Brown Leaves Newsom a Managerial Mess at DMV

dmvJerry Brown’s last days as governor have been filled with laudatory media accounts of his half-century-long political career.

Many of the plaudits were deserved. Some were not, such as claims that he single-handedly rescued California from the brink of a financial meltdown. Even he acknowledges that luck – eight years of unleavened economic expansion – played a big role in balancing a budget drowning in red ink.

Missing in the positive descriptions of Brown’s career was any mention of his penchant for shunning responsibility for shortcomings in the state government he managed for 16 years.

Infamously, he replied “shit happens” when asked about huge cost overruns and construction flaws in the project to replace a third of the San Francisco Bay Bridge – and that’s been pretty much his attitude on other problems.

He’s refused, for instance, to accept responsibility for whether a huge change in school finance he proposed and shepherded through the Legislature actually has its intended effect of improving the educations of poor and English-learner students.

In public statements, and even in responses to lawsuits, Brown has taken the attitude that having provided the extra money meant to help those kids, he should not be held responsible for whether it works.

Rather, he preaches a doctrine he calls “subsidiarity,” shifting the onus for what happens to local school officials – a handy rationalization since so far, the Local Control Funding Formula has not appeared to have much positive impact.

And then there’s the Department of Motor Vehicles, the state agency that Californians love to hate – with good reason.

The DMV and its director, career bureaucrat Jean Shiomoto, came under fire in the Legislature last year after revelations of hours-long waits at field offices for even the simplest of transactions.

The Legislature was on the verge of ordering State Auditor Elaine Howle to delve into the agency’s obvious managerial shortcomings when Brown intervened and privately persuaded members of the Legislature’s audit committee to back off. A critical report from Howle would have been a black mark on Brown’s gubernatorial legacy.

But no sooner had Brown dodged that bullet than it was revealed that the DMV had made many errors in automatically registering Californians to vote when they did business with the agency – errors so grievous that Secretary of State Alex Padilla, who oversees California’s election system, demanded a managerial overhaul.

It was embarrassing to Padilla and other Democratic politicians who had touted “motor voter” as a way of expanding voting in a state that has a very low participation level.

Late last year, Shiomoto saw the handwriting on the wall and announced her retirement. But then another DMV imbroglio surfaced.

The federal government had notified DMV in November that it was using a faulty process in implementing “Real ID” driver’s licenses, meant to defeat counterfeiting that would allow terrorists to board airliners.

California had already issued more than two million licenses or identification cards and the DMV claims – or hopes – that they will be honored even though the agency didn’t fully follow federal guidelines for confirming the identity of cardholders.

Beginning this year, DMV said, it will require applicants for Real ID to provide additional proof of legitimacy. Real ID will be required to board commercial aircraft in October 2020 and the agency was already way behind schedule on implementing the program.

The Real ID problem will fuel new efforts in the Legislature for a top-to-bottom audit of the agency’s managerial mess and how incoming Gov. Gavin Newsom deals with them will be revealing.

This article was originally published by CalMatters.org

Gov. Newsom Will Face Intense Questioning on Bullet Train

High Speed RailWhen Gavin Newsom is sworn in as California governor on Jan. 7, he’s already indicated he will take criticisms of the state’s troubled $77 billion high-speed rail project seriously.

That’s in sharp contrast to outgoing Gov. Jerry Brown, who described project critics as “declinists” with no vision for what the Golden State could become. Brown only offered vague pronouncements when asked about giant cost overruns and the $50 billion or more gap between available funding and what’s needed to build the high-speed rail linking Los Angeles and San Francisco.

If Newsom lives up to his word, he’s going to need to respond to profound issues raised by project watchers in and out of the state government over the last two months.

In November, state Auditor Elaine Howle issued a harsh report on poor management practices in the California High-Speed Rail Authority, especially the billions in cost overruns due to the decision to launch construction of the project’s $10.6 billion, 119-mile first segment in the Central Valley before the authority was fully ready. Howle’s audit led Newsom to tell a Fresno audience that he might shake up the leadership of the rail authority.

Among the few specifically positive observations that Newsom has made in recent months about the project was that the first segment held promise to link Silicon Valley workers with less expensive housing in the Central Valley.

Project seen as ‘notoriously unpopular’ in Central Valley

But a Dec. 23 Sacramento Bee analysis found that even though the bullet train project was generating thousands of jobs in the agricultural region, it was “notoriously unpopular” among residents.

“They resent how construction has carved up their farms and scrambled their highways,” the Bee reported. “Completion of just a partial segment through the Valley is still years away, and residents doubt the project will ever get finished. They question the promises that high-speed rail will lift the Valley out of its economic doldrums.”

This skepticism is increasingly shared by elected Democrats both in the Central Valley and the rest of the state.

A Dec. 28 Los Angeles Times report quoted Assembly Speaker Anthony Rendon as saying problems with the bullet train are so widespread that it should “be paused for a reassessment.” Rendon said the prospect that the project would run out of money before ever reaching the Los Angeles region left voters in the area feeling deceived.

Assembly Transportation Committee Chairman Jim Frazier, D-Oakley, has made clear that he will work to have rail authority chairman Dan Richard ousted because of cost overruns and management issues.

The bullet train’s image has also deteriorated among state pundits.

When California voters approved $9.95 billion in bond seed money for the then-$45 billion project in 2008, the ballot initiative was broadly supported by newspaper editorial boards.

“Americans who visit Japan or Europe and hop a bullet train get a stunning reminder of how far behind much of the industrialized world we are in swift, clean, efficient transportation,” the San Jose Mercury-News editorial page declared on Oct. 18, 2008. “Californians can change that by approving Proposition 1A, a bond to begin construction of a high-speed rail system that would whisk passengers from Los Angeles to the Bay Area through downtown San Jose in a mere 2 1/2 hours. It will be a catalyst for the economic growth of California and this region over the next 100 years.”

An editorial printed last month in the Mercury-News showed a 180-degree swing in opinion: “The incompetence and irresponsibility at the California High-Speed Rail Authority are staggering. … It’s time to end this fiasco to stop throwing good money after bad.”

Decision on cap-and-trade funding may signal Newsom’s intentions

An early sign of Newsom’s level of enthusiasm for continuing on Brown’s path is likely in coming weeks as initial work is done on the 2019-20 state budget. The California Air Resources Board reported pulling in $813 million from its Nov. 14 auction of cap-and-trade air pollution credits – a heavy haul.

If Newsom opposes diverting 25 percent of cap-and-trade revenue to the bullet-train project – as has been done since 2015 – that will be the clearest indication yet that he is ready to back away from the troubled project.

Gov. Brown To Newsom: ‘Don’t Screw It Up’

Jerry Brown state of the stateDepending on how you interpreted Gavin Newsom’s campaign slogan “Courage For a Change,” he either has more courage than Jerry Brown — his campaign says that’s not what they meant — or that Newsom has the courage needed to bring about big changes.

For a man who often struggled to win Brown’s praise or even his attention, it’s an attempt to promise fresh ideas and perhaps a willingness to embrace issues the outgoing governor left for others, such as single-payer health care.

Either way, Newsom could be challenged by a possible economic downturn and a newly emboldened California Legislature with massive majorities in both houses.

“If you’re looking for timidity, I’m not your person,” Newsom said before the election. “If you’re looking for someone to be bold and courageous, lean into issues, change the order of things, I’m committing myself to that cause as the next governor.”

Newsom takes office Monday, bringing to the state capital a very different style and set of priorities. Journalists often referred to Gov. Jerry Brown as “the adult in the room” when he huddled with legislators to close their differences. It was not a label legislators much cared for. …

Click here to read the full article from NPR

Jerry Brown’s Three Biggest Failures

jerry-brownGov. Jerry Brown is getting the acclaim he deserves in his final days as governor for helping turn around a state that seemed adrift and for being a visionary on climate change. He’s clearly left California for the better. But his biggest failings — his blind spots and, in one major case, his inability to get others in his party to see the bigger picture — threaten crucial aspects of California’s future.

The first example is public education, where reformers emphasizing data-driven best practices and accountability from students, teachers, administrators and parents alike have produced significant improvements in union states like Massachusetts and New Jersey and non-union states like Florida and Texas. But instead of learning from these states, Brown mocked the “siren song” of metrics-based education reform in 2011. Two years later, he introduced his own reform — the Local Control Funding Formula (LCFF), which wiped out many state-imposed mandates on districts and directed more funding to districts with higher percentages of English-language learners, foster children and poor families. Each district was required to develop a specialized Local Control Accountability Plan (LCAP) to guide efforts to improve students’ outcomes. …

Click here to read the full article from the San Diego Union-Tribune

Gov. Brown Sues to Prevent Voters from Enacting Criminal Justice Reforms

PrisonGovernor Brown, having been rebuked multiple times last month by the California Supreme Court for “abuse of power” in issuing pardons and commutations, has now resorted to a lawsuit aiming to prevent voters from enacting common sense fixes to his badly flawed Proposition 57.

The soon to be ex-Governor is now attempting to block the “Reducing Crime and Keeping California Safe Act” from appearing on the 2020 ballot by claiming the Secretary of State erred in setting the number of valid signatures needed for the initiative. That measure had received sufficient signatures to appear on the 2018 ballot, but multiple counties failed to verify signatures by the deadline imposed by the Secretary of State. Of course, the governor and his office never registered any objection when the Secretary of State published the required signature threshold, nor did he attempt to intervene via a lawsuit before the signature gathering effort commenced.

What is notable about the lawsuit is that it reinforces the utter duplicity Brown used to gain passage of Prop 57. Brown deliberately repeated the falsehood during that campaign that only “non-violent” inmates would be eligible for early release under Prop 57, knowing full well the voters would never have approved an initiative granting early release to inmates convicted and sentenced for violent crimes.

However, as we have pointed out repeatedly during the campaignand since, the failure to define who qualified as a “non-violent offender” left the prison doors open to many convicted of arguably violent crimes. Not only were violent prison inmates made eligible for early release, many have since been released thanks to Prop 57. Now, in a cynical move that directly contradicts his false assurances to voters, Brown’s new lawsuit argues that the proposed fixes to Prop 57 should be thrown off the ballot because it would make it harder for violent offenders to obtain early release.

Governor Brown was able to fool voters last time, but the documented release of multiple violent inmates thanks to Prop 57 has terminated that talking point. His recently filed lawsuit is a desperate attempt to prevent voters from correcting the failings of Prop 57.

Michele Hanisee is president of the Association of Los Angeles Deputy District Attorneys.

This article was originally published by Fox and Hounds Daily

Gov. Jerry Brown Will Leave Office After 50-Year Career

jerry-brownCalifornia Gov. Jerry Brown will leave office Jan. 7 after a record 16 years leading the nation’s most populous state.

The son of former Gov. Pat Brown first became governor at 36 and will leave at age 80.

He’s gone from an idealist who resisted the traditional trappings of money and power to a fiscally minded elder statesman known as a global leader on climate change.

Brown plans to retire to a ranch in rural Colusa County on property that once belonged to his great grandfather, a German immigrant.

He plans to keep advocating for urgent action on climate change and caution against the threats of nuclear annihilation on a global stage. …

Click here to read the full article from Time Magazine

Pension Funds, Meet the “Super Bubble”

Earlier this month, outgoing California Governor Jerry Brown predicted “fiscal oblivion” if California’s state and local agencies are not granted more flexibility to modify pension benefits. As if to help Governor Brown make his point, U.S. stock indexes took an obliging plunge. The Dow Jones average cratered in December, dropping nearly 16 percent in three weeks, from 25,826 on December 3rd to a low of 21,792 on December 24th. And whither hence? Nobody knows.

If history and trends are any indication, however, “up” is unlikely. Depicted on the chart below is the performance of the Dow Jones Index from 1995, when the markets began first showing signs of “irrational exuberance,” to the extremely exuberant present day. Clearly shown are the past two bubbles, the internet bubble of 2000, the housing bubble of 2007, and what we may call the “super bubble” or “everything bubble” of 2018.

Dow Jones Stock Index – 1995-2018 

It doesn’t take an economist to notice a pattern here. The Dow Jones Index, which tracks closely with all publicly traded equities in the U.S., more than doubled in the four year heady run-up to its January 2000 peak, than went into decline for nearly four years, before doubling again between 2004 and 2007. Then when the housing bubble popped, the Dow went off a cliff, dropping to half its 2007 peak in little over a year. In the ten years since 2009, the Dow has exploded again, tripling to a high of 26,743 in September 2018. What now? Visually, at least, another correction is past-due.

There are all kinds of economic reasons why what is visually indicated on the above graph is exactly what’s going to happen. At best, we may hope for stocks to merely stop going up, which is sort of what happened after the internet bubble popped. But what’s different this time?

One key difference is that this time, lowering interest rates is not an option. In January 2000 the Federal Funds rate was 5.5 percent. By June of 2003 it had dropped to 1.0 percent. When interest rates drop, stocks become relatively better investments than fixed rate investments. Lower interest rates also induce more people to borrow, creating liquidity, stimulating consumer spending, which helps corporate earnings which drives up stock prices. The cause and effect is reflected in the stock market history – by 2003, after lowering interest rates by 4.5%, the stock market finally began to recover.

In October 2006 the rate had risen to 5.25 percent. In September 2007, as home sales were starting to drop, it was lowered to 4.75 percent. When the housing bubble popped, and the stock market crashed, the Federal Reserve responded by steady lowering of the Federal Funds Rate. By December 2016 it had dropped to 0.25 percent, the lowest rate possible. What should be of concern, is that the rate today, 2.5 percent, is only half as high as it was during the past peaks. During the previous two bull markets, the Federal Reserve was able to bounce the rate up to around 5 percent before the bears came calling. This time, assuming we’ve hit the peak, only half that increase, to 2.5 percent, was achievable.

A consequence of low interest rates is more borrowing, which is a good thing if that borrowing stimulates economic growth that translates into investments in productivity. But borrowing has not been used to stimulate productive investments. Instead, much of the corporate borrowing over the past decade has been used to finance stock buy-backs. This is a dangerous strategy, causing short-term growth in earnings per share, but loading debt onto corporate balance sheets that will have to be refinanced at interest rates that are increasing, at the same time as investment in research and modernizing plant and equipment has been neglected.

In recent years, borrowing has also been an overused tool of government, starting with the federal government. Federal borrowing accelerated in mid-2008, and hasn’t slowed down since, climbing to over $21 trillion by the 3rd quarter of 2018. As interest rates rise, servicing this debt will become far more difficult. Meanwhile, all U.S. credit market debt – government, corporate, and consumer – has continued to increase. After dipping slightly to $54 trillion in the wake of the burst housing bubble, it was up to a new high of $68 trillion by the end of 2017.

When interest rates fall, not only is the stock market stimulated. Bonds make payments at fixed rates, so when the market rate drops, the price of these bonds increases, since they can be sold for whatever price will give the buyer the same return as the current market rate. Interest rate reductions also cause housing prices to rise, since when interest rates are low, people can afford bigger mortgages since they will be making lower monthly payments. The opposite is also true, which is unfortunate for investors. All else held equal, rising interest rates means lower prices for bonds and housing.

What does this mean for pension funds?

When the super bubble pops this time, all assets will drop in value. Everything pension funds are invested in, equities, bonds, and real estate, will all drop in value. Even if extraordinary measures are taken to stop the decline – such as the fed purchasing corporate bonds – there will be nowhere to run. Public sector pension funds have not prepared for this day of reckoning. CalPERS, for example, in its most recent financial statements was only 71% funded. That would be ok at the end of a bear market, but at the end of a bull market, that is a disaster waiting to happen.

As it is, using CalPERS as an example, government agencies are going to have to nearly double their annual payments. The primary reason for this increase appears to be so the participating agencies will eliminate their unfunded liability on a 20 year repayment schedule. To-date, agencies were making those repayments on a 30 year term, and using creative accounting to minimize the payment amounts in the early years. CalPERS does not appear to have lowered the amount they are expecting their investments to earn, and this is critical. Because while they have lowered their expected rate of return to “only” 7.0 percent, they have also quietly lowered their long-term assumed inflation rate. This means they are still relying on nearly the same real rate of return for their investments.

When the super bubble pops, the challenges facing pension funds will not be the only economic problem facing Americans. Unwinding the debt accumulated during a credit binge lasting decades will impact all sectors of the economy. The last thing the fragile finances of government agencies will need is even higher required contributions to the failing pension funds. Instead those running these pension systems need to try new approaches, including modifying benefit formulas, but also redirecting investments into local infrastructure projects – projects that not only create jobs, but address practical and urgent goals such as building resilient, upgraded backbones for supplying water, energy, and transportation.

In early 2019, the California Supreme Court is about to issue one of its most consequential rulings ever, in the case CalFire Local 2881 vs. CalPERSIt is possible this ruling will grant government agencies (and voters) more flexibility to modify pension benefits. Such an opportunity cannot come too soon, if fiscal oblivion is to be avoided when the super bubble finally pops.

Gov. Brown Grants Clemency to 95 Convicted Murderers

SACRAMENTO, CA - OCTOBER 27: California Governor Jerry Brown announces his public employee pension reform plan October 27, 2011 at the State Capitol in Sacramento, California. Gov. Brown proposed 12 major reforms for state and local pension systems that he claims would end abuses and reduce taypayer costs by billions of dollars. (Photo by Max Whittaker/Getty Images)

A decision by Gov. Jerry Brown to commute the sentence of a man convicted in a 1979 Ventura County robbery-murder was done over the objections of District Attorney Gregory Totten and the victim’s family.

Jahn Vann was sentenced on Feb. 25, 1980, to life in prison without the possibility of parole in the killing of Daniel Nack, officials said.

On Monday, Brown granted Vann’s request to reduce his sentence to 40 years to life with the possibility for parole, Totten’s office said Wednesday.

Vann’s was one of 131 commutations and 143 pardons the governor granted on Christmas Eve, according to Brown’s office. Totten’s office said 95 convicted murderers’ sentences were reduced Dec. 24. …

Click here to read the full article from the Ventura County Star

Court puts limits on Jerry Brown’s powers, denies clemency to 6 California killers

Photo courtesy Steve Rhodes, flickr

Photo courtesy Steve Rhodes, flickr

The California Supreme Court rejected one of Gov. Jerry Brown’s attempted commutations Monday, the seventh time the court has rejected a clemency request from the outgoing governor in recent weeks.

The rejections mark the first time the court has blocked a governor’s clemency requests in at least half a century, according to the state’s Judicial Council. The court reviews clemency actions for inmates who have been convicted of more than one felony.

On Monday, just hours before the expected release of Brown’s annual Christmas Eve clemency actions, the court announced that it rejected Brown’s attempt to commute the sentence of Kenny Lee, who robbed and murdered a cab driver in 1992.

Lee was sentenced to life without the possibility of parole. Lee, now in his 40s, has been in prison for more than 19 years, where he has improved his behavior and pursued an education, according to court documents. …

Click here to read the full article from the Sacramento Bee

Reduce Wildfire Damage and Lower Energy Bills by Freeing Up Markets

Power electricShortly before wildfires such as the Camp and Woolsey fires ravaged Northern and Southern California, respectively, Gov. Jerry Brown signed a contentious bill making it easier for the state’s investor-owned utilities — primarily, Pacific Gas & Electric, Southern California Edison and San Diego Gas and Electric — to recover wildfire costs from ratepayers, but don’t expect the flames to die down anytime soon.

The legislation arose out of the calamitous wildfires the state has experienced the past couple of years and utilities’ fears about their abilities to cover potentially billions of dollars in damages. PG&E faces a possible $15 billion liability for wildfires that wreaked havoc on Northern California’s wine country last year, and contends that it might be forced into bankruptcy if the California Public Utilities Commission does not allow it to cover the costs with rate increases on consumers. Senate Bill 901, authored by state Sen. Bill Dodd (D-Napa), largely sidestepped the broader reforms Gov. Brown had sought to reduce liability exposure for the utilities.

California law is unusual in that utilities may be held liable for fire damage caused by their equipment even if they were not negligent in maintaining it and followed all safety rules (such as wind blowing a tree down onto power lines and sparking a blaze). SB 901 did, however, direct the CPUC to consider PG&E’s financial status in deciding its liability for the 2017 fires, and may allow the company to pass along costs it cannot financially bear (however that is determined) in the form of bonds to be paid by ratepayers over time.

The legislation also requires utilities to beef up protections of their equipment, and provides some much-needed relaxing of logging restrictions on private land. A greater focus on wildfire prevention efforts such as removing excess fuel through vegetation clearing and controlled burns is also long overdue, and will be funded to the tune of $200 million a year for five years from the state’s cap-and-trade fund. Environmental policies preventing thinning to keep forests in a “natural” state, as well as drought conditions and a bark beetle infestation that have killed millions of trees, have created tinderbox conditions and significantly exacerbated wildfire damage. The money would go a lot farther, though, if the forest-thinning services were competitively bid instead of just doled out to Cal Fire.

In fact, privatization of wildfire services in general would likely substantially reduce costs. Approximately 40 percent of all wildfire services are already provided by the private sector, according to the National Wildfire Suppression Association, which represents more than 250 companies in 27 states employing about 10,000 private firefighters and support personnel.

The state should also stop interfering in insurance markets. An August study prepared for the California Natural Resources Agency by the RAND Corporation and Greenware Tech noted that insurers complain that the California Department of Insurance prevents them from using probabilistic wildfire models to project future losses and has not allowed them to raise homeowners insurance rates high enough to cover the full risk-based cost of policies in high-risk areas, which would discourage building in the most fire-prone locations.

Despite the significant risk to which it exposes investor-owned utilities in the state, strict liability is probably appropriate under the existing regulatory system. It is the same compensatory standard to which governmental agencies are held, and, as the state courts have noted, the eminent domain powers granted to electric utility companies under the Public Utilities Code and the government-protected monopolies under which they operate make them more akin to public agencies than unfettered private companies. Under such a system, where utilities face no competition and property owners cannot opt out if they are targeted for eminent domain action, it makes sense to spread the costs of wildfires among the utilities and their customers, who all share the benefits of the utilities’ electricity generation and transmission infrastructure.

That said, the existing regulatory system is at fault for creating “too big to fail” regional utility monopolies in the first place. A central planning commission that grants monopoly rights and dictates prices and “acceptable” profit levels sounds more characteristic of a socialist or totalitarian state like North Korea or the Soviet Union, but that is the state of energy markets in California.

A better solution would be to open up competition by eliminating regional government-granted energy monopolies with eminent domain powers and treating the provision of electricity like other goods and services. Fully privatizing the energy and insurance markets and eliminating government monopoly protections would do much more to reduce energy costs, increase innovation and reduce losses from wildfire damage than any measures currently being discussed in Sacramento.

esearch fellow at the Oakland based Independent Institute.

This article was originally published by Fox and Hounds Daily