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Being Taken for a Ride on High-Speed Rail in California

Posted on April 27, 2012, 4:21pm | Adam Summers

In my latest commentary, I once again tackle the boondoggle that is the California high-speed rail project, specifically, the most recent version of what passes for a business plan from the California High-Speed Rail Authority (CHSRA).

When the High-Speed Rail Authority recently released yet another version of its purported business plan, it was just another day in the world of the ever-changing high-speed rail plans and assumptions made by the Authority and its backers. The fourth incarnation of the plan relies upon sharing tracks with commuter trains in both Los Angeles and the Bay Area in order to trim estimated costs from $98.5 billion to "only" $68.4 billion—still more than 50% more expensive than the plan voters thought they were approving in November 2008. But, as the non-partisan Legislative Analyst's Office (LAO) observed, this plan makes no more sense than any of the previous ones.

The LAO analysis concludes,

We find that HSRA has not provided sufficient detail and justification to the Legislature regarding its plan to build a high-speed train system. Specifically, funding for the project remains highly speculative and important details have not been sorted out. We recommend the Legislature not approve the Governor’s various budget proposals to provide additional funding for the project.

The vast majority of the expected funding continues to be wishful thinking. As I relate in my article,

As with every other attempt at a plan, the latest effort from the CHSRA lacks any basis in reality. Once again, most of the funding is to come from unidentified federal and private-sector sources that almost certainly will not materialize. In fact, 83.2 percent of the project’s proposed funding is unaccounted for, including $38.6 billion the CHSRA hopes to receive in federal funds (in addition to the approximately $3.5 billion in federal stimulus and transportation funds that has already been allocated), $13.1 billion expected from private investors, and $5.2 billion to come from other sources such as local governments.

In response to such criticisms, CHSRA Chairman Dan Richards argued that it is simply common practice for transportation projects to go forward without knowing from where the money will come. “I spent 12 years on the [Bay Area Rapid Transit] board in the transit world; we never knew where all of the money was coming from,” Richards said. “Our colleagues in Southern California just adopted a $540 billion regional transportation plan for the Southland, for the next 20 years, same time period we’re talking about here. They don’t know where all of the money is coming from.” Added Richards, “It is just part and parcel of the transportation world that people don’t know these things now.”

If ever there was a window into the mindset of a government central planner, this is it. So the excuse for such irresponsibility and carelessness with scarce taxpayer dollars is the notion that “Everyone else (in government) is doing it!” Besides, who needs to know minor details like how something is going to be paid for when your state faces yearly multi-billion-dollar deficits?

Yet CHSRA board member Mike Rossi calls the new business plan “credible, reasonable, and transparent.” Many of the high-speed rail planners are clever people, so it is hard to believe that they could be so divorced from reality. There are many special interests involved in a project of this scope, however (which is yet another reason why such things should be left to the voluntary decisions of people in a free market, rather than forced down people's throats through the political process), so perhaps it is simply an attempt to intentionally delude taxpayers whom they hope will be too apathetic or uncritical to notice otherwise.

One of the things that continually amazes me is how basic assumptions such as the cost of the project and the estimated ridership—which affects everything from how much revenue the system will generate to how much it will affect traffic congestion and greenhouse gas emissions—can change so dramatically, so quickly, and yet the supporters of high-speed rail cling to the project with religious fervor and never question how these seemingly arbitrarily-determined numbers affect the viability of such a large project. As I argued in my column,

The CHSRA and many advocates of high-speed rail have demonstrated that they are beyond reason, despite all the facts that contradict their hopes and assumptions. High-speed rail advocacy has become more of a religious crusade than a policy position. Avoiding the facts stacking against this project is how cost estimates can triple, then be reduced by one-third. It’s how ridership estimates can magically plummet to one-third of their original estimates (see this CalWatchdog article for a good summary on the project’s changing assumptions). It’s how major decisions such as changing from dedicated high-speed rail tracks to tracks shared with slower commuter trains on both ends of the system can be made. And yet with all these arbitrary changes, high-speed rail acolytes have not batted an eye or even questioned how the plan can still be considered feasible, much less profitable.

Moreover, the bond measure (Prop. 1A) that voters narrowly passed back in 2008 requires that a trip between Los Angeles and San Francisco on the high-speed train system take no more than 2 hours, 40 minutes. That probably would not have happened even under the older plans, but seems to be pure fantasy now that the high-speed trains will have to share tracks with slower commuter trains at both ends of the system. As Quentin Kopp, former California state senator and CSHRA chairman who was a leading figure in pushing for the passage of Prop. 1A and the creation of the CHSRA, admitted of the new plan, “This isn’t high-speed rail.” Added Kopp, “High-speed trains have separated tracks. That’s how they could achieve speeds and travel times promised to voters in the 2008 ballot measure.”

The high-speed rail project is such a disaster on so many fronts—economically, politically, even environmentally—that one can only hope that the plug will be pulled before California wastes more billions of dollars it does not have. At the very least, voters should have the chance to re-vote on such a project that is so different from the one put before them in 2008. Barring that, it will be up to the voters to use the initiative process to kill the high-speed rail system in order save themselves from more financial waste and abuse.

See my full article here.

California is Barking Up the Wrong Tree with Pet Groomer Licensing Bill

Posted on February 27, 2012, 2:10pm | Adam Summers

Earlier this month, I wrote about a proposed bill in California to require state licensing for pet groomers.  The legislation, SB 969, would impose fees on would-be groomers, require applicants to pass written and practical examinations administered by the Veterinary Medical Board, mandate detailed and burdensome record-keeping requirements for groomers, dictate certain other business practices, and spawn an army of bureaucrats to go around inspecting every dog grooming business in the state at least once a year.

None of this will do anything to improve the quality of pet grooming services—the supposed rationale behind the bill—but it will increase the cost of grooming services, reduce competition and consumer choice, and, because of the high costs of fees and compliance with state regulations, deny gainful employment to many who would otherwise be competent groomers and entrepreneurs. This is California big government thinking in a nutshell: there must be a government solution to everything, and taxes and regulations can surely cure every real or imagined ill in the world. Of course, in reality, this only serves to deny Californians economic liberties and opportunities, which they oftentimes seek elsewhere (as evidenced by their migration to more business-friendly states like Texas, Nevada, and Utah).  No wonder the state is saddled with such a poor business climate and mired in unsustainable spending and chronic and significant budget deficits.

In a San Diego Union-Tribune op-ed column, I make the case against the pet groomer licensing bill and occupational licensing in general. Below is an excerpt of the article.

While we love our pets dearly and want to protect them from harm, mandatory state licensing is not the answer. As numerous economics studies of a wide variety of professions have demonstrated, licensing rarely leads to improved service quality, and oftentimes results in worse quality. While this might sound counterintuitive, there are several reasons for this.

The one-size-fits-all regulations imposed by the state may be arbitrary (not necessarily an accurate measure of groomer competence) and give consumers a false sense of security about the competency of licensed groomers, causing them to be less cautious about whom they do business with than they otherwise might be. In addition, licensing fees and regulations restrict competition by making it more difficult for people – even those who would be skilled groomers – from entering the business.

Less competition means less pressure to offer the best services and the lowest prices. The higher prices that would result from licensing would cause many people to resort to do-it-yourself grooming, which may result in more pain to pets since the owners are not trained to do this. For the same reason, there are more electrocutions where there are stricter licensing regulations for electricians and poorer dental health where dental licensing requirements are overly stringent.

[. . .]

Some may still cry, “There ought to be a law!” but groomers who harm pets can already be prosecuted under laws against negligence and fraud, as with any other case of poor service or breach of contract. This does not mean that there are, or should be, no standards for groomer competence. Voluntary (private) certification allows practitioners who meet the criteria of a certification organization to advertise their certification to signify to customers that they offer high-quality services, while leaving consumers and noncertified practitioners free to do business if they so choose. Pet grooming organizations such as the National Dog Groomers Association of America, National Cat Groomers Institute of America, International Professional Groomers and International Society of Canine Cosmetologists have their own testing and other certification requirements and offer workshops, seminars and other events to provide groomers and consumers more information about their members’ qualifications. The use of referrals from veterinarians or friends and resources such as Yelp, Angie’s List, and the Better Business Bureau may also help to avoid many poor groomers in the first place.

See the full article here.

Related Research and Commentary:

» "California Bill Proposes Licensing for Pet Groomers"

» Occupational Licensing: Ranking the States and Exploring Alternatives

» "California Licenses Most Jobs in Nation" (Los Angeles Business Journal)

» "Lawyer Licensing Laws Lead to Higher Prices, Less Consumer Choice and Access to Legal Services"

» "Occupational Licensing and the Beard Trimming Turf War in Texas"

» "State Licensing Mandates for Movers in Illinois Increase Prices, Reduce Job Opportunities"

Red-Light Cameras and the Enigmatic Jerry Brown

Posted on February 6, 2012, 4:39pm | Harris Kenny

Kevin Fagan of the San Francisco Chronicle reports:

California has the most expensive red-light camera tickets in the world - the fine is so steep that one camera in Oakland generates more than $3 million a year - and a Fremont man [Roger Jones] is launching a protest group [Red Light Camera Protest Group] to do something about that…

Anyone in California snapped violating a red light pays a fine of $480, and according to the traffic-watch site TheNewspaper.com, no other jurisdiction anywhere has a tab that high. The second-highest fine in the United States is $250, and it is usually more like $100.

The Legislature passed two bills in the past two years that would have reduced the fine or limited the cameras' use, but both were vetoed. When he killed the most recent measure, Gov. Jerry Brown said the matter should be left to local jurisdictions.

The state Department of Finance has estimated that red-light cameras bring in more than $80 million annually to the state and $50 million to cities and counties - and that, Jones and his supporters say, is the real reason they continue to snap away at motorists.

Not all $480 from each ticket goes to the cities or counties that authorize the cameras - more than half goes to the state or to the companies that run the devices. And not all tickets result in convictions.

(HT DrudgeReport)

For more on red-light cameras (or photo traffic enforcement) in Oakland, see the accompanying infographic furnished by the Chronicle here.

The larger storyline that can be teased out of this article is where Gov. Brown stands on the issue of state versus local control. [Note that regarding red-light cameras (above), Gov. Brown vetoed these bills specifically insisting the matter be left to local jurisdictions.]

My colleague at Reason magazine Katherine Mangu-Ward noted last September:

California Gov. Jerry Brown (D) has been dropping some surprisingly sweet vetos recently, including nixing a bipartisan bill which would have imposed a $25 fine for kids who ski or snowboard without a helmet… And he killed another bill increasing penalties for texting or calling without a hands-free device while driving.

These vetoes imply a common sense embrace of local government at the most fundamental level: the individual. This is consistent with the maxim that it’s practically impossible to protect people from themselves.

On the other hand, last fall Gov. Brown signed AB 438, which restricts local governments from making decisions about what is best for their own libraries. As I note in a September 2011 op-ed in The Orange County Register (available here), the bill drew scorn from across the political spectrum. For example, Dan Carrigg of the League of California Cities spoke out against the bill saying, “We hope the governor will veto the bill, since he has talked a lot about the importance of retaining local authority.”

Anyone familiar with Jerry Brown’s lengthy career in politics knows it’s difficult to pin down his political philosophy, and the issue of red-light cameras appears to only complicate things further.

For more on red-light cameras in California see my previous posts about Los Angeles (where the City Council voted last summer to phase out the program entirely) here and here. Similarly, lawmakers in Colorado are debating legislation that would allow the state to override local control by banning red light cameras entirely, which I cover in a previous blog post here. 

California Bill Proposes Licensing for Pet Groomers

Posted on February 3, 2012, 5:14pm | Adam Summers

It appears that California truly has gone to the dogs. The state is facing a $9.2 billion budget deficit, a $10 billion unemployment insurance fund deficit, and unfunded pension obligations in the range of $400 billion to $500 billion, yet the busybodies in the state legislature are seeking to add another occupation to the long list of those burdened by unnecessary state regulation: pet grooming. As I noted in a 2007 study, Occupational Licensing: Ranking the States and Exploring Alternatives, California already "leads" the nation by requiring licenses for some 177 occupations, almost double the national average. The new bill, SB 969, proposed by state Sen. Juan Vargas (D-San Diego), would establish licensing standards for dog groomers and dog grooming schools under the Veterinary Medical Board. Violations of the regulations could result in fines of $500 to $2000 and/or imprisonment of 30 days to a year in jail.

The bill would establish minimum age and education requirements for potential licensees (18 years old and at least a 10th grade education), impose licensing fees, and charge the licensing board with developing standardized written and practical demonstration tests for applicants. In addition, it would require an inspection of every licensed pet groomer in the state each year and mandate that licensees maintain detailed records for two years ("including a list of any chemicals used while performing the services and any medical conditions discovered during the performance of services"). Moreover, as a San Diego Union-Tribune article about the bill notes, the legislation has drawn criticism from groomers because it would also force them to individually cage animals that would be calmer if they were not confined.

The Orange County Register today ran an editorial that effectively illustrates the fallacies of licensing pet grooming. As I told the Register,

"Licensing pet groomers is not the answer to poor-quality grooming services. Imposing a top-down state bureaucracy will likely not improve pet safety or grooming quality, but it will result in less competition, less choice for consumers, and higher prices. Higher prices will arise from the reduced competition and the need for practitioners to offset the cost of compliance with unnecessary regulations. When there is less competition, there is less pressure on practitioners to offer the best prices and service quality."

The artificially higher prices caused by licensing would have some other unintended consequences, such as encouraging people to save money by clipping their pets' nails or cutting their hair themselves. Since the average person is not as trained as a pet groomer (licensed or not), this will result in more pain—not less—for pets.

If dog groomers want to get together and form their own voluntary certification organization, that is great. They could set their own standards and have the organization certify those that meet those standards. This would signify to customers that the certified practitioners offer a higher standard of service while still maximizing the freedom and choice of both consumers and groomers that elect not to be certified.

There will always be some bad pet groomers, with or without licensing. In cases where pets are injured or the groomer otherwise does not meet reasonable standards of service, there are already laws on the books against negligence, fraud, breach of contract, and causing harm to people or property. Licensing would simply create an illusion of competence (and an army of bureaucrats) while increasing prices and reducing competition and consumer choice.

Related Research and Commentary:

» Occupational Licensing: Ranking the States and Exploring Alternatives

» "California Licenses Most Jobs in Nation" (Los Angeles Business Journal)

» "Lawyer Licensing Laws Lead to Higher Prices, Less Consumer Choice and Access to Legal Services"

» "Occupational Licensing and the Beard Trimming Turf War in Texas"

» "State Licensing Mandates for Movers in Illinois Increase Prices, Reduce Job Opportunities"

San Francisco Chronicle: California running out of money again

Posted on February 1, 2012, 6:52pm | Harris Kenny

Update: John Gramlich of Stateline (a project of The Pew Center on the States) reports that California lawmakers are already hungrily eying the potential revenue windfall from Facebook's $5 billion initial public offering (IPO) this week. According to Gramlich, Facebook's IPO could generate as much as $1 billion in direct new revenue. While this good news may be encouraging to a state weary with bad news, it won't meaningfully solve any problems. Decades-long fiscal mismanagement can't be solved in one fell swoop.

Wyatt Buchanan of the San Francisco Chronicle reports:

California will run out of cash by March 1 if the Legislature does not take immediate action, Controller John Chiang told budget leaders at the Capitol in a letter Tuesday.

The controller recommends borrowing and delaying some payments to deal with the shortfall, which he projects will last seven weeks. Absent that kind of action, which lawmakers and the administration of Gov. Jerry Brown say is assured, the state would probably have to send IOUs and delay tax returns.

"Although this cash-management plan relies on still more borrowing, payment delays and deferrals, we believe this is the most prudent and responsible course of action considering we have about four weeks before the advent of a cash shortfall," Chiang wrote in a letter to the chairmen of the Assembly and Senate budget committees.

He called the plan to borrow and put off some bills the "ideal way" to avoid IOUs and tax-refund delays.

Anyone familiar with California policy shouldn't be surprised by today’s news since California’s fiscal situation can be described as nothing short of a nightmare. Buchanan continues:

The controller said the overarching problem is that, as of the end of the calendar year, the state was spending $2.6 billion more than was included in the budget while tax revenue coming into state coffers was $2.6 billion below projections.

He said $3.3 billion must somehow be found if the state is going to bridge the seven-week cash shortfall period, but the situation could get worse if there is more overspending and further reductions in tax income…

Chiang said the state will fall below a $2.5 billion "cushion" of cash on hand on Feb. 29, and the next day it would be in the red. The problem would grow to a $730 million deficit by March 8, and the overall cash shortfall would last until sometime around April 13, he said.

Not everyone is deterred by Chiang’s warnings. State Sen. Mark Leno (D-San Francisco), who is chairman of the Senate Committee on Budget and Fiscal Review, told Buchanan, “(the projected shortfall is) a very short-term cash-management situation. All budgets are, by nature, an educated guess.” This is news to California’s millions of families and businesses who know the state expects them to pay their bills on time.

Fortunately there are many reforms that California policymakers can pursue when they decide to get the state's fiscal house in order. Below are links to some recent Reason Foundation research on this subject:

>> Jerry Brown Continues to Push High-Speed Rail Boondoggle while California Drowns in Debt by Adam Summers

>> California’s Employment Dysfunction by Harris Kenny

>> California, Illinois Continue to Make Other States Look Good by Harris Kenny

>> California's High-Speed Rail Fibs by Adrian Moore

>> The Detailed Concerns of the CA HSR Peer Review Group by Adrian Moore

>> Jerry Brown's Budget Proposal Gets Plenty of Reaction by Adrian Moore

For more, see Reason Foundation's California Research Archive here.

Jerry Brown Continues to Push High-Speed Rail Boondoggle while California Drowns in Debt

Posted on January 27, 2012, 2:59pm | Adam Summers

The California high-speed rail project has become a disaster before the first track has been laid. Perhaps that is a blessing because it may allow the state to pull the plug on the project before sinking billions of dollars it does not have into it. Assemblywoman Diane Harkey (R-Dana Point) has introduced a bill, AB 1455, which would eliminate any bond funding for the project that has not already been contracted, state Senator Doug LaMalfa (R-Richvale) has promised to bring forth legislation that would authorize a revote on the project, and Beverly Hills resident Peter Seidel has started circulating a petition for an initiative called the No Train Please Act which would kill the project entirely.

Considering that cost estimates have soared from between $40 billion and $45 billion just a couple of years ago to between $98.5 billion and $117.6 billion now, and ridership estimates have plummeted from 117 million passengers per year by 2030 to between 23 million and 34 million per year by 2035, while the state is running a $9.2 billion budget deficit, a $10 billion unemployment fund deficit, and an unfunded pension liability in the range of $400 billion to $500 billion, pushing forward with the high-speed rail project is unconscionable and incredibly fiscally irresponsible. Yet Governor Jerry Brown is trying to move ahead with the project at the same time he is pushing a $35 billion tax increase ($7 billion a year for five years).

In my new commentary I argue that it is time to face reality on this boondoggle of a project and end it before California pours billions of dollars down a rat hole. Below is an excerpt of the article.

Even under optimistic scenarios, the CHSRA has identified only about 15 percent of the funding necessary to build the project. The other $85 billion or so is supposed to somehow come like manna from heaven, primarily from the federal government, which is engulfed in an even greater fiscal crisis than California (not to mention the fact that Congress has repeatedly indicated it is not going to support any additional high-speed rail funding any time soon—see here, here, and here). The CHSRA also claims some of the funding will from the private sector, which has shown no interest in investing in a project with poor prospects, an unrealistic business plan and massively inflated ridership predictions.

Earlier this month, the California High-Speed Rail Authority’s own Peer Review Group even recommended that the legislature not approve bond sales for the project, concluding, “We cannot overemphasize the fact that moving ahead on the HSR project without credible sources of adequate funding, without a definitive business model, without a strategy to maximize the independent utility and value to the State, and without the appropriate management resources, represents an immense financial risk on the part of the State of California.”

Nevertheless, “We’re pushing forward,” Gov. Brown said recently of the administration’s plans for the high-speed rail system. Added Brown, “We’re going to build, we’re going to invest, and California is going to stay among the great states and the great political jurisdictions of the world.”

Not if we keep spending money we don’t have on boondoggle projects, we won’t, Gov. Brown. He then reiterated his support for the project in his 2012 State of the State address and called on the legislature to approve the appropriation of bond proceeds for the first segment of the project.

This is like your neighbor, who let’s say is an average Joe struggling to get by during the ongoing economic malaise, announcing that he is going to buy an expensive Tesla Roadster (gotta support “green jobs” and all that), even though he already has a car and is having trouble paying the rent and utility bills as it is. Complicating matters are the facts that he does not know just how high the price of the car will be (it has already more than doubled since last year) and he probably won’t be using it very much anyway. Oh, and you and a whole bunch of other people who haven’t agreed to it yet will be paying for almost all of it. This is the insanity of the California high-speed rail project.

See the full article here.

Related Research and Commentary:

» The California High-Speed Rail Proposal: A Due Diligence Report

» "California High-Speed Rail: The Next Stop is Bankruptcy"

» "State Voters Were Railroaded"

California’s Employment Dysfunction

Posted on January 23, 2012, 4:54pm | Harris Kenny

The Associated Press reports:

California’s unemployment dipped slightly in December to 11.1 percent, down two-tenths of a percent from the previous month. 

Nonfarm payroll jobs increased by 10,700 last month, for a total gain of 240,300 jobs in 2011…  

California remains above the national jobless rate of 8.5 percent. 

California’s unemployment rate was near 12 percent for months and has been above 11 percent since 2009. 

The state’s rate fell to 11.3 percent in November, the lowest since May 2009.

Given California’s sustained period of high unemployment, and its reputation for unusually poor governance, marginal improvements like this offer little consolation to its residents. However, the Bay Area Council Economic Institute recently published a report that offers substantive solutions for the Golden State that show another economy is possible if policymakers are willing to partner with the private sector.

The full report, entitled Accelerating Job Creation in California Through Infrastructure Investment: Opportunities for Infrastructure Asset Formation and Job Creation Using Public-Private Partnership Procurement Methods, is available online here.

The report is a continuation of the Bay Area Council Economic Institute’s five-year focus on identifying global infrastructure best practices and applying them to California with respect to the unique environment, challenges, and opportunities there. The report specifically seeks to focus on leveraging infrastructure asset formation to stimulate near- and long-term job growth and maximize productivity in infrastructure assets.

This post does not constitute a wholesale endorsement of the report, however there are several vitally important takeaways:

• “As California confronts a sustained budget crisis and high unemployment, the quality and state of repair of its infrastructure does not correspond to its population density or the size of its economy.” (p. 5)
• “In 2006, the Bay Area Council Economic Institute calculated that California has an unfunded infrastructure shortfall of between $527 billion and $737 billion. Consistent with that finding, the Nicholas Berggruen Institute puts the state’s infrastructure deficit at $765 billion.” (p. 5-6)
• “Calculations by the Bay Area Council Economic Institute for construction of new non-residential structures in California indicate that  $1 billion in infrastructure investment creates approximately 13,468 jobs. This suggests the strong potential of infrastructure investment as a vehicle for job creation in the state. Infrastructure investment of between $250 and $750 billion could create an estimated 3.4 million to 10.1 million jobs.” (p. 6)
• “California does not need to invent a new concept for infrastructure investment to attain the results described above. There are two recent projects in California that illustrate the benefits of the (public-private partnership) approach: the Long Beach Courthouse sponsored by the Judicial Council of California Administrative Office of the Courts, and the Presidio Parkway sponsored by the California Department of Transportation.” (p. 10)
• “… California’s infrastructure procurement methods and processes have not been reviewed or modernized in decades. SB 4 (2009) opened the door for the expanded use of private capital and (public-private partnership) methods for state transportation projects, but it did not create institutional mechanisms that would firmly embed alternative procurement in the state’s decision-making processes, nor did it promote investment in other important infrastructure. While California was once a world leader in infrastructure asset formation, the absence of modernization and innovation in recent times leaves it far behind the global best practice standard of performance.” (p. 12)

The authors go on to list nine actionable prescriptions for state policymakers: 

1. The administration should recognize that the state must be open to alternative methods for infrastructure delivery, and the Governor should endorse P3 as an important tool in California’s strategy to rebuild infrastructure and create jobs... (p. 17);
2. Create a comprehensive infrastructure plan for California... (p.17);
3. Create an Infrastructure Procurement Center of Expertise... (p. 18);
4. Leverage Existing Programs and Capacity... (p. 19); 
5. Establish a public-private sector comparator process... (p. 19);
6. Develop an Availability Payment Standard for California... (p.19)
7. Develop a Labor Protection Standard... (p. 20);
8. Adopt an Infrastructure Life-cycle Planning and Budgeting Process... (p. 20); and
9. Reform the California Environmental Quality Act... (p. 20).

These sorts of common sense reform initiatives are increasingly common in the U.S. and around the world, and it’s time for California policymakers join the party. For more on this topic, explore Reason Foundation’s Highways Toll Roads and Public-Private Partnerships Research Archive and California Research Archive.

California, Illinois Continue to Make Other States Look Good

Posted on January 19, 2012, 2:57pm | Harris Kenny

Yesterday Sunshine Review, a nonpartisan non-profit organization dedicated to state and local government transparency, released its first State Government Salary Report [available online here], which analyzes public sector employee salaries in 152 local governments spanning eight states. The editors of Sunshine Review selected eight states with relevant political contexts, including: California, Florida, Illinois, Michigan, New Jersey, Pennsylvania, Texas, and Wisconsin.

It shouldn’t surprise regular readers of Reason Foundation’s Out of Control Policy Blog that California earned a gold medal with 1332 public sector employees making over $150,000 each year. The gold medal earning Golden State topped second place Illinois, which received a silver medal for its 867 employees making over $150,000; and dominated third place Texas, which received a bronze medal for its 194 employees making over $150,000.

California had the highest paid public official of the governments surveyed, with the top spot going to Robert Rizzo, former city manager of Bell, California. Rizzo made $787,637 in 2008, but his total compensation added up to $1.5 million when taking other government benefits into account. Illinois placed second again, with the second highest salary of the governments surveyed going to William Foley, Chief Executive Health Office of Health Care in Cook County, Illinois. Foley earned $500,000 in 2011. California also nabbed third place with Elaine C. Yang, Senior Physician for Los Angeles County, earning $430,909 in 2009.

Rizzo was featured in the following reason.tv piece entitled Protest in Bell: City Residents Say “Enough!”:

Another interesting takeaway from the report is that medical personnel earn more than most governors in the states surveyed, according to Sunshine Review:

(I)n 2010, for example, the average governor's salary was $130,595. Compare this average to top earners in Florida’s public sector. In Jacksonville, Florida, the top salary for 2011 was $208,119.00 for an employee in the Medical Examiner's office. For Hillsborough County, the highest earner in the county as of 2011 is the Chief Medical Examiner, who brings in $250,411.20.

This issue of public vs. private compensation is as controversial as it is complex. As my colleague Adam Summers wrote in a May 2010 report entitled Comparing Private Sector and Government Worker Salaries [available online here]:

There has been much debate over whether public sector employees are overpaid or underpaid, relative to their private sector counterparts, and how to make an "apples-to-apples" comparison of the compensation received by each since job functions are oftentimes quite different.

Summers’s full report is worth reading because it explores issues like the difficulty of compensation comparisons, productivity differences, job security differences, the rising number of government workers, public-sector pension and retiree health-care benefit differences, and more.

California's High-Speed Rail Fibs

Posted on January 10, 2012, 3:42pm | Adrian Moore

In today’s The Wall Street Journal, Wendell Cox and Joseph Vranich write:

A few days ago, the California High Speed Rail Peer Review Group, an expert body mandated by state law, expressed serious doubts about the proposed Los Angeles-San Francisco rail system. It concluded that it "cannot at this time recommend that the legislature approve the appropriation of bond proceeds" because the project "represents an immense financial risk" to the state.

But hell hath no fury like a state agency scorned. The California High-Speed Rail Authority issued a quarrelsome response claiming that the rail system is, well, a bargain! The agency repeated its claim that without high-speed rail, Californians would pay more because the state would have to build equivalent transportation capacity through road and airport expansions costing about $171 billion, or between $53 billion and $73 billion more than the $98 billion to $118 billion estimated cost of a rail line.

The constant refrain that it's "more expensive not to build the rail line" is specious. But it deserves further explanation because of the light it sheds on tricks used to justify other ill-conceived projects to an unsuspecting public.

Cox and Vranich go on to make many of the arguments first made in their 2008 Reason Foundation study of the California high-speed rail plan:

The claimed cost of airport expansion is bloated, too. Bullet train proponents assume a very small average plane size into the future, as if airlines wouldn't use larger planes—such as the latest generation single-aisle Boeing 737s or Airbus 321s—to meet demand. Even without high-speed rail, in other words, no new runways or gates would have to be built beyond what will be needed anyway, and the assumed billions of dollars required to expand airports is just another unsubstantiated claim by rail promoters.

These absurdities aren't surprising. A study we prepared for the Reason Foundation in 2008—"The California High-Speed Rail Proposal: A Due Diligence Report"—showed that high-speed rail proponents had overstated costs for alternative highway and airport capacities by a factor of more than 60.

There is more that is wrong with the California high-speed rail project. The Alice-in-Wonderland plan is based on greatly exaggerated ridership projections, hallucinatory promises of billions in private investment pouring into the system, and the expectation that the now-canceled federal high-speed rail program will magically provide many billions more.

Full column here.

Reason's transportation research and commentary.

The Detailed Concerns of the CA HSR Peer Review Group

Posted on January 9, 2012, 5:48am | Adrian Moore

As my earlier post pointed out, this week the California High-Speed Rail Peer Review Group issued its report to the state legislature on the Funding Plan for the project.  Bottom line: they recommend the state stop spending money on the project, and the High Speed Rail Authority is darn upset about it.

Since the Peer Review Group report is curiously still not available on their website (but you can email them for a copy) I thought a summary of their analysis would be useful.  Here, concisely as I can, are the key points, with some commentary.

1. "[I]t is hard to seriously consider a multi-billion dollar Funding Plan that offers no position on whether [the first operating section should be from almost Bakersfield to almost San Jose, or from Fresno to almost LA]."

2. The first section to be built will not be "a very high-speed railway (VHSR)" capable of operating at top speeds.  "Therefore it does not appear to meet the requirements of the enabling State legislation." "The [first section] will not be electrified, and thus cannot serve as a high-speed test track for the future VHSR rolling stock."

3. "The only clear remaining basis for the [first section] is that it can serve as a vehicle for the use of Federal money that has specific deadlines."

4. "The fact that the Funding Plan fails to identify any long term funding commitments is a fundamental flaw in the program." "The CHSRA has also made it clear there will be no private sector interest in the project until the full public sector role is defined and funded, which means that significant private funding will not be available for many years."  "The legislature could, of course, rectify this by enacting [a new tax or fee]. Lacking this, the project as it is currently planned is not financially 'feasible'."

5. "[W]e do not think that the current description constitutes a 'feasible' business model for a number of reasons." (bullets paraphrase)

• The draft business plan relies on 'illustrative' concepts not decisions by the CHSRA.
• There is no identified funding for the plan presented.
• The biggest risk is system integration, but the plan requires all integration to happen very late in the project.

6. "We have repeatedly said that we do not believe that the current approach to project management, with the CHSRA's staffing, salaries and procurement controlled by California public agency rules, will suffice if the project gets fully underway and the CHSRA has to suddenly manage a construction effort larger than that currently managed by Caltrans."(emphasis added)

7. "Unfortunately, despite a strong recommendation from this group, the demand forecasts remain an internal product of the CHSRA and its internal peer review panel. The forecasts have not been subjected to external and public review, and many of the internal workings of the model. . . remain unclear."

8. "Capital cost estimates for the system have been steadily rising in every Business Plan." "The reasonableness of the capital budgets would be improved by development of a risk-based, cost-loaded construction schedule that makes a more explicit attempt to allow for a broad range of outcomes in cost and schedule."

9. "[T]he decision to put the entire initial effort into the Central Valley maximizes the risk to the State if no significant funding appears after the initial Federal contributions."

10. "In our judgment, a finding of feasibility in the Funding Plan would require that the following assumptions be found reasonable:" (bullets paraphrase)

• The first section can be completed within budget and on time despite a lack of construction experience, managerial resources, and potential delays from lawsuits.
• The $24-$30 billion still needed to connect the first section to either San Jose or San Fernando valley when the state is the only likely source, and is broke.
• That the cost once up and running will be on budget, ridership will be close to estimates, and an inexperienced CHSRA can manage all the tricky integration issues.
• All these same things will be true of adding the next part of the system, including another $14-$35 billion.

"[O]ur experience with [other HSR projects in the US and around the world] strongly suggest that each of these assumptions alone is slightly optimistic, and taken together, strongly so."

Conclusion of the Peer Review Group "[W]e cannot overemphasize the fact that moving ahead on the HSR project without credible sources of adequate funding, without a definitive business model, without a strategy to maximize the independent utility and value to the State, and without the appropriate management resources, represents an immense financial risk on the part of the State of California."

Any rational person reading this must have profound reservations about the plan the CHSRA has for this project.

My takeaway is that the current plan:

• Is focused mainly on keeping the current federal funding and keeping the project moving, even if doing so in the Central Valley jeopardizes the rest of the project.
• They have no idea whatsoever where the money to build an actual functioning HSR line will come from, and no real prospects.
• All signs point to the need for California taxpayers to fork over billions more in new tax money to keep this project going.
• CAHSRA does not have the capability to execute the full project and won't listen to people who point that out.
• Everything about the project hinges on the ridership estimates, and they won't let the public see all the details. What are they hiding?
• The plan is full of hope and short on certainties or well thought out ways to deal with uncertainties and of well-managed risks.

The project still looks like a gigantic, risky boondoggle, and it is time to stop it before it consumes more money we don't have.

Jerry Brown's Budget Proposal Gets Plenty of Reaction

Posted on January 7, 2012, 6:07pm | Adrian Moore

Well, there is not shortage of reactions to Gov. Brown's initial budget.

A centerpiece of the budget is a reliance on voters passing tax increases next fall.  Building a budget on something that may or may not happen is foolish.

The special interests are out in force.Teachers are screaming about education cuts. Health agencies crying about cuts to their budgets.

CalWatchdog points out that while Gov. Brown does include some dramatic cuts, he also includes some spending increases, notably including a new agency for state hospitals,  and a new business and consumer agency. Yeah, that is what CA needs, a few new bureaucracies.  I've been noticing a marked lack of bureaucracy around here lately.

Also notable is a wimpy proposal to cut the state work force by 1.3 percent (3,000 workers). That would not even offset the 3,600 added in 2008 while the private workforce in CA shed over 750k jobs.

My favorite reaction is the Bee's Dale Kasler asking "Economy is revving up; why is Jerry Brown seeking cuts, tax hikes?" Umm, maybe because year after year the budget optimistically assumes the economy will provide ridiculous revenue increases that then fail to materialize.  At least Brown has some sense of history.

Budgets silly season has just begun.  Brown's budget is still too full of hope and fuzzy math, though it does propose some real cuts. The reaction makes it clear that all cuts will be fought to the bloody end.  Thus the root of the State's budget problem--no willingness to prioritize and stand up to everyone who wants the state to spend on things that just don't rise to the top of the list.

CA HSR Failure a No Brainer in FL

Posted on January 4, 2012, 8:05pm | Adrian Moore

On January 3rd the California High-Speed Rail Peer Review Group issued a report recommending the state waste no more money on the project. The report concludes:

[W]e cannot overemphasize the fact that moving ahead on the HSR project without credible sources of adequate funding, without a definitive business model, without a strategy to maximize the independent utility and value to the State, and without the appropriate management resources, represents an immense financial risk on the part of the State of California.

The CA High-Speed Rail Authority responded with a tantrum, crying that the Peer Review Group was flawed, unfounded, premature, and did not consult with them enough.  But offering not one jot of evidence to counter any of the Peer Review Group's concerns.

In that context, I found this tidbit hilarious.

Gov. Rick Scott’s simple response Wednesday to a report that called for California to pull the emergency brake on funding $99 billion for a high-speed train was a sarcastic, “You're kidding? Shocking!”

. . .

Last February, Scott, over the objection of many state legislators, turned down $2.4 billion from the federal government for a Florida line between Orlando and Tampa.

At the time, Scott cited anticipated increases in costs that would have to be covered by Florida and findings from the Libertarian Reason Foundation that questioned the ridership projections for the line.

Let me just point out that we made similar and much more extensive predictions about the CA high-speed rail project back in 2008 and have watched virtually all of them come to pass.

Surprise, Surprise, California Gov. Jerry Brown Calls for More Tax Increases

Posted on December 6, 2011, 6:07pm | Adam Summers

To the surprise of no one, California Gov. Jerry Brown unveiled his plan calling for more tax increases to address the state's structural deficit.  The proposal, for which signatures are now being gathered with a goal of placing a ballot measure before voters in the November 2012 election, includes a half-cent sales tax increase and an income tax rate increase of one to two percentage points for those earning at least $250,000 a year, and would remain in effect for five years. As the Los Angeles Times reports, the tax increases are estimated to cost up to $6.8 billion a year for the five-year period, or a total of $34 billion.

Taxpayers have just gotten over the last "temporary" tax increases imposed under then-Governor Arnold Schwarzenegger and now Brown is coming, hat in hand, for more "temporary" tax increases. If these tax increases were to go into effect, and politicians continue to ignore the significant changes that must be made to pare back a bloated and unsustainable state government, you can be sure that five years down the road the budget will still be in peril and taxpayers will be asked to pony up again for more "temporary" tax measures.

While a sales tax increase of a "half-cent," or 0.5%, as it is sometimes reported sound innocuous, those increases are raises in the tax rate. Thus, a "half-cent" sales tax increase on the state's base rate of 7.25% to 8.25% is actually an increase of 6.9% on the price of everything Californians buy that requires sales tax. (Most counties and cities add their own sales taxes to the base rate, so their sales taxes are even higher. The cities of Pico Rivera and South Gate in Los Angeles County, for example, hold the dubious distinction of having the highest sales tax rates in the state at 9.75%.) Similarly, the "1%" income tax increase on someone earning $250,000 a year, which raises the tax rate from 9.3% to 10.3%, translates to a tax hike of 10.8%, and the "2%" increase on someone earning at least $1 million a year, which raises the tax rate from 10.3% to 12.3%, translates to a 19.4% tax hike. That's hardly small potatoes, even for someone who is rather wealthy.

All these tax hikes will serve to do is keep the current dysfunctional system going a few more years. As Steven Greenhut of CalWatchdog.com notes in his interpretation of Gov. Brown's "Open Letter to the People of California" announcing the tax increase proposal,

Brown: The stark truth is that without new tax revenues, we will have no other choice but to make deeper and more damaging cuts to schools, universities, public safety and our courts.

Interpretation: Actually, we could reform state government by embracing educational choice, outsourcing, pension reform and other measures, but we don’t want to do that. Remember, the unions elected me and I am serving them as faithfully as possible.

[. . .]

These tax increases will be gone in an instant and I will soon be back asking for more money. The public safety money means protecting huge pay and benefit packages for union workers, not for actually improving the public’s safety. The public schools are substandard, but the teachers unions won’t let us get rid of bad teachers or improve them with market-based reform. Our only way out is to throw more good money after bad. We will be taxing millionaires more, and more of them will join the exodus out of the state. Of course, when I say millionaires, I don’t mean those many public employees who are retiring on the kind of pensions that only a millionaire could afford.

I ask you to join with me to keep our state from having to make reforms that would cause any inconvenience to public employees. We need to get the state back on track — of spending without concern for the future.

It is a sad commentary on the state of California politics that living within your means and doing more with what you've got are radical concepts. Simply applying a "Yellow Pages test" to state government would go a long way to providing the same services for cheaper. Simply put, if the state is doing something that can be found in the Yellow Pages, either it shouldn't be doing it in the first place or it should put those services out for competitive bid so that private-sector businesses may provide them more cheaply and efficiently. As Greenhut suggests, improving the state's woeful business climate by reducing taxes and eliminating arduous and unnecessary regulations, addressing union education monopolies, and implementing real public pension reform are also necessary fixes that have long been ignored. (See here for a number of other ways to reform state budgets and spending.)

California's fiscal troubles are the result of many years of overspending and budgetary/accounting gimmicks. The recent economic downturn certainly did not help matters, but it merely revealed the state's budgetary unsustainability, rather than caused it. We have been dealing with many of the same issues since long before the latest recession hit. Perhaps, after years of continued failure, it is time to try something besides the status quo tax-and-spend policies.

Related Research and Commentary:

» "How to Fix California"

» How California's Public Pension System Broke (and How to Fix It)

» Citizens' Budget 2003-05: A Ten-Point Plan to Balance the California Budget and Protect Quality-of-Life Priorities (sadly, this is as relevant today as when it was written years ago)

California Public Employees Unions Not Serious About Pension Reform

Posted on October 13, 2011, 6:05pm | Adam Summers

In a San Jose Mercury News column on public pensions, Dave Low, chairman of Californians for Retirement Security, a union coalition, and executive director of the California School Employees Association, argues that there is no public pension crisis, and offers some minor reforms the unions support that won't do much to help.

"The condition of public pensions in California is not a crisis despite the best efforts of pension slashers to portray it as such," says Low.  "Pension costs make up just three percent of the state budget, a percentage that has actually fallen $600 million over the past two years as collective bargaining has increased the share public workers contribute to their pensions and as funds have taken tougher lines on pension spiking."

The truth is that the public employees unions have been dragged kicking and screaming toward even modest pension reforms.  Moreover, while the billions the state currently spends on employee pension and retiree health-care benefits is hardly chump change, the real concern is for the future.  California’s public pension and retiree health and dental care expenditures have quintupled since fiscal year 1998-99, from about $1 billion to $5 billion last year. Retirement spending is expected to triple again—to $15 billion—within the next decade.  Several academic studies in recent years have pegged the state's unfunded pension liability in the neighborhood of $400 billion to $500+ billion (see, for example, here, here, and here—see pp. 197-199), which translates to roughly $36,000 for every household in the state. And those figures do not even include $60 billion in unfunded retiree health-care liabilities.

Low's article then goes on to list some bullet points summarizing Californians for Retirement Security positions.  They begin with a couple of non-controversial points about curbing pension spiking, curbing some of the most egregious pension benefits for "the small number of public workers—mostly senior officials—who have outsize retirement benefits," creating a form of pension rainy-day fund, and reducing double-dipping by imposing a waiting period before retirees could return to take part-time jobs with the state.

But, as a report from the state's bipartisan Little Hoover Commission noted earlier this year, California's public pension situation truly is dire, and will require much more significant reforms:

In its study of public pensions, the Commission found that the state’s 10 largest pension funds – encompassing 90 percent of all public employees – are overextended in their promises to current workers and retirees. The ability and willingness of leaders to contain growing pension obligations should concern not only taxpayers who are seeing vital services and programs cut to balance budgets, but the public employees who have the most to lose. A pension is worthless without a job to back it.

The Legislature has the tools to put state and local public employee pensions back on a path that can restore stability and public confidence to state and local pension systems. Marginal changes, however, will fall short of the need for serious action. Adding a “second tier” of lower pension benefits for new hires, for example, will not deliver savings for a generation, while pension costs are swelling now as Baby Boomers retire.

In this report, the Commission confronts the elephant in the room: The legal obstacles that limit the options of state and local pension plans to reduce future, as-yet-unearned pension benefits promised to current workers. These promises, protected by decades of court decisions, were made under the illusion that the stock market returns of the dot-com boom were the new normal. After years of benefit enhancements, pay raises and government hiring sprees, the drop in stock and home values made it clear that the promised benefits are unaffordable and leave taxpayers facing all the risk as the bill becomes due.

While recognizing the legal challenges, this is a path that the state has no choice but to pursue. Public agencies must have the flexibility and authority to freeze accrued pension benefits for current workers, and make changes to pension formulas going forward to protect state and local public employees and the public good.

Low then offers some support for 401(k)-style, defined contribution retirement plans, but only as a voluntary option and only as a supplement to defined-benefit plans:

"We support expansion of voluntary worker and employer contributions into 401(k) type funds as a valuable way to supplement secure, defined benefit pensions. But we must ensure that retirement for public workers is secure and retirement systems are healthy. . . .  We adamantly oppose erosion of the present system's central pillars:

• "Defined benefit pensions must remain the core of the system. Those opposing the current public pension structure claim that the only acceptable option is a wholesale shift to insecure 401(k)-type pensions now prevalent in the private sector. Anyone with their pension savings locked into a 401(k) knows how precarious such a retirement plan is.
• "Collective bargaining must remain central to the process. Pensions are part and parcel of a larger wage and compensation structure. Public employers and the unions that represent their workers must maintain the authority to negotiate over pensions."

There is a reason that the private sector has shifted away from defined-benefit pension plans for the last 30 years and hardly any private-sector DB plans have been created in the past decade or more: they are simply too volatile and too expensive.  Just look at the "legacy" industries characterized by strong labor unions where DB plans persisted, for a time, at least.  First the steel companies went bankrupt, then the airlines, and, more recently, the domestic auto companies.  All were largely strangled by unsustainable pension obligations.

Now we are facing the same thing in state and local governments across the nation.  The difference is that the steel and airline and auto companies could not use the government to force people to pay more for their products so they could offer more and more generous pension benefits. (I should qualify this by noting that some of the airline and auto companies were successful in doing just this, in effect, by obtaining bailouts from the federal government.)

As for the collective bargaining argument, of course they want to preserve collective bargaining.  The public employees unions own the legislature and have close ties with the governor.  The collusion between unions and legislators is what has gotten us in to this mess, and naturally they do not want to lose the ability to make sweetheart deals.

The article then concludes by deteriorating further with a couple of silly arguments.  First is the ludicrous claim that the $12 billion CalPERS paid out to pensioners in 2010 "[stimulated] $26 billion in total economic activity and [supported] 93,000 California jobs."  But the money paid out by CalPERS was the result of contributions paid by state workers and the government (i.e., taxpayers), as well as the investment gains earned on those contributions.  Clearly, if the contributions paid by employees and taxpayers had not been made for pensions, they would have been devoted to some other "stimulative" use.  In other words, if there is a stimulative effect from CalPERS payouts, there is also a de-stimulative effect from making those contributions in the first place.  Thus, the entire notion of CalPERS as some sort of economic stimulus programs is fallacious.

Finally, Low argues "The retirement crisis in America stems not from mostly modest public workers' pensions but from the alarming deterioration of private-sector pensions." Notwithstanding that the "retirement crisis," and, indeed, the economic crisis in general, was caused primarily by government interventions in the housing market and other fiscal and monetary policies, this appears to be a form of argument I have heard many times from union members that goes something like this: "You in the private sector should strive to increase your pensions to our (public-sector) level, not bring our pensions down to the private-sector level."  Unfortunately, this "logic" does not pass muster for two reasons: (1) money does not grow on trees and (2) there is no pension fairy.

In the private sector, people must produce something of value (revealed through the prices of goods and services in a competitive market) in order to earn their benefits and salaries, a portion of which they may devote to their own savings and retirement plans. In the public sector, there is no real pricing mechanism so decisions such as which government programs should be funded (and how much), how many employees to hire, and how much to pay employees in wages and benefits are made arbitrarily based on political considerations like special interest group power or the whims of legislators and bureaucrats. As noted previously, taxpayers can be forced to pay for these things through the imposition of taxes, whether they want them or not. Therefore, it is all well and good to say "Why don't you just increase your own pensions to match ours?" but the answer is because, unlike the public labor unions, those in the private sector cannot force other people to pay more for their retirement plans, and, since their wealth is not unlimited, any attempt to do so would leave less money for salaries and reinvesting in businesses to allow for even more innovation and job creation (not to mention the fact that any forced wealth transfer would violate individuals' rights).

See the full Low article here.  Then, for a more realistic analysis of the public pension problem and the differences in public-sector and private-sector compensation, see the following:

» How California's Public Pension System Broke (and How to Fix It)

» The Gathering Pension Storm: How Government Pension Plans Are Breaking the Bank and Strategies for Reform

» "Comparing Private Sector and Government Worker Salaries".

California Revenues Already Well Behind Projections, Signals Possible Automatic Budget Cuts

Posted on October 12, 2011, 6:29pm | Adam Summers

To the surprise of no one, California's current budget is proving to have been built on bogus numbers, particularly its overoptimistic revenue projections. The State Controller's Office reports that revenues for the month of September came in over $300 million below projections, for a cumulative shortfall of $705.5 million for just the first three months of the fiscal year.

According to the Controller's statement, "The State ended last fiscal year with a cash deficit of $8.2 billion.  The combined current year cash deficit stands at $17.6 billion.  Those deficits are being covered with $12.2 billion of internal borrowing (temporary loans from special funds) and $5.4 billion of external borrowing."

Gov. Jerry Brown's office seemed remarkably unconcerned about the disparity. "You can't build a trend off of one month of cash reporting," offered Brown's budget spokesman H.D. Palmer.  But what about three months?  How deep into the fiscal year and deep into debt must we get before someone at the administration raises a red flag?  Moreover, as State Controller John Chiang noted in his statement, "September's revenues alone do not guarantee that triggers will be pulled.  But as the largest revenue month before December, these numbers do not paint a hopeful picture."  The state's 12.1% unemployment rate—3% higher than the national average—does not bode well for additional tax revenues, either.

The triggers that Chiang refers to relate to a "Plan B" mechanism put into place in the current year's budget.  Since Republicans in the legislature held firm on pledges to block further tax increases (and since legislators probably knew that the state was going to have a rough time hitting its revenue numbers), automatic budget cuts were set to take place if certain fiscal benchmarks were not met and the administration determined that revenues would not be enough to support current spending levels.  This is similar to the automatic cuts that will be imposed on the federal budget if the congressional "supercommittee" cannot come up with its own set of cuts and get Congress to sign off on them.

A recent Bloomberg article describes the automatic cuts that could take place:

The first tier, if the shortfall is $1 billion, would trim University of California and California State University budgets by $100 million each, increase community-college fees by $10 per unit and cut in-home services for the elderly and disabled who need help.

[. . .]

If the gap widens to $2 billion, it would mean a seven-day reduction in the school year to save $1.54 billion and an end to $248 million in home-to-school busing subsidies.

The trigger determinations will be made in December by the Department of Finance based on economic forecasts for the entire fiscal year (not solely on the revenues received to that point).  If necessary, the first-tier cuts would go into effect as of January 1, 2012, and the second-tier cuts would start February 1.

While this is actually an improvement over previous years' budgets, under which California would accumulate debts all year long and seldom make any substantive cuts until a massive crisis and deficits of tens of billions of dollars had to be addressed at the next round of budget negotiations, it would be nice, for once, to simply have an honest budget with realistic numbers.

Will Golden State's Malaise Play Out For the Whole Nation?

Posted on October 11, 2011, 1:51pm | Adrian Moore

Congressman Tom McClintock has written a cogent analysis of how California got itself into such dire straights:

Bad policies. Bad process. Bad politics. Those are the three acts in a Greek tragedy that tell the tale of how, in the span of a single generation, the most prosperous and golden state in the nation became an economic basket case.

He paints a bit of a golden era picture of California in the 60's. 

When my parents came to California in the 1960’s looking for a better future, they found it here. The state government consumed about half of what it does today after adjusting for both inflation and population. HALF. We had the finest highway system in the world and the finest public school system in the country. California offered a FREE university education to every Californian who wanted one. We produced water and electricity so cheaply that some communities didn't bother to meter the stuff. Our unemployment rate consistently ran well below the national rate and our diversified economy was nearly recession-proof.

University was not free, it was paid for by taxes, as was electricity.  But the fundamental fact that government provided services in California back then were some of the best in the country and consumed far less of people's wealth remains true.

One thing – and one thing only – changed in those years: public policy. The political Left gradually gained dominance over California’s government and has imposed a disastrous agenda of radical and retrograde policies that have destroyed the quality of life that Californians once took for granted.

McClintock goes on to point out how the Obama Administration is copying the worst practices California has pioneered:

Federal spending increased 26 percent in the last three years literally consuming and squandering the wealth of the nation at the worst possible time. Yet consider this: from July of 2005 to July of 2008, California increased its spending by 31 percent, under a Republican governor elected on the pledge to “stop the crazy deficit spending”. You can see how well that’s worked for us.

If stimulus spending, massive deficits and burgeoning government bureaucracies were the path to economic prosperity, California should be leading the nation from the top rather than from the bottom. After we lost the nation’s triple-A credit rating this summer specifically because of chronic deficit spending, it should surprise no one that California suffers the lowest bond rating in the nation for precisely the same reason.

He goes on to dissect the policies California has pursued that have undermined the quality of life Californians enjoyed in its golden age, running from water policy to education.  But as he points out, process matters too. The state legislature used to do a fairly good job of a few things, but once it tried to do everything, it found it could do nothing well:

In the 1960’s, California’s legislature was respected throughout the country as the model for others to follow. It was professional, it respected process, and it worked. It did a few things, but it did them exceedingly well. It left local schools, local governments and local revenues in local hands. But beginning in the 1970’s this began to break down.

The humility that kept Sacramento from sticking its nose into the business of local governments gave way to the hubris that the state knew better what was important to local communities than those communities themselves. The appalling breakdown of federalist principles at the national level now geometrically compounds this problem.

McClintock also dissects the state's disastrous politics.  It is a good read. 

California's leaders, abetted by a short sighted, lazy polity too willing to vote themselves the wealth of others and to ignore any concept of tradeoffs, have eviscerated the state.  There is nothing logical or sustainable about the path we have been on and appear dead set to stay upon. And the Obama administration appears to love what it sees and wants to take the disaster nationwide.  Folks, please. Look at California, shudder, and vow "not the rest of us."

Gov. Brown Signs Controversial AB 438, Imposing Restrictions on Local Gov'ts

Posted on October 10, 2011, 11:24am | Harris Kenny

This weekend California Governor Jerry Brown signed 33 bills into law and vetoed 15 bills, included among the signed bills is the controversial Assembly Bill 438. As I wrote in a September Orange County Register op-ed, AB 438 will prevent cities from making choices about what is best for their own libraries. The bill imposes a litany of regulations that will make it more difficult for cities to find ways to reduce operating expenses and keep libraries open by partnering with the private sector.

Gov. Brown’s decision to sign this bill comes as a surprise since the chorus of opposition to AB 438 grew louder over the past few weeks. Noteworthy opponents include the League of California Cities, Santa Clarita Mayor Marsha McLean, State Senator Bob Huff (R-Diamond Bar), The Oakland Tribune editorial board, and others.

This decision reveals a bizarre dichotomy in Gov. Brown’s treatment of local governments. Earlier this year the governor responded to the Supreme Court’s Brown v. Plata decision by signing AB 109 into law, which enables tens of thousands of inmates kept in state facilities to be transferred to county facilities. Local governments are being forced to care for inmates that Sacramento can’t handle, but in the same breath those same state lawmakers declare that local governments can’t apply a form of privatization to their own local libraries?

Thanks to AB 438, counties and cities are now more likely to close libraries than keep them open by partnering with the private sector. Instead, they will be pouring resources into caring for inmates that are incarcerated under misguided state criminal sentencing law.

For more on AB 438 see my full op-ed entitled “Democrats dump on private libraries” here, and my previous blog post here. For more on AB 109 see my previous blog posts here and here.

California Budget Sham Already Falling Apart

Posted on September 27, 2011, 12:40pm | Adrian Moore

Dan Walter's points out that 3 months after the "balanced" budget was passed, it is obvious it will be luck to last 6 months.

It's been proposed from time to time that the state go on a two-year budget cycle that coincides with the Legislature's biennial sessions, on the theory that it would result in more comprehensive and forward-looking fiscal plan

However, the Capitol has been going the other direction in recent years as governors and lawmakers wrestle with chronic budget deficits. It's been on roughly a five- to six-month budget cycle.

So basically the legislature is locking in with its short-term approach and fiscal myopia.

The story is always the same. They pass a "balanced" budget by assuming fantasy revenues, then within a month or two it becomes obvious that revenue won't happen, and the budget has to be reworked.

There is more anxiety in the legislature this year because the budget deal included so-called "triggers"--automatic spending cuts to take place if revenue doesn't match projections.  Since revenue has not matched projections, democrat lawmakers have been in a panic that the cuts might actually happen, and even passed a bill to overturn the "triggers" but Gov. Brown vetoed it.

Will the triggers be pulled if the money isn't there?

If, as now appears likely, that 2011-12 revenues do fall significantly short of assumptions, it simply will mean that Brown et al. will reopen the budget in January, thereby continuing the standard six-month cycle.

Hey guys, how about a real budget for once!?

Uncertainty Looms As California Corrections “Realignment” Plan Begins Saturday

Posted on September 26, 2011, 12:44pm | Harris Kenny

Tracey Kaplan of the San Jose Mercury News reports:

To trim its bulging prison population and cut costs, California is about to gamble on a strategy no other state has tried – unload the responsibility for punishing and rehabilitating thousands of nonviolent felons from the state prison system to local communities.

The state's new massive "realignment" plan – which begins Saturday – amounts to a dramatic retreat from California's costly, tough-on-crime, lock-'em-up approach. No matter how slowly the new strategy unfolds, it will ultimately put more low-level offenders on the streets sooner than they would be under the current rules, either because they are enrolled in rehabilitation programs outside the jail walls, or are serving shorter periods in jail or on post-release supervision.

"It's the biggest change in the criminal justice system in 35 years," since the state switched to imposing fixed-term sentences on most crimes, said Judge Phil Pennypacker, who presides over the criminal division of Santa Clara County Superior Court.

For those unfamiliar, this abrupt policy change is coming on the heels of the Supreme Court’s recent Brown v. Plata decision, which found California’s in-state publicly operated prisons are providing unconstitutional medical and mental health care to inmates. Notably, California’s thousands of inmates incarcerated in privately operated prisons were not included in this ruling. (For more on Brown v. Plata, see my previous post here.)

Many of the concerns over realignment first arose when enabling legislation, specifically California Assembly Bill 11-109, was signed in April. AB 109 allows for a felony offender to be punished “by imprisonment in a county jail for more than one year.” (For more on AB 109 see my previous post here). Kaplan continues:

With the startup of realignment just days away, judges, sheriffs, lawyers and probation chiefs throughout California have been frantically meeting to figure out the complex rules. Before long, nearly everyone in county jail will be eligible to get out after serving half their sentence if they behave; currently, jail inmates have to serve two-thirds. Parolees who comply with the conditions of their release also can earn their freedom sooner – in six months, rather than a year.

And sheriffs in some of the 32 counties with court-imposed caps on jail populations or overcrowded jails are likely to release more inmates early.

Though that's not a problem for most Bay Area counties, the lack of jail beds is particularly acute in parts of the Central Valley and Southern California, especially Los Angeles County, which collectively released more than 68,000 sentenced inmates in 2009 before they were due to be freed.

Next she highlights fears that early inmate release programs may lead to an increase in property crimes, reversing California’s recent plunge in crime rate down to 1960’s levels. At the same time, advocates for realignment argue a new approach may lead to lower recidivism as communities provide alternatives to incarceration. While the outcome is difficult to predict, funding remains uncertain too. Kaplan writes:

Counties were given state funds totaling $400 million this fiscal year to spend on whatever mix of incarceration, supervision and programs they choose. State finance analysts say realignment will save about $53 million in prison costs this fiscal year, $125 million next year and $338 million the year after, even as the counties' allocation rises to about $1 billion in 2013-14.

But even if counties had the capacity or the staff to supervise more inmates, the state is not giving them enough money to simply lock them up. Incarceration is an expensive option; in the Bay Area, jail costs about $77 a day, compared with up to $49 for electronic monitoring. Drug treatment costs a little more than jail – $88 a day for a 90-day residential program – but if it works, it saves taxpayers money in the long run.

Many counties complain the funding falls far short of covering the cost of alternative programs – and they worry the state could cut it even more as the budget crisis worsens. The governor's first attempt to get a constitutional amendment on the ballot guaranteeing future funding failed, but he vowed last week to get such an amendment on the November 2012 ballot – even if he has to launch an initiative campaign himself.

Finally, she concludes with revealing data from a recent Los Angeles Times and University of Southern California poll that found:

• ”80 percent of voters support realignment, though it’s unclear whether they will agree to tax themselves to fund it or to designate a portion of the state’s general fund to cover the cost.
• Nearly 70 percent even approve the early release of some low-level nonviolent offenders.
• In a major shift, voters are fed up with prison spending… [Which] produces the second-highest recidivism rate in the country: 67.5 percent.”

The full article is a must-read and is available online here.

In a recent reason.org commentary entitled “Brown v. Plata Ruling Highlights Need for Reform (Not Tax Increases)” Adam Summers and I outline three recommendations for California policymakers:

1. Pursue criminal sentencing reform.
2. Make recidivism reduction a priority.
3. Expand use of privately operated facilities.

The full reason.org commentary is available online here. For more, read Reason Foundation’s 2010 study entitled Public Private Partnerships for Corrections in California: Bridging the Gap Between Crisis and Reform.

'Buffet Rule' to Soak the Rich Hasn't Worked in CA

Posted on September 25, 2011, 7:29pm | Adrian Moore

George Skelton, by no means a conservative columnist, points out what an all out bust, disaster even, the so-called Buffet rule has been in CA.

If President Obama really wants to see the "Buffett Rule" in action, he should look at California's tax system. The state has been plagued by it for years.

   
Soaking the rich — relying heavily on them for income taxes — has resulted in a precarious revenue roller coaster ride. It's either boom or bust in Sacramento, depending on how the wealthy are faring in the stock market and their other investments.

He goes on to parse how ridiculous the state's finances have become by trying to fuel outrageous spending growth by taxing the rich, whose incomes tend to be volatile, and who are quite capable of shifting their earnings out of the state if they feel overtaxed.

Alas, he winds up arguing that the middle class needs to pay more taxes!  So he hasn't fully caught on that the state has a spending problem, not a revenue one.

More CA High-Speed Rail Arrogance

Posted on September 16, 2011, 5:43pm | Adrian Moore

Following up on my post from this morning, in Bakersfield city planners have blasted the HSR Authorities draft EIR and how they have handled public comment.

The city report, written by Planning Director Jim Eggert, calls the draft review "poorly constructed," technically "indecipherable" to most people and dismissive of comments made by city staff in meetings with representatives of the rail authority.

Eggert's report says that the state review fails to specify which public and private properties would be affected by competing train route options. It also takes issue with the fact that only one written copy of the draft review was provided for all of metropolitan Bakersfield, an area populated by half a million people.

Sec. LaHood Invincibly Ignorant on CA High Speed Rail

Posted on September 16, 2011, 12:54pm | Adrian Moore

Ignore the naysayers -- full-speed ahead on high-speed rail, said Transportation Secretary Ray LaHood in Oakland Tuesday, opens a San Francisco Chronicle blog post. LaHood went on to say "We are not going to be dissuaded by a little background noise of criticism because there is loud, loud amount of support for high-speed rail in California."

Can't you just picture him with his hands over his ears, "la la la la la la la! I'm not listening!"?

There has been a stream of news over the past year showing growing concern and opposition to CA's high-speed rail plan, including the Legislative Analysts Office questioning the plan.  My recent favorite is folks in the Central Valley saying WHOA to being given 45 days to comment on a 30,206 page draft Environmental Impact Report. Seriously?  That means they have to read 671 pages per day just to finish reading it by the deadline. To actually comment, more like 1000 pages a day. Does that seem reasonable? Does that invite public participation?  Or does that make you think of "la la la la la la la! We're not listening!"?

And while LaHood is ignoring those things, he is also ignoring basic math. Again from the Chronicle blog:

Asked whether Republican opposition means federal funding of high-speed rail is either dead or in hibernation, LaHood said: "No. . . . The president just put $4 billion for high-speed rail in the American Jobs Act."

[Op-Ed] Democrats Dump on Private Libraries (with California AB 438)

Posted on September 15, 2011, 3:09pm | Harris Kenny

California Assembly Bill 438 is expected to land on Governor Jerry Brown’s desk later this week. The bill, sponsored by Assemblyman Das Williams (D-Santa Barbara), would prevent cities from making choices about what is best for their own libraries. The bill includes a litany of regulations that would make it more difficult for cities to find ways to reduce operating expenses and keep libraries open by partnering with the private sector.

In my latest op-ed entitled “Democrats dump on private companies,” published in today’s edition of The Orange County Register, I write:

(AB 438) represents a dramatic overreach by Sacramento into local communities. Via AB 438 the Legislature mandates that cities choosing to privatize are not allowed to reduce the size of their library staffs. Further, the bill mandates that every single current library employee must keep his or her job in any future public-private partnership agreement, which explains why powerful unions have been pushing the bill. Cities will also be forced to spend time and money preparing and submitting studies and reports to Sacramento in order to obtain the state’s permission to privatize.

The piece then highlights a broad coalition of opposition to AB 438. Dan Carrigg of the League of California Cities recently said, “We hope the governor will veto the bill, since he has talked a lot about the importance of retaining local authority.” Santa Clarita Mayor Marsha McLean recently wrote in a Pasadena Star-News op-ed, “In an era of diminishing funding for local government services and overextended budgets, contracting for library services is one way to improve libraries, while reducing the tax burden on our residents. … It is ironic that supporters of AB438 would take decision-making out of local communities and place it in the hands of state legislators and special interests.” California State Senator Bob Huff (R-Diamond Bar) has also come out against the bill saying it ties local governments’ hands.

The chorus against AB 438 gets louder by the day. Earlier this week The Oakland Tribune included AB 438 in their list of “Four bills that need Gov. Brown’s veto,” writing:

(AB 438 is) designed to prevent public libraries from privatizing any of their services. It would force private firms that provided library services to pay union rates and obey union rules. The reason some cities have sought to privatize some library operations is because they cannot afford the costly union rates in a time of economic hardship.

AB438 most likely would prevent cities and counties from expanding or even maintaining current library services as local government revenues shrink.

My piece concludes:

The Legislature has no business micromanaging local libraries. Gov. Brown one recent day vetoed 12 bills, 11 of which were sponsored by his own Democratic Party. Unless he wants to be the state’s librarian, the governor should veto this bill, too.

So how about it, Governor?

Read my full op-ed available online here. For more, see my previous blog posts on AB 438 here and here.

Early Success for Pay-As-You-Drive (PAYD) Vehicle Insurance in California

Posted on September 10, 2011, 1:09pm | Harris Kenny

Nearly three years ago today California Insurance Commissioner Steve Poizner proposed a voluntary pay-as-you-drive (PAYD) insurance option for California drivers. At the time, state regulation prevented insurance companies from offering PAYD Vehicle Insurance, or any equivalent option, to consumers.

For those unfamiliar, the Victoria Transport Policy Institute’s TDM Encyclopedia defines PAYD vehicle insurance in the following manner:

PAYD Vehicle Insurance (also called Distance-Based, Usage-based, Mileage-Based, Per-Mile Premiums and Insurance Variabilization) means that a vehicle’s insurance premiums are based directly on how much it is driven during the policy term. The more you drive the more you pay and the less you drive the more you save. This can be done by changing the unit of exposure (i.e., how premiums are calculated) from the vehicle-year to the vehicle-mile, vehicle-kilometer or vehicle-minute. Existing rating factors are incorporated so higher-risk motorists pay more per unit than lower-risk drivers.

Poizner’s proposal received support across a broad coalition of stakeholder groups from environmentalists and insurance companies to civil libertarians and consumer advocacy groups. The Los Angeles Times reported Poizner saying:

I am thrilled to pave the way for California drivers to obtain insurance that is more environmentally friendly and more accurately reflects driving habits. As a strong advocate of healthy market competition and a healthy environment, I am especially pleased to encourage this kind of innovation and additional options for consumers.

Earlier this week Daniel C. Vock, a staff writer for Stateline, highlighted the early success of California’s new PAYD insurance option. Vock writes:

The state’s Department of Insurance gave companies the green light last year to charge customers based on the number of miles driven, with the goal of cutting back traffic and saving drivers money. Insurance carriers like the change, because it lets them get more information on driving habits and charge appropriately.

Already, more than 80 percent of policyholders with the Auto Club of Southern California are using the new plans, which were first offered in February, says spokesman Jeffrey Spring. The auto club expects that number to climb to more than 90 percent.

State Farm, the nation’s largest auto insurer, would not reveal how many of its California customers have opted for the mileage-based plans. But last year, it predicted a quarter of them would choose the new option, saving the drivers $31 million. Bob Devereux, a spokesman for State Farm in California, says the new pricing scheme received a “very positive response.”

“It puts the customer in the driver’s seat,” he says. “(Customers) like the fact that they have more control over their future premiums.”

California’s early success is praiseworthy for one reason in particular: it’s voluntary. Further, California lawmakers resisted the urge to implement by fiat and instead enabled the marketplace to determine and meet consumer needs. Private insurance companies like the Auto Club of Southern California and State Farm then devised effective incentive plans to encourage consumers to make the switch. Lawmakers basically decided to legalize insurance companies providing insurance – and it’s working.

California policymakers were able to satisfy privacy concerns by adopting a unique approach. In California, drivers can voluntary adopt PAYD vehicle insurance and can comply by reporting their mileage driven through verified odometer checks. Insurance companies in other states (such as Illinois, Ohio, Colorado and Texas) offer a range of alternatives using different technologies.

Reason Foundation policy analyst Skaidra Smith-Heisters advocated for this approach in a December 2008 reason.org commentary available here. For more, see the Victoria Transport Policy Institute’s TDM Encyclopedia entry on PAYD Vehicle Insurance here.

Latest California Insanity: Regulating Babysitters

Posted on September 3, 2011, 3:35pm | Adam Summers

In case you needed further evidence for why California is a backward state with chronic multi-billion-dollar budget deficits, the second-highest unemployment rate in the nation, the worst business climate in the nation, and enormous unfunded pension liabilities that will burden generations to come—or in case you are a California resident and are simply a glutton for punishment—consider one of the latest offerings from our esteemed elected officials in Sacramento.

Assembly Bill 889 would require workers' compensation benefits, rest and meal breaks, and vacation time for all "domestic employees," including housekeepers, nannies, caregivers, and, yes, even babysitters.

As state Senator Doug LaMalfa (R-Richvale) explains in a column for The Union (Western Nevada County, CA),

Under AB 889, household “employers” (aka “parents”) who hire a babysitter on a Friday night will be legally obligated to pay at least minimum wage to any sitter over the age of 18 (unless it is a family member), provide a substitute caregiver every two hours to cover rest and meal breaks, in addition to workers' compensation coverage, overtime pay, and a meticulously calculated timecard/paycheck.

Failure to abide by any of these provisions may result in a legal cause of action against the employer including cumulative penalties, attorneys' fees, legal costs and expenses associated with hiring expert witnesses, an unprecedented measure of legal recourse provided no other class of workers – from agricultural laborers to garment manufacturers. (On the bright side, language requiring an hour of paid vacation time for every 30 hours worked was amended out of the bill in the Senate.)

As Sen. LaMalfa notes, these additional and unnecessary regulations will only further burden taxpayers and cause people to forego such services altogether or force children and the elderly to be cared for in institutionalized care facilities instead of their own homes.

If wages, benefits, or working conditions are so unacceptable to nannies, housekeepers, or anyone else, they are free to seek other employers or other occupations. Liberals can scream, "Exploitation!" or "Living wages!" all they want, but the fact that people agree to take such positions with such employment terms indicates that they feel those jobs and those terms are better than any other alternatives. By mutually agreeing upon such a contract, the employee is better off because the terms are presumably better than other opportunities, and the employer is better off because the price and terms he or she has agreed to are presumably better than those that could be reached with another potential employee. The wages received are worth more to the employee than the other things he or she could be doing with his or her time, and the service performed is worth more to the employer than the money he or she has to give up to receive it.  It is a value-for-value exchange and both parties are made better off than they were previously. This is how trade works in a free society.

What next, will we have to offer workers' compensation to have a guy down the street do a couple odd jobs around the house or the yard? Mandatory breaks and vacation time for the neighborhood kid to mow your lawn? (Local governments across the nation are already cracking down on the scourge of kids' lemonade stands.) Then again, knowing California politicians, I shouldn't give them any ideas.