California Editorial Roundup
Posted November 23
San Diego Union-Tribune on the state's pension system:
The heavy cost of government retirement benefits isn't a bill that all comes due today, but a look at the numbers show the issue's profound importance for Californians. These costs have already started diminishing local government services. Los Angeles now uses more than 20 percent of its annual revenue on retirement costs. The state is in better shape, but it too will also eventually have to raise taxes or cut other programs or do both to pay its tab.
The problem has grown worse in recent years because pension agencies often don't achieve their expected annual return on investments — normally 7.5 percent. The California Public Employees' Retirement System and the California State Teachers' Retirement System both made less than 1.5 percent in 2015-16. While over longer periods, the two giant pension systems did much better, Walter Updegrave, editor of RealDealRetirement.com, warns "the consensus among investment pros is that we're in for an extended period of low returns." Stanford professor Joe Nation contends the total unfunded liability of California public employee pensions is not the present estimate of about $280 billion, but about $950 billion — or $75,000 per state household.
The gravity of the situation doesn't seem to have sunk in with state leaders. The Legislature's adoption of Gov. Jerry Brown's modest 2012 pension reform measure and a 2014 law increasing funding for CalSTRS seems to have created a bubble in which the pension tsunami is no longer visible.
Brown is far from a lame duck. The governor may be termed out, but he has plenty of campaign cash and political capital with which to launch ambitious crusades — as we just saw with Proposition 57, which locks far-reaching criminal-justice reforms into the state's Constitution. But pension reform is no longer a pet cause.
Meanwhile, state Attorney General Kamala Harris, on her way to the U.S. Senate, quietly moved to reverse an August state appellate court ruling that would let governments reduce pension costs.
The case involves the Marin County public employees union, which sued over provisions in the 2012 pension reform that limited the ways that pensions could be spiked with various late-career maneuvers. The First Court of Appeal not only held that government employees do not have a right to pension spike but that nothing in California law prevents pension benefits from being reduced going forward. For example, formulas that guarantee government workers 3 percent of pay for each year of employment can be changed to 2 percent for future years of employment. Other courts have held that pension formulas can never be reduced without providing some new benefit to workers, a thesis known as the "California rule." But Justice James Richman cited an unanimous 1977 state Supreme Court ruling that found a public employee "does not have a right to any fixed or definite benefits but only to a substantial or reasonable pension."
Harris requested the state Supreme Court review the case last month, citing decisions that upheld the California rule. This is unfortunate. As legal scholar Amy Monahan points out, the idea that pension formulas are inviolate arose from court rulings — not the Legislature — and "is inconsistent with both contract and economic theory."
Taxpayers should hope Richman's and Monahan's views prevail with the high court, if it hears the case. Otherwise, a brutal budget era awaits.
Press-Enterprise on Los Angeles' bid to host the Summer Olympic and Paralympic Games:
California's nonpartisan Legislative Analyst's Office has affirmed that Los Angeles is taking a "low-cost, low-risk" approach in its bid to host the 2024 Summer Olympic and Paralympic Games. This is an important finding, because minimizing and mitigating financial burdens to state and local taxpayers is critical to the credibility of the city's bid.
While the International Olympic Committee won't be announcing its choice of a host city until September 2017, Los Angeles has been putting in the work to determine the financial feasibility and fairness of its bid well ahead of time.
As many cities around the world have discovered, hosting the Olympic Games is prestigious but also fraught with financial risks.
This is fortunately not too much of a concern in Los Angeles, where the vast majority of planned venues for use already exist, including the Memorial Coliseum, Staples Center and the StubHub Center Soccer Stadium. Further, the city's bid doesn't call for massive infrastructure investments to prepare for the Games. This, along with the existence of venues, means the bid is free from many of the costs other cities might have to grapple with.
In October, the city administrative officer and chief legislative analyst sent a report to City Council members emphasizing risk management, transparency and oversight. Among the issues the city must prepare for is the possibility of cost overruns, reduced ticket sales and even natural disasters.
Still, the LAO report is fairly optimistic, while appropriately restrained. "Short-term economic gains from the Games likely would generate additional state and local tax revenues that would offset some or all public costs," the LAO suggests, adding that compared to many past Olympic bids, "the current proposal by the LA 2024 organizing group is a relatively low risk one."
In the event Los Angeles is chosen to host the Olympics, the LAO is advising the state to potentially develop an oversight committee of its own to complement the work of oversight efforts at the local level, as potentially hundreds of millions in state dollars are on the line.
This editorial board urges state and local leaders to keep up the work to assure taxpayers they aren't being put at significant risk.
Sacramento Bee on fixing California's roads:
Once again, California lawmakers are proving themselves unable to carry out that most basic function — filling potholes.
A special session called by Gov. Jerry Brown to focus on raising billions to fund road maintenance will end a week from Wednesday with a whimper. There are plenty of excuses.
Democrats, who control the Legislature, haven't had the two-thirds majority needed to approve new gasoline taxes. So they can blame Republicans.
Republicans insist the California Department of Transportation is bloated and must become more efficient, and they seek relaxation of labor and environmental regulations. So they can blame Democrats.
Legislators, who listen to oil industry lobbyists, contend the industry cannot comply with the stringent so-called low-carbon fuel standard. Before they vote to approve a gas tax hike, they claim, Brown and his California Air Resources Board should ease the standard.
That won't happen. Brown, perhaps the nation's top elected leader fighting climate change, is not about to capitulate to the oil industry.
In the coming year, Democrats who control California governance will have fewer excuses not to act. They'll hold a two-thirds majority in the Assembly and possibly in the state Senate, depending on votes from Nov. 8 still being tallied in one Southern California district.
The need isn't going away.
In 2015, Brown said California faced a $59 billion shortfall to adequately maintain existing state highways during the next decade. Local authorities say they need another $78 billion to maintain and rebuild roads and bridges.
Sen. Jim Beall, D-San Jose, proposed legislation that would have generated $4.3 billion a year. Assemblyman Jim Frazier, D-Oakley, pushed similar legislation. A staff analysis of Beall's bill estimated that motorists who drive 12,000 miles a year would pay an additional $130 a year. We suspect most people would gladly pay a little more if it meant avoiding traffic jams and potholes — emphasis on the word "if." The money cannot be wasted.
Exactly what the right combination of fees and taxes might be is to be determined. Brown has called for a flat $65-per-year user fee for roads. Some legislators seek to raise the gas tax, although it already is among the nation's highest. Since electric cars use no gasoline, one alternative would be to charge fees based on vehicle miles traveled, though such a system raises privacy concerns.
One part of the solution would be to raise the vehicle license fee, also known as the car tax, which can be deducted from federal income taxes. Individuals who drive costly cars would pay more, which would be in keeping with Californians' apparent desire to impose heftier taxes on wealthy people.
Voters in seven counties showed they were willing to tax themselves to pay for transportation. Sacramento and Placer counties apparently were not among them, unfortunately. But local taxes are, by definition, piecemeal. Highways are a shared responsibility.
California's lawmakers have shown themselves willing and able to pass all manner of bills, including banning plastic bags and establishing lofty goals to combat climate change. All that is important.
But wouldn't it be grand if Californians could drive from Sacramento to Lake Tahoe or San Francisco in 90 minutes, or if downtown Sacramento workers could get to Orangevale or Roseville in less than an hour at the end of the day? And maybe, just maybe, Caltrans could fill the ruts on Interstate 80 in West Sacramento.
Whittier Daily News on problems with California's tax credit for the film industry:
In an effort to combat the "runaway production" of film and television programs to other states offering tax incentives, California adopted a film credit in 2009. But such narrowly targeted tax breaks have costs, and the film credit has been more of a flop than a blockbuster.
The state's nonpartisan Legislative Analyst's Office has long criticized such targeted "tax expenditures," and the film credit in particular. In a June 2012 report, it concluded, "(I)t is likely that the state and local tax revenue return would be under $1.00 for every tax credit dollar — perhaps well under $1.00 for every tax credit dollar in many years."
This would not be unusual. A December 2010 Center on Budget and Policy Priorities study noted that Arizona, Connecticut, Louisiana, Massachusetts, Michigan and Pennsylvania all lost money on their film credit programs, generating just 7 to 28 cents in revenue for every dollar spent on the incentives. Arizona and Michigan have since eliminated their film credit programs, as have Alaska, Florida, Indiana, Iowa, Kansas, New Jersey and Wisconsin.
A September LAO report was a little more optimistic, ascribing a small increase in economic output to the film credit, but reiterated its recommendation against such policies. "We generally view company-specific or industry-specific tax expenditures — such as film tax credits — to be inappropriate public policy because they (1) give some businesses an unequal advantage at the expense of others and (2) promote unhealthy competition among states in a way that does not benefit the nation as a whole," the LAO said. "We harbor deep concerns about the ability of officials in any state to make objective, well-informed decisions about allocating tax credits to specific individuals and companies in a way that better allocates resources across the entire economy."
Targeted tax credits are inefficient because they effectively subsidize many activities that would have taken place anyway — about one-third of the projects that received the film credit would have been produced in California even without the incentives, the LAO found. And the more the Legislature gives carve-outs to certain groups, the more it encourages them to spend time and money lobbying government for special favors.
Some argue that the film and TV industry should be propped up anyway because it is an important part of California's identity and economy. But as a January 2013 report from the Reason Foundation and the Howard Jarvis Taxpayers Association said, "While this has historically been true, must it be true for all time, and must taxpayers bribe the industry to keep it this way? The film industry has been a significant component of the state's economy in the past, but, as the current trend indicates, it might not be as significant in the future."
The Reason-HJTA report also estimates that if California were to eliminate a number of its targeted tax credits — including the film credit — it could reduce its overall corporate tax rate by about 20 percent without any loss of revenue. That would be a much fairer — and happier — ending for the state's economy.
East Bay Times on ensuring California protects against offshore drilling:
For decades Californians have made it clear that when they look out from their beautiful, sandy beaches they want to see water. Not oil rigs.
The latest Field/IGS Poll released Thursday confirms that by saying 90 percent of respondents believe protecting the condition of the coastline is important to them.
President-elect Donald Trump has promised to be a friend of Big Oil by reducing regulations and prioritizing drilling. President Obama was right to give California a parting gift by permanently making West Coast waters off limits to further oil drilling.
A group letter last week from Democratic senators from California, Washington and Oregon suggest that the president can accomplish that goal by making use of the 1953 Outer Continental Shelf Lands Act, which governs development of all submerged lands off state coastal waters that are under U.S. jurisdiction.
California Sens. Dianne Feinstein and Barbara Boxer joined with Washington Sens. Maria Cantwell and Patty Murray and Oregon Sens. Ron Wyden and Jeff Markley in asking Obama to order a permanent ban. The coastal economies of the three states, they argue, support 650,000 jobs.
Both President Bill Clinton and President George W. Bush employed the act to declare moratoriums on offshore drilling in parts of U.S. coastlines. No president has tried to use the act to issue a permanent ban, although the senators said their reading of it includes that authority. The oil industry is certain to test the action in court. Bring it on.
California has a strong interest in preserving the beauty of its 840 miles of coastline. The state's ocean-dependent industry is estimated to contribute $43 billion a year to California's economy.
Obama has maintained a moratorium on offshore oil drilling during his presidency, but Californians should never forget the damage from the 1969 oil spill off Santa Barbara, which many credit for giving birth to the first Earth Day in 1970 and spawning the modern environmental movement.
Poor safety precautions by Union Oil caused the Jan. 28, 1969 explosion that stood as the worst oil spill in U.S. history until the Exxon Valdez disaster.
The Santa Barbara spill dumped an estimated 3 million gallons of crude oil into the Pacific Ocean, killing tens of thousands of fish and birds and resulting in an oil slick that stretched for 35 miles.
Feinstein has long argued that even if drilling were to resume off the California coast, it would take years before a drop of oil would be produced. California, and the United States, should instead be using that time to push for greater energy conservation and alternative energy sources.
The best strategy the United States can employ is to become less dependent on petroleum. Banning offshore oil drilling supports that goal while also providing Californians with the added bonus of protecting the beauty of our precious coastline.