Spending Plans Will Run Up Against Fiscal Reality

Gavin NewsomGavin Newsom was recently inaugurated as California’s 40th governor, taking over a general-fund budget that is flush with cash and a state government that is in remarkably good shape — at least superficially — from a fiscal perspective. For all his flaws, outgoing Gov. Jerry Brown left Newsom with a $15 billion surplus and a rainy day fund that is nearly full. As an added plus, the economy that is humming along even though an erratic stock market points to storm clouds on the horizon.

The big question is whether Newsom will heed Brown’s advice and govern as if there’s always a recession around the corner — or ignore the former governor’s warnings about Democratic lawmakers who always say “yes” to any “harebrained” spending scheme. Unfortunately, based on Newsom’s inaugural words, initial budget and many of his early high-level administrative appointments, the safe money is on the latter. Newsom wants to spend big.

One need not read between the lines in Newsom’s introductory words. He spelled it out clearly. Newsom pointed to Brown’s inaugural address, which quoted from the Sermon on the Mount. There was the foolish man who built a house on sand and the wise man who built it on rock. “For eight years, California has built a foundation of rock,” Newsom said. “Our job now is not to rest on that foundation. It is to build our house upon it.”

So now that the state is on solid financial footing, the new governor envisions a rapid expansion of government social programs. “We will support parents so they can give their kids the love and care they need, especially in those critical early years when so much development occurs,” Newsom said. That speaks to the $1.8 billion in early childhood programs that the new governor is touting. The term “we,” of course, refers to California’s taxpayers.

“We will launch a Marshall Plan for affordable housing and lift up the fight against homelessness from a local matter to a state-wide mission,” he added. The term “Marshall Plan” is not subtle. That was the American financial assistance program to help Western Europe rebuild after the devastation of World War II, at a cost of $100 billion in current dollars.

Continuing the metaphor of California as a home, Newsom added that “In our home, every person should have access to quality, affordable health care.” He has long advocated for some type of universal healthcare coverage (although not necessarily the single-payer system that failed to make it through the Legislature in 2017), and some of his most noteworthy aides have a background in promoting government healthcare programs.

“Everyone in California should have a good job with fair pay,” he said. “Every child should have a great school and a teacher who is supported and respected. Every young person should be able to go to college without crushing debt or to get the training they need to compete and succeed. And every senior should be able to retire with security and live at home with dignity.” Those are vague, feel-good ideas that would garner few objections. But his ideas for implementing them, such as his bidget plan for free community college, will come with a hefty price tag.

There will be plenty of time to dissect the specific policy proposals that will move forward as the legislative session gets under way. For instance, the community college idea is a particularly bad one. California community colleges already are inexpensive. Making the second year of tuition “free” (the first year already is free for first-time California students) will only clog up the classrooms with free riders, thus making it tougher for those students who are serious about getting an education to get classes and improve their job prospects.

However, the main purpose of this article is to provide a warning amid the exuberance of a new gubernatorial administration. Basically, that financial foundation might be built less on rock and more on sand than many of us would like to believe.

There’s no complaining about the size of the budget surplus and rainy day fund, but there’s more to a budget than those items. As a comprehensive new California Policy Center report from Ed Ring and Marc Joffe points out, “We estimate that California’s total state and local government debt as of 6/30/2017 totaled just over $1.5 trillion. That total includes all outstanding bonds, loans, and other long-term liabilities, along with the officially reported unfunded liability for other post-employment benefits (primarily retiree healthcare), as well as unfunded pension liabilities.” That’s a 15-percent increase from two years ago—and a number that equals 54 percent of the gross state product.

The Brown administration had done little to deal with the unfunded liabilities. Its one major pension reform law, the Public Employees’ Pension Reform Act, was exceedingly modest. In the waning days of his administration, Brown’s attorneys argued before the state Supreme Court for changes in the “California Rule,” which restricts the ability of governments to reduce pension benefits going forward. That’s still unresolved and Newsom already has made clear his opposition to changes in pensions—and one of his top aides comes out of the California Labor Federation.

Bottom line: Just because the general-fund budget is in good shape does not mean that California’s overall fiscal picture is all that bright. A responsible new administration would attempt to fix those problems, which are crowding out public services at the local and state level, before engaging in a spending spree that will add to the state burden. Newsom’s early budget hits $209 billion overall and includes a grabbag of new programs, although he does send money to pay off some pension debt and is bolstering the rainy day fund.

The outgoing governor increased taxes early and often. It’s unwise to add new burdens on taxpayers, especially given that economic boom times always are followed by a bust and many Californians continue to flee the state’s high tax burden. Newsom already is proposing new fees on water and 911 service.

California’s most notorious public-policy disasters have come, counter-intuitively, during the best fiscal times, when revenues were swelling and budgets were flush with cash. The best example came in 1999, when Gov. Gray Davis signed a law that caused a pension-hiking frenzy and led directly to the state’s debt crisis. The stock market was riding high and the California Public Employees’ Retirement System (CalPERS) promised that increasing pensions by 50 percent retroactively wouldn’t cost taxpayers a dime because market returns would cover the costs.

It didn’t cost a dime, but cost billions of dollars annually in general-fund payments and added hundreds of billions of dollars in taxpayer-backed liabilities. The biggest danger to California is now a governor who believes that the state is in such great financial shape that he can start spending with wild abandon. He will not be restrained by the Legislature, which now has strong Democratic super-majorities that are itching to spend money. We don’t want to wish for an economic downturn, a stock-market crash or another busted housing bubble, but that appears to be the only hope right now to derail the coming spending train.

This column was first published by the California Policy Center.

Steven Greenhut is Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.

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.

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

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

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