CalPERS opts to keep ban on tobacco stocks

As reported by the Sacramento Bee:

CalPERS said no again to tobacco Monday.

Amid a passionate debate on the wisdom and morality of investing in tobacco, the big California pension fund rejected a recommendation by its staff to end its 16-year-old ban on tobacco. CalPERS’ investment committee, in a 9-3 vote, concluded that the tobacco industry is heading toward long-term decline and presents too much of a risk

Because the investment committee consists of every member of the governing board, the vote represents the final decision.

Not only will CalPERS not buy tobacco stocks, it decided it will unload $547 milllion worth of tobacco investments that it has held through outside investment managers. …

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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 – Conflicting Goals of Prop. 56

cigarette smoking ashesWhat is the tobacco tax increase for? Is the tax proposed in Proposition 56 to reduce smoking or to gain revenue? It seems the proponents’ goal is to be all things — a deterrent to smoking by raising the cost, plus raising revenue mostly for health care. Can they really have it both ways?

Raising the cost of a product means you will get less of it. The idea behind raising the cost of cigarettes and other tobacco products is to diminish and even eliminate their use. Previous tobacco tax increases have been accompanied by reduced use.

In a new study by the Proposition 56 campaign aimed at convincing the business community of the measure’s positive economic impacts, additional costs for a single smoking employee in health care costs and reduced productivity is calculated to be more than $5,000 per year.

The study also notes that, “From an employer ’s perspective, money spent on Medi-Cal is a good investment.”

About a billion dollars raised by the new tax would be dedicated to Medi-Cal. The idea is for an on-going financial commitment to the Medi-Cal program that has seen a dramatically increased population in recent years–and not just because of smokers. California has one the smallest percentage of smokers of any state.

The study briefly remarks on the loss of business for retailers who carry tobacco products asserting that the net benefit of eliminating “all” smokers would outweigh the costs involved from lost revenue of private sector retailers and lost government revenue. In this context, can we call eliminating all smokers a pipe dream?

If cessation of smoking is the prime goal, with all the economic benefits that the study says comes with the end of smoking, why not raise the tax instead of $2 a pack to $20 or more. That should discourage smokers.

But then all the revenue will disappear as well.

How important is the revenue goal of Proposition 56? If revenue diminishes with the decrease in smoking won’t those who benefit from the government dollars look for a replacement? In fact, Proposition 56 calls on the state Controller to transfer some of the new money to programs already benefiting from previous tobacco tax increases to make up the expected revenue loss if this measure passes. It stands to reason that those benefiting from the revenue haul from an increased tax will not want it to disappear.

There’s an example of such logic on the same ballot. California voters will decide on Proposition 55 to continue what was supposed to be a temporary tax.

Hospitals and health care union members are taking a two-prong approach to fund Medi-Cal. Go after dollars from the rich with Proposition 55’s extension of the income tax, and capture money from the poor who tend to make up the bulk of smokers with Proposition 56’s tobacco tax increase.

So, what is the intention of Proposition 56 — is it designed to discourage and ultimately stop smoking, or is it to raise revenue?

This piece was originally published by Fox and Hounds Daily

Bid to Raise California Tobacco Tax Nears November Ballot

As reported by ABC News:

A well-financed campaign backed by billionaire environmentalist Tom Steyer, medical groups and organized labor has collected enough signatures for a ballot measure to raise California’s cigarette tax by $2 a pack, officials said.

The Save Lives California coalition scheduled a news conference Monday at the San Diego County Registrar of Voters office to submit the first signatures in its effort to triple California’s cigarette tax to $2.87 a pack.

If enough signatures are verified, the measure would appear on an increasingly crowded Nov. 8 ballot alongside proposals to repeal a ban on single-use plastic bags at grocery stores and require actors to use condoms in adult films.

The announcement about the tobacco tax measure came less than a month after Democratic Gov. Jerry Brown signed legislation to make California the second state in …

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Legalizing Marijuana … While Cracking Down on Tobacco

cigarette smoking ashesGovernor Jerry Brown just signed a package of tobacco regulatory bills sent to him by the California Legislature which is being billed as a “major victory for public health.”

Among the bills signed yesterday, was an increase in the age at which one can consume tobacco products from 18 to 21 and banning the use e-cigarette vaporizers in public places.

What is the point? In case the Legislature has not gotten the memo, the state is poised to legalize the recreational use of marijuana in California on the November 2016 ballot. So we’re legalizing marijuana but cracking down on tobacco – doesn’t that strike anyone around the Capitol as being a bit odd.

Based on polling, we know the public’s favorability of legalizing marijuana has dramatically increased over the last several decades. But is there is there any evidence that the California public is now all of a sudden demanding tougher tobacco regulation? I don’t think so.

As for controlling the use of tobacco by minors, the California Legislature is about 30 years too late. This type of legislation may have mattered in 1988 when California voters passed the first of its kind Prop. 99 which increased taxes on tobacco to fund public health programs. At that time, the Legislature was completely captured by the tobacco industry, and it has taken about 40 years to wean state lawmakers off campaign contributions from “big tobacco.”

Prop. 99 was found to have significantly reduced tobacco use and fatalities in California. At this time, public health advocates were calling for the California Legislature to send a message to the tobacco industry to quit targeting are kids and do something about the tobacco epidemic.

But 30 years later, this type of restriction is basically meaningless, and done more for appearances than any actual public policy benefit.

In the meantime, the Legislature has collected large amounts of tobacco campaign contributions, most of it funneled through the California Democratic Party, for a very long time. And now that those campaign contributions are starting to dry up, they decide it is now time to “get tough on tobacco.”

This is another example of the California Legislature trying to create a major legislative victory out of nothing, so it looks like they are doing a good job on policy issues such as “protecting public health,” and “standing up to big tobacco” in the run up to the 2016 election.

The reality is that raising the smoking age will not do much if anything to curb tobacco use. Research shows that most kids start smoking before age 18, and that restricting use to age 18 is not effective at preventing use to begin with.

According to the National Survey on Drug Use and Health, more than 80 percent of all adult smokers begin smoking before the age of 18; and more than 90 percent do so before leaving their teens.

So what’s the Legislature’s solution, increase the smoking age to 21, even longer after teens have already started smoking. Moreover, making it illegal to smoke could even enhance its appeal to teens, and serve to be counter productive.

As for banning the e-vaporizers in public. These are intended to help people stop smoking by providing a smoke-less alternative. The smoking cessation industry has already criticized the banning of these instruments as being counterproductive to reducing tobacco use.

In California, individuals are considered to be “adults” at age 18, so why shouldn’t they be able to make their own decisions at that age regarding tobacco use. Does the California Legislature really need to tell legal adults everything that they should and should not be doing?

The last thing California needs is the California Legislature trying to act as the “responsible adult” on every marginal issue. Adding insult to injury, is California lawmakers “declaring victory” against an industry that has been one of their core supporters for the last 40 plus years.

Kersten Institute for Governance and Public Policy

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

Vote nears to raise smoking age to 21

As reported by the Riverside Press-Enterprise:

California’s Senate is poised to vote on a sweeping package of anti-smoking measures—including raising the smoking age to 21— as lawmakers try to crack down on tobacco use and the health problems that flow from it.

If the Senate approves Thursday and Gov. Jerry Brown signs off, California would become the second state to move the age to buy cigarettes from 18 to 21, and electronic cigarettes would face the same restrictions as tobacco products.

The six bills represent California’s most substantial anti-tobacco push in nearly two decades, the American Cancer Society said. But advocates couldn’t garner enough support to raise cigarette taxes, which requires a two-thirds supermajority. The Cancer Society and other groups are seeking to qualify an initiative for the 2016 ballot. …

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Scientist Debunks Claim That E-Cigs Are As Dangerous As Tobacco

e-cigaretteA study making headlines across the world claiming two e-cigarette products “damaged cells in ways that could lead to cancer,” is under fire from a leading public health expert.

Conducted by a research team at the University of California, San Diego, the study investigated how e-cigarettes may contribute to the development and progression of a cancer known as head and neck squamous cell carcinoma.

The research team “created an extract from the vapor of two popular brands of e-cigarettes and used it to treat human cells in Petri dishes. Compared with untreated cells, the treated cells were more likely to show DNA damage and die.”

What was the result?

“The exposed cells showed several forms of damage, including DNA strand breaks. The familiar double helix that makes up DNA has two long strands of molecules that intertwine. When one or both of these strands break apart and the cellular repair process doesn’t work right, the stage is set for cancer.”

One of the study’s authors even went on to claim “they [e-cigarettes] are no better than smoking regular cigarettes.” Combined with a hyperbolic press release, the study has triggered a wave of headlines claiming vaping is just as dangerous as smoking.

But Dr. Michael Siegel, a professor in the Department of Community Health Sciences at Boston University School of Public Health, with 25 years of experience in the field of tobacco control has dissected the most sensational claims of both the researchers and headline writers.

In a statement sent to The Daily Caller News Foundation, Siegel said, “this study confirms previous findings that e-cigarette vapor can cause damage to epithelial cell lines in culture, and that the damage caused by e-cigarette vapor is much lower than that caused by tobacco smoke. However, it cannot be concluded from this cell culture study that e-cigarette vapor actually has toxic or carcinogenic effects in humans who use these products.”

“In particular, the dose at which e-cigarette vapor was found to have an adverse effect was much higher than the actual dose that a vapor receives. Nevertheless, one of the co-authors concluded publicly that based on these results, e-cigarette use is no less hazardous than cigarette smoking.”

Siegel added that “not only is this conclusion baseless, but it is damaging to the public’s health. It undermines decades of public education about the severe hazards of cigarette smoking. To declare that smoking is no more hazardous than using e-cigarettes, a non-tobacco-containing product is a false and irresponsible claim.”

One of Siegel’s chief concerns about the misrepresentation of e-cigarettes is many ex-smokers who took up vaping may switch back to regular cigarettes if they believe there is no difference between the two. “This will cause actual human health damage, not merely damage to some cells in a laboratory culture,” says Siegel.

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Originally published by the Daily Caller News Foundation

CA Doesn’t Need Additional Tax Revenue

TaxesThere is an old expression, “carrying coals to Newcastle,” to describe a useless activity or fool’s errand. Sort of like shipping pineapples to Hawaii or, bringing it closer to home, sending more tax dollars to Sacramento.

The truth is, Sacramento is awash in cash. The Legislature’s budget analyst estimates that this fiscal year will end with $3 billion more than anticipated and, by 2017, state reserves may even top $11 billion.

For the political ruling class, this is an embarrassment. Last summer, the governor called a special session of the Legislature in an attempt to secure legislative approval of a new health care tax on managed care organizations (MCOs) because the current tax is about to expire. He also called another special session to deal with transportation funding. In both cases, Republicans in the Legislature are making trouble for those backing new taxes by pointing to the obvious: The state already has plenty of money.

This embarrassment of riches is also bad for the morale of special interests looking to increase taxes via ballot measures. Public sector unions are pushing for an extension in the “temporary” tax increase approved by voters in 2012.

But they have yet to show a united front and are fighting over who will get the money. Whether the proceeds go to education, as favored by the state’s most powerful special interest, the California Teachers Association, or to the health care industry, as is supported by other union and hospital interests, has yet to be decided.

Health care interests may also pursue a new tobacco tax of $2 a pack. Since smokers and tobacco companies are only slightly more popular than ISIS, pundits believe – perhaps naively – that this initiative will pass. (They’ve been wrong before as tobacco taxes are highly regressive.) Or perhaps the “evil” oil companies will be the target in a state where motorists already pay 75 cents a gallon more than the national average. Good luck with that.

Campaigns for initiatives to impose new or higher taxes tend to use happy talk to focus on the benefits to the needy or the general population and ignore the actual goal. For example, Proposition 30, the sales and income tax increase, was sold as a boon to education when, in reality, much of the revenue is needed to keep the teachers’ pension system solvent.

For any tax increases being pushed by special interests, voters should keep in mind that actual beneficiaries tend to be the providers of services – think pay and benefits — not the recipients.

This brings us to another potential initiative with the sympathetic sounding title of “Lifting Children and Families Out of Poverty Act.” The measure would place a property tax surcharge on higher value homes and property.

If this proposal actually reaches the ballot, it will, no doubt be marketed as a tax on the well-off so they can pay their “fair share” to help needy children. Backers of this tax will not mention that, as usual, those receiving the majority of benefits are likely to be the providers of services, not those in poverty. And don’t expect voters to be told about California’s already generous entitlement programs or, even with record spending, the hefty state surplus. The fact that this measure would be the first step in destroying Proposition 13 protections for all property owners, including those of modest means, will be glossed over as initiative promoters use the less fortunate as human shields to justify themselves.

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

Billionaire Tom Steyer Donates $1 Million To Hike Taxes On Smokers And Vapers

cigarette smoking ashesBillionaire liberal activist and environmentalist Tom Steyer has donated a cool $1 million to a campaign to raise California’s tobacco tax by $2.

A long-time fundraiser for prominent Democrats such as Hillary Clinton and President Barack Obama, Steyer has turned his attention to making smokers cough up more money for their cigarettes.

“We have a moral responsibility to stand up to tobacco companies and keep kids from becoming lifetime smokers, and we can do that by raising the tobacco tax,” Steyer said in a statement.

But its not only smokers who would be hit if Steyer’s health crusade proves successful. The tax would also cover e-cigarettes, which contain no tobacco and are 95 percent safer than regular smokes.

The campaign to raise the tobacco tax is supported by a number of public health lobby groups like the California Medical Association as well as the California State Council of Service Employees, who have donated $2 million to the effort so far this year.

Supporters of the tax say it will raise $1.5 billion that will be spent on increasing the number of physicians in California. All previous efforts to introduce a tobacco tax in California via ballot initiative have failed. Californians currently pay 87 cents per pack in state taxes.

“Big Tobacco profits from a product that kills millions of people around the world every year and is the leading cause of preventable death in California,” Steyer said. “The best way to prevent these smoking deaths is by protecting children from ever becoming addicted to this deadly product in the first place.”

The polls appear to be in Steyer’s favor with a survey funded by California Wellness Foundation showing 67 percent of voters favored a $2 rise in the state tobacco tax, with only 30 percent opposing the move.

Steyer is the founder and former Co-Senior Managing Partner of Farallon Capital Management, LLC and the co-founder of Beneficial State Bank, an Oakland-based community development bank. Funded by California Wellness Foundation, the survey showed 67 percent of voters favored a $2 rise in the state tobacco tax, with only 30 percent opposing the move.

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Originally published by the Daily Caller News Foundation