Taxing the Oil & Gas Industry to its Knees

Oil Well PumpA one-two punch is being aimed at California’s oil and gas industry and that just may be fine with anti-fossil fuel crusaders but it could have an immediate disruptive effect on the California economy.

Between proposals to raise the oil severance tax and property taxes, California’s oil and gas producing companies face a double whammy that could threaten their businesses. While supporters of these tax increases may applaud the idea that oil production is cut back, they may not be so joyous if the double attack undercuts the state’s economy.

Senator Bob Wieckowski introduced a 10% oil and natural gas severance tax bill, SB 246, arguing that California producers should pay for the right to sever oil and gas from the ground such as is imposed by other oil producing states. Yet, many of those states do not levy ad valorum property taxes on the oil that sits in the ground as California does.

If the oil severance tax is not enough to threaten the industry, the split roll property tax initiative destined for the November 2020 ballot would levy another hit on many producers’ land and improvements.

California oil production has already fallen off dramatically over the last few decades. California oil production dropped from 394 million barrels in 1985 to 173 million in 2017.

Imagine what two tax increases would mean to the industry over a short period. The quest for renewable energy is moving forward but if the tax hit over the next couple of years reduces oil and gas production how does the state’s economy function to full capacity?

Despite being one of the top oil producing states, California already imports a large portion of its oil. That is because California is the second largest consumer of petroleum products in the nation and the largest consumer of motor gasoline and jet fuel.

Much of the imported oil comes from foreign countries but California receives a good portion of its oil from Alaska, one of those states with a severance tax but no property tax on the oil in the ground.

If a severance tax is passed in the Golden State, ironically, through the price of gasoline, consumers will be paying both the California severance tax and a portion of the Alaska severance tax as well.

A decade ago, Governor Schwarzenegger proposed a 9.9% oil severance tax to help rescue the state budget during the Great Recession. At the time, a study indicated such an increase would make California the number one state in oil production taxes, doubling what the companies paid and shelling out 40% more in oil production taxes than the next highest state.

Oil companies in the Golden State pay corporate income taxes, property taxes and sales taxes on their business. Not all oil producing states assess all these taxes, nor are the tax rates the same as high income, high sales and high corporate tax California.

Two years ago, the Los Angeles Economic Development Corporation issued a report  on the economic impact of the California oil and gas industry. The report found “the industry’s direct output of more than $111 billion generates more than $148  billion in direct economic activity, contributing 2.7 percent of the state’s GDP and supporting 368,100 total jobs in 2015, or 1.6 percent of California’s employment. Additionally, the oil and gas industry generates $26.4 billion in state and local tax revenues and $28.5 billion in sales and excise taxes.”

What happens to government coffers if production is reduced dramatically?

While the goal of some environmentalist might be satisfied with reduced production, it is doubtful the state’s economy could withstand the shock.

ditor and co-publisher of Fox and Hounds Daily.

This was article was originally published by Fox and Hounds Daily

California Cronyism and its Consequences

Crony capitalism is an economy in which businesses thrive not as a result of risk, but rather as a return on money amassed through a nexus between a business class and the political class. This is done using state power to crush genuine competition in handing out permits, government grants, special tax breaks, or other forms of state intervention.
– Wikipedia, Feb. 2019

If the goal of public policy is to optimize the role of government, cronyism must be identified and curbed wherever possible. Cronyism wastes the limited resources of governments, at the same time as it reduces the efficiency of the private sector by using subsidies and other incentives to undermine healthy competition.

The harm caused by crony capitalism can best be illustrated by example. In California, cronyism is a major culprit in one of the worst policy failures in recent decades, the housing and the related homeless crisis. Several types of cronyism played into California’s housing debacle. The most significant was cronyism that took the form of regulations that favored the wealthiest, most established corporations, while driving the smaller, emerging competitors out of the housing business entirely.

This form of cronyism through regulations was originally described by Bruce Yandle, now with the Mercatus Center, back in 1983. Yandle, writing for the American Enterprise Institute, coined the phrase “Bootleggers and Baptists,” to describe how during prohibition, the bootleggers who profited from the trade in expensive illicit liquor, would support the temperance movement’s Baptist activists and others, who lobbied against legislation to restore affordable legal booze. This concept applies perfectly to California’s punitive legislation that restricts land development.

For the past 30-40 years, and especially in the last decade or two, a growing assortment of laws and regulations have driven control over all major land development into the hands of a shrinking group of very large corporations. Using Yandle’s analogy, these are the bootleggers. Smaller landowners and construction companies have to sell out or subcontract to these large corporations, because there is no way they can afford the thousands or millions of dollars in fees and litigation, nor the years or decades of regulatory delays. And the Baptists in this example? The environmentalist lobby and its army of trial lawyers, who have seen to it that housing is restricted to ever smaller slices of California’s otherwise vast reserves of land, at the same time as they’ve successfully promoted building codes that make building a home far more expensive than it would otherwise cost.

Tent of homeless person on 6th Street Bridge with Los Angeles skyline in the background. California, USA. (Photo By: Education Images/UIG via Getty Images)

California’s homeless crisis is certainly caused in part by unaffordable housing, but it is exacerbated by another type of cronyism, “nonprofit cronyism.” These are rent seeking nonprofits that develop scandalously expensive “permanent supportive housing” for the homeless. In Los Angeles today, apartments for the homeless – palatial abodes by any reasonable comparison to the squalor of living on the streets – are being constructed in some cases for as much as a half-million per unit. The government pays a portion of these costs through grants, using taxpayers money, while other funds are secured through tax deductible donations. And when these units actually are opened to a microscopic fraction of the homeless population, because they are owned and managed by nonprofit corporations, they pay no income or even property taxes.

Crony capitalism in its most obvious form is exemplified by massive public works projects of dubious value to society. California’s grandiose and possibly doomed high speed rail project is the classic example. Even if the final project is restricted to the segment from Merced to Bakersfield, tens of billions will have been spent on a project that never passed any reasonably unbiased cost/benefit analysis, which is why it never attracted matching funds from the private sector.

There are plenty of similar examples. One noteworthy case of a massive, and dubious public work, is the costly rebuild of San Francisco’s Transbay Terminal, which for over 50 years had functioned as the central bus terminal connecting downtown San Francisco with other points in the city as well as routes extending into neighboring counties. In 2010, the terminal was demolished to make way for an expanded, “multi-modal” transit hub for the 21st century. Not only would a new tunnel bring commuter trains into the rebuilt terminal from the existing Caltrain station, 1.3 miles away, but the new terminal would also serve high speed trains.

The probable demise of high speed rail hasn’t diminished enthusiasm for the project which in total is estimated to cost around $10 billion. Yet the design of the station itself, already mostly complete at a cost so far of $2.1 billion, is no longer considered sufficient to handle the projected volume of commuter trains. After eight years of construction, the new terminal opened for bus service in 2018 – essentially performing the same service as the old terminal – and then shut down a few months later because of structural defects. Nobody knows when it will reopen. And even when it does reopen, trains won’t be arriving until the $6 billion connecting tunnel is completed, sometime around 2029.

The enthusiasm that informs persistent supporters of dubious projects, which would certainly include high speed rail and San Francisco’s Transbay Transit Center, brings into focus one of the central questions about crony capitalism. How does one distinguish between a project of dubious value, and one of compelling value? Paul Rubin, a professor of economics at Emory University, expresses this question in his own humorous but revealing alternative definition of crony capitalism: “Crony capitalism is lobbying by someone I don’t like for something I don’t like.”

This question of one person’s good cronyism being another person’s bad cronyism is easily recognized in the allocation of subsidies to manufacturers. Ideally, there should be a level playing field between market participants. The government shouldn’t be, as they say, “picking winners.” To choose another obvious example, California’s legislature is determined to increase the number of zero emission vehicles in the state, via rebates, incentives and mandates. The cost to taxpayers – and benefit to manufacturers of electric vehicles – over the next ten years is estimated to range between $9 and $14 billion.

But what if electric cars aren’t an unmitigated good thing, so good they are worthy of subsidies? What if electric vehicles produce illusory environmental benefits? What if the embodied energy in an electric car, far exceeding that of a conventionally powered car, represents an environmental cost that isn’t made up for during its useful, zero emission life? What if the environmental costs of recycling these cars and their massive batteries, or the environmental costs of extracting the resources needed to manufacture these batteries in the first place, represent an unrecoverable environmental cost? What if the emergence of some even better, cleaner transportation technology is being suppressed by the proliferation of subsidized electric cars?

This sort of debate surrounds any subsidized product. And it is fair to say that sometimes subsidies are necessary. But in crony capitalism, those debates are hijacked and skewed by the special interests in the private sector with the strongest connections to government policymakers.

There are myriad forms of crony capitalism. Incentives offered by California’s state and local governments for manufacturers to relocate to California, or stay in California, have cost taxpayers billions. A report published last year in the San Jose Mercury described how public money subsidies have poured hundreds of millions to Silicon Valley giants including Google ($766 million), Facebook ($333 million), Apple ($693 million), and Tesla ($3.5 billion).

These sorts of arrangements repeat themselves across California, and while there is an economic payback to keeping those companies and their jobs in-state, there is also a great irony. California is consistently ranked as the worst state in the U.S. to do business. Why not change the laws and regulations that make California such an unwelcoming place, which would help retain and attract all businesses, instead of pouring compensatory money into the hands of a favored few?

Speaking of the favored few, another problem that consistently accompanies crony capitalism is that it usually benefits the cronies more than it benefits whatever deserving group or cause the deal supposedly supports. The environment and open space is protected – or overprotected – enabling rich developers to get richer, and nobody can afford homes. Palatial “permanent supportive housing” is built for a handful of the homeless, while well heeled nonprofits collect subsidies that could have been used instead to house tens of thousands of homeless using tents and porta-potties. Billions are poured into monumental, landmark, “signature” transportation projects, while ordinary people sit in traffic on pitted, congested, inadequate roads. Taxes are raised so wealthy people can save money on electric cars that remain priced well out of reach of an ordinary Californian. High tech corporations earn hundreds of billions for their shareholders, yet taxpayers support subsidies to keep them from pulling up stakes and moving to Texas.

Finding examples of crony capitalism is an endless task, somewhat shrouded in ambiguity and contradictions. Whenever the government interferes in the “free market,” a subjective assessment is made that the interference is in the public interest, and an even more fraught decision is made to undermine one set of private concerns while creating an advantage for another. Apart from the the impossible extremes of anarchy or communism, good governments have to find that balance in between.

In California’s case, there is a great deal of room for improvement. Support efforts to increase transparency in contract negotiations and contract oversight to expose and deter overt cronyism. Recognize that the impact of environmental regulations has crippled the aspirations of low and middle income Californians, and repeal them, starting with the most extreme. Pay attention to the reports that expose the waste and corruption surrounding attempts to house the homeless. Fight for precedent setting court rulings that will make it easier and less costly to get things done – from building homeless shelters to constructing new roads and related housing infrastructure. Repeal CEQA; there’s plenty of regulation at the federal level. Most of all, make the state’s regulatory climate more inviting so it’s easier to keep and attract all businesses.

Global Warming: Los Angeles Has Coldest February in 60 Years

Los Angeles is officially experiencing the coldest February in nearly 60 years, according to the National Weather Service, as the city has endured a series of storms and is bracing for more later this week.

The Los Angeles Times reported Monday evening:

This month is the coldest February in downtown Los Angeles in nearly 60 years, with the average high temperature at 60.6 degrees as of Sunday. That’s a full 8 degrees below the normal average temperature, the National Weather Service said in a news release announcing the record lows.

It hasn’t been this cold since 1962, when the average high temperature for the month in downtown L.A. was 59.8 degrees, the weather service said.

Los Angeles SnowThe state is experiencing even more storms and cold weather, as a new “atmospheric river” — a front of moisture from the Pacific — is expected to dump rain on Northern California through mid-week. According to CBS San Francisco, rainfall totals were expected to reach 6 to 12 inches in the mountains, threatening mudslides in areas affected by last year’s wildfires.

Los Angeles is also expecting more rain, albeit with warmer temperatures than it is currently experiencing, before the end of the month.

Last week saw a rare snowfall within the urban parts of the city, including West Hollywood.

Currently, the state’s snowpack is already at 119% above its April 1 average.

Joel B. Pollak is Senior Editor-at-Large at Breitbart News. He is a winner of the 2018 Robert Novak Journalism Alumni Fellowship. He is also the co-author of How Trump Won: The Inside Story of a Revolution, which is available from Regnery. Follow him on Twitter at @joelpollak.

This article was originally published by Breitbart.com/California

An Agenda to Make California’s GOP Relevant Again

CA GOPCalifornia’s Republican party has nothing to lose. They’ve lost every battleground district. The Democrats are going to do whatever they want in the Legislature. Corporate interests are cultivating competing factions among the Democrats. All the smart money is with the Democrats, because the Republicans don’t matter anymore. California’s GOP should seize this opportunity. This is a tremendous moment.

How often does any organization have the chance to experiment wildly, to try something radical, to risk everything, because they have nothing to lose? That’s what faces California’s GOP today. The GOP airplane is in a nose dive. Finding a pilot who will give the plane a soft landing, or prolong the time until the crash, accomplishes nothing. Push the throttle. Pull some Gs. Stress the airframe. Take a chance. Because otherwise you’re dead.

Trump, for all his tactless bombast and alarming disregard for convention in almost all things, has stimulated political engagement at a level not seen in the last 50 years. Trump’s ability to challenge the premises of America’s uni-party elite on the issues of trade, immigration, foreign interventions and “climate change,” along with his disregard for the pieties of libertarians and socialists, and his indifference to the encroachments of political correctness – all this may eventually be recognized as having had an extremely healthy impact on America at a critical time.

There are issues specific to California that can “make California great again.” It is not necessary for California’s GOP to select all of these issues. They can pick and choose. All of them address the greatest inequity that Californians confront, but never solve – the criminally high, utterly contrived, scandalously avoidable, punitive cost-of-living in this state.

To make California affordable again, a new, unafraid, assertive California GOP would have to rethink its ideological underpinnings. It would have to violate many socialist and libertarian taboos in favor of pragmatic choices reminiscent of 1950’s California, when vast sums of government funds were applied with an efficiency that makes mockery of today’s tangle of bureaucratic delays and interminable lawsuits.

For example. it isn’t heresy to use government funds, from bonds or operating budgets, to subsidize infrastructure. What’s needed, however, is a determination to set priorities that benefit the people of California, and a willingness to fight through waves of endless litigation to score precedent setting court victories. Doing this will help ensure that most of the money spent in subsequent projects will go to people who operate heavy equipment, instead of most of it paying people who sit in front of keyboards. Some of these priorities might themselves be heretical, or anathema to special interests, but here goes….

Education

Enact school choice. Don’t just fight a rear guard action protecting the beleaguered charter schools. Approve school vouchers and allow competition between traditional public schools, charters, parochial schools, and private schools. Quit tiptoeing around this issue. California’s public schools are failing. Turn the state into a laboratory for education, and let parents choose which schools their children will attend. A lot of pedagogical debates would be settled pronto, if principals and teachers were able to run their schools any which way they wanted, yet were held absolutely accountable by the parents.

Enforce the Vergara reforms so it is easier to retain quality public school teachers and easier to fire the incompetent ones.

Offer vocational training in the trades as an option for high school students after age 15, including private sector funded apprenticeships for high school credit. Look to the European systems for examples.

Restore the balance in California’s colleges and universities so that the ratio of faculty to administrators is 2-to-1, instead of the current ratio that allows administrators often to outnumber teachers.

End all discrimination and base college admissions purely on merit. Expand STEM curricula so it represents 40-50 percent of college majors instead of the current 15-20 percent. In all publicly funded institutions of higher education, fold all of ethnic and gender “studies” majors into the traditional fields of history and sociology. Consolidate these majors and reduce the number of enrollments to make room for more STEM enrollments.

Get rid of all of the horribly misguided campus “safe spaces” and other malevolent hate-nurturing segregationist boondoggles. Stop appeasing the professional race hustlers. Tell the truth to people of color – California is the best place in the world to thrive, California is a tolerant, diverse society, and all this victim mongering will not make society better and will not make you successful or happy. Say this loud and proud and never back down. Fire the entire diversity bureaucracy.

Criminal Justice and Immigration

Restructure the penal system to make it easier for prisoners to perform useful public services. For example. along with working the fire lines during fire season, they could work all year clearing dead trees out of California’s forests. Use high-tech monitoring devices to reduce costs. Reserve current prisons only for the truly incorrigible.

Support comprehensive federal immigration reform that includes merit based legal immigration, and attenuates chain migration. Support something, anything, that squelches illegal immigration. If that’s not a border wall, then push for stronger employer verification. Quit agreeing with the Democrats. This is not a “manufactured problem.” It is not in the interests of American citizens, especially in low income communities, to continue to allow the entry of unskilled immigrants – legal or illegal – and the only people who don’t accept this are either denying basic economics or they are part of a special interest group. Come to some reasonable accommodation with ICE.

Transportation

Add at least one lane to every major interstate in California, and upgrade and resurface all state highways. Widen and upgrade roads up and down the state. Kill High Speed Rail.

Begin investigating and facilitating private sector rollout of next generation transportation solutions, including coordinating development of aerial taxi corridors as well as high speed “hyperlanes” for next generation smart electric cars. Prepare for the advent of flying cars, self driving cars, share cars, ride hailing, micro-transit companies, and high speed cars.

Water

Complete plant upgrades so that 100 percent of California’s sewage is reused, even treated to potable quality. Kill the Delta Tunnel(s) and do seismic upgrades on the Delta levees instead – that will have to be done regardless. Build a hatchery to replenish Delta Smelt.

Unlock water markets. If farmers had the right to sell their water allotments without risking losing their historical water rights, municipalities would never have shortages of water. It’s truly that simple, because California’s total urban water consumption – all of it, residential, commercial, industrial – is less than 7 million acre feet per year, whereas farmers in California consume on average over 30 million acre feet per year.

Pass legislation to streamline approval of the proposed desalination plant in Huntington Beach, and fast-track applications for additional desalination plants, especially in Los Angeles.

Spend the entire proceeds of the $7 billion water bond, passed overwhelmingly by Californians in 2014, on storage. Build the Los Banos GrandesSites, and Temperance Flat reservoirs, adding over 5.0 million acre feet of storage to the California Water Project. Support federal efforts to raise Shasta Dam. Pass aggressive legislation and fund aggressive legal actions and counteractions, to lower costs and enable completion of these projects in under five years (which is all the time it used to take to complete similar projects).

Work towards a grand bargain on water policy where environmentalists accept a few more reservoirs and desalination plants in exchange for plentiful water allocations to threatened ecosystems, farmers pay more for water in exchange for undiminished quantities, and taxpayers bear the burden of some new debt in exchange for permanent access to affordable, secure, and abundant water.

Energy

Permit slant drilling to access 12 trillion cubic feet of natural gas deposits from land-based rigs along the Southern California coast. Build an LNG terminal off the coast in Ventura County to export California’s natural gas to foreign markets. Permit development of the Monterey Shale formation to extract oil and gas. Permit construction of new natural gas power plants.

Promote nuclear power as a solution that not only makes the dawning electric age – from electric cars to rampant, exponentially multiplying bitcoin mining operations – utterly feasible. Nuclear power is only costly because permits and regulations and insurance premiums (mostly to insure against the cost of lawsuits, not actual hazardous calamities) are artificially elevated. Retrofit and reopen San Onofre. Keep Diablo Canyon on line and add capacity. Permit construction of “generation 3+” nuclear power plants and prototype micro-reactors.

Housing and the Homeless

Unlock open land for development. Quit acting like there’s not a single square mile of open space that isn’t sacred to the environment. California has over 25,000 square miles of cattle ranch land. If just one-third of that land were developed, California’s urban footprint would double. There’s plenty of room. Subsidize practical new public infrastructure (i.e., roads, not “light rail”) throughout new regions opened up for land development.

Repeal the 2006 “Global Warming Solutions Act” and “Sustainable Communities and Climate Protection Act” of 2008 and make it easy for developers to build homes on the suburban and exurban fringes, instead of just “in-fill” that destroys existing neighborhoods. Cancel the war on the single family dwelling, and allow developers (or in some cases even require them) to build homes with large yards again. Repeal excessive building codes such as mandatory photo-voltaic roof panels. Create a regulatory environment that encourages private investment in new housing developments instead of discouraging it.

Allow police to enforce vagrancy laws, even if it means expensive corrective litigation going all the way to the U.S. Supreme Court. Build inexpensive tent cities for the homeless. Some cities in California have already had success with this tactic. The corrupt and futile opposite extreme is to construct “permanent supportive housing” which in Los Angeles has cost over $400,000 per apartment unit.

Pensions and Infrastructure

Require California’s public employee pension funds to invest a minimum of 10 percent of their assets in infrastructure projects as noted above. They could issue fixed rate bonds or take equity positions in the revenue-producing projects, or a combination of both. This would immediately unlock approximately $80 billion in construction financing to rebuild California’s infrastructure. At the same time, save the pension systems by striking down the “California Rule” that prevents meaningful pension reform.

Once the California Rule is abolished, prospectively reduce pension multipliers to pre-1999 levels for all future work for all employees, existing as well as new hires. That, along with defending the reforms of PEPRA, might be all it would take.

Vision and Leadership Will Save California’s Republicans

Until California’s GOP is willing to embrace bold policies that will offer California’s struggling middle and low income communities opportunities for upwards mobility, they will remain irrelevant. It isn’t enough to “join together.” It isn’t enough to secure some reliable flow of donor support. To thrive, a political party needs to have a distinct vision of the future, a policy agenda that will achieve that future, and leaders that understand and can express that vision. Those qualities are more important than money. Meg Whitman proved that.

An important reason Democrats win is because they invariably speak with moral authority, whether they deserve it or not. But the moral worth of Democratic policies is shallow. In the name of earth justice and social justice, they have made California the most inhospitable place in America for low and middle income residents. The Democrats are incapable of compromising on their rhetoric or their policies. They are locked into the ideological straight-jackets of climate change hysteria and identity politics. The Republicans must demonstrate their ability to find the balance that Democrats are incapable of finding. They must promote and enact policies, some examples of which have just been described, that challenge some of the premises of environmentalism and social justice. There is a moral value to providing opportunity by making California affordable. There is a moral value to instilling pride by abandoning race and gender preferences. There is a moral value to embracing policies of abundance – by turning the private sector loose to increase the supply of housing, energy, water, et al. – rather than creating politically contrived artificial scarcity.

One very encouraging sign at California’s state GOP convention of February 2019 was how diverse the attendees have become. Democrats should find this very alarming, because the so-called “people of color” at the GOP convention were not part of the rent seeking coalition that Democrats have built, looking for reparations and entitlements to compensate for their supposedly disadvantaged status. These were confident, self-sufficient individuals, who valued the opportunity to compete and succeed on their own merits. There were hundreds of Latinos, Sikhs, Indian Americans, African Americans, Asians. More of them than ever, they came to Sacramento to be among fellow Republicans. This should not only trouble Democrats, perhaps it should also trouble establishment Republicans, because nearly all of them were enthusiastic Trump supporters.

If you were at the GOP convention last weekend, you could have talked to a Latino whose cousin has a ranch in the Rio Grande Valley. He would have told you why we need border security. You also could have talked to an African American grandmother who has watched hope return to members of her extended family, because they have good jobs in the Trump economy. These people are proud Americans. They don’t want to be patronized or appeased, and more and more, they see right through the Democrat’s game. They want the tough truth. Because honest hard work, reckoned by immutable and evenly applied standards, is the only true pathway to achievement. They are waiting for Republican leadership to fight to make California great again, not attempt to become Democrat-lite.

The themes that will capture new voters can’t just be marketed as “bold.” They have to be bold. There is an alternative vision, embracing solutions, not just identifying problems. It can incorporate some or all of the agenda just set forth. But it will mean launching a sustained assault on the government unions, the extreme environmentalists and their allies, the plaintiff’s bar, and the social justice fanatics that have taken over public education. It will require challenging not their lofty idealism or their proclaimed altruism, but their premises and their methods.

No, we are not running out of land, energy or water, and yes, we will entitle vast tracts of open land for development and build infrastructure including dams and desalination plants and encourage private sector investment partners.

No, if we don’t go “100 percent renewable” by 2050 the planet will not burn up, and yes, we will develop natural gas reserves and build nuclear power plants.

No, we will no longer admit unqualified students to colleges and universities, and yes, we will establish uniform admissions requirements, reserving our enrollments for the finest students in the world.

No, we will not tolerate mediocre results in our public schools, and yes, we will fight for school choice, vouchers, charters, and eliminate union work rules that prevent dismissing bad teachers and protect good teachers if layoffs occur.

No, we will not allow pensions to bankrupt the state, and yes, we will restore pension benefits going forward to pre-1999 formulas, and we will require California’s pension funds to invest at least 10 percent of their assets in California infrastructure projects.

For every no, there is a yes. For every problem, there is a solution. And the moral worth of these solutions must be asserted unflinchingly. These solutions will create opportunity for all Californians. Fighting for these solutions is risky. It will invite a furious response from the entire Democratic machine. But it could work. And it’s the right thing to do.

Edward Ring is a co-founder of the California Policy Center and served as its first president.

How Many Bills Will Governor Newsom Sign?

Bills and legislationFebruary 22 was the deadline for the introduction of bills for consideration during the 2019 California Legislative Session. A total of 2,576 bills were introduced by the deadline. There are about 1,800 Assembly Bills and over 775 Senate Bills that were introduced. This is a higher number than has been introduced in more than half a dozen years.

So, how many of these bills will reach Governor Newsom’s Desk and how many will he sign? So far, two budget/appropriations bills have reached his desk and both were signed earlier this month.

We obviously will not know the answer to this question until the final bill is acted upon in mid-October; but, if history is a guide, we would expect over 1,000 measures to be signed this year, with about half of those that were introduced to reach the Governor’s Desk for final action.

There were 1,217 bills that reached Governor Brown’s Desk in 2018 out of 2,225 bills introduced (694 Senate Bills and 1,531 Assembly Bills). 55% of the bills introduced made it to the Governor’s Desk last year with 45% of the bills introduced getting signed into law and 9% of the bills introduced getting vetoed.

During the last eight years that Governor Brown served in office, he received a low of 870 bills (his first year in office) to a high of 1,217 (his last year in office). His veto rate was a low of 10.7% (his third year in office) to a high of 16.5% (his last year in office).

I’ll venture a guess. If history is a guide, I am going to speculate that roughly half of this year’s bills reach Governor Newsom’s Desk (1,285), and that he vetoes about 12% of them (155) and signs about 88% of them (1,130). We’ll check back after September 13!

Chris Micheli is a Principal with the Sacramento governmental relations firm of Aprea & Micheli, Inc.

This article was originally published by Fox and Hounds Daily

Legitimate Lawsuit Against Trump? Or Political Posturing?

donald-trump-2The big news last week was the lawsuit filed by California and 15 other states challenging President Trump’s declaration of an emergency related to border security and the building of a physical barrier on the southern border. The reaction was a great deal of political hyperventilating from both sides of the political spectrum.

So, after everyone has taken a breath, what should rational taxpayers think about this lawsuit and the dozens of other lawsuits filed by California against the Trump administration?

Let’s stipulate that there are times when litigation is appropriate between states and the federal government. The United States is a constitutional republic with a political structure based on federalism. Brilliantly, our founding fathers (with some intellectual help from our founding mothers, no doubt) devised a system of divided government. Not only was the federal power divided into three branches, but substantial political power was reserved to the states via the Tenth Amendment.

Controversies between the federal government and the states have been bitter and, when one considers the Civil War, they’ve been violent as well. Fortunately, modern disputes between the federal government and the states involve lawyers, not bullets.

To read the entire column, please click here.

Work-Hating California Seeks to Stop Freelance Workers

JobsCalifornia has a well-deserved reputation for being unfriendly to business. Depending on what happens in Sacramento this year, the environment for workers could become unpleasant, as well.

An attack on workers’ freedom began nearly a year ago, when the California Supreme Court established a new legal standard for worker classification in its Dynamex ruling. Independent contractors must be considered employees and the companies hiring them must comply with the web of laws and regulations relating to minimum wage, overtime, payroll taxes, unemployment benefits, income tax withholding, and insurance plans.

Freelancers can be classified as independent contractors only when their work structure passes an “ABC test,” which sets an unreasonably high bar. Independent contractors cannot be supervised, they must be engaged in work the “hiring entity” isn’t otherwise involved in, and they must perform similar work for other hiring entities.

While the test has been applied a few times in court, it has not been codified into state law. That could happen during the current legislative session. Whatever Sacramento produces could potentially affect as many as two million contract workers across California. For many, it could mean the difference between being employed and unemployed, as well as the difference between being satisfied and unsatisfied with their jobs.

Support for codifying Dynamex comes from a belief that businesses are actively violating “employee rights” by misclassifying them as independent contractors. At least one lawmaker openly wishes to make things “more difficult” for companies.

“Individuals are not able to make it on three side hustles,” says Assemblywoman Lorena Gonzalez Fletcher, a Democrat in San Diego. “That shouldn’t be the norm. That shouldn’t be accepted.”

If the court’s decision becomes state law, “the norm” will be a reduction in work, disappearing opportunities, fewer dollars earned, and diminished free agency for those who’d rather, and in some cases have no choice but to, work in the gig economy.

While politicians argue without evidence that the gig economy is “rigged,” and want employment affiliations to be dictated by the court’s guidelines, almost all independent contractors prefer the work arrangements they have set up for themselves. The Bureau of Labor Statistics has found that “fewer than one in 10 independent contractors” would choose traditional work environments over freelancing.

Faced with the likelihood of losing their autonomy, independent contractors are already leaving jobs. The entire staff of independent barbers at Bottle & Barlow, a hipster barbershop on R Street in Sacramento, walked out in September when the shop reorganized its business to meet the court’s ABC requirement. Shop owner Anthony Giannotti, who said the Dynamex ruling “really gutted us,” explained why barbers — and other independent contractors — are at a disadvantage under a Dynamex framework.

“Something that attracts most of us to this industry is the freedom,” Giannotti told the local media. “I don’t want to have a boss above me telling me what to do and that’s kinda what the state’s forcing us to do now.”

Tina Kerrigan, a dietary consultant who contracts with Southern California nursing facilities, assisted living homes, and hospices, also sees unwelcome change ahead. She told the San Gabriel Valley Tribune last fall that if she is classified as an employee, she expects to “lose all of my flexibility and I’d see about a 30 percent drop in pay.”

The future of newer, innovative companies, which drive economic growth, would also be bleak. Uber, Lyft, TaskRabbit, DoorDash, Instacart, and other entrepreneurial enterprises that have successfully followed business models requiring contract workers could find their plans might no longer work under a Dynamex regulatory regime. Even if they adapt, they will be forced to shift resources that would otherwise be dedicated to research, development, and consumer demand to compliance exercises.

Transitions will be costly. A UCLA study found that companies retaining independent contractors save “between 29 and 39 cents for every dollar” of earnings they pay out. While some argue that’s a downside of the gig economy, it’s in reality one of its advantages, because it makes companies more profitable, an outcome that should be universally supported. As Austrian economist Ludwig von Mises wrote, “a profitable enterprise tends to expand, an unprofitable one tends to shrink.”

While it’s possible gig economy companies will remain profitable, should the Dynamex decision become California law, profits will fall, which means expansion will be contracted. Is it that what lawmakers want?

Those hoping to codify Dynamex claim they’re simply trying to protect workers. But they’re more likely serving the interests of unions, which would rather trap workers under their boot than see them employed independently.

This article was originally published by the Pacific Research Institute

San Francisco Embraced a New Religion: Drug Normalization

San Francisco, CA, USADrugs are destroying San Francisco’s most densely populated and desirable neighborhoods, as more and more addicts, many of them homeless, fill the streets. Politicians and activists are pushing “harm reduction,” which, in a clinical sense, means a “set of practical strategies and ideas aimed at reducing negative consequences associated with drug use,” such as overdose or the transmission of disease. But in a contemporary context, it also means “a movement for social justice built on a belief in, and respect for, the rights of people who use drugs.”

Harm reduction, originally a controversial public-health measure, has become a religion among advocates, even as fears that the practice would normalize drug use have been borne out. Organizations like the San Francisco Drug Users Union demand “a safe environment where people can use & enjoy drugs” and a “positive image of drug users to engender respect within our community and from outside our community.” True believers dominate City Hall as well as a network of affiliated, politicized nonprofits that operate in the city with little oversight or accountability. In this environment, questioning harm reduction or its effects borders on heresy. But are the programs actually helping impoverished addicts? And what is the impact on the community?

The Department of Public Health distributes 4.45 million needles each year to the city’s 22,000 intravenous drug users. Heroin and prescription opioids are the most injected substances, though use of methamphetamines and Fentanyl is on the rise. It’s true that sterile needles reduce the transmission of blood-borne infections, and injecting narcotics under supervision can lower the risk of overdose and death. But harm reduction goes far beyond promoting these kinds of needle-safety measures. For example, At the Crossroads, a nonprofit, assembled “safe snorting kits” for at-risk and homeless youth. Baggies were filled with straws, chopping mats, plastic razor blades, and instruction sheets. Other groups offer crack-cocaine “safe-smoking” kits. A proposal to open “safe injection” sites, opposed by Jerry Brown, is favored by Governor Gavin Newsom, and is likely to succeed.

Harm-reduction efforts are sometimes sold as ways to connect with addicts, offer them other services, and help them get off drugs. But those laudable goals are not really what motivate advocates, who want mostly to remove the stigma surrounding drug use. Addicts may eventually pursue treatment or stop using on their own, but a central principle of harm-reduction theory is accepting and respecting drug use. As a result, an astonishing number of addicts on San Francisco streets hover on the edge of death, despite a continuous supply of clean needles.

Visit city neighborhoods ranging from the iconic Union Square and the Financial District to historically troubled areas such as the Tenderloin, Civic Center, and South of Market, and the unintended consequences of harm reduction become hard to ignore. The advocates have certainly succeeded in reducing stigma—it’s easy to find people openly injecting into their arms, legs, toes, and necks. Their exposed flesh shows infected sores; they stumble, fall, and pass out. There seem to be more of them, and in worse condition, every day. Addicts congregate on sidewalks, in parks, subway stations, and outside businesses. They die in school doorways.

As for the needles, addicts are encouraged to take as many as they want. The city program does not involve needle exchange, so it offers no incentive properly to dispose of used needles. San Francisco’s streets and transportation system are littered with discarded syringes. After massive public outcry (and streams of embarrassing media reports) about the proliferation of hazardous medical waste on the streets and sidewalks, the city contracted with the San Francisco AIDS Foundation, at approximately $1 million per year, to hire a cleanup crew. Roughly 60 percent of the needles now get collected.

Meantime, quality of life in the city continues to erode. Tourism is threatenedretailers close, and families leave. Yet harm-reduction zealots remain adamant in their views. During public discussions about safe-injection sites, they dismiss legitimate concerns about increased drug-dealing, burglaries, violence, and vagrancy. In community meetings, Department of Public Health representatives disregard residents’ misgivings. Typical complaints—“Why are you doing this? Bloody needles are everywhere, people are injecting in front of my kid’s preschool, I’m afraid to take my dog for a walk”—are met with responses that usually begin, “This is harm reduction.” In San Francisco’s brave new world, there is no room for the skeptic.

Local Energy Programs Are Gaining Popularity

Power electricCommunity-choice energy programs – in which a local government or coalitions of local governments procure electricity and use the infrastructure of existing utilities to distribute it – are growing in popularity across California.

Proponents say government control will lead to cheaper utility rates and faster adoption of renewable energy.

This month, more than 950,000 homes and businesses in Los Angeles and Ventura will shift to a community-choice program – the Clean Power Alliance. It will be the state’s 20th and largest community-choice provider, which will then provide power to nearly 3.6 million customers in the Golden State.

Those numbers could drastically grow in coming years. Both San Diego Mayor Kevin Faulconer and Dianne Jacob, chair of the San Diego County Board of Supervisors, have endorsed community-choice programs. Many other local governments are watching how the programs work in places that have already adopted them.

SDG&E says it welcomes infrastructure-only role

To the surprise of many industry watchers, one of the state’s three giant investor-owned utilities isn’t fighting this development.

After San Diego began taking steps toward a community-choice program last year, San Diego Gas & Electric made clear its interest in getting out of energy procurement. Earlier this month, Kendall Helm, SDG&E’s vice president of energy supply, told the Los Angeles Times that the decision was straightforward.

“We don’t think we should be signing big, long-term contracts for customers that have made a conscious choice to be served by a different” provider, Helm said. “We think our primary role and our primary value is in the safe and reliable delivery of that power.”

Pacific Gas & Electric and Southern California Edison continue to defend the status quo and to work with the California Public Utilities Commission and SDG&E on “exit fees” assessed to departing customers to make sure they help pay for maintaining energy infrastructure. But PG&E, now in bankruptcy and facing possible dissolution by the CPUC because of repeated scandals, has dropped its once-aggressive opposition to the very idea of community-choice energy, including sponsoring a failed state ballot measure on the issue in 2010.

CPUC president fears programs could fail, cause havoc

But California’s most prominent regulator worries that adoption of community-choice’s programs could have huge unintended consequences.

CPUC President Michael Picker told the San Francisco Chronicle last spring that he worries about things going haywire.

“You’re going to have some failures,” Picker said. “Electric markets can be brutal. So what happens to the customers, midyear, if the company or the program goes away? Where do those customers go?”

In a May op-ed in the Sacramento Bee, Picker urged local officials pursuing community-choice to act with care.

“The last time California deregulated electricity, it did so with a plan, however flawed. Now, electricity is being deregulated de facto, through dozens of decisions and legislative actions, without a clear or coordinated plan,” he wrote. “If California policymakers are not careful, we could drift slowly back into another predicament like the energy crisis of 2001.”

Picker warns that managing California’s power grid requires expertise and will become increasingly difficult as new clean-energy mandates kick in and as new technologies come to the fore.

But these warnings so far don’t seem to resonate with the statewide business community, which so far has not taken a strong, consistent stand on community-choice.

Some local groups have, however. The San Diego Regional Chamber of Commerce, for example, questions the assumptions that community-choice will lead to cheaper utility rates and increased use of clean energy.

This article was originally published by CalWatchdog.com

Tax Free Policies to Increase California’s Housing Stock

affordable housingOne of the most frustrating contradictions inherent in the policies being enacted by California’s one-party state goes something like this: We are inviting the welfare cases of America and the expatriates of the world to move here, while simultaneously enacting environmental policies that make it extremely time consuming and expensive to build anything.

No wonder there’s a “housing crisis.” Until demand decreases, or supply increases, housing in California will remain unaffordable for most of its residents. But don’t expect demand to slacken any time soon. The political consensus in favor of increasing California’s population has a strong moral justification – why shouldn’t the wealthy, innovative, compassionate people of California be willing to share their wealth with millions more people who are less fortunate? But there are other less high-minded upsides to population growth and obstacles to new housing.

Currently, real estate prices and rents are on the rise, favoring investors and landlords. Banks enjoy higher lending volumes, while borrowers enjoy greater liquidity, however precarious, as the property bubble offers them more collateral as security. The government agencies profit from higher property tax assessments and higher capital gains collections on sales of real estate. Large land developers that have the political clout and financial heft to build housing despite the many obstacles, enjoy unusually high margins that they could never achieve in a normal competitive market. Finally, as an expanding population increases demand for housing, at the same time public school districts can increase attendance-based revenue – which will make it somewhat less urgent that they reform their union work rules and spending priorities.

Efforts by California’s policymakers to increase the supply of housing have to be viewed in this context. They want to increase the supply of housing. Yet they also want to keep happy the special interests that pay for their political campaigns. Therefore, strict – and very self-serving – parameters are likely to limit what new laws are enacted to stimulate new housing. For example:

Negative Consequences of Special Interest Defined Development in California

(1) Additional open land outside of urban boundaries will remain off limits to development, in order to ensure that existing municipal jurisdictions are able to retain access to the new property revenues that will accrue to new stocks of residential and commercial real estate. This will be justified as necessary to protect the environment.

(2) Most obstacles to housing construction will remain in place – in particular, excessive fees to government agencies and onerous CEQA requirements. This will ensure that only the most powerful corporate and financial entities will be able to take advantage of new opportunities to build housing, while cutting out the small landowners and developers.

(3) Major land developers will be given financial incentives by state and local government entities to build “affordable housing” and eliminate “blight,” but these incentives will be out of reach for smaller landowners and developers.

(4) In order to keep the real estate asset bubble fully inflated, housing prices will only fall marginally as development occurs, which pretty much helps nobody, but massive programs of taxpayer funded rent control and rent subsidies will be enacted to make up the difference for qualifying low income families.

(5) “Densification” will be imposed on residential neighborhoods, with the primary victims being any neighborhoods that are situated close to bus stops or light rail stations. Developers will be permitted to build multi-story, multi-unit buildings on small residential lots and will not be required to offer parking; all of this will greatly increase their profits.

(6) Building code requirements will relentlessly increase in the name of energy efficiency and safety, with the practical effect being to lock out small landowners and developers from being able to afford to upgrade their properties or develop new properties; these same more stringent regulations will not seriously impact large development corporations and financial investors.

It is wrong to be entirely cynical about the laws that are coming. Slamming the door completely shut on newcomers to California would be cold hearted, unpopular and probably cause more economic harm than good. Zealously enforcing residential zoning densities that were put in place several decades ago would be overly sentimental, ignoring the disruptive adaptations and radical transformations that have defined and enriched urban life since settlement began. Completely embracing a new wave of suburban sprawl would needlessly eat up more open land than a more balanced policy approach might cost. While the new building code mandates are now excessive (if not ridiculous), nobody wants to go back to toilets with seven gallon tanks, or insulation with an R value of 2.0.

Unfortunately, balance is not what we’re finding in the new laws. Last year, the State Senate considered a bill – SB 827 – that would have removed local zoning control and allowed multifamily housing to be built in well-established single family neighborhoods. This would have allowed those multifamily housing projects to be as tall as 55 feet. Against heavy opposition, SB 827 never made it out of committee, but this year it’s back. The new legislation, again sponsored by Democrat Scott Wiener, is SB 50.

Reading through the text of SB 50 grants insight into just how entrenched the collusion is between public officials and developers seeking subsidies and waivers. Consider this introductory language:

Existing law, known as the Density Bonus Law, requires, when an applicant proposes a housing development within the jurisdiction of a local government, that the city, county, or city and county provide the developer with a density bonus and other incentives or concessions for the production of lower income housing units or for the donation of land within the development if the developer, among other things, agrees to construct a specified percentage of units for very low, low-, or moderate-income households or qualifying residents.

In plain English, the “Density Bonus Law” forces taxpayers to subsidize not only developers who are already making more money by being allowed to pack more units on less land, but also low and “moderate” income households who will occupy a percentage of housing units. Bring ’em in! Paying artificially high prices for housing while also paying for someone else’s inflated rent will never wear thin with taxpayers.

The Coalition to Preserve LA, “a citywide movement of concerned residents who believe in open government, people-oriented planning, equitable housing and environmental stewardship of Los Angeles,” produced this summary of SB 50.

Densification a la SB 50:

  • Forces cities to allow luxury towers in single-family areas.
  • Upzones thousands of beautiful streets to 6- and 8-story apartments if an area is “jobs-rich with good schools.”
  • Upzones thousands of single-family areas within a 1/4 mile of a frequent bus stop or 1/2 mile of a rail station.
  • Lets developers sue any city that tries to stop them.
  • Cuts parking to zero, claiming rich residents “use transit.”
  • Falsely claims to protect renters & sensitive communities.
  • Strips protections of many HPOZs and historic buildings.
  • Lets developers wipe out setbacks, backyards, green belts.

For millions of Californians who live in bucolic suburbs, with tree lined streets and spacious private yards, SB 50 unchecked is going to be a holocaust. It will utterly destroy their way of life. Many victims will not have the ability to move. The greatest insult of all: Their taxes will be paying for it. And as a “solution,” it is completely unnecessary. There are better ways, that leave established neighborhoods intact and cost taxpayers nothing.

Reforming the California Environmental Quality Act (CEQA)

There are two ways to mitigate the impact of CEQA, the law that requires “environmental impact reports” on any land development in California, including “climate change” impact along with a host of metastasizing additional requirements. The first, being practiced increasingly, is to grant CEQA waivers to politically connected developers that are proposing projects deemed politically correct. The second, far preferable solution, is to fundamentally rewrite CEQA.

An excellent summary of how to reform CEQA appeared in the Los Angeles Times in Sept. 2017, written by Byron De Arakal, vice chairman of the Costa Mesa Planning Commission. It mirrors other summaries offered by other informed advocates for reform and can be summarized as follows:

  • End duplicative lawsuits: Put an end to the interminable, costly legal process by disallowing serial, duplicative lawsuits challenging projects that have completed the CEQA process, have been previously litigated and have fulfilled any mitigation orders.
  • Full disclosure of identity of litigants: Require all entities that file CEQA lawsuits to fully disclose their identities and their environmental or, increasingly, non-environmental interest.
  • Outlaw legal delaying tactics: California law already sets goals of wrapping up CEQA lawsuits — including appeals — in nine months, but other court rules still leave room for procedural gamesmanship that push CEQA proceedings past a year and beyond. Without harming the ability of all sides to prepare their cases, those delaying tactics could be outlawed.
  • Prohibit rulings that stop entire project on single issue: Judges can currently toss out an entire project based on a few deficiencies in environmental impact report. Restraints can be added to the law to make “fix-it ticket” remedies the norm, not the exception.
  • Loser pays legal fees: Currently, the losing party in most California civil actions pays the tab for court costs and attorney’s fees, but that’s not always the case with CEQA lawsuits. Those who bring CEQA actions shouldn’t be allowed to skip out of court if they lose without having to pick up the tab of the prevailing party.

Unfortunately, California’s new governor, Gavin Newsom, while acknowledging problems with CEQA, has put responsibility for recommending changes to CEQA in the hands of a task force consisting of labor union officials and land developers. It will be a surprise if a group dominated by these two special interests will be capable of coming up with the solutions recommended by De Arakal and others.

Principles of Appropriate Development in California

There is a moral imperative to increase the supply of housing in California. As noted, California’s policymakers have awakened to the fact that construction of new housing is not nearly meeting demand for new housing. But the way they’re going about stimulating housing construction is flawed. It will not appreciably lower the cost of housing and it will needlessly enrich special interests. Here are some ways housing could be more appropriately developed in California:

(1) Eliminate all forms of government subsidies, incentives or waivers to any developers. All players in the housing industry should be unsubsidized, and playing by the same set of rules.

(2) Stop requiring diverse types of housing within the same development or neighborhood. Mixing high-density, subsidized housing into residential neighborhoods devalues the existing housing, and this social engineering is unfair to existing residents who have paid a high price to live there.

(3) Roll back the more extreme building codes. Requiring 100 percent of homes to be “energy neutral” or include rooftop photovoltaic arrays, for example, greatly increase the cost of homes.

(4) Lower the fees on building permits for new housing and housing remodels. Doing this might require pension reform, since that’s where all extra revenue goes, but until permitting costs are lowered, only billionaire developers can afford to build.

(5) Speed up the permitting process. It can take years to get permits approved in California. Again, the practical effect of this failure is that only major developers can afford to build.

(6) Reform the California Environmental Quality Act as noted. Better yet, scrap it altogether. Federal laws already provide adequate environmental safeguards.

(7) Make it easier to extract building materials in-state. California, spectacularly rich in natural resources, has to import lumber and aggregate from as far away as Canada. This not only greatly increases construction costs, it’s hypocritical.

(8) Increase the supply of land for private development of housing. Currently only five percent of California is urbanized. There are thousands of square miles of non-farm, non critical habitat that could be opened up for massive land development.

(9) Engage in practical, appropriate zoning for infill and densification in urban cores, but only after also increasing the supply of open land for housing, and only while continuing to respect the integrity of established residential neighborhoods.

California has unaffordable housing because extreme environmentalists have imposed an agenda onto state policymakers that, unfortunately, dovetails perfectly with the agenda of special interests – in particular, public sector unions and bureaucrats, and large corporate land developers and construction contractors. This coalition is also responsible for the related problem of neglected infrastructure in California. Until California’s voters wake up and break this immoral, self-serving coalition, there is little hope that housing prices in particular, or the cost-of-living in general, will come down in California.

This article originally appeared on the website of the California Policy Center.