Sunday, January 8, 2012

We'll Meet Again, Don't Know Where, Don't Know When

Faithful readers of this blog will recognize that we haven't posted in a little while, so this may not come as a surprise. But for a number of reasons, we've decided to end this blog and move on to new projects.

One of the reasons for this decision is practical: I'm about to start a new job that will make it very hard for me to blog at the pace I kept last year, particularly in the weeks preceding the deadline for the new budget and the end of the Legislative session. Sometimes you have to set priorities in life, and Golden State Liberty just isn't one I can afford to hold onto.

But the bigger reason is what you might call a crisis of faith. For me, liberty (and libertarianism) is about taking control of your own destiny, and taking responsibility for creating the life you want for yourself. As such, you sometimes need to ask yourself hard questions about how you spend your days, and whether the things you do actually move you closer to whatever ideal of freedom you envision for yourself. And I've become convinced that spending significant chunks of each day absorbed in the minutae of California's political system is not a ticket to personal liberty. It's horribly depressing to contemplate the state of our politics here on a daily basis, but more to the point, there's nothing to gain from it. Whether California is headed over a cliff is, of course, open to debate; my guess is that the state is headed for a decades-long period of stagnation and an economy that goes sideways, as opposed to an "Atlas Shrugged"-style collapse. Of course, if Californians had an abrupt change of heart and embraced limited government, we'd likely see rapid growth and a more free, livable society here. But there's absolutely no reason to believe that that's going to happen. Most likely, libertarians in California are stuck with the bloated, statist government we've had for decades here. And no amount of bellyaching is going to change that.

If I'm right, the options for freedom-loving Californians look something like this: 1) Leave the Golden State for a more hospitable place; 2) Stay, and struggle against overwhelming odds to effect the changes you want through the political system; or 3) Stay, and find your freedom in your everyday life, apart from politics. Some of my best friends in California are pursuing the first option, and I'd be lying if I said it wasn't on my radar as well. I also know a number of people on the second path. I wish them well, but the success of that option is largely out of their hands, as it depends on the hearts and minds of a lot of people with an intense hostility to individual freedom. For me, Door #3 is the way to go. You don't need a blog to find other libertarians in California; trust me, they're everywhere. And with billions in QE2 dollars starting to flood into the state's economy, there are plenty of opportunities to find your fortune here and take care of yourself with it. It might not be perfect, but if you're going to stay, making enough money to give yourself options and spending time in the company of good people isn't a bad way to spend your days.

And finally, a sincere thanks to everyone who has read this blog and become part of the commenting/Tweeting community around it. It really wouldn't have been the same without you, and I'm very grateful for the friends I've made in the course of this project. Thanks again.

And good luck,
GSL

Friday, December 16, 2011

Teachers Union Will Not Stop Trying to Drive the Wealthy Out of California

Excellent!
Some months ago, we wrote about the California Teachers' Association's plan to fix the Golden State's broken finances by slapping a hefty tax on millionaires. We still think the plan is a terrible idea, but we have to give the CTA credit for this much: it takes a particular kind of stubborn courage to stand behind a bad idea for this long. Never mind that noted fiscal conservative Bill Lockyer thinks the rich will flood out of the state if their taxes go much higher. Never mind that California voters are wary of tax hikes and have little faith in Sacramento to spend money wisely. And never mind that arguing for forcible theft of someone else's property is indefensible. According to the Contra Costa Times, the CTA and other fans of big government aren't letting the millionaire's tax go gentle into that good night. Even though Governor Jerry Brown has pleaded with other left-leaning groups to unite behind his tax proposal, the CTA-backed Restoring California is going forward with its plan to put a measure on next year's ballot. Under their plan, Californians with incomes between $1 million and $2 million would face a 13.3% income tax rate; incomes over $2 million would be taxed at a 15.3% rate.

Brown and other proponents of higher taxes worry that voters will respond to a dizzying array of tax measures with a collective "no" next November, and it's important to keep in mind that many aspects of the six plans with a realistic chance of reaching the ballot directly conflict with one another. Even leaving this aside, it's hard to believe that many wealthy Californians would put up with the punishing tax rates in the Restoring California plan. The group claims that its proposal would send $6 billion to the state's General Fund, but it's hard to believe that millionaires would still find living here worth the cost. People who earn millions in income don't do so by being careless with money.

Thursday, December 15, 2011

Stanford Researchers: Yes, San Jose's Pensions are a Disaster

Advocates and opponents of pension reform in California are abuzz with the release of updated estimates of the Golden State's unfunded pension liabilities, from the Stanford Institute for Economic Policy Research. While data confirming the half-trillion-dollar hole in the state's three largest pension funds are certainly big news, the IEPR has also issued another report, this one on the public pensions in San Jose.

Given the news we've heard out of San Jose all year — layoffs of dozens of police officers, broken budgets, and a desperate ploy to save the city by cutting into the pensions of current city employees — you probably won't be surprised to learn that the city's financial health isn't so good these days. The Stanford authors conclude that the Safety pension fund (which pays benefits to firefighters and police officers) is less than 55% funded, while the Federated fund (which pays all other city retirees) is less than 47% funded. If we use risk-free assumptions on the funds' returns (a fair assumption, if taxpayers are going to effectively guarantee them), Safety is only 47.4% funded, and Federated is only 42.6% funded. Using the more optimistic assumption of a 6.2% rate of return, the total unfunded liabilities of these pensions are estimated at about $3.6 billion (liabilities under risk-free assumptions, unfortunately, are not presented). As such, even if optimistic rates of return are assumed, San Jose has an 88% probability of falling short on its pension obligations in the next 16 years. In order to have an even chance of meeting its obligations, the two funds would need to see an average annual return of 11.4% over that period, and to reach 80% funding, the pensions would need to average 10% returns on investment. By 2016, the IEPR also concludes that San Jose taxpayers will be footing 36% of the cost of Federated pensions and 71% of the cost of Safety pensions; if risk-free discount rates are assumed, taxpayers will pay 53% of Federated pensions and 111% of Safety pensions; in other words, the costs of Safety pensions will exceed total payroll.

In other words, the report suggests that the dire fiscal scenario described by Mayor Chuck Reed is a pretty likely outcome. Even under fairly neutral assumptions, spending on pensions would crowd out spending on other public services to a significant degree; if California's economy slides back into recession (keeping in mind that AB 32 is around the corner), this spending will break the city's budget. San Jose's unions, unsurprisingly, dispute the study, pointing to its failure to account for a recent analysis that lowered next year's pension bill. This is technically true, but completely beside the point. Both Reed and the Stanford team argue that, without serious reform, San Jose's only option is to make deep cuts to services, salaries and personnel, which is what they spent the first half of 2011 doing. The recent estimates don't reflect a meaningful change in the city's financial prospects; they simply show that imposing a 10% pay cut and laying off hundreds of employees, including 66 cops, will indeed lower pension obligations. In other words, they don't support any argument the unions want to make.

One for You, Nineteen for Me: Notes on Tax Plans

Recently, we wrote about the bewildering array of tax-increase plans that will likely crowd next November's ballot. With Jerry Brown, the elitist Think Long committee, public education unions, and hedge fund manager Tom Steyer all pushing independent (and, on some points, contradictory) tax initiatives, there's a decent chance voters could throw up their hands and turn down all of them, as happened in 2009. Well, apparently you can add another rifle to this circular firing squad: according to the Sacramento Bee, the California Democratic Party chairman, John Burton, is filing his own tax hike for the ballot. Basically, Burton's plan would slap an excise tax on oil production in the state, with the proceeds going to higher education and the General Fund. The plan doesn't have any apparent conflicts with the Governor's tax proposal, but Burton is kidding himself if he thinks voters will be happy to see yet another tax plan on the ballot. Of course, with AB 32 soon to be in full swing and a measure to shut down nuclear power possibly coming to the same ballot, you might want to investigate your job and housing options out of state if Burton's bill passes.

Also, we couldn't help but notice this interesting dissection of the Brown plan, from John Fensterwald at Educated Guess. We've already noted the Governor's slipperiness in describing his plan, but it looks like we were being too kind. In his "open letter to the people" and elsewhere, Brown and his supporters have characterized the $7 billion plan as essential to preserving funding for K-12 schools and public safety, and poll support for this plan is predicated on the idea that the funds will go to education. Yet, as Fensterwald explains, voters hoping for a $7 billion infusion of funds to public schools should look elsewhere. For one thing, Brown isn't proposing to increase Prop 98 funding by that amount, only to increase school funds in the course of raising taxes. Yet Prop 98 only requires that 40-50% of every tax increase go to public schools; so, realistically, you'd be looking at $3.5 million at most. What's more, Brown's plan also calls for voters to shift $5 billion out of the General Fund budget to pay for things like county realignment; this could shave more than a billion dollars off the total funds schools would see from the tax hike. The end result of all this is that voters will be asked to cough up $7 billion in taxes so that $2 billion can go to schools, with the rest presumably disappearing into the warren of cronyism in Sacramento.

Wednesday, December 14, 2011

Bill Lockyer Throws Tantrum, Picks Up His Marbles and Goes Home

Those of us concerned about the looming catastrophe known as California's unfunded public pension debt had to be dismayed by the pension reforms Jerry Brown recently proposed. Partly this is because the plan doesn't go nearly far enough, given the size of the problem — conservative estimates put the unfunded liabilities of CalPERS, CalSTRS, and the UC retirement plan alone at $500 billion — and partly it's because even these tepid reforms don't stand a chance in the face of organized labor's opposition. Like it or not, this is a cliff the Golden State is probably going to drive over. If you don't believe us, this story about state Treasurer Bill Lockyer should tell you a lot about Sacramento's receptiveness to pension reform.

If you follow the pension issue in California, you're probably aware that the same Stanford research team that produced the $500 billion liability estimate has released a new report. Their original estimate, published in April 2010, found that the state's three biggest pension funds had a total unfunded liability of $425 billion as of 2008; in the absence of more recent data, the researchers assumed that the funds' heavy losses in 2008-09 pushed the unfunded liability north of a half-trillion dollars. Now, we have the data: using a risk-free rate of return (which makes sense, if taxpayers are guaranteeing the pensions), CalPERS, CalSTRS, and UCRP have a total unfunded liability of $498 billion. Under this assumption, neither CalPERS nor CalSTRS are more than 48% funded (UCRP is 61% funded); fully funding these two funds next year would require government spending on them to rise from $4.8 billion to an astounding $22.7 billion, or over a quarter of the General Fund budget, while fully funding the UCRP would require an additional $3 billion. In other words, if you thought $1 billion in trigger cuts were bad, this would be a catastrophe. Put simply, an honest accounting of public pensions would capsize government in California. In addition to calling for increased agency and employee contributions to pensions, the Stanford authors, led by former Democratic Assemblyman Joe Nation, call for reducing benefits to current workers and raising the retirement age.

Making these kinds of recommendations to the union-owned Democratic establishment in Sacramento, of course, will tend to get roughly the same reception as slandering the Koran in a public square in Riyadh. And yesterday, Treasurer Bill Lockyer announced that he was resigning from the pension advisory board of the Stanford Institute for Economic Policy Research, which issued the report. Lockyer's spokesman offered this bit of childish repartee: "When it comes to public pensions, maybe SIEPR should stand for 'Stanford Institute to Eviscerate People’s Retirement.'" Apparently, Lockyer thought the report failed to consider the legal difficulties of reducing benefits for current workers, and didn't account for the effect of including pension retirees on plans' boards. In other words, he ignored the math underlying the report's arguments and raised a silly objection as a way of discounting it entirely. Ladies and gentlemen, your political leadership!

The Aftermath of the Trigger Cuts

As we (and most of the state's other political observers) noted yesterday, Governor Jerry Brown has announced $1 billion in mid-year "trigger cuts" to California's budget. A detailed breakdown comes to us from the always-reliable Kevin Yamamura at the Sacramento Bee. Already, the announcement has provoked a range of entirely predictable reactions. Let's break them down.

Litigation: In a sign of just how much people love their automobiles in Los Angeles, Brown had barely finished announcing the cuts when the LA Unified School District announced it was suing to block $248 million in cuts to school busing. We'll give you a moment to get past the surprise of hearing that the cuts have triggered a lawsuit. LAUSD is required, under a 1981 court order, to provide busing to some 35,000 students, and must bus an additional 13,000 students with disabilities. Taking funds from classroom instruction to make up for the busing cuts will leave LAUSD spending less per pupil than other districts, which Superintendent John Deasy argues violates students' constitutional right to equal education opportunity. Stay tuned.

Meaningless gestures of protest: According to the San Bernardino Sun, some 60 Inland Empire residents gathered in downtown Riverside last night to freeze their butts off and stage a "vigil" in protest of the triggers. We're sympathetic to the concerns of those who will be directly affected by these cuts &mdash one of the protesters interviewed by the Sun has a developmentally disabled sister who will be affected by the social-service cuts &mdash but let's be honest: Jerry Brown has made it clear that he doesn't care much for the plight of Californians who are represented by Republicans.

A holiday from logic: Unsurprisingly, Governor Brown used the trigger cut announcement as a chance to flog his plan to raise taxes next year, and higher taxes on the rich seemed to be on the minds of many of the Riverside "vigil" attendees. Yet, as Dan Walters points out here, this makes no sense: if Sacramento can make $1 billion in spending cuts while largely sparing K-12 schools and public safety, and the state's economy is (in Brown's estimation) improving, why do they need $7 billion more to spend on these things? Moreover, the trigger cuts are not the fault of insufficiently generous wealthy Californians: if you're blaming anyone, you have to blame Brown and the Democrats in the Legislature (since they had no input on the budget, we'll give the Republicans a pass here). The cuts are a direct consequence of the decision to cover a $4 billion budget hole with a gimmick rather than a real solution. Assuming that $4 billion in unanticipated tax revenues would arrive to plug the gap was preposterous in the context of the state's ongoing recession. And it's because of this terrible, lazy decision that cuts are being implemented now.

Tuesday, December 13, 2011

BREAKING: Jerry Brown Announces $1 Billion in Trigger Cuts

We were THIS CLOSE to a balanced budget!
In a piece of breaking news that we've been waiting to report since late June, the day of reckoning for California's budget has finally arrived. As reported by pretty much every news outlet in the state, Jerry Brown has announced $1 billion in mid-year "trigger cuts." About $250 million in state spending on school buses will be slashed. The rest of the cuts will come to higher education, Medi-Cal, libraries, counties, and social services. Largely because of improved tax revenue numbers in November, the cuts were lower than the Legislative Analyst's Office had expected.

Of course, the accounting on the trigger cuts doesn't account for the fact that state spending has outpaced the budget by some $2 billion this year. So, strictly speaking, these cuts don't represent a meaningful change in the broader pattern of out-of-control spending. What's worse, the Governor's remarks at the presser announcing these cuts only demonstrate how central he is to the problem. As Steven Harmon reported via Twitter, Brown discussed his $7 billion tax proposal in the context of these cuts by describing a frustrated and dicontented electorate that wants more government spending to reduce inequality. We'll apologize in advance if we're misrepresenting the Governor's remarks, as we can't locate a transcript anywhere. But if they're accurate, Brown is doing himself no favors by conflating his good-government argument for taxes with a class-warfare argument. Just as there's no amount of tax revenue that can satisfy Sacramento's urge to spend, there's no amount of redistribution that's going to satisfy Brown's supporters in California. Given the state's extreme lack of credibility when it comes to spending money wisely, the good-government argument is going to be tough enough to sell to the voters; the idea of solving California's problems via socialist redistribution, however, isn't going anywhere.