Commentary

April 20, 2012

By Wayne Lusvardi

California Gov. Jerry “Moonbeam” Brown recently issued a phony challenge to the state legislature to “man up” and cut services out of the state budget to resolve a lingering $9 billion deficit.

Brown was telling the legislature to remove the proverbial wooden beam out of their eyes rather than take the moonbeam out of his own eye.

Brown knows that the services he wants the legislature to cut – welfare and Medi-Cal – are federally mandated.  Medi-Cal is California’s version of Medicaid, not Medi-Care. Thus, proposing to cut back such services would galvanize public pressure to save such services from the chopping block.  Brown dare not shine a moonbeam on his own pet programs and policies.

Los Angeles Times columnist George Skelton creates more phony drama about Brown’s challenge to the legislature to reduce the state budget on the purported backs of the poor.  Skelton scolds the governor for telling the legislature to “man up” by cutting back some health and welfare services from the state budget.  This just focuses more public attention on mostly pretend cuts to mandated services. The poor and the medically needy are always put on the visible chopping block instead of non-essential middle class welfare programs and policies.

Untouchable Luxury Public Goods

The remaining budget deficit could be solved by cutting or suspending the provision of luxury public goods, such as redundant:

* Affordable housing;
* Stem cell research;
* High-speed rail;
* Green power;
* Cap and trade pollution credits;
* Useless energy research funded as a surcharge on utility bills;
* “Waterless” water bonds;
* “Categorical” public school ancillary jobs earmarks;
* Perchlorate regulation that has no health benefits;
* Mandated elimination of ocean water cooling for coastal power plants at an enormous cost to protect a few sea mammals and fish larvae while thousands of birds are killed by wind turbines.

Former University of California, Berkeley political scientist Aaron Wildavsky once wrote that such bureaucratic programs don’t just exist by hoodwinking the population with green ideology. Tax expenditures keep going up because more people benefit from the public distribution of jobs and wealth enhancements to private properties from such programs than benefit from private production.

What green power, cap and trade, affordable housing, eliminating coastal power plants, bullet trains and “waterless” water bonds all have in common is enriching the values of private properties and sometimes creating real estate speculation. These programs:

* Replace old, obsolescent housing with new luxury low income housing;
* Reduce air pollution by shifting it elsewhere;
* Eliminate nuisance power plants by shifting them to remote areas;
* Reduce the number of nuisance jet airplane flights and noise by shifting passengers to trains; and
* Create open space buffers around upscale residential enclaves with so-called water bond funding.

The above luxury programs don’t really reduce pollution, create more water resources, reduce educational deficits in children from perchlorate, protect endangered species, create magical medical cures for cancer or paralysis or make housing more affordable. What they mainly do is shift those problems elsewhere or to where nobody lives.  Or such programs promise to eliminate some perceived threat to public health and property values — such as perchlorate in drinking water  — at a huge cost that could be done so cheaply by iodized salt in the human diet.

Why California is Dysfunctional

By enhancing private property values, bureaucracies bind middle class homeowners to their programs.  In the language or psychotherapy, private property owners become co-dependent on bureaucrats and labor unions for middle-class welfare.

This is why California is often described in terms of a dysfunctional family. What California needs is a Twelve-Step Program to recover from its addiction to overspending on non-essential middle-class welfare programs, not cutting programs for the poor or medically needy. One of the reasons California’s economy has been declining is that it over-invests in real estate compared to states like Texas.

The bureaucratic agencies that run the above-listed programs all preserve and protect the California Dream of home ownership.  If strong cultural values and economic interests did not desire these popular programs, they would not be so resilient to elimination or expenditure reductions.

This is what economist William Fischel describes in his book, “The Homevoter Hypothesis: How Home Values Influence Local Government Taxation, School Finance, and Land Use Policies.”

Voters are rational economic actors who perceive the benefits of luxury government programs and policies to their property and wealth interests.  It isn’t the super rich or the poor immigrant who are the only causes of the state budget deficit.

This is why California state government is dysfunctional. It is why we have a state water system with only a half-year of water storage.  By comparison, the Colorado River system has 4 to 10 years of water storage. Meanwhile, we have spent more than $18 billion on five water bonds that produced no new water storage reservoirs and have mainly funded open space acquisitions.

This is why the state unemployment fund is in hock to the federal government for more than $10 billion, but luxury “affordable housing” programs continue to be flush with cash.

This is why Medi-Cal is being threatened with budget cuts, but the voters have approved funding redundant stem cell research.

This is why self-serving bureaucrats are mandating costly cleanups of perchlorate from drinking water with no health benefits, but family welfare is to be cut back.  Voters should not worry, however. Residential property owners will not feel “toxic” substances threaten their home values.

California has a structural budget deficit because voters are “homevoters” who vote for mostly visual benefits that enhance their property wealth. California is running a permanent budget deficit because it is promising the middle class it will eliminate the side effects of modern technological society: pollution, cancer, noisy airports, dirty power plants, toxic substances, and all kinds of nuisances from their backyards. But mostly these are purely symbolic benefits. This is mostly why California government is broke and health and welfare services must go begging.

Pogo Principle: We Have Met the Enemy and They are Us!

Political scientist Aaron Wildavsky called this The Pogo Principle: “we have seen the enemy and they are us.”  Pogo is a character in a comic strip created by William Kelly.

It is hypocritical to threaten cutbacks to health and welfare programs for the poor and leave middle class welfare programs untouched.  It is likewise hypocritical for tax advocates to continue to want tax increases shifted to the despised “1 percent” of high-income earners — the millionaires’ tax — while leaving luxury government programs for the bulk of the middle class uncut.

It is hypocritical for an environmental governor such as Jerry Brown to dramatize the cutback of health and welfare programs while leaving middle class welfare programs untouched. Gov. Brown should take the “moonbeam” out of his own eye first before staging a media event about cutting programs for the poor.

We have met the enemy of health and welfare programs. It is not the “1 percent.”  It is not the Republicans. It is not the corporations or banks. It is not only the immigrants.  As the comic strip character Pogo accurately stated: “it is us.”

By Wayne Lusvardi

Dan Walters, call your office!  Or call a reputable economist for therapy.

Walters writes that a marginal tax rate increase amounting to $9 to $10 billion in new revenue would reflect only 0.5 percent of the total state Gross Domestic Product.  And it would increase state revenues by only 6 percent from $160 billion to $170 billion.  A marginal tax rate is the rate you pay on the taxable income that falls into the highest tax bracket you reach: 8, 9, or 10 percent, etc.

Why a tax increase?

But during Jerry Brown’s recent trip to New York. he blurted out that the state GDP had increased by $90 billion, or 4.75 percent, increase in 2011.  That should have increased tax revenues by $9 to $10 billion without having to raise the existing income tax rates on millionaires — Brown’s tax proposal; or income tax rates on everyone but the very poor — Molly Munger’s tax proposal.

The top tax income tax rate in California currently is 10.3 percent. This is the second highest rate in the nation, after Hawaii at 11 percent.

California recently let its temporary sales tax increase expire in July 2011. Thus, the state sales tax has been reduced from 8.25 percent to 7.25 percent — still the highest state sales tax rate in the United States. Local governments can add 1.5 percentate points to the base sales tax rate.

And California has the highest corporate tax rate of 8.84 percent of all Western states (excepting Alaska).

Subtract the $4.5 billion lost tax revenues from the expiration of the 1 percent temporary income tax rate increase and California would still have about $5.5 billion in new net taxes remaining.

The state legislature recently diverted $1.4 billion of excess redevelopmentagency monies from the state general fund back to local redevelopment agenciesfor “affordable housing.” This doesn’t even count the $2 billion in “excesscash” leftover from redevelopment agencies before they were phased out ofoperation.  This signaled that thelegislature is not serious about plugging the state budget deficit.

New tax revenues and excess redevelopment funds would add up to about $7.5 billion in new tax revenues without need of an income tax rate increase.

Untouchable Luxury Public Goods

The remaining budget deficit could be solved by cutting or suspending the provision of luxury public goods — such as redundant:

* Affordable housing;
* Stem cell research;
* High-speed rail;
* Green power;
* Cap and trade pollution credits;
* Useless energy research funded as a surcharge on utility bills;
* “Waterless” water bonds;
* “Categorical” public school ancillary jobs programs;
* Perchlorate regulation;
* Mandated elimination of ocean water cooling for coastal power plants at enormous cost to protect a few sea mammals and fish larvae while thousand of birds are killed by wind turbines; and
* Unneeded state commissions for termed-out state legislators.

Former University of California, Berkeley political scientist Aaron Wildavsky once wrote that such bureaucratic programs don’t just exist by hoodwinking the population. There is an ideology that grows around such programs. But tax expenditures keep going up because more people benefit from public distribution of jobs and property enhancements than from private production.

What green power, cap and trade, affordable housing, eliminating coastal power plants, bullet trains and “waterless” water bonds all have in common is enhancing the values of private properties and real estate speculation. These programs:

* Reduce old, obsolescent housing with new luxury low income housing;
* Reduce air pollution by shifting it elsewhere;
* Eliminate nuisance power plants by shifting them to remote areas;
* Reduce the number of nuisance jet airplane flights and noise by shifting passengers to trains; and
* Create open space buffers around upscale residential enclaves with so-called water bonds.

The above luxury programs don’t really reduce pollution, create more water resources, reduce water pollution risks of mental retardation, protect endangered species, create magical medical cures or make housing more affordable. What they mainly do is shift those problems elsewhere or to where nobody lives. By enhancing private property values, bureaucracies bind private residents to their programs.  In the language or psychotherapy, private property owners are co-dependent on union bureaucrats and labor unions for political perks. This is why California is often described as a dysfunctional family.

The bureaucratic agencies that run the above-listed programs all preserve and protect the California Dream of home ownership.  If strong cultural values and economic interests did not desire these popular programs, they would not be so resilient to elimination or expenditure reductions.  This is what economist William Fischel describes in his book, “The Homevoter Hypothesis: How Home Values Influence Local Government Taxation, School Finance, and Land Use Policies.”

Pogo Principle: We Have Met the Enemy and They are Us!

Aaron Wildavsky called this The Pogo Principle: “we have seen the enemy and they are us.”

It is hypocritical for tax advocates to continue to want tax increases shifted to the despised “1 percent” of high-income earners — the millionaires’ tax — while leaving luxury government programs for the bulk of the middle class untouched.

Voters are rational economic actors who perceive the benefits of luxury government programs and policies to their property and wealth interests.  It isn’t the super rich or the poor immigrant who is the sole cause of the state budget deficit.

This is why California state government is dysfunctional. It is why we have a state water system with only a half year of water storage.  Even though the Colorado River system has 4 to 10 years of storage.

Meanwhile, we have spent over $18 billion in five water bonds that produced no new water storage reservoirs and have mainly funded open space acquisitions.  This is why the state unemployment fund is in hock to the federal government for more than $10 billion, but luxury “affordable housing” programs continue to be flush with cash. It’s not solely because the “1 percent” are stingy, or big banks are “greedy,” or immigrants are overburdening government services.

You get what you vote for.