Wednesday, August 31, 2011

BREAKING: Open Carry, Insurance Regulation Bills Stall in California Senate

It looks like we're getting our good news a little early before the holiday weekend, as two awful Assembly bills stalled in California's Senate today: Anthony Portantino's AB 144, which would've banned open carry of firearms, and Mike Feuer's AB 52, which would've given the state sweeping new powers to regulate the health insurance industry.

Slightly more friendly to liberty. For today.

We wrote about AB 144 when it first passed the state Assembly back in May. For those of you not in the know, "open carry" refers to the practice of openly carrying an unloaded firearm; in other words, it's a peaceful display of civil liberties that's protected by the Second Amendment. Portantino's bill would've made it a crime punishable by a $1,000 fine and up to six months in jail. Now, the bill has been moved into the Senate's "inactive" file. Portantino insists that it's still alive, but it's not clear he has the support to get it through at this point.

As far as AB 52, our analysis is here. Basically, if you really care about Californians having access to affordable health care, giving bureaucrats the power to reject the pricing decisions of insurers is a terrible way to go about it. In recent months, a number of powerful voices agreed with our judgment on the bill, including CalPERS, the state's Health Benefit Exchange, and Jerry Brown's Department of Finance. The bill passed the Assembly back in June, but today Feuer admitted that he lacked the votes in the Senate. He's decided to hold off on the bill for the rest of the year.

California Puts the "Nanny" in Nanny Statism (Edited)

In case you thought the California Legislature was serious about focusing on the state's jobs crisis and refraining from trying to micromanage its economy via regulations, you'll be glad to know that they've passed a new rule for the manufacture of baby bottles and sippy-cups. According to the Sacramento Bee, it's now illegal to produce, sell, or distribute beverage containers for young children that contain the chemical bisphenol A, also known as BPA. Unfortunately, BPA is pretty much omnipresent in manufacturing, and AB 1319 sets a very low threshold. So, a likely result of the rule will be to expose factories not intentionally using the chemical to litigation.

Even worse, however, is AB 889, the so-called "Domestic Worker's Bill of Rights," a proposal that essentially flips the original Bill of Rights on its head by declaring the state's right to intrude even more deeply into the private sphere. Over at Reason, Matt Welch scratches his head over many of the new "rights" the bill gives nannies and babysitters. For any non-family babysitter over 18, these include minimum-wage payment, a substitute caregiver every two hours to allow breaks for the babysitter, worker's compensation coverage, overtime, a timecard, and an actual paycheck. Nannies would also be provided a detailed timecard and paycheck. The bill, from San Francisco Democrat Tom Ammiano, illustrates that brain-dead economic ignorance remains ubiquitous in California's Assembly. While Republicans are likely to support the bill, since it would further criminalize the hiring of illegal immigrants as nannies, it would drive much legitimate home care into the state's growing underground economy, and force cash-strapped Californians to pay more for day care and institutional care of elderly family members. Also, we don't want to know how Ammiano plans on enforcing this.

(UPDATE: An Anonymous commenter correct us: the bill was authored by Democrat Tom Ammiano, not Republican Doug LaMalfa. Our apologies.)

California Lawmakers to Tackle Unemployment By Removing Incentives to Hire

If you were tempted to feel optimistic about California's chances of emerging from recession any time soon, you probably won't want to read this report over at Cal Watchdog. Never mind that private businesses are fleeing the state by the dozens, or that the much bally-hooed green-energy revolution is collapsing with a bang: the Legislature is poised to pass a bill, SB 508, that would slash the tax credits that many businesses are counting on in their long-term plans for operating in California.

The bill has two basic components: one is a set of bureaucratic requirements for defining and measuring the effectiveness of a given tax credit; the other is a requirement that all credits expire after ten years. The latter provision is what has the business community in an uproar, both they're both pretty bad. The new documentation will lead to the creation of very specific tax credit plans, which in Sacramento is another way of letting the Legislature meddle in the economy and attempt to use tax law to pick winners and losers (or both, as it's done with green energy). But the sunset requirement will make it harder for businesses to make long-term plans to stay in California. Which is exactly the outcome you'd like to see, given the 12% unemployment rate and the fact that over a quarter of the state's population is officially out of the labor force. Of course, Democrats in the Legislature don't see things that way. In their minds, the $47 billion in tax credits that businesses received in 2008-09 is money that belongs by right to the state, and they want it back. Which should make you more pessimistic than anything else for the future.

Green Jobs in California: Dead and Loving It

In another reminder of how no good deed goes unpunished, the Bay Citizen has apparently taken some heat for a story we noticed last week: for pointing out that substantial taxpayer investments in green energy have been largely disastrous, the Citizen has taken flak from environmentalists, who say that the story underplayed strong gains in certain sectors of the green economy, as well as critics who felt it didn't clearly argue that taxpayer dollars were being wasted. As a result, the reporter behind the story offers this follow-up describing his work on the piece. The gist of his self-defense is that the measurable numbers of green jobs haven't come close to matching the promises of politicians like Barack Obama and Jerry Brown, and that the "strong gains" the green-tech proponents refer to only amount to 78,000 jobs nationally between 2003 and 2010.

Real wind power.
As far as the criticisms of renewable-energy skeptics, we'll see if we can help them out. The author points to Van Jones' assertion that the failure of green-energy subsidies is directly attributable to Congress's failure to enact a federal cap and trade law. This is, at best, debatable. For one thing, cap and trade would (and in California, will) have the effect of hiking the costs of many businesses, thus suppressing economic activity and reducing demand for all energy, including clean energy. It speaks volumes about these technologies that California's mandate to produce 33% of the state's energy via renewables, as well as its upcoming cap and trade plan, have not translated into a market for them. Second, Jones' dream of resurrecting America's labor movement by having a million Teamsters at work installing a million solar panels is at odds with the fact that American green technology firms have to compete with foreign competitors that may have lower labor costs. And third, it ignores the fact that many of these technologies are simply not ready for prime time, if that means living up to the promises of politicians. Just because solar panels and wind turbines sound cool doesn't mean that the people making them are ready to turn them into self-sustaining, profitable businesses. And many of the green start-ups going belly-up, like Green Vehicles in Salinas, are doing so because the only people willing to give them money are economically ignorant bureaucrats. (This is also likely to be the reason the state's High Speed Rail Project doesn't happen.)

As if on cue to illustrate our point, the San Jose Mercury News reports today that California just got 1,100 green jobs further away from Jerry Brown's promise of 500,000: Fremont-based solar firm Solyndra has announced the immediate layoff of 1,100 employees, as part of its move into bankruptcy. Solyndra is known for producing large-scale solar installations on commercial rooftops, yet in spite of a $535 million loan from the federal Department of Energy and what it calls "strong growth" in 2011, it was unable to compete with lower-cost manufacturers in China. Ultimately it was done in by a complaint all too typical of manufacturers in California: high production costs. The firm will now explore its options, including selling and licensing its technology.

The Legislature Turns Its Attention to Corruption in Southeast Los Angeles County

If you were hoping for someone to take a crack at reforming the corrupt governments in the southeastern corner of Los Angeles County, the Legislature in Sacramento might not be your first choice. Nevertheless, much like Donald Rumsfeld in Iraq, you take on reforms with the lawmakers you have, not necessarily the lawmakers you want. A pair of stories in the LA Times today describe what Sacramento is up to on this front.

There's doubtless some relief in the city of Vernon this week following the failure of Assembly Speaker John Perez's AB 46, which would've dissolved the small industrial town. Nevertheless, its sizable financial difficulties offer little reason for celebration. And the heat is being turned up in Sacramento with reports that state Senator Kevin de Leon, who led the effort to block AB 46 in the Senate, is urging the Legislature to audit Vernon's Light & Power Department. Given that the city-owned utility has amassed almost a half-trillion dollars in debt since 2005, and is being investigated by the IRS for possible violations of tax law, this isn't all that surprising. De Leon has wedded himself to the idea of reforming Vernon, and overseeing the resolution of its energy debacle is almost certainly part of that task.

The Times also reports that the state Senate has approved AB 353. This bill is intended to curb an abuse of police power that became common in cities like Bell, Maywood, and Montebello in recent years: using DUI checkpoints to target unlicensed motorists, and generating cash by either selling off impounded cars or charging their owners steep fees to release them. Under the bill's provisions, if a sober driver is stopped at a checkpoint without a valid license, the cops must release his or her car to a qualified driver representing the car's owner, either immediately or at the impound yard. While it's a step in the right direction, we're not convinced this will do much good. Many of the unlicensed drivers in question are illegal immigrants, who are unlikely to confront police who want to impound the car in defiance of the law. Nevertheless, the bill now heads back to the Assembly, which must approve the Senate's amendments before it heads to Jerry Brown's desk.

Just for You, Jerry Brown: Ten Ways In Which Taxes Are Just Like a Sexually Transmitted Disease

Jerry Brown's visit to a clean energy conference in Las Vegas yesterday offered us yet another nugget of the Governor's wit and wisdom. According to the LA Times, the man who brought you the "war of all against all" and the "fuzzy zone that's yet to be transcended" in recent months said that some of his colleagues in Sacramento hold to "the notion that taxes are like some kind of sexually transmitted disease." Well, we actually think this analogy is pretty good, so to help the governor out, here are ten similarities between taxes and venereal diseases:


1. One often brings them up when in Las Vegas.

2. They both cause pain below the belt.

3. You usually end up with them after being lied to about something.

4. The backdoor variety is the worst.

5. Both tend to reduce productivity.

6. If you inflict one on somebody, don't expect them to thank you for it.

7. Once you've got one, it's almost impossible to get rid of.

8. Especially in California, they flare up every few months.

9. They both lead to lots of medical research.

10. The best way to guard against them is for all parties involved to embrace personal responsibility.

We welcome our readers to suggest more in the comments.

Tuesday, August 30, 2011

Los Angeles County on Prisoner Realignment: "We're All Gonna Die!"

When we first heard about Jerry Brown's plan to save general-fund dollars by sending non-violent felons out of state prisons and into county jails, we had two thoughts. First, that given the dangerous overcrowding in California's prisons, it was probably unavoidable. And second, that local law enforcement would warn of dire consequences. The first of these came true with a bang in May when the Supreme Court ruled that California needed to shed roughly 46,000 inmates from the state-prison population. And the second is coming true now, with Los Angeles County District Attorney Steve Cooley and Supervisor Zev Yaroslavsky predicting a crime wave after realignment is implemented in October.


We've suggested more than once that Jerry Brown and the bulk of Sacramento's political establishment designed its budget cuts to be as painful and irritating to the public as possible, setting the stage for future pleas for tax increases. But this is the first time we've seen the state's realignment plan used to scare the public. And Cooley did not softpedal it: "Public safety will be seriously jeopardized. We’re not kidding. There will be tens of thousands of people let out all over California, who would otherwise be incarcerated." Nor did Yaroslavsky offer much comfort: "Common sense tells you that the sheriff doesn’t have the jail capacity to house all of these folks that are going to have to be housed as inmates. You’re going to have to kick some . . . people out the door." So, for those of you planning on traveling to the Los Angeles area starting in October, you should probably be aware that high-ranking public officials expect it to be overrun with violent criminals around then.

It's unfortunate that law enforcement professionals in southern California are starting to take cues from their fraternal brothers to the north, who are really the early adopters of the whole "scaring the public into higher taxes" idea. Police in Oakland, San Jose, and Vallejo have already outlined the lists of crimes they no longer respond to quickly. And how could we forget the great work of the public safety professionals in Alameda? The point is to remind our readers that cash-strapped cities and counties always talk about cutting services the public wants. All the other things they could cut without anyone noticing (like, say, their own pensions)? Not so much.

BREAKING: Steinberg Bill Would Allow Local Governments to Levy Gas Taxes, License Fees

Back in the spring, Senate President Darrell Steinberg made waves by pushing SB 673, a bill that would have given cities, counties, and special districts expanded authority to impose a variety of new taxes. While the bill was largely a maneuver meant to intimidate Republican legislators into backing Jerry Brown's plan for a ballot measure on tax extensions, we were almost tempted to support it, insofar as it would've strengthened the hand of local government and undercut the rationale for new taxes from Sacramento. Well, the Sacramento Bee is reporting that Steinberg is up to similar tricks: he's hoping to pass a new bill, SB 791, that would allow transit districts to place their own fuel surcharges on local ballots. These districts would also be permitted to impose new license fees on electric cars. The revenues would go to fund local "congestion reduction" projects.

The bill is now in the Assembly, and would have to go back to the Senate for approval before it reached Jerry Brown's desk.

"Supporting Business", Jerry Brown-Style

Back in June, we gave Governor Jerry Brown credit for doing a good thing for economic liberty in California, when he vetoed Darrell Steinberg's bill to allow agricultural workers to unionize without a secret ballot. Given the struggles of the state's farms, the last thing they need these days is an explosion in labor costs and an increasingly hostile workforce. Well, today Brown returned to the subject of "card check," and suggested new ways for Sacramento to meddle in the affairs of the state's agriculture employers. Fortunately, the Governor remains opposed to outright card check; less fortunately, he's suggested some alternatives to Steinberg, including changing existing law to reduce the time in which farmers can delay bargaining and to force employers to immediately reinstate workers fired unfairly during unionization drives. Moreover, he indicated that he could be open to making these changes before the session ends on September 9. So, while it looks like Brown is reluctant to sign something as controversial as card check, he's still looking for ways to make nice with the UFW. Which can't be good for California's struggling farmers.

Parsing the Latest Report on California Job Growth

Given the unrelentingly grim reporting on the state of California's economy, this report in today's Orange County Register might have raised a few eyebrows. In a good way. According to the Bureau of Labor Statistics, California was second in job growth, behind Texas, over the past year. While the Lone Star State has gained 269,500 jobs, seasonally adjusted, since July 2010, California gained 189,600 workers over the same time period. So, does this mean the Golden State is turning a corner?

Probably not yet. For one thing, these are raw, not per-capita, numbers; one would expect California to employ large numbers of people, insofar as its population is far larger than that of any other state. (We'd like to adjust by the size of the labor force, rather than population size, but the population serves our purpose as a rough proxy.) In other words, while Texas gained 42% more jobs last year than California, we have a population 48% larger than that of the Lone Star State; as such, when you adjust for the relative sizes of the two states, the economy in Texas grew over twice as much as California's did. When you look at job growth in some of the other states the Register piece reports, it doesn't look better. When you account for the fact that California is twice as large as New York, the Empire State actually added 8% more jobs than we did. In the sparsely populated states of the Mountain West, this was even more pronounced: Utah and Wyoming added jobs at more than twice California's rate, and North Dakota added almost six times as many, accounting for the disparity in population size.

For another thing, this report hardly discounts all the other bad news we've gotten recently. California's unemployment rate has hung steady around 12% for months. Business creation has evaporated. And 190,000 new jobs pale next to the 727,000 Golden Staters who've been out of work for the entirety of the past year, to say nothing of the 10.4 million out of the labor force and the 1.5 million working part-time by necessity. This news is good, obviously, but we have a long, long way to go.

Jerry Brown, Democrats, Unions Try to Determine Best Way to Take Your Money

Sometimes taking people's money without their consent is harder than it appears. As a case in point, observers of the protracted haggling over California's most recent budget will remember Jerry Brown's ultimately unsuccessful attempt to put five-year increases of income, sales, and vehicle taxes before voters. When the slapdash majority budget was signed into law, Brown promised to try again on tax hikes, this time targeting the November 2012 ballot. Yet, as the Sacramento Bee reports today, the Governor is having a hard time deciding, in concert with his employers in the organized labor community, on the best way to make those hikes a reality. And some of the union folks are getting nervous that they may run out of time to submit a plan.


In talks that the Governor describes as "herding cats," Brown and various labor unions are stuck trying to figure out what sort of tax package will take enough money out of private hands to satisfy them, while being popular enough to gain voter approval. While another plan to tax a broad swath of Californians might give Sacramento billions to spend, Brown isn't likely to go this route again, unless you think something will happen that makes such hikes more popular than they were in the spring. Union officials, of course, have been pushing a tax on California's wealthy, and Senate President Darrell Steinberg wants such a tax to be part of any proposal. Of course, no less a radical anti-tax conservative than Treasurer (and lifelong Democrat) Bill Lockyer has said that taxing the rich any more would likely push many of them out of California. Of course, the millionaire's tax alone wouldn't bring in nearly enough money, so it would need to be accompanied by taxes on businesses. Given the state's grim economy, these would be a tough sell, and would likely face stiff opposition from interests with deep pockets.

The more basic problem, of course, is one the Bee sidesteps: the argument for tax increases is very, very weak. If you tax private enterprise, the state's awful recession is more likely to continue. If you tax the rich, you lose some of the investment capital that creates the permanent jobs Californians are desperate for, and enough of them leave that you don't see nearly as much money as you expected. If you tax everyone, you probably lose your job, and you risk a middle-class tax revolt along the lines of Prop 13. Lest anyone forget, Brown is planning massive increases in government spending, starting with a $12 billion increase in the general fund budget next year. For all the Governor's rhetoric about "tackling the state's wall of debt," his actual plans would call for most of the new tax revenues to be thrown at new spending, including prisons and $20 billion in new bonds. Californians shouldn't be fooled. These proposals aren't intended to solve the state's chronic financial woes, and will only worsen them.

Bell Residents Keep Paying for Robert Rizzo's Crimes, Now With Higher Taxes

After March's recall elections in the small Los Angeles County city of Bell, which saw many members of the scandal-tainted City Council shown the door, members of the community could've been forgiven for thinking they'd put the worst behind them. Since then, however, the city's legal action against former City Manager Robert Rizzo has dragged along, the town has tried and failed to find a new city manager and auditing firm to right its swooning finances, and new revelations of the old guard's misdeeds have continued to emerge. Observers of the 2010 scandals may recall that one of the worst abuses was the $5.6 million in illegal taxes the City Council charged residents in order to inflate their own salaries. Well, the more things change, the more they stay the same: the LA Times is reporting that Bell homeowners are about to see a hike in their property taxes. Why? To pay off $50 million in parks bonds, much of which went into Rizzo's pockets.


Despite being one of LA County's poorest cities, Bell homeowners pay one of the county's highest property tax rates. As such, residents were understandably angry to learn of a three-year hike in those rates. Nevertheless, because the hike was imposed back in 2009, the new City Council says there's nothing they can legally do to stop it. The revenues from the tax won't help with Bell's budget crisis, as they'll be used solely to pay back bondholders on the $50 million debt. Back in 2003, the city issued the bonds with promises to build a sweeping complex that included baseball and soccer fields and a new library, and to make various improvements to parks and the Civic Center. Today, only $20 million are left, and the land remains vacant. Millions were spent on fencing and site preparation, and a chunk of the money went to boosting the salaries of Rizzo and other city officials. Bell's handling of the bonds is currently being investigated by the IRS, SEC, and the state Department of Corporations.

One option for getting out from under the debt would be returning the remaining $20 million, which would at least make future tax increases less likely. In the meantime, though, Bell's beleaguered citizens are going to have to dig a little deeper to pay for problems they didn't create.

Monday, August 29, 2011

BREAKING: Vernon Lives!

We've been following developments in the California Senate this afternoon, and it looks like Assembly Speaker John Perez's proposal to dissolve the city of Vernon, AB 46, has failed on a 13-17 vote. In a fiery statement following the vote, Perez blasted his Senate colleagues by name for their lack of support: "The fact is clear: Senators Calderon and De León, along with their colleagues, have given Vernon a free pass to continue doing business as usual, and those senators will own the responsibility for any misdeeds that may occur in the future." Ouch.

No longer relevant. Thankfully.

The big winners here are the businesses of Vernon and the 50,000-odd southern Californians who work in the small Los Angeles County burgh. Many of these firms were facing the prospect of closing up shop or leaving for more business-friendly climes, due to expected hikes in taxes, insurance, and water and power rates associated with being absorbed into the County. Which is what makes this, in our view, great news: anything that preserves the viability of private enterprise and the existence of private jobs in southern California is a good thing. Labor unions in the area will presumably also benefit from the preservation of jobs.

Though they might not fully understand it, Los Angeles County also dodged a bullet today. Perez initially launched the bill as a way of grabbing Vernon's corporate tax base and public utility for the benefit of LA's political elites (including his cousin, LA Mayor Antonio Villaraigosa). Over the past couple weeks, many of these elites have cooled to AB 46 as new information on Vernon's massive debts has come to light. So it's good for the County that those debts remain someone else's problem. More importantly, the county is better with those 50,000 jobs than it would be without them.

Neither winning or losing is the city's government. While they get to hold onto power, Vernon is facing an uncertain future. The political corruption scandals that made national news last year have yet to fully sort themselves out. And we don't envy anyone charged with moving the city past the massive financial losses it's sustained in recent years, especially if the IRS finds that it improperly issued over $400 million in tax-exempt debt in 2009.

One big loser, of course, is Perez, who put considerable time and effort into wiping the city out. Perhaps the bigger loser in this, however, is the Legislature itself. Back in July, we wondered whether California cities were the next target in Sacramento's ever-expanding battle to reward organized labor at the expense of everyone else. Lest we forget, the most recent budget included raids of redevelopment and vehicle-license money, as well as a slew of labor-friendly regulations that would disadvantage California's already-strapped cities. AB 46 was merely the most dramatic example in this trend. As such, its failure is probably a good thing for local government, and, by extension, accountability to taxpayers.

Democratic Lawmakers Vs. the Voting Public. Again.

I'm with stupid?
With all the energy they're expending on weakening the state's ballot initiative process for their own benefit, it's hard to imagine when the Democrats in California's Legislature plan to find time to fix the weak economy. Between its blatant defiance of the voters' will during the passage of the most recent budget, one awful constitutional amendment currently making the rounds of the Assembly, Mark deSaulnier's crusade against paid signature-gatherers, Loni Hancock's attempt to destroy the two-thirds threshold for tax increases, and Hancock's more recent attempt to deny voters the chance to weigh in on the Amazon Tax, lawmakers' contempt for the initiative process couldn't be more clear. But just in case you still had any doubts, the Sacramento Bee reports that Darrell Steinberg is debating moving all such initiatives to November ballots.

This, of course, is just another reminder that Steinberg is a loyal employee of organized labor. By keeping initiatives off of low-turnout June ballots, unions would be better able to focus their election spending each year. This would increase their chances of defeating the pension reforms expected to be on next year's ballot, though it's unlikely the bill will have the Republican votes it needs to get to Jerry Brown's desk this year.

Unions Gone Wild: Grocery Workers Threaten to Put Their Employers Out of Business

Back in June, we wrote about the contentious negotiations taking place between the UFCW and the Ralphs, Vons, and Albertsons grocery chains in southern California. At issue is the union's demand for continued free health care; the grocers have offered insurance coverage for as little as $9 a week, and for employees who work as few as 16 hours a week, but they're insisting on at least some contribution from the workers. As a result, the union overwhelmingly voted, just over a week ago, to reject the supermarkets' offer and go on strike.

Of course, like government workers who can't understand why some taxpayers have a problem with their six-figure pensions, these folks might find that the public is a lot less sympathetic than they were in 2004, the last time the UFCW went on strike. With unemployment ranging from 9% in Orange County to north of 14% in the Inland Empire, beleaguered Southland residents may find it hard to shed tears for union workers getting strike pay in return for refusing to work for a willing employer. What's more, many of the 2004 strikers picked up second jobs to supplement their strike pay; good luck with that now.

More importantly, the three union supermarkets lost $2 billion in the 2004 strike, and the San Diego Union-Tribune is openly wondering whether they'd survive another work stoppage. While Albertsons, Vons, and Ralphs all recovered the market share they lost in that strike, times have changed since then. Big box retailers like Target, Wal Mart, and Costco have greatly expanded their grocery offerings, and stores like Fresh & Easy and Trader Joe's have only gotten easier to find. Moreover, with inflation squeezing grocer profits, the sizable wage differential between union and non-union stores means that better bargains are more likely to be found in the latter. As such, a loss in market share resulting from a strike might be more permanent this time around. Whether this would wipe out one or more of the affected chains is an open question. But it is a possibility.

Your Tax Dollars Hard at Work in San Diego and San Francisco

Just in case you hadn't heard enough about how times are tough for publicly funded bureaucracies these days, the cities of San Diego and San Francisco offer two examples of how our public servants are scraping by.

First up, you'd think that public schools in San Diego would be leery of giving credit cards to administrators, in the wake of Jesus Gandara's tenure at the Sweetwater Union High District. Yet according to this report in the San Diego Union-Tribune, they haven't been leery enough. The principal at the Explorer Elementary Charter School in Point Loma, Jill Green, apparently enjoyed her taxpayer-paid credit card a lot in the three years prior to her resignation in April. In that time, Green put almost $38,000 on the card. Over $3,300 of that was spent on gift cards and flowers, for employees and others; yes, gifts of public funds are prohibited by California's constitution. She also spent $727 on wine, and $450 on treats and toys for her dog. In a sign of how education bureaucrats tend to view responsible uses of taxpayer money, Green insists that she did nothing wrong. "I was never told by anyone that this was wrong or a misuse of funds, and in fact I felt (and it was said or implied by the board for all the years prior to 2011) that this was an integral part of my job as 'CEO' of the school."

Meanwhile, this story in the San Francisco Chronicle offers yet another clue as to why the city by the Bay is broke. You see, the Board of Supervisors wants to install a wheelchair ramp in its chamber in City Hall. According to Board president David Chiu, "San Francisco has been at the forefront of access issues, and it's important the board reflect that." If this were a private organization spending its own money, you'd think that building a 10-foot ramp would be pretty cheap and straightforward. Since this is San Francisco, however, two architects have already burned through over $170,000 in public funds just to plan the ramp's construction. When you factor in the costs of materials and union labor to actually build it, the Ramp to Nowhere is expected to cost $699,400. That's right: in San Francisco, a single-family home costs less than a wheelchair ramp in a government building. If it makes you feel any better, this will still come in cheaper than the Board's original plan, which was estimated to cost $1.1 million. And we wonder why the Central Subway hasn't been finished.

From Bad to Worse: IRS Takes a Look at Vernon's Finances

The last few weeks have been tough for Assembly Speaker John Perez's effort to destroy the Los Angeles County city of Vernon. With the revelation that the embattled town had run up hundreds of millions in debt as a result of foolish energy speculation, many of AB 46's biggest supporters, including the County's Board of Supervisors and state Senator Kevin de Leon, have backed away from the measure. It seems they've realized that wiping out thousands of jobs and incurring the wrath of organized labor aren't acceptable costs if the county will be taking on sizable debts in addition to tax revenues. And the deal may be about to get even worse for LA County, with news that the IRS is auditing Vernon's 2009 issuance of $419 million in tax-exempt bonds.

Go figure: Texas would get all the jobs and none of the debt.

The 2009 issue goes back to the city's fateful decision to purchase a 15-year supply of natural gas back in 2006. When the market price fell far below the fixed rate Vernon had agreed to, and the derivatives trades it was banking on fell apart in 2008, the city chose to issue the new debt as a way to pay down the remaining debt on the 2006 purchase. Effectively, it was like refinancing a loan (in this case, a $431 million loan). While they haven't offered specifics to the press, the IRS believes the 2009 issue may violate restrictions on tax-exempt debt. Tax-exempt bonds are typically issued for things like major construction projects and infrastructure development. While Vernon is confident that it hasn't violated any laws, they could be in big trouble if they're wrong. If the IRS determines that paying down prior debt isn't a "qualified purpose" under the tax code, the city could be forced to pay millions in back taxes to the federal government.

Drug War Violence Comes to Sleepy Mendocino County Town

Normally, when you think of violence associated with drug trafficking, you probably think of cities near the Mexican border, or disputes between gangs in the inner city. Which is why this report in the Santa Rosa Press Democrat is so stunning: apparently, the latest round of drug violence has claimed the life of a former mayor in, of all places, the sleepy Mendocino County town of Fort Bragg.

Jere Melo.

For those of you not familiar with this part of California, Mendocino is best known for four things: incredible natural beauty, a carefree, a live-and-let-live attitude among the locals, excellent wines, and marijuana cultivation. And Fort Bragg, a Civil War-era fort turned coastal tourist town about 150 miles north of San Francisco, is no exception. Which is why the Saturday murder of City Councilman and former Mayor Jere Melo has rattled this town of 7,300. Melo was apparently working as a private contractor with a timber company in the area, and encountered a clandestine pot farm in a rugged area near the Noyo River. An armed guard appeared and fired several shots, killing Melo. The County Sheriff has identified a suspect.

Melo is survived by his wife and two children, to whom we send our condolences. And we'll remind our readers that Melo's is yet another life senselessly lost because of marijuana prohibition.

Sunday, August 28, 2011

Shocking News: State With Worst Business Climate Collects Fewer Corporate Taxes Than Expected

File this one under "News That Will Be Misinterpreted For the Worse": the Sacramento Bee reports that revenues from corporate taxes are 10% lower than expected through the first seven months of 2011, creating a shortfall of over $700 million dollars. No accompanying review of corporate tax records has been performed, but "experts" are already pushing their preferred explanation: tax breaks to businesses have proven more generous than expected.

The news, of course, comes on the heels of Jerry Brown's renewed appeal to eliminate one of these credits by calling for firms to use only sales in California to estimate their tax liabilities, rather than allowing them the option of using their California property holdings and employees in calculating taxes. Since 2009, the Golden State has allowed companies to choose which formula they apply. According to the Governor's office, this would raise $1 billion in tax revenues every year, primarily from out-of-state firms.

Of course, no one seems to be asking whether the government's original projection was ridiculous to begin with, even though it hasn't exactly distinguished itself by the recent guesstimate of $4 billion in tax revenues that were expected to balance the budget. They're also not asking whether there might be a simpler explanation for the drop in revenues than the tax code: California's business climate. Readers of this blog may recall that thousands of Golden State businesses died in 2010, and dozens of firms have fled for more hospitable regulatory environments. Is it so hard to believe that California's corporate tax revenues are shrinking because there are a lot fewer businesses here than Sacramento expected?

Supervisor: Orange County Could Go Back Into Bankruptcy

Today's Orange County Register has an interesting, if grim, editorial from County Supervisor John Moorlach. According to Moorlach, the Government Accounting Standards Board's recent decision to require municipalities to report unfunded retirement liabilities on their balance sheets could soon reveal that many Orange County governments, including the county itself, are on much shakier financial footing than previously thought. As such, the county may well be heading for a second bankruptcy.

Veteran observers of government incompetence and misuse of tax dollars will recall that Orange County's 1994 bankruptcy stemmed from the investment practices of Treasurer Robert Citron. In order to maintain high levels of spending in the face of the recession that crushed southern California in the early 1990s, Citron essentially borrowed huge sums of money and invested them in risky securities. Many of the investments blew up in the county's face, and taxpayers were understandably unwilling to raise taxes on themselves to pay for Citron's mistakes (he later pled guilty to several felonies in the matter). This time around, the forces driving the county into insolvency are a lot more obvious, at least to those observers who care to pay attention.

As Moorlach explains, GASB breaks a government's net capital assets into three categories: capital asset investment, net of any related debt; restricted resources, or assets on the books that don't belong to the municipality; and unrestricted net assets. Once governments are required to report unfunded pension liabilities on their books, the effect will be higher accounting liabilities and fewer unrestricted net assets. To illustrate the implications, Moorlach provides some examples.

The upper-middle class city of Irvine currently has $2,082,629,000 in net assets; this includes $1,488,021,000 in investments in capital assets, $349,681,000 in restricted resources, and unrestricted net assets of $244,927,000. This sounds pretty good until you consider unfunded retirement benefits. Irvine currently has $3,471,000 in unfunded health care and $91,995,000 in unfunded pensions. As such, Irvine's actually available net assets are only $149,461,000. Things look even worse if you cross MacArthur Boulevard and enter Newport Beach, one of America's wealthiest cities. Newport currently reports net assets of $2,323,822,000, but only $96,223,000 in unrestricted net assets. With $174,347,000 in unfunded medical and pension liabilities, this leaves the city $78,124,000 in the red, as far as available equity is concerned. This means that, with about $175,000,000 in cash currently on its balance sheet, Newport would have to exhaust its reserves just to pay off the promises it's already made.

So how about the County itself? According to Moorlach, Orange County has $4,794,221,000 in net assets, only $311,792,000 of which are unrestricted net assets available to use toward unfunded liabilities. Its unfunded health care promises currently add up to $396,009,000; yes, paying these off would wipe out all the county's unrestricted equity and then some. Even worse, it has a staggering $3,703,891,000 in unfunded pension costs. In other words, its available equity is almost $3.8 billion in deficit.

Moorlach, unsurprisingly, recommends quick and drastic action: "More cuts and benefit modifications can be pursued. Outsourcing should be expanded. The county's public employee unions should negotiate to reduce pension benefit formulas for current employees, which is the best alternative. Otherwise, I don't see any pay raises in the near future for county workers. If the county experiences an unforeseen financial calamity, then a bankruptcy judge may just have to approve a reorganization plan, again."

So does this mean the City Council in Costa Mesa isn't so extremist after all?

Assembly Speaker Perez Still Determined to Destroy Vernon

He may not have the support of the business community or the government in the tiny Los Angeles County town of Vernon. He may have alienated its organized labor, no small feat for a career union hack. The County Board of Supervisors, his ostenible allies, may have cooled to his idea with recent revelations that Vernon's debts are far larger than previously thought. And his biggest ally in the Senate, Kevin de Leon, may have also deserted him. But the LA Times reports today that Assembly Speaker John Perez is not giving up on AB 46, his bid to forcibly dissolve Vernon.


It's tempting to ask why Perez remains so determined to wipe out Vernon. His argument about corruption in the city's government has never held much water; if an AB 46 was required for every corrupt government running an LA County town like a personal fiefdom, half the cities there (including Los Angeles itself) wouldn't exist anymore. And it's odd that Perez seems singularly impervious to the concerns of the city's business community, insofar as 50,000 jobs could flee the recession-battered county if his bill goes through. Perhaps, as was said of the Joker in the most recent Batman movie, some men just want to watch the world burn. We'd have to assume, at this point, that Perez is simply afraid to look bad. It might be very bad policy, but abandoning his signature piece of legislation might play badly in future elections. So, unfortunately, it looks like this sorry spectacle of government greed will have to play itself out to the end.

Big Brother in Action: Board of Equalization Hits Pleasant Hill Man With $1,400 in Cigarette Taxes

A couple days ago, we wrote about the alarming aggressive streak we were starting to see in the state's Board of Equalization, the agency responsible for overseeing tax collection in California. With the advent of the Amazon Tax, it looks as though Sacramento is wholeheartedly rejecting the idea that personal privacy or money should be obstacles to extracting every dollar of its citizens that it feels it's entitled to. As an example, check out this report in yesterday's San Jose Mercury News.

Those of you who don't live in California may not understand something about the Golden State: it really, really, really, really hates smoking. And Pleasant Hill resident Paul Brodman just found out the hard way. According to the Mercury News, Brodman found a great deal on cigarettes through an out-of-state online retailer, and bought about 100 cartons over the Internet in 2007 and 2008. Unfortunately for him, the Board of Equalization has something called the "Cigarette Internet Program", which apparently involves putting the screws to attorneys general in other states to force their retailers to cough up purchase data to California. As a result, Brodman just got a $1,400 tax bill from California for his cigarettes, which includes the 87-cent excise tax on every pack and an 8.25% use tax on the total amount.

A spokeswoman for the Board, of course, frames the issue as one of fairness. We would frame it as one of privacy. We accept that our government believes it's entitled to as much of our money as it wants; that doesn't make it much different from any other government out there. But every Californian should be concerned about a state agency, not involved with law enforcement, going on a fishing expedition through their online and mail-order purchases for any reason. We can't imagine the costs of this program don't outweigh the revenues it uncovers. More importantly, we can't help but worry about the potential for abuse inherent in an unaudited government database of citizens' private interests.

Saturday, August 27, 2011

Two More Casualities of Environmentalism: Property Rights and Sonoma County Wine

Drawing parallels between the Russian River wine country in Sonoma County and the sun-blasted west side of the Central Valley isn't an easy thing to do. Unfortunately, if environmentalists and their friends in Sonoma's government get their way, the two regions may soon have something very bad in common: skyrocketing unemployment after the government imposes water restrictions to save a fish.

The situation in the Central Valley, of course, is at least passingly familiar to anyone who's driven the 5 between Los Angeles and Sacramento in recent years and seen signs about the "Dust Bowl" there. As this excellent piece at Cal Watchdog discusses, a judge in Fresno ordered the federal government to curtail over 80% of its water deliveries to the Valley's arid west side, in order to restore the migration of salmon and smelt through the Sacramento-San Joaquin River Delta. This was 2007; since then, thousands of farm workers in the Valley have lost their jobs, and a quarter of a million acres of crop land have been idled. The lack of activity on the west side of the Valley has also negatively impacted demand for goods and services from the east, contributing to the ongoing high unemployment in cities like Fresno and Bakersfield. Of course, with wastewater from the heavily urbanized Bay Area contaminating the Delta and its estuaries, the restrictions have not led to a resurgence of the smelt population.

And now, something similar may be coming to wine country. The Bay Citizen reports that Sonoma County is poised to enact sweeping new restrictions on the water that local wineries may draw from nearby streams. The move comes in response to complaints from nature-lovers, who accuse the wineries of destroying the habitat of local coho salmon by planting too many vines and spraying them with massive amounts of water as a way of preventing frost. Naturally, the county and the environmentalists have provided no evidence that the problem is as large as they claim. And the only evidence that the wineries are creating sharp fluctuations in river levels is strictly anecdotal. But as we see so often in the Golden State, environmentalists seldom let facts get in the way of attacks on private enterprise. Especially if it involves overturning the property rights of private landowners, as is the case here (the Citizen article makes clear that the county has given wineries unlimited access to stream water). Wineries are, of course, expensive businesses to run, so dramatic new restrictions on access to river water will almost certain drive many of them out of business, particularly the smaller, locally-owned places.

So, it appears that California's environmentalists are determined to use government force to destroy yet another wonderful and unique element of the state's culture. Then again, given the totalitarian streak these folks have already demonstrated in spades, we can't say we're shocked.

Today's Reason to Abolish the California Legislature

Watchers of the corruption and graft that characterizes the Capitol dome in Sacramento are abuzz with yesterday's release of office-by-office spending data by both the Assembly and Senate leadership. The story behind the data dump begins with the passage of the latest state budget back in June. After he cast the lone Democratic "no" vote in the Assembly, La Cañada Flintridge's Anthony Portantino complained that his office's budget had been slashed by Speaker John Perez in retaliation. While we'd hardly characterize Portantino as a friend of liberty, his feud with Perez led to a public-records request from the Sacramento Bee and the LA Times; when the Assembly balked at the request, Portantino and a variety of news outlets filed a lawsuit. In the face of mounting public criticism, Perez and Senate President Darrell Steinberg relented, and yesterday posted 2010 spending data and year-to-date 2011 data online.

Unfortunately, neither Portantino nor any advocates of government transparency are likely to be satisfied. At the heart of Portantino's dispute with Perez is the Speaker's contention that his colleague is overspending: since the data provided only pertain to expenses, and not budgets, they're useless for the purposes of proving the contention. Without any information on budgets, it's impossible to determine whether the money is going where it's expected to go. Moreover, the presentation of the data makes it difficult to pinpoint a given office's true expenditures, as member spending, office spending, and spending related to various caucus and committee involvement are spread throughout the documents.

In other words, it appears that the Legislature wanted to quiet public criticism by creating the impression of transparency, without actually providing truly valuable information. Just another day at the office in Sacramento.

Appeals Court: Until Further Notice, Government Workers in Costa Mesa Have Jobs for Life

The Orange County Register offers a quick update on Costa Mesa's ongoing effort to outsource half its public workforce. Back in July, a county judge ordered a halt to the plan until a lawsuit filed by the Costa Mesa Employees Association could be heard. This wasn't a big deal at the time, since the city had no plans to lay off any workers before September. Unfortunately, it's now spent much of the summer litigating rather than exploring its outsourcing options with private contractors. So the news it got yesterday wasn't good: an appeals court refused to lift the county judge's injunction.

Insofar as the judicial system in California is closely entertwined with the political realm, we've had nagging doubts as to whether judges would risk the ire of the state's unions and their employees in the Democratic political machine. In other words, while Costa Mesa is wisely trying to downsize itself while its finances are still relatively steady, California judges may be less swayed by the City Council's authority to make its own personnel decisions if it means risking union opposition at election time. After all, no one ever made a career in politics by showing mercy to the taxpayers.

Friday, August 26, 2011

A (Small) Bit of Good News for California Taxpayers

Sometimes it helps to be reminded that government, though often omnipresent, is not omnipotent. This can happen when one of the terrible things the state does actually mitigates the effects of another terrible thing it's doing. As an example, Ben Bernanke and the Federal Reserve have spent much of the past few years frantically inflating the nation's money supply. While this has driven some short-term growth, it's also begun driving up the prices of a wide variety of goods. While this is obviously a bad thing, the Sacramento Bee reports that it's had at least one positive side effect. The Franchise Tax Board has applied a cost-of-living adjustment to the state's tax structure, and as a result of inflation, California's income tax brackets, credits, and deductions have been bumped up by 2.7%. In other words, if like many of us your income has stayed flat, you may actually fall into a lower tax bracket next year. What's more, income offsets like the standard deduction and various tax credits have also increased.

This Day in California Taxpayer Abuse

With Jerry Brown and the Legislature already gearing up plans to raise taxes on private businesses, recession be damned, it's always helpful to be reminded of how desperately the government in Sacramento needs more of our money. After all, we've obviously reached a point where every dollar is being spent on services of vital importance to Californians. At this point, nothing can be cut without making us all worse off.

As an example, John Fensterwald reports that the Assembly Appropriations Committee has killed SB 27. And thank heavens for that. Now our selfless public servants will be free to spike their pensions, and to double-dip CalPERS or CalSTRS by returning to government work after retiring. Clearly, allowing public employees to simultaneously draw retirement benefits and salaries, and allowing managers to reward their allies by giving them massive raises in their final years of employment, is part and parcel of what makes California such a unique and civilized place.

If that doesn't convince you, then maybe this San Francisco Chronicle report on a state audit of whistle-blower reports will help. We know we feel better about unconstitutional fee hikes, knowing that they've helped pay for an official in the state Mental Health Department to attend the Golden Globes and a Julio Iglesias concert. And aren't you going to welcome a renewed push for higher income and sales taxes next year, knowing that they'll be helping a prison psychologist collect hundreds of thousands of tax dollars for time spent seeing patients in private practice? We know we will.

Bay Area Suicides Remind Us of the Recession's Human Face

We write a lot about the ongoing economic recession in California, and make no apologies for giving our elected officials hell for contributing to it. Yet while it's easy to make political hay over issues like business regulations, taxpayer subsidies for green energy, AB 32, tax increases, and rising pension liabilities, it's important to remember that these things are more than abstract political footballs. When regulations and taxes (as well as uncertainty about future regulations and taxes) keep businesses from hiring or expanding, or the Legislature wipes out hundreds of jobs at the stroke of a pen, real people are put out of work as a direct consequence. When taxes go up, many of these same people have to struggle that much harder to pay their bills. As the state's Economic Development Department reminded us last week, the current recession has hit a lot of Californians very hard: 727,000 Californians have been out of work for more than a year, half a million have exhausted their 99 weeks of unemployment benefits, and 10.4 million (over a quarter of the state's total population) are out of the labor force. And today, the Bay Citizen offers another sign of the deep human toll behind the state's weak economy.

According to the Marin County Coroner's Office and the Golden Gate Bridge, Highway, and Transportation District, 2011 is on course to be a record year for suicides at the Golden Gate Bridge and on the tracks of Caltrain, the commuter rail service that runs along the San Francisco Peninsula between the city and Silicon Valley. Since January, at least 24 people have taken their own lives at the Bridge, and four of 12 suspicious deaths on the Caltrain tracks have been determined to be suicides. Many experts point to the state of the economy as an explanation. Officials with local suicide prevention groups say that callers to hotline services frequently mention the economy. Eve Meyer, executive director of one such group in San Francisco, says, "We constantly hear, 'I’m going to be homeless; I would rather be dead than be homeless.'" The father of a woman who recently leapt from the Golden Gate said of his daughter, "She was very conscious of being 55 with no health insurance, no pension and being part of a dying industry." Moreover, while suicide is typically most common among the elderly, nearly all the cases in question involved adults in their 20s or their 50s.

First off, it goes without saying that, if you're reading this and you're struggling with the recession, please seek help if you need it. That aside, though, this grim report is something you should remember every time someone in Sacramento defends the state's high taxes and brutal business climate.

Today's Reminder that Montebello is Still Screwed

We haven't heard much from the troubled Los Angeles County town of Montebello recently. When its financial problems and shady dealings first came to light back in April, we initially expected things to move quickly. Since then, however, we've had little news apart from a series of damning reports pertaining to misuse of federal housing funds. Yet today we have another reminder of how much trouble Montebello is in, from the Whittier Daily News.

Back in the spring, former city manager Peter Cosentini warned that Montebello would run out of cash in October unless it was able to secure a private loan of roughly $3.8 million. In order to offset the costs of paying down new debt, Cosentini recommended that the city lay off 45 employees; when the City Council refused, he resigned. The council then hired Interim City Manager Larry Kosmont, agreeing to pay him $7,500 more per month (UPDATED: the Daily originally reported the difference as $6,500/month) than it had paid Cosentini. So what has Kosmont concluded after his own evaluation of Montebello's finances? That it needs to secure a private loan of $3.9 million by mid-September, or it may fail to make payroll as soon as October. Even worse, Kosmont's plan, unlike Cosentini's, doesn't include spending cuts. Instead, he appears to believe that a robust economic recovery is around the corner, and that the city will be saved by a rise in tax revenues. "If we could get a little bit of a bounce on sales tax and property tax, I don't think we would have to cut," Kosmont said.

Since Montebello currently has a junk credit rating, it will pay dearly for the new debt. Kosmont expects the city to pay about 5% interest on the nine-month loan. We'd guess they'll be able to get the loan, but the city is delusional if it thinks a broad recovery is coming to LA County anytime soon. In other words, we think getting the loan would actually be bad news for Montebello, insofar as it would add millions in high-interest debt to the city's tab while accomplishing little other than delaying the inevitable.

Thursday, August 25, 2011

Flood of Bad Health Reform Plans Not Subsiding in California

You know it's a bad day for liberty in California when AB 52 being approved by the Senate's Appropriations Committee (as reported by the Sacramento Bee's Torey Van Oot via Twitter) isn't the worst health-policy news of the day. That comes to us in this report by the San Francisco Chronicle. Apparently, a Santa Monica-based consumer-rights lobby isn't satisfied with the looming bureaucratic monstrosity known as Obamacare, and wants California to implement something even worse.

According to the Chronicle, the group Consumer Watchdog, which created 1988's Prop 103 to regulate car insurance in the state, has a new ballot initiative in the works for the state's health care industry. At the core of the proposal: the formation of a government-run "public option" insurance plan, a 20% rollback of insurance premiums, and provisions that mimic AB 52's state regulation of insurance premiums. Apparently, efforts to repeal Obamacare a were significant motivating force for the group, which wants to shift the terms of the debate in an abruptly leftward direction. According to Consumer Watchdog's Executive Director, "This will be a bellwether for America. If California passes a 20 percent rate rollback and the right of citizens to bypass private insurances in favor of a public plan, then every other major state will do that, too."

Aside from all the problems with AB 52 that would be problems for this initiative's rate regulation component (e.g., high staffing costs and conflicts with the state's Health Benefit Exchange), do we really need to point out all the problems with this plan? For one thing, the plan's public option is explicitly intended to destroy the private insurance market; considering that private insurers like Kaiser Permanente, United Health Group (which bought PacifiCare), and Anthem Blue Cross are major California employers, a sizable chunk of middle-class jobs in the state would be wiped out. For another, the premium rollback would almost certainly be passed on to consumers (in the form of higher deductibles and cost-sharing) and providers (in the form of lower payments). Most importantly, though, public insurance invariably crowds out private options (letting others pick up part of the tab is much easier than you or your employer picking up all of it, after all), and, you know, California is out of money. Requiring Sacramento to pick up the tab for the health care costs of 37 million people would sink the state's finances like a stone.

Will a Mendocino Special District Be the Next Muni Bankruptcy in California?

We're still tracking down details on this one, but the Mendocino Beacon has an intriguing report concerning the finances of the Mendocino Coast Recreation and Parks District. After a lively public board meeting last week, many are suggesting that the district may soon have to declare bankruptcy.

Apparently, the district's problems are largely due to debt incurred in the construction of the Regional Park; when it went into default on those loans, a $200,000 personal loan from a citizen helped get the district out of immediate trouble. Now, however, that citizen is going to be left waiting for about $100,000 in payments until the MCRPD can come up with the money. Its proposed budget for next year essentially assumes that fundraising efforts will make up for a $600,000 shortfall. The board's vice chair described its problems as follows:
"We can think creatively all we want about different operating structures but the reality is we are upside-down in money. The only option for additional revenue is the property tax measure, and it is going to take a certain amount of time, a year and a half. So every time we pull back and say we are not going to do it now and revisit it in six months, pushes that down the road. Right now, if we go forward and put the tax measure on the June ballot, we still will not see revenues until December 2012, backing off this decision perpetuates us being grossly under-funded."
Apparently, the district is still reaching out to a bankruptcy attorney in Santa Rosa to get a sense of what its options are. But it doesn't look good.

Board of Equalization: Big Brother is Taxing You

Last week, the California Board of Equalization, the Maoist-sounding agency charged with overseeing proper collection of taxes in the Golden State, issued a report that should have surprised no one: Californians are broadly non-compliant with the state's 7.25% "use tax". In order to meet the requirements of the law, you would need receipts on all purchases of durable goods from out-of-state vendors, whether the purchase took place in California or not, and would need to enter the total liability for those purchases on your income tax return. Since this is a complete pain in the a**, and most people consider their sales tax taken care of at the time of purchase, only 0.42% of Californians actually paid any use tax in 2009. And unlike income taxes, use taxes are virtually impossible for the Board to enforce. That is, unless they implement some of the Orwellian measures they're reportedly starting to consider.


On one hand, it shouldn't surprise anyone that California is stretching the bounds of decency to try to collect more use tax. After all, it was willing to wipe out thousands of jobs and bend the Constitution trying to force out-of-state online retailers like Amazon to collect these taxes. Even worse is the BoE's "qualified purchaser program," which attempts to shake down California businesses by "estimating" their use tax liabilities. Yet, with the Board guessing that over $1 billion is being left on the table through lax enforcement, they may be about to get more aggressive. One proposal would require tax preparers like H&R Block to press clients about use tax liabilities, presumably creating the pretext for state action against the preparers if the Board isn't satisfied with its take. More ominous is a plan to use demographic and market research data to identify Californians "likely" to owe the tax, and send them individual notices of their estimated liability. In other words, if your income tax return says you're a 25-year-old software programmer living in San Francisco, you could get a notice saying you owe use tax on an iPad, whether you own one or not. Generally speaking, it's rarely a good thing when governments create new databases with lots of information about you and your finances, but that's clearly what's being discussed here. Worst of all, the Board is also debating sifting through the shipping records of selected retailers to identify out-of-state purchases. Also generally a bad thing: governments collecting data on your specific interests and purchases.

One would hope that good taste would prevail and these ideas would be politely ignored from now on. If nothing else, they sound like a nightmare to enforce, and it's not clear that the additional revenues would be worth both the backlash and the cost of collection. More troubling, the Board's method for estimating use tax liabilities in the state is a complete black box. As California gets more desperate for tax revenue, it's unclear whether the Board would simply calibrate its estimates of what residents owe to the number Sacramento wants to see.

Jerry Brown's Jobs Plan: Taxes and Green Jobs

It appears that Sacramento's war on economic growth unemployment is well underway now, with Governor Jerry Brown set to outline a plan to get California's sluggish economy going. Brown's plan has two basic pieces, neither of which should surprise observers familiar with his usual approach to solving the state's ills. Unfortunately for Californians weary of watching the governor struggle to get Republican lawmakers to sign on to his ideas, both ideas require two-thirds majority approval from the Legislature.

Part one of his plan involves re-authorizing the state's electricity surcharge. Since 1997, utility consumers in the Golden State have seen this surcharge on their electric bills, and the state has used the $400 million in revenues from it to subsidize energy-efficiency programs and green-power technology development. If we were living on a planet in which people were assumed to respond to economic incentives, one would think that letting the charge expire as scheduled at year's end would be a good thing, putting more money in the pockets of consumers. Unfortunately, we live in California, where it's presumed that no good thing would exist without government fiat. As such, Brown and his fellow Democrats, their cronies in the renewable-energy industry, environmentalists, and organized labor all view the surcharge as critical to their vision of a "green" future. Never mind the green-jobs folly in Spain or the mounting evidence that most of the taxpayer dollars thrown at these technologies have been wasted. This time, doing the same thing really will yield different results!

The second pillar of Brown's plan amounts to shuffling the deck chairs of the state's corporate tax structure. Bringing back one of his tax plans from the spring, he wants to tighten a 2009 corporate tax loophole by requiring multi-state companies to estimate their tax liability by the proportion of sales in California relative to sales outside the Golden State. The proposal is a little arcane, but the takeaway message is that companies building facilities and hiring workers in California would benefit, while some major firms would see their taxes rise substantially. Back in January, Brown estimated that the so-called "single sales factor" would bring in $1 billion in new revenues. Rather than using the revenues against the state's budget deficit, now the governor would use them to offset the effects of a 4% cut in the sales tax rate for manufacturing start-ups, as well as a 3% sales tax cut for other businesses. In addition, Brown would expand employer tax credits to more firms; currently these credits are only available to companies with 20 or fewer employees. The implications of these ideas aren't clear: while the credits and sales-tax cuts for businesses are good ideas, once again it seems that Brown is incapable of doing something good for the state's business climate without offsetting it with something bad.

The catch in both of these things, of course, is one we grew very familiar with in the winter and spring: both involve tax increases, and as such will require Brown to get two Republican votes in each house of the Legislature. Given how the budget fiasco turned out, we wouldn't guess that the power surcharge has any hope of being extended. The corporate tax shifts, on the other hand, may have some life, if the GOP can manage to depict their support as pro-jobs rather than pro-taxes.

Jobs Crisis Over, California Legislature Takes Up Another Job-Killing Regulation

This must be what Darrell Steinberg meant when he talked about "legislative tools . . . to help put people back to work": the Ventura Star reports that the state Senate is ready to take up AB 22, a bill to prevent employers from conducting credit checks on prospective hires. That's right: part of the Legislature's plan for tackling the state's 12% unemployment rate is to increase the risk of hiring people.

The bill has already passed the Assembly, and will likely come to a vote in the Senate in the coming weeks. Fortunately, its provisions wouldn't apply where the law requires a credit check, so these checks will still be performed for managerial positions and jobs in banking and financial services. According to the bill's author, Norwalk Assemblyman Tony Mendoza, "This bill will remove barriers to employment and help folks to more easily get a job." Because, if you're a Democratic lawmaker in California, the unemployment problem is clearly the work of evil employers not hiring than a product of your own efforts. Sadly, as with most of the Legislature's ideas, the effect will likely be the opposite of what's intended. For one thing, it's debatable how necessary the bill is, as businesses aren't likely to waste their time doing credit checks on employees whose risk of occupational fraud is minimal. More seriously, it could make firms more leery of promoting newer hires into managerial roles, and expose them to lawsuits from applicants who contest the classification of open positions as managerial. And, of course, many workplaces offer opportunities for fraud that non-managers can take advantage of. Look for hiring to slow, not quicken, if this bill becomes law.

Jobs Crisis Over, CARB Reaffirms Its Commitment to Cap and Trade

With the recent flood of grim new data on California's economy, it's refreshing to return to the bickering between environmental groups and the California Air Resources Board over AB 32's cap and trade program. Not that the state's economy isn't in serious trouble, due in part to expectations of higher energy costs after the program is implemented. But it's a nice change of pace to watch people at work who are either oblivious or unconcerned about economic impacts. Today, the LA Times reports on the latest move in the chess match between the two groups: CARB has reaffirmed its commitment to cap and trade after conducting a revised analysis of alternatives, and the environmentalists who sued for more draconian measures are vowing to keep up the fight.

The latest news is really much ado about nothing, but watchers of California politics need to keep cap and trade on their radar for two reasons. First is the issue we sarcastically alluded to above: the purpose of the law is explicitly to increase the costs of energy production, a burden that will fall heavily on a wide range of private businesses, including the state's much-ballyhooed technology sector. (Can you imagine, for example, the rising energy bills of a social networking firm running a farm of servers?) If the state is still limping along with 12% unemployment next year (and let's face it, that's pretty likely at this point), expect increased public anger over cap and trade as more employers flee for less-regulated climes. Second, it's important to remember why the cap and trade program was delayed for a year: certain groups of people are already starting to realize how screwed they'll be under AB 32, and a major political crisis may be in the offing. As this excellent Cal Watchdog article discusses, a series of lawsuits and a new bill quietly working its way through the Legislature may effectively put the climate law's entire burden onto the state's middle class, possibly leading to a Prop 13-esque taxpayer revolt. If these actions are unsuccessful, the law will heavily impact the state's poor, which could fracture the Democratic Party. So stay tuned: the era of cap and trade won't be good, but it will almost certainly be interesting.