Saturday, January 19, 2013

Saving California

These comments of mine were originally prepared in response to a article on HotAir entitled "California Named Worst-Run State in the Nation" , that quotes a Wall Street Journal article. I was able to retrieve my comments and substantially add to them.

California IS the Worst-Run State in the Nation. Included in this assessment is the state's attempt to lead the nation/world in fighting what the state calls “Climate Change”, as if any person or entity (state or federal government) can control climate! AB 32, the Global Warming Solutions Act of 2006, trumpeted by then-Gov. Arnold Schwarzenegger, was a disaster from the beginning, causing the state to lose approximately 1 million jobs by issuing an Executive Order mandating that 33% of energy produced by 2020 would be produced from renewable sources. Gov. Jerry Brown made the situation worse by codifying the increase, signing SX2-1 in 2011. California Proposition 23, the Suspension of AB 32 (2010), a ballot initiative that would have suspended AB 32 implementation until unemployment fell below 5.5% for at least four consecutive quarters but was easily defeated, after being portrayed as a tool of two out-of-state Big Oil producers.

The problems with California start from the inclusion of unnecessary personnel in the state personnel inventory. Rather than following the federal government's lead in contacting-out for most services, as directed by the federal government in OMB-CIRCULAR NO. A-76 REVISED, California has decided to make everything a government job, not unlike San Diego and most cities, incl those cities outside CA! Other than public safety jobs and decision-making jobs, virtually no commercialization of functions have been done. Therefore, everything from DMV office staffing to prisoner corrections is still being done by the state, rather than contracted-out for great savings within the state budget.

Regarding prisoner control for example, after a 2009 Supreme Court ruling requiring California to reduce its prison population by more than 30,000, Reason Foundation and the Howard Jarvis Taxpayers Foundation teamed up to produce a document,Public-Private Partnerships (PPPs) for Corrections in California,that addresses how implementing PPPs for Corrections “could save conservatively between 5% and 15% of the current state corrections budget, resulting in a savings of between $412 million and $1.24 billion per year. The potential savings may be even greater than this. First, California prison guards’ salaries and benefits benefits are higher than those of their counterparts in other states, so contracting should realize greater personnel cost savings (particularly from fringe benefits) than in other places... While this is a generalized analysis that may not capture every cost borne by the state, even if half of this difference is not realized for one reason or another, that would still represent cost savings in the range of 20 to 30%, which, based on the current CDCR [California Department of Corrections And Rehabilitation] budget, translates to savings between $1.65 billion and $2.47 billion per year.”

If one really wants to know how to run a city function, they should look no further than the New York Times article,“A Georgia Town Takes the People’s Business Private”, and extrapolate that into a city or state-level outsourcing effort. A very important Take-Away quote from the article, “Cities have dabbled for years with privatization, but few have taken the idea as far as Sandy Springs. Since the day it incorporated, Dec. 1, 2005, it has handed off to private enterprise just about every service that can be evaluated through metrics and inked into a contract.” Reason Foundation was so impressed by Sandy Springs' effort that they created a YouTube video of the effort. To grasp how unusual this is, consider what Sandy Springs does not have. It does not have a fleet of vehicles for road repair, or a yard where the fleet is parked. It does not have long-term debt. It has no pension obligations. It does not have a city hall, for that matter, if your idea of a city hall is a building owned by the city. Sandy Springs rents.”

To say that California is a few yards behind this standard, would be an understatement of the greatest proportion. The unions control everything, including their salaries. When Gov. Brown attempted a modest effort to rein-in pension costs, the Democrat-controlled legislature torpedoed his proposal. Well, that should not surprise anyone, as both CA Senate Pro Tem Darrell Steinberg, and CA Assemblymember Speaker John PĂ©rez both formerly represented unions, where they are used to getting their way.
Quoting again from the first two paragraphs of Reason Foundation's Local Government Privatization 101:

"It is not a government's obligation to provide services, but to see that they are provided." former New York Governor Mario Cuomo 

"Privatize everything you can." Chicago Mayor Richard Daley (advice to an incoming mayor)

Also,the California Republican Senate Caucus Study on Privatization identified several privatization initiatives in California and in the country and also noted that California Proposition 35 gave the state the right to use private workers rather than government employees. The state should follow this outsourcing of all non-public-safety and non-decision-making jobs, with establishing a new performance-based personnel appraisal system which determines how much an individual gets for salary increases based on performance, rather than one based on years of service. There were several federal demonstration personal appraisal systems in operation during the 90s, and in fact, the one that Naval Ocean Systems Center, San Diego, used, was transported from China Lake. Excellent sources of information on these alternative personnel systems can be obtained from the Office of Personnel Management (OPM) here, or here. Not to disparage the other alternative personnel systems in these references, but I'm prejudiced towards the China Lake alternative personnel system, because it scored so well with employees, supervisors, and managers at my past employer, the Naval Ocean System Center, San Diego. Quoting from the first reference above, "After 14 years, salaries at the China Lake demonstration projects were about one GS step (3%) higher than for GS employees at the control sites."

"We're spending more and getting less," says former San Diego Councilman Carl DeMaio, the director of Reason Foundation's new California Reform Initiative, an attempt to save the Golden State from bankruptcy and decline. "If you don't reform government pensions, no tax increase is going to be big enough, no service cut will be deep enough, to avoid bankruptcy."

This privatization effort mentioned above combined with an alternative personnel system would go a long way towards preventing the massive problem of pension spiking which is currently allowed at the state level. At least the China Lake alternative personnel system had no such ability to combine other pays with one's basic pay in calculating retirement pay, and I doubt that the other federal alternative personnel systems allowed it either. But perhaps Councilmember DeMaio is correct when he says that a statewide pension reform is the principle reform needed in California. Also, he emphasizes how tough pension reform will be, given the vested interest of state labor unions.

Governor Brown could also have signed the unanimously approved Senate Bill 14, which would have required the governor's budget (and all agency spending) to be built on a "system of budgeting that uses information on performance to inform resource allocation decisions, thereby establishing clear accountability.",quoting Leonard Gilroy's article in the Orange County Register.

California is blessed to have massive amounts of shale oil underground as addressed in the US Energy Information Agency Analysis and Projections-Review of Emerging Resource: US Shale Gas and US Shale Oil Plays , The largest shale oil formation is the Monterey/Santos play in southern California, which is estimated to hold 15.4 billion barrels or 64 percent of the total shale oil resources shown in Table 1. The Monterey shale play is the primary source rock for the conventional oil reservoirs found in the Santa Maria and San Joaquin Basins in southern California.

Rather than take advantage of this massive amounts of shale oil available underground, California seeks to constrain develop of their own resources, and pays extra for the gasoline that citizens use, due to a lack of refining capacity, while paying huge subsidies for expensive renewable energy. The Manhattan Institute article, THE HIGH COST OF RENEWABLE-ELECTRICITY MANDATES by Robert Bryce, noted that ““The mandates amount to a "back-end way to put a price on carbon," says one former federal regulator. Put another way, the higher cost of electricity is essentially a de-facto carbon-reduction tax, one that is putting a strain on a struggling economy and is falling most heavily, in the way that regressive taxes do, on the least well-off among California's residents.“Even the George C Marshall Institute did a study on alternative energies “George C Marshall Institute-The Infant Industry Argument and Renewable Energy Production-2012”, which found that “Overall, we conclude that given current, rather limited empirical evidence, one cannot make a case for government intervention to stimulate production of clean energy of the infant industry argument. It is not clear that such intervention is needed, for it is not clear that there is any market failure. Even if such market failures were present, it seems that the current Government policy of providing incentives for increased output is not the most appropriate instrument to lower the cost of clean energy.”

California's education mess hasn't been solved yet. The teachers unions continue to resist fundamental changes in evaluation of teachers, as well as use of distance-learning. As Dr. Torres, Chair, ad hoc E-Learning Committee, writes in his preface to The State of Online Learning in California-A Look at K-12 Policies and Practices, “K-12 education and online learning in California are at an important crossroads. With online learning rapidly becoming a key component of K-12 instruction across the country, California lags behind, seemingly unsure how to employee this valuable new resource. Florida, Michigan, and other states have already made significant strides, establishing state policies that embrace online learning as part of their states educational vision. Michigan's legislature, for example, recently passed a law that requires all high school students to enroll in some form of online instruction before graduating. Florida and other states have established clear policies that endorse online learning that foster access to a high-quality education, regardless of a student’s geographic location or socioeconomic status. These states understanding a lesson that our state (CA) is still absorbing-in the future, access to high-quality education will become more and more dependent on 21st-century learners with 21st-century tools and methods.”
Also, state funding for education should be tied to the student, rather than the school district where he or she resides, so that school choice will be effective and offered to 100% of the students.

The National Review Online article, States vs. the Digital-Learning Revolution, noted that California is also struggling with implementation of Digital-Learning Learning“New York is not the only laggard state, however. California, home of Silicon Valley, is also struggling to implement the digital-learning revolution: On the report card, California scored an “achieved” rating in only 14 of the 72 categories. One category in which it failed is whether it “restrict[s] access to high quality digital content, online courses and virtual schools based on geography, such as school district, county or state.” California does allow “virtual charter schools,” which are publicly funded schools through which students learn at home on their computers using interactive and adaptive online programs. Virtual charter schools allow students to learn at their own pace and access teachers at most times of the day and night. Because these students learn at home using the Internet, they could potentially live anywhere in the state and enroll in any virtual school regardless of where it is chartered and based California does allow 'virtual charter schools,' which are publicly funded schools through which students learn at home on their computers using interactive and adaptive online programs. Virtual charter schools allow students to learn at their own pace and access teachers at most times of the day and night. Because these students learn at home using the Internet, they could potentially live anywhere in the state and enroll in any virtual school regardless of where it is chartered and based. Yet California has set up a roadblock. Under California law, students can enroll in a virtual charter school only if they live in a county that is contiguous to the county in which the school is chartered. Policymakers are essentially saying that the Internet somehow changes at the county line and therefore instruction is diminished when it’s delivered to students residing in a non-contiguous county.

Rather than adopting/supporting this efficiency measure, they have set up barriers to the use of the distance-learning by having a arbitrary barrier at county lines, saying no distance-learning here. This includes the entire education system all the way down to the Continuing Education level. Some miscreant teachers have done utterly obscene things to students, yet they seem to fight the system trying to remove them. Removing many of these teachers, makes a federal employee termination seem like a walk-in-the-park.

The state continues to support/mandate recycling, although recycling doesn't pay for anything really. Only aluminum is worthwhile from a citizen's perspective. And although the state has no idea where these recyclables are destined to go, we continued to mandate their capture. California is the home of Silicon Valley, which has developed numerous technologies, but still Apple’s iPods are build overseas. Even California's waste is rigorously controlled to the point that no emissions-admitting technologies are considered acceptable to the environmentalist, such as Californians Against Waste (CAW) and the Global Alliance Against Incinerator Alternatives (GAIA) Finally, California is run by radical environmentalists who see a cancer-causing agent in every business and technology being being proposed, and they write environmental laws which emphasize the “”Precautionary Principle”, where no matter how slight the risk, they won't tolerate it! Most of these so-called environmentalists could not pass a simple risk test. How can any business operate under these kinds of rules?

As Indur M. Goklany writes in Chapter 10 of The True State of the Planet, “Richer Is Cleaner, anything that retards economic growth also retards ultimate environmental cleanup...Empirical Evidence indicates that projections using the famous I = PAT equation, widely publicized by biologist Paul Ehrlich, are dead wrong.... In the United States, sulfur dioxide emissions per capita are down 60% from the peak in 1920. Both particulates and carbon monoxide emissions per capita have declined more or less continuously since World War II-inhalable particulates down 79% since 1940 and carbon monoxide down 53% since 1945.”

Mr. Goklany and the other nine authors of this book layout a very compelling case that the environmental movement which has tried so hard to prevent climate change throughout the world, is in fact arguing for continued starvation and malnutrition in The Third World (primarily sub-Saharan Africa). The residents of these sub-Saharan areas are still forced to, because the lack of a cleaner source of energy like coal, use cattle dung and other unhealthy sources of energy, leading to premature deaths of infants due to poor indoor air quality. No amount of solar and wind technology can solve this energy problem for the affected families.

California also has too many boards and committees, each requiring their own authorization or approval/standards to be met. Probably the most famous of such boards and committees was the hair-dressing/cosmetology board which required a particular licensee who wanted to do home hair-braiding, to take not only a license exam, but find some hair-braiding people to give her dozens of hours of training in how to do it because the appropriate exam did not cover hair-braiding! In most cases, these committees and boards are packed with termed-out legislators, so it's a political payoff.

Finally, Gov. Brown staged a education funds shortage, to get a new tax via Proposition 30, even though the then-current tax rate had driven businesses from California, in search of more fruitful environments, like Texas or other no or low tax states. Well, of course having a gun pointed to the citizens' heads, with threats of education being cut if if taxes were not increased, the voters chose to protect education, another sacrosanct functional area. I’m certain that this this tax will merely drive yet more businesses away, further compounding the tax receipt problem.

Interestingly enough when Jerry Brown ran for president, he ran on a single tax rate of 13%. Now, the California top tax rate is greater than that. Art Laffer, the economic architect behind Pres. Reagan's tax-cut policies, argued in his City Journal article Flatten California!, that “California should follow George’s (Henry George) instructions by scrapping all its state and local taxes and fees (except for sin taxes, which exist to modify behavior rather than to raise revenue) and replacing them with a flat tax of about 6 percent on two distinct bases. One tax base would be personal unadjusted gross income from all sources, with only a few deductions: charitable contributions; interest payments, including on home mortgages; and rent on one’s primary residence, to remove the current system’s preference for homeowners. A single tax rate would apply across the board, from the first dollar earned to the last. The other tax base would be businesses’ net sales, or “value added”—that is, the difference between sales and production costs, which equals the state’s gross domestic product when aggregated across California. The low 6 percent rate would reduce the incentive to avoid earning taxable income in California, and the very broad base would reduce the number of places where people could hide their income to avoid taxation. That’s it. This tax system would yield as much revenue as all of California’s current state and local taxes. At the state level, the taxes on business profits, payroll, gas, capital gains, and stock options would disappear. Locally, property taxes would follow suit. All sales taxes—state, county, city, and special-district—would likewise be abolished. Such a tax reform would spark a surge in economic activity in California, since the after-tax rate of return for doing business would rise, both from the decline in tax rates and from the elimination of myriad fees that harm productivity. The result would be more businesses moving into California, fewer moving out, and more economic activity emerging from the underground economy. The California economy would soar, generating higher tax revenues, which would reduce the state budget deficit. The revenue stream would also be far more stable from year to year. Californians may recognize this proposal as similar to one offered 20 years ago by, of all people, Jerry Brown. When California’s current governor was running for president in 1992, he campaigned on a flat tax—a 13 percent national rate for everyone, regardless of income. In fact, Brown and I developed that proposal together.”

To show how unimportant the education money really was, the Democratic legislators passed a boondoggle of a High-Speed Rail (HSR) Project minutes before their closing deliberations this last session, funding it to the tune of $6 billion, money that the state did not have. Even California Watchdog, pointed-out the obvious disparity between what was said about the education funds, and how the legislators couldn't resist spending money on HSR.

PPPs should be employed wherever a major project is considered. Look at what Indiana did under Gov. Mitch Daniels and how the island of Puerto Rico is employing PPPs, Reason Foundation-Building a World-Class Infrastructure PPP Program in Puerto Rico. Even many Democratic mayors are saving money on infrastructure by using PPPs and Chicago Democratic Mayor Rahm Emanuel signed deals to let private garbage companies take over half of Chicago's curbside recycling business, the latest step in his efforts to reduce cost to the city. And the state should privatize the management of state parks as is done in other states.

Even though several sources have reported that the prison guards receive enormous salaries, when other functional areas are suffering budget cuts Gov. Brown continues to raise their pay seemingly whenever possible or give the prison guard union control of the state's prison system.
But I've already addressed that issue above.

Well, there you have it, “Greeceifornia”, as a talented local cartoonist depicted the state on a map outlining the state with that word traipsing vertically down the outline of the state, depicted the state's fiscal situation some time ago now has become a Bloggers Paradise. The weather is pretty good except for the cold spell this week. You go skiing and snorkeling on the same day on most years' winter days but for budget purposes, the state is a disaster.