MyGovCost News & Blog

Fire the Coastal Commission, Not Just the Boss

Monday January 25th, 2016   •   Posted by K. Lloyd Billingsley at 5:24am PST   •  

CA_Coastal_200As Tony Barboza notes in the Los Angeles Times, the California Coastal Commission is “the most powerful land-use agency in the nation” and some of the 12 commissioners want to fire the boss, Charles Lester. This action should serve as a timely reminder for Californians of the abuse they face at the hands of bad government

Ordinary residents can’t fire Lester because the powerful CCC is an unelected body and none of the commissioners ever comes before the voters. As Barboza has it, former CCC boss Peter Douglas “chose Lester from within the ranks of the agency as his successor, and the commission appointed him unanimously in 2011.” So it’s kind of a hand-me-down thing, and the boss makes the call. Douglas, Barboza explains, was “an aggressive and hard-nosed environmentalist, spent more than 25 years running the commission and advocating forcefully for its independence.” Douglas was actually a regulatory zealot of considerable ferocity, with a complete disregard for the property rights of the people.

The California Coastal Commission was Douglas’ private fiefdom, a combination of Stalinist-style regulation and Mafia-style corruption. On Douglas’ watch commissioner Mark Nathanson served five years for bribery and Douglas is on record that more of that was going on. The CCC has made the coast a millionaires’ enclave and driven development into hotter inland areas, where energy demands are higher. The CCC is also expansionist, intruding into inland issues such as landfills. Activists also ply the unelected CCC on animal management and even surfing tournaments.

The beef against Lester, an attorney, is not exactly clear. Some see an attempted coup by pro-developer interests while others find a protest against bureaucratic lethargy. However it shakes out in a February 10 public meeting, the basic problems remain. The CCC shows how government progressively becomes more intrusive, more expensive, and less responsive to the people. The voters, taxpayers and duly elected governments of coastal counties and cities are entirely capable of overseeing land-use and environmental concerns. It would be nice if ordinary residents could fire Lester, the commissioners, or CCC staffers who abuse the public. What ordinary residents really need is the opportunity to eliminate the CCC, a powerful agency California doesn’t need.

What’s Really Driving Up the Nation’s Deficits?

Friday January 22nd, 2016   •   Posted by Craig Eyermann at 6:01am PST   •  

13109820_S Earlier this week, we looked at whether tax cuts were responsible for reversing the downward trend in the U.S. government’s projected budget deficits over the next 10 years, at least as is being repeatedly suggested by the mainstream media in its reporting on just-released analysis by the Congressional Budget Office.

We said no, which has since been confirmed by other analysts, including Forbes contributor Ryan Ellis, who dug deeper into the CBO’s numbers and writes:

The problem is not on the tax side. At all. If you look at the 10-year baseline, which is now infinitely more realistic post-extenders, you see that tax revenues bob around an 18% of GDP level. That just so happens to be right around the historical average for tax revenues, according to CBO. So taxes are coming in right on target, right where you’d expect them to. They are not, in other words, underperforming in any way. If the deficit is the sick love child of taxes and spending, the former is not contributing the corrupting genes.

What is the problem? Why does the CBO project such large increases in the federal government’s deficits and the national debt?

Over the ten year window, spending is set to grow from 20.7% of GDP in 2015 to 23.1% of GDP in 2026. That already puts spending above the CBO historical average, which is right about 21% of GDP.

The long term baseline takes over from there. Spending grows to 23.5% of GDP in 2030, to 25.3% of GDP in 2040, and to 26.5% of GDP in 2050. It gets worse from there, especially if you take a peek at the alternative fiscal scenario spending baseline.

All of the growth in that spending comes from two sources: entitlement program autopilot growth for Medicare, Medicaid, Social Security, Obamacare and others; and the attendant interest spending on the national debt that comes from the entitlement-driven deficit scenario.

The plane is coming in for a landing here. We have a growing deficit problem. We have shown that taxes are not only not a contributing factor, but that taxes are actually helping the situation. We have shown that spending is 100% of the deficit problem, and that entitlement spending is 100% of the spending problem.

This isn’t that hard. If you’re concerned about deficits, the only thing you should be focused on is restraining the growth curve of entitlement spending. To the extent your focus is elsewhere (tax hikes, waste/fraud/abuse in discretionary spending, etc.) you’re being less than serious about your concern.

Indeed. And as one popular left-wing economist frequently writes: “Why Oh Why Can’t We Have a Better Press Corps?”

Pension Reform Rollback Shows True “State of the State”

Friday January 22nd, 2016   •   Posted by K. Lloyd Billingsley at 5:01am PST   •  

CA_PiggyBank_200x200Long before his latest State of the State address, governor Jerry Brown has been proclaiming that California is back, and as City Journal California associate editor Ben Boychuk notes, there is some ground for optimism. The Golden State has enjoyed impressive job growth over the past three years and this year might overtake Brazil with the seventh largest economy in the world. Boychuk, however, has a pressing question for Brown: “Can you really celebrate a projected $11.5 billion ‘surplus’ with a mountain of unfunded public-employee retirement benefits looming large?” As Boychuk notes, the state’s unfunded pension and health care liabilities stand at $220 billion and “that would seem to suggest a surplus in name only, would it not?”

Sacramento Bee columnist Dan Walters also took up this theme, after news that the pension reform measure advanced by Chuck Reed and Carl DeMaio would not be on the 2016 ballot. No one truly knows the extent of the unfunded liabilities, Walters wrote, because of unrealistic estimates of what pension trust funds will earn. And consider the dynamics in play. “However large they may be, fast-growing pension and health care liabilities don’t discomfit any major interest groups, since their greatest impacts are on local governments, especially cities, rather than on state government.” And reform measures draw “high-dollar opposition” from government employee unions, well stocked with cash they can confiscate even from non-members. So as the veteran columnist sees it, unfunded pension liabilities will continue to grow, and the day of reckoning again kicked down the road. Worse, “the pension reforms that DeMaio and Reed achieved at the local level are being dismantled in their absence.” That rollback is evidence that meaningful pension reform is practically impossible in California. That is the “state of the state” taxpayers should find troubling.

Ruling Class Reactionaries Set Back Pension Reform

Wednesday January 20th, 2016   •   Posted by K. Lloyd Billingsley at 11:00am PST   •  

seal_ca_200X200A major statewide pension reform measure will not, as expected, be on the 2016 ballot. That is bad news for California’s working taxpayers. As Lawrence McQuillan notes, California accounts for $550 billion to $750 billion of the nation’s total unfunded pension liabilities. In his research for California Dreaming: Lessons on How to Resolve America’s Public Pension Crisis, McQuillan discovered that from 2008 through 2012, California’s local governments pension spending increased 17 percent while tax revenue grew only 4 percent. As a result, a larger share of budgets goes to pensions, crowding out spending on core services such as police. In San Jose, the police department budget increased nearly 50 percent from 2002 through 2012, yet staffing fell 20 percent. More money has been consumed by police pensions, leaving less money to hire and retain officers.

Faced with these realities, former San Jose mayor Chuck Reed, a Democrat, backed a pension form measure in 2014. Last year he teamed with former San Diego Councilman Carl DeMaio, a Republican, to place a measure on the 2016 ballot. They had to contend with misleading official descriptions issued by the state Attorney General. Government employee unions attacked the measure as “extremist,” though it was anything but. The reform effort would have put those who join a government pension system after 2019 into 401 (k) pensions, with fixed contributions, instead of more expensive defined benefit pensions from government agencies. Reed and DeMaio will now aim for 2018 but the problems will not go away.

“Swelling pension costs are like tapeworms, starving the public of municipal services,” wrote McQuillan. In Oakland, police refuse to respond to 44 different crimes because of staffing cutbacks. So public safety is at issue. State and local governments need the option of adjusting future pensions for all employees, including a switch to 401(k)-type plans, “which are more affordable and always fully funded.”

CBO: Fictional, Real Deficit Projections Converge

Tuesday January 19th, 2016   •   Posted by Craig Eyermann at 6:04pm PST   •  

17570331_S If you paid attention to the news from Washington, DC today, you might think that the cause of deficit reduction took a big hit today because of a number of tax cuts that were made permanent. Here’s how NPR reported the story:

Once Upon A Time, Congress Cut Deficits; Now CBO Says That’s Over

For six straight years, Americans watched their government’s borrowing shrink.

Then last month, that trend towards less and less borrowing suddenly came to an end. Congress overwhelmingly passed a federal budget that included a $680 billion tax-cut package, which President Obama signed.

Now the nonpartisan Congressional Budget Office says the federal deficit is set to jump 24 percent, to $544 billion, in this fiscal year. That’s up from last year’s $439 billion deficit.

The CBO’s latest estimate, released Tuesday, also said economic growth will be somewhat slower than originally forecast, reducing tax revenues for this year.

“This report makes it abundantly clear that the era of declining deficits is over,” Maya MacGuineas, head of the bipartisan Campaign to Fix the Debt, said in a statement. “Thanks to a series of huge and irresponsible unpaid-for tax cuts and spending increases last year, deficits and the national debt are rising much higher and much faster than expected.”

Nowhere in NPR’s story however is that the portion by which the nation’s projected deficits will increase because of what Maya MacGuineas describes as “huge and irresponsible unpaid-for tax cuts” is completely fictional.

Here’s how we know. We’ve been paying attention to the CBO’s annual Budget and Economic Outlook ever since we launched the MyGovCost calculator. And in each and every single year that they’ve put out their 10-year forecast, they’ve provided both a “baseline” scenario and an “alternative fiscal” scenario.

The difference between the two scenarios comes down to this basic truth: the “baseline” scenario pretends that elected officials will never respond to political pressure from the special interests that fund their political campaigns and will allow all the tax cuts and special spending programs they demanded and got in return for their campaign “investments” to expire according to the law as it is currently written.

Those various expiration dates, by the way, are deliberately placed in the “temporary” tax cut laws by politicians elected to office so that their true cost over time is never honestly accounted for in the CBO’s baseline scenario. It’s a way for the politicians to make the fictional claim that their spending is under any kind of control and have it be believed by reporters who never think to consider otherwise.

The CBO’s nonpartisan analysts are smarter than that however. They developed the alternative fiscal scenario to account for how such tricksy politicians really behave. And in that scenario, the fiction of “temporary” tax cuts is assumed to be what it really is: false.

As a result, only the CBO’s alternative fiscal scenario has a much more real and honest relationship with the world in which we really live. That’s why we have only ever used the CBO’s alternative fiscal scenario to project the future cost of the U.S. federal government’s spending and various special interest giveaways in the MyGovCost calculator.

The real news is that for almost the first time since we first launched the MyGovCost calculator back in 2009, the separation between fiction and reality has narrowed!

But if it makes Ms. MacGuineas and NPR feel better, the huge and irresponible spending increases and worse economic growth that the CBO indicates will directly increase the size of the government’s deficits by more than the margin of shoddy fiction are indeed all too real.

Governor’s Tunnel Vision Gets Worse

Monday January 18th, 2016   •   Posted by K. Lloyd Billingsley at 10:40am PST   •  

tunnel_200As we have noted, governor Jerry Brown wants to drill two massive tunnels under the Sacramento-San Joaquin River Delta. The total cost of his Delta conservation plan is $25 billion, but based on projects such as Boston’s “Big Dig,” and a highway tunnel project in Seattle, the cost would be much higher. A coalition of farmers, environmentalists and recreational anglers oppose the Delta project, but as David Siders and Dale Kasler note in the Sacramento Bee, the governor is now calling the tunnels a “fundamental necessity.”

“If we don’t have the project, the Delta will fail, the water will not be available and California will suffer devastating economic consequences,” Brown told reporters, calling the tunnels “a fundamental necessity of California’s current and future prosperity.” Brown said “we’ll get it done” but, as the reporters note, agencies in the southern part of the state might not be eager to pay up. Taxpayers might note that Brown’s other pet project, the vaunted bullet train, also has a case of tunnel vision.

The bullet train will require 36 miles of tunnels through mountains north of Los Angeles, an area that includes the boundary between tectonic plates and unmapped earthquake faults. This would be the most ambitious tunneling project in the nation’s history, and according to expert Bent Flyvbjerg of Oxford University, the probability of a major cost overrun is 80-90 percent. At $68 billion the budget is already more than double the original estimate of $33 billion.

The California high-speed rail project is not a fundamental necessity and neither are the governor’s beloved tunnels. Taxpayers might recall that the new span of the Bay Bridge racked up cost overruns of $5 billion, came in 10 years late, and remains troubled by safety issues. As California congressman Mark DeSaulnier lamented, “it’s frustrating that there’s never been anyone in the management of the bridge who has been held accountable.”

VA Bureaucrats Not Getting the Message

Friday January 15th, 2016   •   Posted by Craig Eyermann at 7:10am PST   •  

garage_artwork Imagine if you were a senior administrator at the troubled U.S. Department of Veterans Affairs. You’re well aware that your institution has developed an extremely large backlog of patients seeking medical treatment, where many former military service members wait for weeks and months before receiving any care, if they’re lucky enough to get any care in the first place.

Now imagine what you could do with that problem if you had an extra million or two to spend. You could do things like hire extra staff or pay overtime to current medical staff members to start working through that backlog of patients at VA facilites. You could even give the veterans seeking medical attention vouchers they could spend at less burdened medical facilities so they could get care in a much more reasonable amount of time.

Or, you could do what the bureaucrats at a number of VA facilities did, and buy a bunch of artwork to brighten up your work environment. The 2015 Wastebook describes some of the artwork that VA officials at just one facility chose to buy and install with the money they had available to them.

The VA Palo Alto Health Care System in California spent “at least $6.3 million on art and consulting services,” according to Congressman Jeff Miller, the Chairman of the House Veterans’ Affairs Committee.

The $1.3 million price tag for the renovation of the courtyard of the Mental Health Center includes $482,960 spent on a giant rock and $807,310 for “site preparation.” The rock, “cut into cubes with a laser and pieced together,” is meant to evoke “a sense of transformation, rebuilding, and self-investigation,” according to the designers.

The VA also spent $365,000 for a stainless steel and aluminum sculpture in the aquatic center entrance and $305,000 for another sculpture in an exterior lobby. A sculpture in the shape of a half arc located inside the mental health center cost $330,000, while an art installation on the side of a parking garage displaying quotes by Abraham Lincoln and Eleanor Roosevelt that lights up in Morse code cost $285,000.

Those wishing to decode the colorful Morse code messages visualized on the southern and western sides of the VA’s Palo Alto parking garage may reference the art project’s fact sheet, which might be particularly useful for all the Army soldiers who enlisted after 2012 that might visit the facility, since that was when the U.S. Army stopped training soldiers in Morse code.

More Money, That’s What They Always Want

Thursday January 14th, 2016   •   Posted by K. Lloyd Billingsley at 9:29am PST   •  

SolidRedGlobeIn a Detroit studio, way back in the day, Barrett Strong sang, “Money, that’s what I want.” Many artists have since covered the tune and government bureaucrats croon it every day. As David Siders shows in the Sacramento Bee, they jack up the volume around budget time.

The California Department of Conservation, for example, needs more money to train its regulators. At present they lack certain “field standards of health and safety and regulatory functions.” The regulators need this training “to prevent costly errors, injuries, and the highest cost of all, death.” Yes, without more money, oil and gas regulators could take heavy casualties, just like special forces.

The State Board of Equalization, a high-maintenance state agency, collects a fire prevention fee levied on rural landowners but ran into “negative public sentiment against the fee.” So the $1.4 million the BOE requested is not enough. Why, these malcontents are keeping noble government employees on the phone for 10-20 minutes at a time.

The Department of Forestry and Fire wants $1.7 million to hire more information officers so the media gets “appropriate and timely information.” In Napa County, one information officer fielded 78 calls in one day and, as Siders notes, “In that single month, the employee accrued more than 300 hours of overtime.” Why this government information officer is a veritable Stakhanov.

The California Correctional Health Care Services says medical equipment bears dust and debris. According to a report, rodent feces, cockroaches and black widow spiders are such a problem one facility could have lost its license. The bosses want money for more janitors but it seems the current squad isn’t doing the job very well.

The California Military Department, meanwhile, believes state computer systems are at risk, with nearly 34 possible means of intrusion per computer system. So the Military Department jacked up its funding request for the Cyber Network Defense Team from $774,000 to $1.4 million. Yes, that should keep us all safe.

When asked how much money was enough, John D. Rockefeller replied, “just a little bit more.” With government bosses it’s always a lot more.

Puerto Rico’s Stiffed Creditors Strike Back

Tuesday January 12th, 2016   •   Posted by Craig Eyermann at 6:47am PST   •  

US-bankruptcy-court-puerto-rico-seal The ongoing saga of Puerto Rico’s debt problems blew up a lot bigger last week, as the U.S. territory defaulted on an additional $174 million of debt payments to its creditors on January 4, 2016, exactly five months after Puerto Rico’s government defaulted on its debt for the first time ever since the territory become part of the U.S. in 1898. The New York Times reports:

Puerto Rico defaulted on about $174 million of debt payments on Monday, as planned, stripping cash away from its lower-ranked creditors so that higher-ranked creditors could be paid in full.

Alejandro García Padilla, Puerto Rico’s governor, defended the default as best he could on Monday in an appearance on CNBC, saying, “It’s very simple. We don’t have money to pay.”

The default came just a little over two weeks after Puerto Rico’s government paid $120 million in bonuses to the employees of the territorial government.

But now, the way that Puerto Rico’s elected officials stiffed some of its bondholders just one month ago has run afoul of the insurance companies who backed the territory’s debt. Finance blog Zero Hedge explains how Puerto Rico avoided defaulting on the General Obligation (GO) portion of the debt payments it needed to make at that time, choosing instead to stick the holders of bonds issued by the Puerto Rico Infrastructure Financing Authority (Prifa) with all the losses:

On December 1, Puerto Rico governor Alejandro Garcia Padilla was staring down a $354 million debt payment he couldn’t make.

If the commonwealth defaulted on the GO portion, a cascade of messy litigation would follow and the island’s reputation with creditors would suffer irreparable harm.

That afternoon, on the heels of a visit to Capitol Hill where the governor attempted to explain to Congress why Puerto Rico should be allowed to take advantage of bankruptcy laws, the island made the payment, avoiding default.

Padilla “found” the money by using what we called an “absurd” revenue clawback mechanism.

Essentially, Puerto Rico diverted money earmarked for non-GO creditors and used it to pay the island’s GO bonds. As you can imagine, the bond insurers for the debt involved in the clawback were not happy. Ambac, for instance, called the clawback “illegal” and claimed that Padilla actually began siphoning funds well before the December 1 payment, a charge the governor denied.

On January 1, Puerto Rico defaulted on some $36 million in Prifa bonds.

Now, Ambac, along with Assured Guaranty, are suing. “Insurance companies that guarantee Puerto Rico municipal debt filed a lawsuit challenging the commonwealth’s decision to divert revenue designated for some bonds to pay other creditors,” Bloomberg reports, adding that the monolines “said the clawback of revenue pledged to bond issues violates the U.S. Constitution by interfering with debt-holders’ contractual rights.”

What does that mean? It means a long, costly legal battle royale for all parties involved. Reuters outlines the plaintiff’s case:

The lawsuit is an opening salvo in what could be a long and expensive court fight over Puerto Rico’s efforts to restructure its debt. The island lacks access to U.S. bankruptcy protections, and creditors have resisted voluntary concessions, making for a messy and unpredictable path to restructuring....

The plaintiffs argue clawback authority applies only when there is no other money available to pay debt, which Puerto Rico has not proven is the case. The clawbacks “substantially and unjustifiably impair ... contractual rights,” the insurers alleged.

They also said Puerto Rico is wrongfully using clawbacks to fund government services, and is diverting bondholders’ collateral in violation of the Takings and Due Process clauses of the U.S. constitution.

Together, Ambac Financial and Assured Guaranty insure $2.6 billion of debt issued by the territory’s government entities whose bondholders Puerto Rico’s leaders have selected to be the first in line to take losses from the government’s default on its debt.

All this action will play out in U.S. courts. This is what a sovereign debt default in the United States looks like.

High Maintenance Government

Monday January 11th, 2016   •   Posted by K. Lloyd Billingsley at 5:46am PST   •  

BOE_200California governor Jerry Brown is in a mood for spending. As Jon Ortiz and Dale Kasler note in the Sacramento Bee, his 2016-17 budget includes “a $1.5 billion infrastructure plan that would also remodel a portion of the Capitol.” The governor has “proposed transferring $1.5 billion from the state’s general fund to a new State Office Infrastructure Fund. First up would be a new $530 million, 650,000-square-foot office building for the Natural Resources Agency.” The plan also includes $226 million to replace a vacant state building in Sacramento. Brown’s largesse, however, fails to include any money for repairs to the state Board of Equalization (BOE) headquarters in downtown Sacramento, and therein lies a story.

As we noted, the BOE headquarters has been dubbed a “Terror Tower,” with good reason. The 24-story building has been plagued with mold, leaking windows, bursting pipes, falling glass and even traces of toxic substances. Unfortunately, the statute of limitation on defective construction ran out in 2002. In its first 21 years the tower consumed some $60 million, and the cost to fix current problems is $30 million. One assemblyman wanted a new facility costing $500 million, plus debt on the ramshackle BOE building, now in the range of $70 million and not due to be paid off until 2021. So in typical government style the money pit gets deeper, all for a bloated bureaucracy of dubious utility.

The Board of Equalization dates from 1879 and its mandate was to ensure that property tax assessments were uniform across all California counties. The BOE no longer “equalizes” anything but collects a variety of taxes and fees. As an elected body the BOE provides a comfy landing spot for termed-out politicians. They represent government to the public and create new ways to shake down taxpayers. Twenty years ago in 1996 the BOE attempted to tax editorial cartoons as though they were works of art purchased in an art gallery. The proposed “laugh tax” made California a national joke, so no surprise that even the board’s headquarters is a money pit. Government waste, fraud and abuse are always worse than politicians let on. And when taxpayers calculate the cost of government, don’t forget to include the maintenance.

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