Politicians routinely divert funds from where they’re promised

Money

If a person holding a handmade “homeless and hungry” sign came across your commuting path, you might have good reason to suspect that money given them would go toward something other than housing or food. One would hope that government would be more reliable, given their constantly repeated rhetoric of advancing citizens’ general welfare. However, there are reasons to think that government may not be.

California’s Proposition 56 offers one current example. It hiked cigarette taxes by $2 per pack last year, justified because, as the Los Angeles Times endorsement put it, “The bulk of the funds would go … specifically, to pay healthcare providers more to treat Medi-Cal patients.” However, Gov. Brown has allocated no money to that end, even to offset a 10 percent cut during the recession, leaving California with reimbursement rates that are 48th in the country. Similarly, in November, Oakland passed a tax on sugary beverages which was supposedly to finance health and education programs, backed by an advisory board to ensure the money was well spent. But Mayor Libby Schaaf already wants to divert $6 million of it to help fill a budget hole, and other revenue to different purposes.

Unfortunately, the diversion of funds from where politicians promise voters they will go is a fact of political life, undermining any confidence in such promises.

Politicians routinely divert funds from where they promised. Diversions of earmarked bond revenues have been so common that citizen oversight boards are now routinely created (with limited actual effect) to convince voters of public agency trustworthiness, this time. State lottery funds promoted to supplement education have met a similar fate. Politicians, taking into account those additional funds, reduce other budgetary support, freeing up money to be spent however the state government decides, just as if the lottery proceeds went directly into its general fund. As professors Patrick Pierce and Don Miller concluded in a study of education funding, “Regardless of the state, the educational spending rate declined once a state lottery went into operation.”

Even when government spends money where they promised, the effects are often far different than advertised. For instance, food stamps (now SNAP) are largely equivalent to cash, because the vast majority would purchase more food than their food stamp allotments. That allows food stamps to replace money that recipients would have spent on food anyway, freeing it up to use however they choose. Housing, winter heating and other subsidies have similar effects, because to the extent they replace money that would have been spent on those items, earmarked funds can be diverted wherever recipients select.

Similar diversions have also often hobbled the effectiveness of humanitarian foreign aid. It frees up resources otherwise required to buy such supplies, allowing them to be spent wherever the recipient government chooses. As a result, much is lost to corruption or converted to other uses, including military spending, sometimes used to threaten citizens or neighboring countries.

If you voted for California’s Proposition 56 because it would increase Medi-Cal reimbursement rates or for Oakland’s sugary beverage tax to help health and education programs, you are probably disappointed at the deception involved. Those latest installments of the victory of hope over experience justifies anger and cynicism about government. It cannot be trusted to do what is promised. And when it does what is promised, the results are often far different than intended. Neither fact offers much assurance that government can reliably advance our general welfare. That is worth remembering, as it will not be long before the next installment of the government’s “hungry and homeless” signs will again be put on display.

Gary M. Galles is a professor of economics at Pepperdine University, an adjunct scholar at the Ludwig von Mises Institute, a research associate of the Independent Institute, a member of the FEE faculty network, and a member of the Board of Policy Advisors at the Heartland Institute. His books include “Apostle of Peace” (2013), “Faulty Premises, Faulty Policies” (2014) and “Lines of Liberty” (2016).

California Continues Its March to the Left

Atty. Gen. Kamala Harris urges funds for tracking prescription drugsOn Tuesday, California voters lurched even further to the political Left, bringing the state even more out of step with the rest of the country. In a battle of two Democrats for a U.S. Senate seat, Bay Area leftist Attorney General Kamala Harris trounced Orange County moderate Rep. Loretta Sanchez, two to one – a greater margin than the victory in the state of Hillary Clinton over Donald Trump.

The Senate election again showed the bankruptcy of the “Top Two” primary reform of 2010, Proposition 14, which was supposed to produce moderate victors. As in many other local races, this race mainly prevented voters from having alternatives on the ballot from the Republican Party and third parties.

On the 17 state initiatives, giddy voters overall imposed massively higher taxes, spending and regulations. Combined with the $15 per hour minimum wage passed earlier this year by the Legislature, California in the future is going to be a much more expensive and less pleasant place to live. The next recession, which could hit next year, again will zoom unemployment above the 10 percent level and rapidly empty the state treasury, despite – or, rather, because of – the tax increases.

The Proposition 55 tax “extension,” really a $7 billion tax increase, belies the promise in 2012 that Proposition 30’s tax increase was “temporary.” The real problem here is that Prop. 30 was supposed to cover state deficits during the economic recovery from the Great Recession. But there’s no recession in 2016 and no deficits. So taxes should have been allowed to subside to the previous level. What will be done in the next recession? Another $7 billion tax increase – “temporary,” of course? Then another? And another?

Indeed, Prop. 55 passed with more than 60 percent of the vote, which for state teachers’ unions and other tax obsessives is like putting catnip in front of a mountain lion.

The Proposition 56 tax increase of $2 a pack of cigarettes, as I warned in a previous article on this site, will gouge poor people almost exclusively. How many non-poor people do you know that smoke a pack a day? And it will ignite a massively bigger black market in smokes. All to fund special interests favored by hedge fund billionaire and perpetual Silicon Valley busybody Tom Steyer.

Proposition 58 also passed, bringing back the retched, illiterate-producing Bilingual Education. As I wrote here, it’s one of the biggest education scams ever. Asian parents make sure their kids don’t get near this educational malpractice. But Hispanic kids won’t learn English or Spanish well, keeping them behind other kids.

As to regulations, Proposition 63’s absurd new gun-control measures passed, bringing certain lawsuits by gun groups for violations of the Second Amendment “right to keep and bear arms.” Given that President Trump will be appointing pro-Second Amendment justices to the U.S. Supreme Court, the odds are that 63, and equally absurd gun controls passed by the Legislature earlier this year, will be overturned.

Like state officials in general, voters haven’t heard the proof that gun control only works on honest citizens; that criminals easily can get guns and ammo. Conversely, when honest citizens are armed, crime drops because criminals fear being shot by potential victims.

On the positive side, the drug companies successfully spent heavily to defeat Proposition 61’s price controls on prescription drugs. Even Bernie Sanders ads didn’t help any more than did his national backing of Hillary.

Although the death penalty again was upheld with the defeat of Proposition 62, as I pointed out here, no future governor will allow an execution, so the matter is mute – except to get cooperation from criminals too dumb to know they can’t be executed.

Proposition 57, criminal sentence reduction, passed with nearly two-thirds of the vote. That seems reasonable, but if crime keeps increasing, you can bet a tightening measure will be on the 2018 ballot. These things go in cycles. The 1990s saw Three Strikes imposed with Proposition 184 in 1994, which was too strict. Like the 1960s, now is a time of laxity. The pendulum probably will swing back the other way eventually.

Overall, the election will drive tens of thousands of productive people and thousands of businesses from the state to seek a better life in other states, or even countries, despite almost guaranteed worse weather.

Those who stay can light up with the passage of Proposition 64, legalizing recreational use of marijuana, evaporating their troubles in a purple haze of hallucinogenic bliss.

John Seiler is a longtime California columnist. His email: [email protected]

A Quick Guide to the 17 State-Wide Ballot Measures

VotedI know what you’re thinking as you look at the 224-page voter guide to 17 statewide ballot propositions, and it’s not printable in a family newspaper.

Still, with California effectively under one-party rule, you and the ballot initiative are the closest thing we have to a system of checks and balances. So here’s my personal guide to help you do the job.

Yes on Proposition 54 to require that bills in the Legislature be posted online in their final form for 72 hours before lawmakers vote on them. This ends the abusive practice of slamming backroom deals into unrelated or blank bills as an “amendment,” then rushing them to the floor for a vote before anybody else can read them.

Yes on Prop. 53 to require voter approval before the state can borrow $2 billion or more for state projects by issuing revenue bonds. This affects the proposed Delta tunnels water project. Revenue bonds are repaid by charging the users of whatever they’re issued to build. If you use water, that’s you.

Yes on Prop. 52 to protect a program devised by California hospitals to secure available federal matching dollars for Medi-Cal. The hospitals pay the state to help fund Medi-Cal, which then qualifies for matching funds, and then the hospitals get most of their money back. The “most” part is the problem. Vote yes on 52 to keep politicians’ hands out of the Medi-Cal cookie jar.

On the rest, I’m voting no.

Taxes and education: Prop. 55 extends a temporary income-tax hike on high-earners until 2030, but the school budget crisis is over, and a top state tax rate of 13.3 percent makes California uncompetitive with other states for the small businesses that create most of the jobs in America. Prop. 51 soaks taxpayers for $9 billion plus interest to build schools so new-home developers can escape higher fees. Prop. 58 repeals the 1998 “English for the Children” initiative and reinstates bilingual education, and it could lead to some students being automatically enrolled in bilingual classes even if parents don’t request it or want it.

Criminal justice: Prop. 57 empowers state prison officials and parole boards to release many state inmates early, regardless of enhanced sentences. Prop. 62 abolishes the death penalty. Prop. 66 changes death penalty procedures to limit and speed up state appeals.

Substances and drugs: Prop. 56 puts a $2 tax on cigarettes and extends tobacco taxes to vaping products. Prop. 64 legalizes recreational marijuana, but it also launches a massive new state bureaucracy to regulate, track and tax every plant from seed to sale, and it’s still illegal under federal law. Prop. 61 orders some state agencies to pay no more for prescription drugs than the price paid by the U.S. Department of Veterans Affairs, likely leading to pre-discount price hikes. …

Click here to read the full article from the L.A. Daily News.

Beware of Props. 51, 55, and 56 Wreaking Havoc on CA Budget

budget-constantin-cagle-Nov.-26-2013-300x203As a professor of public budgeting and someone who has worked their entire career analyzing public budgets, I can say that ballot box budgeting wreaks havoc on the California budget process and taxpayer interests.

Yet it is something that voters are so accustomed to doing that most average voters don’t even know what “ballot box budgeting” is.

In short, ballot box budgeting is the practice of making major budget decisions at the ballot box. And unlike the normal budget process, these decisions are commonly written into the California Constitution, and not subject to change in any way short of another ballot measure.  

The result is that funds are locked in to being spent for a particular purpose regardless of other budget needs and priorities, and commonly lack the same accountability and oversight that the rest of the California budget is subject to through the legislative process.

There are three measures on the November 2016 ballot that represent ballot box budgeting at its worst, and should be rejected — Proposition 51 School Bonds, Proposition 55 School Funding and Proposition 56 Tobacco Tax Increase. There is one other measure, Proposition 64 Marijuana Legalization and Tax, which represents ballot box budgeting, but is less egregious and is worthy of consideration on its policy merits given that marijuana is not currently legal and therefore not taxed at all but should be considered on policy grounds.

The reality is that nearly all initiatives have some type of budget impact, but initiatives that allocate a significant dollar amount of public funds should generally be looked at with great skepticism, particularly those that raise taxes or reallocate existing public funds in some way.

Another common element in ballot box budgeting is a “pay to play” element, characterized by a situation where special interests sponsor a ballot measure that allocates public funds that benefit their private financial interest.   All four initiatives mentioned above have a significant “pay to play” element, that should be considered as well, and viewed with great skepticism.

In generally all such cases, initiatives are sold as being crafted in the “common good” or for the “public interest” but the real motivation is to benefit the private interests that raised the money to quality the measure and run a support campaign.

For example, Prop. 51 authorizes $9 billion in general obligation bonds for construction of K-12 public schools.  The construction of school facilities is done through a process at the local level, with state bond funds providing a state match, but this local process has come under great fire in the media recently, largely due to California Treasurer John Chiang’s efforts.

Treasurer Chiang has stopped short of criticizing Prop. 51 specifically but he has came down hard on the local municipal bond process as being a “pay to play” process that “rips-off taxpayers,” according to Treasurer Chiang’s press release.

Chiang says this “pay to play” process rewards special interests including developers, bondholders, and construction companies who offer to fund local bond campaigns in exchange for lucrative contracts, which are “no bid” contracts in many cases.

“Not only are these “pay-to-play” arrangements unlawful, they rip off taxpayers and endanger the integrity of school bonds,” Treasurer John Chiang declared, noting that between 2012-15 K-12 school districts issued $43.8 billion in long-term debt.

Without cleaning up this “corrupt” process, Prop. 51 essentially puts $9 billion in public funds at risk for misallocation by school districts and public agencies.  And will subject taxpayers to huge future costs, for spending with questionable public benefits given the process through which these bonds are issued under the current system.

Of course, the same special interests who benefit from this “pay to play” process are the primary proponents of Prop. 51, and are putting up millions of dollars to lock in these lucrative contracts for public bond spending.  A number of local districts are also proposing local bonds on the November 2016 ballot to provide a local match for these highly questionable public projects.

Prop. 55 is the example of another measure which might appear legitimate on its face because it raises money for “schools” and “health programs.”   But should also be rejected on ground of being a terrible case of “ballot box budgeting” and “pay to play” corruption of the state’s initiative process.

Prop. 55 extends the Prop. 30 (2012) income tax increases taxes on individuals and small businesses, which expire at the end of 2017, for another 12 years until 2030.  The effort is being sold as being a legitimate effort to fund schools and health care because Prop. 30 is something that the Governor, Legislature and business community agreed on back in 2012.

But Prop. 55 is not the same as the deal cut back in 2012, and should be rejected.  First, Prop. 55 is much more expensive, nearly twice as expensive as Prop. 30—and represents an $8-11 billion tax increase, as opposed to a $6.5 billion annual hit from Prop. 30.  Secondly, the measure is not “temporary,” and results in a broken promise Governor and Legislature made to voters in 2012—that’s why Governor Brown says he will not endorse Prop. 55.

Lastly, Prop. 55 adds a significant “pay to play” element as well by giving private hospital interests a piece of the action.  Specifically, Prop. 55 locks in another $2 billion in funding for “health programs,” which did not even exist in Prop. 30, and is a pure handout to the hospital interests which have already contributed more than $21 million to the Yes on Prop. 55 Campaign.

Public employee union interests get the bulk of the funds, estimated at $75 billion over 12 years, in salary and benefit spending primarily but the public generally does not view them as being the same type of “special interest” as purely private interests.  Yet, these public employee union interests have put up another $18 million thus far to support Prop. 55, and stand to reap huge rewards for their members and dues increases if Prop. 55 passes.

From a ballot box budgeting perspective, both Prop. 55 and the Prop. 56 $2 per pack tobacco tax increase are terrible budget policy because they lock in significant expenditure of public funds that will be allocated outside of the state’s annual budget process without regard to actual need or other pressing spending priorities.

Prop. 55 locks in $8-11 billion in spending with the bulk going for education, but another $2 billion going to “health care” programs—again not allocated according to need or the accountability standards under the state’s annual budget process which subjects all public spending to annual review.  Prop. 56 locks in another $1-1.4 billion in health care spending that will be allocated outside the state’s budget process.

Voters are encouraged to reject Propositions 51, 55, and 56 on grounds that they are terrible examples of “ballot box budgeting,” in which special interests put up millions of dollars, even tens of millions of dollars, to try to pass “public interest” measures with the expectation of a big payday at taxpayer expense for the years to come.

David Kersten is executive director of the Kersten Institute for Governance and Public Policy (www.kersteninsitute.org). He is an expert on fiscal issues and teaches a masters’ course on public budgeting for the University of San Francisco.

This piece was originally published by Fox and Hounds Daily

Tobacco Tax Compromise Stumbles in Legislature

cigarette smoking ashesThe California Legislature passed a package of bills intended to diminish tobacco sales. While one measure allows county governments to seek a tax on cigarettes, a state tobacco tax was not included in the package. That’s not to say many in the Legislature would like a tobacco tax and efforts were made to convince the tobacco industry to go along with a deal that would include a state tax increase. The proposed deal would result in scuttling a ballot initiative aimed for November to increase the tobacco tax and kill some of the bills in the package.

Here’s how Los Angeles Times columnist George Skelton explained the maneuvering in his Monday column:

Behind the scenes, Senate leader Kevin de León (D-Los Angeles) quietly is offering to negotiate with tobacco. If the industry were to allow the Legislature to pass a state tobacco tax, perhaps some of the package could be snuffed.

Then sponsors of a November ballot initiative that would raise the state cigarette tax by $2 per pack might be persuaded to withdraw their measure. That would save the tobacco industry upward of $100 million fighting the initiative.

Why wouldn’t the tobacco industry consider a more modest increase in the tax on cigarettes if some of the restrictive measures on tobacco were pushed aside and the initiative was pulled before it qualified for the ballot?

While tempting, the tobacco industry saw a big hurdle with any deal. There was no guarantee that if the deal were made a different interest group than the one behind the current ballot initiative would come along with a new tobacco tax effort in the near future. Or a future legislature could also consider a tax increase on tobacco.

Without a solid guarantee, the tobacco industry would rather take its stand now against any state tax increase. There is no way negotiating legislators can guarantee that some outside group won’t go to the ballot via the initiative with a new tax increase even if a deal is struck.

Many supporters of more tax revenue think tobacco and cigarettes is a good target because non-smoking voters outnumber smokers and tobacco users. Thus it is tempting for those who want to raise revenue to consider a tobacco tax.

The possibility that a new effort to raise tobacco taxes in the near future could not be guaranteed held back any legislative compromise on taxes.

Joel Fox is editor of Fox & Hounds and president of the Small Business Action Committee.

This piece was originally published by Fox and Hounds Daily

Which Initiatives Will Qualify for California’s 2016 Ballot?

“There are some lunatics out there and for $200 we encourage them.”

– Senator Mark Leno, speaking in favor of AB1100, as quoted by the Los Angeles Times, August 17, 2015

Voting BoothsFiling an initiative in California is about to get harder, thanks to a law taking effect on January 1st, 2016, that will increase the filing fee from the current $200 to $2,000. While $2,000 may seem like a lot, if the original fee, set at $200 back in 1943, were adjusted for inflation, today it would cost $2,366. And anyone seriously intending to place their initiative onto California’s statewide ballot will need a lot more than $2,000, since qualifying the measures invariably requires paying professional signature gatherers. How many signatures are required varies depending on turnouts in California’s gubernatorial elections. Based on the 2014 turnout, getting ballot initiatives onto California’s 2016 and 2018 ballots will require 365,880 signatures for a statute, or 585,407 for an amendment. Count on spending between $2 and $5 million, depending whether you’re working on a statute or an amendment, how early you get started, how much resistance you encounter, and who you hire.

When you only have to spend $200 to trigger a full analysis by California’s Attorney General, there are indeed some far-fetched, arguably frivolous schemes that end up as initiatives qualified for circulation. These almost never make it onto the ballot, but the nuttier ones attract an avalanche of publicity. But the majority of the 61 initiatives currently cleared for circulation are serious, even if they have no chance. If you want to know which ones definitely will appear on the November 2016 state ballot, just look for the government union label.

For example, #1691 “Cigarette Tax to Fund Healthcare, Tobacco Use Prevention, Research, and Law Enforcement” will increase the cigarette tax by $2.00 per pack, all of the proceeds to fund government programs staffed by unionized government employees. Among the sponsors – the president of the California State Council of Service Employees.

Then there’s #1704 “Property Tax Surcharge to Fund Poverty Reduction Programs,” which will increase property taxes on any real estate valued over $3.0 million. The proceeds, always towards laudable goals, will create thousands of new unionized government jobs in California. With the average coastal home already worth around $1.0 million, and countless small business properties worth a lot more than that, don’t assume this tax won’t eventually bite everyone. Then again, it’s supposed to “expire” in 20 years.

And speaking of “expirations,” remember the temporary personal income tax increases enacted in 2012? The taxes to “save our schools” that are really to “save our government employee pensions?” They’re back, thanks to #1727 “Tax Extension to Fund Education,” this time for another 12 years. Or there’s #1731 “Tax to Fund Education, Healthcare, and Child Development,” which unabashedly aims to make the 2012 tax increases permanent.

While sorely needed pension reform and tax relief initiatives will likely wither away, because they lack financial support from those heavily demonized billionaires who supposedly have their wicked way with California politics – these government union supported initiatives will be on the ballot. By the time the government unions have finished spending tens of millions to campaign for these three initiatives, the message will be clear: If you don’t vote for them, then you hate cops, children, and poor people. There will be more. The insatiable desire of unionized government to expand itself finds perennial expression in California’s initiative process.

Students and fans of direct democracy are invited to view all of California’s current initiatives either qualifiedeligiblecleared for signature gatheringunder review or recently failed. By this time next year, they may not be nearly as abundant.

One thing is certain – the government unions will continue to put onto the ballot any initiative that serves their interests, and then, using money provided by taxpayers, spend whatever it takes to sell it to voters.

 *   *   *

Ed Ring is the executive director of the California Policy Center.

How is Government Spending Hidden Tax Revenue?

tax sign​Especially in California, the word “taxpayer” is frequently preceded by the word “beleaguered.” Given our large tax burden and the tragic level of government waste, perhaps there should be a grammatical rule that these two words must always be combined.

While some California taxes are hidden, most are unfortunately and painfully obvious. But the same is not true for the level of wasteful spending by government. The unstated rule of politicians and bureaucrats is that average taxpayers must be kept in the dark about how their money is being spent.

Ask the average man or woman in the street what they think the 87 cent tax on a pack of cigarettes goes to and they will likely respond that it goes for anti-smoking programs – like those scary TV spots – and for health care.

Because of the detrimental impact of smoking on health, most Californians will agree that there seems a logical connection between what is being taxed and how the money is being spent. However, most of the tobacco tax does not go to these programs. Of the 87 cents, 50 cents goes to children’s programs administered by First Five California, a creation of Proposition 10. Now children’s programs may be a great idea, but many ask why these are not funded openly out of the state general fund instead of having the costs hidden inside the tobacco tax.

Ironically, we have seen First Five California objecting to additional taxes on tobacco products because the number of smokers might decrease and thus reduce revenue to their programs. So what we have, in effect, is an agency that is tacitly supporting what they concede is an unhealthful habit, simply because it wants the revenue.

Then there are parking tickets that in cities like Los Angeles can cost more than $60. While parking fines are imposed, in theory, to make spaces available to all motorists, the real motivation is to satisfy the appetite for revenue. Because Los Angeles has some of the highest paid workers in a state that the federal government says has the highest paid government employees in all 50 states, it desperately needs the revenue to support payroll and benefits. This may help explain some of the city’s confusing signage that makes it difficult for drivers to tell when they can park and where.

More confusion that benefits the public sector, and puts taxpayers at a disadvantage.

But state and local governments do not have a monopoly on confusing or hidden taxes, charges and other revenue enhancements.

Enter Congress and the highway bill. The version being considered by the Senate would place a new tax burden on home buyers by increasing the fees Fannie Mae and Freddie Mac charge for their loans. “Not only will it increase the cost of homeownership and make it more difficult for a buyer to purchase a home, it will hinder future efforts at mortgage finance reform,” said California Association of Realtors President Chris Kutzkey.

As bad as that sounds, it is even worse. It is another charge whose purpose is intentionally hidden from the casual observer and where there is a total disconnect between what is being taxed, home loans, and on what the money will be spent, highways. (In California this would be defined as a “special tax” under Proposition 13 and require a two-thirds vote.)

According to the Washington D.C.-based Tax Foundation, America spends more on taxes than on food, clothing and housing combined. In California, the average taxpayer works for government until May 3rd, before they start working for themselves.

It is not too much to demand from politicians that they make clear what taxpayers are being charged and on what the funds are being spent. Maybe then we can remove the modifier “beleaguered” from the word “taxpayer.”

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

Originally published at HJTA.org