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Thanksgiving for California Taxpayers – An Uncertain Future

In this season of Thanksgiving, taxpayers in California have reason to pause when asked for what they are thankful. Considering the costly plans of the newly elected Legislature and governor, taxpayers may be most grateful for the fact that the state hasn’t yet built a wall encircling the state to keep them from leaving.

After 2017, when lawmakers enacted new taxes including a $5.2 billion annual tax hike on gasoline, diesel and vehicle registration, as well as a new tax on recorded documents, 2018 saw every effort by the Legislature to increase taxes defeated by advocates for taxpayers.

We are grateful that the first-ever tax on drinking water was defeated.

We are grateful that the tax on fireworks was defeated, and that the effort to revive the “snack tax” was not successful.

We are grateful that the proposal to put a sales tax on services was shelved.

We are grateful that nearly a million voters signed petitions to repeal the gas and car tax. Of course, the bad news is that the gas tax repeal was given a new title by Attorney General Xavier Becerra that removed the words “gas tax repeal” from the ballot, deceiving voters.

Further disappointments for taxpayers in November’s election results include progressives winning supermajorities in both the Assembly and the state Senate. California’s one-party government can now pass tax increases without the need of even a single vote from the opposition party. This surely increases the probability that taxpayers will be steamrolled by all the tax increases that were defeated in 2018 being resurrected in 2019.

An even bigger threat may appear in the form of proposed constitutional amendments emanating from the Legislature.

Supermajorities in both houses allow the party in power to place these on the ballot, again without the need of a single Republican vote. Once on the ballot, the measures need only a simple majority to pass.

While Proposition 13 remains very popular, taxpayers advocates could be stretched to the limit if confronted with multiple anti-taxpayer constitutional amendment proposals. In the last decade, these have been stopped before clearing both houses of the Legislature. But now, the following proposals are likely to make an unwelcome encore in the Capitol: Lowering the vote threshold at the local level for passing bonds and parcel taxes from two-thirds, as required by Prop. 13, to 55 percent or even less; imposing higher property taxes on businesses; bringing back the estate and gift tax; restricting the ability of homeowners to transfer their Proposition 13 base-year value to a new residence; and weakening Proposition 218, the Right to Vote on Taxes Act, which limits the extent to which local governments can impose various fees, charges and assessments on property.

Given the list of costly promises made during the election campaign, on top of the massive unfunded pension liability that already burdened the state, higher taxes are a near certainty in the next two years. Californians currently pay some of the highest state and local taxes in the nation, but it isn’t nearly enough to keep up with the spending of the politicians who have been elected to run the government.

Still, California taxpayers can be grateful this Thanksgiving that they still have the power of the initiative and the recall. If they can keep it.

Jon Coupal is president of the Howard Jarvis Taxpayers Association.

Rejection of Proposition 6 doesn’t end the taxpayer revolt

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.

California’s Legislators Lack Private Sector Experience

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.

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California’s Voters Approve New Taxes and Reject Tax Repeal

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
2018, $=Billions

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.

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How to NOT Solve California’s Housing Crisis

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 CEQAAB 32SB 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.

 *   *   *

Public Servant Who Made $327,491 in 2017 Asks Us to Support Higher Taxes

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.

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Sources:

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

 

Public education defunding drivel

The looming apocalypse in California

The union as management

Kavan-awesome

Teacher pay fray



Why Teachers Unions are the Worst of the Worst

When considering the influence of unions on American society, there are vast differences depending on what type of union one considers.

Private sector unions, for all the criticisms they may deserve, have nonetheless played a vital role in securing rights for the American worker. Subject to appropriate regulations, private sector unions have the opportunity to continue to play a vital role in American society. If they would bother to embrace the aspirations of their members, instead of the multinational corporations their leaders now apparently collude with, they might even support immigration reform. That would elevate the wages and benefits of all American workers, especially those doing low paying jobs.

Public sector unions, on the other hand, should be illegal. They negotiate with elected officials who they help elect. They negotiate for a share of coerced tax revenue, rather than for a share of profits, meaning there are no competitive checks on how much they can demand. The agenda of public sector unions is inherently in conflict with the public interest. But given the reality of public sector unions, it is important to recognize that some public sector unions are worse than others.

Public safety unions, for example, have successfully lobbied for pension benefits that are not sustainable. This calls for a difficult but necessary economic discussion that can only end two ways – either these pension benefits are going to be reduced, or cities and counties across California and elsewhere will go bankrupt in the next major recession. But public safety unions have not undermined their profession the way the teachers unions have.

The teachers unions are guilty of all the problems common to all public sector unions. They, too, have negotiated unsustainable rates of pay and benefits. They, too, elect their own bosses, negotiate inefficient work rules, have an insatiable need for more public funds, and protect incompetent members. But the teachers union is worse than all other public sector unions for one reason that eclipses all others: Their agenda is negatively affecting how we socialize and educate our children, the next generation of Americans.

Work Rules Harm Public Schools

One of the most compelling examples of just how much harm the teachers union has done to California’s schools was the 2014 case Vergara vs. the State of California. In this case, attorneys representing public school students argued that union negotiated work rules harmed their ability to receive a quality education. In particular, they questioned rules governing tenure (too soon), dismissals (too hard), and layoffs (based on seniority instead of merit). In the closing arguments, the plaintiff’s lead attorney referenced testimony from the defendant’s expert witnesses to show that these and other rules had a negative disproportionate impact on students in disadvantaged communities.

Despite winning in the lower courts, the Vergara case was eventually dismissed by the California Supreme Court. Teachers still get tenure after less than two years of classroom observation. Incompetent teachers are still nearly impossible to fire. And whenever it is necessary to reduce teacher headcount in a district, the senior teachers stay and the new teachers go, regardless of how well or poorly these teachers were doing their jobs. The consequences of these self-serving work rules are more than academic.

The evidence that California’s public schools are failing is everywhere. Los Angeles, a city whose residents are – perhaps more than anywhere else – representative of America’s future, is home to the Los Angeles Unified School District (LAUSD), with 640,000 K-12 students. And as reported earlier this year in the LA School Report, according to the new “California School Dashboard,” a ratings system that replaced the Academic Performance Index, LAUSD is failing to educate hundreds of thousands of students. In the most recent year of results, 52 percent of LAUSD’s schools earned a D or F in English language arts, and 50 percent earned a D or F in math. Fifty percent of LAUSD’s schools are failing or nearly failing to teach their students English or math.

Attack Innovative Charter Schools

In the face of failure, you would think LAUSD and other failing school districts would embrace bipartisan, obvious reforms such as those highlighted in the Vergara case. But instead, these unions are relentlessly trying to unionize charter schools, which would force those schools to adhere to the same union work rules. In Los Angeles, the Alliance Network of charter schools has delivered demonstrably better educational outcomes for less money, while serving nearly identical student populations.

How does it help to impose union work rules on charter schools that are succeeding academically? How does that help the children who are America’s future?

A Left-Wing Political Agenda

The other way the teachers union is unique among public sector unions is their hyper-partisanship. Despite and often in defiance of their memberships, nearly all unions are left-wing partisan organizations. Nearly all of them support left-wing causes and Democratic political candidates. But the teachers unions do so with a zeal that dwarfs their counterparts. Larry Sand, a former LAUSD teacher and prolific observer of teachers union antics, has spent years documenting their left wing agenda.

For example, reporting on the annual conventions of the two largest national teachers unions, Sand writes: “The National Education Association convention at the beginning of the month gave us a clue which theory would become reality when the union passed quite a few über liberal New Business Items, maintained its lopsided leftward political spending, and gave rogue quarterback Colin Kaepernick a human rights award. And here in the Golden State, the California Teachers Association continues its one-way spending on progressive initiatives and endorsed 35 state legislators in the June primary – all Democrats.

A week after the NEA convention, the other national teachers union, the American Federation of Teachers held its yearly wingding and left absolutely no doubt as to its future political direction. The resolutions passed by the union at the convention would make any socialist proud. Universal health care – whether single-payer or MediCare for All, full public funding for, and free tuition at all public colleges and universities, and universal, full-day, and cost-free child care are what AFT wants for the country. Additionally, the union resolved to double per-pupil expenditures for low-income K-12 districts and to ‘tax the rich’ to fully fund ‘IDEA (Individuals with Disabilities Education Act), Title I and state allocations to public colleges and universities.'”

Left-Wing Student Indoctrination

This left-wing political agenda finds its way into the classroom, of course. At the same time as California’s K-12 public school students are not being effectively taught English or math skills, they are being exposed to agenda-driven political and cultural indoctrination.

Again, as documented by Larry Sand: “Nor are textbooks safe. Communist and notorious America-hater Howard Zinn’s “A People’s History of the United States” is assigned in many high school history classes. Zinn felt that the teaching of history “should serve society in some way” and that “objectivity is impossible and it is also undesirable.” As a Marxist, he’d prefer a society that resembles Stalin’s Russia. Additionally, Pacific Research Institute’s Lance Izumi notes that pages and pages of the latest California History, Social Science Framework ‘are devoted to identity politics, and the environmentalist, sexual, and anti-Vietnam War movements, with detailed and extensive bibliographical references. In contrast, the contemporaneous conservative movement, which succeeded in electing Californian Ronald Reagan as president, with its complex mixture of social, economic and national security sub-movements, is given cursory and passing mention, with no references provided.'”

Public sector unions are going to be with us for a long time. But in the wake of the Janus ruling, members who don’t agree with the political agenda of these unions can quit, depriving them of the dues that – to the tune of nearly a billion per year just in California – make them so powerful.

Teachers, in particular, should carefully consider this option. America’s future depends on it.

How the Los Angeles Unified School District spent its summer vacation

LAUSD schools open in two weeks after having had the July from Hell.

The Los Angeles Unified School District is heading into the new school year after something less than a whiz-bang summer. The follies began with a report revealing that the predicted 2017 graduation rate of 80 percent didn’t quite hit the mark. In reality, it was 76.1 percent because the state’s Department of Education changed its definition of “graduate” after a federal audit questioned the accuracy of California’s method of figuring out who really completed high school. Using the old formula, students were counted as graduates if they transferred to adult education programs to earn their diploma or passed a high school proficiency exam. But now they are more honestly considered dropouts. The value of a diploma had previously gone south after the district decided in 2015 to pad its numbers with “credit recovery classes” – allowing students to take frequently useless crash courses on weekends, holidays, etc. Additionally, the demise of the California High School Exit Examination in 2016 gave the false impression that grad rates were improving.

Of course, none of this should be at all shocking, as earlier this year California’s school rating system showed that 52 percent of LAUSD’s schools earned a D or F in English language arts, 50 percent earned a D or F in math, and just 40 percent of all students graduate college or are career ready.

At the same time, the education advocacy organization Parent Revolution released a report which showed that in LA’s 44 lowest-performing schools, 46 percent of their teachers were not evaluated at all from 2014 to 2017. (In the 2016-17 school year alone, 70 percent of teachers working at those 44 schools were not evaluated, “even though only 27 percent of students at those schools were proficient in English language arts and only 20 percent were proficient in math.”)

The LA school board also took a hit. Ref Rodriguez, one of the four reform-minded board members, was forced to resign after pleading guilty to a felony count of conspiracy and four misdemeanor counts for making contributions in another person’s name during his 2014 campaign board run. Although Rodriguez escaped prison time, he did have to vacate his board seat. Given his strong pro-charter school stance, that’s good for the education establishment, but bad for kids. While the board could pick a temporary successor, considering the new 3-3 split, getting a majority to agree on anyone will be difficult. The board will probably call for an election to fill the vacant seat, but it’s doubtful that will happen before next spring.

There was, however, some good news…for some students. At the same time the district has been scandalously neglecting its least capable students, the school board decided that principals at bottom performing schools would not have to hire “must place” teachers who have either been deemed ineffective or were bumped due to the state’s archaic quality-blind seniority system. While that sounds like a much needed improvement, it really is a zero-sum game since the unwanted teachers will now be foisted on all the other schools. LAUSD school board vice-president and rare right-thinker Nick Melvoin saw through this sham and said that the same logic should apply to all students. But Melvoin knows well that districtwide hiring practices must be negotiated with the teachers union. Speaking of which….

The United Teachers of Los Angeles is talking strike. Starting two years ago, UTLA president Alex Caputo-Pearl threatened not only to call for a teacher walkout, but ominously to unleash a “state crisis” on California. Well, looks like crisis time is on the horizon. In a July 24th press release, UTLA submitted its “Last, Best and Final Offer” to LAUSD and demanded a “48-hour response from the district.” The union said that the 2 percent ongoing salary increase, an additional one-time 2 percent bonus and a $500 stipend for materials and supplies offered by the district was “insulting.” The union then trotted out all the usual bogeymen, blaming unaccountable charter schools, pro-privatization ideologues and new school superintendent Austin Beutner for the district’s woes.

But union kvetching aside, Beutner just may be the right man for the job. While UTLA whines that he is a “billionaire investment banker, not a teacher,” his status as a businessman is a good thing. He is dealing with a school district whose unfunded liability for retiree health benefits has risen to $15.2 billion, up from $13.5 billion in 2016. As CALmatters Jessica Calefati reports, LAUSD could be “just two years from financial ruin.” Nick Melvoin added, “We’re in a death spiral.”

Speaking recently to LA business leaders about the deficit, Beutner posited, “By 2021, if we haven’t changed things appreciably, we will be no more, and that reckoning will not be pretty.”  While Beutner didn’t say what would follow the apocalypse, Dan Walters writes that there will be political pressure, particularly from the teachers unions, for a taxpayer-funded state bailout.

The summer has turned out to be long, hot and horrible for the country’s second largest school district, and the fall and winter aren’t looking any brighter. Students and taxpayers will remain collateral damage for a system where unaccountable bureaucrats and the teachers unions run the show.

Larry Sand, a former classroom teacher, is the president of the non-profit California Teachers Empowerment Network – a non-partisan, non-political group dedicated to providing teachers and the general public with reliable and balanced information about professional affiliations and positions on educational issues. The views presented here are strictly his own.

California’s Transportation Future, Part Four – The Common Road

With light rail, high speed rail, and possibly passenger drones and hyperloop pods just around the corner, it’s easy to forget that the most versatile mode of transportation remains the common road. Able to accommodate anything with wheels, from bicycles and wheelchairs to articulated buses and 80 ton trucks, and ranging from dirt tracks to super highways, roads still deliver the vast majority of passenger miles.

As vehicles continue to evolve, roads will need to evolve apace. Roads of the future will need to be able to accommodate high speed autonomous vehicles. They will also need to be smart, interacting with individual vehicles to safely enable higher traffic densities at higher speeds. But can California build roads competitively? How expensive are road construction and maintenance costs in California compared with other states in the U.S.? How can California make the most efficient use of its public transportation funds?

PHYSICAL VARIABLES AFFECTING CONSTRUCTION COSTS

The Federal Highway Administration maintains a cost/benefit model called “HERS” (Highway Economic Requirements System) which they use to evaluate highway construction and highway improvement projects. One of the products of HERS is the FHWA’s most recent summary of road construction costs, updated in 2015. Its findings reveal both the complexity facing any cost analysis as well as the wide range of results for similar projects.

For example, on the FHWA website’s HERS summary page, Exhibit A-1 “Typical Costs per Lane Mile Assumed in HERS by Type of Improvement” data is presented in nine columns, each representing a typical project category for which the FHWA analyzes costs. They are: “Reconstruct and Widen Lane,” “Reconstruct Existing Lane,” “Resurface and Widen Lane,” “Resurface Existing Lane,” “Improve Shoulder,” “Add Lane, Normal Cost,” “Add Lane, Equivalent High Cost,” New Alignment, Normal,” “New Alignment, High.”

The FHWA then break their results in each of the nine project categories into two broad groups; rural and urban. Within each of those two groups, they offer the subgroups; “Interstate,” “Other Principal Arterial” (these two are combined in the “Rural” group), “Minor Arterial,” and “Major Collector.” This creates seven cost groups, each of which are then further split. For “Rural” categories, they split into “Flat,” “Rolling,” and “Mountainous.” For “Urban” categories, they split into “Small Urban,” “Small Urbanized,” “Large Urbanized,” and “Major Urbanized.”

To make a long story short, and to state the obvious, “cost per lane mile” is never one number. The FHWA’s HERS table, which itself is a reductive, arguably arbitrary summary, there are 252 distinct cost per lane mile estimates, 24 per project category. And within these nine categories, the range of costs is dramatic.

According to the HERS analysis, adding a new lane to an interstate on flat terrain in a rural area costs $2.7 million per lane mile. To do the same thing in a major urbanized area costs $62.4 million per lane mile, more than twenty times as much. Even minor projects display wide ranges in cost. Resurfacing an existing lane of a principal arterial in a flat, rural area costs $279,000 per lane mile. To do the same in a major urbanized area costs $825,000 per lane mile, three times as much.

The fact that topography, existing usage and population density affect road construction costs isn’t news. But the wide variation in costs that result from these physical variables compounds the other major factor affecting road construction costs, which is the political and economic environment of the states where projects occur. As will be seen, the FHWA compiles state by state data on road construction. This data, however, is apparently not sufficient to allow the FHWA to produce a HERS summary showing costs per lane mile by state.

EXAMINING FEDERAL DATA ON ROAD EXPENDITURES BY STATE

The FHWA Office of Highway Policy Administration does issue a highway statistics report, updated annually, that provides valuable per state data on highway mileage and transportation budgets. Their 2016 report is available but incomplete (still missing key tables such as “Disbursements by States for Highways”) so the 2015 report is still the most current. These tables are uniformly formatted and downloadable.

California’s Spending per Mile vs. Condition of Roads

An excellent analysis of FHWA data is produced every year by the Reason Foundation. Earlier this year they released “23rd Annual Highway Report,”ranking each state’s highway system in 11 categories, including highway spending, pavement and bridge conditions, traffic congestion, and fatality rates.” Highlights from this study can offer insights into how efficiently California is spending its highway dollars compared to other states through using the following logic: How does California rank in terms of how much it spends per mile, compared to how California ranks in terms of the condition of its roads.

Overall California is ranked 43 among the 50 states “Total Disbursements per mile.” California is ranked 41 in “Capital & Bridge Disbursements per mile,” 47 in “Maintenance Disbursements per mile, and 46 in “Administrative Disbursements per mile.” In terms of road condition, California is ranked 33 in “Rural Interstate Pavement Condition,” 45 in “Urban Interstate Pavement Condition,” and 46 in “Rural Arterial Pavement Condition.”

There’s not too much you can conclude from that in terms of efficient use of funds. Among the 50 states, California appears to be at or near the bottom 10% in spending per mile of road, and also in pavement condition.

In terms of cost-efficiency, among all states, this data suggests California is in the middle of the pack.

How Centralized Are California’s Road and Highway Agencies?

Within the FHWA data an interesting finding is the great variation between states in road mileage under state administration vs. road mileage under other administration – mostly cities and counties, but also federal. Only a few states, mostly the larger western states, have any significant mileage administered directly by the federal government – Alaska 14%, Arizona 22%, Idaho 16%, Montana 16%, New Mexico 16%, Oregon 28% and Washington 11%, and Wyoming 13%. Most all other states have low single digit percentages of roads administered by the federal government. The national average is 3%. California, only 6%.

State administration of road construction is higher, but still relatively low. The national average is 19% of road mileage administered by state agencies. California’s is significantly lower than average, at only 8%. Altogether, nationally, 78% of road mileage is administered by local agencies, mostly cities and counties. In California, 87% of road mileage is administered locally.

Before inferring too much from this fact, that road construction and administration is overwhelmingly ran by local agencies, FHWA funding data is useful. The data shows that total funding for roads in California in 2015 was $19.0 billion. Of that, 44% ($8.3 billion) was for “Capital Outlay,” which refers to new roads, new lanes on existing roads, new bridges, and bridge upgrades. The national average is 47% of all road spending on capital.

More to the point, the CalTrans budget in 2015 was $10.5 billion. According to the California Office of Legislative Analyst, that “includes $3.9 billion for capital outlay, $2 billion for local assistance, 1.8 billion for highway maintenance and operations, and $1.7 billion to provide the support necessary to deliver capital highway projects. How much of that was reported to the FHWA as part of the total $8.3 billion spent on capital? Certainly the $3.9 billion “for capital outlay.” Probably the “$1.7 billion to provide the support necessary to deliver capital highway projects”? What about the $2.0 billion of local assistance? For capital projects, it appears that between $5.6 billion and $7.6 billion of the total spending of $8.3 billion came from CalTrans.

The State of California’s role in total spending on road transportation is also reflected in the budget allocations in that year for the California Highway Patrol, $2.4 billion, which is included in the FHWA’s total for California, under “Law Enforcement” ($3.4 billion). It is possible, if not likely, that the state’s $1.1 billion for the Dept. of Motor Vehicles is included either in the Law Enforcement or Administration categories in the FHWA data, or allocated between them. Finally, the finance charges – interest payments and debt retirement totaling $1.5 billion – are not coming out of the budgets for the state’s transportation agencies, but some percentage of that total is paid by the state. Altogether it is likely that the State of California directly funded about $12 billion, roughly 63% of the $19 billion spent on road construction and administration in 2015.

Based on funding data, state agencies clearly play a central role in constructing and maintaining California’s roads.

California’s Spending per Lane Mile vs. Percentage of Lane Miles in Urban Areas

An interesting alternative way to get at how efficiently California uses its public transportation funds is to evaluate based on the expanded variables of total lane-miles instead of state administered road mileage, and total spending on roads by all public transportation agencies instead of just Caltrans. The rationale for using lane-miles relies on the assumption that it is more costly to build a mile of six lane highway (three lanes in each direction) than a mile of two lane road, meaning that lane miles provides a more meaningful denominator, if the numerator is total public spending on roads. The rationale for examining spending by all public transportation agencies relies on the assumption that many, if not most of the political and economic factors that govern road construction costs in California are common throughout the state, having the same effect on construction costs regardless of the funding source.

Using FHWA data on lane miles and total spending by state to calculate spending per lane-mile, California was found to average $43,999 in total spending per lane-mile. This ranks California 42 among all states. The national average is $25,474 in transportation spending per lane-mile. Put another way, for every dollar that, on average, is spent to build and maintain a lane-mile in the nation as a whole, California spends $1.73. This suggests that California is not spending its transportation funds nearly as efficiently as the most other states, but without considering other variables this is a misleading statistic.

One of the largest factors determining cost per lane-mile is urbanization. This is clearly evident in the previously mentioned FHWA website’s HERS summary page, Exhibit A-1 “Typical Costs per Lane Mile Assumed in HERS by Type of Improvement,” where costs per lane-mile are uniformly higher in urban areas, and in some cases far higher. As noted earlier, “According to the HERS analysis, adding a new lane to an interstate on flat terrain in a rural area costs $2.7 million per lane mile. To do the same thing in a major urbanized area costs $62.4 million per lane mile, more than twenty times as much.”

The idea that road construction costs more in urban areas can be attributed to several interrelated factors: Land values are typically greater in densely populated areas. Construction challenges are greater in urban areas where it is more likely that existing structures may have to be acquired and demolished to permit road construction or widening. Labor costs are typically higher in urban areas. Urbanized regions also are likely to have more local restrictions on development, leading to more costly permitting processes and higher fees. There are other key factors influencing road construction costs – for example, climate and topography – but urbanization is easily quantifiable and likely the most significant of them.

For this reason, the following chart includes not only spending per lane-mile by state, but also includes the percentage of lane-miles, by state, that are in urban areas. Here, California distinguishes itself as one of the most urbanized states, having 59% of its lane-miles within urban areas. The national average, by contrast, is almost half that; only 31% of the nation’s lane miles are located in urban areas. Tracking these two rankings, spending per lane-mile and percentage of urban lane miles, permits an illuminating comparison. If one assumes there is a correlation between cost per lane mile and percentage of lane miles in urban areas, then how a state ranks in one should be similar to the how it ranks in the other.

Six states conform exactly to this assumption. Utah, for example, is the 24th most expensive state to construct roads per lane-mile, and it has the 24th most rural percentage of roads. Similarly, Illinois has a $/mile rank of 34, and it has a rural road % rank of 34. Texas, Pennsylvania, New Jersey, and the District of Colombia all have $/mile rankings exactly equal to their rural road % ranking. Five more states have a deviation between their $/mile rank and their rural road % rank of only one. California’s is only two – it is ranked 42 in its cost per lane mile, making it quite expensive relative to most states, but it is ranked 44th in its percentage of lane-miles in rural areas, meaning it is one of the most urbanized states.

The final set of columns on the chart, on the right, show a score for each state based on the rural road percent ranking less the $/mile ranking. If the score is negative, that means the state spending on lane miles ranks better (less per mile) than its rank based on its percentage of rural lane-miles. In other words if the score is negative, that means the state is spending less per lane mile than one might expect based on their level of urbanization, and if the score is positive, the state is spending more per lane mile than one might expect based on their level of urbanization.

Once again, California is in the middle of the pack.

Spending per Lane-Mile by State; Percentage of Urban Lane-Miles by State
(Source: Federal Highway Administration, 2015)

If one assigns any credence to these rankings, it presents interesting questions. Why is it that states like Georgia and Tennessee, which are relatively urbanized, are among the top performers in terms of being able to cost-effectively construct and maintain their roads? In the case of Tennessee, it isn’t as if they’ve neglected their roads, they are in the top ten in all three FHWA measurements of pavement condition. Georgia’s scores on pavement condition put them in the middle among states.

In some of the poorly ranked states, topography and climate may be factors. Alaska, the one of the least urbanized states nonetheless is one of the most expensive states to build and maintain roads, which should come as no surprise. Most of the states with low scores have harsh climates.

A final note regarding California – while it shows a high correlation between its cost per lane-mile and its level of urbanization, it does not score well in the three pavement condition indexes; 33 out of 50 for rural interstates, 45 out of 50 for urban interstates, and 46 out of 50 for rural arterial roads.

California can do better.

OBSERVATIONS AND RECOMMENDATIONS

Federal data indicates that while California scores poorly compared to other states in terms of road conditions, California also spends less than other states in terms of expenditures per lane mile. Considered in isolation, those two facts only suggest that California is using its transportation funds no more and no less efficiently than the average state. While federal data also indicates that California, overall, spends nearly twice as much per lane-mile as the national average, California is also more heavily urbanized, and normalizing for that reveals again that California is being roughly as cost effective in its use of transportation dollars as the average state.

When factoring in the condition of California’s roads, however, which are near the bottom in pavement condition indexes, California is not using its transportation dollars as well as it could.

Anecdotally, literally everyone surveyed – and we talked with representatives from dozens of agencies, research firms, and transportation agencies – agreed that per mile road construction costs are higher in California than most other states. But the federal data we had access to does not offer documentary proof of that, and Caltrans, despite numerous attempts, could not produce data on per mile construction costs that could be compared to national averages.

The lack of transparency, the complexity, and the subjective nature of any resulting analysis makes it difficult to assert with any certainty where California falls relative to other states – it is either somewhat below average, or far below average, but making that call requires a level of evidence and clarity that is simply not available. Ultimately it does not matter where California falls in that continuum, because regardless of how efficiently California spends their public transportation funds per lane mile of new or upgraded roads, there are ways to improve. The following recommendations were heard repeatedly, from contractors, trade associations, and researchers familiar with the topic. The first two in particular:

(1) Reform CEQA

CEQA, or the California Environmental Quality Act, is a “statute that requires state and local agencies to identify the significant environmental impacts of their actions and to avoid or mitigate those impacts, if feasible.” While the intent behind CEQA is entirely justifiable, in practice it has added time and expense to infrastructure projects in California, often with little if any actual environmental benefit. An excellent summary of how to reform CEQA appeared in the Los Angeles Times in Sept. 2017, written by Byron De Arakal, vice chairman of the Costa Mesa Planning Commission. It mirrors other summaries offered by other informed advocates for reform and can be summarized as follows:

  • End duplicative lawsuits: Put an end to the interminable, costly legal process by disallowing serial, duplicative lawsuits challenging projects that have completed the CEQA process, have been previously litigated and have fulfilled any mitigation orders.
  • Full disclosure of identity of litigants: Require all entities that file CEQA lawsuits to fully disclose their identities and their environmental or, increasingly, non-environmental interest.
  • Outlaw legal delaying tactics: California law already sets goals of wrapping up CEQA lawsuits — including appeals — in nine months, but other court rules still leave room for procedural gamesmanship that push CEQA proceedings past a year and beyond. Without harming the ability of all sides to prepare their cases, those delaying tactics could be outlawed.
  • Prohibit rulings that stop entire project on single issue: Judges can currently toss out an entire project based on a few deficiencies in environmental impact report. Restraints can be added to the law to make “fix-it ticket” remedies the norm, not the exception.
  • Loser pays legal fees: Currently, the losing party in most California civil actions pays the tab for court costs and attorney’s fees, but that’s not always the case with CEQA lawsuits. Those who bring CEQA actions shouldn’t be allowed to skip out of court if they lose without having to pick up the tab of the prevailing party.

(2) Restructure Caltrans

Caltrans currently outsources only about 10% of its work. Despite repeated attempts to legislate changes that would require Caltrans to use contractors to lower costs, no action has been taken. In a report prepared in 2015 by state senator Moorlach, the failure of California’s legislature to implement reforms is described: “In previous administrations, Governor Schwarzenegger pushed for an 89/11 ratio and could not achieve it. Even Governor Brown proposed a reduced ratio that was rejected by the Legislature.”

By maintaining permanent engineering staff instead of contracting, whenever projects are concluded these engineers are often idle until another project comes along. The Legislative Analyst’s Office in 2015 reported that there were 3,500 of these positions created for programs that have expired, requiring an extra $500 million each year.

The advantage of contracting out engineering work isn’t merely based on more efficiently allocating personnel to projects to avoid down time. When Caltrans does the designing, then puts the project out for bids, the contracting companies have to conduct redundant design analysis in order to prepare their bids. This also contributes to increased costs which are passed on to the taxpayer as well as extra time. In moving to a system where Caltrans just specifies the project goals and lets the contractors prepare competitive bids based on in-house designs, the taxpayer saves time and money. Ways to restructure Caltrans might include:

  • Immediately increase the ratio of contracted work from 10% to 20%.
  • Permit the headcount of in-house engineers at Caltrans to reduce through retirements and voluntary departures, systematically increasing the ratio of contracted work as the number of Caltrans in-house engineers decreases. Set a goal of at least 50% contracted work within five years.
  • Abolish the current requirement that the state legislature has to approve any projects that are contracted by Caltrans instead of designed in-house.

(3) Decentralize and Innovate

On the FAQ page for Elon Musk’s Boring Company, the following innovations are proposed to lower the cost of tunneling by a factor of between 4 and 10: (1) Triple the power output of the tunnel boring machine’s cutting unit, (2) Continuously tunnel instead of alternating between boring and installing supporting walls, (3) Automate the tunnel boring machine, eliminating most human operators, (4) Go electric, and (5) Engage in tunneling R&D. More generally, on that FAQ page the following provocative assertion is made: “the construction industry is one of the only sectors in our economy that has not improved its productivity in the last 50 years.”

How can California use public transportation dollars to nurture innovation that will deliver more people to more places, faster, safely, for less money? One way would be to nurture competition by nearly eliminating Caltrans. Why should one state agency control nearly two-thirds of the funds for road construction and maintenance in California? Why not reduce Caltrans to a couple dozen administrators to handle federal regulations and direct federal funds and move all road work, expansion and maintenance to the counties? The counties can conform to a general state plan, but there’s no reason to have a state bureaucracy any more when the counties can be challenged to be more efficient, effective and non-duplicative in their work.

Imagine the innovation that might come out of Santa Clara County, where stretches of roadway could be immediately prioritized to add smart lanes where autonomous cars – including mini-buses and share cars – can operate safely at much higher densities and speeds. Imagine the innovation that might come out of Los Angeles County, where entire transit corridors could have congestion greatly relieved because thousands of cars are being swiftly and safely transported from point to point in underground tunnels. Imagine the innovation that might come out of San Francisco, where congestion pricing completely eliminates their chronic gridlock, or out of Orange County, where private investors team up with public agencies to use roboticized equipment to perform heavy road construction at a fraction of the cost for conventional processes?

Why not decentralize transportation management in California and turn the counties into laboratories of innovation?

(4) Expand Into the Vastness of California

It is an accident of history that California is so densely urbanized. Most metropolitan regions on the east coast, developed gradually over three centuries or more, have thousands of square miles of spacious suburbs, and tens of thousands of even more spacious expanses of moderately settled lands on the edges of remaining wilderness areas. California, in stark contrast, has nearly 18 million people residing in greater Los Angeles and over 7 million people residing in the greater San Francisco Bay Area. If you add residents of the San Diego region and Sacramento regions, you account for 32 million out of a population of 39 million. And yet all of California’s urban areas, the most densely urbanized in the nation, only constitute five percent of its 163,696 square miles! The math is compelling – you could settle ten million people in four person households on half-acre lots and it would only consume 1,953 miles. Double that for roads, parks, commercial and industrial space, and you are still only talking about urbanizing another 2.4% of California’s land. The idea that we cannot do this is preposterous.

The cost of infrastructure, roads in particular, is much higher in urban areas. So why not expand along the nearly empty Interstate 5 corridor, creating new towns and cities that are spacious and zoned to never become congested? Why not upgrade I-5 to accommodate high speed smart vehicles that provide nearly the speed of high-speed rail, while preserving the point-to-point convenience that only a car can offer? Why not expand along the entire fringe of California’s great Central Valley, where currently thousands of square miles of cattle rangeland are being taken out of production anyway? Why not build more roads on this raw land, bringing down the cost both for roads and the homes that will be built around them?

(5) Change the Conventional Wisdom

California’s policymakers have adhered increasingly to a philosophy of limits. Urban containment. Densification. Less energy use. Less water consumption. Fewer cars and more mass transit. But it isn’t working. It isn’t working because California has the highest cost of living in the nation. Using less energy and water never rewards consumers, because the water and energy never were the primary cost within their utility bills – the cost of the infrastructure and overhead was the primary cost, and those costs only go up with renewables. Cramming home construction into limited areas not only destroys the ambiance of existing neighborhoods, but simply cannot increase the supply of homes enough to lower the cost.

There is a completely different approach that would cost less and improve the quality of life for all Californians. Without abandoning but merely scaling back the ambition of new conservation and efficiency mandates, free up funds to build safe, generation III+ advanced nuclear reactors. At the same time, construct desalination plants on the Southern California coast, enough of them to supply the entire Los Angeles basin with fresh water. Instead of mandating water rationing for households, put the money that would have been necessary to retrofit all those homes into new ways to reuse water and capture storm runoff.

Paying for all of this wouldn’t have to rely exclusively on public funds. Private sector investment could fund most of the energy and water infrastructure. Water supplies could be even more easily balanced by permitting water markets where farmers could sell their water allotments without losing their grandfathered water rights. If the permit process and mandated design requirements were reduced, builders could carpet former cattle ranches with new homes, sold for a profit at affordable prices.

CONCLUSION

This is the final segment of a four part excursion into California’s transportation future. In each section the same themes emerged: It isn’t just what gets built to serve future Californians, it’s how cost effectively the money is spent. Innovation and regulatory reform – CEQA in particular, but also repealing SB 375, AB 32, and related anti-growth legislation – together have the potential to lower the cost of infrastructure, transportation in particular, by at least 50%.

California’s current policies have stifled innovation and created artificial scarcity of literally every primary necessity – housing, energy, water and transportation. Each year, to comply with legislative mandates, California’s taxpayers are turning over billions of dollars to attorneys, consultants and bureaucrats, instead of paying engineers and heavy equipment operators to actually build things.

The innovation that persists despite California’s unwelcoming policy environment is inspiring. Right here are the pioneering companies that will deliver flying cars, commercial access to outer space, breakthrough modes of transportation such as hyperloop and urban tunnels. Right here are the companies that will deliver self-driving cars, cars on demand, high-speed smart cars. These things will happen within a time frame that is, by the standards of human history, breathtakingly short. And with the right assortment of pro-growth policies in place, more of them will happen right here.

California’s transportation future cannot be predicted with any certainty. If the past few decades have taught us anything, it is that innovation routinely delivers products and solutions that nobody could have possibly imagined. But it is a reasonably safe bet that the common road is the most useful mode of transportation infrastructure for which public policy can risk public funds. A flat surface where wheeled conveyances of every conceivable design can all travel from point to point, clean, smart, versatile, sustainable, and fast.

 *   *   *

Edward Ring co-founded the California Policy Center in 2010 and served as its first president.

California’s Transportation Future, Part One – The Fatally Flawed Centerpiece

California’s Transportation Future, Part Two – The Hyperloop Option

California’s Transportation Future, Part Three – Next Generation Vehicles

REFERENCES

[1] Federal Highway Administration – Highway Economic Requirements System

[2] Office of Highway Policy Information – Highway Statistics 2015

The FHWA’s annual highway statistics report is actually a series of tables, uniformly formatted and downloadable as Excel files. For this report, the following tables were downloaded and consolidated:

[2-A] Selected measures for identifying peer states

[2-B] Disbursements by States for highways

[2-C] Length by ownership

[2-D] Estimated lane-miles

[2-E] Disbursements by States for State-administered highways

[2-F] Total disbursements for highways, all units of government

[2-G] Estimated lane-miles by functional system

[3] Reason Foundation – 23rd Annual Highway Report

[4] California Office of Legislative Analyst – The 2015-16 Budget: Transportation Proposals

[5] California Office of Legislative Analyst – The 2014-15 Budget: Capital Outlay Support Program Review