When Will Unions Fight to Lower the Cost of Living?

October 31, 2015 By Ed Ring 3 Comments

A report issued earlier this year from California’s Office of Legislative Analyst “California’s High Housing Costs: Causes and Consequences,” cites the following statistics:  “Today, an average California home costs $440,000, about two-and-a-half times the average national home price ($180,000). Also, California’s average monthly rent is about $1,240, 50 percent higher than the rest of the country ($840 per month).”

It’s actually much worse than that. Anyone living on California’s urbanized coast, from Marin County to San Diego, has to laugh at the idea that a modest home can be found for anywhere close to $440,000, or a decent rental can be found for anywhere close to $1,240 per month. In most urban areas within 50 miles of the California coast, finding a home or a monthly rental at twice those amounts would be considered a bargain.

These prohibitive costs for housing are mirrored in California’s unusually high costs for electricity, gasoline, water, and, of course, California’s unusually high taxes. The cost of living in California is one of the highest in the nation – along the coast, it’s probably the highest in the nation. For this reason, it’s completely understandable that California’s state and local government unions perpetually agitate for higher pay and benefits for their members. But they’re leaving everyone else behind.

The problem with the oft-repeated mantra “teachers, nurses, police and firefighters need to be able to live in the communities they serve” ought to be obvious. Nobody can afford to live in these communities, unless they’re either very wealthy, or they’re early arrivals whose mortgages are paid off and whose children have graduated from college. Otherwise, if they live on the California coast in a decent home, they’re in debt to their eyeballs.

This is a failure of policy, and the worst possible response is to exempt public sector workers – the most powerful voting bloc in California – from the consequences of these policies. Because the most enlightened public policies that union leadership might advocate – all unions, public and private – are not to raise pay and benefits for their members, but to lower the cost of living for everyone. And the way to lower the cost of living for everyone is to permit competitive development of land, energy, water and mineral resources.

Along with permitting private interests to compete, California needs to change how public money is invested. California’s biggest infrastructure project in decades is the high-speed rail project, which was originally sold to voters as costing $9.5 billion. According to a 10/24/2015 report in the Los Angeles Times, here are the latest projections:

“After cost projections for the train rose to $98 billion in 2011, vociferous public and political outcry forced rail officials to reassess. They cut the budget to $68 billion by eliminating high-speed service between Los Angeles and Anaheim and between San Jose and San Francisco.”

The L.A. Times report goes on to describe how high-speed rail is again over-budget. If it’s ever built, it’s likely to cost approximately $100 billion. Using an online mortgage calculator, you will see that a 5 percent, 30 year fully amortized $100 billion loan will require total payments per year from taxpayers of $6.4 billion. That’s over $1,000 per year from each of California’s taxpaying households. Don’t count on ridership revenue to help pay capital costs – it is highly unlikely ridership will even cover operating costs.

The opportunity here, however, is that California’s high-speed rail project may never be built. Because one of the conditions of the project is attracting a percentage of matching funds from private investors, and these commitments are not pouring in. Unions who are currently fighting for high-speed rail will need to find new projects to support. Regardless of what you may think about unions, as long as they have the political clout they’ve got, their support for new projects could be good, if they modify their criteria.

California’s unions need to support competitive resource development and they need to advocate public/private investment in revenue producing civil infrastructure that passes an honest cost/benefit analysis. These policies would not only lower the cost of living, they would create millions of jobs. The problem with high-speed rail isn’t that it doesn’t create jobs, the problem is destroys more jobs than it creates. High-speed rail would be a parasitic economic asset dependent on taxes and subsidies to exist, while not even making a dent in California’s overall transportation challenges.

Unions in California need to return to the core ideals of the labor movement, which is to care about ALL working families. And if they care about those ideals, they will make hard political choices. They will take on California’s super-sized environmentalist lobby, along with their powerful friends, trial lawyers and crony green capitalists. They will challenge the biased studies that claim California cannot solve its land, energy, water and transportation challenges without what is essentially rationing. They will recognize that policies that create artificial scarcity only empower the rich and the privileged. They will participate in a new dialogue aimed at identifying measured and decisive ways to unlock California’s abundant resources; aimed at identifying infrastructure projects that are financially viable enough to attract private investment. They will get out of their comfort zone, confronting old allies, and finding new friends.

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Ed Ring is the executive director of the California Policy Center.

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7 Key Measures of California’s Transportation Challenges

August 9, 2015 By John Moorlach 11 Comments

1. CA’s gas taxes are the 4thhighest in the nation.

According to the American Petroleum Institute, California’s 61-cent-per-gallon gas taxes are the 4th highest in the nation, behind only Pennsylvania, New York and Hawaii. This does not include the recent addition of extra cap-and-trade taxes resulting from bringing fossil fuels under California’s AB 32 law.

2. CA’s gas prices are the nation’s highest.

According to AAA, the current national average price for a gallon of ‘regular’ gasoline is $2.63. California’s current average price is $3.69 per gallon (as of 8/5/15).

3. CA’s gas tax & transportation fees yield $10.6 billion annually.

According to the State of California, Department of Transportation, Division of Budgets, 2014/2015 Fiscal Year estimates, the State brings in at least $10.6 billion in taxes and fees “dedicated to transportation purposes.”

4. Caltrans spends just 20% of that revenue on state road repair & new construction.  

Last year, Caltrans spent $1.2 billion in state road maintenance & repair, and $850 million in new construction.  Similar amounts are planned for the 2015/2016 CA State budget.

5. Caltrans wastes half a billion $$ annually on extra staffing.

The Legislative Analyst’s Office (LAO) report on the review of the Caltrans’ Capital Outlay Support Program found that the agency is overstaffed by 3,500 positions at a cost of $500 million per year.

6. CA’s roads rank near the bottom in every category, including:

  • 46th in rural interstate pavement condition
  • 49th in urban interstate pavement condition
  • 46th in urban interstate congestion

7. Poor road conditions cost Californians $17 billion yearly in vehicle repairs.

34% of CA’s major roads are rated to be in “poor” condition. Driving on roads in need of repair costs California motorists $17 billion a year in extra vehicle repairs and operating costs – $702.88 per motorist.

Originally published by Fox and Hounds Daily

John Moorlach is a California State Senate, 37th District

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On Bullet Train, Voters Finally May Get to Apply the Brakes

August 5, 2015 By Susan Shelley 9 Comments

high speed rail trainPencils have erasers. Computers have the undo command and the escape key.

If you had it to do over again, would you vote for the bullet train?

It was called the “Safe, Reliable High-Speed Passenger Train Bond Act” on the 2008 ballot, and it authorized $9 billion in bonds — borrowed money — to “partially fund” a high-speed train system in California.

The ballot measure required that there would be “private and public matching funds,” “accountability and oversight” and a focus on completing “Phase I” from Los Angeles to San Francisco to Anaheim. Bond funds could not be spent on the other corridors, like Fresno to Bakersfield, unless there was “no negative impact on the construction of Phase I.”

Today the estimated cost is over $68 billion, private and federal funds are not in sight, and accountability has been cut back — instead of two spending reports to the Legislature every year, only one report every two years will be required. And “Phase I” broke ground in Fresno.

Place your finger on the escape key and stand by. State Sen. Andy Vidak, R-Fresno, has introduced a bill, co-authored by Assemblyman Rudy Salas, D-Bakersfield, to put the bullet train before the voters again. If Senate Bill 3 (SBX1-3) can muster a two-thirds vote in the state Senate and Assembly, it will be on the June 2016 ballot.

The measure would freeze spending on the bullet train and direct unspent funds to the Department of Transportation to be used for roads, which would come in handy because California needs $59 billion just to maintain the freeways for the next 10 years. Gov. Jerry Brown has called a special session of the Legislature to look for revenue to fill the state’s transportation budget pothole after signing a “balanced” budget that left that item out.

The non-partisan Legislative Analyst’s Office offered some suggestions that illustrate the difference between what tax increases can raise and what the bullet train costs.

• Raising the tax on a gallon of gasoline brings in $150 million per 1 cent increase.

• Raising the tax on a gallon of diesel fuel collects $30 million per 1 cent increase.

• Raising the vehicle registration fee nets $33 million per $1 increase.

• Doubling the vehicle weight fees raises about $1 billion.

• Raising the vehicle license fee hauls in roughly $3 billion per 1 percent increase.

There are other options. The LAO says lawmakers could prioritize the budget to use money from the general fund to maintain and construct roads. Billions in cap-and-trade revenue, collected from fees now levied on gasoline and diesel fuel, could be used for highway projects that reduce traffic and improve mileage.

Additionally, $900 million that was loaned from state transportation accounts to the general fund could be repaid and used for roads. “Efficiency and effectiveness” could be improved by prioritizing cost-effective maintenance projects, increasing accountability and oversight, and examining Caltrans’ “capital outlay support” program to see if it is “operating efficiently.” Hint, hint.

The scrimping, saving and tax hikes needed to maintain the freeways can’t begin to address all the other transportation infrastructure needs, and we still have to pay for the rising costs of Medi-Cal, unfunded pensions and health benefits for state employees, and desperately needed water projects.

In 2008, the ballot argument for the bullet train promised high-speed rail “without raising taxes,” but it’s a shell game if tax revenue is spent on the train while taxes are raised for the roads.

Sen. Vidak’s bipartisan bill ought to have the support of every lawmaker. Voters deserve a chance to undo the bullet train and escape from this mess.

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Reach the author at Susan@SusanShelley.com or follow Susan on Twitter: @Susan_Shelley.

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Schools Look to Gobble Up Surging State Revenues

May 8, 2015 By Louis Freedberg and John Fensterwald 1 Comment

shocked-kid-apAs Gov. Jerry Brown prepares to release his revised state budget for the coming fiscal year next week, educators around the state are looking forward to hearing about the additional funds they will receive, a dramatic departure from the bleak years of the recession, when they braced themselves for further cuts.

Even for the state’s most experienced school finance experts, predicting how much California’s schools will get in new revenues is a next to impossible task.

This year the task is especially challenging because of the unanticipated interplay between two voter-approved initiatives – Proposition 98, approved by voters in 1988, and Proposition 2, championed by Brown and approved by voters just last November – on top of many unknowns about how much tax revenue the state will generate from a variety of sources.

One thing is clear: Schools and community colleges will be the big – and possibly only – winners when it comes to dividing up the extra revenues.

The Legislative Analyst’s Office and others estimate that California’s surging economy could generate between $4 and $8 billion more than the state had projected.

“Schools are the big winner,” Mac Taylor, the state’s legislative analyst, said at EdSource’s 2015 symposium, held last week in Sacramento in collaboration with the California State PTA.

The additional funds will arrive at a welcome time for schools, which are still digging out from the impact of deep cuts made during the recession. Schools are also implementing a range of reforms, including the Common Core State Standards and the Local Control Funding Formula, which prescribes eight priority areas in which school districts are expected to show improvement.

Complicating how the new revenues will be allocated is the unanticipated interplay of Prop. 98 and Prop. 2, which could result in all non-education social services and state government departments winding up with little additional money or none at all.

That’s because Prop. 98, setting the minimum levels of school funding, requires that the state’s first priority in revenue-rich years is to bring funding levels for schools and community colleges up to the level they would have enjoyed if there had not been a recession. That amount, called the “maintenance factor,” currently totals $2.6 billion.

Prop. 2, meanwhile, mandates that the state set aside the first 1.5 percent of state revenue, plus additional dollars when the state is flush with tax receipts from capital gains, to pay down state debt and build a rainy-day fund. Money for Prop. 2 would be diverted from funding for non-education programs and services.

“It is a very unusual situation for my bosses – the members of the Legislature and the governor – that they may have to deal with this very strange world,” Taylor said. “They will have to take some actions to balance all the competing demands.”

Under one possible scenario that Taylor and the LAO laid out, the non-Prop. 98 side of the budget could receive $1 billion less next year than they got this year, possibly even requiring spending cuts that would put the Legislature in a bind and pit school advocates against a range of other interest groups. Taylor said programs subject to cuts could range from health and social services to higher education and criminal justice programs.

“There are many scenarios where the bottom line will be worse, where the Legislature will have to act to bring the budget in balance,” Taylor said.

Mike Herald, legislative advocate for the Western Center on Law and Poverty in Sacramento, said he expected legislators would find it “unpalatable” to reduce funding for human services in a year where there is going to be a substantial surplus. “It’s hard to explain to disabled adults surviving at poverty levels on Supplemental Security Income that they can’t get any increases for food when there are billions of dollars more in state revenue,” Herald said.

Brown’s budget for next year, which he proposed in January, assumed $7.8 billion more from Prop. 98 through a combination of increased state and property tax revenues for 2014-15 and 2015-16. About $4 billion of that will go toward ongoing funding for the Local Control Funding Formula, which provides extra money to school districts with high numbers of low-income children, foster youth and English learners.

“That is an enormous amount of new money in a relatively short period of time,” Taylor pointed out.

But school districts also face rising expenses, including increases in pension obligations for teachers and administrators that will be phased in, reaching $3.7 billion more per year by 2020-21.

Taylor noted that despite the massive inflow of funds to the schools in inflation-adjusted dollars, schools will only receive on average about $200 more per student than they did in the  2007-08 school year, when funding peaked.

“But if you think about what we went through, the worst recession in decades, the fact that we have bounced back and are above where we were at the beginning of the Great Recession, that is not bad,” he said.

Louis Freedberg is the executive director at EdSource. Email him or Follow him on Twitter.

John Fensterwald covers education policy.

This piece was originally published by EdSource

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Why Taxing Services Is Bad for California

April 29, 2015 By Chris Micheli 3 Comments

With last fall’s election of former Assembly Speaker Robert Hertzberg to the State Senate, and the introduction of his Senate Bill 8, there is renewed interest in “tax reform” at the California Legislature and specifically expanding the sales tax base to include services. This call for “reform” is premised on the belief that it will address “volatility” in our state’s finances.

However, “volatility” – fluctuations in General Fund revenues – comes instead from our state’s over-reliance on income taxes (primarily stock options, capital gains and dividends) paid by the top income earners (the top 1 percent generate over 40 percent of PIT revenue). Taxing services will not bring stability to the state’s overall revenue streams.

Moreover, a tax on services is a direct tax on labor. California already has the second highest unemployment rate in the nation according to the U.S. Department of Labor in December. Taxing services that are proposed by SB8 will tax services that rise and fall with the economy, but exempt services that are less impacted by the general economy (i.e., medical care and education).

Taxing services has been considered by the state Legislature on multiple occasions, most recently in two different bills in 2012. Those measures were the subject of intense lobbying in the State Capitol.  Assembly Bill 2540, proposed by Assemblyman Mike Gatto, D-Glendale, would have taxed specific services that the author believed would be used only by top income earners in the state.

On the other hand, AB1963, by former Assemblywoman Alyson Huber, D-El Dorado Hills, initially took a broader approach, but ultimately made it through the Legislature to simply have the Legislative Analyst study the taxation of services in this state.  However, Governor Brown vetoed that study bill. No measures were considered during the past two years.

In general, extending the sales tax to services in California could take several forms, such as taxing all services or a select number of them, and possibly lowering the rate for all purchases, although Senator Hertzberg does not contemplate that approach in SB8. Instead, he intends to generate $10 billion annually in new taxes and primarily spend these new tax revenues on education.

Current California law, contained in the Sales and Use Tax Law that is administered by the State Board of Equalization, imposes a tax on retailers measured by the gross receipts from the sale of tangible personal property sold at retail in this state, or on the storage, use or other consumption in this state of tangible personal property purchased from a retailer for storage, use or other consumption in this state.

The fundamental argument of those advocating for a tax on services is that California’s economy has changed dramatically from one based upon manufacturing products to one based on providing services.  As such, they argue the sales/use tax does not generate sufficient revenues because it is not taxing services, which account for a large majority of the state’s economic activity. Because of this, proponents argue, our state’s tax system has not “kept up with the times.”  Some even call the lack of a tax on services to be “unfair and unjust.”

However, taxing services would be bad for California’s business climate and would unnecessarily increase state tax revenues despite the fact that we have one of the highest personal income and corporate income tax rates in the nation. To make matters worse, our base sales/use tax rate is the highest in the nation.

California currently imposes a tax on a few services (e.g., printing and fabrication). In fact, only a handful of states tax more than 10 services. Only four states tax all services (Hawaii, New Mexico, South Dakota and West Virginia), and those are not major competitor states to California. Hawaii is the only state that taxes all professional services, with New Mexico and South Dakota taxing a number of professional services.

Several states imposed taxes on services, only to repeal them shortly thereafter (Florida and Michigan).  Maryland and Massachusetts actually repealed their services tax legislation before it went into effect. It is also important to note the entire tax structure of those states.  For example, Delaware taxes 142 listed services. However, Delaware is one of five states that does not impose a sales/use tax on tangible property.  Washington State taxes 152 listed services. However, Washington is one of four states with no personal income or corporate taxes.

We believe there are numerous shortcomings to taxing services in this state. As the state Board of Equalization has pointed out, as well as the Legislative Analyst, there are a number of policy considerations to take into account in considering whether to tax services in California.  Key among the issues raised is the administrative feasibility of such a proposal.  It will be difficult for both business owners and the state BOE to properly identify and track the information required. For example, there are thousands of businesses in this state that are not registered with the BOE because they do not currently have sales/use tax collection and reporting obligations to the state.

Moreover, the BOE notes that taxing services may create “perverse incentives.” The BOE explains that taxing a specific service might encourage consumers to purchase the service from out-of-state providers, thereby creating a competitive disadvantage for California businesses. The more expensive the service, the more in taxes that would be paid which, in turn, will create a stronger incentive to move the business out-of-state.

Furthermore, the BOE and LAO note the general call for avoiding the taxation of services used primarily by businesses. They contend that most economists and tax experts agree that states should avoid expanding the sales tax to cover services used primarily by businesses because any sales tax paid by a business will be factored into the prices it charges for goods and services, which would also potentially be subject to tax, thereby creating “a tax on a tax” scheme.

In addition, California’s existing sales tax law is inherently regressive because lower-income individuals typically spend a larger percentage of their earnings on taxable goods. By expanding the sales tax base to include services, the state’s sales tax will become more regressive as many of the services to be taxed will be paid for by lower-income citizens.

Moreover, a tax on services would harm those companies that have to contract for services, but not affect those that can provide the same services in-house. Small businesses, which most often contract for support services, would be forced to pay sales taxes. As a result, the tax burden would fall more on small and mid-sized businesses.

Finally, this taxing services proposal has to be put in the context of all the other major costs of doing business in this state. Employers in California are already facing significant increased costs of doing business due to increased personal income and sales taxes under Proposition 30, higher workers’ compensation rates, higher minimum wage, reduced federal unemployment insurance credit, higher energy costs, and increased costs due to the implementation of the Affordable Care Act. California has the highest personal income tax rate, highest state sales tax rate, highest corporate taxes in the western U.S., and the second highest gas tax in the nation.

Chris Micheli is a Principal with the government relations firm of Aprea & Micheli Inc.

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SoCal’s Housing Crisis: Middle Class, Minorities May Not Survive

April 24, 2015 By Joel Kotkin 3 Comments

urban-housing-sprawl-366c0What kind of urban future is in the offing for Southern California? Well, if you look at both what planners want and current market trends, here’s the best forecast: congested, with higher prices and an ever more degraded quality of life. As the acerbic author of the “Dr. Housing Bubble” blog puts it, we are looking at becoming “los sardines” with a future marked by both relentless cramming and out-of-sight prices.

This can be seen in the recent surge of housing prices, particularly in the areas of the region dominated by single-family homes. You can get a house in San Francisco – a shack, really – for what it costs to buy a mansion outside Houston, or even a nice home in Irvine or Villa Park. Choice single-family locations like Irvine, Manhattan Beach and Santa Monica have also experienced soaring prices.

Market forces – overseas investment, a strong buyer preference for single-family homes and a limited number of well-performing school districts – are part of, but hardly all, the story. More important may be the increasingly heavy hand of California’s planning regime, which favors ever-denser development at the expense of single-family housing in the state’s interior.

In both the Bay Area and Southern California, plans are now being set to force the building of massive new towers in a few selected “transit-oriented” zones. In a bow to political realities, the planners say they won’t bring superdensity to the single-family neighborhoods beloved by Californians; the wealthy – including those who bought early and those with access to inherited money – will still be able to enjoy backyard play sets, barbecues and swimming pools. 

Home prices skyrocket

The rest of you had better get used to cramming. House prices over the past two years in Orange and Los Angeles counties have risen at a rate more than 10 times the relatively paltry increases in weekly paychecks, among the nation’s worst ratios of home prices to income. Now, you can’t buy a house in much of Orange County or West L.A. without a triple-digit income; in Manhattan Beach, buying a median-price house requires an income of more than $300,000 a year.

With development on the periphery basically shut down for lack of sufficient transit usage, the bright folks at SCAG, MTC, ABAG, SANDAG (the regional planning agencies in Los Angeles, the San Francisco Bay Area and San Diego, respectively) foresee a future of ever-increasing density, with apartment towers interspersed throughout the cities.

To be sure, city life and density might seem great, and could even work to some extent in smaller, scenic areas like Laguna Beach or Santa Monica, with their accessible walking districts. But such locales are only a small part of Southern California.

To live in a high-rise in Ontario or Garden Grove might please planners, but density without much amenity – and nothing that will ever be close to a New York-style transit system or even a system as good as that serving downtown Los Angeles – seems more a ticket to a neo-tenement purgatory than paradise.

For areas that lack ocean breezes or scenic views, we are looking at something more like the congested chaos of Mexico City or Tehran than the tourist’s Paris on the Pacific (more than 80 percent of Paris, France, is outside the compact core).

The biggest losers, as usual, will be those people – working and middle-class families as well as minorities – who have looked to the periphery for housing opportunities and a chance for a better life. Los Angeles County is already a majority-renting community, and attempts to force densification in other counties could bring this reality to Orange, San Bernardino, Riverside and Ventura counties as well. 

Where minorities can thrive

Until recently, the periphery has offered housing salvation for younger middle-income homeowners, particularly families. Homeownership rates are more than 25 percent higher in the Riverside-San Bernardino area than in the Los Angeles-Orange County area. Minorities also do much better. The homeownership rate inland is a quarter higher among African American and Asian households. The rate for Hispanics is nealy half again higher than in Los Angeles-Orange.

But as housing prices have soared, and opportunities to move outward have shrunk, Southern California has developed some of the worst crowding in the nation. Three of the most crowded areas – based on people per room – are in Los Angeles County: South Los Angeles, the Pico Union area near downtown LA and Huntington Park. Southern California trails only Miami, Fla., for the highest percentage of residents who spend 40 percent or more of their incomes on rent or a mortgage.

The impact of high prices extends well beyond the poor and minorities. As a recent report from the state’s Legislative Analyst’s Office suggests, the lack of affordable housing is one reason why California companies have trouble attracting employees, particularly those with families. To keep the digital hearths going in places like Silicon Valley, companies rely on either young people (often with family money) or, increasingly, low-wage workers, called “technocoolies” by some, imported from Asia.

The LAO is spot on about the disadvantages of California housing, which now costs two and half times the national average, and rents that are 50 percent higher than in the country as a whole. Homeownership rates now stand at 48th among the states. Unfortunately, the proposed solutions follow the same script adopted by our planning elites that seeks to further densify large swaths of central Los Angeles and the San Francisco Bay Area, which, since 2000, have accounted for roughly 10 percent of all growth in the state. 

Affluent exempt

This planning fiat is sure to spark fierce resistance. Don’t expect to see high-rises sprout amid the expanses of single-family housing in Malibu or Beverly Hills, due to the organized power of their overwhelmingly “progressive” residents. Higher-density development likely will be jammed, instead, into already denser, less-affluent and less politically powerful areas, such as the east San Fernando Valley, North Orange County and some inland communities.

There’s nothing wrong with appealing to a market for apartments, but limiting the expansion of single-family construction will only exacerbate our looming demographic dilemmas. Southern California’s family population is decreasing more than any of the nation’s other large metro areas. Homes are increasingly owned by an aging population lucky enough to have bought before the new planning regime helped drive prices into the stratosphere. Young workers may be amused by dense, high-cost rental space, at least until they desire to start families and own homes. But the crucial middle-class households headed by thirty- and fortysomethings may find themselves forced out of the region if they are unwilling to accept a lower quality of life.

Some of the logic behind densification was based on the perception that the suburban dream is dead. Yet, despite persistent claims by planners and pundits, this turned out to be less a matter of altered market preferences than of temporary effects of the Great Recession. Roughly 80 percent of Americans still prefer single-family homes. So do Californians: In the past decade, single-family units represented the vast majority of all new homes built in the state.

Now that the economy is coming back to life, suburban communities, particularly the much-disdained exurbs, appear to be on the demographic rise again around the nation. By rejecting this option for the next generation, we are essentially putting the California Dream on ice, all but pushing upwardly mobile, but not rich, families to pursue their futures in notably lower-cost, less-regulated places, like Texas.

All this is for a dubious philosophy that has long derided suburban communities and their single-family homes as an environmentally wasteful, anti-social extravagance. Yet, today, many new suburban developments are eco-friendly, including such features as high-efficiency construction and renewable solar power, and employment patterns increasingly allow for work from home or in nearby firms. Business growth near homes in Irvine, often pilloried as the epitome of sprawl, notes former California State University, Los Angeles demographer Ali Modarres, has resulted in some of the nation’s shortest commutes and highest rates of people working at home.

Add to the equation more fuel-efficient cars and the environmental justification for forced sardinization becomes even less compelling. Densification might well increase over time as some people prefer more urban lifestyles. But the opportunity to own a single-family home should not be limited to the very rich, or to aging baby boomers, by Sacramento bureaucrats and unelected regional planning agencies. Yet, precisely this is the inevitable result of the massive attempt at social engineering now advancing throughout the region and state.

This piece is cross-posted at Citywatchla.com

Joel Kotkin is executive editor of NewGeography.com… where this piece was most recently posted …  and Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University, and a member of the editorial board of the Orange County Register. He is also executive director of the Houston-based Center for Opportunity Urbanism is now available at Amazon and Telos Press. He lives in Los Angeles, CA

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CA Budget Worse Despite $2 Billion New Revenue

November 23, 2014 By Wayne Lusvardi 2 Comments

California’s budget picture is sort of like that old Sandy Dennis high-school movie, “Up the Down Staircase.”

Going up: Legislative Analyst Mac Taylor just reported tax receipts jumped $2 billion over projections in the fiscal 2014-15 budget the Legislature passed, and Gov. Jerry Brown signed, last June. And the state’s credit rating was bumped up to A+ by Standard & Poor’s after voters on Nov. 4 passed Proposition 2, which strengthened the state’s rainy-day fund. The last time the bond rating was increased to A+ was in 2006.

Going down: Despite the added revenue, the state has reached a limit on what it can spend, according to a new study by insurance-asset manager Conning and Company, “Municipal Credit Research: State of the States.”

Moreover, for October Conning ranked California 36th among the states on its percentage of Expenditure Burden, defined as a percentage of the burden on general fund revenues for debt, future pensions and Medicaid expenditures. That’s four ranks lower than for April.

And as CalWatchdog.com calculated, California also has the largest Expenditure Burden in terms of absolute dollars, as shown in the following table. (Expenditure Burden is the far-right column.)

States with Highest Expenditure Burden (Fourth Quarter 2014)

 

State Expenditure Burden, percent of general fund Total General Fund Budget 2014-15  (in $billion) Expenditure Burden in Absolute Dollars (in $billion)
Nevada 43.2% $6.6 $2.851
Ohio 36.4% $30.677 $11.17
Illinois 30.3% $65.9 $19.97
California 25.4% $107.987 $27.43
Kentucky 24.7% $5.776 $1.43

Pension burdens

Gov. Brown’s June budget report correctly projected the state’s “Wall of Debt” will be cut from $34.7 to $13.8 billion by the end of fiscal 2014-15 next June 30.  But this picture of the debt omits future unmet pension burdens and Medicaid spending.

Just before the election, Controller John Chiang – on Nov. 4 himself elected as the new state treasurer – released figures on pension debt that confirmed a crisis long raised by pension critics. He warned:

“The unfunded actuarial accrued liability of the state’s pension systems — or the present value of benefits earned to date that are not covered by current plan assets — shows it has steadily risen from $6.33 billion in 2003 to $198.16 billion in 2013.”

That warning was confirmed by Paul Mansour, Conning’s head of muni research. He told Bloomberg, “California is still being held back by relatively high debt and pension levels…. We are more cautious on them than the [bond] rating agencies.”

Bloomberg also reported:

“California has $87 billion of bonds paid from the general fund, more than twice as much as a decade ago, according to data from the state. Voters also approved $7.5 billion for water infrastructure bonds this month [Propositon 2]. Its $2,465 of debt per resident is the third-highest burden among the 10 most-populous U.S. states, according to a report issued last month by Treasurer Bill Lockyer. New York ranks first, with $3,204 per person. The median among all states is $1,054.”

Forecast

There’s another reason why the new $2 billion in revenue the LAO forecast doesn’t much help long-term pension and medical-expenditure burdens. Proposition 98, passed in 1988, mandated about 40 percent of any revenue – including new revenue – must go to public schools.

As the LAO reported:

“A $4 billion reserve would mark significant progress for the state, but maintaining such a reserve in 2015-16 would mean little or no new spending commitments outside of Proposition 98, the funding formula for schools and community colleges.”

So of that extra $2 billion, just $1.2 billion of it can be used for other spending, debt reduction or reserves — about 1 percent of an $108 billion general-fund budget.

Moreover, according to the LAO, despite the new revenue, the general-fund’s balance actually has declined due to adjustments, including “a $358 million downward adjustment relating to an allocation of state sales and use tax (SUT) to local governments to correct for past accounting issues. All told, these adjustments result in an entering fund balance of $2.2 billion, or $243 million lower than the budget’s assumptions.”

Bottom line: California’s budget problems are far from over. Every good-news story going up the stairs seems to be met by a bad-news story going down.

This article was originally posted at CalWatchdog.com

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