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Without Government Unions, there Would be No Gas Tax Increase

Nobody argues that California’s roads need huge upgrades. But the solution didn’t require the $0.12 per gallon tax hike that goes into effect today. The root cause of these neglected roads – and the reason even more taxes will never be enough to fix them – is the power of public sector unions, whose agenda is consistently at odds with the public interest. Let us count the ways.

1 – CalTrans mismanagement:

CalTrans could have done a much better job of maintaining California’s roads. One of the most diligent critics (and auditors) of CalTrans is state Senator John Moorlach (R, Costa Mesa), the only CPA in California’s state legislature. Last year, Moorlach released a report on CalTrans which he summarized in “7-Step Fix for ‘Mismanaged’ Caltrans,” an article on his official website. Just a few highlights include the following:

  • In May 2014 the Legislative Analyst Office determined that CalTrans was overstaffed by 3,500 architects and engineers, costing over $500 million per year.
  • While to an average state transportation agency outsources over 50% of its work, CalTrans outsources only 10% of its work. Arizona and Florida outsource more than 80%.
  • 54% of CalTrans staff is at or near retirement age, so a hiring freeze would reduce staff merely through attrition, without requiring layoffs.

But Moorlach didn’t make explicit the reason CalTrans is mismanaged. It’s because the unions that run Sacramento don’t want to outsource CalTrans work. The unions don’t want to reduce CalTrans headcount, or hold CalTrans management accountable. Those actions might help Californians, but they would undermine union power.

2 – Bullet train boondoggle:

Money that could have been allocated to maintain and improve California’s roads is being squandered on a train that will do nothing to ameliorate California’s transportation challenges. A LOT of money. According to the American Road and Transportation Builders Association, California’s freeways can be resurfaced and have a lane added in each direction at a cost of roughly $5.0 million per mile in rural areas, about twice that in urban areas.

Meanwhile, the latest estimate for California’s “bullet train,” is $98 billion (that’s $245 million per mile), thanks to construction delays, and design challenges including nearly 50 miles of tunnels through seismically active mountains to the north and south. And hardly anyone is going to ride it. Ridership won’t even pay operating costs. But Sacramento pushes ahead with this monstrous waste when that same money could (at the urban price of $10 million per mile) resurface and add a lane in each direction to 10,000 miles of California’s freeways. Imagine smooth, unclogged roads. It’s not impossible. It’s just policy priorities.

But while bad roads destroy the chassis of millions of cars and trucks, and commuters endure stop-and-go traffic year after year, the California High Speed Rail Authority dutifully pushes on. Why?

Because that’s what the government employee unions want. They don’t want roads, with all the flexibility and autonomy that roads offer. They want to create a gigantic high-speed rail empire, with tens of thousands of new public employees to drive the trains, maintain the trains, maintain the tracks, and provide security, running up staggering annual deficits. But all of them will be members of public sector unions.

3 – All rapid transit boondoggles:

In a handful of very dense urban areas around the U.S., fast intercity trains make economic sense. But most light rail schemes, along with laughably absurd “streetcar” schemes that actually block urban lanes sorely needed by vehicles, do not achieve levels of ridership that even begin to justify their construction when the alternative is using that money for better, wider connector roads and freeways. The impact of ride sharing apps, the advent of non-polluting cars, and the option of using buses to accomplish mass transit goals all speak to the superior versatility of roads over rail for urban transportation.

So why do California’s cities continue to poor billions into light rail and streetcars, when that money could be used to unclog the roads?

To reiterate: The public sector unions that run California want tens of thousands of new public employees to operate the trains and streetcars, maintain them, maintain the tracks, and provide security, running up staggering annual deficits. But doing this means that public sector union membership – hence public sector union power – will increase.

4 – CEQA reform so people can live closer to the jobs:

The median home value in the United States today is $202,700. The median home value in California today is $509,600, 2.5 times as much! There is no shortage of land in California, and the alleged shortages of energy and water are self-inflicted as the result of policies enacted by California’s state legislature. But instead of reforming California’s Environmental Quality Act, SB 375, AB 32, and countless other laws that have made building homes in California nearly impossible, California’s legislature is doubling down on more government solutions – primarily to subsidize either extremely high density housing, or subsidized housing for the economically disadvantaged, or both.

None of this is necessary. Outside of California’s major urban centers, there is no reason homes cannot be profitably built and sold at a median price of $202,700, and there is no reason the people living in those homes cannot drive or ride share to work on fast, unclogged freeways.

But California’s public sector unions want more regulations on home building, and they want more subsidized public housing. Because those solutions, even though inadequate and coercive, enable them to hire vast new bureaucracies to enforce the many regulations and administer the public assets. Unleashing the private sector to build affordable homes in a competitive market would rob these unions of their opportunity to acquire more power. It’s that simple.

5 – Insatiable appetite for pension fund contributions:

According to a California Policy Center study, taking barely adequate annual employer pension contributions into account, the average unionized state/local government worker in California makes over $120,000 per year in pay and benefits. But to adequately fund their promised pension benefits, employers will need to pay at least another $20,000 per employee to the pension funds. This funding gap, which equates to over $20 billion per year, is the additional amount that is required to cover the difference between how much California’s public employee pension funds currently collect from taxpayers, and how much they need to collect to keep the promises that union controlled politicians have made to the government unions they “negotiate” with. That is a best-case scenario.

It could be much worse. A 2016 California Policy Center analysis (ref. table 2-C) estimated that under a worst-case scenario, the annual costs to fund California’s public employee pension funds could cost taxpayers nearly $70 billion more per year than they are currently paying.

And by the way, California’s pension funds are themselves almost entirely under the control of public sector unions – research the background of CalPERS and CalSTRS board directors to verify the degree of influence they have. Absent significant reform, funding California’s public employee pensions is going to continue to consume every dollar in new taxes for the next several decades. The cumulative financial impact of funding these pensions is easily triple that of the bullet train’s $100 billion fiasco, probably much more.

Let’s be perfectly clear. Government unions control California. They collect and spend over $1.0 billion every year, and spend most of that money on either explicit political campaigning and lobbying, or soft advocacy via expensive public relations campaigns and sponsored academic studies. Their presence is felt everywhere, from local transit districts to the governor’s office. They make or break politicians at will, by outspending or outlasting their opponents. At best, California’s most powerful corporate players do not cross these unions, often they collude with them.

California’s public sector unions operate as senior partners in a coalition that includes left-wing oligarchs especially in the Silicon Valley, extreme environmentalists and their powerful trial lawyer cohorts, and the Latino Legislative Caucus – usurped by leftist radicals – and their many allies in the social justice/identity politics industry. The power of this government union led coalition is nearly absolute, and the consequences to California’s private sector working class have been nothing short of devastating.

Government unions force California’s agencies to over-hire, overpay, and mismanage, because that benefits their members even as it harms the public. These unions enforce absurd policy priorities that further harm the public in order to increase their power. They are the reason California has increased its gas tax.

REFERENCES

Pump bump: California drivers to pay 12 cents more per gallon starting Wednesday – San Jose Mercury, Oct. 31, 2017
http://www.mercurynews.com/2017/10/31/pump-bump-california-drivers-to-pay-12-cents-more-per-gallon-starting-wednesday/

California’s gas tax increases Wednesday – Los Angeles Times, October 31, 2017
http://www.latimes.com/politics/la-pol-ca-gas-tax-increase-political-battle-20171031-story.html

How much you’ll REALLY pay in gasoline tax in California – San Diego Union Tribune, Apr. 23, 2017
http://www.sandiegouniontribune.com/business/energy-green/sd-fi-california-gastax-20170413-story.html

What Californians Could Build Using the $64 Billion Bullet Train Budget – California Policy Center, Mar. 21, 2017
http://californiapolicycenter.org/what-californians-could-build-using-the-64-billion-bullet-train-budget/

American Road and Transportation Builders Association – FAQs, ref. “How much does it cost to build a mile of road?
https://www.artba.org/about/faq/

High-Speed Rail Delay More than Triples Planned Cost to San Jose – San Jose Inside, Oct. 2, 2017
http://www.sanjoseinside.com/2017/10/02/high-speed-rail-delay-more-than-triples-planned-cost-to-san-jose/

A 13.5-mile tunnel will make or break California’s bullet train – Los Angeles Times, Oct. 21, 2017
http://www.latimes.com/local/california/la-me-bullet-train-tunnel-20171021-story.html

California Environmental Quality Act – Wikipedia
https://en.wikipedia.org/wiki/California_Environmental_Quality_Act

State Senate bills aim to make homes more affordable, but they won’t spur nearly enough construction – Los Angeles Times, Aug. 11, 2017
http://www.latimes.com/politics/la-pol-ca-state-housing-deal-effects-20170811-htmlstory.html

California’s Public Sector Compensation Trends – California Policy Center, Jan. 2017
http://californiapolicycenter.org/californias-public-sector-compensation-trends/

What is the Average Pension for a Retired Government Worker in California? – California Policy Center, Mar. 2017
http://californiapolicycenter.org/what-is-the-average-pension-for-a-retired-government-worker-in-california/

The Coming Public Pension Apocalypse, and What to Do About It – California Policy Center, May 2016
http://californiapolicycenter.org/the-coming-public-pension-apocalypse/

 

Why are California Democrats so hard on our working poor?

CLASS WARRIOR: Gov. Brown lobbied state Senate Democrats to approve a $5-billion-a-year boost in gas and vehicle taxes to pay for major road repairs. (AP Photo/Rich Pedroncelli)

 

When Governor Edmund G. “Jerry” Brown enters his sixteenth year as governor of California this January, he will likely ask his magic mirror which is the bluest state of them all. The mirror will reply “California. It’s so obvious, why do you even ask, you silly governor?”

Democrats in Sacramento hold more than two-thirds of the seats in both houses of the legislature, and no Republican has won a statewide office since 2006. Although Jerry Brown governed in split terms (1974-1982 and 2010-2018), the legislature was majority Democrat long before Brown took office. Since then, Republicans have held a majority of the Assembly for only two years, and they never controlled the Senate. That’s one-party dominance.

To prove their power, Democrats recently adopted a $5 billion gas tax increase, declared California a “sanctuary state” in defiance of the Republican president, and extended the unique cap-and-trade law, which requires California business to pay billions more in taxes. They did it, they acknowledged, in order to display California’s leadership, as a lesson to other states in how to control the global climate.

And they did all this after making permanent the formerly “temporary” highest personal income tax rate in the nation.

The mirror does not lie; California is the bluest state of them all. Jerry Brown should be proud.

Why, then, in this bluest of states does the little guy suffer so much? The Democrats’ narrative is, and has always been, that they are the champions for the underprivileged. Yet California has the highest poverty rate, the highest homeless rate, the worst schools for underprivileged kids, the worst conditions for working-class commuters, and the least opportunity for the working class of any state in the nation. What gives?

According to the United States Census, when the actual cost of living here is taken into account, California has the highest poverty in the nation—20.6% in 2016.[1] California leads the nation in homelessness with 118,142, according to HUD’s 2016 Annual Homelessness Assessment Report. Although New York is a close second at 86,352, the next three in line are far behind those two—Florida (33,559), Washington (20,827) and Massachusetts (19,608).[2] With all this poverty, it should be no surprise that California has the highest number of people on welfare, but according to the San Diego Union Tribune, some may be surprised to learn that 34% of the nation’s welfare recipients live in California, while only 12% of the U.S. population lives here.[3]

Not only are there more poor people in California, but life is harder on the poor and working class here than in other states. Several have pointed out that energy costs in California are much higher than in any other state, and the burden of these high costs falls disproportionately on the poor and working class.[4] Energy for transportation is more expensive than other states not only because of environmental policies handed down by Sacramento but also because of heavy taxation on gasoline. After adopting a $5 billion gas tax increase this year, Sacramento renewed cap-and-trade, which will impose its heavy taxes on business and will be passed on to consumers of a variety of products, including gasoline. These increasing costs have not yet been fully felt at the pump, but when they are, they will be regressive—disproportionally impactful on the poor and working class. This is because this demographic is compelled to commute longer distances by reason of policies that have made housing in California among the most expensive in the nation. Since the wealthy may choose where they live, they may commute less, costing them less at the pump.

There are other ways that high-energy costs brought on by California’s blue state policies hurt the poor. For example, the poor tend to use energy less efficiently than the wealthy, and they use a larger percentage of their incomes for energy, often causing what is called “energy poverty,” where a family must choose between heating their home and eating a nourishing meal.[5]

In a groundbreaking 2015 study,[6] Jonathan Lesser of the Manhattan Institute demonstrated that California is exacerbating this problem through poor choices in its energy, environmental and housing policies.

First, as others have pointed out, energy prices in California are the highest in the nation and continue to rise due to single-focus policies that can be reversed if Sacramento chooses to change them. Second, this rise in energy cost has a disproportionate impact on certain counties such as California’s inland and Central Valley regions because summer electricity consumption is highest there. The impact of this energy tax is regressive, Lesser says, because household incomes in those regions are the lowest; in other words, the poor people live in the most unpleasant places, where air conditioning is needed the most. The more pleasant places, along California’s coast, are reserved for the wealthy through housing policies that keep prices sky high. Sacramento could change those policies if they wished, but very few new homes, relatively speaking, have been built in the most desired areas since Jerry Brown first became governor. Third, according to Lesser, as a consequence of these policies, “[i]n 2012, nearly 1 million California households faced ‘energy poverty’,” and this figure will most certainly go up unless something is done to change the upward trend in energy pricing crossing with the upward trend in energy use by the poor. Lesser provides specific suggestions for policy changes, but none were implemented by Sacramento.

Public education is another area that the poor and working class depend upon more than other segments of the population. In California, you are stuck with the school in your zip code, but for people of means, there is always private school. A recent report ranked California tenth worst in the nation overall in public school performance.[7] When we focus on the schools most likely to be charged with educating California’s poor and working class, however, we quickly learn that the achievement gap remains a living misery for our state’s poor. The recently released Assessment of Student Performance and Progress provides only two performance scores of substance, English and language arts (which means knowing how to read) and math. Scores are divided into four categories, two that meet or exceed acceptable standards and two that do not. In the inner cities where public schools are operated by the Oakland, Los Angeles and Santa Ana Unified School Districts, the following percentage of students met or exceeded the standard for language arts, respectively: 31.86%, 38.55% and 27.80%. In that same order, students meeting or exceeding the standard for math were 25.50%, 29.86% and 22.41%. So our bluest state does not care enough to teach even 60% of our poorest kids how to read or 70% to do math.

So do Republicans have the right to be smug? No way. Republicans have let down the poor just as much as Democrats in Sacramento because they have done nothing to save them. It is not too late for the GOP, however. It is time to step up and become champions of the poor and working class.

Where has the GOP been? Instead of stepping up as champions for the poor, who have been miserable under blue state policies for a very long time, Republicans spend all their time fighting among themselves about any issue they disagree about. A key requirement for admission to the GOP seems to be that one must have a talent for being distracted by issues that divide the party at the expense of issues that could unite it. In this case, the misery of the poor and working class has essentially been ignored by Republicans even though free market policies are ideally suited as the best solution to the oppressive policies that have been in place for so long.[8] Not only would this issue unite the party, but it would provide the GOP an opportunity to do something good in the process.

Here is my solution for Republicans: forget about the rich. They can take care of themselves. And stop fighting. If you have a serious disagreement, table the issue, and campaign on something you agree on. Unfurl a banner that says, “I AM THE CHAMPION OF THE POOR AND WORKING CLASS.” Then get to work to prove it because no one will believe you at first. The poor and working class need a champion; Democrats so far have not been able to reverse course. Come on, GOP, find your heart.

Robert Loewen is chairman of the board of the California Policy Center. 

 

[1] http://capitolweekly.net/california-poverty-high-costs/

[2] https://www.hudexchange.info/resources/documents/2016-AHAR-Part-1.pdf

[3] http://www.sandiegouniontribune.com/news/politics/sdut-welfare-capital-of-the-us-2012jul28-htmlstory.html

[4] E.g. http://www.ocregister.com/2017/07/13/energy-costs-making-california-unaffordable-for-too-many/ ; http://www.nationalreview.com/article/421869/californias-energy-policies-poor-are-hit-hardest-robert-bryce ; http://capitolweekly.net/california-poverty-high-costs/ ;

[5] E.g. http://www.reimaginerpe.org/node/965 ; https://www.theatlantic.com/business/archive/2016/06/energy-poverty-low-income-households/486197/ ;

[6] https://www.manhattan-institute.org/html/less-carbon-higher-prices-how-californias-climate-policies-affect-lower-income-residents-6363

[7] http://www.mercurynews.com/2017/01/05/california-schools-earn-c-in-national-ranking/

[8] Arthur C. Brooks, The Conservative Heart, How to Build a Fairer, Happier, and More Prosperous America. According to Brooks, conservatives are natural champions of the poor when they advocate free market principles; he does not believe that conservatives need to become “center-left” in order to advocate for the poor and working class.

 

Budget Primer for California Citizen Taxpayers

Average taxpayers in California are probably aware that the state budget was in the news again over the weekend. But even folks who follow both Presidential politics and local issues probably couldn’t be blamed if they tune out stories about the California budget. It’s not that they don’t care. It’s just that public finance issues can be horribly confusing and difficult to follow.

In terms of timing, the process itself is easy to grasp. The annual budget year runs from July 1st to June 30th of the following year. That’s why people refer to a single budget using two years. For example, the budget currently being discussed is the 2016-2017 budget. The Constitution requires that the Governor present a budget in January and that the Legislature enact the budget by June 15th. Because state bean counters and analysts don’t have a full grasp of the economy or revenue projections in January, the Governor’s budget goes through an update, or “revision,” in May. It was this May “revise” that the Governor presented on Friday that has been in the latest news cycle.

But perhaps the most confusing aspect of the state budget is the fact that many of the numbers that are bandied about are inconsistent. Thus, an average citizen might hear on the radio that the state budget is $122 billion dollars. And yet, when they get home, they read that spending is actually $173 billion. At this point they are more apt to turn on the Giants v. Dodgers game rather than make sense of the huge disparity.

The inconsistency in these budget numbers usually is attributable to the fact that there is a big difference between “general fund” spending and total state spending which includes “special funds.” General fund revenue comes from the state income tax, sales tax, corporate tax and a handful of other sources. “Special funds” come from the gas tax and fees from regulatory programs like cap and trade funds. For average taxpayers, the worst example of “special fund” revenue consists of the illegal CalFire “fee” which slams property owners with hundreds of dollars of additional property taxes. The legality of the CalFire fee is currently being challenged in court.

When it comes to the state budget, citizen taxpayers are justified in being both confused and angry. Not a day goes by without some scandal surfacing about those who spend our tax dollars. Whether it is the Bay Bridge, which exceeded the original cost estimate by a factor of six, or California’s feckless policies that have driven up state debt so high that, were the state a private company, it would be immediately eligible for bankruptcy.

As should be expected, California has the largest state budget in the United States. But what should not be expected or tolerated is the hostility of our political leaders toward those of us who pay the bills. California has the highest income tax rate in America as well as the highest state sales tax. Our fuel costs are also the highest due to both the current gas tax and environment regulations. The result of these policies has been an accelerated exodus from the state by both businesses and individuals. It should be painfully obvious even to the Governor and left-leaning legislators that you can’t have a vibrant state budget unless you have a vibrant economy.

Finally, Governor Brown, while not officially endorsing a proposal to retain California’s sky-high income tax rates, implicitly endorsed it by noting that the state would be in a deficit situation if the measure didn’t pass in California. But this deficit projection is only attributable to higher state costs due to the foolish policies of elected leaders, not state revenues which are actually increasing faster than population and inflation.

The real cure for California’s budget woes is a combination of policies that would make California competitive in the global economy, not higher taxes and more burdensome regulations.

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