Committee Hearing Exposes UC’s Bloated Budget

Tuition hikes marched to the head of the class at a recent hearing of California Assembly Budget Subcommittee No. 2 on Education Finance. Assembly members balked at a 28 percent tuition hike advanced by UC President Janet Napolitano and approved by the University of California Board of Regents.

According to the Los Angeles Times, “Neither the governor nor the California Legislature has the authority to force the UC regents to rescind the tuition increase.” However, the tuition hike is not included in the January budget proposal of Gov. Jerry Brown, himself also a regent, for fiscal year 2015-16, which begins on July 1.

Chaired by Assemblyman Kevin McCarty, D-Sacramento, the hearing flunked the UC system for wasteful and deceptive spending practices. A video of the hearing is here.

UC’s overall spending has grown by 40 percent to $26.9 billion since 2007, according to a report prepared for the Feb. 18 meeting. UC’s expenditures for instruction grew by 27 percent to $6.9 billion.

Yet during that same period:

  • Undergraduate enrollment by California residents increased just 4 percent.
  • Overall enrollment, including graduate and out-of-state students, increased 15 percent to more than 248,000 students.
  • Inflation increased about 12 percent.
  • The Higher Education Price Index, which measures the costs of goods and services typically purchased by U.S. colleges, increased about 18 percent.

Tuition increase

To help pay for UC’s spending increase, tuition increased 84 percent between 2007 and 2011. In Nov. 2014, the UC Board of Regents increased tuition and fees an additional 5 percent annually over the next five years to $15,564 from the current $12,192, pending legislative approval. The compounded increase is 28 percent.

Much of that tuition is supported by state taxpayers in the form of Cal Grants, which have increased from $295 million in 2007 to $882 million currently.

Some of the biggest cost drivers are employee salaries and benefits, retiree benefits and an increase in the hiring of administrators, according to the report:

  • “The number of highly paid UC employees has grown significantly. Nearly 6,000 UC employees earn gross pay of $200,000 or more. [T]he number of these employees has grown by almost 100 percent during that period, and overall pay to this group amounted to $1.8 billion in 2013.
  • “[A]dministrative staff, both in academics and other areas, grew far faster than faculty and faster than overall staff growth.” Tenure-track faculty increased just 3 percent from 2007-14, while senior management ballooned 32 percent and academic administrators grew by 19 percent.
  • UC believes its faculty members are underpaid in comparison with other universities. On average, UC’s full professors receive $150,455, associate professors make $98,804 and assistant professors get $91,155.
  • Pension benefits for more than 61,700 retirees and survivors total about $1.3 billion in the current year.
  • Employee health care costs grew between 8 percent and 11 percent annually from 2007 to 2012. Cost increases have slowed since then, but are expected to rise 6 percent this year. In addition, UC spent more than $263 million on retiree health benefits in 2014. The current unfunded liability for retiree health care is $14 billion.

The UC spending boost, tuition hikes and requests for more state government funding have created pushback in Sacramento.Gov. Jerry Brown and Assembly Speaker Toni Atkins, D-San Diego, are both UC regents and voted against the tuition hikes in November.

Brown has offered a 4 percent increase ($119.5 million) in General Fund support for UC. But only if there is no tuition hike, out-of-state enrollment doesn’t increase and UC begins to rein in costs. Brown and UC President Janet Napolitano have been meeting to work out their differences, with a report expected at the UC Board of Regents‘ meeting March 17-19.

Focus on students

At the start of the subcommittee hearing, Atkins emphasized the need for UC to get its spending in order.

“I announced in December that we would be looking at every aspect of the University of California’s budget,” Atkins said. “Every dollar appropriated [should be] spent for the intended purpose and in the right way. We will have open public hearings that are student-focused, looking at how much it really costs to educate students at UC and how we maximize UC’s acceptance of California students. No Californian should be priced out of UC.

“The state must do our best to make higher education a top budget priority. UC must do its part and become more efficient, enroll more Californians and not place increases on the backs of California students. Today marks the start of an overdue journey – a journey that will continue throughout the budget process for as long as it takes.”

Most of the testimony from witnesses at the meeting, with the exception of the UC representative, contended UC is not spending its money wisely or transparently. Paul Golaszewski, principal fiscal and policy analyst at the Legislative Analyst’s Office, led off by taking issue with UC’s contention that its professors are underpaid.

“We looked at data on faculty recruitment and retention over a number of years and concluded that it appeared that at the salary levels and the compensation levels they were offering, they had a very low turnover rate for faculty, something like 2 percent a year,” Golaszewski said. “It appeared that they were still able to get the types of faculty that they needed.”

He told the committee that it’s hard to know exactly what UC professors are doing to earn their salaries.

“Faculty workload data is much more difficult to come by,” he said. “We do have data on the student-to-faculty ratio. But that’s not telling you how much faculty are teaching. The University doesn’t track that data, the federal government doesn’t track that data. So that’s an area you might want to drill down and get a better understanding moving on.”

Undergraduates

Charles Schwartz, a retired UC Berkeley physics professor, has spent years analyzing and critiquing UC’s budgeting practices. His analysis concludes that UC spends an average of $7,500 per student on undergraduate instruction.

“They are charging undergraduates [tuition that is] almost twice what it actually costs them to provide undergraduate education,” said Schwartz. “That doesn’t sound right. What we face here is not just a UC habit of bad accounting, but a longstanding disease that infects all universities in this country. And this grossly distorts any discussion about student tuition, which is a big thing. People talk about it, but nobody says the truth about what’s going on.

“If you do not acknowledge the cost of that, and go about hiding that cost on the tuition bills of undergrads, this is not right. The challenge I bring to you is what can be done about it. The first thing you have to do must be to resolve the conflict between what I say about UC’s cost structure and what the president’s [Napolitano’s] office says it is. You need to find out which one of us is to be believed.”

AFSCME research director

Claudia Preparata, research director for American Federation of State, County and Municipal Employees, Local 3299, accused UC of having bloated management and hiding its cost. AFSCME represents 22,000 workers at UC campuses and medical centers.

“While we support more state investment, it needs to be tied to improved transparency and accountability for how UC spends its money,” said Preparata. “This is particularly true for UC executive compensation and the growth of middle management, both of which have come at a real cost to our employees, students and taxpayers. The lack of transparency obscures a redirection of money that used to fund instruction and other student services to [now] increasingly funding six- to seven-figure salaries and a growing army of middle managers.

“The numbers speak for themselves. In 2008 just 293 UC employees received gross pay in excess of $400,000 at a total cost of just $160 million. By 2013, after years of budget cuts and tuition hikes, 793 employees received these paychecks at a total cost of $452 million. During the same time period the cost of extra perks that 250 of UC’s highest paid employees receive – including housing, car allowances, moving costs and cash bonuses – swelled from $17 million to $24 million per year.

“We welcome the Legislature’s increased scrutiny of UC spending alongside a reinvestment in higher education. We believe the scrutiny should not be limited to the explosion of executive compensation, middle management, but also extend to policy directives that have paved the way for decentralizing financial decision making, eliminating transparency and enabling campus administrators to squander scarce resources, including outsourcing of UC career jobs to the lowest bidder with no accountability.”

‘Complex budget’

“It’s a very, very complex budget,” said Nathan Brostrom, the UC executive vice chancellor-chief financial officer. He believes UC has been a good steward of its funds. He described how UC has improved its pension system, which had been neglected during the financial crisis.

“First, we started contributions and dramatically increased them,” Brostrom said. “In 2009-10 we contributed zero as a university. This last year we contributed $1.3 billion – 14 percent of our employer contributions. That also couples with 8 percent from each employee. Second, we introduced a new pension tier, which increased the retirement age from 50 to 55 and the maximum age factor from 60 to 65. Finally, we also undertook internal borrowing, $2.7 billion, which has helped leverage and shore up the pension system.

“As a result, we have achieved some good results. We are now 87 percent funded, up from the mid-70s just a couple years ago. But we are bearing this entirely on our own. We don’t get any funding from the state for it, unlike any other state agency or the Cal State system.”

Aggressive efforts have also been taken to rein in health-benefit costs, he said. A new system called UC Care “is centered around our own medical centers to curb the costs and keep it in house,” he said. “We also undertook family member eligibility verification. As a result, we were able to contain the costs to 2.3 percent last year and 5 percent this year. And we are forecasting a 5 percent annual increase going forward.”

UC is also ensuring the continuation of in-state enrollment growth of 1 percent per year, or about 2,200 students, at a cost of about $22 million annually, said Brostrom.

Student-faculty ratio

One area that the UC has fallen behind in, due to a lack of funding, is the student-faculty ratio, he said. The ratio has increased to 21:1 from about 19:1 a decade ago.

“We really have not been hiring to replace the faculty members who are either leaving or retiring,” he said. “So there’s a fairly sizable amount that needs to go into new faculty hires. We also want to reinvest in instructional infrastructure, classroom technology and other instructional equipment.”

Brostrom concluded his presentation on an upbeat note. “Something we are most proud of is we are a world class university with very hard working, high achieving students, but we remain accessible to all Californians,” he said. “That’s something we not only maintained but enhanced during the budget crisis.”

Asked about the progress of Brown and Napolitano’s committee meetings, Brostrom said, “It’s been a very constructive process. We’ve been able to hear from experts both within the university and across higher education on different models and ideas. I think there will be things that will be constructive and helpful for the university to serve more Californians. Things that may help us reduce the time to [complete a] degree or increase streamlining of transfers. They may not all lead to cost reductions, but will provide more access to UC for all Californians.”

During the public comments portion of the meeting, numerous students complained about the high cost of tuition. They said it’s forced some students to become homeless, skip meals or work longer hours at a job, shortchanging their studies.

The subcommittee’s next hearing in early March will go into more detail on the UC budget, said committee Chairman McCarty.

Originally published by CalWatchdog.com

Villaraigosa Won’t Challenge Harris for Senate Seat

Former Los Angeles Mayor Antonio Villaraigosa announced he won’t challenge state Attorney General Kamala Harris for the U.S. Senate seat being vacated by Senator Barbara Boxer in 2016. That boosts the prospects of fellow Democrat Rep. Loretta Sanchez of Garden Grove.

Villaraigosa announced his decision Tuesday in a post on Facebook that foreshadowed a run for governor in 2018.

“I am humbled by the encouragement I’ve received from so many to serve in the United States Senate,” the former Democratic Speaker of the California Assembly wrote. “But as I think about how best to serve the people of this great state, I know that my heart and my family are here in California, not Washington, D.C.”

If Villaraigosa’s statement that his heart remains “here in California” wasn’t a clear enough indication of a future run for governor, he added he’ll continue his “efforts to make California a better place to live, work and raise a family.”

“We have come a long way, but our work is not done, and neither am I,” he concluded.

Kamala Harris

Villaraigosa’s decision to pass on an application for membership in “the world’s most exclusive club” follows similar announcements by Treasurer John Chiang, billionaire climate-change activist Tom Steyer and Lt. Gov. Gavin Newsom.

It didn’t take long for Harris, the only major announced Democratic candidate, to issue a statement praising the former Los Angeles mayor.

Kamala-Harris-hands“The city of Los Angeles, and our state and nation, have benefitted [sic] greatly from his leadership,” Harris said in a prepared statement tweeted by her campaign. “I know he has much more to offer. I wish him and his family all the best.”

Although Harris welcomed Villaraigosa’s exit from the race, the biggest beneficiary could be Loretta Sanchez. A moderate Orange County Democrat, Sanchez would have appealed to similar voters — Latinos and Southern Californians — as Villaraigosa.

Sanchez may prove formidable challenger to Harris

She hasn’t received the same media hype as Villaraigosa, but in some respects Sanchez may prove to be a more formidable challenger to Harris. The 10-term Democrat has said she’ll make a decision later this year. Sanchez has a head start on fundraising with nearly $400,000 in federal cash on hand, according to the most recent campaign finance reports.

Loretta SanchezHer statewide name identification, albeit lower than Villaraigosa’s, comes without the personal baggage. Early in his tenure as mayor, Villaraigosa disclosed an affair with a Telemundo newswoman. That was followed by photos showing the mayor partying with Hollywood bad boy Charlie Sheen at a hotel opening in Mexico.

But as pointed out by CalWatchdog.com, the biggest weight on a Villaraigosa campaign could be his support for Esteban Nunez, the son of former Assembly Speaker Fabian Nunez. Esteban pled guilty to manslaughter for the fatal stabbing of a 22-year-old college student. Villaraigosa, on official mayoral letterhead, wrote a letter of support for “a young man of good and upright character.”

The case was riddled with political favoritism, as detailed in a lengthy profile by the Los Angeles Times, and ended with Nunez friend Gov. Arnold Schwarzenegger’s commutation of Esteban’s sentence.

Latino Caucus: Senate contest bigger than any one candidate

Villaraigosa’s decision to pass on the race also does nothing to cool the burning frustrations of Latino political leaders, who are being pressured by some Democratic leaders to clear the field for Harris.

Earlier this year, former Speaker of the Assembly Willie Brown, who at one time dated Harris, said Villaraigosa should forgo a campaign out of respect for his friendship with the attorney general.

“His loyalty and his relationship with her should be so valuable, and he should, in my opinion, see it as an opportunity to demonstrate that,” Brown told the Sacramento Bee.

That comment inspired grumblings from members of the California Latino Caucus, who say the race is bigger than any one Latino candidate. Earlier this month, the group released a poll showing a Latino candidate could contend with Harris. The survey of 600 likely Latino voters, according to CalBuzz, showed Villaraigosa leading Harris, with Sanchez not far behind in third place.

“The U.S. Senate race has importance beyond the contestants themselves,” Assemblywoman Nora Campos, D-San Jose, said in a press release. “This is not about one candidate or another. An exciting race can generate enthusiasm among voters that have not been energized in years.”

Other Democratic candidates that are considering the race include Rep. Adam Schiff of Burbank, Rep. Xavier Becerra of Los Angeles and former Secretary of the Army Louis Caldera.

On the Republican side, Assemblyman Rocky Chavez of Carlsbad and former California Republican Party chairman Tom Del Beccaro are seriously exploring bids.

Originally published by CalWatchdog.com

The Glass Jaw of Pension Funds is Asset Bubbles

“CalPERS argued that the California constitution’s guarantee of contracts shielded pensions from cuts in bankruptcy. The fund also asserted sovereign immunity and police powers as an ‘arm of the state,’ including a lien on municipal assets.”

–  Wall Street Journal Editorial, “Calpers Gets Schooled,” February 8, 2015

If you want powerful evidence of crony capitalism at its worst, look no further. In the Stockton bankruptcy trial, the pension fund serving that city’s employees threatened to seize municipal assets to pay pension fund contributions. They’ve made similar threats to other cities that protest against the escalating contribution rates. And they’ve made the cost to exit pension plans confiscatory. It is hard to imagine a bigger or more blatant example of collusion between business interests and government employees at the expense of ordinary private citizens.

In the Stockton bankruptcy case, judge Christopher Klein’s ruling left pensions untouched, but at least the judge was openly disgusted with CalPERS, stating “CalPERS has bullied its way about in this case with an iron fist insisting that it and the municipal pensions it services are inviolable. The bully may have an iron fist, but it also turns out to have a glass jaw” (ref. San Jose Mercury Editorial, February 18, 2015.

Much has been made of the CalPERS’ “glass jaw,” referring to Klein’s contention that cities do have the legal right in bankruptcy to reduce pensions – even though he did not allow pension benefit reductions in this case. But there is another “glass jaw” facing CalPERS and all pension funds, the biggest “glass jaw” of all. They rely on annual returns of 7.5% per year to stay solvent, and as a result, sooner or later, the investment markets are going to deliver these funds a knockout punch.

Professional investors claim they can always beat returns of 7.5% per year, and many of them can. But public sector pension funds control over $4.0 trillion in assets, which makes them too big to beat the market. And the idea, courtesy of pension fund managers, that the investment market can deliver a long-term average return of 7.5% per year implies that 7.5% per year is a “risk free” rate.

For a quick reality check, here are the “risk free” rates of return currently available to investors in the United States:

Even in the cases where cities failed to make some of their annual pension payments, the financial impact was trivial compared to the primary cause of insolvency, which is that pension funds are not required to make “risk free” investments that are actually risk free. Because if they did, they would project low single digit annual rates of return instead of high single digit annual rates of return. It’s that simple.

A little over one year ago, the California Policy Center released a study “Are Annual Contributions Into CalSTRS Adequate?,” which utilized formulas provided by Moody’s investor services for that purpose. Using those formulas, the following table shows how lower rates of return impact CalSTRS:

Impact of Lower Rates of Return on CalSTRS
Based on 6-30-2012 Financial Statements, $ = Billions

CalSTRS chart

Just in case this is all merely abstruse gobbledegook that savvy political consultants recommend politicians avoid since nobody understands it anyway, pay particular attention to the columns on the far left and far right. The left column’s top row shows the official rate of return used by CalSTRS, 7.5%, and the right column’s top row shows how much they should contribute each year based on that official rate of return. Never mind that CalSTRS, like nearly all pension systems, uses creative accounting to avoid making an adequate payment to reduce their unfunded liability. In FYE 6-30-2012, for example, CalSTRS only made an unfunded contribution of $1.1 billion, not $7.0 billion (column five, top row) which would have represented a responsible payment against their unfunded liability.

It’s worth noting that for CalPERS, we can’t even get data on how they break out their normal contributions and their unfunded contributions because doing so would require sifting through the financials of every one of their participating entities. But there is nothing uniquely troubling about CalSTRS. As calculated in a more recent California Policy Center study, released last week “California City Pension Burdens,” in 2014 all state and local government pension funds in California, on average, were only 75% funded.

Imagine what would happen if CalSTRS had to pay $25 billion per year (column six, row five), instead of what they actually paid in 2012, $5.8 billion? Replicate these methods with nearly any pension fund in California, and you will almost always get similar results. And anyone who thinks a rate of return of 3.5% (column one, row five) is overly pessimistic should refer to the actual “risk free” rates of return shown in the previous bullet points. Better yet, consider this:  The federal funds lending rate today, the amount the federal reserve charges to banks, is 0.25% – that’s one-quarter of one percent. This is free money. That money is essentially being given to banks rates to turn around and loan at very low rates to corporations and consumers who use the cheap credit to buy things which, temporarily, stimulates the economy which causes asset values to rise – we are repeating 2008 all over again.

Pension funds depend on continuously expanding debt fueled asset bubbles for solvency. That is how they earn high returns that are anything but “risk free.” That is their glass jaw. Hopefully, when the bubbles pop and the glass jaws shatter, as an “arm of the state,” with “police powers,” CalPERS, CalSTRS, and every other pension fund in California won’t seize every municipal asset we’ve got and impose genuinely punitive taxes, so they can keep on paying those benefits.

*   *   *

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

Why Jerry Brown Isn’t Going Away Anytime Soon

Two weeks after his landslide reelection, four-term California Gov. Jerry Brown invited lobbyists to a private fundraising reception at a swanky Capitol restaurant.

The move was odd because, at 76 years old, the termed-out chief executive of the nation’s largest state is too old for the final political promotion to 1600 Pennsylvania Avenue.

If the White House isn’t in the cards, what’s Brown up to?

With nearly $24 million stashed away in campaign accounts, and reports showing he spent just $5.9 million on his re-election campaign—even less than GOP opponent Neel Kashkari’s $7.1 million—there’s no reason for Brown to bother with the chicken dinner fundraising circuit if he’s planning to end his career.

Whatever his intentions, one thing is certain: Moonbeam isn’t planning to ride off into the sunset.

Jerry Brown for President — Fourth Time’s the Charm

On Inauguration Day 2017, Jerry Brown will be older than Ronald Reagan on his last day in office. Those state-level campaign funds can’t be transferred (easily) to a federal campaign. And Brown definitively ruled out another presidential run last year, saying “time is kind of running out on that.

It doesn’t make sense for Brown to seek the White House a fourth time, and that’s exactly why he’ll do it. The Zen politician has prided himself on going against the grain.

Last year, he cruised to reelection with a non-campaign. A nation weary of the prospects of Bush vs. Clinton 2.0 could embrace Jerry’s low-key style. The toll-free hotline from his 1992 presidential bid remains active. Moreover, a presidential run gives Brown the chance to define his legacy by telling the country about his “California comeback.”

Brown was the top performing Democrat in the 2014 midterm elections. He earned a million more votes than former Gov. Charlie Crist’s losing effort in Florida and doubled the vote total of Gov. Andrew Cuomo’s win in the Empire State. Raw vote totals are skewed by California’s size. Brown also had the widest margin of victory by percentages making him the strongest elected Democrat in the country.

Political Leverage: Ballot Measures in 2016

Brown’s been around California politics long enough to know that the real battles are fought over ballot measures. The signature threshold for qualifying ballot measures is determined by turnout in the previous gubernatorial election. Consequently, last year’s record low turnout will result in a record number of ballot measures in 2016.

Brown has said that he’s looking to use his surplus cash for “some major ballot measure battle that I can’t even conceive of.” While some of his largess will go towards 2016 ballot measures, it won’t consume his entire war chest. This election, Brown made big business and big labor pony up most of the $13.9 million for Propositions 1 and 2. Why would he spend his own money this time around?

The Legacy Project

Jesse Unruh has an institute. John Burton has a building. What’s Jerry Brown going to buy to ensure his name lives on?

When California’s ill-conceived high-speed rail plan runs off track, Brown will be without a legacy project. Not to worry, his millions of dollars in campaign funds can save his place in history with a sizable endowment to a university for an institute better than Unruh’s and a building bigger than Burton’s.

The Democratic Kingmaker

Brown could dispose of his campaign cash with campaign contributions to legislative candidates and the California Democratic Party. Then again, Brown has been stingier than your coupon-clipping grandma who still uses her passbook savings account.

Brown was, in the words of the Sacramento Bee, “nowhere to be seen in most down-ticket races.” In the June primary, the governor didn’t intercede on behalf of Steve Glazer, a faithful political adviser who was pummeled by the state’s labor unions in a Democratic legislative primary. In the general election, Brown cut an ad for one competitive State Senate candidate, but couldn’t manage to get the candidate’s name right.

Brown the Philanthropist

As mayor of Oakland, Brown founded two charter schools, the Oakland School for the Arts and the Oakland Military Institute. In the past decade, he’s raised tens of millions of dollars for the education initiatives. After the November election, an unnamed Brown aide told the San Francisco Chronicle, “My bet is whatever is leftover would go to those two projects…They are near and dear to his heart.”

Attorney James V. Lacy, a frequent guest on Fox News Channel’s “Varney and Company,” is author of “Taxifornia: Liberal’s Laboratory to Bankrupt America.”

This article was originally published by The Blaze

 

Have We Seen an End to Publicly Funded Stadiums?

The San Diego Chargers’ and Oakland Raiders’ announcement that they had taken steps toward jointly building a privately financed $1.7 billion stadium in Carson may have been done at least partly with the intent of persuading their home cities to push for taxpayer subsidies to allow each team to remain in place with their own new stadiums.

levis.stadiumBut the fact that the teams see no trouble in coming up with $850 million apiece seems likely to make San Diego and Oakland voters more opposed to subsidizing billionaire team owners than ever. So does the fact that Walton family member Stan Kroenke, who owns the eager-to-move St. Louis Rams, is preparing to build a $1 billion-plus stadium of his own in Inglewood without public dollars — and with the blessing of city officials who are putting the project on a fast track, bypassing environmental laws.

The deal accepted by Santa Clara County voters in 2010 limiting the subsidies for the 49ers’ new $1.2 billion Levi’s Stadium seemed a good deal at the time; the highest estimate of direct subsidies for the project CalWatchdog.com could find is $156 million. After what’s happened in recent years, that deal doesn’t look so good anymore.

Live sports are gold for TV networks

That’s because the economics of sports have changed since the 49ers’ deal was negotiated. Whether they move or not, the Chargers and Raiders have much less to back up their argument that they would face a “competitive disadvantage” by going without the subsidies that pro teams have traditionally demanded for new stadiums and arenas. They understand that franchise ownership is more beneficial than ever in an era in which live sports are the most consistent way to build a big real-time audience on TV and online.

For the 2014 season, TV networks paid more than $5.5 billion to the NFL. After some league and player pension expenses are paid, the rest of the TV money and other revenue is divvied up among the 32 teams. The $188 million each team got in 2014 was up at least 20 percent from 2013.  Teams are likely to get even more money in coming years. In October, when DirecTV renewed its contract with the NFL, it increased its annual payment from $1 billion to $1.5 billion.

The National Basketball Association and Major League Baseball are enjoying similar huge gains in TV rights payments. Teams in those sports benefit both from national TV fees and local deals with cable companies.

Cable TV bills swell due to sports fees

This double revenue stream explains why the Dodgers sold for a record $2.15 billion in 2012 and the Clippers sold for a record $2 billion in 2014.

Only franchises in the New York City metropolitan area are likely to do better than the 20-year, $3 billion deal the Lakers struck with Time Warner Cable in 2011 to build two regional cable TV networks around the team; and the 25-year, $8.5 billion deal the Dodgers signed with Time Warner in 2013 to set up a dedicated cable channel built on the team’s preseason and regular-season games.

These TV costs, of course, are passed along to consumers via sky-high cable TV bills — something Californians already complain about. When residents put two and two together and realize that pro sports are already hitting their pocketbooks in their cable bills, they may be even less enthusiastic about conveying money to billionaire team owners to help build stadiums.

For these reasons and more, Levi’s Stadium could be the last publicly subsidized pro sports facility in California.

Originally published on CalWatchdog.com

People Believe That Government Wastes Money Because It Does

According to a 2014 Gallup poll, Americans believe that their state government wastes 42 cents of every tax dollar. However, here in California, the political elite dismiss citizens’ widespread concerns about waste and, instead, complain that the taxes they collect from beleaguered taxpayers are not enough.  This complaint is hard to understand given that California has the highest income tax rate in America as well as the highest state sales tax rate.  Oh, and did I mention that we also have the highest gas tax in the United States?Notwithstanding this heavy tax burden, our political elites in Sacramento have recently put forward numerous proposals to raise taxes even higher, including new taxes on services, property, gas, oil and tobacco.  Apparently, it has never occurred to them that perhaps they should address the endemic waste, fraud and abuse that permeates all levels of government in California.

To set the record straight, the Howard Jarvis Taxpayers Foundation has released a new report titled Follow the Money 2014, documenting numerous specific examples of government waste that cumulatively add up to billions of dollars.

Politicians and bureaucrats are likely to ignore this information while continuing to demand more money, but taxpayers should hold them accountable for the mismanagement of our state.  The report includes instances of waste such as $848 million in overpayments by CalWORKs, $194 million in uncollected bills at the state toxics agency and University of California officials who seem to believe they should not have to disclose how they spend billions in taxpayer funds.

While the report sets forth numerous examples of waste, fraud and abuse, it still represents the tip of the iceberg. Last year’s report for 2013 exposed instances of waste, fraud and abuse was disheartening enough, but here we are in 2014 seeing that politicians have squandered billions of dollars more.

When taxpayers hear politicians talking about the need for “new revenues,” HJTA’s Follow the Money report provides a strong counterpoint as to why higher taxes are unjustified.  Despite the explosion of taxing and spending, our roads are ranked among the worst.  Although education spending has nearly doubled on a per capita basis since 1970, the US Chamber of Commerce Foundation gave our state an “F” for effectiveness per dollar spent.

Instead of devoting their energy to concocting new schemes to tax people more, California policymakers instead should channel their attention in a constructive way and focus on real solutions to our state’s chronically high unemployment and poverty.  And as the Follow the Money Report makes clear, our state leaders also need to focus on how they use the abundant resources given to them by taxpayers in ways that are neither wasteful not fraudulent.

Until that happens, taxpayers are well within their rights to reject any and all new tax proposals.

The report can be downloaded by going to HJTA.org where it will be found under “Hot Topics.”
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.

Why Does Nobody Want to Vote in L.A.?

It seems Los Angeles County is testing the old philosophical question: What if they gave an election and nobody came? The most populous county in the state had the lowest percentage turnout in last November’s election.

While 42 percent of state voters turned out for the general election, Los Angeles County turnout was only 31 percent. The last mayoral city election in Los Angeles saw a turnout of a mere 23 percent.

The California Senate and Assembly election committees are chaired, respectively, by Sen. Ben Allen, D-Santa Monica, and Assemblyman Sebastian Ridley-Thomas, D-Culver City. The chairs called a joint oversight committee hearing on Feb. 20 to look for the reasons and solutions of the extremely low turnout in Los Angeles County. YouTube here.

The answer just might be a feeling of powerlessness among voters.

Loyola Law professor Jessica Levinson told the committee the low turnout in Los Angeles elections could be a case of voter apathy. Los Angeles is not a political town, she said. Everyone knows when the Super Bowl and the Oscars occur, but they don’t know when an election happens.

Many suggestions were made at the hearing on why there was a low voter turnout:

  • Voters believe their vote doesn’t matter;
  • The size of the county takes away the personalization of politics;
  • Lack of civic education in the schools;
  • Frequency of elections;
  • Lack of an interesting ballot;
  • Demographics in which the large minority populations which make up much of Los Angeles County’s potential voters have a history of not voting.

Major obstacles

All those items contribute to the low voter turnout. But are there really major obstacles to prevent voters from coming out if they cared to?

Some of those testifying to the committee seemed to think so. Common Cause’s Kathay Feng said the progressives who set up the rules for stand-alone local elections not only wanted a focus on local government, but they were also racist. They didn’t want certain people to vote and they were successful by setting up elections in off years.

Feng, who serves on the committee to move the Los Angeles city elections to coincide with national elections, a measure which will appear on the city ballot in March, said the convenience to the voters of combining elections will bump up the voting totals by as much as a third.

Still, Raphael Sonenshein, executive director of the Pat Brown Institute at Cal State, Los Angeles, may have touched on the reason citizens don’t engage in local elections. He argued that people believe the only election that really leads to change is the presidential election.

If that is so, then many of the suggestions made to increase the vote will probably only do so on the margins.

Change agents

Even if voting is made as convenient as possible — as Jessica Levinson suggested the time might come when everyone can simply vote by pressing some button on their iPhone — an important question remains: Do voters think those votes for local candidates create change?

Do citizens think they have the power through their votes to alter the direction of government? Or do they believe the institutions are so controlled and manipulated by insiders that voting is pointless?

There were higher turnouts in the past when it was arguably more inconvenient to vote.

The key to bringing voters to the polls, rather than constantly devising new systems to make it easier to vote, is for the voters to see themselves as important participants in governing.

Originally published by Fox and Hounds Daily

UC Berkeley Slammed Over Allegedly Biased Minimum Wage Report

A top researcher has called out University of California, Berkeley for allegedly releasing a biased research paper that served as leverage for the San Francisco minimum wage increase.

Economic expert Michael Saltsman, research director at the Employment Policies Institute, argues that a biased research paper by UC Berkeley helped lead residents of San Francisco to support a rapid minimum wage increase, which possibly contributed to several businesses closing. As Saltsman argues, the wage increase makes the cost of operations a much worse burden for business owners. They often have to cut hours or even in some instances completely close their business.

The paper, “San Francisco’s Proposed City Minimum Wage Law: A Prospective Impact Study,” was released in August, and argued that an increase of the minimum wage will have a vastly positive impact for workers in the city.

“Drawing on a variety of government data sources, we estimate that 140,000 workers would benefit from the proposed minimum wage law, with the average worker earning an additional $2,800 a year (once the law is fully implemented),” the study noted. “Our analysis of the existing economic research literature suggests that businesses will adjust to modest increases in operating costs mainly through reduced employee turnover costs, improved work performance, and a small, one-time increase in restaurant prices.”

The following November, residents of the city voted to increase the minimum wage gradually to $15 an hour over the course of three years. Saltsman argued the UC Berkeley study used biased findings.

“These are the comforting studies they can turn to,” Saltsman told The Daily Caller News Foundation. “It creates stories that say you can raise the minimum wage without consequences.”

“If you look at the methodology,” Saltsman said. “Basically they didn’t take into account the fact it could have a negative impact on employment.”

Saltsman argued that the study only looked at how the wage increase will benefit workers, as opposed to how it may negatively impact businesses. If a business owner is unable to hire as many employees or has to close their business because of the higher cost of operations, it becomes bad for workers, too.

“These contribute to the public policy debate,” Saltsman continued. “It’s become a key position in the public policy debate.”

Saltsman said their approach and the results of the study are not at all surprising. Some of the researchers involved had activist backgrounds.

“The problem at UC Berkeley is they are presenting themselves as unbiased economists,” Saltsman notes. “This is the sort of thing you expect from an advocacy group.”

Michael Reich, one of the researchers involved in the report, shot back at the claims the study was biased.

“In restaurants and retail, stores both open and close all the time. You’d need to know whether closings increased and openings decreased relative to a control group,” Reich told TheDCNF. “That’s an objective method that all economists, including me, use to identify the causal effects of a policy.”

Though the wage increase has not gone into full effect yet, opponents are already pointing to several businesses that have closed. These include Borderlands bookstore, Abbot’s Cellar, Luna Park and Source.

Follow Connor on Twitter

Originally published by the Daily Caller News Foundation. 

Medi-Cal Struggles Leave Politicians Worried, Patients Hurting

A victim of its own success, California’s popular Medi-Cal program has rapidly swelled to a large enough size to malfunction. It’s known as Medicaid in the rest of the country and provides medical care to poor people.

Mounting woes — from applicant backlogs to outdated regulations — have raised serious concerns among analysts and policymakers.

In part, the challenges facing the Medi-Cal system came about because of administrative changes triggered by the federal Affordable Care Act, or Obamacare. Here it’s called Covered California. As CalWatchdog.com reported, a combination of cuts in federal and state budgetary subsidies boosted provider costs.

“A provision of Obamacare hiked the rates for primary care doctors to the substantially higher Medicare rates for two years, but those increases ended on Dec. 31,” reported the San Jose Mercury News. “A second blow came last month when the state cut the Medi-Cal reimbursement rate by another 10 percent, a reduction approved by California lawmakers in 2011 but delayed in a court battle that doctors ultimately lost.”

But the ACA has made an even greater impact on California’s health care challenges by ballooning the population accessing Medi-Cal benefits. As the Mercury News reported, Obamacare opened the floodgates in Jan. 2014, resulting in 2.7 million more recipients to date.

California’s expanded recipient group now makes up 17 percent of total national Obamacare enrollment, even though California’s overall population is just 12 percent of the U.S. total.

State health officials, according to the Mercury News, have concluded that by the middle of 2016, “more than 12.2 million people — nearly a third of all Californians — will be on Medi-Cal.” Meanwhile, the program already consumes about two-thirds of California state-government spending on health and human services overall.

Budgetary fears

For both Gov. Jerry Brown and Sacramento legislators, these trend lines have raised sharp worries, as McKnight’s news servicereported:

“State lawmakers this week said the latest enrollment news is alarming, and that even if a new pending rate request hike goes through, there is concern the state will run out of funding to care for its Medicaid recipients. State Medicaid costs are up 4.3 percent this year while federal share of costs for new enrollees will begin dropping in 2016, according to Gov. Jerry Brown.”

Brown has made an effort to head some costs off at the pass in his budget plan. According to State of Reform, a health-care think tank, “Brown has earmarked $2 billion in total funds ($943.2 million General Fund dollars) to cover mandatory Medi-Cal expansion.”

But pressure to change the budgetary calculus in California’s favor has intensified.

Reducing access

The big picture for Medi-Cal has officeholders and policymakers so nervous because of the ripple effects of increased costs and recipient rolls. State of Reform observed:

“In addition to Medi-Cal primary cuts making it potentially impossible for new patients to find physicians, President Barack Obama’s executive action will make approximately 1 million undocumented immigrants in California eligible for health insurance tax subsidies.”

That has critics warning access to doctors could decrease sharply. In a sobering report issued by the Legislative Analyst’s Office, the impact of the president’s actions was incalculable:

“The benefits received by undocumented immigrants through these programs are almost entirely funded by the state and would therefore result in additional General Fund costs of an unknown amount. The General Fund costs to provide state–funded benefits to this population are unknown at this time.”

With the federal government putting the squeeze on California’s budget, state doctors have become increasingly scarce.

“There are mounting concerns there will not be enough plan doctors to accommodate the enrollment surge,” according to McKnight’s. “One recent study found that only 57 percent of the state’s primary care doctors accept new Medi-Cal patients.”

As a result, increasing numbers of recipients have been winding up in the ER. As the Fresno Bee observed, that transfer of burdens has undermined the claim advanced by Obamacare proponents “that patients with insurance would have primary care doctors to take care of them and less reason to use expensive and overcrowded hospital emergency rooms.”

Although experts have not determined the likely extent of doctors’ unwillingness to treat Medi-Cal patients, California lawmakers have begun to brace for the worst: a substantial budgetary increase that will not be covered by the federal government.

Instead, the higher health tab may have to be absorbed by increased taxes, cuts in other budget areas, or both.

Originally published at CalWatchdog.com

Why Don’t California Lawmakers Want Residents to Buy Earthquake Insurance?

“California Rocks.” That’s the clever slogan for a new advertising campaign by the California Earthquake Authority (CEA), the state’s privately funded, publicly managed earthquake insurance fund. The message is both an allusion to the Golden State’s culture of musical cool and a literal statement of fact: California is earthquake country. The state experiences hundreds of tiny temblors every day that most people never notice. But it’s only a matter of time before a destructive quake rocks the Golden State. The Southern California Earthquake Center estimates that the state has a 99.7 percent chance of experiencing an earthquake of magnitude 6.7 or greater within the next 23 years. Yet, thanks to shortsighted public policy, only about one in ten Californian residents holds an earthquake-insurance policy.

Until recently, California’s insurers struggled to align their premiums with the actual peril that earthquakes represent. Insurance companies discovered after the 1994 Northridge earthquake that their estimates had been much too low. That magnitude 6.7 temblor killed more than 60 people, injured 9,000, damaged and destroyed thousands of buildings, and left parts of Los Angeles’s freeways in ruins. The losses suffered by insurers—$12.5 billion in all—were greater than the sum of earthquake insurance premiums they’d collected over the previous 25 years.

Politicians have always recognized that earthquakes pose a long-term problem, but their solutions have tended to be ad hoc and counterproductive. Two developments in particular made earthquake insurance less attractive to California homeowners. First, in 1985, the state took the unusual step of mandating that insurers offer earthquake insurance anytime they sell a residential insurance policy. At the time, an estimated 5 to 7 percent of homeowners had earthquake insurance. Publicly, legislators maintained that the goal of linking residential policies with earthquake policies was to raise awareness of earthquake insurance and encourage more people to purchase private coverage. But the underlying reason for the mandate was a state court decision that dramatically expanded insurer’s civil liability for damages not covered under existing policies.

The legislature had at least two choices in responding to the court’s ruling: take a free-market approach while limiting liability, or link the earthquake insurance to residential policies. Lawmakers went with the second, with the encouragement—later regretted—of some in the insurance industry. Insurers believed that most customers would turn down an offer of earthquake insurance, seeing it as an expensive option to hedge against a remote risk; meanwhile, the insurers would have insulated themselves from liability. In fact, the problem worsened: after Northridge, spooked insurers scrambled to limit their exposure to future quakes by refusing to sell residential policies. As a result, the real estate market ground to a halt.

In 1996, looking for a way to get insurers to issue policies again, legislators established the state earthquake authority, which offers earthquake insurance to satisfy the 1985 law. Participating insurers fund the CEA by pooling premiums in the state fund. The CEA’s earthquake insurance is better than what came before, but it’s still expensive, with high deductibles and limited coverage. So it’s unsurprising that only 10 percent of homeowners today are willing to pay for it.

The best way to control costs related to earthquake damage is to restrict development in earthquake-prone areas, but that opportunity passed long ago; the most dangerous areas in California are among the most densely populated. The most realistic and effective way to control earthquake exposure is to distribute the risk privately. Privately financed insurance policies aren’t susceptible to the political whims of state officials and regulators. They have the added virtues of scale, speed, and sensitivity to individual claims.

State senator Bill Monning, a Democrat from Carmel, has taken the lead on reforming the CEA and seeking ways to encourage more homeowners to buy insurance. But he’s found little support from his fellow Democrats. The best Monning could manage last session was a resolution encouraging Congress to pass the Earthquake Insurance Affordability Act, a taxpayer-funded insurance backstop. If lawmakers really wanted to see the public covered, they would liberalize the state’s insurance market and compel companies to innovate and compete. If they considered earthquake peril a statewide risk worthy of universal sacrifice, they might even make buying earthquake coverage a requirement for obtaining a mortgage, not unlike the mandate to purchase flood insurance in flood-prone areas. But until such changes come into effect, homeowners and taxpayers will wind up paying a steep price when California rocks again.