The report, released by the non-partisan Legislative Analyst’s Office on Wednesday, identified three areas of concern. First, LAO writes the administration’s strategy “lacks basic information necessary to determine its merits, including its costs, benefits, and potential alternative approaches.” 

Second, the LAO noted the administration’s insistence on using a particular funding process that allows “the administration to establish and fund projects without legislative approval” greatly reduces legislative oversight. 

The LAO also called the construction and renovation plan “ambitious,” adding it was already behind schedule and that it is likely to become increasingly more expensive.

The LAO recommended the Legislature call for a “robust analysis” of the administration’s strategy, to closely monitor the $1.3 billion expenditure for 2016-17 and to push for further appropriations to be made through the budget process. 

“We believe these recommendations would help ensure that the state has the information it needs to move forward with the best available strategy for addressing its buildings in the Sacramento area and that any funds provided are spent with adequate legislative oversight and accountability,” wrote Helen Kerstein, an LAO analyst. 

The administration’s plan provided “badly needed” funding for the modernization effort, to maximize energy and water efficiency, to strengthen security and to make the buildings ADA compliant, said an administration spokesman. 

“We look forward to working closely with our colleagues at the LAO and within legislative leadership to make this effort a success and ensure the highest possible degree of transparency and accountability in how these projects are executed,” Brian Ferguson, a deputy director at the Department of General Services, told CalWatchdog on Thursday. 

But in recent years, a variety of criminal-justice reforms have been pushing the pendulum back in the other direction, albeit in a relatively quiet way. In 2014, California voters approved Proposition 47, which reduced some crimes from felonies to misdemeanors. Furthermore, Gov. Jerry Brown succeeded in implementing his “realignment” plan that moved many state prisoners to county jails.

Crime has gone up in major California cities since then and it’s not clear how much those measures contributed to the problem. But it doesn’t appear the recent uptick has slowed the push for reform.

In the Nov. 8 general election, voters rejected an effort to repeal the death penalty and, by a close margin, appear to have approved a measure designed to speed up executions. Nevertheless, voters also approved Proposition 57 by a wide margin. As the Legislative Analyst’s Office explains, the measure will “increase the number of inmates eligible for parole consideration” and make “changes to state law to require that youths have a hearing in juvenile court before they can be transferred to adult court.” The marijuana-legalization measure voters also approved would enable judges to expunge some people’s marijuana convictions.

The ballot box isn’t the only place where reform is moving forward. When the Legislature reconvenes in December, some legislators will almost certainly introduce bills that would reform the state’s system of “money bail.” It’s part of a nationwide reform movement headed by groups such as the American Civil Liberties Union.

Many are unfamiliar with the system by which criminal defendants post a bond that allows them to avoid jail time as their case winds its way through the system. A judge will set a bail amount that reflects the severity of the alleged crime and the defendant’s perceived flight risk. The defendant can post the full amount, which would be forfeited if he or she doesn’t show up at the appointed court date. Those who lack the resources also can go to a bail bonds company and pay a nonrefundable percentage (commonly 10 percent) of the bail. The bail bondsman posts the full amount and assumes liability to assure the defendant shows up for trial.

The bail bonds industry argues the system works well as it is designed. “When it comes to guaranteeing appearance at court, surety bail outperforms every form of public sector pretrial release and own recognizance release as well,” according to the American Bail Coalition. The group, supported by bail-bonds companies, argues the current system also offers a cost-effective approach that costs the courts nothing for to supervise 2 million released defendants each year. Bail defenders also point to the taxes paid by the bail industry – and cite studies showing cost savings to counties.

But critics of the system, including the chief justice of the California Supreme Court, have raised some concerns. “Over time the discussion about bail (has become): Does it really serve its purpose of keeping people safe? Because if you’re wealthy and you commit a heinous crime, you can make bail,” said Chief Justice Tani Cantil-Sakauye, in a March 2016 editorial board meeting with the Sacramento Bee. The problem, as the Bee and others have raised, is that poor people often don’t have the financial wherewithal to post bail. That forces them to stay in jail while wealthier people get to go home on their own recognizance and await trial. The chief justice has created a task force to review the issue.

Critics say the bail situation also encourages poor people to accept plea bargains, given that months in jail — and our court system moves very slowly — could cause their lives to collapse. If they are in jail rather than working, they lose their apartments and their possessions. Their kids are often taken by Child Protective Services. It’s a problem not just for the poor people who are affected, but also for the state’s perpetually overcrowded jail system. More than 60 percent of people in California jails have not yet been sentenced for any crime.

As the nonpartisan Public Policy Institute of California reports: “From 2000 to 2009 (the latest comprehensive data available for felony cases), California’s large urban counties relied on pretrial detention to a much greater extent than did large urban counties elsewhere in the United States. … Part of the difference in detention rates may be attributed to California’s higher bail amounts. The median bail amount in California ($50,000) is more than five times the median amount in the rest of the nation (less than $10,000). Research has demonstrated that pretrial release rates generally decline as bail amounts increase.”

In July, some Democratic state legislators held discussions in Oakland on the matter. San Francisco District Attorney George Gascón said that “at least 29 jurisdictions have developed ‘risk-assessment’ models, which allow court and pretrial staff to use data and other evidence to determine whether a person should be released,” according to a news report. That’s a likely model for coming proposals: shifting toward a system based more on judicial risk assessments than on the ability to post a bond. Assemblyman Rob Bonta, D-Oakland, announced his intent to introduce legislation when the Legislature is back in session.

The U.S. Justice Department also has weighed in on behalf of bail reform in a Georgia case. The department argues that “bail practices that incarcerate indigent individuals before trial solely because of their inability to pay for their release” violate the 14th Amendment of the U.S. Constitution. However, a U.S. district judge rejected a similar argument in a Sacramento County case.

“The state’s interest in ensuring criminal defendants appear for trial dates is a legitimate one, and detaining individuals before their arraignment is rationally related to that legitimate interest,” U.S. District Judge Troy Nunley wrote last month in the case. As the San Francisco Chronicle reported, “Nunley refused, at least for now, to dismiss a claim that the bail system is unfairly punitive.” Nunley is an appointee of President Barack Obama.

Other similar cases are moving forward across the country, including in San Francisco. There, Public Defender Jeff Adachi commissioned a study finding that black inmates are more likely to be kept in jail awaiting trial than their white inmates facing similar charges. Clearly, this issue will be heating up in the coming years, with a new Republican administration throwing more uncertainty into the situation, given the role the Obama Justice Department has played in the matter.

Critics also note the current system isn’t cost free, and that some states have moved to a risk-assessment system. “Risk assessment detention not only stems some of the unjustified inequalities on the impoverished but it also has proven to save the state money and actually prevent further crime by trying to keep the accused employed and out of trouble,” argues my R Street Institute colleague, Arthur Rizer, director of criminal justice policy. The current system, he adds, ends up “bloating our already bloated jails.”

Not all reformers look to eliminate money bail. Various compromises could emerge, including measures that eliminate bail for certain cases, or efforts to create easier ways for poor defendants to afford bonds. This is an emerging reform movement, so we’ve yet to see the kind of compromises that might emerge in the California Legislature. 

Steven Greenhut is Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.

It was easy for many people to understand the emotional nature of the issue during mid-1980s. Crime rates had soared by 276 percent over a 20-year period. They had begun to fall again in the late 1980s, but political angst often trails the data. Justice Bird rejected the death penalty in all 64 such cases that came before her and so became a lightning rod for those upset over crime. Crime rates crept up again in the early 1990s, but have been falling precipitously since.

Now, there’s been a recent spike in crime, and a debate over the role some recent incarceration policies have played in that uptick. For instance, some blame Proposition 47, the 2014 voter initiative that reduced some felonies to misdemeanors, and the governor’s realignment policy, which houses some prison inmates in county jails. Others say the data doesn’t back up those claims, and that crime rates ebb and flow for various reasons.

Whatever the case, crime rates remain relatively low – and the crime issue doesn’t come close to generating the emotions it did during the Rose Bird controversy. Nevertheless, voters on Nov. 8 are being asked to revisit the death-penalty issue in two competing initiatives. It’s a crowded ballot, with 17 initiatives overall, which explains in part why these measures have not garnered much attention. But they offer Californians two starkly different choices.

In Proposition 62, voters are being asked whether to repeal the death penalty for those found guilty of murder and replace it with life in prison without the possibility of parole. In Proposition 66, voters are asked whether to streamline the appeals process to make it easier for the state to execute convicted murderers. When initiatives are contradictory, the one that receives the highest votes prevails. An interesting showdown is in the works.

Ironically, Prop. 62 would put an end to executions that rarely happen anyway. The last execution in California took place a decade ago – all executions have been delayed because of legal challenges to the use of lethal injections. The nonpartisan Legislative Analyst’s Office puts the numbers in perspective: “As of April 2016, of the 930 individuals who received a death sentence since 1978, 15 have been executed, 103 have died prior to being executed, 64 have had their sentences reduced by the courts, and 748 are in state prison with death sentences.”

Those realities actually bolster the case made by the supporters of both initiatives. Backers of Prop. 62 argue that the state’s death penalty is a failed system because so few people are actually executed. The cost per execution, they argue, is $384 million as they languish on costly death rows. Instead of endless delays, they propose doing away with the penalty – something supporters say will provide “real closure” for families of victims. Instead of fighting in courts, convicted murderers will have a permanent sentence and will never be allowed to go free.

Backers of Prop. 66 say the solution to the lack of executions is to speed up the appeals process. “There are nearly 2,000 murders in California annually,” according to supporters’ official ballot argument. “Only about 15 death penalty sentences are imposed. But when these horrible crimes occur, and a jury unanimously recommends death, the appeals should be heard within five years, and the killer executed.” Both initiatives require these inmates to work.

Opponents of Prop. 66 raise concerns that speeding up the appeals process will cause innocents to potentially be executed, whereas supporters argue that their initiative will allow plenty of time to assure that innocent people aren’t executed. This proposition attempts to speed up the process by requiring “that habeas corpus petitions first be heard in the trial courts,” according to the LAO analysis. It also “places time limits on legal challenges to death sentences” and “changes the process for appointing attorneys to represent condemned inmates.”

The San Francisco Chronicle raises concerns about the attorney appointment process in the initiative: “Condemned inmates often must wait years for representation. The measure attempts to compel attorneys to take up capital appeals by excluding them from certain other defense work. This raises two serious concerns: One is the prospect that attorneys less steeped in the fine points of capital appeals — and it is a specialized part of the law — will be representing inmates with lives on the line. The other is the possibility of attorneys enlisted against their free will in these appeals.”

Contra Costa County District Attorney Mark Peterson, writing in the San Jose Mercury News, argued that “Defense attorneys refuse to represent death row inmates in order to thwart the process, so it takes an average of five years before a condemned inmate is even assigned an attorney.”

Proposition 62 is more straightforward than Proposition 66. The former ends the death penalty – even for those currently on death row – and replaces it with “life without parole.” The latter includes a series of complex reforms designed to “mend” the current system. For voters, however, the choice will come down less to the specific details and more to their overall outlook. If they want to end the death penalty, they’ll vote yes on 62. If they want to speed up its use, they’ll back 66.

A recent public-opinion poll from Sacramento State’s Institute for Social Research showed Proposition 62 losing 45-37 and Proposition 66 winning 51 to 20. So while the level of contentiousness over the death penalty is far different now than it was in 1986, it seems that public attitudes about it haven’t changed much in 30 years.

Steven Greenhut is Western region director for the R Street Institute. He is based in Sacramento. Write to him at sgreenhut@rstreet.org.

And then last week, when a video with similar claims was released by the “No” campaign, The Bee doubled down on its assessment that the commercial contains “inaccurate claims about school funding and omits information to mislead voters.”

Making no value judgement about the pending measure, while happily admitting that the fact-checker sites generally perform good work and a valuable public service, CalWatchdog decided to fact-check the fact-checkers.

Full disclosure: I grew up in Virginia and smoked from age 12 to 28. While I loved smoking, Newports especially, in the end I preferred playing soccer, walking up the stairs at a normal pace, falling asleep without violent coughing fits, waking up without puffy eyes, and yes, having money in my pocket. 

Ad transcript

Davina Keiser, a Long Beach Math Teacher says to the camera: “Good schools are important to my students, and California. That’s why voters passed a law to ensure that schools get 43 percent of any new tax revenue. I was astounded to learn that Prop. 56 was written intentionally to undermine that guarantee. Prop. 56 raises $1.4 billion a year in new taxes and gives most of that money to wealthy special interests, like insurance companies. But not one penny goes to improve our kids’ schools. That’s just bad math.”

As The Bee points out, “The words ‘cheats schools of $600 million a year’ appear on the screen.”

Since the three fact check stories are largely the same, we’ll analyze the most recent Bee story.

The Bee writes: “Similar to an earlier ad funded by the tobacco companies, the new commercial contains inaccurate claims about school funding and omits information to mislead voters. It is a stretch to say Proposition 56 ‘cheats schools of $600 million a year.’ Nothing in the measure reduces school funding from current levels. If the measure passes, the education budget doesn’t decrease.”

We agree that “cheat” is a stretch. Cheat implies there is intent on the part of the Yes campaign to either deceive voters or go outside the normal framework to achieve its objective. Since the proponents are going through the legal, democratic process and are not hiding the fact that the measure is exempt from education-funding requirements, “cheat” seems like normal political hyperbole. 

But that doesn’t mean there isn’t a diversion of funds, or at least a diversion of potential funds. In 1988, voters passed Prop. 98, which Prop. 111 then amended the following election. These policies earmarked a certain amount of new revenue for education funding. While the number changes depending on many factors, it could be between 40 and 50 percent (we found conflicting numbers in our research, but this range should suffice).

Voters have the power to amend the Constitution to waive this requirement, as would be done in this case. But that doesn’t change the fact that we currently live in a world where a certain amount of all new funding is earmarked for education.

Even if everyone says it’s fine to do this, the money still won’t be going to education. If this wasn’t true, proponents wouldn’t have had to write the Prop 98 exemption into the Prop 56 language. 

For The Bee to write Prop. 56 would not cut funding is a red herring. The ad says “cheat,” not cut. And while “cheat” itself is misleading, there is an unquestionable loss of potential revenue. 

The Bee writes: “While Keiser says she was ‘astounded’ to learn that the measure works around Proposition 98, she shouldn’t be. It isn’t unusual. The last two increases in tobacco taxes approved by voters shielded the money from the Proposition 98 education funding guarantee.”

To be clear, you can’t fact check whether or not someone should or shouldn’t be astounded. But since The Bee speculated on Keiser’s level of astoundedness, we’ll speculate it’s possible she wasn’t aware of the prior measure’s exemptions. It’s even more possible that she’s just reading from a script.

To continue our speculation, we believe there is a significant percentage of voters who are unaware that prior tobacco taxes were exempt from Prop. 98. Again, we’re just speculating, but doesn’t it seem more logical than assuming every voter is fully-versed in budgetary minutiae and constitutional law?

In fact, Judge Michael Kinney agreed when he said in August that “Voters don’t know the numbers.” According to the Los Angeles Times, that was Kinney’s justification when he ruled the attorney general needed to be more specific in Prop. 56’s summary, to make clear to voters the connection between Prop. 98 and school funding.

The Bee is correct that the last two tobacco-tax ballot measures were exempt from Prop. 98. But the original tobacco excise tax, passed in 1959, has been contributing a certain amount to education funding since Prop. 98 was approved in 1988. So it’s not unprecedented. We can sympathize with Keiser or any other voter who doesn’t know all of this. 

The Bee writes: “It’s also wrong to say ‘not one penny’ of the funding goes to improve schools. The Legislative Analyst’s Office estimates that up to $20 million of the new tax revenue would to go the Department of Education for school programs to prevent the use of tobacco among young people.”

Anti-tobacco programs in school will do little to give teachers raises, reduce classroom sizes, improve academic performance, improve graduation rates, increase the number of kids going to college, or implement any other meaningful suggestion policy makers and advocates have for improving California’s schools.

While steadily increasing, only 23 percent of voters think California schools have improved over the last few years, while 30 percent say schools gotten worse (35 percent say it’s stayed the same, which could either be negative or positive), according to a recent poll from Policy Analysis and California Education/University of Southern California Rossier School of Education.

These programs may deter some kids from smoking and encourage others to quit (although it never worked on me), and maybe a tobacco opponent would make an argument that lowered-tobacco/nicotine usage actually improved a school, but it would be stretch. To claim it’s “wrong to say ‘not one penny’ of the funding goes to improve schools” is absurd, unless The Bee is being both narrow and creative in its understanding of improvement.

It’s possible that proponents aren’t as concerned with the loss of potential education funding because of another measure on the November ballot, Prop. 55, which would extend a temporary tax on personal incomes of $250,000 or more to education and health care funding. The Legislative Analyst’s Office estimates this will generate between $4 billion and $9 billion per year until fiscal year 2030-31, with a little more than half going to education.

Tom Torlakson, the state superintendent of public instruction, co-wrote the ballot measure argument in favor of Prop. 55, arguing it would fund the hiring of more teachers, help with college affordability, help restore arts and music programs and help stave off cuts, among other things. “We can’t go back to the days of devastating cuts and teacher layoffs,” Torlakson and others wrote.

But despite the sky-is-falling argument on Prop. 55 (there would be a substantial loss of revenue if Prop. 55 fails), Torlakson wrote a letter in favor of Prop. 56, which, as the PolitiFact California fact-check noted, said: “Make no mistake, Proposition 56 will not divert a dime away from schools. Rather, it will raise revenues for school based tobacco prevention and intervention programs.”

The state’s top educator pleads with voters to bolster education funding to fight off “devastating cuts,” while he’s cavalier about the loss of a potential $600 million. There’s a chance the prospect of Prop. 55 passing helped him leave $600 million on the table.

The Bee writes: “This time around, Proposition 56 directs most of the tobacco tax revenue increase to Medi-Cal to raise reimbursement rates, which critics have long blamed for the state’s health care conundrum. Doctors say the financial reimbursements they receive for providing care to California’s most impoverished patients are too low to maintain a practice. The ‘wealthy special interests’ the ad refers to are doctors, clinics, hospitals, managed care plans and any other health-related group that get Medi-Cal payments because they provide services to eligible patients.”

There is big money at stake here. The Legislative Analyst’s Office estimates Prop. 56 could generate between $1.27 billion and $1.61 billion in revenue next fiscal year.

The ad says “most of this money goes to wealthy special interest groups, like insurance companies.” Medi-Cal, the state’s health care program for low-income residents, would receive the bulk of the Prop. 56 revenue, after certain requirements and programs are paid for.

Depending on how the money is actually divvied up in the budget process will determine whether “most” of the funding goes to insurance companies, like managed-care plans, although other health care providers, like doctors, clinics and hospitals, will get their share as well. 

In February, the Legislative Analyst’s Office estimated that in 2016-17, 75 percent of Medi-Cal beneficiaries are enrolled in managed care. 

The issue actually is quite simple, even though the political machinations are complex. There are two main types of bonds to finance long-term infrastructure projects. The most common are general-obligation ones, which are repaid through revenues in the state’s general fund. In other words, the money to repay investors comes directly from taxpayers. The California Constitution requires a vote of the people before the state government can take on such debt.

By contrast, revenue bonds are repaid by users of the project. For instance, they typically are used on bridge projects, where users repay the debt by paying tolls, or on water projects, where water ratepayers repay the debt. The state does not require a public vote for these projects. Proposition 53 would require such a vote if the bond amount tops $2 billion. It “applies to any projects that are financed, owned, operated, or managed by the state, or by a joint agency formed between the state” and another agency, according to its official summary.

Opponents believe it could harm the ability of the state – and local joint-powers agencies – to build necessary projects. “Prop. 53 could threaten a wide range of local water projects including storage, desalination, recycling and other vital projects to protect our water supply and access to clean, safe drinking water,” argued the Association of California Water Agencies, in the official ballot argument against the measure. They fear that, say, Northern California voters would not vote to fund a project designed to benefit Southern California water users.

The Banks Pumping Plant looking toward the Bay Delta, where tunnels are planned that could protect fish. Photo courtesy of www.hcn.org

But the nonpartisan Legislative Analyst’s Office, in its analysis of the measure, explains that “[r]elatively few state projects are likely to be large enough to meet the measure’s $2 billion requirement for voter approval.” Indeed, the only two current projects that could trigger its vote requirement are the $17-billion-plus plan to build twin tunnels underneath the Sacramento-San Joaquin Delta to divert water toward Southern California and the governor’s $68-billion high-speed rail project, which could possibly employ the use of revenue bonds, although its current funding is uncertain.

Critics of the measure note it is funded largely by Dino Cortopassi, a retired Stockton-area farmer and opponent of both projects. Supporters say the measure is about controlling the state’s wall of debt, not about stopping any particular project. Cortopassi, for instance, in 2014 sponsored a series of newspaper advertisements across the state (titled, “Liar, Liar, Pants on Fire!”) accusing state officials of using “deceptive” accounting to hide the size of the state’s debt and unfunded liabilities. The measure is designed to stop state agencies from using this particular form of debt to circumvent a public vote and fund mega-projects.

Even though revenue bonds are funded by user fees, they still often rely on taxpayer dollars, Prop. 53 supporters note. For instance, the revenue bonds that would fund the twin tunnels project would be funded “mostly by rate hikes and property tax increases on water customers,” according to a San Jose Mercury News report. In other words, the “revenue” stream is from higher property taxes and rate hikes on customers. Since those bills are ultimately paid for, in part, by taxpayers, supporters think taxpayers should have a vote. Furthermore, some projects funded by revenue bonds have sought taxpayer help and enjoy some taxpayer subsidies.

The initiative’s opponents say municipalities are not on the hook for these bonds. But supporters argue that, while governments may not legally be required to make good on them if a project fails, they might have little choice but to help pay off the debt, given the impact a failure would have on their community’s overall credit rating.

“Clever legislators and lobbyists have expanded the definition of revenue bonds to apply to many projects that are tough sells,” wrote the Sacramento Bee’s Dan Morain. “No voter wants to spend on prisons, for example. So lawmakers rewrote the law to finance prison construction with revenue bonds.”

Prop. 53 supporters see that as evidence that voters need to close a loophole used by legislators to fund projects without public support. Requiring a vote is not the same thing as stopping a project; supporters simply need to do a good job packaging the project in a way that appeals to voters, who tend to vote in favor of the vast majority of bond-funded projects that come before them anyway, they say.

Opponents point to this element of the LAO report: “(T)here is some uncertainty regarding which projects would be affected. This is because the measure does not define a ‘project.’ As a result, the courts and the state would have to make decisions about what they consider to be a single project.” There’s some question, the LAO continued, about whether a single building would be a project or whether the definition of “project” covers multiple buildings that are part of a complex. These uncertainties could create litigation problems, although supporters say the fear is overblown.

Primarily, supporters see Prop. 53 as a means to rein in runaway levels of debt that plague state government and to put into place a means to at least consult with voters the next time an administration proposes a massive statewide infrastructure project. Opponents fear the measure could hold up important regional projects, as a joint agency has to lobby the entire state to win approval for something that’s fairly local.

There is a third possibility: The bar is so high for triggering a vote that the measure may be much ado about very little. As the LAO explained, “(I)t is unlikely that very many projects would be large enough to be affected by the measure.” On a ballot filled with hot-button issues, such as marijuana legalization and eliminating the death penalty, this one might cause voters to shrug.

Steven Greenhut is Western region director for the R Street Institute. He is based in Sacramento. Write to him at sgreenhut@rstreet.org.

According to the non-partisan Legislative Analyst’s Office, the “subjective” funding model could leave the state with a sizable burden depending on how investments perform, adding the system is too complicated for experts to adequately monitor.

But state officials say the revised model only updates what’s been in place since the ’90s, with each stakeholder giving higher contributions.

To be clear, the LAO agrees that the new funding model — implemented in 2014 when the CalSTRS pension fund was predicted to go broke in the mid-2040s —  put the fund on the right path.

However, according to a report released Tuesday, instead of a proportional and relatively simple funding model, contributions are recalculated every year based on an “alternate universe” funding model that could expose the state to extreme liability and may violate the spirit of “shared responsibility.”

What’s The Problem?

LAO argues that when tweaks were made to the CalSTRS pension fund in 2014, lawmakers did so with the intent that the system be proportionally funded by the state, teachers and school and community college districts depending on what they owed.

At the time, the unfunded liability (meaning the amount the fund was short if it were to pay all the benefits already earned by employees and retirees) was $74 billion — $47 billion by the districts, $20 billion by the state and $8 billion by the teachers (members of the fund). The aim was to be fully funded in approximately 30 years.

According to the LAO, it would have made sense — as was its impression — to embrace the concept of “shared responsibility,” where each of the three stakeholders pays a consistent share. But, the LAO argues that under the existing model the state’s contributions decrease when the pension’s investments perform better than the estimates, thereby deferring responsibility to the districts.

But state officials say this is the language that was out there for a while before being agreed upon and that it’s not much different than how it was before, just that everyone is paying higher contributions.

“We basically updated an existing mechanism that has been in place for quite some time,” said H.D. Palmer, deputy director for external affairs at the state’s Department of Finance. “We’re at somewhat of a loss to understand how LAO can project or conclude the losses that they have, given the fact that the law is being implemented as everyone involved in its crafting intended.”

Alternate Universe Calculation

Under this calculation, both the state and district contributions to the unfunded liability are recalculated every year based on salaries, under the assumption of what the CalSTRS situation would have been in present time had the state made different decisions in the past.

To explain further, there are two consequential decisions that it’s based on:

• In the late 1990s, the state increased pension benefits to CalSTRS’ teacher members.
• Contributions to the pension fund were decreased around 2000 because it was fully-funded for a brief period of time.

So, again, the funding model is based on what the present-day situation would have been had those two things never happened.

Ryan Miller, a principal fiscal and policy analyst at the LAO, told CalWatchdog that he was not aware of any other pensions using this kind of mechanism, although Palmer said that the CalSTRS pension is unique in that the teachers are not employees of the state (rather employees of the districts) and a unique model is warranted.

It’s Too Darn Complicated

To describe why the CalSTRS system is overly complicated, LAO used this anecdote: “In November 2014, CalSTRS’ consulting actuary introduced the details of the proposed funding policy to the CalSTRS board as follows: ‘This is probably the most difficult thing I’ve had to explain to a board in my entire career.’”

LAO argued that despite the inherent complexity of pensions in general, the “staggering complexity” of the alternate universe model makes it difficult for legislators, the governor, the CalSTRS board, teacher members and, of course, the public, to understand how it works.

“This weakens oversight of the funding plan, adds complexity to an already complex program, and will cause confusion about teacher pensions,” the LAO wrote.

Palmer agreed the model is complex, but said CalSTRS actuaries found the model to be sound, adding that required periodic reports will help with oversight.

Extra Liability

If the state’s contribution is theoretically lessened by high-performing investments, then when investments perform poorly it could have the reverse effect, leaving the state in a bind, according to the LAO.

“(I)f investment returns fall far short of assumptions over the long run, state contributions to CalSTRS could be billions of dollars higher by the 2040s,” wrote the LAO.

But Palmer noted there will be a performance report to analyze the first year, followed up by a five-year report, where lawmakers can reassess the funding model.

“It’s premature to project the kinds of fiscal impacts that are reflected in the LAO report,” said Palmer.

“Today, an average California home costs $440,000, about two-and-a-half times the average national home price ($180,000). Also, California’s average monthly rent is about $1,240, 50 percent higher than the rest of the country ($840 per month). 

“California is a desirable place to live. Yet not enough housing exists in the state’s major coastal communities to accommodate all of the households that want to live there. 

“Households with low incomes, in particular, spend much more of their income on housing. High home prices here also push homeownership out of reach for many. … The state’s high housing costs make California a less attractive place to call home, making it more difficult for companies to hire and retain qualified employees, likely preventing the state’s economy from meeting its full potential.”

The LAO  prescribed two cures for high-cost housing in already dense coastal areas where frequent environmental opposition to new housing is most rampant.

Higher densities

First, the LAO called for much higher building densities in coastal metropolitan areas, including:

• More than doubling of single family home densities in Los Angeles, Alameda, San Mateo and Santa Clara counties from 4 units per acre to up to 9 units (Figure 10, LAO Report);
• More than doubling townhome and condominium densities in San Francisco from 18 units per acre to 35 to 40 units (Figure 10, LAO Report);
• Building 100,000 additional housing units along the coast each year. This would be the equivalent to building a new city along the coastline with a population of 300,000, or about the size of Riverside or Stockton — each year.

CEQA exemption

Second, the LAO recommends exempting new housing construction from lawsuits under the California Environmental Quality Act for reasons of reduction in traffic congestion and the avoidance of blocked views from “Not-In-My-Backyard” (NIMBY) lawsuits. The LAO report did acknowledge, “CEQA’s complicated procedural requirements give development opponents significant opportunities to continue challenging housing projects after local governments have approved them.” However, the LAO did not bring up the 2013 reforms of CEQA in Senate Bill 743, by then-Senate President Pro Tem Darrell Steinberg, D-Sacramento, for infill development in high-density transit development zones.  SB743 eliminated traditional “auto delay” and “level of service” measures of traffic congestion, as well as any parking impacts, as a basis for determining significant impacts of infill housing development under CEQA. The provisions of SB743 will not become effective until sometime in 2016. The California Infill Building Association, the California Teamsters Public Affairs Council, and the Sacramento County Board of Supervisors, which was seeking relaxation of CEQA for a sports stadium project, supported SB743.  Opposition to SB743 came from the Planning and Conservation League and the Sierra Club. SB743 should help a little with the constructing new dwellings.

Home rule

The LAO also infers that, to lower coastal housing costs, California needs to usurp local “home rule” of zoning densities and the ability to file environmental lawsuits blocking or delaying new housing. But combining higher densities with environmental exemptions for affordable housing could result in even more displacements, especially of people in rent-controlled units in San Francisco, Los Angeles and Santa Monica. The LAO report specifically targeted higher multi-family housing densities in San Francisco to alleviate its current middle-class housing crunch. And the LAO wrote that “local governments limit how much landlords can increase rents each year for existing tenants. About 15 California cities have these so-called rent controls, including Los Angeles, San Francisco, San Jose and Oakland.” But as described by Kriston Capps on CityLab.com of March 17, in “Why Did This Woman Get Stuck with a $6,755 Monthly Rent Hike?” San Francisco landlords are converting rooming houses back to single-family homes to remove the rent controls from their properties. L.A. Curbed on March 18 reported in “Mass Rent-Control Evictions on Rise in Santa Monica” that landlords are taking rent-controlled properties off the market for condominium development or an extensive remodel to resell as jumbo, luxury homes. The LAO report failed to discuss the consequences of displacing lower-income renters, something already rampant in highly dense coastal cities. In sum, although the LAO did shine some light onto the problem of high housing costs in California, many other factors are involved. Meanwhile, millions of the state’s residents continue to struggle to pay their rents and mortgages.

“SACRAMENTO — While lawmakers begin discussing ways to fix California’s cash-strapped teacher pension system, another long-term financial problem continues to fester.

“The cost of providing healthcare to retired state workers is $64.6 billion more than state leaders have set aside to pay, an increase of $730 million from the previous year.

“The new numbers, calculated as of last June, were released by state Controller John Chiang on Thursday. …

“State workers become eligible, after 10 years on the job, to receive taxpayer-funded healthcare for life. The state picks up an even bigger share of the cost after 20 years of employment. 

“California pays the cost of retiree healthcare directly out of the annual budget. That’s much different from how it handles state pensions, which are largely funded by investment returns on gigantic pension funds.”

New role for ‘watchdog’: civic arsonist

Now let’s revisit what Mac Taylor said last November: At a legislative hearing, he opened his analysis of the state’s fiscal picture by declaring there was a“strong possibility of multibillion-dollar operating surpluses within a few years.”

Yeah, if you ignore CalSTRS’ gigantic and growing shortfall, and unfunded retiree health care, than the state is doing just fine.

And if you leave out what happened that one summer in Hiroshima and Nagasaki, Japan didn’t suffer too much in World War II.

Incredible. How does Mac Taylor sleep at night? He’s a civic arsonist.

As John Myers reported, one of Taylor’s staffers provided key testimony at the hearing, going over findings from a new LAO report:

“[It] concludes that CalSTRS needs $900 million in additional contributions from all sources in the 2015-16 fiscal year, rising sharply to $5.7 billion a year by the summer of 2021. And that’s just to cover current liabilities.

“What happens if lawmakers continue to delay taking action? The LAO report (PDF) pegs just delay beyond 2015 at an additional $150 million a year for the following 30 years … and $300 million a year if waiting just two years beyond 2015.

“The message: the hole gets deeper every year. And it’s a bigger problem than other long-term state debts.

“‘This liability tends to grow much faster,'” said analyst Ryan Miller in Wednesday’s hearing.

‘The state’s structural deficit … is no more’

But then, of course, there is the contrary view that looks at the state’s fiscal future and predicts surpluses for years to come … also courtesy of the LAO:

“’The state’s budgetary condition is stronger than at any point in the past decade. … The state’s structural deficit – in which ongoing spending commitments were greater than projected revenues – is no more.’”

That’s what Mac Taylor said in November in testimony to the Legislature. Evidently, pension debt isn’t an “ongoing spending commitment.”

This isn’t a minor problem — a knucklehead lawmaker mouthing off about a topic about which he knows nothing. This is the head of the state’s (previously) most respected watchdog agency offering a grossly deceptive description of the state’s financial health and providing cover to those who want to ramp up spending.

Taylor should be embarrassed. I’m sure Ryan Miller looks at his boss’ November testimony and feels like throwing up.

By Chris Reed

In November, to the amazement of many journalists who have admired the independence and thoughtfulness of the Legislative Analyst’s Office over the years, LAO boss Mac Taylor gave an amazingly sunny take on the state of California’s finances. Here’s what I wrote about Taylor’s happy talk at the time:

“The LAO predicts there will be a budget shortfall of $1.9 billion that has to be covered during the remainder of this fiscal year and in 2013-14. After that, the analysis predicts that a recovering economy – and continued state spending restraint — means there is a ‘strong possibility of multibillion-dollar operating surpluses within a few years,’ even after the expiration of the temporary sales tax hike approved last week by state voters.

“Given the Legislature’s history of quickly spending surpluses instead of banking them for a rainy day, we find the idea that there is a ‘strong possibility’ of multiple years of surpluses to be detached from reality. Besides the Pollyannaish quality of that assessment, we note that other budget analyses … are far gloomier.”

I cited several negative factors. Here are some:

“• The likelihood of major cuts in defense spending in coming years as the federal government strives to end trillion-dollar annual deficits.  …

“• The prospect that the broad switch to cleaner-but-costlier energy mandated by AB 32 will drive heavy industries from the state and make California’s exports less cost-competitive.

“• The heavy costs of implementing President Obama’s health care overhaul going forward as federal subsidies diminish and as Medi-Cal patients explode in number – just as many of the state’s family doctors near retirement. The California Academy of Family Physicians says 30 percent of primary-care physicians are 60 or older, the highest percentage of any state.

“• The cost of paying for pensions and health care for a steadily growing army of public employee retirees. A 2010 Stanford study that avoided rosy return scenarios puts the total unfunded pension liability at $500 billion; LAO accepts the rosy scenarios.”

Now the LAO has come out with a report that shows how dire that last factor is likely to be.

“The pension fund for California teachers and school employees will run out of money by 2044 if lawmakers don’t take drastic action, according to a new report from the Legislative Analyst’s Office.

“The report said problems with the pension fund, known as CalSTRS, ‘may be state’s most difficult fiscal challenge.’

“The costs are massive and growing. The latest estimate pegs the fund’s unfunded liability at $73 billion as of June 2012, up from $64.5 billion the year before.

“‘This is more costly the longer we wait,’ said Ryan Miller of the Legislative Analyst’s Office during a hearing Wednesday.”

Hey, Ryan Miller: Can you have a talk with your boss? Can you tell him that his November report is completely undermined by your report?

I truly believe that Mac Taylor’s November 2012 remarks will haunt him for as long as he is a public figure. Sure, Jerry Brown has made progress on the state’s fiscal chaos. But for a respected watchdog to say that California is on the brink of an era of budget surpluses? OMG, as the kids say.

What a crock, I say.