally granted, along come the lawsuits.
A good example of a project that makes compelling economic sense, but is bitterly opposed by environmentalists, is raising the height of the Shasta Dam. In exchange for construction costs under $2 billion, an annual yield of a half-million acre feet would be added to California’s water resources. Not only does this amount of water exceed how much water could be saved by additional household rationing, there’s even an environmental benefit, because summer releases of this water from Shasta’s deep, cool reservoir would improve fish habitat on the Sacramento River.
Roads Are Congested, And the State Builds a Bullet Train
There is nothing more versatile than the common road. On a road, anything on wheels, from bicycles to 80-ton trucks, can get from their point of origin to their destination. The simple flat surface delivers transportation options that nothing requiring rails or runways can hope to match. Moreover, cars and trucks are becoming cleaner and greener every year. One may argue vehemently over how exactly clean energy abundance will be achieved, but only the most pessimistic Luddite might cling to the notion that it will never happen.
Meanwhile, Californians urgently need new roads, wider roads, and upgraded roads. Californians may supplement these new roads with hyperloop technologies, or flying cars and other next generation vehicles, but what California does not need is the much criticized but seemingly unstoppable “bullet train,” a project that fails any rational cost-benefit analysis.
Using the California High Speed Rail Authority’s own projections, the system will not be profitable for 10 years. And what projections! The CHSRA assumes an average ticket price of $60, and average daily ridership of 120,000 people. Will 120,000 individuals actually be willing to spend $600 per month (and that’s only $30 per round trip, half what the High Speed Rail Commission is projecting) to commute from California’s less expensive Central Valley, into their jobs in coastal Silicon Valley and Los Angeles? And so what if they did? California has a workforce of more than 19 million people. How does spending around $100 billion on high speed rail help these other 18.9 million commuters?
To build a road in California takes years of permitting and litigating, then costs far more than it would in other parts of America. Environmentalist restrictions, project labor agreements, and a bloated, inefficient State Department of Transportation are all contributing factors. Meanwhile, in comparison to other states, California consistently ranks at or near the bottom in terms of pavement conditions and traffic congestion. There is no end in sight.
Housing. Energy. Water. Transportation. These are the basic necessities of civilized life. And for power and profit, California’s socialist oligarchs have made them all prohibitively expensive. The social agenda of California’s Left is well understood. But the punishing economic agenda, engineered by California’s socialist oligarchy, is equally disturbing. It represents a devastating threat to the American way of life.
The second part of this report will identify the special interests that constitute this coalition of scarcity profiteers, and how they might be stopped.
Every two years, around this time, political mailers inundate the mailboxes of California’s registered voters. This week, many Sacramento residents received “Vote No on Prop 6″ mailer. Prop 6 is that pesky, subversive citizens ballot initiative that, if approved by voters, will roll back the gas tax.
But Prop. 6 isn’t the topic here. Rather, the topic is all taxes in California. Why is there relentless pressure to increase them? And what special interests are paying for these campaigns to increase (or preserve) taxes across California?
In that context, this No on Prop. 6 mailer is instructive. Because blazoned across the cover of this four page, 8.5″ x 11” glossy full color flyer, is Darrell Roberts, representing the California Professional Firefighters. Roberts is the president of IAFF Local 2180, the Chula Vista Firefighters Union. In addition to his duties as president of Local IAFF Local 2180, Roberts is a Fire Battalion Chief for the Chula Vista Fire Department. In that capacity, he earned $327,491 in 2017, including $99,887 of overtime.
Now let’s back up for just a moment and make something perfectly clear. This isn’t about disrespecting firefighters in general, or Mr. Roberts in particular. Quite the contrary. Firefighters perform dangerous, challenging jobs that require years of intense training. Every year in California, a few of them die in the line of duty. In some years, more than a few. Furthermore, firefighters constantly witness trauma, often horrific, every time they respond not only to fires, but medical emergencies and automobile accidents. Their jobs are tough.
For these reasons, critics of public sector compensation trends should always temper their observations with respect. It is far too easy to observe, accurately, that many other jobs carry higher risk of injury or death, while forgetting that first responders stand between citizens and mayhem not just in normal times, but also in extraordinary times. In a truly cataclysmic event, and 911 is a perfect example, firefighters are obligated to occupy the front lines. They are the ones who must stop whatever destructive storms afflict our society. They are the ones who must go in before safety is restored, and rescue the stranded victims.
With that necessary preamble, and without diminishing it in any way, a difficult conversation remains necessary regarding public sector compensation, and the political power of the public sector unions who push for continuous increases in compensation.
A California Policy Center analysis published nearly two years ago, using 2015 data, calculated the average pay and benefits for a California firefighter at $196,370 for those employed by cites, $198,959 for those working for counties, and $145,938 for those working for the state. Those averages have not fallen in the past three years, and they do not include the additional cost per firefighter, if and when their retirement pensions are adequately funded.
Mr. Robert’s own City of Chula Vista provides an example of these rising pension costs. In 2017 the average pay for a Chula Vista firefighter was $189,715. That included, on average, $41,112 for overtime and $31,381 for employer contributions to their defined benefit pensions. But as they say, you ain’t seen nothin’ yet.
Using CalPERS own projections for the City of Chula Vista, the average normal contribution by the city to fund police and firefighter pensions is expected to grow from 20 percent of payroll in FYE 6/30/2017 to 22 percent of payroll by FYE 6/30/2025. Nothing terribly dramatic there. But, get this, the so-called unfunded contribution – that additional amount necessary to pay down the city’s unfunded liability for police and firefighter pensions – is expected to grow from 13 percent of payroll in FYE 6/30/2017 to 32 percent of payroll in 6/30/2025.
Put another way, the City of Chula Vista’s employer payments for public safety pensions are going to go from 33 percent of payroll to 53 percent of payroll by 2025. And if the stock market decides to end its already record breaking bull run, harming the CalPERS investment portfolio, these payments will go much higher.
It’s also important to recognize the relationship between excess overtime expenses and the cost of pension and health benefits (including retirement health benefits). When public employers pay more than 50 percent above regular salary to fund pensions and benefits, and in the case of public safety, they do, then it makes financial sense to pay time-and-a-half to existing staff, since that will cost less. Lost in that equation is the stress this excessive overtime inflicts on overworked personnel, as well as the lost opportunity to bring benefit overhead back below fifty percent.
Collectively California’s state and local employers, based on projections already released from CalPERS, are going to have to increase their total contributions to public employee pension funds from approximately $31 billion in 2017 to an estimated $59 billion by 2025.
Maybe veteran firefighters truly believe they are entitled to annual pay and benefits packages in excess of $200,000 per year, or in Mr. Roberts case, in excess of $300,000 per year. But with all the political power these unions wield, they ought to be thinking of ways to help lower the cost-of-living in California. That would help everyone.
And perhaps it may disturb even the most respectful and appreciative among us, when a public servant who made $327,491 last year, asks us to support higher taxes.
* * *
2017 Salaries for Chula Vista – Transparent California
California’s Public Sector Compensation Trends – California Policy Center, January 2017
Comprehensive Annual Financial Report, FYE 6/30/2017 – City of Chula Vista
Safety Plan of the City of Chula Vista, Annual Valuation Report as of 6/30/2017 – CalPERS
Miscellaneous Plan of the City of Chula Vista, Annual Valuation Report as of 6/30/2017 – CalPERS
2017 City Data, Government Compensation in California – California State Controller
California Government Pension Contributions Required to Double by 2024 – California Policy Center, January 2018
One would hope that with the profound foolishness associated with California’s infamous High Speed Rail (HSR) project that our elected leadership would have learned a thing or two.
But this is California. Because we do things bigger and better than anyone else, it’s apparent that one massive boondoggle isn’t enough — we need two.
Let’s recap what we’ll call Boondoggle, Senior.
The complete dysfunction of HSR is no longer in dispute. Missed deadlines for the business plans, lack of transparency, massive cost overruns, engineering hurdles that make the project virtually impossible to complete and a lack of funding are tops on the list. Not only is HSR no longer viable, but the biggest irony is the project was justified on grounds that it would reduce greenhouse gas emissions. Even there it fails, as the independent Legislative Analyst has concluded that the project will be a net GHG producer for the foreseeable future.
HSR is now an international joke. Many who originally supported the High Speed Rail project have changed their opinions, including a former Chairman of the HSR Authority.
Boondoggle, Junior, is the planned construction of the Twin Tunnels project through the Sacramento River Delta, also known as WaterFix. While there is no doubt that California needs additional water infrastructure — and the dams and canals we have now are in need of serious maintenance – Governor Brown’s Twin Tunnel project suffers from the same major flaw as High Speed Rail — an abject lack of planning and no vision for how the project will be funded.
Like the High Speed Rail project, the financing for the Twin Tunnels is illusory. Many of the potential major wholesale customers of water from the Twin Tunnels are highly skeptical of its viability and balk at paying for it. The one exception is the Metropolitan Water District in the greater L.A. area, which has now said it will pay for the full project. Of course, that means its customers will pay.
Lack of transparency is another quality the Twin Tunnels project shares with HSR. Earlier this week, the Joint Legislative Budget Committee held a hearing that opened the way for an extension of the long-term contracts for the State Water Project for another 50 years. (The hearing was supposed to be conducted in the waning days of the Legislative session, but because the topic is so controversial, it was delayed until after everyone left town.)
Amendments to the water contracts that have raised eyebrows are the elimination of a restriction that says bonds cannot be used for any project built after 1987 and a provision that removes the requirement for consensus among the water contractors. This could allow a majority of agencies to run roughshod over those who object.
Finally, the real threat from the manner in which water issues are being jammed through a backroom process is the potential for unvoted property tax increases to pay for the Twin Tunnels project.
Taxpayer advocates will continue to monitor this unfolding controversy and do what is necessary to ensure the much needed transparency that is currently lacking. And, of course, if the ultimate outcome envisions property tax hikes that are not approved by the voters who will have to pay them, the next step will be a trip to the courthouse that will be much faster than any High Speed Rail project.
Jon Coupal is president of the Howard Jarvis Taxpayers Association.
When evaluating the financial challenges facing California’s state and local public employee pension funds, a compelling question to consider is when, exactly when, will these funds financially collapse? That is, of course, an impossible question to answer. CalPERS, for example, manages hundreds of billions in assets, which means that long before it literally runs out of cash to pay benefits, tough adjustments will be made that will restore it to financial health.
What is alarming in the case of CalPERS and other public sector pension funds, however, is the relentless and steep rate increases they’re demanding from their participating employers. Equally alarming is the legal and political power CalPERS wields to force payment of these rate increases even after municipal bankruptcies where other long-term debt obligations are diminished if not completely washed away. Until California’s local governments have the legal means to reform pension benefits, rising pension contributions represent an immutable, potentially unmanageable financial burden on them.
SOUTH PASADENA’S PAYMENTS TO CALPERS ARE SET TO DOUBLE BY 2025
The City of South Pasadena offers a typical case study on the impact growing pension costs have on public services and local taxes. Using CalPERS own records and official projections, the City of South Pasadena paid $2.8 million to CalPERS in their fiscal year ended 6/30/2017. That was equal to 25% of the base salary payments made in that year. By 2020, the City of Pasadena is projected to pay $4.3 million to CalPERS, equal to 35% of base pay. And by 2025, the City of Pasadena is projected to pay $5.9 million to CalPERS, equal to 41% of base pay.
Can the City of South Pasadena afford to pay an additional three $3.0 million per year to CalPERS, on top of the nearly $3.0 million per year they’re already paying? They probably can, but at the expense of either higher local taxes or reduced public services, or a combination of both. But the story doesn’t end there. The primary reason required payments to CalPERS are doubling over the next few years is because CalPERS was wrong in their estimates of how much their pension fund could earn. They could still be wrong.
Annual pension contributions are calculated based on two factors: (1) How much future pension benefits were earned in the current year, and how much money must be set aside in this same year to earn interest and eventually be used to pay those benefits in the future? This is called the “normal contribution.” (2) What is the present value of ALL outstanding future pension payments, earned in all prior years by all participants in the plan, active and retired, and by how much does that value, that liability, exceed the amount of money currently invested in the pension fund? That amount is the unfunded pension liability, and the amount set aside each year to eventually reduce that unfunded liability to zero is called the “unfunded contribution.”
Both of these annual pension contributions depend on a key assumption: What rate-of-return can the pension fund earn each year, on average, over the next several decades? And it turns out the amount that has to be paid each year to keep a pension fund fully funded is extremely sensitive to this assumption. The reason, for example, that CalPERS is doubling the amount their participating employers have to pay each year is largely because they are gradually lowering their assumed rate of return from 7.5% per year to 7.0% per year. But what if that isn’t enough?
IF THE RATE-OF-RETURN CALPERS EARNS FALLS, PAYMENTS COULD RISE MUCH HIGHER
It isn’t unreasonable to worry that going forward, the average rate of return CalPERS earns on their investments could fall below 7.0% per year. For about a decade, nearly every asset class available to investors has enjoyed rates of appreciation in excess of historical averages. Yet despite being at what may be the late stages of a prolonged bull market in equities, bonds, and real estate, the City of South Pasadena’s pension investments managed by CalPERS were only 73% funded. As of 6/30/2017 (the most recent data CalPERS currently offers by agency), the City of South Pasadena faced an unfunded pension liability of $35 million. Using CalPERS own numbers, if they were to earn 6% per year on their investments in the coming years, instead of their new – and just lowered – annual return of 7%, that unfunded liability would rise to $58 million.
As it is, by 2025 the City of South Pasadena is already going to be making an unfunded contribution that is nearly twice their normal contribution. Another reason for this is because CalPERS is now requiring their participating agencies to pay off their unfunded pension liabilities in 20 years of even payments. Previously, attempting to minimize those payments, agencies had been using 30 year payoff terms with low payments in the early years. Back in 2017, based on a 6% rate-of-return projection, and in order to pay off a $58 million unfunded pension liability on these more aggressive repayment terms, the City of South Pasadena would have to come up with an unfunded pension contribution of $5.0 million per year, along with a normal contribution of around another $2.4 million per year.
But why should it end there? Nobody knows what the future holds. These rate-of-return projections by definition have to be “risk free,” since otherwise – and as has happened – taxpayers have to foot the bill to make these catch up payments. How many of you can rely on a “risk free” rate-of-return,” year after year, for decades, in your 401K accounts of six percent, or even five percent? At a 5% rate-of-return, the City of South Pasadena would have to pay an unfunded contribution of $6.2 million, along with a normal contribution of $2.8 million.
These scenarios are not outlandish. Most everyone hopes America and the world are just entering a wondrous “long boom” of peace and prosperity, ushered in by ongoing global stability and technological innovations. But the momentum of history is not predictable. Imagine if there was an era of deflation. It has happened before and it can happen again. The following chart shows how that might play out in the City of South Pasadena. Notice how at a 4% rate-of-return projection, in 2017 the City of South Pasadena would have had to pay CalPERS $9.8 million; at 3%, $11.4 million.
City of South Pasadena – FYE 6/30/2017
Estimated Pension Payments and Pension Debt at Various Rate-of-Return Projections
And what about the rest of California? How would a downturn affect all of California’s public employee pension systems, the agencies they serve, and the taxpayers who fund them? In a CPC analysis published earlier this year, “How to Assess Impact of a Market Correction on Pension Payments,” the following excerpt provides an estimate:
“If there is a 15% drop in pension fund assets, and the new projected earnings percentage is lowered from 7.0% to 6.0%, the normal contribution will increase by $2.6 billion per year, and the unfunded contribution will increase by $19.9 billion. Total annual pension contributions will increase from the currently estimated $31.0 billion to $68.5 billion.”
That’s a lot of billions. And as already noted, a 15% drop in the value of invested assets and a reduction in the estimated average annual rate-of-return from 7.0% to 6.0% is by no means a worst case scenario.
To-date, meaningful pension reform has been thwarted by powerful special interests, most notably pension funds and public sector unions, but also many financial sector firms who profit from the status quo. But a case to be decided next year by the California Supreme Court, Cal Fire Local 2881 v. CalPERS, may provide local agencies with the legal right to make more sweeping changes to pension benefits. The outcome of that ruling, combined with growing public pressure on local elected officials, may offer relief. For this reason, it may well be that raising taxes and cutting services in order to fund pensions may be a false choice.
CalPERS Annual Valuation Reports – main search page
CalPERS Annual Valuation Report – South Pasadena, Miscellaneous Employees
CalPERS Annual Valuation Report – South Pasadena, Safety Employees
CalPERS Annual Valuation Report – South Pasadena, Miscellaneous Employees (PEPRA)
CalPERS Annual Valuation Report – South Pasadena, Safety Employees, Fire (PEPRA)
CalPERS Annual Valuation Report – South Pasadena, Safety Employees, Police (PEPRA)
Moody’s Cross Sector Rating Methodology – Adjustments to US State and Local Government Reported Pension Data (version in effect 2018)
California Pension Tracker (Stanford Institute for Economic Policy Research – California Pension Tracker
The State Controller’s Government Compensation in California – main search page
The State Controller’s Government Compensation in California – South Pasadena payroll
The State Controller’s Government Compensation in California – raw data downloads
California Policy Center – Resources for Pension Reformers (dozens of links)
California Policy Center – Will the California Supreme Court Reform the “California Rule?” (latest update)
* * *