California’s Doomsday Clock Getting Closer to Midnight

california-flagIn 1947 a group of scientists unveiled the Doomsday Clock to show how near civilization was to a man-made catastrophic end. Maybe California should have its own doomsday clock, since it seems headed for a wreck.

Today’s official Doomsday Clock reads 11:58 pm, two minutes before disaster. The Bulletin of Atomic Scientists, which manages the clock, cited “the looming threats of nuclear war and climate change” as the reason for the shortness of time.

By coincidence, Jerry Brown, who governed California for 16 years, is now that organization’s executive chairman. In taking the job, he quoted Manhattan Project director Robert Oppenheimer, who said “the whole world is going to hell.” 

Some would argue that the world will have to wait because California is going to arrive first. They have a point. California long ago lost its way.

For instance, this state, once an epicenter of enterprise, continues to bleed businesses. Relocation specialist Joe Vranich figures about 13,000 businesses fled California from 2008 to 2016, and he expects the flight to pick up speed rather than slow.

California is losing people, as well, by the millions. Many who haven’t left yet are just waiting for an opening. A 2017 University of California-Berkeley Institute of Governmental Studies poll found that 56 percent across the state have considered moving because of intolerable housing costs. One in four of those says “that if they did decide to move, they would most likely relocate out of state.”

Meanwhile, the state is a chosen destination for the wealthier and better-educated, according to a December Los Angeles Times report, even as millions of middle-class residents flee California’s high taxes, suffocating regulations, unaffordable housing costs, and some of the worst traffic (and roads) on Earth.

Attracting the bright and the affluent is certainly to California’s advantage. They arrive with capital, innovative thinking, experience, and the energy that helped them amass their wealth. But losing middle-class residents, including large numbers of young professionals, to other states, leaving California with only the extremely rich and the extremely poor, foretells a shaky future.

If California was losing its middle class to the upper class rather than to other states, this, too, would be an advantage. As former Federal Reserve Bank Chairman Janet Yellen – and many others – has said, upward mobility “promotes a healthier economy.” But simply pulling out is a loss. Middle-class Californians who leave take with them their work ethic, their investment and consumption dollars, their inventive business ideas, and their human capital.

Of course the entire middle class isn’t trying to ditch California. Certainly not members of the state’s public-employee unions. It’s in their best interest to stay until they can start collecting their generous pensions, which, we might add, have multiplied the tax burden that’s obliging the middle class to seek refuge in other states.

Escaping California is a rational choice. It has arguably the heaviest tax burden in the country, and is constantly increasing it. Businesses are regulated as if they were subsidiaries of the state.

Accelerating the exodus is an intractable housing crisis. Prices are so high that many middle-class earners can’t afford to buy homes. In Los Angeles County, where more than one in four Californians lives, 92 percent of all homes, “are unaffordable to the average person.” Those who rent rather than purchase have to dedicate one-third to nearly one-half of their income to housing, depending on where they live.

Even so, they probably consider themselves fortunate. Many in California don’t even have a home. While the state makes up only 12 percent of the national population, 25 percent to 30 percent of the country’s homeless live here.

There are dozens of other California conventions that annoy, antagonize, confound, enrage, inconvenience, and eventually drive out, the “subjects” of California. To name a few, there’s the wholly unnecessary single-use plastic bag prohibition, a coming fossil fuel ban to serve a political agenda, and a spiteful disregard for federal immigration law. There’s also the man-made drought,punishing gasoline prices, the menace of a future single-payer health care system, the political indoctrination taking place in public school classrooms, and a crusade to outlaw gasoline and diesel vehicles, to name a few more.

Is California “on the verge of becoming,” as Richard Colman has suggested, “a failed state” that’s “on the brink of collapse”? While the state’s doomsday clock rapidly approaches midnight, we haven’t run out of time yet. It is, however, getting late.

New Tax Proposals Hurt the Middle-Class

TaxesNo one disputes that California has a big budget surplus. According to the Office of the Legislative Analyst, California has budget reserves in excess of $18 billion. Our budget reserves exceed the entire state budget of eighteen other states.

One would think that the funds available for discretionary spending would chill any appetite for higher taxes. But this is California.

Despite the highest income tax rate, the highest state sales tax rate and the second highest gas tax, both our newly elected governor and our extremely progressive legislature desire to impose yet even higher taxes.

The most surprising thing about two of the new tax proposals is that they hurt the very groups the majority party claims that it is trying to help.

During his tenure as governor, Jerry Brown succeeded in shepherding through several tax hikes. However, he was unsuccessful in pushing a new 911 surcharge and a precedent-setting tax on water.

But as is common in California, new tax proposals never really die and these two have been resurrected in Gov. Newsom’s proposed budget.

To read the entire column, please click here.

Are Water Rights Sufficient to Protect Water Users?

Drought water crops“The judiciary is the safeguard of our liberty and of our property under the Constitution,” said U.S. Supreme Court Justice Charles Evans Hughes in Elimra, New York in 1907.

That quote exemplifies the reason that five irrigation districts on tributaries to the San Joaquin River as well as the city of San Francisco filed lawsuits recently against the State Water Resources Control Board. They are defending their water rights. 

In December, ahead of the Water Board hearing, Governor Brown and Governor-elect Newsom both asked the Water Board to hold off and let the districts, the State, and the federal government finalize the voluntary agreements. But that didn’t happen and the problem is now in Governor Newsom’s lap as his Water Board will likely have to turn its attention to defending its decision in court.

“We file suit not because we prefer conflict over collaboration. On the contrary, we continue to encourage and participate in settlement discussions on our rivers, and support science on the Stanislaus. But we also have an indisputable responsibility to reserve our legal rights and protect our ag and urban customers,” said Peter Rietkerk, General Manager of the South San Joaquin Irrigation District (SSJID).

Unfortunately, sometimes, the courts are your only recourse.

The State Water Board’s decision on December 12, 2018 doubles the amount of water the State will take away from farms growing food, the parks and sporting fields where our children play, and even the water we drink from our taps at home and bubbling out of drinking fountains at schools. And if flow requirements can be imposed on the San Joaquin River they can be imposed anywhere.

The sad thing is there was an alternative available, but the Board has so far rejected it. Farmers in the San Joaquin and Sacramento valleys, irrigation districts, the Department of Water Resources, Department of Fish and Wildlife and the Bureau of Reclamation, worked collaboratively at the behest of both Governors Brown and Newsom, to propose a voluntary plan designed to quickly accomplish more for fish and the environment without the drastic harm water users expect from the water cuts.

Under these proposals farms and cities would still give up billions of gallons of water to the river during times that science tells us that it’s needed, as well as implement projects that improve habitat for fish, reduce predators and enhance ecosystems far beyond what the Board’s water-only plan could achieve. The voluntary proposals, expected to produce more salmon than the plan adopted by the State Water Board with less harm to the economy, would have been a win for all – farms, fish and folks.

“Our voluntary agreement will ensure water security and reliability, includes environmental improvements, enhances fish populations far beyond what is projected in the state’s current plan and most importantly, guarantees timely implementation,” said Modesto Irrigation District Board Vice President John Mensinger. “Their (the Board’s) plan threatens not only Central Valley ag and urban water users, but also the water supply of more than two million people living in the Bay Area.”

There is still an opportunity for the Water Board to adopt a voluntary path toward ecosystem restoration and faster solutions to restore dwindling salmon populations. The question is, will they do it or will former Supreme Court Justice Charles Evans Hughes words be put to the test again?

Executive Director, California Farm Water Coalition.

This article was originally published by Fox and Hounds Daily

Why Gov. Newsom Wants to Pay for the Health Care of Illegal Immigrants

Gavin NewsomCalifornia’s new governor, Gavin Newsom, wants it understood that he’s not declaring war on Big Pharma, all appearances to the contrary notwithstanding.

Yes, he wants to give Medi-Cal more power to negotiate drug prices and, yes, he wants to make those prices significantly lower.

But Newsom was surprisingly candid when we spoke Wednesday about his healthcare agenda.

He told me he gained a whole new appreciation for the value that drug companies can bring to people’s lives while seeing his father grapple with dementia for months. William Newsom, a retired state appellate court justice, died last week at age 84.

“I don’t see Pharma as the enemy,” Newsom said. “I’m not saying anyone’s evil.”

He paused, shifting gears back into politician mode. …

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

Will Gavin Newsom’s Drug Pricing Plan Save You Money?

Pills health careGov. Gavin Newson wants to deliver lower drug prices by harnessing the full weight of the state against the pharmaceutical industry, but it’s unclear whether his team can get a better deal without giving up something Californians want.

In his first act as governor, Newsom issued an executive order creating the largest single purchaser of prescription drugs in the country.

It combines negotiations for some 13 million people in government-administered plans like Medi-Cal and eventually invites other organizations to join. His argument centers on the idea that a bigger organization can extract a better price from pharmaceutical companies.

“We believe this will significantly reduce costs,” he said at a press conference last week, adding that he’d ask other governors if they want to participate. …

Click here to read the full article from the Sacramento Bee

Exporting California’s Redistricting Change

VotedIt is an old adage that California is a bellwether for the nation. Policy changes that happen here often flow eastward from tax revolts to climate strategies. Newly elected governor Gavin Newsom boldly predicted that recent California policies are the future for the rest of the country. Time will tell, but the idea that California political ideas will move the rest of the country is being tested currently, led by another of the Golden State’s governors.

Last week, former governor Arnold Schwarzenegger hosted a Terminate Gerrymandering Summit at his USC Schwarzenegger Institute. On hand were leaders of four states, Michigan, Utah, Colorado, and Missouri, that saw successful ballot propositions approved in recent elections to take the power of drawing districts from legislators and give it to independent committees.

Calling the art of Gerrymandering (the word comes from an 1812 Massachusetts state senate district drawing signed by Governor Gerry with one district shaped like a salamander) a “200-year old scam,” Schwarzenegger celebrated the electoral victories, which he said, now means that one-third of congressional districts nationally are no longer drawn by politicians.

The exuberant former governor went a bit overboard in declaring that redistricting is now “hip.” However, it’s not a stretch to understand that when people listen to arguments about politicians choosing their own voters under Gerrymandering that the fairness issue weighs heavily on the side of change.

Both political parties have practiced the art of Gerrymandering—drawing districts that would guarantee safe party seats.

There are efforts in Texas and North Carolina to undo Republican Gerrymanders and in Maryland to end a Democratic Gerrymander.

The success of the Utah proposition in a solid Republican state was built on campaign material quoting Republicans Ronald Reagan and Schwarzenegger on the undemocratic aspects of Gerrymandering.

Schwarzenegger was a principal supporter of California’s Proposition 11 in 2008 to draw electoral boundaries for state assembly and senate districts. That was followed two years later by Proposition 20, filed by Charles Munger, Jr., to add the task of redistricting congressional seats to the newly created commission’s responsibilities.

Schwarzenegger reminisced about leaders of Democratic and Republican caucuses fighting fiercely when he was governor over some policy issue only to call him later and say they were united in their opposition to his effort to support the initiative to end Gerrymandering. He said then (and now) Speaker of the House Nancy Pelosi spearheaded an effort that supplied millions of dollars to defeat the measure.

Kathay Feng of Common Cause, one of the lead organizations attempting to end Gerrymandering around the nation, recalled once receiving a call from a San Francisco legislator (unidentified but a Democrat, of course—San Francisco) demanding that no more Asian voters be put in her district.

Schwarzenegger intends to continue the effort to push his California message nationally during the 2020 elections. He set a goal that two-thirds or more of the congressional districts drawn after the 2020 census will be in the hands of independent commissioners.

This article was originally published by Fox and Hounds Daily

Gov. Newsom Pushing For New Taxes on Water and Phones

Water Drought SprinklerGov. Gavin Newsom’s has called for a first-ever water tax and an added fee on phone bills at a time when the state is enjoying what recently departed state Legislative Analyst Mac Taylor called “extraordinary” budget health. Newsom said last week that experts now forecast a $21.5 billion budget windfall in 2019-20. Until recent years, the optics of asking the public to pay more with an overflowing budget would have seemed impossible to overcome.

Specific details have not yet emerged on Newsom’s plan, but it’s expected to be similar to a rejected 2018 proposal from state Sen. Bill Monning, D-Carmel, to tax residential customers 95 cents a month to help fund water improvements in rural farming communities in the Central Valley and throughout the state.

It would raise about $110 million to get clean water to what the McClatchy News Service estimated last year to be 360,000 people without such access. Others looking at the problem see it as much worse. Newsom said 1 million residents face health risks from their own water supplies.

Newsom emphasized what a priority the water tax would be for him on Friday by taking his cabinet on a “surprise” tour of affected Central Valley communities.

The dairy industry would also face $30 million in new fees. The $140 million annually that Newsom hopes to get from his plan is dwarfed by money already available from a $7.5 billion 2014 state water bond. While the largest chunk of the bond – $2.7 billion – was reserved for water storage projects, one of its listed priorities for the remaining $4.8 billion was providing access to clean water.

Howard Jarvis Taxpayers Association President Jon Coupal saw Newsom’s water tax plan as part of a historical continuum. He told the Sacramento Bee it was only the latest example “of California’s knee-jerk reaction to default to a new tax whenever there’s a new problem.”

But Newsom depicted his 2019-20 budget as reflecting discipline, touting its emphasis on continuing to add to the state’s rainy day fund and because of commitments to prepay some of CalPERS’ and CalSTRS’ unfunded long-term liabilities. Finance officials say every $1 billion prepaid now saves more than $2 billion in the long haul.

Governor cites urgent need to upgrade 911 system

Newsom also confirmed that he wants to add a 20- to 80-cent fee on monthly cellphone and landline bills to upgrade the 911 emergency notification system. That would take a two-thirds vote of the Legislature.

A similar proposal died late in the legislative session amid fears that it was a regressive tax that could cause headaches for incumbents on the November ballot.

But Newsom depicts the fee as a vital part of upgrading a 911 system that has outdated technology and is not up to the challenge of keeping safe a state facing devastating wildfires on a yearly basis.

The 911 fee was part of a larger wildfire-response program Newsom announced last week in the aftermath of last fall’s Camp fire in Butte County that killed at least 86 people and destroyed about 14,000 homes and the Woolsey Fire in Ventura and Los Angeles Counties that caused three deaths and torched 1,500 homes.

The governor wants to add $105 million to the $200 million already earmarked for improved wildfire response efforts in fiscal 2019-20. The extra money would be used to boost forest clearing efforts, to expand emergency fire rescue crews and more.

This article was originally published by CalWatchdog.com

Gavin Newsom’s Budget Calls for More Spending, Higher Taxes

Gavin Newsom budgetTo the surprise of absolutely no one, California’s new governor has proposed a state budget with billions in increased spending and lots of tax hikes. And, as an added bonus, he is proposing new mandates on businesses and local governments as well as depriving Californians of the right to vote on certain kinds of local debt. From the perspective of taxpayers, this is not a propitious start.

Gov. Gavin Newsom’s budget envisions spending $144 billion of general fund dollars, a 4 percent increase over former Gov. Jerry Brown’s last budget, which clocked in at $138 billion. To put this in perspective, general fund spending was less than $100 billion just six years ago. In California, state government is the No. 1 growth industry.

No California spending plan would be complete without new “revenue enhancements.” And the biggest item on this list is the imposition of the “individual mandate” for health insurance. Recall that President Obama’s so-called Affordable Care Act (which was anything but affordable) imposed a burdensome tax on millions of Americans. (Indeed, it was only the fact that the ACA imposed a “tax” that saved it from a constitutional challenge).

The good news is that Congress repealed the tax at the federal level. The bad news is that Gov. Newsom wants to reimpose it at the state level in order to save Covered California from imploding. The cost to Californians for a state-imposed individual mandate with a penalty?: $700 per person, which is projected to raise $500 million in new revenue.

To read the entire column, please click here.

California’s Budget “Surplus” Ignores Crushing Debt Burden

BudgetCalifornia’s new governor, Gavin Newsom, delivered an inaugural address earlier this week that accurately reflected the mentality of his supporters. Triumphalist, defiant, and filled with grand plans. But are these plans grand, or grandiose? Will Governor Newsom try to deliver everything he promised during his campaign, and if so, can California’s state government really deliver to 40 million residents universal preschool, free community college, and single payer health care for everyone? It’s reasonable to assume that to execute all of these projects would cost hundreds – plural – of billions per year. Where will this money come from?

While California’s budget outlook currently offers a surplus in excess of $10 billion, that is an order of magnitude less than what it will cost to do what Newsom is planning. And this surplus, while genuine, is the result of an extraordinary, unsustainable surge in income tax payments by wealthy people. California’s tax revenues are highly dependent on collections from the top one-percent of earners, and over the past few years, the top one-percent has been doing very, very well. Can this go on?

To illustrate just how unusually swollen California’s current state tax revenues have gotten, compare state tax collections in FYE 6/30/2017 (our most recent available data) to seven years earlier, in 2010. Back in 2010, California was in the grip of the great recession. Total state tax revenue was $94 billion, and $44 billion of that was from personal income taxes. Skip to FYE 6/30/2017, and total state tax revenue was $148 billion, and $86 billion was from personal income taxes. This means that 80 percent of the increase in state tax revenue over the seven years through 6/30/2017 was represented by the increase is collections from individual taxpayers, which doubled.

It isn’t hard to figure out why this happened. Between 2010 and 2017 the tech heavy NASDAQ tripled in value, from 2,092 to 6,153. In that same period, Silicon Valley’s big three tech stocks all quadrupled. Adjusting for splits, Apple shares went from $35 to $144, Facebook opened in May 2012 at $38, and went up to $150, Google moved from $216 to $908.

While California’s tech industry was booming over the past decade, California real estate boomed in parallel. In June 2010 the median home price in California was $335,000; by June 2017 it had jumped to $502,000. Along the California coast, median home prices have gone much higher. Santa Clara County now has a median home price of $1.3 million, double what it was less than a decade ago.

As people sell their overpriced homes to move inland or out-of-state, and as tech workers cash out their burgeoning stock options, hundreds of billions of capital gains generate tens of billions in state tax revenue. But can homes continue to double in value every six or seven years? Can tech stocks continue to quadruple in value every six or seven years? Apparently Gavin Newsom thinks they can. Reality may beg to differ.

Just a Slowdown in Capital Gains Will Cause Tax Revenue to Crash

The problem with Gavin Newsom’s grand plans is that it won’t take a downturn in asset values to sink them. All that has to happen to throw California’s state budget into the red is for these asset values to stop going up. Just a plateauing of their value – which, by the way, we’ve been witnessing over the past six months – will wreak havoc on state and local government budgets in California.

The reasons for this are clear enough. Wealthy people, making a lot of money, pay the lion’s share of state income taxes, and state income taxes constitute the lion’s share of state revenues. Returning to the 2017 fiscal year, of the $86 billion collected in state income taxes, $28 billion was from only 70,437 filers, all of them making over $1.0 million in that year. Another $7.3 billion came from 131,120 filers who made between a half-million and one million in that year. And since making over $200,000 in income in one year is still considered doing very, very well, it’s noteworthy that another 807,000 of those filers ponied up another $15.1 billion in FYE 6/30/2017.

There is an obvious conclusion here: if people are no longer making killings in capital gains on their sales of stock and real estate, California’s tax revenues will instantly decline by $20 billion, if not much more. And it won’t even take a slump in asset prices to cause this, just a leveling off.

Debt, Unfunded Pension Liabilities, Neglected Infrastructure

When considering how weakening tax revenues in California will impact the ability of the state and local governments to cope with existing debt, it’s hard to know where to begin. To get an idea of the scope of this problem, the California Policy Center just released an analysis of California’s total state and local government debt. As shown on the table, California’s total state and local government debt as of 6/30/2017 is over $1.5 trillion. More than half of it, $846 billion, is in the form of unfunded pension liabilities.

Calculating pension liabilities is a complex process, with controversy surrounding what assumptions are valid. In basic terms, a pension liability is the amount of money that must be on hand today, in order for withdrawals on that amount – plus investment earnings on that amount as it declines – to eventually pay all future pensions earned to-date for all active and retired participants in the fund. Put another way, a pension liability is the present value of all pension benefits – earned so far – that must be paid out in the future. The amount by which the total pension liability exceeds the actual amount of assets invested in a fund is referred to as the unfunded liability.

The controversy over what is an accurate estimate of a pension liability arises due to the extreme sensitivity that number has to how much the fund managers think they can earn. Using the official projection which is typically around 7.0 percent per year, the official pension liability for all of California’s government pension funds is “only” $316 billion. But Moody’s, the credit rating agency, discounts pension liabilities with the Citigroup Pension Liability Index (CPLI), which is based on high grade corporate bond yields. In June 2017, it was 3.87 percent, and using that rate, CPC analysts estimated the unfunded liability for California’s state and local employee pension systems at $846 billion. Using the methodology offered by the prestigious Stanford Institute for Economic Policy Research, California’s unfunded pension debt is even higher, at $1.26 trillion.

Where pension liabilities move from controversial theories to decidedly non-academic real world consequences, however, is in the budget busting realm of how much California’s government agencies have to pay these funds each year. California’s public sector employers contributed an estimated $31 billion to the pension systems in 2018. Extrapolating from officially announced pension rate hikes from CalPERS, California’s largest pension system, by 2024 those payments are projected to increase to $59 billion. And these aggressive increases the pension systems are requiring are a reflection more of their crackdown on the terms of the “catch up” payments employers must make to reduce the unfunded liability than on a reduction to their expected real rate of return.

Huge unfunded pension liabilities are another reason, equally significant, as to why California’s state budget is extraordinarily vulnerable to economic downturns. If assets stop appreciating, not only will income tax revenue plummet. At the same time, expenses will go up, because pension funds will demand far higher annual contributions to make up the shortfall in investment earnings.

A cautionary overview of the economic challenges facing California’s state government would not be complete without mentioning the neglected infrastructure in the state. For decades, this vast state, with nearly 40 million residents, has been falling behind in infrastructure maintenance. The American Society of Civil Engineers assigns poor grades to California’s infrastructure. They rate over 1,300 bridges in California as “structurally deficient,” and 678 of California’s dams are “high hazard.” They estimate $44 billion needs to be spent to bring drinking water infrastructure up to modern standards, and $26 billion on wastewater infrastructure. They estimate over 50 percent of California’s roads are in “poor condition.” In every category – aviation, bridges, dams, drinking water, wastewater, hazardous waste, the energy grid, inland waterways, levees, ports, public parks, roads, rail, transit, and schools, California is behind. The fix? Literally hundreds of additional billions.

What Governor Newsom might consider is refocusing California’s state budget priorities on areas where the state already faces daunting financial challenges, rather than acquiescing to the utopian fever dreams of his constituency and his colleagues.

Gov. Newsom Recycles Bill to Limit Individual Gun Sales

GunNewly inaugurated California Gov. Gavin Newsom is pushing a bill to limit individual gun sales to one a month – a measure that even the recently departed former governor, Jerry Brown, didn’t try to push through the legislature.

But this time might be different.

“The Democrats have a supermajority in California,” Los Angeles-based firearms policy, risk, and strategy analyst Dennis Santiago told Fox News. “The bill is likely to pass.”

California Senate Bill 61, introduced by Democratic state Sen. Anthony Portantino, will ban the purchase or transfer of more than one firearm within a 30-day period. The state already has laws to prohibit an individual from buying more than one handgun a month. …

Click here to read the full article from Fox News