- Associated Press - Thursday, May 26, 2016

May 18

San Diego Union-Tribune on affordable housing:

The cost of housing is so high in urban areas of California that paying for rent or a mortgage routinely eats up half of a household’s income, or more, visiting desperation not just on the working poor but increasingly the middle class. The problem is so severe that East Coast media have a new genre: housing horror stories from the Golden State, such as one about the Silicon Valley fire department where 15 well-paid firefighters commute from more than 100 miles away.

Thankfully, it finally seems to be dawning on California’s leaders that this is an unacceptable status quo. This month, Gov. Jerry Brown has made clear that he wants to break with the failed policies of the past. He has flatly rejected Assembly Democrats’ call to shovel $1.3 billion more into programs that provide affordable housing to a tiny fraction of needy state residents who win de facto lotteries. Instead, the governor sees the key as adding housing stock - instead of subsidized housing that helps “very small numbers of people.”

For years, Brown has sought to streamline the California Environmental Quality Act. Developers see CEQA as a complex, costly obstacle to completing projects. Now he’s also backed bills from Assemblyman Richard Bloom, D-Santa Monica, and Sen. Bob Wieckowski, D-Fremont, that would reduce the number of regulatory hoops that homeowners have to jump through to add a second unit to their property. He’s also announced support for a Bloom measure that would allow projects that have some affordable units to be built at higher densities.

This is a good start. But if the governor truly wants to create momentum for change, he should embrace passage of state laws that give housing projects a better chance of overcoming local NIMBYs. And he doesn’t have to start from scratch. A 2003 Public Policy Institute of California report provides a blueprint on what our state can do to create more affordable housing. Among its suggestions:

-Amend state law to require creation of regional housing plans, not city-specific ones. Housing programs should focus less on process - how many applicants there are for subsidized apartments, etc. - than on big-picture progress.

-Adopt a New Jersey policy known as “the builder’s remedy approach.” It gives developers a profit motive - in the form of breaks on project size and scope - for helping local governments meet their affordable-housing obligations. The PPIC says this has yielded “far more housing units” in New Jersey than the policies it replaced. One of Bloom’s bills is along these lines.

-Adopt Massachusetts’ policy of removing the great majority of regulatory obstacles for residential projects where “long-term affordability restrictions” have been placed on at least one-quarter of units.

New Jersey and Massachusetts are like California - liberal states with advanced economies. They show that Brown and the Democrats who dominate California politics can make a difference on housing - if they are determined enough. It is no longer enough for our leaders to point to failed policies as evidence they’re doing something about affordable housing. In 2016, it could not be more obvious that these policies amount to political cover.

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May 24

Whittier Daily News on California’s pension debt:

There has been much debate over how to value public pension liabilities, but what is beyond dispute is that the unfunded debts are large and are already affecting state and local budgets. Just ask cities like Vallejo, San Bernardino and Detroit, whose bankruptcies were largely driven by untenable pension obligations.

Several recent studies have attempted to quantify the problem. Pew Charitable Trusts pegged the states’ total unfunded pension liabilities in 2013 at $968 billion, not to mention an additional $587 billion deficit for retiree health care and $518 billion in outstanding debt. Pew also noted that California would have to spend nearly $6.7 billion a year - more than three times the current $2.2 billion expended - to fully cover its retiree health care costs and start chipping away at its $80.3 billion unfunded liability.

Those are huge numbers, but even they likely understate the problem, probably significantly, because they rely on states’ official figures, which are based on overly optimistic assumptions. For example, the expectation of earning 7.5 percent a year on the pension fund’s investments, as is the case with both the California Public Employees’ Retirement System and the California State Teachers’ Retirement System.

The Stanford Institute for Economic Policy Research estimates that total unfunded pension liabilities for both state and local governments in 2014 stood at more than $4.8 trillion, up 84 percent in just six years.

The higher debt estimates also result from using a lower discount rate to calculate liabilities. As numerous financial experts have argued, the value of future payments should be determined by the risk level involved in making the payments.

Since government pension benefits are guaranteed, regardless of pension fund performance, those liabilities should be determined using a “riskless” discount rate. Using this “market rate,” based on 20-year Treasury bond rates averaging about 3 percent, California’s pension debt works out to $77,000 per state household, topped only by Alaska ($113,137) and Illinois ($77,822), according to the Stanford Institute’s PensionTracker.org website. California’s pension debt was also third-highest in the nation in terms of the ratio of liabilities to total state revenue.

Fortunately, pension funds will probably end up earning more than 3 percent a year, so the actual liabilities may not end up being that high. By the same token, they will more than likely exceed governments’ estimates. The bottom line is that, by whatever metric you use, the liabilities are enormous and are eating up a larger and larger portion of state and local government budgets.

California and various cities and counties have implemented some needed reforms in recent years, but much more needs to be done to bring compensation levels in line with those in the private sector to return retirement promises to long-term sustainability.

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May 19

Porterville Recorder on a proposed cigarette tax:

When discussing the proposed huge hike in the tax on cigarettes, remember that a tax is a tax.

Backers of a plan to increase the cigarette tax by $2 a pack announced Monday they had enough signatures to qualify the proposal for the Nov. 8 ballot.

Their argument is the same as ever. Raise the tax high enough so people won’t smoke, but yet people do continue to smoke.

It is a feel-good measure, unless you smoke. “Tax the poor smokers and maybe they will quit” is a popular refrain with non-smokers. “We can use the money for research and anti-smoking campaigns” is also popular, yet all the tax increases across the nation - and there have been plenty on tobacco - have not resulted in a cure for cancer nor a significant reduction in smoking as promised by the campaigns.

Today, the average cost of a pack of cigarettes in the Golden State is about $5.50. That would jump to $7.50, or what officials said would cost an average smoker roughly $750 more a year, if the cigarette makers pass the increase along to consumers.

It would be nice to see everyone stop smoking because of the increase. However, what will happen to the many bureaucracies created from tobacco taxes if that money dries up. Will they just simply go away with the smoke, or will taxpayers (non-smokers) then be hit with other new taxes to make up the shortfall? We fear the latter.

Sin taxes, as these are often called, are popular with those wanting tax increases because not everybody smokes or drinks and they are relatively easy to pass. They also sound good, but we know much of the money is siphoned off before actually accomplishing what is promised.

Today, it’s cigarettes. Tomorrow it will be soda drinks, and alcohol cannot be far behind. Don’t be fooled by these measures. They are what they look - tax hikes.

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May 19

Santa Rosa Press-Democrat on the state budget:

What goes up must come down.

Despite occasional claims to the contrary, this simple explanation of the law of gravity also applies to the stock market and the economy. And as the market has sputtered over the past several months, so too has California’s revenue. Which is why Gov. Jerry Brown cautious approach to state spending makes sense.

The budget for 2016-17 is due next month, and Brown delivered a revised spending plan that generally holds the line on new spending while putting money than legally required into the rainy-day reserve fund.

“In any scenario,” he said, “there are no halcyon days ahead.”

That wasn’t what some of his fellow Democrats in the state Legislature wanted to hear, but they need to heed Brown’s warning. After several years of running ahead of expectations, state tax revenue is falling short of Brown administration projections, missing the target in April - a key month for tax collections - by about $1 billion. The governor’s revised budget proposal assumes almost $2 billion less in tax revenue than initially forecast through June 2017 and warns of potential deficits beginning in 2018.

“The surging tide of revenue is beginning to turn,” Brown said. Ignoring that would be a mistake, as anyone who remembers the deep deficits and steep cuts caused by the Great Recession knows. But this isn’t an austerity budget. Brown is proposing a $173 billion spending plan for the upcoming fiscal year, including a $7 billion increase in general fund expenditures and targeted investments for some priority needs.

Brown requested an extra $30 million to fight wildfires and $10 million to help complete an earthquake-warning system. His revised budget includes $3.2 billion in state and federal funding for affordable housing and homeless programs, an endorsement of a proposed $2 billion bond for housing for the mentally ill homeless - to be repaid from the Proposition 63 tax surcharge on million-dollar incomes - and language intended to expedite infill development of multi-family housing.

Proposition 98 spending on K-12 schools would top $71 billion, a 52 percent increase since the recession, and there is $25 million in new funding to help California State University reduce the time required for students to graduate.

As Brown often points out, the current economic recovery already is two years longer than the post-war average.

With its over-reliance on capital gains taxes, California is susceptible to rapid swings from budget surpluses to deep deficits. Few in Sacramento are eager to deal with the state’s roller-coaster tax code, so adequate reserves must be a high priority. Brown’s budget plan includes $8.5 billion in reserves, and the nonpartisan legislative analyst says it would be “prudent” for the Legislature to “pursue a target at least as large” as the request by the governor.

To reinforce his call for caution, Brown turned to Aesop’s fable of the thrifty ant and the spendthrift grasshopper. “When you’re in the late summer,” he said, “you should remember winter’s coming down the road.”

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May 18

San Francisco Chronicle on the high school graduation rate:

Across the board, more students than ever are graduating from California’s public schools. A six-year trend line is showing positive results for every group and category in the state’s high school classrooms.

The results may be surprising in a state where battles over finances, testing and teacher rules present a picture of deep divisions and confusion. But underlying these debates is slow and steady progress that’s pushed the graduation rate to 82 percent for those who started high school in 2011.

The numbers get better the more they’re broken down. Though differences separate subgroups, the biggest jumps were recorded among those drawing the most concern: English learners, dropouts, African Americans and Hispanic students. Though these student groups lagged the state average, their historically low graduation rates moved up markedly.

The reasons for the improvement are a mix. A much-contested exit exam was suspended last year, suggesting that change contributed to the surge. But the trend has evolved over six years, beginning well before the exam was halted.

Another explanation may be more likely: More money is producing better schools. Additional state money has poured into low-income school districts to shore up teaching while other districts have increased class offerings after recession-era cuts to the curriculum. Increases in the overall state budget are earmarked in large part for public schools.

Pleasing as the figures are, they still mean nearly 20 percent of high school students don’t graduate, severely harming their economic and social futures. Improving this picture remains a huge challenge in a state divided by income, language and family background. California’s schools still have work to do.

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