California’s AB 5 Will Force More Companies to Leave

Proposition 13 was called the political equivalent of a sonic boom by economist Art Laffer.

In limiting how much local governments could drain from Californians through property taxes, fed-up voters changed the political landscape with the 1978 ballot measure in a way that few state policies have, before or since.

Howard Jarvis’ Proposition 13 swept the country and made headlines around the world.

 Sounds a lot like Assembly Bill 5. The difference is Prop 13 is a force for good. AB 5 is a destroyer. Worse, other states are determined to duplicate California’s mistake.

AB 5, passed and signed last month, virtually bars Californians from working in the gig economy. The law, which implements a California Supreme Court decision, implements imposes a three-pronged test that identifies who’s still free to be a contract worker and who has to be a hired employee. 

A worker can be an independent contractor only if he or she:

  • A) Is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;
  • B) Performs work that is outside the usual course of the hiring entity’s business; and
  • C) Is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

Is there a freelance worker who could possibly pass Part B? 

Under that requirement, janitors could work as independent contractors only when they have contracts with companies not in the business of cleaning. 

Or a rideshare driver could work under a contract with Uber or Lyft only if those companies were primarily in the business of, say, selling vacuum cleaners. 

It’s a rigid framework, says labor law firm Fisher Phillips, that will appear, if it already hasn’t, in “the nightmares of your average gig economy business executives.” 

It’s already a bad dream for workers.

“Despite AB 5, Uber Drivers Would Rather Quit Than Be Employees,” reads the headline to the first installment of a two-part series in the online publication, Los Angeleno. One driver interviewed for the story said that “when the lawmakers make these laws, they don’t live our lives.”

“I have to pick my kids up or drop them off. I do that and come back to work, driving. What shift is going to let me do that other than this?”

Los Angeles Times columnist George Skelton, no puppet for corporations, recently wrote “there are tens of thousands of independent contractors who apparently don’t feel the slightest bit exploited. And they don’t want anything to do with formal employment or unions.”

The few able to pass the test and will remain independent contractors might not be independent for long. 

In a signing statement, Gov. Gavin Newsom said the next step “is creating pathways for more workers to form a union, collectively bargain to earn more, and have a stronger voice at work.” 

It is “in this spirit,” he said, that he would persuade political, labor, and business leaders to support an effort in which “workers excluded from the National Labor Relations Act” would have “the right to organize and collectively bargain.”

When Skelton said that maybe the aim of AB5 was “to rope in more dues-paying union members,” he might have been more correct than he realized. 

Where Proposition 13 set off an extended era of prosperity, AB 5 will rob workers of the freedom and flexibility they want and sometimes need from freelance work, and force more companies to leave the state than already are. California’s once-dynamic economy is on track to becoming permanently sclerotic.

AB 5 is a historic mistake.

No one knows what kinds of jobs Americans will be working in 50 years, not even 25, just as who lived through the Depression had no idea what work was going to be like in the 21st century. 

Classifying jobs through a government order is going to hold back the natural evolution of work. There are already regrets and there will be many more to come.

Kerry Jackson is a senior fellow with the Center for California Reform at the Pacific Research Institute.

Originally published in CalMatters https://calmatters.org/commentary/gig-economy-2/

Kamala Harris’ Unflattering Record of ‘Accomplishments’

During the Democratic presidential candidate debate Tuesday, Kamala Harris touted her “accomplishments” as California’s “top” law enforcement officer.

But what really were those accomplishments?

Research from the RNC reveals her record to be not as flattering as she’d like:

  • Fought to keep inmates locked up in overcrowded prisons so they could be used for cheap labor.
  • Fought to kill Proposition 19 in 2010, a measure that would have legalized marijuana for recreational use, though she now supports federal legislation that would do just that.
  • As California AG, she jailed thousands on marijuana charges and was against legalizing marijuana, but now she wants to legalize it.
  • As California AG, she defended capital punishment.
  • She “championed” a law that put the parents of truant kids in jail. But as a candidate for president, she has been caught trying to cover up her record on truancy.
  • As San Francisco DA, she called the decriminalization of prostitution “completely ridiculous.” But earlier this year, she made a flip-flop and said she supports decriminalizing prostitution.  
  • As San Francisco DA, Harris made increasing bail costs a priority. 
  • As San Francisco DA, Harris prosecuted a mentally ill woman who was shot by San Francisco Police. A Loyola Law School professor said of Harris, “Somebody used very poor judgement in deciding to bring these charges.”
  • As recently as last year, she boasted that as San Francisco DA, she “nearly tripled the number of misdemeanor cases taken to trial” but now she wants to “drastically [limit] the number of people we expose to our criminal justice system.”

Charter School Critics Have Potent New Tool to Block Approvals, Renewals

In an effort to portray a far-reaching bill as a compromise between charter schools and teacher unions, Gov. Gavin Newsom invited leaders of both groups as well as state Superintendent of Public Instruction Tony Thurman to recent signing ceremonies for Assembly Bill 1505.

In remarks at the event, Myrna Castrejón, president and CEO of the California Charter Schools Association, asserted that the new law “affirms that high-quality charter schools are here to stay and that the charter model — one that embraces accountability in exchange for the flexibility to innovate — is worth protecting and is of tremendous value to the students we serve.”

But what Newsom and Castrejón sought to depict as a balancing act was instead seen in most news coverage as the biggest blow yet to the California charter school movement, which began slowly in 1992 but now includes 1,300 schools that educate about 660,000 of the state’s K-12 students.

One modification to the original bill by Assemblyman Patrick O’Donnell, D-Long Beach, was a huge win for charter schools. It allows charter applicants and charters seeking renewals to appeal rejections from local school boards to county and state officials. A provision on requiring all charter teachers have formal credentials was revised to give charter schools until 2025 to comply.

Trustees can cite fiscal concerns in opposing charters

But the single most important part of the new law is the provision most sought by teacher unions and most feared by charter advocates. That is language that allows district boards to reject charters solely on financial grounds.

In an era in which annual school spending has soared — up from about $67 billion in 2014 to a record $102 billion now, a 52 percent increase — it would nominally appear that charters don’t have much to worry about from such a provision. Yet many state school districts are struggling to make ends meet now as much as they did during the Great Recession a decade ago, when state spending plunged nearly 20 percent in a single year.

Analysts say one reason districts are in trouble has to do with the increase in special-education students, who cost significantly more to educate and whose statewide budget got a 21 percent boost in May.

But the main headache is the enormous cost of the Legislature’s 2014 bailout of the California State Teachers’ Retirement System. It mandates that districts increase their CalSTRS payments by 132 percent from 2014-15 to 2020-21. Yet partly because of a significant increase in the number of retiring teachers getting pensions, the actual hit on district budgets over that span is much worse — 196 percent, the Legislative Analyst’s Office said earlier this year.

Pension bailout eating up surge in school funding

This has had the effect of pushing the total cost of compensation to 90 percent or more of the operating budgets in some districts, with by far the state’s largest district — Los Angeles Unified — among the hardest-hit. In May, LAUSD officials warned that a state takeover by 2022 was likely unless voters approved a parcel tax. Voters opposed the tax despite a heavy lobbying campaign. LAUSD’s fiscal reserves may not even cover the next three years unless state education spending keeps going up, district watchers warn.

But the problems are statewide. The state’s Fiscal Crisis & Management Assistance Team — which helps districts in distress — has had to focus on problems in the counties of San Diego, Sacramento, Oakland and more.

In response, a union-led coalition is seeking to qualify a November 2020 ballot measure modifying Proposition 13, the state’s famous 1978 tax-limitation law. It would allow the valuation of commercial properties to go up each year to reflect their value instead of the maximum 2 percent increase allowed under Proposition 13, generating potentially $5 billion or more in new annual funds for schools. 

The coalition had already qualified a similar measure for the 2020 in fall of last year, but decided to withdraw it because of the fear that its harsh potential effects on small businesses would make it a hard sell.

This article was originally published by CalWatchdog.com

How much will YOUR city pay CalPERS in a down economy?

CalPERS still hasn’t issued their actuarial analyses for the period ending 6/30/2018, even though a year ago, the 6/30/2017 analyses were available. Could it be related to the fact that the DJIA index on 10/01/2018 was 26,447 and as of midday 10/01/2019 it sits at 26,599? Did CalPERS have a bad year and what does that mean?

What is alarming in the case of CalPERS and other public sector pension funds is the relentless and steep rate increases they’re already demanding from their participating employers. Equally alarming is the legal and political power CalPERS wields to force payment of these rate increases even after municipal bankruptcies where other long-term debt obligations are diminished if not completely washed away.

Until California’s local governments have the legal means to reform pension benefits, rising pension contributions represent an immutable, potentially unmanageable financial burden on them.

San Marino’s Payments to CalPERS Will Nearly Double by 2025

The City of San Marino, a small Southern California town with barely 13,000 residents, nonetheless offers a typical case study on the impact growing pension costs have on public services and local taxes. Using CalPERS own records and official projections, the City of San Marino paid $3.0 million (not including employee contributions) to CalPERS in their fiscal year ended 6/30/2017. That was equal to 32% of the base salary payments made in that year. By 2025, the City of San Marino is projected to pay $5.1 million to CalPERS, equal to 46% of base pay.

Can the City of San Marino afford to pay an additional $2.1 million per year to CalPERS, on top of the $3.0 million per year they’re already paying? They probably can, but at the expense of either higher local taxes or reduced public services, or a combination of both. But the story doesn’t end there.

The primary reason required payments to CalPERS are nearly doubling over the next few years is because CalPERS was wrong in three critical estimates: how much their pension fund could earn, how much would be paid to retirees, and how much their client agencies had to pay to stay current or catch up. They could still be wrong.

Annual pension contributions are split into two categories:

(1) How many future pension benefits were earned in the current year, and how much money must be set aside in this same year to earn interest and eventually be used to pay those benefits in the future? This is called the “normal contribution.”

(2) What is the present value of ALL outstanding future pension payments, earned in all prior years by all participants in the plan, active and retired, and by how much does that value and liability, exceed the amount of money currently invested in the pension fund? That amount is the unfunded pension liability, and the amount set aside each year to eventually reduce that unfunded liability to zero is called the “unfunded contribution,” or, in plain English, the catch-up payment.

Both of these annual pension contributions depend on a key assumption: What rate-of-return will the pension fund earn each year, on average, over the next several decades? And it turns out the amount that has to be paid each year to keep a pension system fully funded is extremely sensitive to this assumption. The reason, for example, that CalPERS is doubling the amount their participating employers have to pay each year is largely because they are gradually lowering their assumed rate of return from 7.5% per year to 7.0% per year. But what if that isn’t enough?

If the Rate-of-Return CalPERS Earns Falls, Payments Could Rise Much Higher

It isn’t unreasonable to worry that going forward, the average rate of return CalPERS earns on their investments could fall below 7.0% per year. For about a decade, nearly every asset class available to investors has enjoyed rates of appreciation in excess of historical averages. Yet despite being at what may be the late stages of a prolonged bull market in equities, bonds, and real estate, the City of San Marino’s pension investments managed by CalPERS were only 74% funded. As of 6/30/2017 (still the most recent data CalPERS currently offers by agency), the City of San Marino faced an unfunded pension liability of $29 million.

As it is, using CalPERS own estimates, by 2025 the City of San Marino is already going to be making an unfunded contribution that is nearly twice their normal contribution. Another reason for this is because CalPERS is now requiring their participating agencies to pay off their unfunded pension liabilities in 20 years of even payments. Previously, in an attempt to minimize those payments, agencies had been using 30 year payoff terms with low payments in the early years.

Nobody knows what the future holds. The following chart shows how that might play out in the City of San Marino. Notice how at a 4% rate-of-return projection, in 2018-19 the City of San Marino would have had to pay CalPERS $10.1 million; at 3%, $11.8 million.

San Marino is a wealthy community. The median household income of $147,960 is more than twice the median for California of $67,739 (ref. City-Data.com, figures for 2016). But with total municipal expenses of $26.2 million in the fiscal year ended 6/30/2017 (ref. San Marino CAFR, page 10), even San Marino’s budget can be stressed by pension expenses. CalPERS has projected the city’s pension contribution will rise to $5.1 million by 2025, which is 19 percent of total expenses.

At what point do these payments become too burdensome? What if investment returns settle down to an average of only 6 percent per year – can San Marino afford to pay CalPERS the resulting estimate of $7.0 million per year? What about at an even lower 5 percent return – can San Marino afford to pay CalPERS an estimated $8.5 million per year? And what about the employees? Will they start to pay more via payroll withholding? In 2017-18, employees only contributed $767,000 out of $3.8 million.

What about the rest of California?

How would a downturn affect all of California’s public employee pension systems, the agencies they serve, and the taxpayers who fund them? In a CPC analysis published in 2018, “How to Assess Impact of a Market Correction on Pension Payments,” the following excerpt provides an estimate:

“If there is a 15% drop in pension fund assets, and the new projected earnings percentage is lowered from 7.0% to 6.0%, the normal contribution will increase by $2.6 billion per year, and the unfunded contribution will increase by $19.9 billion. Total annual pension contributions will increase from the currently estimated $31.0 billion to $68.5 billion.”

That’s a lot of billions. And as already noted, a 15% drop in the value of invested assets and a reduction in the estimated average annual rate-of-return from 7.0% to 6.0% is by no means a worst case scenario.

To-date, meaningful pension reform has been thwarted by powerful special interests, most notably pension systems and public sector unions, but also many financial sector firms who profit from the status quo. Ongoing court challenges, along with growing public pressure on local elected officials, may eventually offer relief. For these reasons, raising taxes and cutting services in order to fund pensions may eventually become a false choice.

REFERENCES

CalPERS Annual Valuation Reports – main search page
CalPERS Annual Valuation Report – San Marino, Miscellaneous Employees
CalPERS Annual Valuation Report – San Marino, Miscellaneous, Second Tier
CalPERS Annual Valuation Report – San Marino, Miscellaneous Employees (PEPRA)
CalPERS Annual Valuation Report – San Marino, Safety Employees, Fire, Second Tier (PEPRA)
CalPERS Annual Valuation Report – San Marino, Safety Employees, Police (PEPRA)
CalPERS Annual Valuation Report – San Marino, Safety Employees, Fire, First Tier
CalPERS Annual Valuation Report – San Marino, Safety Employees, Fire, Second Tier
CalPERS Annual Valuation Report – San Marino, Safety Employees, Police
CalPERS Annual Valuation Report – San Marino, Safety Employees, Police, Second Tier

Moody’s Cross Sector Rating Methodology – Adjustments to US State and Local Government Reported Pension Data (version in effect 2018)

California Pension Tracker (Stanford Institute for Economic Policy Research – California Pension Tracker

Transparent California – main search page
Transparent California – salaries for San Marino, 2018
Transparent California – pensions for San Marino 2018

The State Controller’s Government Compensation in California – main search page
The State Controller’s Government Compensation in California – San Marino payroll, 2018
The State Controller’s Government Compensation in California – raw data downloads

California Policy Center – Resources for Pension Reformers (dozens of links)
California Policy Center – Will the California Supreme Court Reform the “California Rule?” (latest update)

 *   *   *

Edward Ring is a co-founder of the California Policy Center and served as its first president. 

This article was originally published by the California Policy Center.

Abortion pills, gun control and roadkill: New California laws Gavin Newsom just signed

And the sun sets on the California Capitol’s 2019 legislative year.

Gov. Gavin Newsom crossed the finish line of his first session as governor on Sunday with a bill-signing sprint that brought his total approved laws to 870 and his vetoed proposals to 172.

“Together, we have accomplished a great deal this year to help California families get ahead and made historic progress on some of the state’s most intractable challenges,” Newsom said via press release.

In case you missed it, here were this weekend’s major legislative updates.

THOSE THAT PASSED

Among the deluge of bills approved by Newsom are several laws that his predecessor Jerry Brown had vetoed, as well as others that are a clear rebuke to President Donald Trump’s policies against immigration and reproductive rights. …

Click here to read the full article from the Sacramento Bee

The Gas Tax Bait-and-Switch

Cassandra of Greek mythology was blessed with the gift of prophecy and doomed by the curse that no one would ever believe her.

Conservatives in California know just how she felt.

California’s modern day Cassandras have repeatedly warned about the misuse and diversion of public funds for roads and highways. In no other area have California voters been lied to more frequently and more brazenly than with transportation spending.

Nearly 30 years ago, voters were told that California’s roads, freeways and bridges were crumbling and that spending on transportation was so seriously inadequate that a gas tax increase and other taxes were desperately needed to save California from ruin.

Based on the promises from special interests — in a very well-funded political campaign — in 1990 voters approved in Proposition 111, a 9-cents-a-gallon tax increase combined with a 55 percent increase in truck weight fees.

Demonstrating that not much has changed in three decades, promoters of Prop. 111 trotted out long lists of projects that would be completed with the billions of dollars in new revenue. Advertising focused on the benefits of Proposition 111, without ever mentioning taxes.

Sound familiar?

Fast forward to 2017 with the infamous passage of Senate Bill 1, a massive tax increase of another 12 cents per gallon on gasoline, an additional 20 cents per gallon on diesel fuel and a sharp increase in the cost of vehicle registration. …

To read the entire column, please click here.

California First State to Push Back School Start Times

California will become the first state in the nation to mandate later start times at most public schools under legislation signed into law by Gov. Gavin Newsom on Sunday, a proposal designed to improve educational outcomes by giving students more sleep.

The new law is not without controversy, though, opposed by some school officials and rejected twice before by lawmakers and Newsom’s predecessor.

“The science shows that teenage students who start their day later increase their academic performance, attendance, and overall health,” Newsom said in a statement. “Importantly, the law allows three years for schools and school districts to plan and implement these changes.”

The law will take effect over a phased-in period, ultimately requiring middle schools to begin classes at 8 a.m. or later while high schools will start no earlier than 8:30 a.m. The law does not apply to optional early classes, known as “zero periods,” or to schools in some of the state’s rural districts. …

Click here to read the full article from the L.A. Times

Another Sacramento Bait and Switch

The flair up over moving transportation funds from fixing road projects to alternative transportation modes to fight climate change has the distinct feel of a bait and switch on the public even though the Newsom Administration denies the charge. 

Last month, Governor Newsom signed an executive order to “leverage the more than $5 billion in annual state transportation spending for construction, operations, and maintenance to help reverse the trend of increased fuel consumption and reduce green house gas emissions associated with the transportation sector.” 

Among the items cited in the executive order was to reduce congestion by encouraging people to get out of their cars and fund transportation options such as transit, walking and biking. 

Critics say the money cited in the executive order comes from revenue raised by the gas tax increase of 2017, SB 1. Voters affirmed the use of the tax money for roads in no uncertain terms when they rejected Proposition 6 the next year, an attempt to repeal the tax. 

The rhetoric during that campaign from the government and its allies was an affirmation to use the money for roads. 

The California State Transportation Agency insists that SB 1 money is protected and that fixing roads is the agency’s top priority. 

Others don’t buy it. 

Shawn Yadon, CEO of the California Trucking Association argued, “If the effect of the executive order is to divert funds from road and bridge repairs, these projects will once again be placed on the back burner, leading to increased congestion and unsafe roads for all motorists.”

Assembly Republican leader Marie Waldron said, “It’s time to use this money appropriately and stop the Newsom administration’s bait-and-switch.”

State actions back up the critics.  The administration is putting off some road fixes while intending to spend more on alternative transit. Projects to widen highways in the Central Valley and San Luis Obispo have been set aside for now with the money earmarked for those projects to be used elsewhere to meet the climate change challenge.

There is no question what is going on—more engineering by government planners to dictate how Californians should live in the way of the infamous road diets. You know about road diets, sliming road corridors down a lane to make room for bicycle and or walking paths. The plans set commuters stewing that produced a wave of recriminations against local public officials.

State transportation authorities can expect the same when word gets out about the priority and money shift. Using road repairs as a reason to raise taxes then divert funds to other projects feels like a double cross. Even if the specific dollars for other projects didn’t come from SB 1 taxes, the road fix tax money was supposed to be added to current road funds, not substitute for them.

The problem for the governor and the transportation agencies is that this goes deeper than spending choices. It undercuts trust in government and certainly qualifies as a bait and switch.

Joel Fox is editor and Co-Publisher of Fox and Hounds Daily.

This article was originally published by Fox and Hounds Daily.

California Bans Hotel Mini-Shampoos

If you’re a Californian, the days of travel-size shampoo, conditioner, and soap bottles seen in hotels are nearing an end. Come January 1, 2023, they’ll be illegal.

Governor Gavin Newsom signed Assembly Bill 1162 on Wednesday, sunsetting the small toiletry containers that some say are a noxious waste of single-use plastics. Establishments with more than 50 rooms must comply by 2023, while those with less than 50 rooms have until January 1, 2024.

A fine of $500 dollars will be assessed for the first violation and will increase to $2,000 for subsequent infractions. The law stipulates that a local agency may conduct inspections to ensure compliance.

But while the push to regulate plastic out of mainstream usage may be well-intentioned, it is not supported by data.

The panic is rooted in the presence of various plastics in the ocean. Those of the single-use variety—from straws, to plastic bags, to bottles—have become a fitting scapegoat for the plight of marine life, a concern that penetrated popular discourse after a viral video showed a sea turtle having a straw removed from its nose.

Environmental advocates aren’t wrong about the underlying issue: 8 million tons of plastic enter the ocean each year. But as Andrew Glover notes at Quillette, a large part of that figure comes from microplastics: shards of debris that are less than 5 millimeters long. The majority of those aren’t derived from the much-despised plastic bottles and straws, but rather from synthetic tires and the laundering of synthetic clothing. (It’s worth mentioning that a study by the World Health Organization concluded that there were no “overt health concerns” to drinking water containing microplastics.)

Glover also highlights the excess of fishing-related accessories in the ocean, which account for 46 percent of the ocean’s total plastic contents.

Yet that obviously isn’t the entire picture. A study found that 40 percent of plastics are made to be single-use, some of which are bound to be dumped in the water. What activists fail to mention is that approximately 60 percent of plastic trash in the ocean comes from just five countries—China, Indonesia, The Philippines, Thailand, and Vietnam—which have notoriously inefficient waste management systems. America, meanwhile, contributes less than 1 percent.

Indeed, to actually make a dent in this problem—a problem which very much exists—requires global citizens to focus on waste management in the developing world and on the irresponsible disposal of fishing gear. A blanket ban on hotel toiletry containers is certain to have no effect whatsoever.

That may not have been the goal of the legislation, though. Roland Geyer, a professor of Environmental Science and Management at the University of California, Santa Barbara, and a supporter of the bill, told ABC News that the legislation is “mostly symbolic, but symbols can be powerful.”

It’s true that large companies may take notice and follow suit on their own. Some already have: Marriott International expressed that they will phase out the travel-size toiletries by the end of 2020. But that must also come with the understanding that it will have a near-negligible impact.

This article was originally published by Reason.com

Northern, Central California Suffer Sweeping PG&E Blackouts

Households and businesses across northern and central California suffered blackouts on Wednesday — and are bracing for more on Thursday, as the Pacific Gas & Electric (PG&E) company shut down portions of its power grid due to weather conditions that could lead to wildfires.

Wildfires are endemic to California’s Mediterranean climate, with hot, dry summers and cool, wet winters. Power lines through forest or brush create additional fire risks.

Last year’s catastrophic Camp Fire — the deadliest in the state’s history, which wiped out much of the town of Paradise in mere minutes — is thought to have been sparked by a problematic power line in windy, dry conditions.

The outages were expected to affect as many as 700,000 customers for several days, closing schools and businesses. In some places, that meant water systems that rely on electricity for pumping and drainage could also be shut down.

The Los Angeles Times editorial board cautioned against blaming PG&E alone, however, listing several causes:

It wasn’t PG&E officials who approved housing developments in high-risk areas. In fact, the utility can’t say no to serving those homes, no matter how great the fire risk. The utility also doesn’t make decisions about how the vegetation around their customers’ houses and the forests nearby are managed. Nor is it the utility’s fault that human-caused climate change has created conditions that fuel massive wildfires. That’s a disgrace we all own.

There is no scientific link between climate change and the recent wildfires, though many scientists believe a warmer, drier California resulting from climate change could make the risk of wildfires greater than it is today.

Joel B. Pollak is Senior Editor-at-Large at Breitbart News. He earned an A.B. in Social Studies and Environmental Science and Public Policy from Harvard College, and a J.D. from Harvard Law School. He is a winner of the 2018 Robert Novak Journalism Alumni Fellowship. He is also the co-author of How Trump Won: The Inside Story of a Revolution, which is available from Regnery. Follow him on Twitter at @joelpollak.

This article was originally published by Brietbart.com/California