How pension costs reduce government services

A think tank at Stanford University, known for bringing investment earnings forecasts into the public pension debate in California, issued a new study last week that looks at how rising pension costs are reducing government services.

The study found that while pension costs in a large sample of retirement systems increased an average of 400 percent during the last 15 years, the operating expenditures of the government employers only grew 46 percent.

Because of the “crowd out” from soaring pension costs, money for services have been reduced, including some “traditionally regarded part of government’s core mission,” said the study by Joe Nation of the Stanford Institute for Economic Policy Research.

“As pension funding amounts have increased, governments have reduced social, welfare and educational services, as well as ‘softer’ services, including libraries, recreation, and community services,” said the study. “In some cases, governments have reduced total salaries paid, which likely includes personnel reductions.”

The Stanford institute drew national attention in 2010 when graduate students calculated state pension debt was much larger than reported. To discount future pension debt, they used earnings forecasts for “risk-free” bond rates, rather than stock-based investment portfolios.

Nation’s study uses both the actuarial assumptions baseline of the retirement systems and a bond-based alternative to project that pension costs, even without a big stock-market drop, will continue to crowd out funding for government services during the next decade.

“Employer contributions are projected to rise an additional 76% on average from 2017-18 to 2029-30 in the baseline projection and 117%, i.e., more than double, in the alternative projection,” said the study.

There have not been many attempts to show how rising pension costs reduce services. A report last year from a citizens committee appointed by Sonoma County supervisors found $269 million in “excess costs” in the county retirement system between 2006 and 2015.

With $10 million a year, said the committee, Sonoma County could fund 44 more deputy sheriffs or pay for 40 miles of road improvement. Some Sonoma officials said concern about pension costs played a role in voter rejection of a 1/4-cent sales tax for transportation.

A Los Angeles Times story last month said a big part of a tuition increase at the University of California is going for increasingly generous pensions, including $357,000 a year for a former president, Mark Yudof, who worked for UC only seven years.

David Crane, a Stanford lecturer ousted from the CalSTRS board a decade ago for questioning overly optimistic earnings forecasts, showed in April and July reports how rising retirement costs are “shortchanging students and teachers” despite large school revenue gains.

The new Stanford institute study has 14 separate case studies: the state, six local governments in CalPERS including formerly bankrupt Vallejo and Stockton, the independent Los Angeles system, three county systems, and three school districts in CalSTRS.

The study said their “pension contributions now consume on average 11.4% of all operating expenditures, more than three times their 3.9% share in 2002-03,” and by 2029-30 will consume 14 percent under the baseline, 17.5 percent under the alternative.

In contrast, a survey of the public retirement systems done for former Gov. Arnold Schwarzenegger’s Public Employee Post-Employment Benefits Commission found pension contributions had been stable for more than a decade prior to the report in January 2008:

“Even though State pension contributions have risen in the past decade, they have remained at a relatively stable 3.5% to 4% of total General Fund revenues from the mid-1990s to present. The exception is 1999 to 2002 when contributions were significantly lowered.”

Table - stanford2

The Stanford institute’s case study of state spending on CalPERS and CalSTRS said $6 billion was shifted from other expenditures to pensions this fiscal year, much of the money apparently coming from social services and higher education.

The calculation was based on the growing cost of pensions during the last 15 years that, despite an expanding state budget, took 2.1 percent of operating expenditures in 2002-03 and an estimated 7.1 percent of operating expenditures this fiscal year.

The pension share of state operating expenditures in the baseline projection reaches 10.1 percent in 2029-30 and 11.4 percent in the alternative, crowding out an additional $5.2 billion or $7.4 billion.

“This expansion in pension funding requirements could be accommodated with additional 27% reductions in DSS and Higher Education expenditures (or reductions in other agencies and/or departments), or with slightly more than 4% across-the-board budget reductions,” said the study.

In an unrelated coincidence of numbers, the state got a $6 billion low-interest loan from its large cash-flow investment fund this year to double its annual payment to CalPERS, saving an estimated $11 billion over the next two decades by more quickly paying down debt.

The big loan, criticized by some who wanted more study, was bolstered late last month by a state Finance department analysis of the cash management, repayment plan, interest rates, investment earnings, and expected savings.

Annual state payments to CalPERS are expected to average about 2.2 percentage points less over the next two decades. Peak miscellaneous rates would drop from 38.4 percent of pay to 35.7 percent, peak Highway Patrol rates from 69 percent of pay to 63.9 percent.

“It is expected that any deviation from assumed CalPERS returns, or projected U.S. Treasury rates, will still result in significant net savings, and that any issues with funds’ ability to repay its share of the loan can be absorbed by the repayment schedule and effectively resolved,” said the Finance analysis given to the Legislature.

The California Public Employees Retirement System, like many public pensions, has not recovered from huge investment losses in the financial crisis a decade ago. The CalPERS state plans only have 65 percent of the projected assets needed to pay future pensions.

CalPERS estimates the $6 billion extra payment will increase the funding level of the state plans by 3 percentage points. The Finance analysis also said the extra payment would “partially buy down the impact” of a lower CalPERS discount rate.

Last December CalPERS lowered the investment earnings forecast used to discount future pension costs from 7.5 percent to 7 percent, triggering the fourth employer rate increase since 2012.

The annual valuations CalPERS gave local governments this fall reflect a drop of the discount rate from 7.5 percent to 7.35 percent next fiscal year, the first step in a three-year phase in.

number of cities unsuccessfully urged the CalPERS board last month to analyze two ways to cut pension costs: suspend cost-of-living adjustments and give current workers lower pensions for future work.

The Oroville finance director, Ruth Wright, told the CalPERS board: “We have been saying the bankruptcy word.” Salinas Mayor Joe Gunter created a stir by using the “bankruptcy word” at a city council meeting on Sept. 26 while talking about rising salaries and pension costs.

“How do we get this under control? How do we keep this city sustainable so we don’t have to file for bankruptcy?” Gunter asked.

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. 

This article was originally published by Calpensions.com.

Damage from legislative bills delayed, but still harmful

CapitolSometimes, California’s laws are like a guillotine on a timer.

By the time the blade drops, everybody who set it up has made a safe getaway.

To illustrate, consider four different laws that did their damage long after the perpetrators moved on, and a brand new one that’s likely to raise rents and perhaps tax Californians right out of their own homes.

In 1999, the Legislature passed and Gov. Gray Davis signed Senate Bill 400, which increased the pensions of state workers, even those already retired. At the time, everyone was told it would cost taxpayers nothing because the pension fund’s investment returns would easily pay for the higher benefits.

Then the blade dropped. In 2016, the tab for state employee pensions was $5.4 billion, more than 30 times what the state was paying before SB400 took effect. Today the state faces crushing pension debt that’s deep into the hundreds of billions of dollars.

In 2006, the Legislature passed and Gov. Arnold Schwarzenegger signed Assembly Bill 32, which included a requirement to lower the state’s greenhouse gas emissions. Regulators had the idea to raise money by auctioning permits to emit greenhouse gases as part of a “cap and trade” program. The new expense for manufacturers, utilities, refineries and truckers was passed through to consumers, who today pay $1 per gallon more for gasoline than the national average, 30 percent higher electricity rates, and don’t even ask about the price of tomatoes.

In 2008, the Legislature passed and Gov. Schwarzenegger signed Senate Bill 375, which was intended to reduce “sprawl” and “vehicle miles traveled.” This law made it more difficult and expensive to build new housing in outlying areas. In 2016, California lagged behind 28 other states in new housing creation, while rents have been bid up by the surge of people who, under different government policies, might be homeowners in new communities.

In 2011, California lawmakers cut the reimbursement rate that the state pays doctors who treat Medi-Cal patients, but that didn’t stop them from expanding the Medi-Cal program under the Affordable Care Act. In the last four years, about 4.5 million Californians were added to the rolls of the safety-net health insurance that’s called Medicaid in the rest of the country. There are now about 13.5 million people on Medi-Cal, one-third of the state’s population.

But there was no corresponding increase in doctors who accept Medi-Cal, and the number of emergency room visits has gone up, not down, as more people became insured. A lawsuit just filed against the state charges that the shortage of providers is discriminatory against Latinos, who are now the majority of Medi-Cal enrollees, according to the suit. The newly formed California Future Health Workforce Commission says that by 2025, the state will have 4,700 fewer primary care doctors than needed.

The latest guillotine-on-a-timer is SB231, by Sen. Bob Hertzberg, D-Van Nuys, which passed the Assembly on Aug. 31 by one vote. It redefines “sewer” to include stormwater, “correcting” a 2002 court ruling that said local governments can’t impose taxes or fees for stormwater projects without voter approval. Now they can, according to the bill. It will be easy to add huge new annual fees to property tax bills, and rents will go up, too.

SB231 now goes to Gov. Jerry Brown for his signature.

By the time the blade cuts your throat, he’ll be out of there.

olumnist and member of the editorial board of the Southern California News Group, and the author of the book, “How Trump Won.”

He’ll Be Back? Schwarzenegger Reportedly Mulling Run for Senate

SchwarzeneggerJan2010Former California governor Arnold Schwarzenegger is reportedly considering a run for U.S. Senate in 2018, when incumbent Sen. Dianne Feinstein, D-Calif., is said to be considering retirement.

Several media outlets report that Schwarzenegger, who recently raised his profile with a series of Twitter clashes with President Donald Trump, is thinking of re-entering the political fray after several years’ absence.

Politico’s Carla Marinucci reports: “The prospect of Schwarzenegger’s return to elected politics in a 2018 U.S. Senate run — possibly as an independent — is generating increasing buzz in state Republican circles, fueled by the former governor’s seeming ability to get under the skin of President Donald Trump on social media.”

Schwarzenegger also opposed Trump in the Republican presidential primary, backing Ohio governor John Kasich instead.

If elected, Schwarzenegger could pose a significant opposition threat to the Trump administration on issues such as climate change. California’s controversial cap-and-trade system was introduced under Schwarzenegger’s administration.

However, Schwarzenegger will have to confront his own political record along the way. Though he was re-elected to a second term in 2006, Schwarzenegger is mostly remembered for leaving the state in a fiscal mess after abandoning the reform agenda that brought him to office in the first place.

The East Bay Times recalls:

The Republican governor’s approval ratings fluctuated while he was in office and were as high as 63 percent in March 2007. But five months after he left office, a Field Poll found that three of four California voters surveyed had a negative image of Schwarzenegger in the wake of revelations he had fathered a boy with a former household staff member while married to TV journalist Maria Shriver.

Whether he runs as an independent or as a Republican, Schwarzenegger would face stiff competition from a long line of California Democrats who have been waiting, patiently, to angle for Feinstein’s seat.

Joel B. Pollak is Senior Editor-at-Large at Breitbart News. He was named one of the “most influential” people in news media in 2016. His new book, How Trump Won: The Inside Story of a Revolution, is available from Regnery. Follow him on Twitter at @joelpollak.

This piece was originally published by Breitbart.com/California

“There Ought NOT Be a Law” Project

20111103 CA RegulationsSometimes, in frustration over a perceived injustice, it is easy to think, “there ought to be a law,” but Californians should be careful what they wish for.

The state is awash in laws. Every two-year session, lawmakers introduce thousands of bills, and in the most recent, the governor signed 1,708 into law.

This brings to mind an old German proverb, “The more laws, the less justice.” This is because many of these bills are intended to benefit narrow special interests, like government employee unions, rent seeking businesses and professional groups, and pet projects like high-speed rail.

Then there are the less damaging bills that still amount to a waste of time and taxpayer dollars, although many of these provide a good source of amusement. Although some of the silliest laws are at the local level – in Chico detonating a nuclear device will cost you $500, in Carmel women are prohibited from wearing high heels and in San Francisco it is illegal to store anything but a car in a garage – the state continues to attempt to be competitive. In California, it is illegal for a vehicle to exceed 60 mph if there is no driver.

In Sacramento, for many self-absorbed Legislators, getting a bill passed is an extension of their ego. Perhaps this helps explain why, some years ago, a bill was introduced to make the banana slug the state mollusk. That one did not pass, but still, California was the first state to adopt a state rock, serpentine. Ironically, after spending time on approving this selection in 1965, it came up again in 2010 when one state senator decided serpentine is politically incorrect because it contains asbestos and she promoted legislation to remove its state status.

For some, just introducing legislation, whether it passes or not, has become a source of income. Twenty years ago, one senator introduced 143 bills in one session. This turned out to be a pay for play scheme where bills were introduced for those willing to pay. This lawmaker ended up spending time in prison for accepting bribes, and the public scrutiny forced the politicians to limit the number of bills that can be introduced to 40. Still, with 120 legislators, this means that there is the potential to introduce a mind-boggling 4,800 bills, each with the potential to become law. And introducing bills remains an effective method for raising campaign cash.

Even the most innocuous seeming bills can be a problem for taxpayers. Several years ago, Gov. Schwarzenegger criticized the Legislature for dithering over finding a solution to the state’s then $26 billion deficit, while plenty of time was found to deal with the issue of cow tail docking.

While humane treatment of animals may deserve consideration, taking time to pass a law, like making Spanish moss the official state lichen, has a cost. Even if we consider lawmakers’ time worthless, and many do, there are still thousands of dollars spent on legal analyses by the Office of the Legislative Analyst and on printing costs.

This raises the question, do lawmakers still have too much latitude when determining how may bills they introduce? Some states, like Colorado, survive while limiting legislators to no more than five.

And what about the tens of thousands of laws already on the books? Certainly, there is justification to make an examination and to seek to simplify the legal code under which we all must live, by striking those found to be unnecessary.

Enter Senator John Moorlach who has kicked off the “There Ought Not Be a Law” project and is looking for submissions from the public on repealing laws that would help streamline government, and remove regulations that impose unreasonable burdens on taxpayers. The senator will be taking nominations for laws to be reduced or repealed until the first of the year. To learn more, go here.

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

This piece was originally published by HJTA.org

17-Cent Gas Tax Hike on the Horizon

gas prices 2The Democratic member who has led the push in the Assembly for a gas tax hike to pay for transportation improvements is teaming with the Democratic senator who has played the same role in his chamber. And the pair want to be far bolder that Gov. Jerry Brown was in his 2015 proposal.

Assemblyman Jim Frazier, D-Oakley, and Sen. Jim Beall, D-San Jose, propose a 17 cent per gallon tax increase to fund a $7.4 billion transportation program, with likely additional annual hikes after adoption because the rate is indexed to inflation. They also want to increase the tax on diesel fuels by 30 cents a gallon, with the same indexing provision, and to make it easier to get approvals for transportation infrastructure improvements.

Brown’s proposal — which went nowhere in a special session — was built on a 6 cent per gallon tax increase and other provisions that would have funded a $3.6 billion transportation plan.

Bitterness over 2010 gas tax swap hangs over debate

The huge problem facing any proposal to raise taxes of this sort is the need for two-thirds approval, which means Republican votes in both the Assembly and Senate are necessary. And Democrats lobbying for GOP support don’t just have to overcome traditional Republican opposition to higher taxes. There continues to be deep bitterness over the gas tax swap that GOP Gov. Arnold Schwarzenegger and Democratic lawmakers pulled off in 2010 to plug a $1.8 billion hole in the 2010-11 budget. Republicans aware of this history would struggle to believe that the tax hikes that Frazier and Beall seek for road repairs might not at some future date be used to pay for state salaries, pensions or other needs unrelated to potholes and aging bridges.

The background: Irate over previous diversions of gasoline sales taxes from road repairs to other uses, California voters twice this century passed ballot measures — Proposition 42 in 2002 and Proposition 1A in 2006 — that banned such use of gas sales tax revenue.

But gasoline excise taxes can be spent on general fund obligations. So in 2010, gas excise taxes were sharply raised and gas sales taxes sharply reduced. Because the move was revenue-neutral, Schwarzenegger and Democrats successfully argued that the maneuver only needed to pass on a simple majority vote — not the two-thirds vote needed for tax hikes.

As a result, each year, the state Board of Equalization announces whether it is raising or cutting state excise taxes on gasoline to honor the deal’s requirement that the 2010 gas tax swap be roughly revenue-neutral.

Recent coverage of the Frazier-Beall initiative has not detailed whether the 17 cent per gallon tax hike would be entirely in the gas sales tax or entirely in the gas excise tax or a combination of increases in each.  If it were in the gas sales tax, that would nominally mean the money could only be spent on road repairs and infrastructure improvement because of Propositions 42 and 1A. But another gas tax swap could enable the money to be diverted to the general fund by a simple majority of the Legislature in the future, at least if the governor was amenable.

Republican lawmakers are also likely to be wary of another part of the Democratic lawmakers’ proposal: a $165 yearly fee for owners of zero-emission vehicles to help pay for road improvements. While that’s higher than what most states with such fees charge, it’s only half of what the average U.S. car owner pays in gas taxes a year, according to data from 2013.

The argument that zero-emission vehicles should pay more toward road maintenance is dismissed by greens who cite the environmental benefits of the vehicles. But as such vehicles become more common — and as states push gas taxes higher — owners of regular vehicles and free-market advocates are likely to cry foul.

Originally published by CalWatchdog.com

Trump leads poll in California, but shows regional weakness

As reported by the Sacramento Bee:

Buoyed by the support of many of the same Republicans who voted for Arnold Schwarzenegger for governor in 2003, Donald Trump leads his challengers in California two months before the state’s presidential primary, according to a new Field Poll.

Yet support for Trump varies widely across the state, suggesting Ted Cruz – and perhaps John Kasich – could dilute a strong overall showing by the GOP frontrunner, dividing the state’s massive delegate haul.

The poll, released Thursday, comes two days after Trump’s loss to Cruz in the Wisconsin primary, amid intensified efforts from within the Republican Party to block Trump’s nomination. For the first time in decades, California’s late-arriving primary, on June 7, is expected to be critical.

Trump leads Cruz in California 39 percent to 32 percent among …

The Schwarzenegger-Brown Climate Alliance

schwarzMonday’s L.A. Times gushed over the “bipartisan” gubernatorial legitimacy Governors Arnold Schwarzenegger and Jerry Brown have given efforts to fight climate change in Paris this weekend. The two former governors “sat for a joint interview to put a bipartisan spin on fighting climate change,” showing the world that green-minded Democrats and Republicans can avoid petty bickering and find a middle ground in combating this great issue of our times.

Here are the juiciest quotes the Times recounts:

“It’s important for people to know that Republicans can work with Democrats and vice versa,” Brown said.

Schwarzenegger added, “That is a very important message for the international community, that they should not look at [climate change] in a political way.”

Bipartisanship for broader goals is all well and good. Of course, the Times doesn’t recount the fact that Schwarzenegger is not, to put it mildly, a typical Republican, and that his participation in “bipartisanship” doesn’t mean much. In fact, on the climate change issue in particular, he arguably toes the liberal line with crossed t’s and dotted i’s. It’s perhaps a little bit ironic that a self-described Rockefeller Republican like myself should accuse a fellow Republican of being a “Republican In Name Only,” but on climate change, because of his joining hands with the green-and-blue liberal policy elite on cap-and-trade, renewables, and other fashionable green boondoggles, it’s hard to categorize Schwarzenegger as anything other than a post-partisan Donkey in Elephants’ clothing.

In an excellent article for the excellent journal National Affairs (read the whole thing) Troy Senik nicely outlines the self-imposed fate of the once-maverick Governor:

“[H]e began marshaling his political capital in the service of nationally fashionable issues like greenhouse-gas reductions. … [I]t began to feel suspiciously like Schwarzenegger was concerned more with buttering up the national media and the Beverly Hills cocktail circuit than actually forging an agenda to pull California back from the abyss.”

So the notion that the Schwarzenegger-Brown stand is anything like meaningful bipartisanship is, by all significant measures, bunk. Most Republicans, moderate or conservative, will rightfully oppose the anti-growth measures that modern environmentalism requires in the crusade against climate change.

Rather than joining hands with fashionable elites in pursuing self-defeating policies that aren’t likely to put much of a dent in carbon emissions, Republicans should live up to their tradition of conservation and environmental stewardship by living up to another one of their great traditions — innovation. Instead of fighting climate change by arbitrarily restricting carbon emissions and pumping money into zero-emissions, zero-results “renewable” sources, Republicans should pursue a climate strategy with what has worked empirically- high-energy, low-emission fuels like natural gas as substitutes for high-emission fuels like crude oil and coal. Peter Wehner and Jim Manzi argued for such a strategy in another article at National Affairs, and their middle ground makes for much more practical policy than either ultra-conservative denials of climate science or mainline liberal worship of cap-and-trade and solar energy.

As Joel Kotkin argues, the Paris climate talks aren’t likely to result in much more than self-righteous gabbing by the elite classes of developed nations, to the detriment of the lower classes of said nations. Developing countries like China and India, by far the largest carbon emitters, are unlikely to shackle their growth to the whims of Western experts and activists. So in the end, Schwarzenegger and Brown’s united stand against climate change will do much for their consciences and little for the climate or the struggling. It remains for another generation of pragmatic politicos to tend to this truly pressing problem. Let’s hope the glittering promise of accolades for “bipartisanship” doesn’t take precedence over reality for them.

esearch associate for the Center for Opportunity Urbanism and Senior Correspondent at Glimpse From the Globe.

Originally published by Fox and Hounds Daily

Court Gives Indian Tribe New Chance at CA Casino

CasinoIn what amounted to a tart reminder to California voters that they have limited authority over sovereign Indian tribes, a federal judge has ordered Gov. Jerry Brown’s administration to renew negotiations with North Fork Rancheria of Mono Indians officials over the tribe’s plan to build a casino in the Madera area off Highway 99, about 30 miles north of Fresno.

State voters last November rejected Proposition 48, which would have ratified Brown’s and the Legislature’s approval of the proposed $350 million, 2,000-slot machine casino. Opposing the ballot measure was largely supported by the state’s editorial pages on the grounds that the casino would be built on land purchased by North Fork Rancheria that’s more than 30 miles from tribal lands. The fear was this would set up a precedent for a sharp expansion of Indian casinos in heavily populated urban areas.

But the main groups funding the push to reject Proposition 48 were Indian tribes who didn’t want to see their market share reduced, not civic activists worried about gambling expansion. U.S. District Court Judge Anthony W. Ishii’s ruling appears to clear the way for such an expansion. This is from the Fresno Bee:

Ishii said federal law requires the governor to negotiate with the tribe and conclude compact negotiations within 60 days. If both sides can’t reach agreement, the judge will appoint a mediator. The state and the tribe will then have 60 days to present a final offer for the mediator’s selection.

The North Fork tribe argued that under federal Indian gambling law, the power rested in the hands of a federal judge to order the governor back to the table and, if necessary, select a mediator to choose between a state-proposed compact and one from the tribe. The complaint was filed after the governor’s office sent a letter to the tribe’s lawyers declining further negotiations.

“The state does not now contend that any of the (Department of the Interior) secretary’s determinations were incorrect, nor does it articulate a basis for its refusal to negotiate regarding the Madera parcel,” the judge said in requiring the governor to negotiate.

Construction of the North Fork casino would be paid for by Station Casinos, the Las Vegas company that would operate the facility and share profits with the tribe.

Senate president worries about rapid gambling expansion

The federal court’s ruling is likely to be treated with alarm by some state lawmakers. State Senate President pro Tem Kevin de Leon has a history of raising concerns about off-reservation casinos. In July 2013, he wrote a letter to Gov. Jerry Brown in reaction to approval of the North Fork project.

“I am deeply concerned by the current ad hoc process of approving off-reservation gaming projects which does not sufficiently protect state interests and our residents,” he declared.

But Brown has been working much more closely with Indian tribes to advance their casino projects, at least their non-controversial ones, than his predecessor, Arnold Schwarzenegger.

The Republican actor-turned-politician used his 2003 recall campaign as a platform to demand that Indian tribes share their gaming revenue with the state. Subsequent deals his administration cut with tribes were conditioned on such revenue sharing. But in 2011, the 9th U.S. Circuit Court of Appeals held up a trial court summary judgment ruling throwing out any such state requirements. The blistering opinion mocked the state of California’s official position that demanding a cut of tribal gaming revenue wasn’t really a tax.

“No amount of semantic sophistry can undermine the obvious: a non-negotiable, mandatory payment of 10 percent of net profits into the state treasury for unrestricted use yields public revenue, and is a ‘tax,’” the ruling held.

Brown’s administration chose not to appeal the ruling to the U.S. Supreme Court. That suggests the governor, a Yale Law School graduate, expected the North Fork ruling but didn’t want to resume negotiations with the tribe until ordered to by a federal judge so as to not seem to be defying voters’ rejection of Proposition 48.

Originally published by CalWatchdog.com

Cap-And-Trade Costs California Businesses $1 billion

California businesses paid a whopping $1 billion this year buying permits to comply with the state’s cap-and-trade law — the largest sale recorded since the state began regulating carbon dioxide in 2012.

Even with record permit sales, the $1 billion raised was well below market expectations. But environmentalists sold the auction as a huge success, because now oil and gas companies have to buy permits.

“Despite the oil industry’s fear mongering, the sky did not fall,” said Merrian Borgeson, a senior scientist at Natural Resources Defense Council. “California’s carbon market continues to hum along as expected, with this auction’s price right in line with previous auctions.”

Carbon emissions permits for 2015 only sold for $12.21 per metric ton, and permits for 2018 sold for $12.10 per ton. In total, the state sold 73.6 million permits for emissions in 2015 and 10.4 million permits for emissions in 2018.

“We are making progress toward a cleaner future,” Borgeson said. “Our clean energy policies cut dangerous emissions, boost the state’s economy, and drive investment in our most disadvantaged communities.”

But the record permit sales may not be the harbinger of good news that environmentalists and state regulators argue. As of this year, California expanded its cap-and-trade system to cover transportation fuels — meaning oil companies will have to buy carbon credits for the fuel they sell.

Before that, the state’s cap-and-trade law only covered several hundred industrial companies, like food processors, cement makers and other energy-intensive industries. Basically, the state forced more companies to buy permits and expanded the pool of permits — which means prices are lower than they would have been otherwise.

Also, California’s cap-and-trade system has been linked to Quebec’s emissions trading scheme to limit the economic impacts pricing carbon dioxide has on California residents. California officials are trying to convince other states to join their cap-and-trade plan to further disperse costs.

California passed its cap-and-trade law in 2006 under Republican Gov. Arnold Schwarzenegger. The point of the law is to reduce carbon dioxide emissions to 1990 levels by 2030. The law went into full effect in 2012, when the first carbon permit auctions were held.

State regulators are still in the process of implementing a second prong of the 2006 global warming law: a low-carbon fuel standard. This requires oil companies to reduce carbon emission from gasoline 10 percent by 2020 — though the rule is being rewritten in the wake of legal challenges.

But that’s not all. California lawmakers are intent on halving the use of petroleum in the next 15 years. State Democrats have proposed a highly contentious law which would remove 8 billion gallons of fuel from state markets.

The oil industry has come out swinging against the legislation, saying it’s nothing more than an attack on oil companies and jobs.

“Legislative mandates to force reductions in gasoline use are not climate change policies,” Catherine Reheis-Boyd, president of the Western States Petroleum Association, said in a statement. “They are attacks on an important industry in California designed to create conflict and controversy.”

“Achieving so radical a goal in so short a time will require the removal of 8 billion gallons of gasoline and diesel from our fuel supply – with no guarantees that something will be available to replace them,” Reheis-Boyd added.

Originally published by the Daily Caller News Foundation

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California to Spend $20 Million on Part of ‘Hydrogen Highway’

As reported by the L.A. Times:

It’s been more than a decade since former Gov. Arnold Schwarzenegger regularly talked about his dream of building a “hydrogen highway” that would speed fleets of non-polluting cars from Mexico to Canada.

The vision never materialized anywhere other than in the governor’s upbeat, eco-friendly speeches.

Now, finally, a modest form of Schwarzenegger’s highway might actually become a reality.

The California Energy Commission reports that it’s spending $20 million to build nearly half of the approximately 100 stations needed to give a driver of a hydrogen car enough range to travel freely through most parts of the Golden State.

Click here to read the full story