Tobacco-tax fact checks miss the mark

Good morning! With the election a little more than a month away, we’re being bombarded with horserace news about the 17 statewide ballot measures. That includes fact checks. 

Twice now we’ve seen fact-checkers panning the anti-tobacco tax campaign’s claim in a radio ad that Prop. 56, an increase of $2 per pack on cigarettes and other tobacco and nicotine products, “cheats schools out of at least $600 million a year” — once in The Sacramento Bee and once in Politifact California.

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.

One of the findings was that there is 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.

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.

CalWatchdog has more.

In other news:

• “Gov. Jerry Brown on Monday signed more than half a dozen bills that decriminalize prostitution and increase protections for young trafficking victims in court amid growing efforts in California to help children and young adults swept into the trade of forced sex and labor,” writes the Los Angeles Times.

• “Though often sympathetic to new gun regulations, Gov. Jerry Brown on Monday vetoed legislation that would have allowed sheriffs to raise the price of obtaining a permit to carry a concealed weapon,” reports The Sacramento Bee.

• “California’s system of roads, bridges and freeways have improved incrementally in recent years, according to a newly released annual survey of state highway systems by the free-market-oriented Reason Foundation.” CalWatchdog has more.

• “In California, at least, the assumption remains that Trump will drag down GOP candidates in congressional races. That’s why the state Democratic Party is seeking in seven swing districts to target Republicans who are ‘running on the Trump ticket,’ according to a party statement last week as it launched the WrongForCA.com website and related social media efforts.” CalWatchdog has more.

• “Californians will pay a new $1 fee on lead-acid car batteries under a law signed by Gov. Jerry Brown on Monday, with a portion of the proceeds going to the massive toxic cleanup in communities near the former Exide battery plant in Los Angeles County,” writes the Los Angeles Times.

Legislature:

• Gone ’til December. But the Senate Agriculture Committee meets today in Stockton at 10 a.m.

Gov. Brown:

• No public events announced.

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By Katy Grimes

SACRAMENTO — As the self-help movements say, taking responsibility is crucial to recovery. That’s why Assemblywoman Shannon Grove, R-Bakersfield, wants California to take responsibility for its pension addiction.

Her bill, Assembly Joint Resolution 10, called on President Barack Obama and and the U.S. Congress to practice tough love with California and other states with debt habits. Specifically, it called on the president and Congress not bail out state pension debts, which in California alone could be as high as $500 billion.

But the Legislature remains in denial. On May 6, her bill was refused adoption in the Assembly Banking Committee.

“This AJR seems circuitous or convoluted, with a lot of unwanted consequences,” said Assemblyman Bob Blumenfield, D-Los Angeles. “Assuming debt is one of the tools in the tool shed.”

Blumenfield’s comments came after Grove explained the California Public Policy Center released a study estimating California state and local government debt to be over $800 billion dollars, or even more than $1 trillion, when using more conservative investment return projections.

Grove said the Legislative Analyst’s Office told a joint Assembly and Senate committee recently  California’s pension debt may be the state’s most difficult challenge.

Grove also repeated the Little Hoover Commission’s warning that California’s broken pension system “will crush government” and drastic action must be taken.

California sovereignty

“Residents of Florida or Arizona should not have to bail out the uncontrolled spending of California any more than Californians should be forced to cover the reckless fiscal ways of Illinois,” Grove said.

“Rewarding careless fiscal behavior at the expense of responsible state governments will open the floodgates to redistribution of debt and remove all incentives for states to prudently manage their budgets,” Grove said.

“Our federalist system has made the United States strong, free and prosperous. This unique relationship of sovereign states will only remain if the federal government refuses to bail out some at the expense of others,” said Grove. “Our leaders in Washington D.C. must make it clear to the states that they themselves are responsible for their own fiscal decisions and subsequent outcomes.”

What does a bailout look like?

A bailout could come in the form of state debt being sold to the Federal Reserve, which would then print more money to cover that debt, Grove explained.

The federal government could issue low-interest-rate pension obligation bonds, or use fiscal policy to transfer resources from the federal government to states.

“Any way the bailout is administered, whether directly or indirectly, the resulting effect would be the removal of incentives for states to prudently manage their budgets,” Grove said.

Adam Summers, a senior policy at the Reason Foundation, testified with Grove at the hearing. Summers has authored many studies on state and local budget reform in California since 2004, including two public pension studies.

“Regardless of your political or ideological leanings — whether you would like to devote more time spending to social programs or other priorities, or whether you would like to shrink the size and scope of government and return more of the taxpayers’ money through tax cuts or tax rebates — the fact is that pension and retiree health care costs will eat up more and more of state and local budgets, leaving less and less for those government services, tax cuts, or other spending priorities,” Summers said.

Summers explained there is public concern about the pension debt as well. He shared the results of an October 2012 Reason-Rupe poll in California, which found 69 percent of Californians said they would favor enrolling new government employees in 401(k)-style defined-contribution retirement plans instead of the current defined-benefit plans.

And the poll found 74 percent said the public should get to vote to approve increases in government employees’ pension benefits. Such laws already exist in San Francisco, San Diego, Orange County and San Jose.

Summers said implementing statewide pension reform is possible and has happened not only in heavily Republican Utah, but in Rhode Island, which is even more Democratic than California.

Awareness

This resolution is part of a nationwide effort initiated by the Illinois Policy Institute to bring awareness to the severe financial liabilities, due mostly to underfunded pension obligations, threatening many states.

“This resolution is breathtakingly broad,” Assemblyman Roger Dickinson, D-Sacramento, said, “and covers any kind of debt.”

“If states get a bailout, it jeopardizes our sovereignty,” Grove said. “I thought it was the responsibility for us as a Legislature to say we are responsible for our own financial problems, that we created.”

By Wayne Lusvardi

It may be unpleasant to contemplate, but opposing California’s high-speed rail project with a green-eyeshade strategy that targets its estimated huge annual losses seems likely to be a loser. Project opponents may need to find another approach, given how such big projects can maintain momentum no matter how bad the headlines get.

The findings of a new study by the independent Reason Foundation could hardly be more damning. It details how the California High-Speed Rail Authority overestimated ridership by up to 77 percent and that San Francisco-to-Los Angeles train trips would take a slow four hours. But the research is likely to fall on deaf ears among many constituencies, starting with the influential unions and trade groups who love the prospect of construction jobs and the wealthy energy industrialists and entrepreneurs who benefit from green power subsidies.

One particularly crucial constituency is the local officials on the bullet train’s route. The cities that would get train stations would get most of the benefits of transit-oriented real estate development and tourism. But the costs would be spread over all the state’s taxpayers through a general obligation bond rather than a project-specific revenue bond.

Stated differently: The costs and the impacts would be socialized, but the benefits would be mostly localized and privatized. This means cities with designated high-speed rail stations are likely to be advocates for the project.

A ‘loss leader’ helping utilities, others

What often drives public infrastructure projects is not the prospect of making money — positive cash flow above costs — but the positive side effects from induced economic development.

In the business world, money-losing tactics that yield positive side effects are called “loss leaders.” McDonald’s loses money on its hamburgers but makes a windfall on french fries, Cokes and shakes.

Similarly, high-speed rail could be a major purchaser of green power. Thus, solar, wind and geothermal energy subsidiaries of the three major regulated public utilities in the state — PG&E, Edison and SDG&E — would likely benefit. This would result in another class of beneficiaries of the project.

Consider Los Angeles’ stealth purchases of farmland and water rights in Owens Valley in the early 20th century. The project didn’t make any economic sense until there was greater population growth in the Los Angeles basin. But the project was as much about land speculation in San Fernando Valley as it was about water.  The spillover effect of the water was increased land values.

This is why it is said water runs uphill toward money. And boondoggle rail projects are often unstoppable because of the community and corporate wealth effects that trains and train stations can potentially create.

And this is why California’s high-speed rail project is a runaway train that can’t be easily killed. It’s a stealth redevelopment project mainly for central California cities where the state’s future growth is forecast — one with a built-in subsidy for green power.

Anticipating benefits that may never materialize

But this theory, while it may explain how the bullet train keeps moving forward, isn’t necessarily built on sound reasoning.

For one example, a bullet train is unlikely to spur housing redevelopment around its train stops, as has light rail. If it did, Amtrak — which already provides long-range commuter service throughout California — would have seen much more transit-oriented development at its stops.

Light rail in San Gabriel Valley in Los Angeles County — called Metro Rail — has been a loser on a cost-per-rider basis. But it is still wildly popular with cities along its route due to its positive real estate economic side effects. Even though Amtrak is a better parallel to the bullet train, the Metro Rail’s popularity gives a boost to the state project.

Then there is another big selling point by Gov. Brown and the state Legislature: that the bullet train would reduce air pollution. But the problem of outdoor air pollution is not only the amount of polluted particles in the air but the geography of air basins. The Central Valley is an air basin surrounded by mountain chains on three sides. Thus, Visalia and Fresno have high air particle levels and flat and windy Lancaster-Palmdale has low levels. High-speed rail won’t reduce much air pollution in the Central Valley anyway because the bulk of the long-distance commuters are not business or tourist travelers.

Most impartial studies of the social costs — accidents, congestion, noise, pollution, relative travel time, etc. — have found that high-speed rail has the highest and most undesirable social costs and air travel the least.  Moreover, permanent economic development induced by high-speed rail is too speculative and unquantifiable to be included in most cost-benefit studies. And whatever economic development might result would likely be 20 years from now.

Rail proponents also minimize the overall $68 billion project cost by focusing on annual costs. If the share of cost to state and local governments is $26 billion that reflects only $1.789 billion annual bond principal and interests costs at a 5.5 percent interest rate over 30 years. But that $1.789 billion could instead go to plug the public pension gap or help fund the much more needed Delta Tunnels and two new water storage reservoirs.

The stronger argument against the boondoggle?

High-speed rail critics may think they are doing a good job making the case against the project. But the fact is that for all their efforts, construction is expected to begin soon in the Central Valley. Proponents have been able to keep enough of the public — and enough special interests — on their side by emphasizing near-term construction jobs, green power development, and speculative long-term real estate and tourist development.

For this reason, it may be time for opponents to begin focusing more on the negative social costs — starting with the massive disruption now unfolding in the Central Valley — and the shaky prospects for promised economic development than on the high costs per rider and the negative operating and financial costs.

Emphasizing the extreme long-term cost may also win over some wavering parties. For example, the Brown administration’s claim that it could readily trim $30 billion from the project’s previous tab of $98 billion and still have a true statewide high-speed rail system is ripe for attack. It was this revision that led bullet-train pioneer Quentin Kopp to renounce the project.

One way or the other, the need for new tactics appears clear. It might be painful, but high-speed rail opponents need to “bite the bullet” and realize that focusing on accounting details like estimated losses per rider is not likely to result in a red light for the project.

By Wayne Lusvardi

Proposition 31 was wiped out by voters yesterday.  The Government Performance and Accountability Act got just 39 percent of the votes, with 61 percent against.

Part of the likely reason it lost big was that it was undoubtedly the most confusing voter initiative on the ballot.  Factions of both Democrats and Republicans opposed and endorsed it.

The California Republican Party endorsed it but the California Federation of Republican Women opposed it.  The American Federation of State, County and Municipal Employees and the California Teachers Association opposed it.

But the liberal leaning think tank California Forward, headed by former Democratic state Assembly Speaker Robert Hertzberg and funded by European billionaire Nicolas Berggruen, were its main supporters.

The official position of the Libertarian Party of California was opposed to Proposition 31.  Interestingly, the California Green Party lined up with Libertarians in opposing it.  However, the proposition has appealed to many libertarian-leaning organizations, such as the Lincoln Club of Orange County and the Reason Foundation.

Voters that may have been looking for who supported or opposed Prop. 31 as a guide to how to vote were often confused.  The typical guides of party label did not serve as reliable.  This indicates that political parties in California have a decreasing hold on voters, despite the emergence of a de facto Fusion Party in California.

Confusion

The confusion by the Republican Party was perhaps typical of the party’s problems in California.

Moreover, few recognized that, if enacted, Prop. 31 would make it nearly impossible to make any substantial cuts to the state budget, including to public pension plans.  Neither would it limit the use of bonds or voter initiatives to fund local public projects.

Until later, many supporters did not look at the fine print that created a new unelected layer of local government — called Strategic Action Plan Committees — that would regionalize revenue sharing in California.

Prominent author Stanley Kurtz wrote an article in National Review, “California’s Awful Prop.31: Is This Your Future?”, and came out against California Proposition 31. He cited my articles here at CalWatchDog.com.

Then Republicans began to take notice.  The question then became: Could  the collective Republican mind be changed after the party had officially supported it at their annual convention? Given that Prop. 31 lost, apparently that happened.

In its September newsletter, the California Federation of Republican Women reconsidered its prior position on Proposition 31 and reversed its position to oppose it.  This was partly in response to our article “California Prop. 31 Will Regionalize State Revenue Sharing.”

Prop. 31 did have some good points that should be brought back in future reforms, such as two-year budgeting. But this time around, voters saw that the bad outweighed the good.