GOP Candidate attacks on Romney’s business roots are ill-conceived

So much for Ronald Reagan’s 11tth Commandment: “Thou shalt not speak ill of any fellow Republican.”

Most Republican presidential hopefuls, in desperation, are pulling out all the stops to derail frontrunner Mitt Romney and his apparent momentum, attempting to paint the likely 2012 nominee as (gasp!) an evil capitalist.

Romney’s rivals ought to heed Reagan’s admonition as they begin to sound more like embittered sore losers, less concerned with fundamental Republican ideas and more concerned with winning at all costs, wounding Romney and destroying any prospects for stopping Barack Obama’s reelection come November. More disconcerting though, is they risk causing confusion in the war of ideas surrounding free-market capitalism.

After Romney’s impressive showing in winning last week’s New Hampshire primary, former House speaker Newt Gingrich and Texas Gov. Rick Perry unleashed a brash onslaught of attacks on Romney-the-businessman. Perry referred to Romney as a “vulture capitalist” while the Gingrich campaign has portrayed Romney as an unethical, greedy businessman during his days at Bain Capital, a Boston-based private-equity and venture-capital firm that Romney co-founded in 1984. In fact, a pro-Gingrich super PAC, Winning the Future, released a video last week entitled “When Romney Came to Town,” blaming him for numerous American job losses at companies owned by Bain.

Romney’s candidacy has never thrilled me. The universal health care program enacted in Massachusetts while he was governor and his seeming inability to take a position on any issue and stick with it are, for me, unforgiveable. Yet, his rivals’ attacks on his leadership at Bain are equally offensive, if not foolish and entirely off-base, and they have consequences on broader public discourse.

Those who follow California politics remember all too well the 2010 gubernatorial election campaign. During the contest for the GOP nomination, candidates Meg Whitman and Steve Poizner tore each other apart. Poizner campaign ads called Whitman a “vulture capitalist,” a theme Democrats used during the general election against Whitman, as noted by Erick Erickson at RedState.com.

If, rather than when, Romney becomes the nominee, the Obama campaign will undoubtedly level similar attacks on the former Massachusetts governor. I am less concerned with Romney losing the election and more concerned about Republicans so willing to assault an economic system they purport to believe in,  free-market capitalism. It is especially disconcerting considering economic rhetoric used by Obama since he stepped foot in the Oval Office.

Of course, there is plenty to criticize with Bain and Romney. As Erickson also noted on his blog, “There are legitimate criticisms to be made of Mitt Romney and Bain Capital. Anyone who says otherwise needs to be prepared to defend Bain Capital more than once relying on the government to cover their butts on deals and even being bailed out by the government under Mitt Romney’s watch – not exactly free market.”

Still, the way Gingrich and Perry have framed their assaults are more an attack on the free-market.

To his credit, Rep. Ron Paul has stayed mostly out of the fray and that, along with his consistent libertarian message, is perhaps why Paul has performed so well in the early contests. It would seem that Republican primary voters, like many general election voters, are sick of partisan infighting.

Like many voters it seems, I’d much rather have a candidate other than Romney as the frontrunner for the GOP nod but none of the other choices are ideal. If you combined Ron Paul’s conviction to constitutional principles, Newt Gingrich’s intellect, Jon Huntsman’s diplomacy, conviction and depth, Rick Santorum’s sweater vests and Mitt Romney’s business acumen and hair, you would have one palatable candidate. A Chris Christie, Paul Ryan, Mitch McConnell or even a Jeb Bush may have been preferable, too. But let’s not lose the war of ideas to attempt to defeat Romney. Too much is at stake.

The antics of Perry and, particularly, Gingrich may help their candidacies in South Carolina’s primary Saturday but could also do lasting damage. One can only hope for a substantive debate of ideas and an upholding of free-market ideals rather than populist pandering. Unfortunately, the latter is more effective on the campaign trail.

(Brian Calle is an Opinion Columnist and Blogger for the Orange County Register. His blog is called Uncommon Ground.)

“Vulture” Capitalism and CalPERS, CalSTRS back room deals

Mitt Romney’s presidential campaign is putting the spotlight on private equity, which public pension funds such as CalPERS and CalSTRS helped flourish and now need for better-than-average earnings.

Romney became wealthy while leading Bain Capital, a private equity firm he said created “tens of thousands of jobs” by buying and then selling troubled or stagnant companies after making them efficient, better managed and able to grow and prosper.

But conservative Republican candidates, Newt Gingrich and Rick Perry, accuse Romney of “looting” corporations and “vulture” capitalism, enriching a few while leaving a trail of layoffs, massive corporate debt and bankruptcies.

Public pensions can play a key role in leveraged buyouts. A private equity firm puts up a token amount, gets a larger down payment from a pension fund or other limited partner and borrows most of the money, using the takeover target’s assets as collateral.

“Private equity owes its explosive growth largely to America’s pension funds,” a New York Times story said in April 2010. “Buyout funds raised $200 million in 1980 and $200 billion in 2007. According to Prequin, a financial data provider, public pension funds were the biggest contributors over that period and now have $115.9 billion invested in private equity.”

Private equity is expected to yield more than stocks, often 3 percent or more above market. Higher private equity yield is part of the rationale for the CalPERS and CalSTRS earnings forecast, 7.75 percent, which critics say is too optimistic and conceals debt.

After CalPERS and CalSTRS lost a third or more of their investment funds during a deep recession and stock market crash, a combined loss of about $170 billion, they both responded by shifting more of their investments into private equity.

The California Public Employees Retirement System, after investments plunged from $260 billion in fall 2007 to $160 billion in March 2009, increased its private equity target from 10 to 14 percent of the portfolio. The fund was $226.5 billion last week.

The California State Teachers Retirement System, which fell from $180 billion in October 2007 to $112 billion in March 2009, increased its private equity target from 9 to 12 percent of the portfolio. Its fund was $146 billion on Nov. 30.

In what Romney and some economists call “creative destruction,” private equity firms can impose tight cost controls as well as layoffs when trying to restructure companies for future success.

Public pension boards, dominated by public-sector labor union representatives, can be in the uncomfortable position of having a private equity partner accused of unfairly squeezing private-sector unions to boost profits.

CalPERS and CalSTRS have received at least two appeals in recent years to use their ownership clout to aid labor in struggles with private equity firms — Blackstone at the San Francisco Hilton hotel and TowerBrook at Bevmo! alcoholic beverages stores.

The scramble for pension fund seed money during a private equity boom that peaked around 2007 led to a corruption scandal at CalPERS.

Private equity firms agreed to pay the “placement agent” firm of a former CalPERS board member, Al Villalobos, more than $50 million in fees for help in obtaining funds from CalPERS.

A private equity firm led by Gerald Parsky agreed to pay Villalobos $4 million. Parsky chaired the Commission on Public Employee Post-Employment Benefits, which found few major pension problems and focused on unfunded retiree health obligations.

The state attorney general filed a bribery-related civil lawsuit in May 2010 against Villalobos and a former CalPERS chief executive, Fred Buenrostro. A trial for Buenrostro has been set for May. A Villalobos trial is expected later this year.

As of last Sept. 30, the performance of the CalPERS private equity program was 28.4 percent for one year and 8.9 percent for 10 years, according to a quarterly report to the board last month from Pension Consulting Alliance.

About half of the private equity portfolio was in leveraged buyouts, the type of private equity for which Romney is criticized. The rest are labeled special situations, fund of funds, growth equity and venture capital.

CalPERS had $55.5 billion committed to its private equity portfolio, called Alternative Investment Management. But $14.1 billion of the commitments had not yet been funded as the private equity firms looked for opportunities.

In an industry trend, CalPERS private equity investments fell after the global financial crisis in 2008. Commitments peaked at $14.2 billion in 2007 (27 percent still unfunded), dropping to $700 million in 2010 before climbing again last year.

Since the CalSTRS private equity program began in 1988 the “net internal rate of return” was 14.5 percent as of last March 31, said asemiannual report given to the board in September. The one-year performance was 19.6 percent, ten years 10.3 percent.

CalSTRS had $40.3 billion committed to private equity, $31.5 billion actually contributed. A larger part of the CalSTRS portfolio than CalPERS’ is in leverage buyouts: about 70 percent of the private equity market value.

Unlike the CalPERS report, the private equity holdings listed in the CalSTRS report include Bain Capital, a $625 million commitment. Romney left Bain in 1999 to take charge of the troubled winter Olympics in Salt Lake City.

Romney received part of Bain profits for the next decade during a leveraged buyout boom, the New York Times reported last month. From $4 billion in assets and 100 employees in 1999, Bain grew to $66 billion and 900 employees in six countries.

If Romney becomes the Republican presidential nominee, the debate over private equity and leveraged buyouts is expected to remain an issue — this time pushed by Democrats and the re-election campaign of President Obama.

“The controversial nature of buyouts is one that has long been absent from the political debate,” a Wall Street Journal article said last week. “Private equity is a $2.4 trillion industry, with another $1 trillion in unspent funds lurking on the sidelines.“

Battles may be brewing over continuing to tax private equity fees at a low capital-gains rate (15 percent rather than a much higher income tax rate) and a part of the Dodd-Frank financial reform act that limits bank participation in private equity.

An industry group, the Private Equity Growth Capital Council, reportedly is preparing to combat criticism triggered by Romney’s candidacy with an advertising and public relations campaign.

“We were bracing ourselves for this, but we’re not even in the general election yet,” a senior private equity executive told the New York Times. “Expect more pain.”

(Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories at Calpensions.com.)

In California, Government has become its own Special Interest

Of the myriad of proposed tax increases slated for the November ballot, there are about half a dozen that potentially could get traction. For now, they are behaving like a herd of angry elephants in the forest; you can’t see them yet, but you know they are out there and they are dangerous.

These measures, whether backed by billionaire elites or powerful government employee unions share one common theme: They all are concerned with the welfare of government without consideration of the taxpayers who must pay the resulting bills.

Government and its extended infrastructure – those who profit from government spending — have become a militant special interest. As tax policy expert Dave Doerr observed some years ago about the state budget process, ninety percent of those testifying before the Legislature in support of increased spending are the providers, not the recipients, of government services.

In Sacramento, it is all about pay and benefits for the state workforce and generous contracts and subsidies for the politically well-connected. The money must be kept flowing in ever increasing amounts to support and maintain those in power. Howard Jarvis used to call this the “tax, tax, tax, spend, spend, spend, elect, elect, elect”’ cycle.

Where among the dominant Sacramento political class are the advocates for the welfare of regular folks? Where is the outrage that unemployment is nearly 12 percent? Where is the indignation that so many Californians can no longer afford to pay their mortgages? Why is there no dismay over the number of businesses – and the jobs they provide – that our fleeing California’s high taxes and suffocating regulations?

Does anyone not receiving a subsidy form Sacramento feel better off than they did a year ago? Two years ago?

The quality of life for average Californians has been deteriorating every day thanks to record unemployment, underachieving schools, congested and crumbling highways and uncontrolled illegal immigration. We pay more than the national average for gasoline and utilities, and we rank near the top in nearly every area of taxation.

So what have the Sacramento politicians achieved? California has the worst credit of all 50 states, unemployment ranks second, and surveys show the state is the worst in the nation as a place to do business. We pay more than twice as much as similar states to incarcerate an inmate in our prisons system, while with 12 percent of the population we carry over 30 percent of the welfare case load.
Almost totally missing from the vocabulary of these power brokers is the word “jobs.” When jobs are mentioned, the word “green” is attached and used to justify astronomically expensive and impractical toys like the HSR, the bullet train to nowhere – the primary beneficiaries of which are the usual insiders.

The word that is heard most frequent from the lips of the Sacramento elite is “taxes.” Since they have trouble justifying more money based on their record, the power brokers are now playing the “fear card.” The governor is threatening programs the public favors if voters do not approve his tax plan, a multi-billion dollar increase that independent analysis reveals will fall mostly on average folks, not on the well-healed as the he promised when he announced his proposal.

However, regardless of which of the elephantine tax increase proposals charges out of the trees to attack the taxpayer village, it will be the middle class and poor who get trampled.

(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 article was first posted on HJTA.org.)

Bureaucratic Octopus Seizes Bay Area; more clogged roads in store

Like a giant octopus grabbing helpless humans in a horror movie, a new bureaucracy is squeezing the Bay Area.

One Bay Area is a plan to push Bay Area residents out of their cars and jam them into pack-and-stack high rises in the coming decades. The goal: cut greenhouse gas emissions and supposedly help save the planet from global warming.

One Bay Area is mandated by SB 375, the Sustainable Communities and Climate Protection Act of 2008. It was passed by the Democratic-controlled Legislature and signed into law by then-Gov. Arnold Schwarzenegger, a Republican. SB 375 is not as well known as AB 32, the Global Warming Solutions Act of 2006. But SB 375 well could affect Californians’ lives more directly.

One Bay Area is supported by the Bay Area’s liberal politicians, planning bureaucrats, environmentalists, social justice advocates and other elites. The plan is scheduled to be approved by the Association of Bay Area Governments and the Metropolitan Transportation Commission in spring 2013.

Fighting Back

In the meantime, a few folks, many affiliated with the Tea Party, are putting up a fight, despite the long odds. A number of them raised objections last year at the first round of public input meetings in the nine Bay Area counties. And they did so again this month in the second round’s first meeting in San Francisco.

An additional 2 million people are expected to live in the Bay Area by 2040, bringing the current population of 7.1 million to more than 9 million. This will result in a need for an additional 770,000 to 1 million apartments, condos and houses. That’s a jump from the current 2.6 million units. And, theoretically, an additional 1 million-1.4 million jobs will be created to provide employment for them. That’s up from the current 3.2 million jobs.

One Bay Area is designed to accommodate that growth while meeting the SB 375 goal of reducing carbon dioxide, particularly from cars and light trucks, by 7 percent by 2020 and 15 percent by 2035. The five planning scenarios actually fall short of that goal. So more social engineering will be coming, in addition to One Bay Area’s realignment of land use policies.

The plan attempts to thwart individualistic human nature in the name of communitarian progress. Basically, people who live in the suburbs and drive to work are bad. Those who live in apartment/condo buildings above shops in mass transit-oriented villages where everyone walks, bikes and rides buses and BART are good.

Blowback

Sensitive to the blowback from suburbanites who cling to their McMansions and SUVs, Lou Hexter, the moderator at the San Francisco meeting, was careful to emphasize that the plan “will not prescribe what a property owner must do and will not change the authority of local jurisdictions to make decisions.”

But money is power. The Metropolitan Transportation Commission has the ability to determine where to spend the $256 billion that is slated for transportation improvements in the Bay Area in the next 25 years. If the Bay Area’s nine counties and 101 cities toe the transit-oriented infill development line, they are more likely to get a piece of that funding. If they allow more suburban growth, particularly into farms, orchards and open space, they could lose out.

In any case, those who prefer to drive where they want to go, rather than taking a bus to BART and then another bus to their destination, are likely to suffer in the coming decades. Despite an approximate 30 percent increase in population, under current plans roadway capacity is planned to increase by only about 7 percent between 2005 and 2035. The One Bay Area plan likely will not affect that much.

Double-Nickle Speed Limit

On the other hand, mass transit capacity is currently planned to increase by about 22 percent from 2005 to 2035. One Bay Area’s initial vision scenario would increase that to 55 percent.

The idea seems to be to make traffic congestion in the Bay Area, which is already among the worst in the nation, so horrible that tens of thousands of people, perhaps hundreds of thousands, will voluntarily leave their cars at home and instead crowd onto buses, trains and ferries. And if they don’t get sufficiently discouraged from the daily freeway bump-and-grind, the One Bay Area options include increasing parking fees and setting the freeway speed limit at 55 mph (on the rare occasions that such speeds would be possible).

In essence, One Bay Area is the San Franciscation of the Bay Area. So it was appropriate that two San Francisco supervisors who also sit on the Metropolitian Transportation Commission provided the opening remarks. They were David Campos (a leader on the board in sponsoring anti-business legislation) and Scott Wiener (who elicited national snickers by requiring nude San Franciscans to place a cloth underneath them before they sit down in public)

“We have to identify what our priorities are to make sure we have effective use of the limited resources, and equitable outcomes so we have a Bay Area that works for everyone,” said Campos.

“We can’t just bury our heads in the sand and pretend we won’t have more people here and don’t need more housing and transit infrastructure,” said Wiener, who touted San Francisco as leading the way in transit-friendly housing. He also put in a plug for High-Speed Rail, “despite the Republican and media feeding frenzy against it.”

Limited Info

The intent of the meeting was to inform the public — or at least the 100 or so people allowed in to each of the nine meetings — about the plan and gain their feedback. But the information provided was limited, general and vague. And public input was mostly circumscribed to fit the pro-urban bias of the plan. Participants were broken into three groups, who then rotated among three rooms that focused on either transportation trade-offs, quality of complete communities or the Bay Area in 2040.

Any doubt on whether the fix was in to turn motorists into an endangered species was dispelled in the transportation room. Participants were asked to select their five most important transportation investments out of nine options — none of which included building more roads. Most of the options focused on mass transit and pedestrian and bicycle paths. Participants were also asked to select “the five most appropriate policies to reduce auto emissions.” The final question asked whether they supported finding ways to improve public transit.

Blood, Sweat and Tears

The presentation on the quality of complete communities was, naturally, skewed in favor of transit-oriented villages on infill land. San Francisco was touted as a model of urban planning by Ken Kirkey, director of planning for the Association of Bay Area Governments. He said, “No place in the region has done more than San Francisco. There’s been a lot of hard work and pain and blood, sweat and tears in the city.”

Not everyone at the meeting welcomed the prospect of sharing or spreading San Francisco’s pain, blood, sweat and tears.

“There are lots of assumptions about complete communities,” said one man. “I hear they will work because we get neighborhood services so people can walk and won’t have to have a car. In my time in San Francisco, the local supermarkets have shut down, corner stores have gone away. People have to drive for services. Nowhere have I seen how those factors are addressed.”

Another man said, “This is one of the most superficial meetings I’ve been to in a long time. Things were skimmed over, videos were at a middle-school level. I’m shocked at the low level of discourse and ideas presented today. We were shortchanged by MTC and ABAG. Let people speak and listen to them.”

Criticism also came from a man who said, “I have a very hard time with this process. This notion of trying to urbanize and turn the Bay Area into Brooklyn seems like madness to me. Forcing people into four-story walk ups. Those are the places people fled from. These are not homes, folks.”

Frankenstein

One woman warned that One Bay Area could be a Frankenstein’s monster or Pandora’s box. “Whenever you plan and build for two million people, four million people will come,” she said. “Growth has some of its own natural limitations. What you’re doing removes those natural limitations. You are altering things, and there will be many unintended consequences. The densification theories you apply, apply to Europe. They do not apply to the West Coast.”

Despite the fact that nearly three-fourths of the participants live in San Francisco, they were split evenly on whether they support the One Bay Area plan. The tally was 43 percent in favor and 43 percent opposed, according to the electronic polling at the end of the meeting.

They also were asked whether they agreed or disagreed with the statement, “Changes will be needed in my community and lifestyle to improve the quality of life in the future.” On that question, 47 percent strongly disagreed, which was the top choice. Asked whether the meeting presented the right level of detail on the One Bay Area plan, 62 percent strongly disagreed.

Ironically, for a process touting the virtues of mass transit, at the beginning of the meeting the moderator announced that the shuttle to the BART station would stop running in 20 minutes. “If you need a ride, see us,” said Hexter. “We want to make sure you don’t have to sleep in the auditorium.”

(Dave Roberts is a journalist and political commentator. This article was first posted on CalWatchdog.)

Jerry Brown’s budget depends on $6.9 billion tax hike initiative: LAO

Gov. Jerry Brown’s budget proposal contains more smoke than a forest fire. More mirrors than a funhouse. And more empty promises than a presidential candidate’s platform.

So much for his solemn pledge, in his Inaugural Address a year ago, “No more smoke and mirrors on the budget. No empty promises.”

The numbers are in the new report by the California Legislative Analyst’s Office, “Overview of the Governor’s Budget.” The budget under the microscope is for fiscal 2012-13, which begins July 1, 2012.

The LAO writes that the governor’s proposed $6.9 billion tax increase, to be put on the November ballot, is the “cornerstone” of the budget. Without it, the budget numbers collapse like a cheap card table. The increase would impose an extra half-cent sales tax, raising the state sales tax to about 8.5 percent in most counties. And it would impose an additional 2 percentage points of income tax on the wealthy, bringing the top state tax rate to 12.3 percent. That would make it the highest in the nation.

Election Far Away

But the tax increase hasn’t even been passed yet by voters. The election to authorize it is more than nine months off. And the last tax increase voters approved was in 2004, at the height of the real-estate bubble. That was Proposition 63, a 1 percentage point tax increase on millionaires dedicated to mental-health programs.

According to Ballotpedia, ‘The “Yes on 63′ campaign spent approximately $4.7 million. The largest donor was the California Council of Community Mental Health Services, which gave $733,389 to the campaign. The California Healthcare Association gave $541,735. The California Teachers Association kicked in another $302,555.[6]

“In comparison, opponents of the measure spent virtually nothing, with two separate ‘No on 63′ campaign committees spending a cumulative total of just over $13,000.00.[7]

Despite almost no opposition, and the tax falling only on all those filthy rich people, Prop. 63 still got only 54 percent of the vote.

The conditions in 2012 are far different from those in 2004. The real-estate bubble burst in 2007, leading to the real-estate crash. Real estate still hasn’t recovered, and might not for years.

In November 2004, the month of the election, unemployment was just 5.9 percent in California. But in November 2011, the last month available, it was nearly double that, at 11.3 percent.

In 2004, the tax increase initiative sparked just $13,000 in opposition spending. In 2012, anti-tax forces already are planning on spending tens of millions of dollars fighting any tax-increase initiative, whether Brown’s or the others being talked about, such as Molly Munger’s $10 billion yearly tax increase.

I peg the odds of any tax increase passing in California this November at only about 10 percent.

Not Even $6.9 billion

But the LAO also calculates that Brown miscalculated the $6.9 billion in swag. It only would bring in $4.8 billion a year.

Put another way, to get the $6.9 billion Brown wants, the tax increase would have to rise by another $2.1 billion above the $4.8 billion amount, a 44 percent increase. For that the state is supposed to support another tax assault on businesses and jobs?

The LAO’s analysis warned, “Currently, we forecast that the proposal would generate $4.8 billion for the 2012-13 budget process, or $2.1 billion less than the administration’s estimate. Our estimates of the initiative’s revenue increases in later years also are lower than the administration’s. The reasons for our lower estimates are essentially the same as the reasons for our differences in baseline revenues…

“Both our office and the administration agree that the initiative revenues will likely prove to be volatile, given that a large portion of them will relate to upper-income tax filers’ capital gains and other nonwage income.”

“Volatile” is the right word.

Tax Bonanza

Bloomberg reported today, “The potential for California (STOCA1) to see a tax windfall from a Facebook Inc. public stock offering this year demonstrates how much the state relies on capital-gains taxes, a volatile revenue stream that hampers its credit rating.

Menlo ParkCalifornia-based Facebook, the world’s most-used social-networking site, is considering the largest initial public offering for an Internet company on record, a person familiar with the plans said last year. Estimated at $10 billion, the offering would make instant millionaires of company employees and require the state to adjust its revenue forecast to reflect additional capital-gains taxes they’d pay, the state’s legislative analyst said yesterday.

“That kind of unanticipated boost shows the boom-and-bust cycle that capital gains taxes often inflict on California’s budget. In fact, capital-gains tax revenue as a percentage of the state’s general fund plummeted from 12 percent to just 3 percent between 2007 and 2009 as investors pulled away from the stock market, a decline of $9.3 billion, according to state finance department figures.”

This would seem an ideal time to propose switching California to a revenue-neutral, flat tax of the sort Gov. Brown himself advanced when he ran for president 20 years ago. His friend, economist Arthur Laffer, even has devised a great flat-tax reform for California, as I reported on CalWatchDog.com two years ago. So Brown knows what can be done.

But no. Brown refuses to innovate. Instead, he brings out the old root-canal tax proposals favored by the government unions that funded his campaign in 2010.

Meanwhile, the state’s economy, despite a modest recovery, continues to stagnate — barring the occasional Facebook public offering that affects only Silicon Valley.

On Jan. 10, Controller John Chiang released his “Summary of State Finances in December 2011.” It found, “Compared to estimates found in the Governor’s newly proposed 2012-13 Budget, total General Fund Revenues in December 2011 were $165.2 million worse (-2.0%) than expected. Personal income taxes were $69.8 million lower (-1.4%) than projected and corporate taxes were $19.5 million below (-1.4%) the estimates in December.”

Which means there’s no new boom exploding revenue to cover Brown’s budget, which includes $6 billion in new spending. There’s no real-estate bubble. There’s no dot-com boom. There’s just modest growth.

The year will show how much more smoke Brown will blow, and how many mirrors he will erect, to hide what’s really going on and hornswoggle voters into passing his tax increase.

(John Seiler, an editorial writer with The Orange County Register for 19 years, is a reporter and analyst for CalWatchDog, where this piece first appeared.)

Public Employment Retirement Costs Are At “Tipping Point”

Newspapers continue to carry an array of stories on the cost of public employee retirement that chills taxpayers’ bones. The stories are constant reminders that the issue of public employee retirement costs is reaching a tipping point and must be addressed fairly by government or likely will be addressed by an angry electorate. In this way, the scenario is similar to the days that lead up to the Proposition 13 tax revolt. While government officials talked a lot about solving the excessive property tax problem, they did not act.

Governor Jerry Brown remembers those tax revolt days very well, which is why he is pushing the legislature for pension reform knowing that pension change initiatives are waiting in the wings.

There are plenty of stories that indicate reform is needed.

On Sunday, Daniel Borenstein’s column in the Contra Costa Times told of the retiring Berkeley city manager who will make more money per year in retirement payments than he made on the job. City manager Phil Kamlarz pulls down $250,000 in his post. Once he takes his nameplate and goes home the city will be sending him checks for $266,000 annually.

As Borenstein points out, “It shows how absurdly lucrative some public employee pension programs have become. While Kamlarz’s salary was more than those of other city workers, the pension formula is the same for most other Berkeley employees. Indeed, about one-fourth of agencies covered by the giant California Public Employees’ Retirement System are at least as generous.”

Someone will replace Kamlarz as city manager. He or she will be making roughly the salary paid to the former employee. It seems like Berkeley taxpayers are getting one city manager for the price of two.

According to the Los Angeles Times, 3900 county workers got $48 million in 2010 to pay for unused time off. The time consists of unused vacation time, sick time, and comp time. But when it goes out all at once the county budget takes a big hit.

Caps have been created at the state level to prevent large payouts but exceptions to the caps make them meaningless. The caps far exceed anything workers in the private sector have.

The Riverside Press Enterprise reports that Riverside County’s elected officials and 2000 county employees receive a supplemental retirement benefit in addition to the CalPERS pension. The county contribution to this supplemental fund, a 401 (a) plan, is made up of employer contributions asking nothing from the employees. For government entities, that means that the taxpayers pay. Other counties offer 401 (a) benefits.

A cautionary tale: Kevin Yamamura in Sacramento Bee’s Capitol Alert reports that Moody’s Investors Service has dropped Illinois to it lowest credit rating because of unresolved pension liabilities.

Yamamura cites the Moody announcement which stated: “The downgrade of the state’s long-term debt follows a legislative session in which the state took no steps to implement lasting solutions to its severe pension under-funding or to its chronic bill payment delays. Failure to address these challenges undermines near- to intermediate-term prospects for fiscal recovery.”

As the examples continue to pile up that public workers enjoy all kinds of retirement benefits that the taxpayers who pay for them do not have, a simmering anger or resentment or both likely will turn into political action unless something is done to turn down the pressure.

The scenario is eerily similar to what occurred in 1978 on taxes. As the saying goes, those who ignore history are doomed to repeat it.

(Joel Fox is Editor of Fox & Hounds and President of the Small Business Action Committee. This story first appeared on Fox & Hounds.)

“Obamanomics” has hurt more than helped jobs and investment

With the election now less than 10 months away it is worth examining the role of the Obama administration in the U.S.jobs recession.

The recession ended two and one-half years ago, yet unemployment remains at 8.5 percent. The decline in real Gross Domestic Product was less than one percent in the second quarter of 2009 and has risen every quarter since then (although only 0.4 percent in the first quarter of 2011). Yet the employment situation has not reflected the economy’s growth. Unemployment was less than 5 percent in April 2008 and had risen to 7.8 percent when President Obama took office. It peaked at 10.1 percent in October 2009, and has only gradually declined – not falling below 9.0 percent until just two months ago.

But this doesn’t fully disclose the depth of the problem.

Total unemployment was 8.6 million in June 2008 and last month was more than 4 million higher at 13.1 million. In addition, there are 8.1 million Americans who are employed part-time but who are seeking full-time employment. This number is up from 4.5 million at the end of 2007.

A major problem with the unemployment number is the duration of unemployment, since the longer one is unemployed the greater the difficulty of finding full time employment. The percentage of those unemployed 27 weeks or more was 18.3 percent in January 2008. Last month it was a whopping 42.5 percent. That is, more than four of 10 of the 5.6 million unemployed has been out of work for more than half a year. The median number of weeks unemployed has risen from nine weeks in January of 2008 to 21 weeks in December of 2011.

The President must take responsibility for policies that have resulted in the reluctance of employers to hire workers. The reason may be found in the writings of James Madison, Federalist #62:

It will be of little avail to the people that the laws are made by men of their own choice, if the laws be so voluminous that they cannot be read, or so incoherent that they cannot by understood; if they be repealed or revised before they are promulgated, or undergo such incessant changes that no man who knows what the law is today can guess what it will be tomorrow.

Take Obamacare. This was a bill more than 2,700 pages long with further thousands of pages of rules. It was a bill that then-Speaker of the House Nancy Pelosi declared we must pass before we know what is in it. Unfortunately, more than a year and a half after the passage of the bill, we still don’t know what is in it. Employers don’t know what insurance policies will meet the criteria of the Secretary of Health and Human Services in order to avoid paying a fine or what the fine will be. Doctors don’t know the rate at which they will be paid for Medicare and Medicaid services. The Supreme Court will decide this summer on whether the individual mandate is constitutional, and perhaps whether the whole of Obamacare is therefore unconstitutional.

Or take the Dodd-Frank financial regulation bill. It exceeded 2300 pages, with 243 rules, 67 studies, and 22 reports to Congress. Banks are saddled with a myriad of regulations that have had the effect of limiting credit. Financial institutions held less than $2 billion in excess reserves until September 2008. Today they are holding $1.47 trillion in excess reserves. In part this is due to the uncertainties about financial regulation.

Companies that are not C-corporations – such as partnerships, limited liability corporations, and sole proprietorships – are taxed through the personal income tax. That means they have not known their tax liability during the Obama administration since the president continues to threaten the elimination of portions of the Bush tax cuts. As a result, future tax rates have remained in limbo for years (currently they are set to expire once again in December of 2012).

There are further uncertainties caused by the temporary payroll tax cuts and EPA regulation of carbon emissions using. In a word, the economic policies of the Obama administration can be described in one word: uncertainty. Uncertainty in a market system results in a reluctance to add full-time workers, invest in new factories, machinery, computers, and R&D.

It is clear that the Obama administration is exactly what Madison warned us about.

It has created an economic environment of high unemployment and lack of investment. Markets are amazingly resilient and we will have economic growth in 2012 despite the this administration. But replacing Mr. Obama will go a long ways towards solving the nation’s economic problems.

(Dr. Gary L. Wolfram is the William E. Simon Professor in Economics and Public Policy at Hillsdale College. This story was first posted on The Michigan View.)

Reconsidering the High-Speed Rail: CA’s Clueless Political Class

Recent reports on two high-profile California projects—a historic piece of climate-change legislation and the proposed construction of a statewide, high-speed rail line—are weakening Californians’ initial support for these measures. The studies have cast doubt on the viability of these multibillion-dollar undertakings, and public opinion is gradually shifting to more qualified support or even outright opposition. The only group unmoved by the new information is California’s clueless political class.

As the Los Angeles Times reported, the California High-Speed Rail Peer Review Group—a state-mandated independent review board—urged state officials to delay issuing more than $2 billion in voter-approved bonds to fund the first phase of construction of a bullet train in the state’s Central Valley. The panel concluded in its January 3 report that the California High Speed Rail Authority’s latest business plan, released in November, “is not feasible,” represented “an immense financial risk,” and required substantial revision. The HSRA plan contained a bevy of bad news and radically altered expectations. Not only did the HSRA push back the project’s completion date 13 years, to 2033; rail officials also more than doubled their estimate of the costs of construction to $98.5 billion. The HSRA claimed that the extended timeline accounted for the enormous cost increase and noted that the inflation rate increased to 3 percent from 2 percent annually. Such backtracking is typical, though, according to Oxford University infrastructure expert Bent Flyvberg, author of Megaprojects and Risk. Studying over a dozen European high-speed rail projects, Flyvberg found that none were built at the promised cost, while overruns typically ranged from 40 to 75 percent.

When Californians went to the polls in 2008 to vote overwhelmingly for President Obama, they also passed Proposition 1A—the “Safe, Reliable High Speed Passenger Train Bond Act for the 21st Century.” Proponents argued that Prop. 1A, which enjoyed backing from several major unions and construction firms, would create jobs while saving the environment. Supporters saw the $9.95 billion in bonds as a down payment on the promised cost of $40 billion. The remainder of the funds, they believed, would come from federal grants and private investment. And in return, Californians would glide along at speeds in excess of 200 miles per hour from Anaheim to San Francisco by 2020. Now all those projections have gone out the window.

Despite those sobering revelations, high-speed rail’s boosters—including Governor Jerry Brown—maintain a seeming blind faith in the project. “Brown’s office signaled that the governor isn’t likely to be swayed by the [peer review] panel’s findings,” the Times reported. “It does not appear to add any arguments that are new or compelling enough to suggest a change in course,” said Gil Duran, Brown’s press secretary. In a matter-of-fact editorial commenting on the HSRA’s November business plan, the Times recalled its original endorsement of Prop. 1A, in which the paper predicted that if voters approved the bond measure, “it seems close to a lead-pipe cinch that the California High Speed Rail Authority will ask for many billions more in the coming decades.” But “many billions” is a far cry from double the original price tag in a mere three years. In fact, most Californians disagree with the Times’s sanguine view. In a mid-November Field Poll, 59 percent of voters said that they would vote against Proposition 1A if it appeared on the ballot today, compared with 31 percent who would still support it. That almost two-thirds of those surveyed would like to revisit the issue has some legislators, including Northern California Republican state senator Doug LaMalfa, working to get a new referendum on the ballot.

Californians had a chance in 2010 to undo—or at least delay—another law, the scope of which is only now becoming a reality: California’s historic AB 32, the “California Global Warming Solutions Act,” passed in 2006. AB 32’s supporters downplayed the economic and social tradeoffs of the law, which goes into effect this year. Belatedly, the media are taking notice of the enormous costs Californians will pay to reach the mandated goal of slashing carbon emissions to 1990 levels by 2020. A page-one investigation by the San Francisco Chronicle revealed that as utilities move to renewable energy sources in the next few years, electricity rates could increase by 15 percent or more. Hard numbers are difficult to come by as new plants—from wind to solar to geothermal—come online (and go bankrupt virtually at the same time). As the result of a mandate to buy one-third of their power from renewable sources, utilities are making decisions based on expediency rather than price. The Chronicle notes that though the state Public Utilities Commission staff had advised decision-makers against buying expensive power from a planned solar plant in the Mojave Desert, “the commission approved the agreement anyway, saying the plant, which had won a $1.2 billion federal loan guarantee, is almost certain to get built and is therefore less speculative than some other projects offering cheaper power prices.” Solyndra, anyone?

Beyond the 2020 targets, California is supposed to reduce greenhouse-gas emissions another 80 percent by 2050. UC Berkeley biogeochemist Margaret Torn used detailed models of power grids to extrapolate the necessary infrastructure changes California would need to make. Her findings, published in the November issue of Science, describe a Golden State few residents would have envisioned when then-governor Arnold Schwarzenegger signed AB 32 in 2006. “We don’t have to assume a miracle,” Torn says, concluding that by then every Californian will be driving an electric car, which would be recharged in homes powered almost exclusively by nuclear power plants. The state merely needs to build 1.5 nuclear plants every year between now and 2050—presumably after the state legislature repeals the law barring such construction. Given the makeup of California’s legislature, that would require an act of divine intervention.

Voters declined the opportunity to postpone AB 32 when they rejected Proposition 23, which would have delayed implementing AB 32’s mandates until statewide unemployment fell below 5.5 percent for a full year. (That was the unemployment rate California enjoyed when Schwarzenegger signed the law.)

In the face of mounting evidence against two of the most sweeping policy initiatives in recent California history, the state’s political class remains steadfast. Another challenge to AB 32 seems remote for the time being. But given the sluggish economy and yet more evidence of the law’s mounting costs—and now, the crippling cost projections for Prop. 1A—Californians may yet decide, like football referees, that “on further review,” they’d like to change their call.

(Pete Peterson is executive director of the Davenport Institute for Public Engagement and Civic Leadership at the Pepperdine University School of Public Policy. This story was first posted on City Journal.)

Jerry Brown’s Budget Plan Is A Dangerous Game of Chicken

Governor Jerry Brown frequently touts his record of putting our children’s education first. During his campaign and on his website he boasts about increasing educational funding and establishing charter schools. That is why Californian’s should be appalled by his decision to hold K-12 education hostage in an attempt to fix California’s $9.2 billion budget deficit.

This dangerous game of chicken wrongfully relies on the voters approving $7 billion in temporary tax increases in November or three weeks will be slashed from the K-12 school year. Threatening to cheat our children of their educational future is not the way to ensure that the Governor gets the tax hikes he wants.

Instead of endangering educational funding, Brown’s administration should look at total state spending and prioritize spending based on actual outcomes. This is not something that is a new concept to the California legislature.

In fact, this past fall, the California legislature unanimously passed a bill that would open the door to performance-based budgeting. This bill would have required state agencies and departments to develop annual “goals, target outcomes, and performance data” to be submitted with their regular budget requests. The intended result would have enabled Gov. Brown and the legislature to better determine spending priorities based upon actual performance outcome data.  This new budget system would provide legislators the opportunity to make more informed decisions about allocating limited resources. However, Gov. Brown vetoed the legislation and allowed California’s budget to continue down the rabbit hole of debt.

And while Gov. Brown may fail to recognize the potential for performance-based budgeting, former Washington State Governor Gary Locke utilized this strategy to solve a $2.8 billion budget deficit without raising taxes. He called it “Priorities of Government” and he won a national award for the new budget system.

Governor Jerry Brown must learn from others who have successful pulled their states out of the red. He needs to realize the tax increases and budget gimmicks will do nothing to help California’s budget crisis. And lastly, he needs to be a leader who implements a reasonable, rational and responsible budgeting approach.

At State Budget Solutions, we know the complexity that solving California’s budget deficit presents to Gov. Brown’s administration and the state legislature. However, playing games with our children’s education is not the answer. State Budget Solutions urges Gov. Brown to create real budget solutions that are not based on gimmicks, threats or illusions. I think we can all agree that California taxpayers deserve better than that.

(Bob Williams is the President of State Budget Solutions. This article was first posted on Fox & Hounds.)

Oakland’s Mayor Jean Quan is in deep trouble of her own making

Jean Quan, the ideologically leftist Democratic mayor of Oakland, California, has presided over her city in a manner both inept and irresolute. She let herself be badgered and manipulated by the neo-Trotskyists and would-be anarchists who march under the Occupy Oakland banner, vacillating between appeasing the demonstrators and arresting them. Quan’s wildly shifting posture has angered almost everyone and satisfied virtually no one. Now, the community-activist-turned-mayor faces at least two campaigns to recall her from office.

The recall, of course, is a firmly established institution in the Golden State. But while recall petitions may be commonplace, successful recall elections are rare. California’s recall of Governor Gray Davis in 2003 was national news not just because Arnold Schwarzenegger assumed Davis’s place, but also because it was the first time since the Progressive Era reform went into effect in 1913 that the state’s voters actually kicked out a sitting governor.

Public animus against Quan doesn’t bode well for her political survival. Gene Hazzard, a photographer for the Oakland Post, a black community newspaper, launched the first recall campaign on December 7. Hazzard’s effort focuses on Quan’s failure to improve public safety and attract new business investment to the city. His supporters are aggressively canvassing neighborhoods with petitions. Hazzard’s recall drive has support from the Committee to Recall Jean Quan and Restore Oakland, which originally intended to launch its own campaign. “Right now, there is one petition out there,” commented Charlie Pine, a retired economic analyst and “Recall and Restore” spokesperson.

A second recall campaign is seeking certification, however. Its chief backer is entrepreneur Greg Harland, who lost decisively to Quan in the 2010 mayoral election. (He finished eighth in a field of ten candidates, earning just 0.9 percent of the vote.) Oakland uses a “ranked-choice” voting system, in which voters select their first, second, and third choices for office. The idea is to minimize runoffs, but the system has other strange effects—such as propelling laggards like Quan into office. Quan won only 24.7 percent of the first-choice ballots, but because of the quirks of ranked-choice voting, she beat former state senator Don Perata, who had 34.39 percent of first-choice votes. Quan won because a much larger percentage of voters for liberal activist and city council member-at-large Rebecca Kaplan picked Quan second over Perata.

Though only in their infancy, the recall campaigns have already drawn opposition. Representatives of the Alameda County Labor Council last month condemned the petition drive. Labor Council executive secretary-treasurer Josie Camacho said: “This lady has been in office less than a year; we need to give her some slack.” But the recall campaign against Quan doesn’t have much to do with her lack of on-the-job experience or the long-standing, ongoing social pathologies that bedevil Oakland. It will almost exclusively be a referendum on the mayor’s abysmal response to the Occupy Oakland tumult.

Quan has been worse than useless in dealing with Occupy Oakland, arguably the most radical and disruptive among the dozens of demonstrations and tent cities that have sprung up around the U.S. since September. Sure, Occupy Wall Street shut down the Brooklyn Bridge for a few hours one day and caused endless traffic snarls around Lower Manhattan. But in addition to trashing swaths of downtown in October and November, Occupy Oakland blockaded the fifth-largest port in the United States not once, but twice. Quan’s personal and political confusion was never more evident than in her posturing on the port disruption.

During the first port shutdown, advertised as a “general strike” on November 2, Quan promised to protect Oakland’s business community. But businesses—even those with signs expressing solidarity with the “99 percent”—suffered widespread vandalism and theft. (Incidentally, Quan’s husband, Floyd Huen, and her daughter, Lailan Huen, bothparticipated in the demonstration that shut down the port.) A smaller group carried out the second port shutdown on December 12 and 13. Oakland police said that the November blockade drew 7,000 protesters, while Occupy supporters claimed 100,000 people turned out. Though it was part of a much larger effort to stop port operations along the West Coast—from Anchorage to San Diego—the December disruption, by contrast, drew no more than 3,000 participants, according to a mediaestimate. Aside from the costly cancellation of a night shift at two marine terminals in Oakland, the second port “strike” succeeded only in closing down cargo operations briefly in Portland, Oregon, and at the small port of Longview, Washington, where the local International Longshore and Warehouse Union (ILWU) is mired in a jurisdictional fight with another union. Police skirmished with protestors in Seattle, Long Beach, and San Diego, but otherwise it was business as usual.

After Occupy’s second port incursion, however, Quan seemed to flail in all directions. She condemned the interlopers as “a small group of people” determined to “hold hostage this port, this city, this economy.” True as far as it goes, but Quan then told the San Francisco Chronicle’s editorial board late last month that the city could not guarantee against future disruptions. The mayor said that she would deploy 500 police to stop another Occupy intrusion—but then said she’d charge the Port Authority $1.5 million for the service. Port representatives said they were unaware of such a proposal and opposed paying for city police. “Keeping the port open and operational is how we’re going to sustain jobs for the region,” said Isaac Kos-Read, a port spokesman.

Quan betrayed her incompetence and weakness further when she admitted to the Chronicle’s editors that city officials were overwhelmed by the second blockade. She said that they had expected only 300 Occupy participants to appear and were surprised when—in her estimate—1,200 showed up. Quan also claimed that the ILWU supported Occupy Oakland’s attempt to disrupt port operations—and that it would halt work and call a mediator if even a single protestor on a bicycle appeared at the port gate. This was a complete fabrication. Robert McEllrath, ILWU’s international president, warned in a December 6 letter to union locals: “None of this [port disruption] is sanctioned by the membership of the ILWU or informed by the local and international leadership. . . . Simply put, there has been no communication with the leadership and no vote within the ILWU ranks on . . . Occupy actions.”

Further undermining Quan’s shaky claims of authority, the Chroniclereported that Oakland police said they were ordered not to prevent the December Occupy obstruction, which cost the port facility between $4 million and $8 million. And the newspaper added that “major retailers, including Target, Walgreens, J.C. Penney and Crate & Barrel, are threatening to pull out of the Oakland port and move business to the Port of Los Angeles.” Asked if she was concerned that major businesses would desert Oakland in the face of Occupy’s campaign of chaos, Quan replied nonchalantly: “Are businesses threatening to leave? Maybe.”

Regardless how the competing recall efforts sort themselves out, proponents must submit 19,811 valid signatures—that’s 10 percent of Oakland’s registered voters—by May 14. Jean Quan’s fecklessness, in a period of economic distress, appears to have made her removal from the mayor’s office more likely than not. This time she won’t be able to depend on ranked-choice voting to skew the outcome. If the recall makes the ballot, it will be strictly “Yes” or “No” for Jean Quan—no waffling allowed.

(Stephen Schwartz is a widely published journalist and author who worked from 1989 to 1999 as a staff writer at the San Francisco Chronicle. This article was first published in City Journal.)