June 1, 2013

By Chris Reed

There’s beginning to be almost a sense of inevitability about fracking spreading throughout the United States. Green objections are being overwhelmed by the economic benefits of the newly efficient energy-exploration process, by its positive effects on air pollution and by the dawning awareness that it’s just another heavy industry — not the devil depicted by enviros who are furious that their “peak oil” theory is now laughable.

The latest state where this sense of inevitability has sunk in is the one with a political profile remarkably like California’s. It’s Illinois, in which unions and trial lawyers and urban professionals who live near water (Lake Michigan) dominate politics and team with minority voters to marginalize folks in suburbs and rural areas.

There, the revenue-starved Legislature has come around to fracking’s big upside and is preparing to enact moderate regulations that won’t impede massive energy exploration in the southern part of the state — specifically, in the New Albany Shale, a potentially huge source of energy underneath parts of Illinois, Indiana and Kentucky.

This is from a Wednesday report by AP:

“State records indicate that high-volume oil drilling already has begun in Illinois, where lawmakers and others are scrambling to pass a bill to establish regulations for a practice that has generated intense national debate as energy companies push into new territory.

“Carmi, Ill.-based Campbell Energy LLC submitted a well completion report last June to the Department of Natural Resources, voluntarily disclosing that it used 640,000 gallons of water during hydraulic fracturing, or ‘fracking,’ of a well in White County.

“A regulatory bill awaiting an end-of-session vote by state lawmakers, which wasn’t yet written at the time the well was drilled, defines ‘high-volume’ as using 300,000 gallons or more of fluid during all stages of fracking.”

Is the Golden State coming around, too?

Is there beginning to be a sense of inevitability in California as well?

Maybe.

Reasonable pieces about fracking are popping up in unusual places, even the San Francisco Chronicle.

And it also appears to be dawning on Democratic lawmakers that they could see a revenue gusher if fracking is encouraged in California. Consider these remarks from a staunchly green Democratic lawmaker in the Los Angeles Times:

“Sen. Noreen Evans (D-Santa Rosa) said she would turn her oil severance tax bill into a two-year measure that can be taken back up in January. The measure would raise $2 billion a year for education and state parks with a 9.5% tax on oil pumped from the ground in California, including when hydraulic fracturing or fracking is used.

“’It’s not going away,’ she said about SB 241. ‘If we as a state are going to expand fracking operations, we ought to tax it.’”

That’s not the over-my-dead-body rhetoric of the California branch of the Natural Resources Defense Council or the state’s Sierra Club. That’s a politician sizing up how she can take advantage of a pending development — one who is a Bay Area lawyer, Coastal Conservancy member and “smart growth” advocate. Seems pretty telling.

Fracking watch: Previous posts

No. 1: Germany

No. 2: China

No. 3: Russia

No. 4: Saudi Arabia

No. 5: Brazil

No. 6: Canada

No. 7: Argentina

No. 8: Mexico

No. 9: South Africa

No. 10: Poland

No. 11: Algeria

No. 12: Indonesia

No. 13: Great Britain

By Laer Pearce

Gov. Jerry Brown didn’t cut any beat up old Plymouths from the state’s car fleet this Tuesday, but that enduring symbol of his Moonbeam years aside, he did give the fleet a bit of a trim, issuing an executive order requiring the state to dump 7,112 vehicles.

Will that include the 50 Toyota Priuses the California Department of General Services bought in 2009, then left on the roof of a parking garage for eight months? Or the 51 vans the California Highway Patrol purchased, then let collect dust in lots for two years as Californians paid out $90,385 in interest payments on them? Probably not, although in a press release, Brown did acknowledge that a lot of the cars to be cut “aren’t even driven.”

The Department of Corrections & Rehabilitation’s fleet got the biggest whack, as 2,263 vehicles will be pared from its fleet. If you’re wondering how big the Dept. of Corrections’ fleet had to be if the state could so easily eliminate 2,263 vehicles from it, the answer is 8,940.  Post-reduction, the department is left with a mere 6,677 vehicles for the members of California’s powerful prison guards union to tootle around in as they count down the days until the start of their lucrative retirements.

44,000 cars remain

According to information provided to me by the Department of General Services (which must cut 823 vehicles from its fleet), 44,000 state-owned cars will remain after the purge. While that sounds like a very large fleet for a state to maintain at taxpayer expense, you have to be careful with California statistics because this is one very large state.  We have more school kids than Virginia has people, for example, and only five states have more registered vehicles than Los Angeles County alone does.  So, to be fair, you need to compare the number of state employees per car state by state before jumping to conclusions.

Well, go ahead and jump.  It turns out that California does have a very large car fleet, even after the cuts. Once the state dumps the 7,112 cars, it will be left with about one car for every five state employees.  (The state counted 223,370 active employees in July.)  In Illinois, a state that rivals California in government mismanagement, there is only one state car for every 6.6 state employees — about the same as Arkansas. And in Pennsylvania, no slouch when it comes to government excess, there is only one state car for every 8.5 state employees.

Still too many cars

So — and this should come as no surprise to anyone — California had way too many cars in its fleet before the cut, and will have way too many cars in its fleet after the cut is in place.

This close look at the fleet-trimming story shows it to be much like this week’s larger California budget story:  the proposal to trim public employee retirement benefits. A quick crunch of the numbers by Sacramento analysts showed the proposed changes could bring as much as $40 to $60 billion in lower pension costs. But with the pension deficit anywhere from $250 billion to a more likely $500 billion, like the car cuts, the pension cuts are just not enough.

California may be at or near the bottom of a lot of state-to-state comparisons — worst for business, worst legal environment, 46th in elementary school math scores, 48th in reading and 49th in science — but it continues to score near the top in not doing enough to get its budget deficits under control.

Laer Pearce is an occasional contributor to CalWatchdog.com. He works in California public affairs and is the author of Crazifornia, Tales from the Tarnished State, which will be available in September.

By Brian Calle and Josephine Djuhana

It should come as no surprise that the economic growth rates and prosperity for states with excessive regulations and taxes are much lower when compared to states with fewer regulations and modest taxes. Incentives, such as low taxes and humble regulations, attract business and investment, which in turn spur economic benefits and job growth. It is not Republican or Democrat, liberal or conservative, “it’s just good economics,” as Arthur Laffer, noted economist and economic advisor to former President Ronald Reagan, likes to say.

California lawmakers ought to take note.

Laffer’s new book, “Eureka! How to Fix California,” was commissioned by the Pacific Research Institute, CalWatchDog.com’s parent think tank. The former California resident attempts to knock some sense into the political class in Sacramento, urging policy makers to focus on good economics instead of politics as usual. He wrote the book, he said, to create a blueprint for reforming California— to put the once Golden State back on a path of prosperity.

Laffer looked at various state economic data and found some significant disparities between states that instituted progressive income tax policies versus those that did not—particularly the gap in state growth between states with income taxes and states with none.

Eleven states introduced progressive income taxes within the past fifty years—Connecticut, New Jersey, Ohio, Rhode Island, Pennsylvania, Maine, Illinois, Nebraska, Michigan, Indiana and West Virginia. And of the 11, all states declined as a share of the U.S. economy. Michigan’s economy, for example, was at 5.08 percent of the US economy in 2005; that percentage slid to 2.64 percent in 2010. Like Michigan, Ohio’s wealth diminished as a result of similarly poor economic policies, Laffer argues. “The only things that still look nice in Ohio are the public government buildings,” remarked Dr. Laffer, during a recent stop on his book tour in Orange County.

Laffer also explores migration patters between states with varying tax rates; comparing “right-to-work” states—states where employees retain the right to decide whether or not to join or financially support a union—and “forced unionism” states—where an individual must pay union fees as a condition of employment and has forced union representation.

Right-to-work growth

In right-to-work states, Laffer found more economic growth, while “forced union” states trended the opposite direction.

The 22 right-to-work states experienced a 52.83 percent jump in gross state product; on the other hand, the 28 “union-shop” states had a 41.72 percent gross state product growth, less than the 46.61 percent US average.

“Right-to-work” states also trumped their forced-union counterparts in personal income growth, payroll employment growth, population growth and net domestic in-migration. Part of the reason that the growth gap is so large is that employers have a tendency to move away from forced-union states, not just to scale back wages and salaries, but also to avoid intrusive union rules, lawsuits, work stoppage threats and more.

Laffer’s proposal to reform California’s tax system should come as no surprise for those who have followed his work. He calls for a flat tax for the state of California; one simple tax on net business sales, and another on personal unadjusted income. His proposal does call for keeping “sin taxes” on the books, those taxes on cigarettes, etc., that are more meant to alter behavior than to raise revenues. Those concerned with the role of government in legislating personal decisions might argue that such sin taxes ought to be ousted as well.

California’s current tax system causes much unsettling volatility in state tax income year-to-year by making budgeting at the state level often incoherent. For example, in 2001, income from capital gains taxes (and other onetime revenues) made up a quarter of state tax revenue, according to Laffer.

And California has so many taxes (Laffer stopped counting after he studied 162 of them) that the tax code is overwhelmingly and unnecessarily complex, hence Laffer’s push to simplify it.

Looking at Sacramento today, though, there appears to be no political will in the legislature or with Gov. Jerry Brown to reform the tax code and especially institute a flat tax. Laffer dismisses that, noting that, when Brown ran for president in 1992, Brown proposed a national flat tax, making it part of his platform in the Democratic primary. “He was the first prominent presidential candidate to ever propose a national flat tax,” Laffer said. Optimistically, Laffer argues that, given the right situation, Brown could be amenable.  We shall see. Brown, this time around, seems more beholden to public employee unions than during his previous stint as governor.

“Political partisanship is ruining the politics of our country,” Laffer concludes. Fixing California requires a nonpartisan effort to eliminate excessive taxes and regulations, and to create a business-friendly environment that encourages economic activity. Laffer’s blueprint, in short, challenges California politicians to put partisanship aside and embrace simple economics.