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Out of Control Policy Blog Archives: 9.22.13–9.28.13

California Gets Four Week Extension To Reduce Prison Population

Three federal judges overseeing California's prison system granted the state a four-week extension to get the prison population down to 137.5% capacity. In 2011, the United States Supreme Court ruled in Brown v Plata that the "court-mandated population limit is necessary to remedy the violation of prisoners’ constitutional rights." In the two years since the ruling, California has scrambled to figure out how to reduce the prison population from a high of 144,000 to a constitutionally acceptable figure of approximately 110,000 inmates. The prison population is currently around 120,000, not including over 8,500 in out-of-state contracted facilities or thousands of others working in fire camps. California now has until the end of January 2014 to meet the court order.

To this end, California passed a "realignment" plan that made several important reforms. Overall, it has served to shift significant responsibility to the county level. For instance, realignment ended the practice of automatically sending parole violators back to state prisons and instead allowed for alternative sanctions such as incarceration in county jails. Before realignment, parole violators made up the majority of inmates returning to state prisons.

Significantly, realignment has also allowed for those convicted of non-violent, non-serious, and non-sex offenses to serve time in county jails rather than state prisons. In addition, realignment made significant investments in public-private-partnerships such as Day Reporting Centers (DRCs). DRCs serve as "check-in" centers for formerly incarcerated offenders deemed most at risk of reoffending, and often provide important services such as anger management therapy, life skills classes, and substance abuse treatment. Merced County, for example, currently receives funding through the realignment plan to operate a DRC. Merced contracts with a private company to provide DRC to 65 high-risk clients. According to the latest Grand Jury Report, the DRC has been highly successful, with participants recidivating at half the state and county average.

California has also benefited in the past year from the voter-approved Proposition 36 in 2012, which authorized the resentencing of "third strikers" who were sentenced to mandatory life sentences for non-violent offenses under the 1994 Three Strikes Law. Since November 2012, over 1,000 California inmates once serving life sentences have been resentenced and released from state prisons. Over 2,000 other current "third strikers" are still in the petition process to have their sentences reviewed. According to a recent Stanford Law School and NAACP report, of the 1092 applicants for resentencing under Proposition 36, only 2% were denied resentencing. Even more impressively, those released have thus far recidivated at substantially lower rates than state and national averages. It has been estimated that, should this trend continue, taxpayers will likely save a billion dollars over a decade from the releases.

This said, things haven't necessarily going so smoothly. Governor Jerry Brown has repeatedly attempted to lift federal oversight of medical and mental health delivery in state prisons. A bid in April of this year to lift federal oversight of mental health services was rejected, with federal Judge Lawrence Karlton finding that “systemic failures persist in the form of inadequate suicide prevention measures, excessive administrative segregation of the mentally ill, lack of timely access to adequate care, insufficient treatment space and access to beds, and unmet staffing needs.” In fact, California prisons lead the nation in suicides. California's efforts to curb prison suicides have been so abysmal that the federally appointed advisor to the California Department of Corrections and Rehabilitation (CDCR) resigned, saying “it has become apparent that continued repetition of these recommendations would be a further waste of time and effort.”

In July, medical experts reviewing health care delivery at California State Prison, Corcoran told federal health monitors that the system posed "an ongoing serious risk of harm to patients." Further, California has been in the national spotlight in recent years for massive prisoner hunger strikes protesting against long-term solitary confinement. In the most recent hunger strike, which began in July,  30,000 inmates refused meals, one participant committed suicide, and forty refused meals for two months.

For some reason, California has refused to consider further sentencing reforms, including further reform of Three Strikes, as my colleague Lauren Galik recently suggested. There are currently over 14,000 "second strikers" serving enhanced sentences under Three Strikes for nonviolent drug and property offenses. In the latest legislative session, sentencing reform was nowhere to be spotted.

Currently sitting on Governor Brown's desk is SB 649, which would grant local prosecutors discretion in determining whether or not suspects arrested for drug possession should be charged with a misdemeanor instead of a felony. It is unclear if Governor Brown will accept the modest proposal.

Instead of talking about sensible sentencing reform, California approved a $300 million spending bill to authorize the expansion of contract beds in and out-of-state to ease overcrowding. The rushed proposal is currently still under review by federal courts to determine the extent to which it will enable California to meet the prison population reduction order. Either way, it would be far more beneficial for California to begin having serious discussions on the state prison system and sentencing reform, especially considering that the state is currently allocating $11 billion towards a still unconstitutionally-maintained state prison system.

14,108 inmates were serving second-strike sentences in California for nonviolent drug and property crimes - See more at: http://reason.org/news/show/a-safe-way-to-reduce-californias-pr#sthash.Z6uTuTnA.dpuf
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BART Negotiations Approach Absurdity

The months-long contract negotiation between officials at the Bay Area Rapid Transit (BART) system and public employee unions representing BART employees has been a protracted display of the stranglehold public employee unions have over California government. At the center of the dispute are modest proposals by BART to have BART employees contribute more towards their pension and health insurance plans.

BART employees were so incensed at the proposal that they even went on strike for four and a half days in July, disrupting services for the tens of thousands of Bay Area commuters reliant on the BART system. Demanding a 23% salary increase over three years, the Service Employees International Union Local 1021 and Amalgamated Transit Union Local 1555 launched the strike without regard for taxpayers and BART riders.

Far from being "blue-collar" workers resisting mistreatment by BART management, full-time BART employees have benefited from high wages, low health insurance contributions, and perks transit employees across the state don't even have.

For instance:

  • The average BART employee is paid more ($76,551) than the median household income in San Francisco ($71,745)
  • The average BART employee is paid far more than transit workers in other systems; $30,000 more than Los Angeles transit employees and $10,000 more per year than employees of San Francisco Muni
  • Unlike most people with retirement plans, BART employees have never contributed to their pension plans
  • BART employees only contribute $92 a month towards their health insurance, half the national average for individuals

As a consequence of these advantages, the BART system is facing several systemic problems:

  • BART's pension plan is underfunded by $187 million using the most optimistic 30-year investment return assumptions (7.5%) ; using assumptions more in line with the private sector (5.5%) the system is actually short $797 million
  • In 2012, taxpayers lost $17 million that could have gone towards services to pay the contributions BART employees should be making (the "pension pickup")
  • Between 2000 and 2012, retirement benefits grew from 3% to 8% of the BART budget, with retirement benefits projected to grow even further

In order to address this problem, BART has offered the following plan, from the San Francisco Chronicle:

  • Length of contract: 4 years
  • Pay: 2.5 percent raise each year
  • Pension: Employees would pay 1 percent the first year with their contribution increasing 1 percent every year.
  • Health insurance: BART would cap its contribution at the cost of the cheapest family coverage plan.

In countering this, the two public employee unions are counter offering:

  • Length of contract: 3 years
  • Pay: 4.5 percent raise each year
  • Pension: 1.4 percent first year, 2.8 percent second year, 4.9 percent third year
  • Health insurance: Increasing average premium contribution by 15 percent

Incredibly, this latter plan is more modest than prior demands by the unions. With regards to salary, the unions began with an "offer" of accepting a 23% pay increase, then 20.1%, then 15%, and now the present 13.5%. Under the current offer, the average salary for full-time BART employees can be projected to far exceed the median household income in the region.

However, perhaps the most unreasonable portion of both plans is the phasing in of what ought to be a common sense policy: having BART employees pay their full share of their statutorily established contribution rates towards their pensions. Why taxpayers should have to not only finance a lavish compensation and benefits packages, but continue to exempt BART employees from paying their fair share isn't clear.

While BART employees certainly do provide an important service for Bay Area residents, that doesn't justify lavish, unsustainable, and irrational perks. Bringing common sense and fairness into the heated negotiations is much needed, but difficult to see, particularly with the looming threat of a second strike.

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Santa Barbara Police Agree to Pay Their Fair Share of Pension Costs

On September 17th, the city of Santa Barbara and city police officers agreed to a three-year contract, one month after negotiations were reportedly at a standstill over proposed reforms to pension contributions.

The city police union, which ratified the contract on September 10th, agreed to make the statutorily required 9% contribution to CalPERS, which manages their pensions. Until 2010, Santa Barbara taxpayers footed the bill for not only the city ("employer") contribution to CalPERS but also "picked-up" the full "member" contribution on behalf of police officers. In 2010, the police union agreed to pay 2.266% of the 9% contribution in exchange for pay boosts.

With the expiration of the 2010-2013 contract, the city and the police union found themselves at a stalemate over the remaining 6.734% member contribution level. In exchange for making the full 9% contribution, police officers will receive: a 5% salary increase over the next three years, higher city-paid contributions to health insurance, and other benefit increases. Taken together, the city projects higher labor costs through 2015 of $190,000 in FY 2014 and $122,000 in FY 2015. The increased costs are estimated to then "level off thereafter to approximately no net increase to ongoing costs."

In other words, Santa Barbara more or less punted on seriously addressing the systemic problem of police pensions.

Currently, the city of Santa Barbara's police pension plan is underfunded by $57 million, doubtlessly a consequence of an overly generous pension plan by which officers can retire at age 50 with up to 98% of salary paid to them for life.

At the expense of taxpayers, the city of Santa Barbara has been generous with police pensions. The average pension for police officers who retired between 2010 and 2012 was $93,965, and for police sergeants who retired in the same time period, the payments they will receive for life averaged $107,422. 

It wasn't until 2010 that police officers and sergeants, who respectively earned $99,084 and $130,476 in 2012 in salary and overtime pay, even contributed to their pensions. The city, meaning taxpayers, has long had to foot the bill for an unsustainable and unaffordable system. Instead of paying, perhaps, for services or additional police officers, the city has had to allocate increasing amounts of money to pay for lavish retirements.

That police officers will be making their contributions is welcome news, as it means that taxpayers will no longer be bearing the full burden of pensions. However, that development, tied to other benefit and salary increases, is hardly a serious step towards the more difficult question of the large unfunded liability that the city has amassed. City officials unfortunately chose a strings-attached deal that taxpayers simply can't afford.

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SELC Releases Biased Report Against I-85 HOT Lanes

Last month the Southern Environmental Law Center (SELC) released a flawed study to suggest the GA I-85 HOT lanes harm low-income drivers. In reality, the data and similar reports from FHWA, FTA, CalTrans, the Victoria Transport Policy Institute, Burris, Sciara, Sullivan and Weinstein show HOT lanes benefit all commuters, both highway and transit, regardless of income. 

The SELC may not have the purest of intentions. In the past year the group released 6 reports critical of highways and 0 reports complementary of highways. The SELC is as likely to find something positive to say about a highway as Nancy Pelosi is to find something positive to say about Eric Cantor. 

The report has three major flaws. The first and most significant is the exclusion of carpool, vanpool and transit trips in the HOT lane from the report’s calculations. Carpools and transit buses comprise 14 percent of all vehicles in the lane (more during rush hour) and carry almost 25% of total travelers. After excluding transit trips the report, using only the single-occupant vehicles, suggests the lane needs a transit component. But the lane has a transit component--the carpools, vanpools and buses that the authors deliberately excluded. 

The second shortcoming is drawing a conclusion from the weak Correlation Coefficient. The report finds a Correlation Coefficient between median income and per capita HOT lane use of .44 which on a scale of 0 to 1 is a relatively weak value. This Correlation Coefficient suggests that many factors other than income, such as work location, affect HOT lane usage. And since SELC ignored carpools and buses in its analysis, the accurate value is far less than .44, indicating no connection at all.   

The third issue is the incomplete data the report uses. I will give credit to the authors for admitting the limitations of their data, but the limited data makes the report almost useless. Let’s look at some of the data issues. The report uses zip code, not census track, data to determine which neighborhoods in a geographic location use the HOT lanes. A census tract contains fewer people than a zip code (1,500 to 4,500 compared to 25,000-60,0000 people in a zip code) and is far more likely to have a homogenous income. The report did not examine other variables likely to influence HOT lanes such as proximity to HOT lane entry points, likely destinations, alternate routes and/or transit service. Using only one variable creates a poor data stream. Additionally since HOT lane usage varies throughout the year using only four months of statistics creates an inaccurate report. To get a representative sample of data, the report needs to include at least 12 months of data. 

The report is particularly concerned with user income, so let’s examine that issue more carefully. Only 2 of the 5 zip codes with the highest use and the highest income overlap. And these zip codes are located where the HOT lane begins. This suggests that people use the HOT lane based on geographic location, not income. 

The highest use zip code has a median income similar to the county median. Of the 12 highest use zip codes, four have median incomes below the county average, three have median incomes at the county average and five have median incomes above the county average, so there is no evidence to support the claim that wealthier individuals are the only ones using the HOT lane. 

Furthermore the breakdown of account holders suggests that lane users comprise all income groups. Eight and one half percent make less than $35,000; 19.9% earn $35,000-$49,000; 35.6% make $50,000 to $74,999; 21.3% earn $75,000 to $99,000; 12.2% make $100,000 to $149,999 with only 2% making over $150,000. And despite critics’ claims of “Lexus Lanes” the four most commonly used vehicles are the Honda Civic, Toyota Camry, Ford F-150 and Nissan Altima. None of these is a luxury car. 

The four recommendations at the end indicate the authors do not understand how the I-85 HOT lanes work. The report suggests reducing occupancy requirements from 3+ to 2+. But the occupancy requirement was raised because the lane was failing to meet federal performance standards to operate at 45 miles per hour or higher 90% of the time. States in violation of those standards could be forced to pay back federal money used to build the lane. Since there are insufficient 3+ person carpools in Atlanta, the decision was made to charge single occupant vehicles who want to use the lane. But the lane is intended to benefit carpools, vanpools and transit people. Reducing the occupancy would hurt the transit services operating in the lane. 

The report suggests using toll money to fund transit. But the project is already funding the transit right-of-way. Toll revenue is used to operate and maintain the lane including enforcement and towing service. The primary purpose of the lane is to improve transit service in the corridor by offering fast, reliable express bus service. 

The report suggests providing all registered users limited access to the Managed Lane without charge by providing all users an annual account credit. I understand the sentiment but I do not see how this would work in reality. Lane users could be provided one free trip but that would make the lanes more congested, increasing the costs of trips to all other travelers resulting in no actual savings. Many general purpose lane users are not registered uses and would have to get a transponder sticker and pay $20 in pre-paid tolls to become registered users. Why would people who do not intend to pay for the lane spend $20 for per-paid tolls? Why would people who dislike the concept of HOT lanes, GDOT and SRTA pay anything to those agencies to use the lane? 

But the report does have one good recommendation. It suggests limiting state funding. If the state entered into a PPP contract for this or any other lane, the private sector would contribute more funds, requiring less state funding. But since SELC wrote a report criticizing PPPs in Virginia, I doubt SELC will be favor this approach.   

SELC used insufficient data to make conclusions about HOT lanes. Every other academic study I have read has concluded HOT lanes improve conditions for both highway and transit users regardless of income. 

Why would anybody write a report with such poor data? The likely answer is viewed through SELC’s environmental lens: all highways are bad and all rail transit is good. This is not about low-income individuals and tolls. Most of SELC’s environmental recommendations disproportionately harm low-income individuals. This is about preventing mobility at all costs. 

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Sasha Volokh on Constitutional Issues in Public Pension Reform

Sasha Volokh has a new article on Reason.org discussing the re-emergence of the Contract Clause as an area of litigation amid the wave of legal challenges mounted by public employees and retirees against pension-reform laws. Here's the intro:

Faced with public pension crises, many states have recently enacted pension-reform laws—increasing the rates at which their employees must contribute to their pension funds, reducing or eliminating cost-of-living adjustments, increasing the retirement age, or even converting to an entirely different type of pension system. Public employees and retirees have aggressively challenged these reforms, arguing that the makeup of their pension plans was part of the employment contracts they agreed to years ago. One of their main weapons is a relatively forgotten part of the constitution: the Contract Clause.

The text is simple: “No State shall . . . pass any . . . Law impairing the Obligation of Contracts.” The Contract Clause is one of the few restrictions against states to be contained in the original constitution, rather than in the Bill of Rights or the post-Civil War amendments, and is also one of the few economic-rights provisions. In the early Republic, courts used this clause aggressively to protect the obligation of private and public contracts alike: states were restricted in how much they could relieve debtors of the obligation to pay their creditors, just as they were restricted in repudiating their own bonds or reneging on their promises of tax exemption. James Ely writes that the Contract Clause was “the most litigated provision in the Constitution and was the chief restriction on state authority.”

This changed gradually throughout the late 19th and early 20th centuries, as the Supreme Court increasingly deferred to state economic regulation, especially during “emergencies.” The protection of public contracts was the quickest to go, but private contracts lost protection as well. Since the New Deal, the Contract Clause, much like other economic rights, has been afforded a relatively low level of protection.

But examining the current crop of cases by public employees and retirees challenging pension-reform laws—there are at least a dozen such cases just in 2013 so far—shows that the Contract Clause (as well as similar state constitutional Contract Clauses) nonetheless remains a vibrant area of litigation.

Read the full article here. And for more, all of Volokh's recent legal analyses written for Reason Foundation on an array of privatization-related topics are archived here.

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Oregon Having Wrong Conversation On Pension Reform

On September 30th, the Oregon legislature will hold a special session to address the state's public employee pension system that is currently underfunded by $14 billion. With only 82 cents for every dollar promised to current and future public employees, under the rosiest of assumptions, Oregon is in need of common sense pension reforms. The scope of the funding problem becomes even more apparent when using investment return assumptions more in line with reality. State Budget Solutions, using a fair market valuation (tying investment returns to those of US Treasury bonds), calculated the funding level to be 37%. Under this calculation, Oregon is actually short by $75 billion, and the per capita liability sharply rises to over $19,000.

However it is calculated, state and local governments are increasingly aware of grim future Oregon faces should it continue ignoring the problem. As more public employees retire, increasing portions of state and local budgets are dedicated to pensions rather than public services. In other words, taxpayers are paying more and getting less.

Prompted by this realization, earlier this year, Oregon passed tepid pension reforms that modified the annual cost-of-living (COLA) increases in pension payouts, and closed off tax relief for pensioners living out of Oregon. While Oregon taxpayers will doubtlessly save from these measures, significant problems remain.

Some obvious problems include:

  • Oregon is still expecting a 7.75% return on pension investments (down from 8% this summer), an unlikely assumption that can have significant repercussions on funding levels going forward
  • Only 30% of Oregon public employees even contribute to their pension plans, Oregon taxpayers "pickup" the tab on their behalf
  • Oregon allows public employees to "spike" their salaries by saving up and cashing in on things like unused sick leave and vacation pay in their final years, thereby inflating their inflating pension benefits they will receive for life

These issues, taken together, represent an enormous source of savings or losses, depending on the course of action Oregon decides to take. The available choices are bitter pills to swallow. Using more reasonable investment return assumptions would force Oregon to allocate even more money to the status quo pension system. According to an analysis conducted by the Oregon Public Employees Retirement System (PERS) when the system was assuming 8% investment returns, reducing investment assumptions to 7% would drive up 2015-2017 costs to taxpayers by $1.2 billion.

In terms of potential savings, eliminating the "pension pickup" could significantly reduce liabilities. A 2012 report estimated reductions in the total liability by over $650 million had the reforms begun December 31, 2011.

According to another 2012 report, removing sick leave and vacation pay from pension calculations would have reduced PERS' long-term total liabilities by over $600 million had they been exempted from pension calculations beginning in 2011.

Are these options on the table at the September 30th special session? No.

Oregon Governor John Kitzhaber has proposed a sloppy solution designed to appease Republican and Democratic politicians. In exchange for cuts to COLA payments, Kitzhaber has proposed approximately $244 million in tax increases, including increases in corporate and cigarette tax rates. In addition, Kitzhaber has proposed, among other "investments," $100 million in higher K-12 education spending and $40 million in additional college spending.

In other words, Oregon will contemplate bigger government in exchange for kicking the can down the road.

Far from being a left-right, Democrat-Republican issue, pension reform in Oregon ought to be about creating a sustainable, affordable system that doesn't saddle Oregonians with the unreasonable burden of shouldering the bulk of the costs. Making promises you can't afford, and seeking to inadequately correct it on the condition of raiding Oregon taxpayers even more and spending even more on unrelated projects, doesn't resemble responsible governance. Oregonians deserve an honest and serious discussion on pension reform unclouded by politically motivated gimmicks.

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