Can California Be Saved? Part 3

Cones block the entrance to Sequoia National Park, Calif., as the KNP Complex Fire burns nearby, on Sept. 15, 2021. (AP Photo/Noah Berger)

Commentary

California is worth saving. The question is: Where do we start?

This is Part 3 of my review of the new book, “Saving California: Solutions to the state’s biggest policy problems.” It covers the final three chapters and the conclusion. The book was edited by Steven Greenhut for the Pacific Research Institute. The previous reviews are Part 1 and Part 2. As in the earlier parts, in this last part I’ll be emphasizing solutions.

Richard Mersereau: Building a Sustainable Budget

The great political philosopher Edmund Burke said government essentially is about getting and spending tax dollars. That’s certainly true with the California budget, which is covered in Chapter 8 by Richard Mersereau, the former Chief Consultant to the California State Assembly Committee on Revenue and Taxation and the Senate Committee on Constitutional Amendments. If anybody knows budgets, he does.

This year the illusion was the state enjoyed a $38 billion budget surplus, according to the calculations of the nonpartisan Legislative Analyst. Gov. Gavin Newsom, fighting a recall attempt, exaggerated that to $72 billion, a whopper even by California’s outsized standards of budget “fudging,” as they call it in the Capitol. The Leg Analyst also noted the number was temporary and didn’t do much to affect the state’s underlying fiscal unsoundness.

Merserau’s analysis is clear, and frightening: “Long before the emergence of the coronavirus, however, successive gubernatorial administrations and the California Legislature abdicated their responsibilities: Even as total and per capita state government revenues grew significantly in real, inflation-adjusted terms, the state’s long-term debt obligations and baseline budget spending grew by far more. The cumulative result is a looming fiscal crisis of unprecedented size and scope.”

Before looking at solutions, let’s check revenues and spending from two charts Mersereau provides. The first shows how much California depends on capital gains taxes, especially from Silicon Valley. The Valley keeps growing despite the state’s high taxes. The smart computer nerds continue to come to seek their fortunes. And when they strike it rich and buy a yacht, the money is taxed at the state’s 13.3 percent rate—at least before some of them head off to Texas.

Nobody can predict the future. But notice when it dropped, as in the dot-com bust of the early 2000s, then the Great Recession, it dropped big time. The COVID-19 crisis, far from hurting Silicon Valley and its production of revenue for California, kept everyone locked down and using iPhones, Android, and other devices while binge watching on Netflix, buying stuff from Amazon, and ordering junk food delivered by Uber.

But here’s the caution: The chart of the growth of state spending, below.

You don’t need an 800 score on your Math SAT to see the growth in retirement (public-employee pensions) and Medi-Cal welfare are growing so fast they will chew up any new revenue generated by Silicon Valley.

Of the legislature’s spiking of pensions, Mersereau notes, “SB 400 has proven devastating for state and local government budgets. A public employee pension plan that once was fully funded now has an unfunded liability of more than $167 billion by conservative estimates. Despite modest reforms and increased payments by the state, the total pension liability has grown by more than $100 billion in the last 10 years.”

Budget Solutions

So what can be done?

1. First: Do no harm. “The first answer is temperamental: California lawmakers need to appreciate the importance of its still-vibrant private sector and stop imposing costly new burdens upon it.”

That means: No new taxes and regulations. The latter especially will be difficult for a group of politicians eager to impose their pet priorities on the state—even as Tesla and hundreds of other companies keep leaving.

2. Make efficiencies to cut costs. “Explicit performance and productivity enhancements and metrics across California state government, even a 1-3 percent cost reduction, will make a real difference. … Implementing ‘best practices’ from other states, as well as from our own local governments, can result in significant cost savings in all areas of government.”

If the Employment Development Department had listened to local district attorneys on welfare fraud prior to COVID, billions could have been saved from all the fraud perpetrated especially by prisoners.

3. Lawmakers must play by the rules. Currently, the Assembly leaders often deep-six good reform bills without even a brief hearing. Proposition 54 from 2016, which mandates a three-day period in which a bill must be put online before a vote is taken, often is flouted. That gives legislators, media and citizens inadequate time to review the bills.

4. Pension reform. Because the legislature refuses to act, initiatives must be advanced.

5. End the “California Rule.” That unwritten edict says pension agreements cannot be changed going forward, making it almost impossible to advance reforms without union approval. “No other state interprets its public employee pension laws in this manner.”

This reform ought to be bipartisan. Democratic Gov. Gina Raimondo of Rhode Island could not have advanced her reforms with the “California Rule” in place. Her own reform worked so well, and impressed other Democrats so much, Joe Biden promoted her to the U.S. Secretary of Commerce.

6. Again use general fund revenues for infrastructure projects. This method precluded the irresponsible bond funding of projects of recent years. Although interest rates are low now, they are bound to go higher, adding to the overall costs. As in private or business life “pay as you go” is the best way to go.

7. Stop the waste. Especially wasteful has been the fake high-speed rail project. Its only celerity is in wasting tax money. “An ever-growing chorus of legislators—Democrat and Republican—are willing to acknowledge reality and re-direct billions of tax dollars—including $4.1 billion in unappropriated HSR bond funds, together with 25 percent of all greenhouse gas revenues continuously appropriated to HSR—to far better use.”

8. Switch back to a part-time Legislature. Texas and Florida get by just fine with part-time legislatures. California would do better as well. Less time for mischief.

Daniel M. Kolkey: California Burning: Wildfires and Climate Change

It’s become all too familiar: Drought, electricity blackouts and wildfires sparked by electricity lines burning down dry forests. Gov. Gavin Newsom’s action plan: cut California greenhouse-gas emissions, already down to 1 percent of the global total.

Daniel M. Kolkey is a former counsel to Gov. Pete Wilson and former associate justice of the California Court of Appeal. He writes, “The state should have instead weighed the marginal benefit of further accelerating its green energy goals against the increased cost of energy to the public and the diversion of resources away from measures necessary to mitigate the consequences of climate change, including the increasing wildfire risk.”

The immediate task ought to be to reduce wildfires, because “the fires in 2018 released more than 45 million metric tons of carbon dioxide into the atmosphere, producing more than nine times more emissions than were reduced in 2017.”

He quotes a study by the Legislative Analyst’s Office, which found, “wildfires account for up to 25 percent of small particulate matter air pollution in the U.S. in recent years.”

Reducing Wildfires

Kolkey’s solutions:

1. Thin the forests. “As an initial matter, more and sustained funding will be necessary to support efforts to thin millions of acres of forests and remove dead timber and dry brush upon which fires prey at an alarmingly rapid rate.”

2. Better use of the Greenhouse Gas Reduction Fund. During the 2020-21 fiscal year, 68 percent of funds “went to a grab bag of projects other than addressing the consequences of climate change.” The waste included:

• $499 million to the bullet train boondoggle;
• $399 million to “affordable housing and sustainable communities”;
• $200 million to “transit and intercity rail capital”;
• $100 million to “transit operations.”

Just $200 million went to “healthy and resilient forests,” which would include prescribed burns to thin forests. This item, I would add, was put by Sen. John Moorlach, R-Costa Mesa, into SB 901 from 2018. Gov. Jerry Brown signed it.

Brown, unfortunately, vetoed a 2016 bill by Moorlach, SB 1463, that would have advanced undergrounding power lines.

Solutions are out there. They just need to be enacted.

3. Thin unhealthy forests. “Ironically, Native Americans used controlled burns in forests to reduce such wildfire risks, but, until recently, the state has rejected such ancient wisdom in favor of rapidly putting out fires.”

4. Pass legislation to streamline prescribed burns. Numerous regulations, including the ubiquitously deleterious California Environmental Quality Act, interfere with proper care of the forests.

“For instance, after the Camp Fire destroyed the town of Paradise on Nov. 8, 2018, local officials sought to get approval for forest-thinning projects. But it took two years after the first application for approval for the contract for one of the projects to even go out for bidding. This included 17 months to get final approval from CAL FIRE.”

And how many trees does it take to print all those regulations, also worsening the environment the regulations are supposed to save?

5. Exercise the Governor’s emergency powers. If the Legislature won’t act, under Government Code Section 8588, the governor is authorized on conditions “of extreme peril to the safety of persons and property,” such as fire or drought.

There have been valid accusations Gov. Newsom exceeded his emergency powers during the pandemic. But wildfires burning people to a crisp seems to fit the bill.

6. More federal forest thinning. The governor should urge the state’s powerful congressional delegation to insist the U.S. Forest Service thin more forests. I would add Vice President Kamala Harris, a Californian, ought to be urged to get involved, if they can find where she is.

7. Tax incentives to help homeowners in fire areas upgrade to fire-resistant materials.

Sally Pipes: Toward a Healthier California

Although medical policy largely is a federal matter—I just got stuck on Medicare myself—the state has a role to play as well. Sally Pipes is the president and CEO of the Pacific Research Institute. For more than a decade she has written some of the most incisive criticisms of Obamacare and federal and state health policy in general.

She begins with current Secretary of Human Services Xavier Becerra. While California’s attorney general, he “led an effort by 20 states and the District of Columbia to defend the Affordable Care Act against an attempt by the Trump administration and more than a dozen states to overturn the law in the courts.”

Becerra has supported Bernie Sanders’ scheme for a single-payer—that is, socialist—national program. Pipes says Becerra now has the power to let states switch to single-payer versions of Obamacare. It hasn’t happened yet. And California’s massive intervention in the health-care market already “has led to spiraling costs and declining outcomes for those unfortunate enough to rely on the state for coverage.”

Worse, as shown in the chart at the beginning of this article, Medi-Cal costs are rising at 9.4 percent per year. Recent bills signed by Newsom have expanded coverage to undocumented immigrants up to age 25.

“As Medi-Cal grows, beneficiaries have a harder time accessing coverage. Doctors generally limit the number of Medi-Cal patients they see because the program’s reimbursements are so low. Expanding the program further will increase competition among beneficiaries for an already limited number of appointments.”

Pipes urges: “It’s time for a different approach. Less regulation, freer markets, and greater choice are what it will take to secure higher-quality care at lower cost in California.”

Mending California Medical Care

Reform ideas:

1. Get control of Medi-Cal costs. Return Medi-Cal eligibility to before the expansions began in 2014. Doing so would reduce competition for scarce appointments and thereby make it easier for beneficiaries who are legal residents to access care. And it would discourage undocumented people from flocking to California for free health care.

2. Cut taxes with the money saved from Medi-Cal reform. Doing so would lead to fewer Californians leaving the state, keeping them here as part of the tax base. In turn, that would encourage more employer-paid private insurance in the place of Medi-Cal.

3. Reduce unemployment by cutting jobs-killing taxes and regulations. For four decades the state’s unemployment rate, once below the national average, has been well above the national average. Employed people use fewer public resources, including Medi-Cal. Currently, California’s unemployment rate is 7.5 percent, well above the 4.8 percent for the United States.

4. Allow short-term health plans. That would mean repealing SB 910. “Short-term plans can last up to a year, can be renewed for up to three years, and are not subject to Obamacare’s panoply of rules and regulations.” These plans are crucial for those in between jobs, but who don’t want to sign up for Obamacare.

“One study found that more than 600,000 people would buy short-term plans if California lifted its ban. That would reduce the state’s uninsured population by 200,000.”

5. Allow doctors and nurses to join interstate licensing compacts. “In March 2020, Governor Newsom signed an executive order streamlining medical licensure rules in response to the COVID-19 pandemic.”

Although not mentioned in the book, Moorlach sponsored SB 1053 and SB 1054 at the beginning of COVID-19 in May 2020. As he explained it, the bills “would have greatly eased barriers for military spouses, increased access to tele-health in underserved communities, and reduced costs in our healthcare system. I am committed to continuing this fight for mobility and flexibility in California’s healthcare system.”

Even at the height of the pandemic, the bills were opposed by the powerful, left-wing California Nurses Association, so the Democratic Legislature asphyxiated them.

6. Embrace the Telehealth Revolution. Much of this already has been done. “As part of its pandemic response, California made it easier for patients to consult with out-of-state physicians over Skype, Zoom, or FaceTime. … The potential benefits for patients are endless.”

Steven Greenhut: Conclusion: A Blueprint for Reform

Book editor Greenhut closes by noting the overwhelming power Democrats now wield in the state, controlling all statewide offices and supermajorities in both houses of the Legislature. “Progressives now see California as a place where they can try out their political and social experiments—in the hopes that their visions can become the model for the nation. That often has meant a focus on social engineering rather than, say, transportation engineering. …

“California is likely to remain a Democratic bastion for the remainder of our lives, but that’s no reason to give up hope of building a more practical and reform-minded political consensus.”

Which is all the more reason detailed reform proposals are needed. The state’s political, economic and infrastructure systems are buckling under the weight of bad policies. Especially when the current “surplus” runs out, as it will, those in office will be seeking solutions that work.

Greenhut writes Republicans can start reviving their prospects “by embracing the types of practical, quality-of-life-improving reforms that are detailed in this book. A little balance is in order and Lord knows California could benefit from some heightened political competition, a lot less partisanship, and some fresh thinking about new ideas.”

I would end this three-part series of reviews by pointing out the Democratic Party in California itself is not as solid as it may seem. The Jerry Brown-Nancy Pelosi-John Burton Old Guard is giving way. Kamala Harris and Gavin Newsom are an intermediate group, now focused on Oval Office ambitions.

That will leave a younger generation to clean up the mess left behind. The details of the problems are in this book. So are the solutions.