Obama Budget Plan Includes Sacramento, Folsom, Yosemite projects

As reported by the Sacramento Bee:

California gets its share, and then some, from the Obama administration’s $4 trillion budget proposal delivered Monday to a skeptical, Republican-controlled Congress.

There’s money for restoring the Sacramento-San Joaquin Delta, likely to survive congressional winnowing. Proposed upgrades at places like Yosemite National Park will probably find Capitol Hill favor, as well, along with funding for Central Valley flood control and dam improvements.

The budget, for instance, offers $3.5 million to complete the Army Corps of Engineers’ design and engineering studies for protecting the Sacramento area’s Natomas Basin. It provides tens of millions of dollars to upgrade Folsom Dam northeast of Sacramento and improve the safety of the earthen Isabella Dam in eastern Kern County. These projects enjoy bipartisan support.

 

CARTOON: Obama’s Three Branches of Government

Obama government

 

Gary McCoy, Cagle Cartoons

How paid sick leave can be healthy for pensions

President Obama said during his State of the Union address last week that 43 million workers have no paid sick leave, forcing “too many parents to make the gut-wrenching choice between a paycheck and a sick kid at home.”

The president wasn’t talking about government employees.

Most of them not only have paid sick leave, but also an incentive not to use it. When they retire, their unused sick leave can be converted into “service credit” for time spent on the job, which increases the amount of their pensions.

Is this “spiking,” the improper boosting of pensions by manipulating the final pay or time on the job used in the formulas that set monthly pension amounts?

Many do not think so. The higher cost of pensions presumably is paid for in advance by rate increases resulting from what the actuaries assume will be the cost of converting unused sick leave to service credit.

California Public Employees Retirement System actuaries assume, when calculating future costs, that service credit for unused sick leave will increase pensions and other benefits by 1 percent for state workers and non-teaching school employees.

Actuaries for the California State Teachers Retirement System, making the calculation in a different way, assume that unused sick leave will increase the service credit for educators by 2 percent.

An analysis by the CalSTRS actuary, Milliman, issued in 2010 found that the average amount of unused sick leave converted to service credit was 0.5 years for members retiring after 26 years on the job.

Unused sick leave was not considered in the development of the anti-spiking provisions in Gov. Brown’s pension reform (AB 340 in 2012). The bill barred final pay boosts through overtime, bonuses, one-time payments or terminal pay.

Sick leave can vary through labor bargaining or for other reasons. State workers in CalPERS get eight hours of sick leave per month. CalSTRS members get one day of sick leave per pay period, and employers are charged more for exceeding a limit.

In the Vallejo bankruptcy, the lack of a cap on unused sick leave was an issue. A city consultant, Charles Sakai, said in a court filing that a firefighter working 20 years could accumulate up to 5,760 hours of sick leave worth nearly three years of service.

Vallejo firefighters retiring after 20 years on the job could take half of the unused sick leave in cash, Sakai said, and use the other half to boost their CalPERS pensions by adding 1½ years of service credit.

Unused sick leave helped give a San Ramon Valley Fire Protection District chief a pension far exceeding his salary, one of the cases reported by Daniel Borenstein of the Contra Costa Times that prompted the introduction of anti-spiking legislation.

The fire chief, Craig Bowen, age 51, with a salary of $221,000, retired in December 2008 after 29 years on the job with an annual pension of $284,000. Unused sick leave boosted his service credit to 30.3 years, adding $10,700 to the pension.

Bowen is in the Contra Costa County Employees Retirement Association, one of 20 independent county pension systems operating under a 1937 act. After anti-spiking legislation for CalPERS was approved in 1993, similar legislation for counties in 1994 cleared the Senate but died in the Assembly.
sick
The conversion of unused sick leave to service credit began for both CalPERS and CalSTRS with legislation in 1973-74. The reason for the CalPERS change, modified several times since then, was not readily available last week.

Why CalSTRS members were allowed to begin converting unused sick leave into larger pensions was explained in a later bill analysis.

“It was anticipated that this benefit would reduce sick leave usage and enable employers to achieve some salary savings from not having to hire substitute teachers to replace teachers who might otherwise have been absent from the classroom,” said a CalSTRS analysis of AB 1102 in 1998.

“However, the anticipated reduction in sick leave usage and the projected salary savings were not realized. Consequently, employer costs increased as employers continued to pay salary for teachers who were absent from work because of illness, covered the cost of substitute teachers, and also paid STRS for the cost of the additional benefit at retirement.”

The costs were capped by legislation in 1979 that limited the conversion of unused sick leave to persons hired before July 1, 1980. Legislation in 1985 paid for the conversions by raising the CalSTRS employer contribution from 8 to 8.25 percent of pay.

Then in 1998 the unused sick leave conversion was reinstated by AB 1102 for those retiring on or after Jan. 1, 1999. Backers said the bill was needed for “equity” with CalSTRS members hired before July 1, 1980.

The bill was part of a package of increased pension benefits enacted as the funding level of CalSTRS, which was about 30 percent in the 1970s, climbed toward 100 percent under the Elder full-funding plan enacted in 1990 and a booming stock market.

An Assembly analysis of AB 1102 said supporters believe the bill and others in the package are “a fair compromise on the use of the Elder full funding money and will encourage teachers nearing retirement age to postpone retirement and stay in the classroom a little longer.”

Much of the current CalSTRS funding gap, which a $5 billion rate increase being phased in over the next six years is intended to close, is due to state and teacher contribution cuts and benefit increases enacted around 2000. Finally reaching the long-sought full funding was treated as a windfall to be spent.

The state CalSTRS contribution was cut from 4.6 percent of pay to 2 percent. For 10 years, a quarter of the teacher contribution to CalSTRS, 2 percent of pay, was diverted into a new individual investment plan. A half dozen small increases included the unused sick leave conversion and a longevity bonus.

CalSTRS would have had a funding level of 88 percent if it had not made the contribution and benefit changes around 2000 and continued to operate under the 1990 structure, a Milliman report said in 2013 when the funding level was 67 percent.

Last week President Obama called on Congress to “send me a bill that gives every worker in America the opportunity to earn seven days of paid sick leave. It’s the right thing to do.”

The president said the U.S. is “the only advanced country on Earth that doesn’t guarantee paid sick leave or paid maternity leave to our workers.” California has been in the vanguard of change.

Gov. Brown signed legislation last September requiring businesses to give employees at least three days of paid sick leave each year. In 2006, San Francisco required employers to give workers paid sick leave.

The president expanded paid sick leave for federal workers this month by adding six weeks to care for a new child or ill family members. And during his first year in office he expanded the conversion of unused sick leave to boost pensions.

Only federal workers hired before a cost-cutting pension reform in 1987 had been allowed to convert unused sick leave to pension service credit. In October 2009, Obama signed a bill giving a similar benefit to federal workers hired after the 1987 reform.

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com. Posted 26 Jan 15

Originally published by CalPensions.com

TAX REBELLION: Obama Abandons Plan To Tax Americans’ College Savings

President Barack Obama is abandoning his proposal to eliminate Section 529 – the popular tax break used by millions of Americans to save for college — following a big backlash, not only from Republicans and parents, but also from his own Democratic allies.

“Given it has become such a distraction, we’re not going to ask Congress to pass the 529 provision so that they can instead focus on delivering a larger package of education tax relief that has bipartisan support, as well as the president’s broader package of tax relief for child care and working families,” a White House official said Tuesday.

According to The New York Times, Obama and his advisers were lobbied directly by House Minority Leader Nancy Pelosi while she flew with the president on a flight from India to Saudi Arabia. Other Democrats, including House Budget Committee Ranking Member Chris Van Hollen, were also big critics of the proposal.

So-called 529 plans (named for a part of the tax code) are a popular way for many Americans to save for higher education, as any withdrawals made from the plans are not subject to taxation as long as they are used to pay for college. The plans were a part of the 2001 Bush tax cuts, and Obama himself voted to make them permanent in 2006, using them to save $240,000 for his daughter’s educations. According to the College Savings Plans Network, about 12 million children are estimated to be the beneficiaries of such accounts, spread across 7 million households. (RELATED: Obama Pushing Taxes He Fought Against In The Senate And In His Book)

Obama had argued that 529 plans primarily benefit high earners, but critics argued that it was also a popular option for millions of middle-class households as well. Just hours before the White House caved on Tuesday, Speaker of the House John Boehner slammed the proposal, saying that the plans ”help middle-class families save for college, but now the president wants to tax those plans.”

Some state treasurers spoke out as well, since their states have tried to encourage college savings by offering to match contributions to the plans up to a certain dollar amount.

While the White House countered that any loss for the middle class from 529 reform would be offset by other college affordability proposals the president was making, the backlash ultimately proved too great and forced the president into a hasty retreat.

“This was a textbook case of the broad middle class of the country rising up in a true brushfire rebellion,” Ryan Ellis, tax policy director at Americans for Tax Reform, told The Daily Caller News Foundation. ”Oh, and if this was a dress rehearsal for increasing taxes on IRAs and 401(k)s, consider the experiment a failure.”

While the 529 tax hike is gone, Obama is still pushing for an increase in the capital gains tax rate, and for the closure of a loophole that reduces the amount of capital gains tax paid on inherited assets. These increases, it is hoped, will in turn provide the money to fund several proposals Obama has made to try reducing the cost of college, such as expanding tuition tax credits and providing two free years of community college.

Follow Blake on Twitter

Originally published by the Daily Caller News Foundation

CARTOON: Drone Crash

Obama Drone

Nate Beeler, The Columbus Dispatch

U.S. Economy Needs Hardhats Not Nerds

The blue team may have lost the political battle last year, but with the rapid fall of oil and commodity prices, they have temporarily gained the upper hand economically. Simultaneously, conditions have become more problematical for those interior states, notably Texas and North Dakota, that have benefited from the fossil fuel energy boom. And if the Obama administration gets its way, they are about to get tougher.

This can be seen in a series of actions, including new regulations from the EPA and the likely veto by the president of the Keystone pipeline, that will further slow the one sector of the economy that has been generating high-paid, blue collar employment. At the same time, housing continues to suffer, as incomes for the vast majority of the middle class have failed to recover from the 2008 crash.

Manufacturing, which had been gaining strength, also now faces its own challenges, in large part due to the soaring U.S. dollar, which makes exports more expensive. Amidst weakening demand in the rest of the world, many internationally-oriented firms such as United Technologies and IBM forecast slower sales. Low prices for oil and other commodities also threatens the resurgence of mainstream manufacturers such as Caterpillar, for whom the energy and metals boom has produced a surge in demand for their products.

Left largely unscathed, for now, have been the other, less tangible sectors of the economy, notably information technology, including media, and the financial sector, as well as health services. In sharp contrast to manufacturing, energy, and home-building, all of these sectors except health care are clustered in the high-cost, blue state economies along the West Coast and the Northeast. As long as the Fed continues to keep interest rates very low, and maintains its bond-buying binge, these largely ephemeral industries seem poised to appear ever more ascendant. No surprise then that one predictably Obama-friendly writer called the current economy “awesome” despite weak income growth and high levels of disengagement by the working class in the economy. If Wall Street and Silicon Valley are booming, what else can be wrong?

Should the whole economy become more bluish?

One consistent theme of blue-state pundits, such as Richard Florida, is that blue states and cities “are pioneering the new economic order that will determine our future.” In this assessment, the red states depend on an economy based on energy extraction, agriculture and suburban sprawl. By this logic, growing food for mass market consumers, building houses for the middle class, making cars, drilling for oil and gas—all things that occur in the red state backwaters—are intrinsically less important than the ideas of nerds of Silicon Valley, the financial engineers of Wall Street, and their scattered offspring around the country.

But here’s a little problem: these industries do not provide anything like the benefits that more traditional industries—manufacturing, energy, housing—give to the middle and working classes. In fact, since 2007, according to the Bureau of Labor Statistics, the information and technology sectors have lost more than 337,000 jobs, in part as traditional media jobs get swallowed by the Internet. Even last year, which may well prove the height of the current boom, the information and technology industry created a net 2,000 jobs. And while social and on-line media may be expanding, having added 5,000 jobs over the last decade, traditional media lost ten times as many positions, according to Pew.

In contrast, energy has been a consistent job-gainer, adding more than 200,000 jobs during the same decade. And while manufacturing lost net jobs since 2007, it has been on a roll, last year adding more than 170,000 new positions. Construction, another sector hard hit in the recession, added 213,000 positions last year. The recovery of these industries has been critical to reducing unemployment and bringing the first glimmer of hope to many, particularly in the long suffering Great Lakes region.

These tangible industries seem to be largely irrelevant to deep blue economies. A prospective decline of energy jobs, for example, does not hurt places like California or New York, which depend heavily on other regions to do the dirty work. Overall, for example, California, despite its massive energy reserves, created merely 15,000 jobs since 2007, barely one-tenth as many as in Texas. Energy employment in key blue cities such as New York and San Francisco has remained stagnant, and actually declined in Boston.

Similarly, a possible slowdown in manufacturing—in part due to an inflated dollar, depressed international demand, and the loss of industrial jobs tied to energy—will affect different regions in varying degrees. Since 2009, the manufacturing renaissance has been strongly felt in traditional hubs like Detroit, Grand Rapids, and Louisville, as well as energy-charged places such as Houston and Oklahoma City. All saw manufacturing growth of 10 percent or more. Meanwhile New York, Los Angeles, Chicago, San Francisco, and Boston all lost industrial positions.

Finally, there remains the housing sector, a prime employer of blue collar workers and the prime source of asset accumulation for middle class families. Sparked by migration and income growth, construction growth has been generally stronger in Texas cities but far more sluggish in New York and California, where slower population growth and highly restrictive planning rules make it much tougher to build affordable homes or new communities. Last year at the height of the energy boom, Houston alone built more single family homes than the entire state of California.

If you think inequality is bad now …

The new ephemera-based economy thrills those who celebrate a brave new world led by intrepid tech oligarchs and Wall Street money-men. The oligarchs in these industries have gotten much, much richer during the current recovery, not only through stocks and IPOs, but also from ultra-inflated real estate in select regional areas, particularly New York City and coastal California. As economist George Stiglitz has noted, such inflation on land costs has been as pervasive an effect of Fed policy as anything else.

Even in Houston, some academics hail the impending “collapse of the oil industrial economy,” even as they urge city leaders to compete with places like San Francisco for the much ballyhooed “creative class.” Yet University of Houston economist Bill Gilmer notes that low energy prices are driving tens of billions of new investment at the port and on the industrial east side of the city. This growth, he suggests, may help offset some of the inevitable losses in the more white collar side of the energy complex.

The emergence of a new ephemera-led economy bodes very poorly for most Americans, and not just Texans or residents of North Dakota. The deindustrialized ephemera-dominated economy of Brooklyn, for example, has made some rich, but overall incomes have dropped over the last decade; roughly one in four Brooklynites, overwhelmingly black and Hispanic, lives in poverty. Similar patterns of increased racial segregation and middle class flight can be found in other post-industrial cities, including one-time powerhouse Chicago, where areas of  concentrated poverty have expanded in recent years.

Nowhere is this clearer than in ephemera central: California. Once a manufacturing juggernaut and a beacon of middle class opportunity, the Golden States now suffers the worst level of poverty in the country. While Silicon Valley and its urban annex, San Francisco, have flourished, most of the state—from Los Angeles to the Inland regions—have done poorly, with unemployment rates 25 percent or higher than the national average. The ultra-“progressive” city now suffers the most accelerated increase in inequality in the country.

Similar trends have also transformed Silicon Valley, once a powerful manufacturing, product-producing center. As the blue collar and much of older middle management jobs have left, either for overseas or places like Texas or Utah, the Valley has lost much of its once egalitarian allure. San Jose, for example, has long been home to the nation’s largest homeless encampment. Black and Hispanic incomes in the Valley, notes Joint Venture Silicon Valley, have actually declined amidst the boom, as manufacturing and middle management jobs have disappeared, while many tech jobs are taken by predominately white and Asian younger workers, many of them imported “techno-coolies.”

In contrast, the recoveries in the middle part of the country have been, to date, more egalitarian, with incomes rising quickly among a broader number of workers. At the same time, minority incomes in cities such as Houston, Dallas, Miami, and Phoenix tend be far higher, when compared to the incomes of Anglos, than they do in places like San Francisco, New York, or Boston. In these opportunity cities, minority homeownership—a clear demarcation of middle income aspiration—is often twice as high as it is in the epicenters of the ephemeral economy.

To succeed in the future, America needs to run on all cylinders.

The cheerleaders of the ephemeral economy often point out that they represent the technological future of the country, and concern themselves little with the competitive position of the “production” economy—whether energy, agriculture, or manufacturing. They also seek to force the middle class into ever denser development, something not exactly aspirational for most people.

Nor is the current ephemera the key to new productivity growth. Social media may be fun, but it is not making America more competitive or particularly more productive (PDF). Yet there has been strong innovation in “production” sectors such as manufacturing, which alone accounts for roughly half (PDF) of all U.S. research and development.

What is frequently missed is that engineering covers a lot of different skills. To be sure the young programmers and digital artists are important contributors to the national economy. But so too are the many more engineers who work in more mundane fields such as geology, chemical, and civil engineering. Houston, for example, ranks second (PDF) behind San Jose in percentage of engineers in the workforce, followed by such unlikely areas as Dayton and Wichita. New York, on the other hand, has among the lowest percentage of engineers of major metropolitan areas.

To be sure, an aerospace engineer in Wichita is not likely to seem as glamorous as the youthful, urbanista app-developers so lovingly portrayed in the media. Yet these engineers are precisely the people, along with skilled workers, who keep the lights on, planes flying and cars going, and who put most of the food on people’s tables.

The dissonance between reality and perception is most pronounced in California. The state brags much about the state’s renewable sector to the ever gullible media. But in reality high subsidized solar and wind account for barely 10 percent of electrical production, with natural gas and coal, now mostly imported from points east, making up the vast majority. In terms of transportation fuels, the state has a 96 percent dependence on fossil fuels, again large imported, despite the state’s vast reserves. Los Angeles, although literally sitting on oil, depends for 40 percent of its electricity on coal-fired power from the Intermountain West.

Equally critical, the now threatened resurgence of the industrial and energy sectors could reverse trends that have done more to strengthen the U.S. geopolitical situation than anything else in recent decades. Foreign dictators can easily restrict a Google, Facebook, or Twitter, or create locally-based alternatives; for all its self-importance, social media has posed no mortal danger to authoritarian countries. In contrast, the energy revolution has undermined some of the world’s most venal and dangerous regimes, from Saudi Arabia and Iran to Russia and Venezuela.

In no way do I suggest we don’t need the ephemeral sectors. Media, social and otherwise, remain important parts of the American economy, and testify to the country’s innovative and cultural edge. But these industries simply cannot drive broader based economic growth and opportunity. Part of the problem lies in the nature of these industries, centered largely in Silicon Valley and San Francisco, which require little in terms of blue collar workers. Another prime issue is that these areas can only import so many people from the rest of country due to extraordinary high housing costs.

Under current circumstances, the centers of the ephemeral economy such as New York or San Francisco cannot accommodate large numbers of upwardly mobile people, particularly families. These, for better or worse, have been vast gated communities that are too expensive, and too economically narrow, to accommodate most people, except those with either inherited money or elite educations. This is why Texas—which has created roughly eight times as many jobs as California since 2007 and has accounted for nearly one-third of all GDP growth since the crash—remains a beacon of opportunity, and the preferred place for migrants, a slot that used to belong to the Golden State.

As a country, we stand at the verge of a historical opportunity to assure U.S. preeminence by melding our resource/industrial economy with a tech-related economy. Our strength in ephemera can be melded with the power of a resource and industrial economy. In the process, we can choose widespread and distributed prosperity or accept a society with a few pockets of wealth—largely in expensive urban centers—surrounded by a downwardly mobile country.

The good news is America—alone among the world’s largest economies—has demonstrated it can master both the ephemeral and tangible economies. To thrive we need to have respect not for one, but for both.

Editor of NewGeography.com and Presidential fellow in urban futures at Chapman University

This piece first appeared at The Daily Beast.

Cross-posted at New Geography and Fox and Hounds Daily 

CARTOON: Obama Deflated

Obama deflate

Rick McKee, The Augusta Chronicle

CARTOON: Obama’s Crossroads

State of the Union cartoon

Nate Beeler, The Columbus Dispatch

CARTOON: Crash Test Dummy

State of the Union

 

Steve Sack, The Minneapolis Star Tribune

Obama’s Resolutions

Obama Resolutions

Gary McCoy, Cagle Cartoons