Tempting fate — and mobilized outrage from consumers and their Silicon Valley allies — municipalities around California have zeroed in on a new source of revenue: Online film and television streaming services, and the people who use them.

“If the cities are successful in adjusting their existing utility users taxes — and there are questions surrounding the legality of such a move — viewers could be forced to pay as much as 10 percent more to stream Netflix’s ‘Orange is the New Black’ or Amazon Prime’s ‘The Man In the High Castle,'” the San Jose Mercury News reported. 

“Cities from Richmond to Redwood City to Watsonville are looking at adopting a streaming video tax. Alameda, Albany, Emeryville, Gilroy, Hayward, Hercules, Menlo Park, Los Altos, Newark and San Leandro have ordinances that could be tweaked to allow them to tax video streaming without a fresh round of voter approvals.”

The temptation has quickly spread from the city of Pasadena, where local officials have already succeeded in slapping the levy on residents. “Pasadena was among the first to say publicly this fall that it wanted to tax video streaming services like Netflix, a step that could make up for lost tax revenue from growing numbers of cord-cutters,” the New York Times recalled. “The move in Pasadena, with a population of about 140,000, has drawn consternation from technology companies and consumers who worry that it could be copied across the state.”

In fact, some tax defenders have construed its legality around a rule passed years ago under different auspices. “Pasadena voters modernized a law in 2008 to tax cell phones like landlines, never anticipating it could be applied to video streaming,” according to CBS. “Forty California cities now have similar laws.”

National nerves

And though the federal government doesn’t permit internet taxation, big cities outside California have muscled in onto the potentially lucrative source of cash too. Results, however, have been mixed. “Pennsylvania’s charging a 6 percent sales tax on everything, from apps to downloads, to help close a $1.3 billion budget gap,” the network added. Chicago, meanwhile, “is currently being sued for charging a 9 percent tax on video streaming.”

Critics have warned bites like that add up. The taxes “may show no signs of stopping, considering streaming music, podcasts, video games and other technology is constantly being developed,” The Drum observed. “Paul Verna, an eMarketer analyst, said that a larger debate could erupt when people start seeing their bills if those smaller channels are continuously added.”

For its part, Netflix threw up a red flag. Spokesperson Anne Marie Squeo told the Los Angeles Times it was “a dangerous precedent to start taxing Internet apps and websites using laws intended for utilities like water and electricity. It is especially concerning when these taxes are applied to consumers without consent and in a manner that likely violates federal and state law.”

Shifting business

And now, in the midst of the controversy, Netflix has moved aggressively to court customers with a significant new feature adopted by its rivals: offline streaming. “Netflix signaled in recent months it would add an offline viewing option to better compete as the streaming video market becomes more and more crowded,” Reuters reported. “Amazon.com Inc’s rival streaming video service, Prime Video, has had this option for about a year.”

The company’s domestic customer base has stalled, but foreign audiences have swelled, a trend that could be exacerbated if American cities flock toward taxation. “Growth among U.S. subscribers has slowed in 2016,” the wire continued. “Netflix added just 370,000 subscribers during the third quarter and only 4.3 million since the third quarter of last year, suggesting they are reaching a saturation point.”

“In that same time frame, Netflix has added 13.2 million international subscribers, including 3.2 million in the third quarter. Much of that has to do with Netflix’s expansion by more than 130 countries earlier this year to over 190 nations currently.”

Pasadena has a reputation of being run by good-government liberals. But now it’s immersed in a scandal that could rival that of Bell and its infamous former administrator, Robert Rizzo.

The Pasadena Star News reported, “Los Angeles County District Attorney’s investigators Tuesday arrested a former Pasadena city employee and two other people suspected of using a City Hall slush fund to embezzle more than $6 million in taxpayer dollars over a decade.”

In a separate article, Pasadena Star News editor Frank Girardot, a former crime reporter, pointed out Pasadena used the same accounting firm that missed the financial misappropriation of funds in Bell. According to a separate story, that firm was Mayer Hoffman McCann.

Referring to the Rose Parade, Girardot wrote, “No one would describe the smell emanating from City Hall this New Year’s morning as the sweet fragrance of roses.

“Nope. That’s the smell of rot. It’s the stench of filth and corruption.”

Arrested were:

• Danny Ray Wooten, 51, a former management analyst in the city’s Department of Public Works. He had an annual salary of $131,000 per year, according to Radaris.com. He was the project manager for “undergrounding” electric utilities in Pasadena;

• Melody Jenkins, 46, formerly Wooten’s assistant;

• Tyrone Collins, 55, owner of Collins Electric in Altadena, who allegedly received $3.5 million of the stolen money.

Collins allegedly ran his company out of his home. Wooten and Collins allegedly attended the same church.

Collins Electric

Manta.com reports Collins Electric has annual revenues of $500,000 to $1 million and employs a staff of one to four. The website Porch.com shows the projects for which building permits were applied for contractors in California.  From 2007 to 2012, Collins Electric showed 29 permits for undergrounding electrical work and no other permits.

Wooten, Collins and Jenkins are all being held in county jail with bail set at $1.75 million, $900,000 and $50,000, respectively.

Where did the money go?  An audit conducted by an outside accounting firm for Pasadena reported the $3.5 million given to Collins for the “undergrounding” allegedly instead went to the New Covenant Christian Fellowship Church in Pomona.

Collins allegedly kicked back some of the monies to Wooten.  In turn, Wooten allegedly also diverted $2.8 million to the Southern California Evangelist Jurisdiction Center in Pasadena.

And $40,000 allegedly was given by Wooten to his assistant, Jenkins, for temporary services in 2008 unrelated to the undergrounding utility project.

‘Undergrounding’ project                          

The ongoing $50 million project for “undergrounding” overhead electric utility lines in Pasadena is independent of the city’s general fund.  A $5 million per year surcharge on electric bills funds it. Revenues are collected by the Pasadena Department of Water and Power. The project is implemented by the Public Works Department.

Since there were no financial controls over the program, Wooten allegedly had unchecked power to authorize checks for work never completed by Collins.  Moreover, Wooten allegedly wrote in larger amounts on the checks he was authorized to write.

The Public Works director countersigned the checks, thus a whole chain of departments and employees was involved in issuing the checks.

Another irregularity is that city building inspectors apparently never checked whether the undergrounding projects met any engineering specifications or codes either.  If they had, they would have caught on that no work had been completed.

Additionally, Wooten would have had to file annually with the City Attorney’s Office a Statement of Economic Interests (California Form 700), required by the California Political Reform Act. What Wooten reported on his annual disclosure form was not reported by the city.

Pasadena has a Fraud Hotline to detect fraud, waste and abuse. It was not used by any employee during the decade-long occurrence of this alleged embezzlement.

Pasadena Mayor Bill Bogaard went so far as to call the undergrounding utility fund a “City Hall slush fund.”

Democratic scandals

From 2010, the Democratic Party in California has been plagued by corruption scandals in the state Senate and at the municipal level, most notably in Bell.

The Senate scandals cost the Democratic Party its two-thirds supermajority in 2014. Sen. Roderick Wright, D-Los Angeles, resigned after being convicted of perjury. Indicted in separate incidents were Sen. Leland Yee, D-San Francisco, and Sen. Ron Calderon, D-Montebello.

In Pasadena, Democrats comprise six out of seven City Council members, plus the directly-elected mayor. Pasadena is ranked as one of the most liberal cities in the United States by the Bay Area Center for Voting Research, with 69.9 percent of voters considered “liberal.”

The case concerned the windstorm that swept through Pasadena in Nov. 2011, toppling 5,500 street trees. The legal decision was handed down Aug. 21 by California’s Second District Court of Appeal in favor of Mercury Casualty Company. The insurance company was acting on a claim by James O’Halloran, to whom it paid $293,000 for damage a fallen tree did to his home.

Eminent domain is the taking of private land by the government for public purposes, such as building a school. The Fifth Amendment mandates that “just compensation” must be paid for “private property taken for public use.”

What if the government doesn’t pay a fair price for the taking? That’s where “inverse condemnation” comes in. According to USLegal.com, “Inverse condemnation actions are usually brought when the government has limited use of private land to an extent that the value of that land is greatly reduced, or where the government has allowed the public to make use of private land.”

Article I, Section 19, of the California Constitution also provides for inverse condemnation. It states private property “may be taken or damaged for a public use and only when just compensation…has first been paid to the…owner” (emphasis added).

But to prevail in an inverse condemnation action against the government, proof is required of deliberate governmental action. The action must serve a public purpose. And the government must fail to prove it was not negligent. Examples of governmental inverse condemnation liability are from flooding, sewage spills, the impairment of street access or noise from aircraft overhead flights.

In the case at hand, Pasadena insisted that no “inverse condemnation” case ever had involved a tree.

A key point in the matter was that Mercury didn’t file a routine nuisance lawsuit that might have been dismissed.  Instead, it filed the inverse condemnation lawsuit.

Public purpose

The appeals court ruled that Pasadena’s urban forestry program was a government program that served a public purpose and thus was subject to inverse condemnation lawsuits.

It ruled that, based on facts brought forth in the trial in the lower Superior Court, the city of Pasadena “did not meet its burden of showing it had fulfilled its duty of care with respect to O’Halloran’s property” (see page 12).  Specifically, mere pruning of street trees by the city was insufficient proof that it was not negligent in planting and allowing large trees to grow to such heights that they could topple in a 100-mile per hour windstorm.

The appeals court also thought it highly significant that Pasadena had an active “urban forestry” program operated by city personnel and relying on professional tree experts.  Property owners are not allowed to prune or remove street trees.  Thus, the city was not able to claim “contributory negligence” by property owners who should have cut down or pruned their own trees.

The decision is significant because it is a victory for property rights in a state that doesn’t always respect them. For example, earlier this year the First District Court of Appeal in the case Powell vs. County of Humboldt sided with the county against charges of the abuse of building permits.

California Energy Markets recently reported that three California cities just won agreement from regulators to reclassify solar power transmission costs as distribution. The cities are Pasadena, Riverside and Azusa.

That means the cities reaped a 25 percent reduction in long-term solar power contracts. This seemingly arcane fight over how electricity costs are divvied up provides another example of how the Golden State subsidizes “green” power.

First, three definitions:

• Transmission carries electricity at very high voltage (11,000 volts). It is defined as “the process of carrying electricity that is produced in turbines in a power plant to power substations that are located near populations.”
• Distribution carries electricity at low and safer levels (220 volts). It “begins after electricity lands at substations that are created near populations.”
• Voltage is like water pressure in a pipe while. “Watts,” the unit of measurement, is like the number of gallons of water flowing through a pipe.

California Energy Markets found that the three cities cut the purchase price of 25-year solar power contracts for wholesale electricity from $0.095 to $0.07 per kilowatt hour. That’s a 25 percent cut. And it only was for electricity generated by two 20-megawatt solar projects located in the High Desert near Lancaster.

Transmission, distribution or other costs were not included.

The 25 percent cost savings on the cities’ share of the wholesale price of electricity will be made up by other electric ratepayers within Southern California Edison’s service area being charged a higher transmission fee by California’s Independent Service Operator.

The higher fee will show up on customers’ electricity bills — which already are high. It will take a couple of years to see exactly how much more ratepayers will get shocked.

Transmission costs are typically greater than distribution costs. To transfer between the systems, substations use transformers to reduce high-voltage transmission electricity to low-voltage distribution of electricity. The power poles or buried electric lines in most communities are distribution facilities.

Reselling

Public utilities like Edison and municipal electricity utilities resell retail electricity to their customers. Operational, overhead and transmission costs have to be added to the $.07 per kilowatt-hour charged for retail electricity to customers.

For example, here are the charges for the electricity users in Pasadena:

• Transmission: $0.08 per kilowatt-hour.
• Distribution: $0.04 per kilowatt-hour.
• Current energy charge: $0.12 per kilowatt-hour.
• Total electricity charge: $0.20 per kilowatt-hour. 

Let’s also look at the total electricity charge for some other areas:

• Los Angeles area average in Feb. 2014: $0.20 per kilowatt-hour. (Source: the U.S Bureau of Labor Statistics)
  

• California for all sectors (residential, commercial and industrial), as of Jan. 2014: $0.14 per kilowatt-hour. (Source: U.S. Energy Information Agency)
  

All that is high — and is calculated before the new “green” charges are tacked on for the socialized solar power. Consider this comparison of the average cost of electricity per kilowatt-hour for some sample states, plus Los Angeles — as of 2011, the most recent year of data for all states — except as noted:

$0.06 – Idaho
$0.07 – Washington State
$0.08 – Oregon
$0.09 – Nevada
$0.10 – Arizona
$0.10 – National Average
$0.13 – California 2011
$0.14 – California in 2014
$0.16 – Connecticut
$0.17 – Alaska
$0.20 – Los Angeles 2014
$0.32 – Hawaii

As can be seen from the full list, California’s 2011 cost of $0.13 was 43rd highest among the states. Its current cost, $0.14, is even higher.

And the cost for Angelenos in 2014, $0.20, is higher than the 2011 price for any state except Hawaii.

This must be added onto the high cost of living in California, which includes the highest income, sales and capital gains taxes of any state; and among the highest for housing.

The high electricity costs — now made higher by solar socialism — also contribute to California suffering the country’s highest poverty rate, if cost-of-living is taken into account, according to a recent study by the U.S. Census Bureau.

Solar power = socialized power

According to the U.S. Energy Information Agency, the unsubsidized cost of wholesale solar photovoltaic electricity is about $0.26 per kilowatt-hour.  But, as we have seen, green power sells for $0.07 per kilowatt-hour.

That $0.19 difference — it’s 19 cents — between the wholesale price and the full system cost of solar power reflects:

• The costs that are subsidized by upfront tax write-offs and tax credits absorbed by taxpayers;
• The extra costs for grid balancing, extra transmission lines, and backup power that is absorbed by other electricity customers within each customer service area.

In other words, green power is largely socialized power that can compete with market-priced power only after receiving massive subsidies and the shifting of costs onto other customers.

By John Hrabe

The world didn’t end in 2012, but several municipalities did.

Four California cities, Stockton, Atwater, San Bernardino and Mammoth Lakes, declared bankruptcy this year. One financial expert described the problem as “spreading like a disease.” Of course, these bankruptcies were caused, in part, by wasteful government spending.

Don’t expect the threat of municipal bankruptcy to rain on every city’s parade.

Twenty-seven percent of the floats in next week’s 124th Pasadena Tournament of Roses Parade will be sponsored by a government agency. In many cases, taxpayers directly foot the bill to design and build these elaborate floats. Even responsible cities that rely on donations and corporate sponsorships rack up thousands of dollars in indirect taxpayer expenses.

In addition to two public universities, the 2013 Rose Parade will feature floats from the cities of Alhambra, Burbank, Downey, Glendale, La Canada-Flintridge, Los Angeles, San Gabriel and South Pasadena. The long tradition of city-sponsored parade floats takes all year and thousands of dollars to prepare for just a few seconds of global publicity.

“The Rose Parade’s elaborate floats have come a long way since the Tournament’s early days,” the Rose Parade boasts on its website. “Today, float building is a multi-million dollar business and float construction begins just after the previous year’s Parade is over.”

Taxpayers pay for award-winning floats

The city of Glendale started planning for the 2013 parade in March, when the city council approved a $100,000 contract with the award-winning Phoenix Decorating Company to design and build the city’s 2013 float. Appropriately themed, “Living the Good Life,” the city fronted the cash with the hope that public donations and corporate sponsorships would backfill the public treasury. By late July, city staff had secured just $60,000 in sponsorships.

Glendale, like so many cities, was seeking just a few minutes of international publicity.

“If you ever tried to spot the Glendale Rose Parade float on television on New Year’s Day, you know you had to stay glued to your set and never blink,” wrote Glendale News Press columnist Ron Kaye. “You only get a passing glance.”

Just a few miles away, a unanimous Alhambra city council approved a $95,000 contract with the Alhambra Chamber of Commerce to oversee the construction and decoration of the 2013 float, according to council minutes.

While Glendale and Alhambra held public council votes on their Rose Parade floats, other cities provided contributions toward float building through the city’s parks and recreation department. This fiscal year, the city of Burbank allocated $54,720 in a direct cash contribution for the parade from its Parks, Recreation and Community Services Department. Drew Sugars, Burbank’s public information officer, is quick to point out that this year’s contribution is about 10 percent less than last year’s. Just two years ago, Burbank allocated $71,310 in direct taxpayer funds for the city’s float.

In-kind expenses: “A bit more complicated”

“Tracking in-kind costs can be a bit more complicated,” Sugars explained.

According to a 2011 city memo, which Sugars provided to CalWatchdog.com, the city’s cash contribution is supplemented by other city expenses for “essential staffing, storage, transportation, related mechanical expenses and miscellaneous expenses.” For example, city employees devoted staff time to train parade volunteers in how to operate a forklift. Additionally, it cost the city $55,000 to warehouse the float. In the 2010-11 fiscal year, the city estimated its “total cost of support” for the Burbank Tournament of Roses Association was $157,374.12.

City staff concluded that the bill was too much for taxpayers to bear.

“As the PRCS Department priorities core programs and services during the FY 2011-2012 Budget process, it recommends the elimination of the City’s $60,800 cash contribution to BTORA,” the city memo stated. Yet, the council declined to follow staff’s recommendation.

Even if some cities wanted to reduce their parade subsidies, not all indirect city subsidies are easily rescinded. In 1995, the city of Downey entered into a 25-year lease agreement with the Downey Rose Float Association. The city provided this benefit, according to the contract, for nothing more than “the favorable publicity from being represented in the annual Rose Parade.”

South Pasadena Float Association: Tax troubles

The cities’ direct and indirect contribution to these non-profit organizations often comes with minimal oversight or accountability. According to the IRS, the South Pasadena Tournament of Roses Association had its federal tax exemption “automatically revoked for its failure to file a Form 990-series return or notice for three consecutive years.”

Ted Shaw, president of the South Pasadena Tournament of Roses Association, said that he was working with the IRS to retroactively correct the organization’s filing requirements.

“We have reapplied to the IRS with a retro date to May 11th and have been advised once the fees are paid there will be no problem,” Shaw told CalWatchdog.com. “We are a small solely volunteer organization committed to building a float for our community once a year.”

Yet, the delinquent federal tax return didn’t stop the city from making its annual contribution. Sally Kilby, the city clerk of South Pasadena, said the city contributed $14,500 in business improvement tax funds for the annual Rose Parade float.

“The funds do not come from the General Fund (city), but from business improvement tax funds,” Kilby said. “These monies are collected from the business license tax on all businesses.”

Thousands of dollars: For what?

While South Pasadena dedicates business improvement taxes toward parade expenses, not all small businesses see an improvement in their bottom line from the parade.

“Amber Szabo, manager of the Old Pasadena store Lather, which specializes in skin and beauty supplies, said the store always closes for the Rose Parade day, as do many others on the route,” the Los Angeles Times reported last January.

Businesses may not benefit, but city officials do. San Gabriel Mayor Kevin Sawkins, who also chairs the city’s centennial committee, will be one of the float’s six lucky riders. According to the Los Angeles Times’ Rosanna Xia, “The float, which will cost an estimated $155,000 and is being funded by donations from local businesses and residents, captures the city’s historic roots as well as its evolution.”

Rose Parade: History of taxpayer subsidies    

Taxpayers may grumble, but city subsidies are a founding principle of the Rose Parade, which began as a publicity stunt for California cities.

“Back in 1890, the city of Pasadena wanted to showcase how their winter was soooo much better than yours,” reports Cracked.com. “And in 1890, there were only two ways to accomplish that: by commissioning an artist to paint scenes of local wintertime fun and then just nonchalantly leaving the paintings all around the country, or by holding a festival. Pasadena went with the second one.”

The Los Angeles International Airport, the agency representing the city of Los Angeles in this year’s parade, told the Los Angeles Daily News that “no taxpayer funds were used to pay for the float.” In 2011, the City of La Canada-Flintridge provided at least $10,000 in taxpayer funds to the city’s non-profit float association. However, current year expenses were unavailable.

By Wayne Lusvardi

How has the stimulus program of President Obama affected California? Have things gotten better?

We can see the answer for the whole state by looking in detail at how stimulus money was spent in Pasadena. City Finance Director Vic Erganian said the city borrowed money at lower than normal interest rates and the funds opened the door for projects and jobs the city otherwise could not support.

Now winding down, the federal stimulus program pumped $133 million into Pasadena in 10 separate bond issues under the American Recovery and Reinvestment Act.

The renovation of the 89-year old Rose Bowl consumed $114 million of the funding by Build America Bonds at a blended interest rate of 4.8 percent.  But the price tag for renovation has now run up to $162 million, leaving the city with a $39 million financing gap.  The Rose Bowl is a revenue generator for the local Old Town restaurant district in Pasadena, as well as for tourism and hotels.

The National Football League may consider “temporarily” locating a team in the Rose Bowl until a new stadium can be built elsewhere.  Speculation is that the Rose Bowl may well become the permanent stadium for whatever NFL team finds a home in the Los Angeles area.

And $7.4 million of stimulus money went to subsidize a 43-unit low-income senior housing project with a total cost of $17 million.  That reflects a whopping cost of $395,000 for each one-bedroom unit, or $296 per square foot of building area. The units now rent at $416 per unit per month. Market rates would be at least $1,200 a month, probably higher.

Other projects funded with stimulus funds include $4.3 million on roads; $2.8 million on employment and training programs; $2.25 million on energy efficient upgrades; $1 million on water and power infrastructure; and $908,000 to homeless housing programs.

Arguably, what the stimulus funded in Pasadena was just more luxury improvements to the Rose Bowl than could have been conventionally financed anyway, a windfall to a low-income housing developer for a financially dubious project, and a smattering of other projects that didn’t do much to generate the local economy on a permanent basis.

Why Stimulus Failed and Eroded Middle Class

Stock and bond traders and small businesspersons consulted by this writer who asked to remain anonymous said the stimulus didn’t work because “it never reached the domestic economy by becoming business loans.”

Banks have no logical reason to lend to small/medium sized businesses when they can make higher returns by reinvesting the money into Treasury bonds or any other investments.

A stock and bond investor explained it this way: “When the Federal Reserve Board lends at a 0 percent nominal interest rate (free money), it’s equal to about 4-5 percent of real return (nominal rate – real inflation = real return).

“Add to that the about a 1.5 percent yield currently offered by the 10-year bond and you end up with an about 5.5 percent to 6.5 percent real return depending on how you account for inflation.”

A small businessperson described how this affects his business: “You can do this without any risk. Why take the additional risk of lending to small business for the same interest rate yield that carries a considerable default rate, especially in the current economy?  Risk-free trading beats risky investments any day. Can’t blame the banks.  I would do exactly the same.  It’s just logical. Blame the policies.  The stimulus wasn’t a Keynesian intervention but a wealth transfer from the U.S. taxpayers.  Be that as it may, it will cause inflation and higher taxes because it was a public expenditure.”

Keynesianism is an economic theory that came about during the Great Depression by John M. Keynes advocating government money and financial policies to increase employment and spending during down cycles in the economy.

The Obama Administration’s low-interest rate monetary policy, combined with the repeal of the Glass Steagall Act in 1999 under President Bill Clinton, has had the intended effect of eroding the middle business class.  The repeal of the Glass Stegall Act permitted commercial banks and investment banks to merge. Thus, big commercial banks solely committed to financing small and mid-size businesses declined. Loan capital was diverted to big investment banks looking for the best return rates at the least risk.

Government gets what it provides incentives for and doesn’t get what it has created disincentives against. It is no surprise that big money is now diverted to government and big investment banks to the detriment of small and medium-sized businesses.

It has been the explicit policies of the Clinton, Bush and Obama administrations to provide less capital to the business middle class (“starve business, feed government and big banks”). This certainly is reflected in stimulus funding in Pasadena.  And it is reflected in new statistics that show a declining middle class. 

Pasadena’s renovation of the Rose Bowl won’t be completed until 2014.  So technically the use of $133 million in federal Build America Bonds positively affected only construction jobs and unions, not necessarily the private sector economy in Pasadena during the depression that began in 2007.  The Rose Bowl renovation contract contains a “hire local” provision but that will not do much to finance private sector business creation in the long run.

City Revenue Growth 6 Percent/Year During Recession

According to Erganian, “revenues at the city are growing but…we’re certainly not at pre-recession levels.”

Pasadena forecasts it will take in $216 million in general-fund revenues in the 2012-13 fiscal year. That is $96 million more than in 2003, before the Mortgage Bubble, when city general fund revenues were $120 million.

The growth of general-fund revenues reflects a compound rate of revenue growth of 6.1 percent per year from 2003 to 2012.

The rate of city revenue growth since before the depression in 2007 to 2012 is an identical 6.1 percent per year.

According to the Bureau of Labor Statistics Inflation Calculator, monetary inflation from 2003 to 2012 ran 2.3 percent per year.

The unemployment rate in Pasadena has gone from 6.7 percent in 2000 to 11.5 percent in 2012:

Pasadena Unemployment Rate, General Fund Revenues, and Stimulus Funding 2000 to 2012

Government and public sector unions are apparently weathering the managed depression fine, despite rhetoric to the contrary.  But private enterprise has mostly been skipped over by big banks connected with financing big government business enterprises such as the renovation of the Rose Bowl.

Where did the money go?

Pasadena’s “stimulus” monies went into the hands of unions, local governments, and big investment banks for politically popular projects that had a small positive effect on the private economy.  And the Rose Bowl Renovation is advancing in 2014: six years after the sudden drop in employment and the shutdown in private lending due to the Mortgage Meltdown and Bank Crisis of 2008.

Pasadena’s Stimulus spending program is like one of those pretty floats in the Rose Parade on New Year’s Day that displays a bridge of flowers, but the float is going nowhere except to the end of the political parade.

Obama’s low interest rate monetary policy, coupled with the repeal of the Glass Steagall Act, has had ruinous consequences to small and mid-size businesses as investors have sought risk-free returns in alternative investments instead of in business and industry.

The federal stimulus was not a “bridge over troubled waters” for the private sector economy in Pasadena.  Now you know why many small and mid-size businesspersons say they are not better off after four years of federal stimulus programs and monetary policies of the Obama administration and high taxation and regulation in California.

By WAYNE LUSVARDI

Molly Munger’s proposed $10 billion school tax for the Nov. 2012 ballot had to be designed by a billionaire.  It’s hard to know whether Munger designed the ballot initiative for the “Make a Wish Foundation” or for the California state government.

Munger is the daughter of Pasadena billionaire Charles Munger, who co-founded the investment firm of Hathaway-Berkshire with Warren Buffett.

Munger’s tax proposal would increase the entire existing $39.2 billion K-12 state education budget by a whopping 25.5 percent in a protracted economic recession.

It would raise income taxes as a proportion of the current state budget by an incredible 16.8 percent, possibly driving the wealthy out of the state.  And it would raise income taxes an astounding 7 percent per year for public schools after the economy recovered.

Additionally, the increase would fully plug the $4.5 billion annual gap in the California State Teacher Retirement System without any pension reform.  It still would increase K-12 school funding by $5.5 billion per year beyond that.

The tax increase would be untouchable except by voter alteration.  The state’s existing school funding for K-12 public schools could not be reduced to offset for this additional source of funding.  The Munger tax would be in addition to existing public school funding.

During the first four years of Munger’s tax initiative, 30 percent of the funds would go toward paying down the past state budget debt. Thereafter, 85 percent of the funding would go to K-12 public schools and 15 percent would go to child care programs. Munger is a member of the First Five Commission for child-care funding.

Would voters pass it without any accompanying pension reforms? That’s perhaps a bigger question than whether it would split the vote three ways on competing tax initiatives by the governor and unions.  According to a Public Policy Institute of California poll, a majority of voters say they want. The California State Teacher’s Retirement System is only 54 percent funded.  CalSTRS needs an additional $4.5 billion each year to be fully funded.  So even this initiative passed, only somewhat over half of Munger’s tax proposal would actually go to into funding schools during the first four years.

And if history is any indicator of future behavior, any new school revenues would just go into backfilling ancillary school personnel — called “categorical” employees, such as art teachers, janitors, administrators, bus drivers, etc. — rather than to core classroom teachers.

In those wealthy school districts that already passed school parcel taxes to make up for budget reductions, Munger’s tax could provide a double windfall. That is because local school parcel taxes are always in addition to state school revenues.

Munger Needs to Get Educated About School Finance 

Molly Munger is a graduate of Harvard Law School and a former federal prosecutor.  But she doesn’t seem to even have a sound knowledge of the finances of her local school district in Pasadena, where she pushed for a school parcel tax in 2010 called Measure CC.  Voters rejected it.

Munger, other donors and the Pasadena school district put about $1 million into the effort to pass the tax, purportedly to prevent teacher layoffs.  The Munger family donated $50,000.  The election cost the school district $500,000 in administration costs.

But no core classroom teachers were ever laid off even though voters rejected the tax.   And the $1 million spent on the election campaign could have been put toward helping fund classroom needs.

The Pasadena Star News reports that only 20 employees left the Pasadena Unified School District since 2010, and that was due to attrition (retirements and departures).  If Pasadena’s school parcel tax had passed, the school district would have reaped a $35 million windfall over 5 years while taxpayers were suffering through a deep economic recession.  The school district alleged it had an unmanageable $23 million budget shortfall.

Munger’s new state school tax ballot initiative is about as illogical as her support for an unneeded local school parcel tax in her hometown in 2010.

Urban Myths About School Finance 

Part of the problem with school tax proposals is school districts seem to always “cry wolf” about teacher lay-offs.  Such layoffs most often never seem to materialize even if the school tax proposals fail. It is difficult for taxpayers to tell if a school tax proposal is based on hysteria or facts.

The Pasadena Star News reports that the money from Munger’s state school tax “can’t be spent on salary and benefits.”  But there is no such provision in the wording of the initiative.  Since salaries and benefits are the largest share of the state public schools budget, such a provision would not make sense.

By WAYNE LUSVARDI

California has now reached the place where satire is no longer possible. Irish priest Jonathan Swift’s 1959 satire, “A Modest Proposal,” suggested that the problem of overpopulation in Ireland be solved by feeding Irish babies to the rich. What would Swift write about if the British Parliament had already enacted a law permitting cannibalism?

This must be the dilemma faced by Rick Reyes of Bell Gardens, an Iraq and Afghanistan War veteran. Believe it or not, on Memorial Day he wrote that it is important to remember those who have died in foreign wars by proposing to “Save the San Gabriel Mountains.”  Read his guest editorial in the Pasadena Star News today.

Reyes is a member of Vet Voice Foundation, a non-profit foundation that, from its posts, takes left-wing positions on most issues, from green energy, to praising President Obama’s care of veterans, to ending the military’s “Don’t Ask, Don’t Tell” policy.

Vanishing San Gabriels?

Pray tell, are the San Gabriel Mountains located north of the City of Pasadena about to vanish and thus need saving?  And from what do they need to be saved, especially when every few years wild fires destroy much of its vegetation? And why would you want to save the San Gabriels from wild fires when that provides so much employment to firefighters, some of whom have been found to start such fires to keep their political sinecures? The fire fighters might not like you “saving” the San Gabriels.

I give Reyes and his Vet Voice Foundation credit, however, for an ingenious way to hit up the wealthy gentry that live along the beautiful San Gabriel foothills to keep their non-profit veterans organization alive.  How many non-profit foundations do we have already protecting the San Gabriels, such as the Arroyo Seco Foundation?

Only in postmodern California could the Iraq-Afghan Wars be blended with saving open space in some mysterious way into a single cause. The postmodern mind wants everything merged into a Mystic Matrix. The linking of such feel-good causes as open space preservation and adopt-a-veteran is a blend of Blue Collar patriotism and Green activism. Let’s call it the “Greening of the Post-Iraq War Veteran’s Mind.”

Real Needs of Vets

Yes, we have many unemployed veterans that have returned from wars fought in the Middle East.  They need jobs, for sure. But nonprofits advocating open space preservation is right out of  “A Modest Proposal” — or maybe the website “The Onion.”

Let’s not forget our veterans who have returned from still ongoing wars.  They need jobs.  But on Memorial Day, let’s forget the proposal to “Save the San Gabriels” and postpone that for another day, such as Earth Day or Nonsense Day.

The memory of those lost fighting foreign wars is too painful to cheapen it by linking it with some ecological cause to preserve the views of the wealthy living along the foothills.  I would rather have been spat on returning from the unpopular Vietnam War than have my sacrifice remembered as part of “saving the mountains” day.

Semper Fi! (Always Faithful!) Or is it now Semper Fry? (Always Fearful)?

Wayne Lusvardi is a Viet Nam War vet — apparently the last modern war fought before “Postmodern” warfare.

By WAYNE LUSVARDI

A Chinese folk tale tells of a sculptor that placed fake money on a tree to trick villagers into cutting it down for him.  But so many people believed the tree to be sacred that the sculptor was warned that if he cut down the tree he would be cursed.  At the end of the tale the sculptor is bribed not to harm the tree.

Conversely, California’s municipal pension funds seem to have been cursed for failing to cut down the redevelopment money tree.

Cutting Services to Fund Pensions

In the mid 1970’s, the City of Pasadena planted ficus trees along the parkways of its then new downtown mall, convention center and famed Playhouse District built with the seeming endless money tree of redevelopment funds. By 2011, both the parkway trees and the redevelopment money tree didn’t end up as planned, but Pasadena continues to fight for the continuation of both.

Today, some of California’s wealthiest cities, such as Pasadena, are starting to roll their shortfall in funding for public pension obligations into bonds — which are essentially low interest credit cards. Bonds mean paying interest, which typically doubles the cost of the project. This is what the New York city did in the mid-1970’s, when it went bankrupt after funding social services with general obligation bonds.

But California’s most wealthy cities are unlikely to default on their debts.  Such cities as Pasadena, Palo Alto, Burbank, Carlsbad, San Jose, Newport Beach and Manhattan Beach all have AAA bond ratings.   But even they are facing the reality of having to cut back services to pay for pensions.

Pasadena is cutting $8 million per year in services out of its General Fund budget to meet unfunded pension obligations. The City Council of Pasadena announced on March 29 that it had approved a $65 million pension bond bailout to plug a $74 million funding gap in its Firefighter and Police Retirement System (FPRS).

Pasadena’s Senate Bill 481

Pasadena’s problem is that, in 2015, an $81 million balloon payment is due on an existing pension bond and there are no new contributions coming in to its now closed fire and police pension system.

Pasadena’s pension problem started over two decades ago under the regimes of Democratic mayors Bill Bogaard and John Crowley. In 1987, Pasadena got the State legislature to pass a special law, SB 481, allowing it to divert property tax revenue from its downtown redevelopment project area to pay for police and firefighter pensions.

Redevelopment Money Tree

Pasadena’s Fire and Police Pension Fund was predicated on a 7 percent annual return that unrealistically never planned for economic recessions. Ironically, such recessions were caused partly by overbuilding with cheap tax-exempt redevelopment bonds, inflated housing prices and rents, and easy money loans all primed to help puff up real estate investment returns to plug the unfunded gap in public pensions.  At the time, redevelopment was viewed as sort of a perpetual motion machine that would never run out of money or suffer any downtime.

It was a scheme to let the taxpayers think that money grew on trees grown by redevelopment agencies.  Taxpayers obviously went along with this plan, as they didn’t have to have their property taxes raised. And this scheme did not trigger a supermajority vote for raising taxes, as required by Proposition 13, so it generated safe political capital for local politicians as well.

The Affordable Housing Curse

The only opposition to SB 481 in 1987 in Pasadena came from affordable housing advocates who claimed that this would rob the 20 percent of redevelopment funds set aside for low-income housing and divert it to pensions.

This became the germination of “inclusionary housing” laws that shifted the burden of funding low-income housing onto buyers and renters of new condos and apartments in upscale redevelopment projects. Property taxes from redevelopment projects could be diverted to pensions and affordable housing could still be developed by shifting the burden of paying for it onto new home buyers and apartment renters. Inclusionary housing, in tandem with redevelopment, was like printing free money.

Inclusionary housing tacks about a 25 percent premium onto sales and rentals of trendy redevelopment housing in order to pay for subsidized condos and apartments in downtown upscale commercial locations. With the spread of inclusionary housing programs, the definition of affordable housing in California changed from providing rent subsidies in older housing units to providing new luxury housing with pools, spas and gyms co-located with high-priced retail and grocery stores next to light rail transit stations. This artificially inflated the price of housing and created a demand for sub-prime loans.

It was as if another free money tree of no-cost housing subsidies could magically be grafted onto the existing money tree of redevelopment, while still diverting free money into public pensions. Who would ever want to cut down such a money tree?

Cutting Redevelopment to Solve Pension Crisis

By 2010, Pasadena merchants demanded the removal of overgrown ficus trees along store fronts due to the nuisance and cost of unsafe uplifted sidewalks, slippery berries that dyed sidewalks purple and the cost of roto-rooting sewer lines clogged with tree roots. Hundreds of “tree people” came out to oppose the removal of the obviously annoying and damaging trees after the city in the dead of night removed them.

In Pasadena, citizens are more worried about having to remove overgrown ficus trees in its downtown district than in how overgrown redevelopment may have facilitated a financial and budgetary pension fund disaster both locally and statewide.

However, unlike the Chinese folk tale of the money tree, Pasadena and the state of California seem to be living under a curse of failing to cut down the redevelopment money tree.  Pasadena’s situation may be somewhat unique due to SB 481.

But California needs to cut out redevelopment not only to help fund schools and social services in the short term, but also to solve its public pension crisis in the long term.  California can’t continue to rely on sales tax incubators and hot houses called redevelopment to bail out its over-promised public pension funds. Redevelopment is a economic bubble-manufacturing machine that produces fictional money trees.