Pension initiatives: could costs go up not down?

An official analysis of two public pension reform initiatives last week raised an issue quickly seized by opponents — a potential cost increase of $1 billion or more a year for state and local governments during the next two or three decades.

Much of the focus in the pension debate has been on court rulings widely believed to mean that pensions promised state and local government workers on the date of hire can’t be cut, not even for future service as is allowed in private-sector pensions.

Now the analysis of the two proposed initiatives makes the point that switching new hires to cheaper retirement plans can drive up costs, mainly by cutting the cash flow used to help pay pensions under the old plan.

To replace the cash from new hires the old plans would have to switch some investments to yield cash not capital gains, lowering expected earnings. And a lower earnings forecast can increase employer contributions to the old plans and long-term debt.

The nonpartisan Legislative Analyst’s Office review of two versions of an initiative proposed by California Pension Reform, led by Dan Pellissier, said putting new state and local government hires in cheaper retirement plans could trigger major costs.

The analyst said an initiative giving new hires 401(k)-style investment plans could increase employer costs for two or three decades by “up to several billion dollars more per year (in current dollars) to cover pension costs of current and past employees.”

Over a similar period, the analyst said an initiative giving new hires a “hybrid” retirement plan combining a smaller pension with a 401(k)-style plan could cost employers “$1 billion more per year (in current dollars).”

But the initiatives also would cap employer contributions, raise the contributions of current employees to help pay off pension debt and make other cost-cutting changes virtually certain to be challenged in court by public employee unions.

The analyst’s summary of the fiscal effect of the 401(k) initiative, similar to the hybrid summary, reflects the uncertainty and concludes that government costs could go up or down:

“Over the next two or three decades, potentially significant increased annual costs or some savings in state and local government personnel costs, depending on how this measure is interpreted and administered.”

The analyst’s summary is more certain about what happens under the 401(k) initiative, and potentially under the hybrid plan depending on its structure, when most workers are in the cheaper retirement plan.

“In the long run (several decades from now), annual savings in state and local government personnel costs of billions of dollars per year (in current dollars), offset to some extent by increases in other employee compensation costs.”

The analyst thinks that if retirement benefits are cut by the initiative, pay or compensation for government jobs is likely to be increased to keep them competitive in the labor market.

A labor coalition, Californians for Retirement Security, issued a news release about the Legislative Analyst’s Office review of the initiatives that emphasizes the potential cost increase.

“LAO: GOP Pension-Slashing Measures Would Mean ‘Large Uncertainty’ and $1 Billion a Year in New Costs for at Least 30 Years,” said the headline on the labor news release. “Legislature’s Fiscal Watchdog Says Proposals Threaten Massive Legal Challenges, Reduced Returns and Would Hurt CalPERS and CalSTRS.”

The author of the initiatives, Pellissier, a former aide to a Republican governor and legislator, said part of the potential increased cost of the initiative would be covered by increased employee contributions.

Pellissier said he had expected a more detailed analysis, perhaps using data available from the 20 largest public pension plans that cover about 90 percent of the state and local government employees.

For example, he said, the initiatives would save employers money by more quickly paying off pension debt or unfunded liabilities. He said the analysis is “more of a discussion of the concepts” than an evaluation based on assumptions and work sheets.

Pellissier said the group will use the title and summary of the initiatives, expected from the attorney general later this month, in polling to determine which version of the initiative to place on the November ballot by gathering voter signatures.

“We have hired fundraisers in all the major markets,” he said. “We are seeing enough money to do what we need to do.”

In San Diego, a pension official said an initiative on the June ballot that would give all new city hires except police a 401(k)-style plan instead of a pension could increase costs by about $90 million over the first six years.

If the pension plan is closed to new hires, said Mark Hovey, the pension system’s chief executive, government accounting rules require the $2.1 billion pension deficit to be paid off more quickly.

Gov. Brown fired back last month when the California Public Employees Retirement System said the hybrid plan for new hires in his 12-point pension reform plan could increase employer costs.

“As a matter of fact when I read the PERS analysis they say if you close the system of defined benefit (pensions) and don’t let any more people in, then the system would become shaky,” Brown told a legislative hearing.

“Well, that tells you you’ve got a Ponzi scheme,” the governor said.

“Because if you have to keep bringing in new members then the current system itself is not in a sustainable position,” he said. “So I don’t accept that, and we don’t need to close it off, anyway. But we do have to make sure that this system is sustainable over the long term.”

In a Ponzi investment fraud, recently made famous by convicted swindler Bernie Madoff, money used to pay investors if they cash out their account comes not from earnings but from new investors.

The CalPERS chief actuary, Alan Milligan, told the legislators he does not think carrying out the governor’s plan requires closing the current pension systems to new hires.

“However, that is one possible way of accomplishing the governor’s proposal, so it’s important to understand what it means when that happens,” he said.

After explaining how less cash flow from new hires can lower investment earnings, Milligan said it’s also important to know that the “same effect” can result from giving new hires lower pensions.

He said it’s not clear that the “significant” reduction of pensions for new hires in the governor’s plan would trigger lower earnings. But if it did, that would not happen for many years.

“So this is a concern,” Milligan told the legislators. “This is something that you want to think about. But this is not a boogeyman in the night that means you should be scared away from any particular course of action.”

(Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. This article was first posted on Calpensions.)

New CA taxes actively sponsored by ultra-rich

For the Chinese, 2012 is the Year of the Dragon. For beleaguered California taxpayers this may be the Year of the Billionaire.

Of the half dozen or so potential November ballot measures designed to raise taxes, nearly half are actively sponsored by billionaires. While other tax proposals are being backed by extremely well-healed special interests, they will be the subject of a future column.

Here is where the ultra-rich individuals are putting their money.

Tom Steyer, a billionaire hedge fund manager with major investments in renewable energy, is promoting a $1.1 billion tax on out of state businesses with operations in California to fund renewable energy projects. His initiative would make California an even more hostile place for businesses to operate, likely kill jobs and raise consumer prices, while diverting taxpayer money to corporate welfare for tycoons such as himself. In 2010, Californians voters rejected the same tax increase on out of state businesses by a 58% to 42% margin

Molly Munger wants to increase income taxes on everyone to raise $10 billion annually. Munger is the daughter of billionaire Charles Munger, a partner of Warren Buffett at Berkshire Hathaway and is a Los Angeles civil rights lawyer. She has been credited for devoting some of her considerable fortune to support early childhood education, but she now seems intent on compelling everyone else to support the cause she has selected. Regardless of her good intentions, forcing taxpayers to cough up another $10 billion will be a substantial additional burden in a state that already ranks third highest in income tax rates.

For shear wackiness, there is the proposal of the Think Long Committee funded by Nicolas Berggruen who is often called “the homeless billionaire” because he lives in hotels and does not own a home. The proposal would raise taxes $10 billion on all Californians by charging sales taxes on services, after reducing income taxes on the wealthy.

Let’s see if we have this right. If Berggruen gets his way, ordinary Californians will pay more every time they get a haircut, take a jacket to the drycleaners, call a plumber or even hire a clown or magician to entertain at their child’s birthday party, while billionaires like Berggruen will get a tax break. Sound too zany to pass? Well, it is still a potent threat because it has the support of a handful of other billionaires as well as two failed former governors, Davis and Schwarzenegger, and former Assembly Speaker Willie Brown, all three of whom presided over periods of lavish, irresponsible state spending.

So why would extremely rich people be trying to increase the tax burden on average Californians? Well, it may be as simple as some of them are genuinely interested in using other people’s money to help what they believe are good causes, while, for others, it’s just good old fashioned greed — the measures they support will help themselves.

Whatever their motivations, one is reminded of the 1992 debate between then President George H.W. Bush and candidate Bill Clinton during which the president was asked the cost of a gallon of milk. He could not answer.

Chances are that if these affluent tax backers were asked the price of a gallon of milk or of gasoline, they too could not answer or, if they could, they would not consider the cost of consequence. These are folks who do not share the concerns of California working families and refuse to see how much more difficult the lives of average folks will become if they are successful in passing their tax increase proposals.

And how’s this for a coincidence? In the Chinese horoscope the Dragon is said to believe rules and regulations are made for other people. What we have with these tax increase efforts is billionaires trying to make the rules for the rest of us.

(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. This story was originally posted on HJTA.org.)

Brown’s 1st Year – A Year of No Reform and Lost Credibility

For Jerry Brown, it was a year of no reform and lost credibility.

The first year of a new executive’s term, often with political winds and a honeymoon at his back, is the time when he has the greatest opportunity to make significant changes.  Brown wasted that opportunity by not pushing for any meaningful reforms.  Instead, he sent voters the bill for bailing out Sacramento in the form of tax increases.

In doing so, Brown threatened Californians with a fiscal nightmare of heavy-handed cuts to education and services unless we adopted his poorly conceived – and economically bad – tax increase.  Californians didn’t fall for his tax increase and the fiscal nightmare never came to pass – as most fair-minded analysts understood it wouldn’t.  Brown’s unfounded threats cost him his credibility. His bad policies left him without any significant first year achievements.

No Meaningful Reforms.

Brown excelled in cosmetic reforms such as cutting cell phones and state cars, but did nothing to reduce and reform the state’s bloated bureaucracy. Indeed, there was no reduction in the size of government – instead there are more government employees today than when he started.

We saw no major education reforms in Brown’s first year  – not even a two year budget cycle which many educators want.  There was no Central Valley recovery plan offered let alone adopted.

Perhaps the only significant change – which cannot be considered a reform because the word “reform” implies an improvement – was Brown’s prison realignment plan that has met with almost universal disapproval.

Critically, there has been no significant change to our state’s structural unemployment problem. Instead, the long-term problem worsens as regulations multiply, as the omnipresent threats of higher taxes and the lack of any true permanent reforms continue to drive away employers.

Lost Credibility.

Brown campaigned on “the sovereignty of the people.” Yet he broke his word by raising fees without a vote and by signing SB202 and thereby not allowing voters to enact a spending cap in June 2012 –  exposing his hollow pledge to “let the people vote.”

Beyond that, to support his massive tax increase demands during the first half of this year, Brown threatened the alleged necessity of unthinkable, draconian cuts to education and other social services. He did so disingenuously, all the while knowing Republican leaders provided budget solutions that protected education.  Sure enough, a “balanced” budget was passed without any such fiscal Armageddon.

In truth, Brown wanted those higher taxes to pay for a huge expansion of government spending – in excess of 27% – over the next 3 years.  Thankfully, voters didn’t fall for Brown’s “Chicken Little” claims.

Going into the New Year a basic question must be asked: Can we believe Jerry Brown and his promise of reform?  Since credibility is easier maintained than recovered and we have seen Brown’s brand of timid leadership, the answer is no.

All of which leaves Brown, if he cares about his legacy, in the position that if he wants to make a significant difference, he needs to take bold action for California’s future instead of wasting its promise.

(Tom Del Beccaro is the Chairman of the California Republican Party.  This article was first posted on Political Vanguard.)

California Named a Judicial Hellhole… Again

The American Tort Reform Foundation has released its annual Judicial Hellholes Report and California has claimed the #2 ranking on the report between Philadelphia and West Virginia. Our state certainly has been racking up the distinctions this year.

Last year we were also ranked #2 due to consumer class actions, extortionate disability access claims against small business, and expansive liability. Two cases stood out last year: a $208.8 million verdict for a single asbestos claimant in Los Angeles and a $677 million class action verdict leveled by a Humboldt County court against a nursing home provider in a case where not a single person had been injured.

In the 2011/12 Judicial Hellholes report, California maintains its #2 ranking. In the past the report has primarily focused on places where judges systematically apply laws and court procedures in an unfair and unbalanced manner, generally against defendants in civil lawsuits. More recently, the plaintiffs’ attorneys has begun aggressively lobbying legislative and regulatory bodies to expand liability as well. This year’s Judicial Hellholes report therefore includes regulatory and legislative actions (or lack thereof), which can affect the fairness of a state’s legal climate as readily as judicial actions.

The report’s section on California kicks off by citing recent surveys of chief executives in which California was named the very worst state to do business. “Perhaps no other state more clearly illustrates the direct impact of excessive litigation on job creation and the ability of businesses to survive and thrive,” the report states.

The report then examines the ongoing rash of ADA lawsuits filed by a cadre of personal injury lawyers against small business owners. These lawsuits often target business owners who speak English as a second language or otherwise lack understanding of their legal rights.

The report also discusses California’s out-of-control class action laws, how the courts are chipping away at legal reforms approved by voters through Proposition 64 and California hosting the first Wal-Mart class action case. California, the report concludes, seems to be controlled by the trial lawyers at the judicial, regulatory and legislative levels.

CALA has pointed out numerous times over the years that all of these factors dissuade investment in California. If the legal climate is not business-friendly, investors will simply go to other states. The latest Judicial Hellhole Report is just one more message to California’s legislative, regulatory and judicial leaders that we need legal reform more than ever.

(Tom Scott is the Executive Director of California Citizens Against Lawsuit Abuse. This article was first posted on Fox & Hound.)

Brown’s hybrid pension: new trend among states

Gov. Brown’s proposal to give new state and local government employees a hybrid retirement plan is part of a national trend, joined by Rhode Island last month and Utah last year.

A typical hybrid combines a smaller monthly pension, guaranteed for life, with a more risky and unpredictable 401(k)-style investment plan, whose value can rise and fall with the market.

For government employers a hybrid reduces the annual costs of pensions and their long-term debt — a national burden said by Pewand other researchers to have soared to $1 trillion or more after massive pension fund losses.

A brief issued by the National Association of State Retirement Administrators last month said hybrids are “receiving increased attention” as some states look beyond the standard cost-cutting methods: increasing employee contributions and giving new hires lower pensions.

The NASRA brief lists nine states (Rhode Island acted after publication) that have some version of a hybrid retirement plan: Nebraska, Texas, Georgia, Indiana, Michigan, Ohio, Oregon, Washington and Utah.

Before Brown issued his plan, the nonpartisan Legislative Analyst’s Office had recommended a hybrid as a way to reduce the risk of “future unfunded pension liabilities” or long-term debt.

The analyst said in a review of Brown’s plan that a hybrid also would address “a key policy concern” about public pensions: a “growing disparity” with the private sector where pensions are increasingly rare, largely replaced by 401(k) plans.

The bipartisan Little Hoover Commission recommended in February that California move to a hybrid model to “restore the financial health and security” of public pensions.

The commission pointed to a “breakthrough” hybrid for new federal employees begun in 1985. The hybrid was 100 percent funded in 2009, while the traditional pension fund for federal employees hired before 1987 was only 39 percent funded.

The employee contribution to the pension part of the federal hybrid is low enough (0.8 percent of pay compared to 8 percent for most California state pensions) that in September a 5 percent hike wasproposed to help finance President Obama’s jobs plan.

The federal hybrid is generous enough that some supporters fear Congress, as it struggles to reduce the deficit next year, may give new federal employees lower retirement benefits.

“We may end up with a two-tier situation where they grandfather existing employees under the existing rules but change them for new employees,” John Palguta of the Partnership for Public Service told the Washington Post last week.

One of the problems in persuading politically powerful public employee unions to back a hybrid plan is the potential for poor performance or big losses in the 401(k)-style investment part.

“The 401(k)-style component must be risk-managed to provide retirement security and minimize investment volatility,” said the Little Hoover hybrid recommendation.

The California State Teachers Retirement System, which recently called itself a hybrid, has a supplemental investment plan that guarantees a minimum return based on the 30-year federal bond, sometimes yielding more in good economic times.

For a decade ending last January, a quarter of the teacher contribution (2 percent of pay from a total of 8 percent) to the now seriously underfunded CalSTRS pension plan was diverted into a Defined Benefit Supplement created by AB 1509 in 2000.

An unusually brief legislative analysis of the last-minute bill, which did not go through the usual committees, said diverting part of the teacher contribution would have “no (state) general fund effect and no effect to the solvency of STRS.”

Now the contribution to the little-known supplement to CalSTRS pensions is mainly from pay earned outside the regular school year, such as summer school and overtime.

In his hybrid proposal, Brown said the 401(k)-style part “will be managed professionally to reduce the risk of employee investment loss.” The goal is to replace 75 percent of salary based on a full 35-year career, 30 years for police and firefighters.

The retirement income would come from a smaller pension, a 401(k)-style plan and Social Security, each providing about a third. For workers not in Social Security, the pension would be two-thirds of retirement income.

The pension part of the hybrid would be capped by limiting the amount of pay counted toward the pension, which is usually based on years of service, final salary and age.

A hybrid is one point in Brown’s 12-point pension reform plan, only outlined in broad concepts so far. An administration spokesman said the plan will be put into bill form and introduced in the Legislature.

If a hybrid is approved, the state Department of Finance plans to obtain expert outside help and spend about six months working out model hybrid plans for the wide range of local governments in California.

“There are different situations for different workers and different levels of government, and that’s why we think the hybrid plan will deserve extra study,” Michael Cohen, finance chief deputy director, told a legislative hearing early this month.

Sen. Joe Simitian, D-Palo Alto, asked the California Public Employees Retirement System to make some assumptions about the governor’s plan and “run numbers” on several versions.

“I think that will help spark some thinking at the legislative level about how we might or might not want to modify or adjust what the governor proposed,” said Simitian.

CalPERS representatives agreed to provide estimates based on the governor’s plan. But they told the two-house legislative committee that 401(k)-style plans tend to earn less and cost more to administer than pension plans.

“It’s possible to achieve cost savings and reduce risks through adjustments to a defined benefit (pension) plan without compromising retirement security as can and usually does occur in a hybrid plan,” said Ann Boynton, CalPERS deputy executive.

The NASRA brief said the cost of closing a pension plan to new employees can exceed the savings, one reason along with retirement security that some states are looking at hybrids rather than switching to only a defined contribution 401(k)-style plan.

In Rhode Island, Treasurer Gina Raimondo’s website said switching to a 401(k)-style plan would cost an additional $882 million in contributions over the next five years. The website said a hybrid avoids those costs and is “fair to both employees and taxpayers.”

California Pension Reform led by Dan Pellissier filed two versions of a sweeping pension reform — one putting new hires in a hybrid, the other in a 401(k)-style plan. The Legislative Analyst is expected to make a cost analysis as part of the initiative process.

Brown said earlier this month he will vigorously push for pension reform that can be placed on the ballot, an apparent cost control to encourage voters to support his proposed tax increase to avoid deeper state budget cuts.

“I believe it’s imperative for the Legislature to pass a credible pension reform that will be right there alongside a tax measure in November,” the governor said at a budget news conference.

A Public Policy Institute of California poll early this month found that 83 percent of Californians think public pension costs are a problem. A switch to a 401(k)-style plan was supported by 68 percent of adults and 64 percent of public employees.

(Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. This article was first posted on Calpensions.)

Figuring your “Fair Share” of Taxes

Populist and anti-corporate rhetoric have captured the political and media narratives recently, with everyone from President Obama to Occupy<insert your town> bemoaning growing income inequality and corporate compensation.

No matter how the economy fares in 2012, Californians will be on the receiving end of tax-the-rich demands from now until the November election. Three ballot measures have been proposed to hike Californians’ income taxes, while several others take aim at corporate or business taxes.

Two of the three income tax proposals target the rich – in words as well as in fact. TheGovernor’s proposal finds,

“With working families struggling while the wealthiest among us enjoy record income growth, it is only right to ask the wealthy to pay their fair share…The chief purpose of this measure is to protect schools and local public safety by asking the wealthy to pay their fair share of taxes.”

The California Federation of Teachers really dials up the rhetoric:

“In addition to being one of the largest economies in the world, California has one of the largest income gaps between the wealthy and the middle class. Millionaires and billionaires have increased their wealth and have benefited from tax loopholes, low tax rates, and reductions in federal tax rates. In fact, study after study has found that the rich have gotten much richer over the past 30 years and now own an unprecedented share of California income, while middle class families have seen a decline in real wages. Over the last two decades, the average income of the top1% of Californians increased by 50%, after adjusting for inflation, while the average income of the middle fifth fell by 15%. In 2009, the average income of the top 1% was $1.2 million, more than 30 times that of Californians in the middle fifth. Yet the wealthy also benefit from well-funded schools and universities, social services, public safety, and well-maintained roads and bridges.”

To her credit, Molly Munger resists playing the populist card:

“As Californians, we all should share in the cost of improving our schools and early education programs because we all share in the benefits that better schools and a well-educated workforce will bring to our economy and the quality of life in our state.”

It certainly isn’t news that California is the home of choice for many wealthy people, some who made their money here; others who brought it with them; still others who inherited their wealth from hard-working forebears. The state also has a large population of unfortunate, uneducated or unmotivated poor – many of whom are, we hope, at the beginning of what could be a more lucrative life’s journey; others who came here from even more desperate countries; or others for whom life’s lottery was a bust.

But even stipulating income inequality exists in California, what is a fair share of taxes, especially for “the rich?” Wealthy Californians pay 10.3 percent of their income in taxes; middle-income residents don’t even begin to pay income taxes until (as a family of four) they make $54,500 in adjusted gross income.

In fact, the California personal income tax is heavily weighted to the well-off, already. According to the Franchise Tax Board, the top 3.8 percent of tax filers in California – those who make more than $200,000 – paid a whopping 54.5 percent of all personal income taxes. And even this is low by historical norms. Absent a recession, the wealthy would be paying well north of 60 percent of all state income taxes (see chart, below).  Adding five or ten billion dollars to the taxes of the wealthy would increase that share to 60% or 65%, or even above 70% in good times (assuming the rich stuck around to enjoy their new tax bills). Is that fair, more fair, or not fair enough?

(Loren Kaye is the President of the California Foundation for Commerce and Education. This article was first posted on Fox&Hounds.)

How Lowell Can You Go?

This past August, Lowell Milken gave a $10 million donation to his alma mater, UCLA Law School.

Only to find the donation under fire because a law school professor, specializing in legal morality (an oxymoron if there ever were one), claimed that the money was tainted and therefore should not be accepted.

Eventually, UCLA Law School was able to accept the gift.  But why would a law school professor be up in arms about her school receiving $10 million?  Step with me into my time machine, and let’s return to the early 1980s in America.

Back then, any company in the country could borrow money from Wall Street…as long as that company was a blue-chip, gently aging Fortune 500, like AT&T, Coca-Cola, or Procter & Gamble, the kind of companies your grandmother would invest in.

If you were an up-and-coming company and you needed to borrow money to grow, to create jobs, to build an entire new industry, sorry.  Wall Street had nothing for you.

Enter Michael Milken, a Wall Street bond trader so immersed in his work that he wore a miner’s helmet on the train into the city each morning so he could read documents and prepare for the day.  Milken made a startling realization:  if you offered a higher interest rate on bonds for growing companies that weren’t yet Fortune 500-sized, those companies could now get funding.

Not only that, but those higher-risk, higher-yield bonds would actually make more money for the issuers than the bonds that Wall Street traditionally issued on behalf of the blue chip companies.

Milken’s firm, Drexel Burnham Lambert, quickly created–and then dominated–the market for higher-risk corporate bonds.   Entire new industries could get funding.  Investors had a new way to invest.  And Drexel, and Milken, made a fortune practically overnight.

His higher risk bonds by then had become known as “junk bonds,” a derogatory appelation stuck on them by Milken’s jealous competitors, who couldn’t compete with Drexel in this newly created, and highly lucrative, market.

Enter the bad guy.  An aggressive federal prosecutor realized he could make a name for himself by prosecuting “crime in the suites” — white collar crime, or dark deeds committed by wealthy people in the name of becoming wealthier still.  This prosecutor actually had three Kidder, Peabody employees walked off their trading floor in handcuffs, in full view of their colleagues, because one of them had received a cryptic message:  “Your bunny has a good nose.”

The message, the prosecutor decided, meant that the three men were engaged in insider trading.  A jury later disagreed and acquitted them, and the reputations of the three men were destroyed forever, but that meant nothing to the prosecutor, who by now was well known in New York.

His name?  Rudy Guiliani.

Giuilani saw that even if you couldn’t convict someone, you could get a ton of publicity just by going after a wealthy, successful Wall Street type.  So he set his sights on Michael Milken.

Milken was accused of a crime called “stock parking,” which no one — not Giuliani, not the judge in the trial, Kimba Wood, could have told you what it meant.  But the twelve mostly working class New Yorkers grasped one key fact:  Michael Milken was guilty of being rich as hell.

So they convicted him of “stock parking,” whatever that might be, and Milken went to jail.

If he hadn’t agreed to go to jail, the prosecutors would have come after his brother Lowell. So Michael surrendered his freedom, faced with the threat that his brother would be tried as well.

For a non-crime, just like Michael.

Guiliani rode his fame in the Milken case to become Mayor of New York, where he washed his sins in the aftermath of 9/11, his pain-stricken face topped by a Yankees cap on national television during the 2001 World Series.  In fact, Guiliani nearly rode 9/11 all the way to the White House.

And the Milkens?  After Michael served his time, he and his brother Lowell became two of the most generous philanthropists in American history.

Millions of Americans owed their jobs to the bonds Drexel had invented.  Entire industries cropped up because Milken had figured out a way to get them funded.  And then Lowell Milken gave $10 million to UCLA Law School, and Professor Lynn Stout had the temerity to say that the money was tainted and that the law school’s reputation for morality was on the line.

Please.

Winston Churchill once said that the best way to make history was to write it.

An even better way to make history is to rewrite it.

If Professor Stout can explain the crime of “stock parking” and show the world how Milken’s actions at Drexel constituted a violation of that law, then she deserves to be a professor of legal morality at UCLA.

And if not…

(New York Times Bestselling Author Michael Levin runs www.BusinessGhost.com, America’s leading provider of ghostwritten books.)

RDAs Hoisted On Own Petard

Believers in property rights and limited government should be thrilled that when the toughest threat to redevelopment arose in California, the biggest defenders of these agencies — the League of California Cities and the California Redevelopment Association — weren’t up to the task of saving these horrible agencies. It was clear that redevelopment — the big-government, urban-renewal project that was ended today in a wonderful California Supreme Court ruling — was in big trouble when the CRA’s long-time leader, John Shirey, bailed out and became city manager of Sacramento, well before the state court issued its ground-breaking ruling. Ironically, it was the strategy pursued by these redevelopment supporters that led to the agencies’ demise. The result couldn’t be sweeter.

As I wrote in February, If California Redevelopment Association President Linda Barton’s presentation Tuesday at a Sacramento Press Club debate was any indication, then Gov. Jerry Brown might have an easier time than expected in getting rid of the state’s noxious redevelopment agencies. Barton was so out of her league it was almost embarrassing as she debated longtime redevelopment foe, Chris Norby, now an Assemblyman representing north Orange County.” Redevelopment officials resorted to distortions that were easily debunked by the Legislative Analyst’s Office and, ultimately, to an embarrassingly flawed legal strategy. When push came to shove, the RDA house of cards simply crumbled.

The best example of the failure of redevelopment’s leadership can be found in the California Supreme Court decision itself, which used the policy of the CRA’s own making, Prop. 22, to give these agencies the final death knell. After Gov. Arnold Schwarzenegger — at the urging of Republican Assemblyman Norby, tried to divert redevelopment funds to the state general fund, the leadership of CRA and the League crafted Prop. 22 (November 2010). The initiative, per its summary, “prohibits the state from borrowing or taking funds used for transportation, redevelopment, or local government projects and services.” It was a constitutional amendment.

The measure was sold to the public as a protection of local transportation funds from Sacramento raids, but that was dishonest. The measure was designed to protect redevelopment funds. It passed and its defenders were gloating. They viewed redevelopment as permanent and untouchable.

But arrogance has its cost. To get around the ban on diverting redevelopment funds, Gov. Brown signed into law ABx1 26, which ended redevelopment agencies. His argument: It was no diversion if the agencies are shut down, and because RDAs are technically state agencies, the state has the full authority to shut them down. But the state’s Democratic leaders were really only after the money. As advocates for urban renewal, they had no real beef with these agencies, even though they routinely destroyed the lives of small business owners by abusing eminent domain and over-regulating land use within redevelopment project areas.

So as a sop to the agencies, the governor also signed into law ABx1 27, which allowed the agencies to come back to life provided they paid what the CRA and League called “ransom.” The governor should have vetoed that bill, but we know his political perspective. The redevelopers could have a) accepted that they would be losing money and just gone on with their lives; or b) challenged the bill ending redevelopment and left it at that.

But they challenged both laws, a strategy borne of overreach and arrogance, and one that misunderstood the current political and legal realities. The state high court agreed with Brown on the first law:

“Assembly Bill 1X 26, the dissolution measure, is a proper exercise of the legislative power vested in the Legislature by the state Constitution. That power includes the authority to create entities, such as redevelopment agencies, to carry out the state‘s ends and the corollary power to dissolve those same entities when the Legislature deems it necessary and proper. Proposition 22, while it amended the state Constitution to impose new limits on the Legislature‘s fiscal powers, neither explicitly nor implicitly rescinded the Legislature‘s power to dissolve redevelopment agencies. Nor does article XVI, section 16 of the state Constitution, which authorizes the allocation of property tax revenues to redevelopment agencies, impair that power. …if a political entity has been created by the Legislature, it can be dissolved by the Legislature, barring some specific constitutional obstacle to a particular exercise of the legislative power. The assertion in Proposition 22, section 9 that tax increment allocations to redevelopment agencies are constitutionally mandated, rather than constitutionally authorized and statutorily mandated, is a clear misstatement of the law as it stood prior to the passage of Proposition 22. Moreover, section 9 of Proposition 22 does not purport to amend article XVI, section 16 or to change existing law concerning the source of redevelopment agencies‘ entitlement, if any, to tax increment.13 Accordingly, we decline to treat its immaterial misstatement of law as a basis for silently amending the state Constitution. (I added the underlining)· The Association‘s alternate constitutional argument rests on article XIII, section 25.5, subdivision (a)(7) of the state Constitution, added in 2010 by Proposition 22. Examining both the text and the various ballot arguments in support of and against that initiative, we find nothing in them that would limit the Legislature‘s plenary authority over the existence vel non of redevelopment agencies….Proposition 22 contains no express language constitutionalizing redevelopment agencies.”

That’s good and proper, but here’s where the ruling is really sweet. Critics of redevelopment such as myself were thrilled about the ending of redevelopment agencies, but we saw that these agencies were mostly paying up and coming back into existence. It was annoying and costly to them, but the corporate welfare types and urban renewal bureaucrats were not going anywhere. Then the California Supremes ruled that because of Prop. 22 — the initiative that redevelopment’s advocates foisted on the state — AB1x 27 was no longer valid. Prop. 22 halted these so-called ransom payments, so 27 was dead — the best of all worlds for those of us who want to put a dagger in the heart of RDAs. Here is the court:

“A different conclusion is required with respect to Assembly Bill 1X 27, the measure conditioning further redevelopment agency operations on additional payments by an agency‘s community sponsors to state funds benefiting schools and special districts. Proposition 22 (specifically Cal. Const., art. XIII, § 25.5, subd. (a)(7)) expressly forbids the Legislature from requiring such payments. Matosantos‘s argument that the payments are valid because technically voluntary cannot be reconciled with the fact that the payments are a requirement of continued operation. Because the flawed provisions of Assembly Bill 1X 27 are not severable from other parts of that measure, the measure is invalid in its entirety. Assembly Bill 1X 27 on its face imposes not an optional condition but an absolute requirement: going forward, every redevelopment agency must have its community sponsor annually pay the portion of its tax increment assessed by the state under Assembly Bill 1X 27. … A condition that must be satisfied in order for any redevelopment agency to operate is not an option but a requirement.23 Such absolute requirements Proposition 22 forbids. (See Cal. Const., art. XIII, § 25.5, subd. (a)(7)(A).)”

The CRA, the League of California Cities and the foolhardy Republicans, such as Sen. Bob Huff were outsmarted. They were so arrogant that they tripped over their own clever plans. They passed Prop. 22, which then forbade the one mechanism that would have saved redevelopment from the ash bin of history.

There are many villains, beyond Barton and Shirey — the League’s Chris McKenzie springs to mind. Here’s his statement after the court agreed to take the case:

“We’re very gratified that the California Supreme Court has agreed to take our case, issued the stay we requested to preserve the status quo, and that it is moving forward on an expedited basis. The redevelopment bills are unconstitutional, violating Proposition 22 and other provisions of the state constitution. We look forward to presenting our case to the court very soon. We’re confident the state Supreme Court will ultimately strike down this unconstitutional legislation that ignores the voters’ will and that will destroy local economies.”

The vote wasn’t even close — 7-0 on the first part and 6-1 on the second. Most Republicans in the Legislature look foolish now, as they argued that redevelopment cannot constitutionally be eliminated. They used their power to try to protect the corporate welfare program in defiance of their limited-government rhetoric, and now the public knows that these folks are not their allies on most issues. But why waste our times on these folks?

There are many heroes, who labored for years to end this travesty not only for financial reasons but for reasons of justice. As someone who covered redevelopment for many years, I saw how these agencies engaged in unethical practices and basically stole people’s land in order to benefit rich developers, who provided political support for the elected officials who supported this process. I watched redevelopment destroy lives and undermine the fabric of cities — not to mention run up huge amounts of debt. Some people saw this and devoted themselves to fighting for this cause.

Norby is perhaps the biggest hero in the state. He started groups devoted to fighting redevelopment. He planted the seed of destruction in the mind of two governors, and he never gave in to pressure from fellow Republicans to save these agencies.

Philanthropist Howard Ahmanson is best known in the liberal media for funding religious-right causes, but one of Ahmanson’s biggest interests for years was fighting redevelopment, for reasons of faith and justice. He supported two other heroes, Assemblywoman Beth Gaines and her husband, Sen. Ted Gaines, who both defied their parties and voted with the Democrats to end redevelopment.

I’ve known many activists and lawyers who have fought for years against this travesty, people including Fullerton Councilman Bruce Whitaker, Tony Bushala, Chris Sutton, Larry Gilbert, Les Poppa, Allan Pilger, Bob Ferguson, Moe Mohanna and on and on. People who tasted the bitter sting of redevelopment often pledged their lives to fight it. Here, finally, we see a good news story, a triumph of justice in a state with few such victories.

I can’t end without tipping my hat to Gov. Jerry Brown and the Democratic Legislature. I almost never agree with anything they do, of course. And I don’t for one minute argue that the state’s Democrats ended redevelopment because of any concern for property owners or property rights. But they did indeed do the right thing. They stuck with it. I don’t believe that we would have this great victory had the eminent-domain-supporting Meg Whitman become governor. Brown’s analysis of redevelopment did indeed show a remarkable understanding of more than the fiscal problems with it. This victory makes many of his other bad policies almost tolerable.

Ultimately, Brown is the hero here and it’s sad the Republicans didn’t join with him. When your political foe gives you a gift, you ought to take it, but the GOP was too short-sighted to do so.

Sure, there will be new efforts to craft new types of agencies, but I can’t see where the money will come from. There are no permanent victories in politics, but this is a big one. There are no federal issues here, so this can’t be appealed to the federal courts. It’s a big win for Californians. Many of us view California’s future as sadly bleak. Gov. Brown insisted that he is not a “declinist,” that California is not in decline, but he is wrong. All the indicators are bad, except perhaps for this one. So we close 2011 on a happy and surprising note. Maybe we’ll have many more pleasant surprise for 2012.

(Steven Greenhut is the Editor-in-Chief for CalWatchdog, where this article was first posted. Greenhut was deputy editor and columnist for The Orange County Register for 11 years.)

Protests, Economy Rain on Rose Parade

Like Disneyland, Hollywood and Silicon Valley, the Tournament of Roses Parade is a symbol of California’s sun-blessed creativity. It crests with the crowning of the Rose Queen and her Royal Court, a bit of monarchism even die-hard democracy lovers won’t object to.

Countless Americans back East, watching TV as it snowed outside, have envied parade participants and spectators clothed in shorts and floppies.  The Easterners then started working to make their California Dream come true by moving here.

But it isn’t coming up roses for this year’s Rose Parade, as it’s commonly called, which will roll this year on Jan. 2, 2012

One reason is the element of politics that has crept into the celebrations. The Occupy movement plans to march behind the parade with the “crazies” as the 44th “human float.”

And who knows what else could happen. In 1992, then-Pasadena mayor Rick Cole rode in the parade wearing a T-shirt stamped with the slogan, “Tournament of Racists.” That year, a direct descendant of Christopher Columbus was appointed grand marshal of the parade during the 500th anniversary of the voyage to America of the Admiral of the Ocean Seas. Cole branded the descendant a reminder of European America’s heritage of “greed, slavery, rape and genocide.”

Which hasn’t prevented Cole from taking lucrative government jobs paid for by the taxpayer-descendants of those he attacked. He’s currently city manager of Ventura, where he has been promoting “smart growth” — a policy that raises home prices and suppresses home ownership by blacks, Latinos and others he claims to be helping with his politically correct positions. His total 2010 taxable compensation is $191,940. And what a pension that will bring.

Fortunately, the  local branch of the Tea Party — known as the Pasadena Patriots — has decided to back off its earlier decision to also appear at the end of the parade.  Tea Party spokesman Michael Alexander said, “We have decided to not be a part of this piece of drama and exercise in street theater.  Pasadena is entitled to one day without politics.”

Aside from political protests, there are deeper economic reasons why it’s raining on the routes the Rose Parade will wind through in Pasadena.

Corporate Parade Sponsors

The Rose Parade has been officially renamed, “The Rose Parade by Honda.” And the Rose Bowl Game is now named, “The Rose Bowl by Visio.” These corporations have banned the city of Pasadena and the media from using the old names without the corporate identities.

Banks and big corporations mainly make the Pasadena Rose Parade possible today.  Nineteen floats will be sponsored by corporations: American Honda, Bayer Advanced, California Clock Company, China Airlines, Dick Van Patten’s Natural Balance Pet Foods, Discover Card, Dole, Farmers Insurance, HGTV, Macy’s, Microsoft Kinect for XBOX 360, Paramount Pictures, NAMCO Bandai Games America, Paramount Pictures, RFD-TV, Trader Joe’s, Kaiser Permanente, U.S. Bank and Wells Fargo Bank.

Other nonprofit and service organizations with floats include: AIDS Healthcare Foundation, City of Hope, Donate Life, Girl Scouts of Greater Los Angeles, Kiwanis International, Odd Fellows and Rebekahs, Rotary International, Shriners Hospitals for Children and three schools and religious organizations. Plus two floats for each of the teams playing in the Rose Bowl football game the same day, the Wisconsin Badgers and the Oregon Ducks.

Interestingly, the Ministry of Tourism and Creative Economies of the Republic of Indonesia is sponsoring a float.  But the local Chamber of Commerce, the San Gabriel Valley Economic Partnership, the Los Angeles County Economic Development Corporation and other local pro-business organizations do not have floats.  It’s telling that a float touting capitalism is now sponsored by Asia, not the United States or California.

Many of the local cities that entered floats in past parades have dropped out due to financial pressures.  Absent will be a float from the small city of Duarte that teamed with the City of Hope cancer treatment center for decades.  The City of Hope will continue a solo entry for 2012.

The neighboring cities of Alhambra, Burbank and Glendale all pulled out, but private donations rescued them.  West Covina won’t make it, however.  Even wealthy Beverly Hills has dropped out.

Surprisingly, the Anheuser-Busch brewery, which had entered a team of famous Clydesdales horses for 58 years, decided to spend its money elsewhere.

Behind the Corporate Façade — Non-Profit Parasites

Years ago, current Pasadena Mayor Bill Bogaard, a Democrat, pressured the parade sponsoring organization — the Pasadena Tournament of Roses — to accept non-profit agency members on their governing board.  He also forced a sort of coup of the governing board of the local Chamber of Commerce.  So today unions and non-profits, not corporations or small businesses, actually control the Chamber.

The image of the corporation-dominated Rose Parade and Rose Bowl may be what is conveyed to the public through the mass media. But behind the facade, Pasadena is a postmodern, anti-corporation community controlled by unions and with 1,000 non-profit agencies. That’s one nonprofit for every 54 households in Pasadena.

Nobody addresses the hole that nonprofits create in municipal budgets. The Occupy movement has urged bank customers to withdraw their funds and put them in nonprofit credit unions. But Pasadena has so many nonprofits that they are an invisible drain on the community that defies their glorification by the Occupiers.

Local conservative activist Mary Dee Romney wrote in an email, “There is growing acceptance by well-heeled folks in the Pasadena area that their income-producing endeavors are of such essential ‘virtue’ as to be entitled to non-profit status, thereby exempt from taxation.”

Romney provided an example. She said, “On Sept. 9, 2009, a Pasadena Star News editorial revealed that ‘insiders’ from the Thoroughbred Racing Association of California would bid for the Santa Anita Race Track (303-acres in nearby Arcadia) and run it as a ‘nonprofit arm of the Thoroughbred Owners of California’.”

The Chairman of TRAC, Arnold Zetcher, said, “We’re putting together a ‘not-for-profit,” which doesn’t mean we don’t want to make a profit — we do. We take the money and put it into the purse structure.”

Romney concluded, “Who in the Pasadena area needs a Swiss bank account when they can avoid taxes through phony non-profits? The very same folks who hide their income from taxes through non-profits are the first to call for taxes on the rest of us.”

Auto Dealers Crash Along the Rose Parade Route

Today, “the Little Old Lady from Pasadena,” who became the “terror of Colorado Boulevard” in the old Jan & Dean song, wouldn’t be buying her Super Stock Dodge in Pasadena. It doesn’t have any Dodge dealers.

There is probably no greater marker in Pasadena of the economic downturn than the closure of nearly all the major new auto dealers along Colorado Boulevard, the route of the Rose Parade.

John Martin, a boutique auto broker in Pasadena, explained why the dealerships died.  It wasn’t only because of the real estate meltdown or bank fraud.  Martin said, “Pasadena auto dealers set up shop on Colorado Boulevard in the 20s, 30s, 40s, 50s and 60s. The unfortunate fact is hundreds of thousands drive down the 210 Freeway since it was built in 1970. Out of site out of mind.

“Dealerships expanded to many communities in the 70’s. Alhambra has four strong markets to draw from North, South, East and West. Pasadena loses.

“Thinning of the herd is important. Land Rover strategically places dealerships 50 to 60 miles apart. Chevy, Ford, GM and Chrysler have dealers 10 to 15 miles apart.

“With the saturation, dealers pull folks from all over,” Martin said. “And many times it is the last contact with the client after the sale or lease. Not to say that a salesman at the dealership does not have a repeat clientele. But many salespeople do move from place to place. The Rusnak luxury auto dealerships of the world do compete with a location on Colorado Boulevard. But they are specialty cars: Porsche, Bentley and so forth.

“Your dealers in Glendora are on the freeway route.  All of the old U.S. Route 66 new car dealers made the jump 30 to 35 years ago. A good example is Person Ford in the city of La Verne.  The city subsidized the dealership for 15 years with free loans not to move from Foothill Boulevard, which is two miles from the freeway.  Person closed four years ago. Out of site from the masses on the freeway.

“There are no guarantees of success for a dealer with a spot on the freeway, but the odds are better. Good service backed by good management, with helpful sales staff, is part of the equation. Auto brokers are relationship-built organizations. Many consumers are afraid of the dealership process. Thus there is a niche for the boutique auto broker.”

Fools Gold

Also contributing to the decline of auto sales and dealerships in Pasadena that Martin speaks about is the construction of theGold Line light-rail project.  The Gold Line runs down the median of the 210-Foothill freeway that cuts through Pasadena.

It is being extended to the easterly portion of the San Gabriel Valley, heavily subsidized with $700 million in federal transportation funds championed by Rep. Adam Schiff, D-Pasadena. Local politicians brag that the Gold Line created 6,900 jobs.  They don’t calculate how many jobs it unintentionally wiped out.

The Gold Line is a highly inefficient and costly form of public transportation. Its main economic benefit is the many transit-oriented housing projects created along the light-rail route.  The Gold Line is just another form of mixed-use redevelopment with inclusionary housing masquerading as a public-transit project.  But after the real-estate bubble burst,  California has overdosed on luxury housing located on expensive commercial land, built at the expense of business creation.

The real-estate bubble may have masked the economic downturn in Pasadena for a couple of decades. But when the bubble popped, the auto dealerships that remained located along old Route 66 abruptly died because they weren’t by the freeway.  The regional and municipal land planners had failed to rezone enough large land tracts along the new freeways for new auto dealerships. In some cases, redevelopment actually relocated dealerships away from the freeway; those dealerships predictably died.  Those communities that relocated auto dealers along the freeways captured customers away from nearby cities such as Pasadena.

But will the extension of the Gold Line light rail wipe out their gains in order to create transit-oriented retail and affordable housing?

In-N-Out University

One of the few unheralded bright spots in the local economy is the In-N-Out Burger chain.  In-N-Out hires many young people out of high school.  It also has a management training program called “In-N-Out University,” which it has run since 1984 in Baldwin Park, where the chain was started.

In contrast with In-N-Out’s success is Mama’s Small Business Kitchen Incubator.  Mama’s is a nonprofit funded with a $2.6 million grant and a land loan by the city of Pasadena.  Mama’s cost $9,000 a week to operate.  Its extensive marketing campaigns brag about allowing more than 100 people to “rent” its kitchens to make food to load onto “roach coaches.” Many of these mobile restaurants compete with local, for-profit restaurants that are already hurting for business.  Despite the hype, government-sponsored restaurant incubators are a costly failure.

Green Paint from Red Arizona

If one read the local newspapers in Pasadena, one would get the impression that only government created new jobs or job training.  An example of a private program that doesn’t get any media attention is Dunn-Edwards Paint Company’s jobs and training program.

Dunn-Edwards Paint is jointly owned by the Edwards family and its employees.  It has been in business since 1925.  The company has about 100 retail outlets.  Professional architects, homebuilders and property managers account for about 90 percent of its sales.

In July 2011, Dunn-Edwards announced it was building the “world’s first” LEED-certified paint manufacturing facility. LEED stands for Leadership in Energy and Environmental Design.

But the 336,000 square feet facility was being built in Arizona, not California.  The obvious market for “green” paints and coatings is California.

The city of Pasadena provides financial incentives for LEED certification on all new buildings.

Pasadena may have been able to assemble land to accommodate the Dunn-Edwards new paint production facility. It could have used the former site of Stuart Pharmaceuticals, previously owned by Johnson and Johnson. Instead, that freeway-adjacent site was downzoned for transit-oriented housing and historic preservation.

Pasadena Wilts Roses

The coincidental theme of the Occupy the Rose Parade Movement is: “It’s Not Coming Up Roses.”

Pasadena is a fitting location for its demonstration. Not only is Pasadena the location of the corporation-sponsored Rose Parade. It was also the epicenter of the Mortgage Money Bubble.  Pasadena headquartered Fannie Mae, IndyMac Bank and Countrywide Savings.  Even Pasadena’s mayor is a former banker who helped merge Security Pacific National Bank and the Bank of America.

Pasadena is a wealthy city that had about $666 million in reserves, investments and cash in 2008.  But it is not immune to economic stagnation.  Pasadena recently rolled $74 million of its public pension obligations into a 20-year bond to be financed with pension obligation bonds that will double the cost of paying for pensions.  Paying for public pensions with bonds will double their cost to the taxpayers and suck more money out of the community that could have been used for business development.

Pasadena is also running a $20 million deficit in its $160 million renovation of the Rose Bowl, financed with federal Build America Bonds.

But the Occupy Movement will have to look beyond its anti-corporatist ideology if it is going to have anything more than symbolic political influence on the economy.

Local Problems

Most of the economic problems of Pasadena are local, not global.

Pasadena over-zoned and overbuilt transit-oriented mixed-use developments and inclusionary housing on pricey commercial land next to freeways.  Such freeway-close developments gobbled up sites that could have been used to relocate auto dealerships from obsolescent locations along the old historic Route 66.  They also crowded out any chance of new facilities for contrived green industries being built in the suburbs.  Such facilities are now being built out of state.

Over the last few decades, Pasadena grew non-profit agencies instead of small businesses.

Its attempt to “incubate” start-up restaurants is not only a failure and redundant but mostly politically motivated.  Private businesses starved for start-up financing after the collapse of the Mortgage Money Bubble.  Many restaurants closed or have struggled to stay open.  But government and local churches have collaborated to fund a “restaurant business incubator” project that only serves to put other restaurants out of business.  Those who cannot afford up-front capital needed to start restaurants should not be in that business.

But not according to local politically correct local government and churches that want to transfer money from the 1 percent to the so-called 99 percent no matter the result.

Pasadena’s, and California’s, economic stagnation has little to do with Wall Street.  It has more to do with an anti-business culture.

An overwhelming percentage of voters still believes that pro-growth policies for the economy are better than reducing inequality. That doesn’t mean restaurant business incubators, luxury affordable housing, or counterproductive redevelopment and public transit projects.

As you watch the pictures of whatever demonstration marches at the Rose Parade on New Year’s Day in Pasadena, be aware that things are not what they are portrayed to be.

It’s not coming up Roses in Pasadena because Pasadenans no longer want to grow roses.

(Wayne Lusvardi is a Political Commentator. This article was first posted  on CalWatchdog.)

Visitors from Outer Space and Their Strange Ideas About Education Reform

As the year draws to a close, newspapers, magazines and blogs are filled with best of andworst of lists that deal with everything imaginable. The Hoover Institution’s Koret Task Force got on the bandwagon early and posted Best and Worst in American Education, 2011 in November. All solid stuff. Can a reformer not be happy about the Parent Trigger being raked over the coals, yet surviving, or that many of Michelle Rhee’s reforms are still in place despite leaving her post as D.C. Schools Chancellor after a major push from the American Federation of Teachers? On the worst list, the Task Force includes the Atlanta teacher cheating scandal and the union-orchestrated overturn of Ohio’s recent anti-collective bargaining law.

Then lo and behold, we received a dispatch from Planet Ravitch on December 23rd. (Most people are not aware that shortly after astronomers ruled that Pluto was not a planet in 2006, a new planet would be identified. And it is inhabited!) The people who live on this celestial body (named after Diane Ravitch, a former reformer who turned into a champion of the failing status quo) are afflicted with a dyslexic-like condition: they have the entire education reform picture exactly backwards. The way to true reform is to hold their ideas up to a mirror with the resulting image revealing the best way to proceed.

Washington Post education “reporter” and blogger Valerie Strauss, whom Whitney Tilson rightfully refers to as Diane Ravitch’s mouthpiece, gave over her space last week to fellow Ravitchian Richard Kahlenberg. According to his bio, he is, among other things,

“…an authority on teachers’ unions, private school vouchers, charter schools, turnaround school efforts, and inequality in higher education.”

An authority on teachers unions? Maybe on Planet Ravitch, but he made a bad mistake when in Education Next he engaged especially wise earthling Jay Greene on unions and collective bargaining.

As you would expect, Kahlenberg gets everything backwards in his post. On his worst of list, he accused Terry Moe, author of Special Interest, a brilliant study of the teachers unions, of making “little sense.” (Kahlenberg apparently can’t tell the difference between a teacher and a teachers union.) Additionally, he is dismayed over the proliferation of charter schools because, according to his cherry picked data, most are mediocre. He fails to mention that charter schools have been the saving grace for many inner city kids who have escaped from the union dominated zip code schools they had been forced to attend. While proclaiming to have children’s best interests at heart, he is clearly more concerned that “some charter schools…save money by offering teachers no pensions whatsoever.”

On the plus side, Kahlenberg – surprise! – likes the teachers unions. For example, he writes,

“…the very positive role they can play on national policy was underlined in December, when the National Education Association announced an effort to establish 100 new peer assistance and review programs to better train and, if necessary, weed out ineffective teachers.”

The only problem is that peer assistance programs have been a flop wherever they have been tried. And NEA’s weeding process does not stand much of a chance of seeing the light of day because for it to work at all, it will have to be implemented by union locals. It’s hard to imagine local union bosses talking this one up to the rank and file.

Not surprisingly, Kahlenberg is a fan of collective bargaining, which may benefit mediocre and poor teachers but does very little for the good ones. Moreover, it has been damaging the education process (and therefore children) for about a half-century now. Collective bargaining agreements are nothing more than a top down, collectivist way to ensure that teachers have to do the least amount of work in idealized working conditions with no accountability for the most money. As Jay Greene states,

“Until the ability of teachers unions to engage in collective bargaining is restrained, we should expect unions to continue to use it to advance the interests of their adult members over those of children, their families, and taxpayers.”

In any event, the good news as we look toward 2012 is that for Kahlenberg, Strauss, Ravitch and their fellow aliens, their day has come and gone. We live in a time when change is happening. In July, due to major reform efforts in statehouses all over the country, the Wall Street Journal proclaimed 2011 The Year of School Choice. As Bob Bowdon, director of The Cartel so aptly put it,

“Large entrenched bureaucracies like public education have something in common with aircraft carriers: they never turn around quickly. What’s important is the direction they’re moving, and in this regard the education news is good. Of the 180 degree reversal that’s needed for public schools, we’ve only turned three or four degrees so far, but all the recent trends are taking us in a better direction. The turnaround has begun.”

(Larry Sand, a former classroom teacher, is the president of the non-profit California Teachers Empowerment Network – a non-partisan, non-political group dedicated to providing teachers with reliable and balanced information about professional affiliations and positions on educational issues. This story was first posted on UnionWatch.)