It seems common sense that bond money approved by a state’s voters would be spent directly on the projects it was intended for.

Unfortunately, lawmakers, trying to find resources to bandage constant budget imbalances, often raid bond funds by borrowing against them to finance other areas of state and local government.

In California, this shuffling is shameless. The state Legislature went so far as to reject a measure by the Republican Senate minority leader that would have prevented it. As a 2013 investigative report by Katy Grimes detailed on CalWatchDog.com, California politicians “are well known for their budget fund shifts, ‘borrowing’ from agencies and funds, and creative accounting gimmicks.”

Voters approve bonds for specific purposes, such as spending on roads, freeways, affordable housing and levees. When politicians transfer the funds among agencies and commissions, they are essentially borrowing against borrowed money, and violating the taxpayers’ intent.

Bond Mismanagement

In 2011, for example, a California state audit found that voter-approved funds for the Santa Monica Mountains Conservancy, which was created by the Legislature in 1980, were going to ineligible programs that had vague missions and opaque budgets. Progress reports and reimbursement claims were “incomplete and inconsistent with grant scopes and budgets.”

The misuse of voter-approved bond money included a range of other expenditures for park and clean-water projects, adding up to a total of $6.4 billion in bond funds. The audit cited notable weaknesses, including “improper management, monitoring, and authorization of fiscal activities,” and “awarding grants or incurring expenditures not in accordance with the Bond Acts.”

That’s a lot of diverted money. It wasn’t the first time the Santa Monica Mountains Conservancy was chastised. A 2004 Department of Finance report found the group had mismanaged bond funds. The conservancy’s chairman at the time, Jerome C. Daniel, was unapologetic: “It bothers me to be questioned about the way we’re doing business, when what really matters is the end result,” he told the Los Angeles Times.

Audits of other local projects in California have shown similar mismanagement. Bond funds from Proposition 40, which totaled more than $120 million allocated for the California State Library Cultural and Historical Endowment, were used to reimburse “unallowable or unsupported expenditures” and pay for facility costs that “were not equitable or properly supported.” Planning grants were also used as a means to fund capital projects, and the CCHE “did not assess the grantee’s financial capacity to complete the project beyond the planning phase.”

Borrowing against bonds is not simply a violation of the public trust. It is also a dangerous balancing game that could end in a fiscal meltdown of state and local government. And it’s technically illegal.

Article 13A of the California Constitution holds that the money must be used for the specific purposes outlined by in the bond measure “and not for any other purpose, including teacher and administrator salaries and other school operating expenses.”

Lack of Accountability

But no one party in the state government has the authority to sanction those who misspend the money. Audits are periodically conducted by the state Department of Finance office that can assign a “corrective action plan.” But the department doesn’t have the authority to halt the misuse of funds or penalize agencies that don’t comply.

And those officials doing the borrowing can point to other government codes to justify their practices. For example, when the Sweetwater Union High School District in San Diego County caught flak in January 2011 for a plan to borrow $58 million against local bond measure funds, district officials pointed to a California Education Code Section 42603, which allows that money in any fund “may be temporarily transferred to another fund or account of the district for payment of obligations.” The district opted not to borrow funds in 2011 because of public pressure, but previously had borrowed $40 million in 2009-2010 and $28 million in 2008-2009, according the U-T San Diego.

Politicians seem to pay little attention to angry local voters. Last year the state Senate passed SB 633, by state Senate Republican Leader Bob Huff, R-Diamond Bar. It would have given the Department of Finance additional authority to issue cease-and-desist orders to state agencies and conservancies found to be using bond funds inappropriately. But it died in the Assembly.

Among the powerful interests that opposed the legislation was the Los Angeles Unified School District. A spokesman for LAUSD said the district hadn’t used bond money for unapproved purposes. But with the billions the district has raised in bond issues in the last several years, it wants to keep its hands untied.

Why aren’t the investors in the bonds up in arms? Under the current law, even if a government body goes bankrupt, bond investors are among the first creditors to be paid, no matter how their investment money is used.

The taxpayers will be the ones on the hook. Yet California voters have taken on billions in debt in recent elections for the high-speed rail system and for improvements in children’s hospitals, among other obligations. “Californians have authorized the sale of $54 billion in general obligation bonds” since 2006, said Huff.

Come 2014, Californians will vote on another bond initiative, one that promises a “safe, clean, and reliable drinking water supply,” according to its namesake. The last time California passed a water bond, in 2006 through Prop. 84, part of that money went to Santa Monica Mountains Conservancy — which, as noted above, misused the funds.

Out of a potential pool of more than 300 candidates, Department of Homeland Security Secretary and former Arizona Gov. Janet Napolitano was unanimously nominated to fill in the shoes of retiring UC President Mark Yudof. The UC Board of Regents will vote Thursday on her appointment. If approved, Napolitano will be the 20th president of the UC system and first woman to lead in its 145-year history.

UC Regent Sherry Lansing chaired a 10-member special search committee, by which Napolitano was recommended in a unanimous vote. In a statement, Lancing called Napolitano “a distinguished and dedicated public servant who has earned trust at the highest, most critical levels of our country’s government. She has proven herself to be a dynamic, hard-working and transformative leader.”

California Community Colleges Chancellor Brice W. Harris issued a statement echoing similar sentiments of praise:

“The nomination of Secretary Napolitano to become the next president of the University of California is a truly inspired choice worthy of this great system of higher education. Her focus on education as governor of Arizona and the skills and leadership she has demonstrated as Homeland Security secretary make her uniquely qualified to lead the University of California.”

Even Gov. Jerry Brown said Napolitano had “strength of character and an outsider’s mind that will well serve the students and faculty” and that it would be “exciting to work with her.” Which is rather interesting, considering he criticized the trend of hiring out-of-state presidents in 2011, and wanted UC and CSU officials to specifically seek out Californians.

Napolitano’s lack of academic experience

Contrast that with the reaction of former state senator and education reformer Gloria Romero, who said she was “stunned” upon hearing the news. Romero told me the nomination was a “political placement” and “not wise for the UC system.” The University of California system, she said, is a “premiere institute of research scholarship and faculty.”

“I admire her for what she’s done,” Romero said of Napolitano. “She was a governor and did oversee the University of Arizona system, but this is the UC system.”

Romero questioned Napolitano’s credentials and said the UC president should be someone that would be qualified to oversee “the collaboration and development of curriculum, the training and appreciation for research, and equipping the next generation of scholars.”

She pointed to Charles Reed, the former chancellor of the California State University system, whose tenure, she said, was “always very contentious” because of his minimal ability to “understand or appreciate the role of faculty in the development of curriculum.”

When I asked former UC Regent Ward Connerly of the American Civil Liberties Institute if he thought Secretary Napolitano was qualified to oversee the UC system, he simply said, “Doubtful.”

“There is no evidence that she has any academic experience,” he said of Napolitano. “Faculty often insist on someone that has academic experience.”

Indeed, Napolitano’s credentials fall far short of current UC President Mark Yudof and those before him.

Yudof came to the UC system after being chancellor of the University of Texas system from 2002 to 2008. Before that, he was president of the four-campus University of Minnesota system during 1997-2008. He was also a faculty member and administrator at the University of Texas at Austin for 26 years and dean of its law school from 1984 to 1994, as well as the university’s executive vice president and provost from 1994 to 1997.

Robert C. Dynes, the UC president before Yudof, was a professor of physics at the UC Berkeley during his tenure from 2003 to 2008. He was also the chancellor for UC San Diego from 1996 to 2003, and had been a part of the UC system since 1990.

Former UC President Richard C. Atkinson served before Dynes from 1995 to 2003 and had been chancellor of UC San Diego for 15 years. He was also the former director of the National Science Foundation, past president of the American Association for the Advancement of Science, former chair of the Association of American Universities, and a long-term member of the faculty at Stanford University.

These picks were all clear-cut academics. But the closest that Secretary Napolitano comes to these UC presidents is that she has a law degree. She has no research under her belt, no experience overseeing any academic systems, never taught a college class and isn’t even a native of California, even though proponents of Napolitano’s nomination say that, as governor of Arizona, she was focused “extensively on education.”

Playing politics with UC nomination

What we’re actually seeing, said Ward Connerly, is a “revolving door with academia and Democrat institutions.”

“If you go back and look at the Clinton era, for example,” he told me, “a number of academics were appointed in the second term of Clinton’s administration to prominent university positions.”

And it’s no secret the UC regents and faculty have been very supportive of Obama and his academic policies.

In fact, UC Regent Sherry Lansing, former CEO of Paramount Pictures and head of the search for the incoming UC president, had donated $1,000 to Barack Obama as early as 2004. She’s given hundreds of thousands of dollars to the Democrat Party, its candidates and its PACs.

The nomination looks like a win-win for the Obama administration, as Napolitano, who has become entrenched in scandals on sexual discrimination, immigration enforcement, the Boston bombings and downplaying terrorism, steps down from her post in the Department of Homeland Security. Additionally, Politico notes, her resignation gives Obama “major leeway” to pick a new DHS secretary without needing any Republican support, if Senate Majority Leader Harry Reid follows through with his threat to go ‘nuclear’ and change filibuster rules.

It makes you wonder, asked Gloria Romero, “What is she doing? Who called whom? Who negotiated what and how did they place her? With these scandals brewing, it just doesn’t make sense.”

Ward Connerly told me it was “hard to say if faculty would oppose” such a nomination, or if the academic senate would respect her at all. “UC needs someone adept at bringing outside financial support,” he said. “While we seem to have turned a corner on the economy, UC is not out of the woods yet.”

The special session to vote on Secretary Napolitano’s nomination occurs Thursday, July 18, at 1:45 pm.

(Katie Hillery contributed research to this article.)

By Josephine Djuhana

A resolution that seeks to amend the California Constitution and undo the work of Proposition 209 for institutions of higher education is making its way through Sacramento and will likely be placed on the ballot in 2014.

SCA 5, authored by Sen. Ed Hernandez, D-West Covina, proposes “an amendment to the Constitution of the State, by amending Section 31 of Article I thereof, relating to public education.” Recently re-referred to the Senate Committee on Elections and Constitutional Amendments after passing the Committee on Education, the resolution specifically exempts public education institutions of higher learning from the requirements of Proposition 209.

In other words, SCA 5 allows schools to use race, sex, color, ethnicity or national origin as a consideration for accepting students or hiring employees. Using such criteria currently is banned by Prop. 209, which voters passed in 1996.

Janet Chin, a media spokesperson for Sen. Hernandez’s office in West Covina, told me the resolution would take steps to “ensure that universities reflect the diversity of the state.” She said long-term benefits would include creating equal opportunity for all Californians by having a “well-trained, diverse workforce” that is needed to compete in the global economy.

“Campuses have become less diverse” since Prop. 209 passed, Chin said. “Qualified individuals have been looked over.” Since Prop. 209, she said, minorities have been “underrepresented” in universities, and SCA 5 seeks to correct this error by securing the best and brightest students.

Prop. 209 and measures of merit

Ward Connerly, founder and chairman of the American Civil Rights Institute, told me Chin’s reasoning was “nonsense.” He sponsored Prop. 209.

“If they want the best and brightest, they will use merit,” Connerly said of university admissions processes. “They have the right to do that right now, free of any race consideration or discrimination.”

Connerly, a former University of California regent, highlighted higher education in the Golden State, starting with the UC system — in his words, “a very prized system” — which regularly secures the top 12.5 percent of students from California high schools. He also pointed to 23 campuses in the Cal State system, many of which, he said, were “equally as good as some UC campuses”; and to our community college system, with more than 100 college campuses across the state. “It defies logic,” he said to me, “for anyone to say that anyone in California doesn’t have a chance to get an education.”

“We’re a pluralistic society in California, probably the most on the planet,” he said. “We have to learn to treat everybody equally and not allow anybody to have any preference from any public institutions. It’s a mistake to now flirt with changing that and empowering public institutions to discriminate.”

Prop. 209, said Connerly, was the product of a very contentious battle in the state back in 1996. The ballot measure explicitly denied public institutions, including state and local governments, as well as universities, colleges and schools, the ability to discriminate against or give “preferential treatment to any individual or group in public employment, public education, or public contracting on the basis of race, sex, color, ethnicity, or national origin.”

The results of Prop. 209 were robust. In fact, minority graduation rates actually increased after Prop. 209 was implemented. The measure “led to a more efficient sorting of minority students” according to research by Duke University:

“To address the robustness of the positive effects on graduation and the role of matching, we analyze unique data for all applicants and enrollees within the University of California (UC) system before and after Prop 209. The positive Prop 209 effects on minority graduation rates persist, even after controlling for observed and unobserved qualifications of UC enrollees. We present evidence that certain institutions are better at graduating more-prepared students while other institutions are better at graduating less prepared students and that these matching effects are particularly important for the bottom tail of the qualification distribution.”

The research also clearly demonstrated that students admitted with lower qualifications than their peers ended up learning less and had a drop out rate disproportionately higher than science majors.

“Sen. Hernandez is behind the times,” said Connerly. “It’s not forward-looking for him to inflict on the people of California another meaningless battle.”

Striving for diversity doesn’t solve the problem

Heather Mac Donald, a senior fellow at the Manhattan Institute, told me the UC system has “already been violating the spirit of Prop. 209 by importing obvious surrogates for race into its so-called ‘holistic’ admissions process.” The Hernandez bill, she said, would simply “open the floodgates of blatant racial references once again and allow UC to discriminate without apology.”

“There are high quality students that are not getting into these schools because there is already an informal quota,” she said.

The Fisher v. University of Texas at Austin case brought national attention to similar issues. The Supreme Court recently decided in a 7-1 ruling that the federal appeals court was wrong to dismiss Abigail Noel Fisher’s case, in which she argued that the University of Texas illegally discriminated against her because of her race.

The ruling written by Justice Anthony Kennedy essentially stated that diversity must not be an ultimately deciding factor in university admissions processes. “The reviewing court must ultimately be satisfied that no workable race-neutral alternatives would produce the educational benefits of diversity,” Kennedy wrote.

“Attaining diversity for its own sake is a nonstarter,” wrote Justice Clarence Thomas in his concurring opinion. “The pursuit of diversity as an end is nothing more than impermissible ‘racial balancing.’”

The San Francisco-based Asian American Legal Foundation, in their amicus brief filing for the Fisher case, underscored the problems with having such racial quotas. Asians, they write, have “historically been, and continue to be, denied access to public schools due to overt racial and ethnic prejudice as well as ostensibly well-intentioned ‘diversity’ programs such as the program at issue here.” The brief went on to explain:

“UT Austin is engaged in racial balancing without any remedial purpose. It is similarly denying applicants access solely because they are of the ‘wrong’ race or ethnicity. And it is proclaiming that its good faith should excuse the fact that it is trammeling on applicants’ civil rights.”

The same is essentially happening in California’s higher education system behind closed doors.

In regards to admissions, Ward Connelly echoed the majority opinion of the Supreme Court and said officers must “use neutral measures first” and “exhaust all avenues of race neutrality” before considering employing policies of racial preferences.

But exempting universities, colleges and schools from the requirements of Prop. 209 would do exactly the opposite.

Connerly and other critics insist that SCA 5 would create the framework for an even broader scope of racial discrimination against qualified students, regardless of their achievements or merit.

April 19, 2013

By Josephine Djuhana

The war on plastic bags has returned with a vengeance, as legislators introduce new regulations that dictate what kinds of bags California shoppers are allowed to use when out shopping for groceries.

SB 405, authored by state Sen. Alex Padilla, D-Los Angeles, would effectively prohibit stores from providing a single-use carryout plastic bag to customers. According to a press release on Sen. Padilla’s website:

* “Beginning January 1, 2015, grocery stores and pharmacies would be prohibited from making available single-use plastic bags. If paper bags are offered to customers, they would have to include recycled content and customers would have to be charged the actual cost of providing the recycled paper bags.

* “Beginning July 1, 2016, convenience stores and liquor stores would be required to meet the same standard.

* “The bill would not pre-empt local ordinances already in place.”

“SB 405 will help protect our environment by phasing out single-use plastic bags in California,” said Padilla. “Single-use plastic bags fill our landfills, clog inland waterways, litter our coastline, and kill thousands of fish, marine mammals and seabirds.”

Hearing

The hearing for the bill occurred on Wednesday, and SB 405 has since passed the Senate environmental quality committee on a 5-3 vote. The bag ban, however, has been met with some bipartisan opposition, and many members of the business community have come against it.

Cathy Browne, general manager at plastic bag maker Crown Poly Inc., called SB 405 “misguided legislation” that was not fact-based. In a press conference call on Tuesday, she warned that 300 Angelenos would be put out of manufacturing jobs if the bill was made law. “Our employees … work very hard at their jobs, and they shouldn’t lose their jobs just because politicians are listening to environmental rhetoric,” she said.

“Plastic bag bans are simply bad public policy,” said Mark Daniels, chairman of the American Progressive Bag Alliance, during the call. “To date, the debate on plastic bags has been supported by unfounded stats, junk science and myths. The reality is that American made plastic bags are a better choice for the environment and banning them will cause more harm to the environment. If California wants to lead in the fight against global warming, banning plastic bags will have the exact opposite effect.”

More than 72 California cities and counties have adopted ordinances to ban the use of plastic bags, among them a number of beach cities, including Huntington Beach.

“As a conservationist and local surfer in Huntington Beach, I’ve heard from my district that these bag bans are not the appropriate approach,” Assemblyman Travis Allen, R-Huntington Beach, told me. “While these bans are addressing less than .5 percent of the U.S. municipal solid waste stream, we are exposing people to serious health risks and stressing Southern California water conservation efforts. There is a far bigger picture that needs to be considered and not just settle on a single issue when voting on these bans.”

Environmental concerns

Bag bans are largely introduced as a measure to preserve the environment and prevent plastics from clogging inland waterways, filling up landfills and becoming floating marine debris. But there are many devils in the details, and banning plastic bags actually may be more costly to the environment, and result in more waste and energy expenditure.

The American Progressive Bag Alliance made the following findings on plastic bags:

* Plastic bags produce fewer greenhouse gases than paper or cotton bags.

* Plastic grocery bags require 70 percent less energy to manufacture than paper bags.

* The production of plastic bags consumes less than 4 percent of the water needed to make paper bags.

* Plastic bags generate 80 percent less waste than paper bags.

* For every seven trucks needed to deliver paper bags, only one truck is needed for the same number of plastic bags.

* American plastic bags are made from natural gas, not oil. In the U.S., 85 percent of the raw material used to make plastic bags is produced from natural gas.

APBA Chairman Mark Daniels also highlighted the fallacies in using reusable bags. He said the reusable bags are often “made to look like cotton” but are, in actuality, made of nonwoven poly-propylene, which is essentially a plastic. Additionally, many reusable bags cannot be recycled and “are mostly shipped from overseas and are made from foreign oil.”

Health concerns

The science behind reusable bags belies a more insidious impact that plastic bag bans have brought. Not only are reusable bags less energy-efficient to produce and more harmful to the environment, multiple reports have shown that reusable bags spread disease. And Californians need not look further than San Francisco to see the potential health hazards caused by contaminated reusable bags.

Research by Jonathan Klick and Joshua Wright showed that reusable bags “contain potentially harmful bacteria, especially coliform bacteria such as E. coli.” In fact, since San Francisco County banned plastic bags in 2007, the researchers found that “both deaths and ER visits spiked as soon as the ban went into effect” and that, relative to other counties, “deaths in San Francisco increase by 50-100 percent, and ER visits increase by a comparable amount.”

Then, consider a case in Oregon, where a girl on a soccer team got sick and “spent six hours in a chaperone’s bathroom” suffering from “vomiting, diarrhea and stomach cramps”:

“The soccer team of 13- and 14-year-olds traveled to Seattle for a weekend tournament in October 2010.

“At the tournament, one girl got sick on Saturday and spent six hours in a chaperone’s bathroom. Symptoms of the bug, often called “stomach flu,” include vomiting, diarrhea and stomach cramps. The chaperone took the girl back to Oregon.

“On Sunday, team members had lunch in a hotel room, passing around the bag and eating cookies it held. On Monday, six girls got sick.”

A 2011 study did show that washing reusable bags would reduce bacteria by 99.9 percent, but considering that only 3 percent of people actually wash their bags, health problems still abound.

Rise of regulations

Despite mounting concerns on banning plastic bags, California legislators continue on this quest. From foie gras to frisbees, state lawmakers see no area of private life where government does not have a place even in spite of Governor Jerry Brown’s public admonishment that not every human condition is deserving of a new law. We don’t yet have to worry about California regulating Big Gulps like Mayor Bloomberg  did in New York, but if the State Legislature can justify banning plastic bags in the interest of the public good, so too could it justify soda next.

By Josephine Djuhana

“Owner-authorized” firearm technology. Biometric scanners. Guns with palm print readers that don’t go off unless the hand on the pistol grip had proper clearance. Sounds like something out of a James Bond movie — literally.

But this isn’t some fantasy-gadget hyper-tech weapon designed to circumvent plot holes for the silver screen. No, this currently expensive and obscure technology is what may be — at some point — all you can buy at a gun store near you, thanks to a California legislator.

SB 293, authored by Sen. Mark DeSaulnier, D-Concord, would ban all guns without owner-authorized technology from retail sale in California 18 months after the state attorney general deems such technology to be readily available.

“Senseless violence occurs far too often when guns fall into the wrong hands,” DeSaulnier said in a press release last month. “We should make sure that guns are only used by the owners who are authorized to fire them. Many technologies exist to create this kind of safety mechanism, including biometric readers.”

The bill text provides that the attorney general would periodically “report to the governor and the Legislature regarding the progress made on the availability for retail sale of owner-authorized handguns.” Then, 18 months after the attorney general finds that owner-authorized handguns are sufficiently available, it would be officially illegal to sell guns without owner-authorized technology in the state of California.

Good intentions and unintended consequences

Tiffany Whiten, a consultant in DeSaulnier’s Sacramento office, told me that prototypes with the owner-identification technology are currently very expensive. However, she said, manufacturers have offered assurances that these costs will go down with time and be “reasonable” in the future. The 18-month grace period designated in the bill is an additional measure to ensure that costs would not be too high, and therefore not impact the sale of guns in California.

Whiten also said that DeSaulnier’s office has spoken to current firearm owners who think guns with such owner-authorization technology would be “worth the price.” But it’s impossible to assume those owners speak for firearm owners in general.

And why should government play such a role in deciding when a particular technology is affordable enough to be classified as readily available? That’s the beauty of free markets — the market itself determines when technology becomes affordable for the masses as production goes up and costs go down.

Realistically speaking, the installation of a biometric scanner into the handgrip or trigger of a gun would be an additional cost for gun manufacturers and would result in overpriced firearms in California. Either that, or gun producers just wouldn’t sell guns in California anymore.

Unintended consequences could be grim

But if they are broadly sold in California under DeSaulnier’s rules, consider the following hypothetical situations.

I am a law-abiding citizen who owns a gun with owner-authorized technology.

If I was away while my roommate was at home, and someone were to break in, my roommate would not have the capacity to defend herself with my gun because it would not register her and not fire.

Or perhaps I was at home when the assailant invaded, but my palms were sweaty from nervousness due to the break-in. The gun does not recognize my handprint and doesn’t go off.

What if I’m wearing gloves? What if the power runs out on the biometric scanner and the technology malfunctions? Will members of law enforcement have to adhere to the same standards when purchasing guns? What if the technology malfunctions when police officers are in the middle of a dangerous, life-threatening situation?

Such situations are likely under the owner-authorized gun mandate, alongside many more potential problems that could occur if the technology is faulty.

A barely disguised attack on gun rights

The California Legislature has already advanced bills and resolutions on gun control, including SJR 1 and SB 140. There are many ways to make sure that guns stay out of the hands of criminals and other dangerous individuals, but mandated owner-authorized technology is not one of them. If gun producers want to make “smart guns” available to Californians, then Californians should be allowed to freely purchase both owner-authorized and non-owner-authorized firearms.

If SB 293 is passed, the right to bear arms will no longer be held by the people, but by regulators and bureaucrats in Sacramento.

But the overarching problem with SB 293 is not only the negative impact that it will have on gun sales and potential technology problems; it is the very frightening idea that the California Legislature can legislate and mandate and create regulations on things that, practically speaking, do not even exist yet.

Passing a law now on technology for the future sets a terrible precedent. It shuts down debate on how to deal with that technology and leaves it up to Sacramento regulators and bureaucrats to figure out how to implement the law in the long run.

DeSaulnier may have had the best intentions in mind when he authored this bill; trying to keep guns out of the hands of criminals and mentally ill is a worthy goal.

Still, SB 293 is not the answer. Government infringing upon our rights and liberties is one thing — but government dictating what types of products we can use when they are not readily available or yet in existence is beyond bizarre.

March 16, 2013

By Josephine Djuhana

NATIONAL HARBOR, Md. — Former Speaker Newt Gingrich lit up CPAC on its third and final day of convention, opening with bold criticisms against the Republican establishment and its consultant culture.

“The Republican establishment is just plain wrong about how it approaches politics,” he said, adding that the RNC’s effort to produce a report on initial changes was a good first step in the right direction. It was essential, he said, that conservatives “disenthrall” themselves from the establishment’s “anti-idea approach” and its “consultant culture”, which only perpetuated the process of raising money to run attack ads.

Gingrich also emphasized the importance of new ideas, not new principles. “We need lots of new ideas on how to implement those principles in the twenty-first century,” he said. Additionally, he highlighted the need of finding ways to empower people to leave poverty, empower small businesses to create jobs and get government out of the way.

Calling the establishment “prisoners of the past” and “trapped in the age of candles,” Gingrich quoted President Ronald Reagan and stated there was “no such thing as left or right” but only an “up or down.”

“We stand today on the edge of a great future, but Washington is blind to it in both parties,” he said, underlining the necessity to push past partisanship.

Gingrich also produced a stark contrast between conservatives that believe they have a “capacity for self-government” or a people that “abandon the American revolution.” Citizens, he said, must be empowered to solve things for themselves by getting rid of government and replacing the institutions with citizen activism. He then praised ‘Citizenville,’ a book by California’s very own Lieutenant Governor Gavin Newsom.

“It is sobering to me, to be standing here as a senior member of this party telling you that from 1976 to 2013, we have the dominant wing of this party which has learned nothing,” said Gingrich. Republicans, he said, should be in the business of “reshaping the budget” to liberate the American people and create a better future with a smaller government and balanced budget. “It is much more than a fight over numbers,” he added. “It’s a fight over values.”

The former speaker also quoted Louisiana Governor Bobby Jindal, asking Republicans to stop “dumbing down” conservative ideas and reducing their ideals to “campaign slogans and taglines.”

“We are not the anti-Obama movement,” said Gingrich. “We are for a better American future.”

He pointed to both parties in Washington, D.C., saying they were “blind to the potential in this country.” But there was hope, he said, if the conservative message focused on “the right to rise,” as well as its predicate, “the right to life.”

March 16, 2013

By Josephine Djuhana

NATIONAL HARBOR, Md.—Some conservatives believe a federal balanced budget amendment is an essential reform for fiscal management in Congress. That was the topic of discussion during a panel at the Conservative Political Action Conference (CPAC) at the National Harbor in Maryland.

Grover Norquist, the founder and president of Americans for Tax Reform, moderated the discussion and began with a simple two-part plan for Washington to balance the budget—by “never raising taxes” and “not spending so much of other people’s money.” He also highlighted Paul Ryan’s recently unveiled budget, which rolls back entitlements and federal power, and balances the budget without raising taxes. The budget, according to Norquist, was not only a way to reduce the size of the federal government by reforming, but also a “step in the right direction to enact tax reform.”

Rep. Andy Harris, R-Md., said in reference to the Senate, “They don’t believe that the spending is the problem, and they don’t believe the debt or the deficit is a problem.” Anyone who has read Paul Krugman would know that to be the case. And even President Obama recently charged that he was not interested in a “balanced budget just for the sake of balance.” With much concern mounting over the nation’s ever-growing $16 trillion deficit, it’s no wonder that conservatives are now looking for ways to force Congress to create a balanced budget. But Democrats in Washington don’t seem to seem to agree on the need to halt spending, as the budget proposal from Senate Democrats, according to Norquist, “raises taxes and never balances the budget.” The budget plan includes $1 trillion in tax increases and a new $100 billion stimulus plan. It also increases spending by 60 percent over the next ten years, leaving an additional deficit of $500 billion ten years from now.

“That’s why you need a balanced budget amendment, because in the end, [Washington] can’t restrain itself,” Rep. Harris said. “And we certainly can’t guarantee that future Congresses will restrain themselves.”

The panelist consensus was that outside intervention is needed in order to limit spending by Congress. “Unlimited debt is the fairy dust that makes unlimited government function,” said Nick Dranias, a director at the Goldwater Institute.

There are two methods to ratify a constitutional amendment, but the path through Congress does not seem promising, as it requires a two-thirds majority approval in both houses of Congress. The state method is the alternative.

“In the state method, there is a critical check and balance on federal government,” said Derrick Khanna; he’s a former professional staff member for the Republican Study Committee. “It is unfortunate that this method has never been used as our Founders intended.”

All that is needed is a three-fourths majority of states to ratify a constitutional amendment. “States across the country are pushing for a federal balanced budget. First it was Florida, in 2010, and then it was New Hampshire, last year,” said Khanna.

Effects of a balanced budget amendment

There are certain fears that with a balanced budget amendment, members of Congress could force a tax increase in order to ensure that revenues keep up with expenditures.

But Arizona, which has a balanced budget requirement, has used this obligation to its benefit by rejecting Obamacare. When Governor Jan Brewer attempted to raise taxes in order to fund Obamacare in the state, the state legislature shot the proposal down, as state tax increases require a two-thirds majority in order to be ratified.

The balanced budget requirement also seems to be working for the state of Texas.

Texas Governor Rick Perry was also present at CPAC, and delivered short remarks on his state in comparison with the federal government.

“Texas has a balanced budget and a surplus, and is creating more jobs than any other state in the Union, and we’re doing this with a part-time legislature that meets for only 140 days every other year,” said Gov. Perry. “Our legislature—they come in and they pass laws, and then they go home and live under those laws.”

He then emphasized that states should be “the laboratories of reform.”

But instead, we have a federal government that mandates and dictates regulations to states, what with Obamacare and the expansion of Medicaid, the proposed increase in the minimum wage and more. Many conservative allies have fallen to money from the federal government and special interest groups, and we have reached a point where it seems that nothing can stop Washington from continuing on its taxing and spending binge.

“Washington doesn’t worry about how to pay its bills; they just charge it to our grandchildren’s accounts,” said Gov. Perry. “But in Texas, our constitution requires a balanced budget.”

Gov. Perry emphasized that Texas’ “number one ranking when it comes to job creation” is directly correlated to having “balanced budgets and one of the lowest tax and spending rates in the nation.”

Framework for a balanced budget amendment

During the panel, Nick Dranias highlighted the Compact for America, which is a formal amendment to balance the budget and has additional inclusions that work to prevent outright taxation by Congress in order to balance the budget.

But the path to Congressional discipline on the fiscal matters will be an uphill battle, yet many activists would like to see Congress reexamine itself and its practices when it comes to balancing the budget. As government expands, liberties decrease, and the best way to curb government intervention is to take away its ability to spend recklessly.

By Josephine Djuhana

Raising the minimum wage helps the little guy — doesn’t it?

President Obama’s State of the Union address earlier this month was more than a brightly optimistic speech on the current state of affairs in the United States and abroad. It essentially was an outline of a Democratic Party agenda to be pushed come 2014. One of the topics discussed in his comprehensive speech was raising the federal minimum wage from $7.25 to $9.00 an hour. California’s own House Democratic Leader Nancy Pelosi of San Francisco has been a very vocal supporter of the issue.

“We want to raise the minimum wage,” said Pelosi in an interview with the Washington Post. “Raising the minimum wage is the right thing to do, but it’s a popular thing to do as well.”

Popular, indeed.

A survey by Rasmussen Reports found that 54 percent of likely U.S. voters favor raising the minimum wage to $9.00. Along a similar vein, a release by Pew Research showed an overwhelming 71 percent of the public wanted to raise the minimum wage.

Of course, raising the minimum wage in order to heighten everyone’s standard of living sounds like a great deal. And it seems much of America is in agreement. But there are many devils in the details.  Voters should be cautious before making decisions based on what sounds good, rather than what is actually beneficial for the country.

Impact on young and low-skilled workers

A strong majority of individuals being paid the minimum wage are either young or low-skilled workers. According to the Bureau of Labor Statistics, nearly 50 percent of minimum wage workers are under 25. If you look at the numbers based on educational attainment, 27.7 percent of minimum wage workers don’t have a high school diploma.

Of the 72.3 percent of minimum wage workers with high school diplomas, 30.8 percent of the population paid at or below minimum wage are high school graduates with no college degree; and workers with some college education but no degree make up another 27.6 percent. Minimum wage jobs are vital for young people still in school and those without degrees.

So why is it bad to raise the minimum wage?

Raising the minimum wage brings higher expectations of employees, which leads to the phasing out of low-skilled and young workers in favor of higher-skilled workers. As Pepperdine professor Gary Galles explained in an Orange County Register column, “Those with the fewest skills, least education and job experience … face the greatest unemployment effects.”

Entry-level spots fill up quickly, leading to fewer employment opportunities because hourly rates are higher, and workers with less experience or training are left totally unemployed.

In an op-ed for the Los Angeles Times, Michael Kinsley called the proposal a “gamble”: “Minimum-wage workers might quite reasonably think: ‘This is a gamble. But it’s a gamble worth taking. Maybe I’ll end up without a job, but maybe I’ll end up with a raise of $1.75 an hour.’ That doesn’t sound like much of a raise, but it’s 24 percent.”

A report by James Sherk for the Heritage Foundation found that minimum wage increases actually benefit union workers, rather than minimum wage workers:

“A higher minimum wage increases the expense of hiring unskilled workers.[1] This makes hiring skilled union members more attractive and could raise the earnings of union members who compete with minimum wage workers by 20-40 percent.[2] Meanwhile, non-union, low-skilled workers’ earnings actually fall due to reduced working hours and fewer job opportunities.”

Recent studies led by Arindrajit Rube in 2010 and Sylvia Allegretto in 2011 suggested that raising the minimum wage does not actually negatively impact employment, for both low-skill and young workers. But a deeper investigation led by David Neumark in 2013 found that the methods used by Rube and Allegretto were “flawed and lead to incorrect conclusions.” Instead, said Neumark, the empirical evidence “indicates that minimum wages pose a tradeoff of higher wages for some against job losses for others, and that policymakers need to bear this tradeoff in mind when making decisions about increasing the minimum wage.”

California’s state-mandate minimum wage law is $8 an hour and Nevada’s is $8.25. Both are well above the $7.25 federal rate. Those two states also have two of the highest unemployment rates in the country.

In Wyoming, the minimum wage is the federal $7.25 per hour. But the “Equality State,” as it is nicknamed, has one of the lowest rates of unemployment at 5 percent.

Keep in mind, though, that correlation does not equal causation; California and Nevada also have much higher populations than Wyoming, therefore a greater number of people to employ. And California and Nevada were hit harder by the housing crash of 2007-08. But the general trend throughout the U.S. is that states with a higher minimum wage have a higher unemployment rate.

Impact on small businesses

Not only does a hike in the minimum wage hurt workers, it hurts small businesses as well.

During her remarks at a steering and policy hearing in 2011, Pelosi called small business “the key to America’s recovery and our sustained strength, and maintaining being number one in the world.” But her push to boost the minimum wage would hurt the very engine of America’s economy and hamper our already slow and shaky recovery.

Dan Danner, the president and CEO of the National Federation of Independent Business, laid out the economic facts of a minimum wage increase:

* “The prices of goods and services will rise to cover the increased labor costs.
* “This type of mandate adds burdens to you as employers, putting you at a competitive disadvantage.
* “The expense of an indexed wage increase would come on the heels of costs that are already increasing, like the dramatic cost of employee benefits…especially due to the mandates of his new healthcare law.”

Big businesses are relatively prepared for the increase, and better can handle new rules and regulations. The overhead is already in place, with a legion of lawyers on demand, human resources departments, lobbyists and regulatory analysts all at their disposal. But, as Steven Greenhut noted, small businesses “don’t have that infrastructure” and are placed at “a competitive disadvantage.”

Higher wages means that small businesses will take in lower profits, which leads to less reinvestment and expansion, and ultimately lower potential for employment opportunities and job growth.

A destructive policy

Raising the minimum wage is a part of a feel-good platform that has successfully wooed the majority of Americans to its side, but spawns a vicious cycle of unemployment and undue burdens on small business.

“Who would suspect that somebody thinks $9 an hour would be an obstacle to economic success for our country?” asked Pelosi. “Who would believe that? We really have to make sure that all the people who would benefit from an increase in the minimum wage realize this is what’s going on.”

Low-skilled workers, probably the one demographic in America that needs the most help to attain economic prosperity, would be hurt in the end. Young workers and students, most in need of entry-level jobs in order to gain experience and build their résumés, also would suffer the consequences and find it even more difficult to land a job in our disappointing economy. And small businesses, already saddled with the burden of Obamacare and new taxes and regulations, would struggle to keep afloat.

A minimum wage hike is not the answer to raise the standard of living for average Americans. It’s exactly the opposite.

By Josephine Djuhana

Will Gov. Jerry Brown get all the revenue increases he wants from Proposition 30, which voters passed last November?

Brown recently said in an interview with Jeremy Hobson of Marketplace Morning Report that Prop. 30 was the main reason California was able to achieve a “balanced budget after years of deep deficits.” The initiative would inject “billions of dollars into our budget” and bring California “its first balanced and sustainable budget in 15 years.” His administration estimated the proposition would “increase state revenues by $6.9 billion by the end of 2012-13, and generate billions of dollars per year until its taxes expire at the end of 2016.”

That’s assuming the tax revenues actually will come in. Yet it’s no secret California’s January budget numbers perpetually miss the mark. The problem is the governor makes a laundry list of optimistic assumptions:

* The state will continue to receive hundreds of millions in federal funding.
* The state and national economy will improve.
* The stock market will continue to rise.
* Personal incomes and home values will continue to increase.
* Corporations will see higher returns (despite cap-and-trade).
* Individuals and businesses will stay in California despite the high tax rates.

These are only a handful of suppositions the governor makes, even though all the changes that we’ve seen in California’s demographics reflect a different scenario.

Historical differences

In a recent California Common Sense study, Autumn Carter highlighted the differences between governors’ historical January General Fund revenue projections and projections included in budgets enacted in June (although sometimes “June” has meant a later month when the Legislature has delayed enacting a budget). She wrote:

“Since 1997-98, actual revenues have been within 2% of January’s projected revenues only two times. By comparison, June’s projections have been within 2% of actual revenues six times. The median error for January’s projections is 4.7%, compared to June’s median error of 1.6%.”

California experienced a budget shortfall of $10.7 billion in fiscal year 2009-10, and another $2.9 billion in 2011-12. In 2008-09, that shortfall went as high as $20.1 billion. Carter wrote that such overly optimistic projections “further drive uncertainty and unexpected cuts.”

Overestimating revenue isn’t the only problem with the California budget. Brown has played with the numbers in the California budget in order to attain the “balanced books” that he has been showcasing over the past few weeks. As Sacramento Bee columnist Dan Walters reported:

“The tendency has been to shift expenditures from the general fund to new special funds and that has the effect – intended or coincidental – of flattening out general fund numbers and thus making the growth of state spending look smaller than it has been.”

So even though it looks like that General Fund has been balanced, much of the spending has been shifted from the General Fund to “special funds,” thus lowering the expenditure projections in the General Fund and creating the illusion that the General Fund is balanced. In fact, between 2010 and 2012, the total dollar amount of loans, transfers and loan extensions from special funds was $1.4 billion. And in 2011, in order to balance the General Fund budget, Brown delayed more than $630 million in loan payments to special funds.

The governor’s budget also did not address the root causes of the financial problems, which are the exploding pension and retiree healthcare costs. The Legislative Analyst’s Office noted in its overview of the 2013-14 budget, “[U]nder the Governor’s multiyear plan, the state would still have no sizable reserve at the end of 2016-17 and would not have begun the process of addressing huge unfunded liabilities associated with the teachers’ retirement system and state retiree health benefits.” Even the Los Angeles Times said California’s debt problem had spiraled out of control:

“Sacramento is legally obligated to pay many billions of dollars withheld from schools, local governments and healthcare providers as lawmakers struggled repeatedly to balance the books. It owes Wall Street more per resident than almost every other state. And it has accumulated a crushing load of debt for retiree pensions and healthcare, now totaling more than taxpayers spend each year on all state programs combined.”

So how can Brown proudly proclaim at the beginning of his State of the State address that we have wrought a “solid and enduring budget,” when it appears that there remains a plethora of problems?

Overly optimistic revenue projections

The Manhattan Institute’s 2012 study on the Great California Exodus said the data suggest “many cost drivers—taxes, regulations, the high price of housing and commercial real estate, costly electricity, union power, and high labor costs—are prompting businesses to locate outside California, thus helping to drive the exodus.” Spectrum Location Solutions reported 254 companies left California in 2011; that included major tech companies, such as Twitter, Adobe, eBay and Oracle, which all packed up for Salt Lake City. It’s no wonder, considering the state of Utah has a 5 percent flat state income tax for both its personal income and corporate tax rates, and 5.95 percent for sales taxes. Compare that with California, which has an 8.84 percent corporate tax rate (and 10.84 percent for banks and financial institutions), a 13.3 percent tax rate for folks with an income over $1 million and a 7.5 percent state sales tax rate.

With such high tax rates, what’s stopping Californians from jumping ship and moving to other states? And companies aren’t the only ones high-tailing it out of the Golden State. Prominent individuals, such as the Williams tennis sisters and Tiger Woods, all have left the state in favor of states with lower tax rates. Phil Mickelson has talked about it.

Considering all these factors, it is virtually impossible to know for sure if the tax revenue from Prop. 30 will be as robust as promised. “Federal tax rates are going up as well, and many people have backed their income into the 2012 year, as is the case with high-net worth individuals,” Steven Frates told me; he’s the director of research at Pepperdine University’s Davenport Institute. “California has a highly progressive income tax set up, and the revenue may not be there.”

Just a brief perusal of the monthly financial reports published on the state controller’s page will make any reader aware of the continually fluctuating revenue experienced month-to-month. In April 2012, the state experienced a $2.44 billion shortfall—that’s 20 percent off-mark—with income tax, sales tax, and corporate tax revenues all well below their projected amounts. State finances in September 2012 missed revenue projections in sales and corporate tax revenue by 5.6 percent and 8.8 percent, respectively, resulting in a $162.5 million shortfall. Income tax revenue in November 2012 was off by 19 percent, resulting in a shortfall of $842.5 million.

It is precisely the optimistic revenue projections that cause preliminary budget numbers to be so off-target. Brown cannot expect to tackle our pension and benefits costs properly with so much fluctuation and inconsistency in his proposed budget.

Performance-based budgeting

A real solution to the California budget problem could be found in performance-based budgeting. Traditional line-item budgets hold agencies accountable only for what they spend based on their inputs; performance budgets hold agencies accountable for what they achieve. A Kentucky Legislative Research Commission released a memorandum in 2001 outlining the basics of performance-based budgeting:

Objectives. Agencies should develop strategic plans of what they intend to accomplish. These plans should contain objectives based on outcomes that the public values.

Performance measures. Based on their strategic plans, agencies should develop specific, systematic measures of outcomes that can be used to determine how well agencies are meeting their objectives. Examples: student test scores for education programs; mortality rates for health programs.

Linkage. Objectives and performance measures are integral parts of the budgetary process. Appropriations are linked to agencies’ results: how well they are meeting their objectives as indicated by performance measures.

The underlying essence of the role of government must be driven by constituent desires and needs, not laws and regulations—and the budget should reflect those needs. If the government could truly provide results, not just promises or efforts, citizens would be less skeptical of those in power.

As Geoffrey Segal and Adam Summers wrote in a 2002 Reason Policy Study:

“Performance goals and measures play a vital role in public budgeting.  They are powerful tools that can lead to the efficient and effective provision of public programs and services.  By providing program managers and employees with what they are expected to achieve and how well they are doing, they paint a more realistic and accurate picture of agency performance.  Most importantly though, citizens are given the means to evaluate, understand, and participate in their government.”

Not all government programs are bad, but the state could do without a lot of the sprawling bureaucracies and agencies that control so much of our lives. Ask any Californian if they’ve ever benefitted from AB32, the Global Warming Solutions Act of 2006; or if they feel their air has gotten cleaner since the implementation of cap-and-trade tax-credit auctions. Ask any Californian if they’ve enjoyed waiting in endlessly long lines at the DMV. Ask any Californian if they’ve ever enjoyed sitting in traffic for long hours, traveling a distance that is grossly disproportionate to the amount of time it takes to get their final destination.

Citizens need to be the priority of government—not unions, not special interests, and certainly not agencies that hide $20 million in state funds (California Department of Parks and Recreation, that’s you).

With performance-based budgeting, we could fix the expenditure side of the budget. And in order to fix the revenue projection side, a flat tax rate would do well to be rid of all the ills of overly optimistic assumptions.

Flat tax

In “Eureka! How to Fix California,” commissioned by the Pacific Research Institute, CalWatchdog.com’s parent think tank, economist Arthur Laffer called for a flat tax for the state of California. It would enact one simple tax on net business sales, and another on personal unadjusted income. There would be no other taxes. He outlined his plan:

“One tax base would be personal unadjusted gross income from all sources, with only a few deductions: charitable contributions; interest payments, including on home mortgages; and rent on one’s primary residence, to remove the current system’s preference for homeowners. A single tax rate would apply across the board, from the first dollar earned to the last. The other tax base would be businesses’ net sales, or “value added”—that is, the difference between sales and production costs, which equals the state’s gross domestic product when aggregated across California. The low 6 percent rate would reduce the incentive to avoid earning taxable income in California, and the very broad base would reduce the number of places where people could hide their income to avoid taxation.”

To top it off, this tax system would yield as much revenue as all of California’s current state and local taxes. Imagine that! No more missed revenue projections, a real balanced budget and a fully functioning government catering to its constituents’ actual needs.

A budget cannot be considered balanced if its revenues are too volatile to predict accurately. Frates told me of the January estimate, “It’s just an opening shot, a sort of kabuki dance between the governor and the Legislature.” Brown called for celebration in his State of the State address, “California is back, its budget is balanced, and we are on the move. Let’s go out and get it done.”

But perhaps it is time to consider a total restructuring and reform of the California budgetary process, and fix it before we go by the wayside.

By Josephine Djuhana

Gov. Jerry Brown, alongside a number of lawmakers, continues the push to build the nation’s first high-speed rail, despite a hefty price tag as high as $98 billion, an immediate negative environmental impact, and widespread opposition to the project.

In 2008, voters who approved Proposition 1A were promised a rail system that would “link all of the state’s major population centers, including Sacramento, the San Francisco Bay Area, the Central Valley, Los Angeles, the Inland Empire, Orange County, and San Diego,” as written in the original legislation AB 3034 in Section 8(b). The estimated cost for the entire project was $45 billion, and was guaranteed to operate at a profit, requiring no “local, state, or federal operating subsidy.”

Instead, Californians are getting a half-baked project, far different than the original terms spelled out in the 2008 high-speed rail initiative. The current plan only connects Los Angeles and San Francisco via the Central Valley, with high-speed trains fully operational not until sometime between 2028 and 2033. Expenditures will surpass the original $45 billion, at some value between $68 and $98 billion. The revised plan utilizes all rail bonds, sells all operating profits to investors, and virtually guarantees that a high-speed rail to Sacramento and San Diego will never be built.

In addition to all the broken promises and modified plans, community leaders, business owners, and famers in the Central Valley are stepping up to protest this monstrous boondoggle, citing direct impact to businesses, orchards, dairies, farmland, and more. Kole Upton, a farmer in Merced County, stated that the proposed rail route was “devastating” to the agriculture in the area. “It goes through diagonally through farmland and it cuts up the water system like canals, deep-well pumps and our ability to service our farms,” said Upton.

Thus, it’s no wonder that 59 percent of Californians said that they would oppose the plan if given another chance to vote on it, as reported in a June 2012 poll conducted by USC Dornsife and the Los Angeles Times. The Legislative Analyst’s Office in April 2012 submitted a report stating that the High-Speed Rail Authority had not “provided sufficient detail and justification to the Legislature regarding its plan to build a high-speed train system” and recommended the Legislature to not “approve the Governor’s various budget proposals to provide additional funding for the project.” State Auditor Elaine M. Howle, CPA, said the project’s overall funding situation has become “increasingly risky” due to a lack of “viable funding alternatives in the event that its planned funding does not materialize.”

An initiative has been launched to put the high-speed rail back on the ballot, since California voters are clearly not getting what they were promised back in 2008. The Revote High-Speed Rail committee has a proposal to stop the $100 billion high-speed train and stop the boondoggle outright. The petition would force the issue back on the ballot where California’s electorate would reconsider whether or not the project should chug along. Given how costs have ballooned and the project has been so badly mismanaged, such a ballot measure might finally stop the train in its tracks.