Today’s progress update on the initiative to repeal the gas tax

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Watch last night’s city council meeting

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Why do Californians pay more state and local taxes than Texans?

By John Woolfolk | California was the birthplace of the 1970s tax revolt, but its residents still pay more in state and local taxes than those in most other big urban states. And many are asking why as they assess how a new federal income tax law that caps state and local tax deductions will shake out for them.

“We have relatives in Missouri, and when we travel there we wonder why it costs so much more here,” said Bob Jackson, 66, a retired postal worker who lives in San Jose.

Of the five most populous U.S. states — California, Texas, Florida, New York and Pennsylvania — only New York collects more state and local taxes per resident than the Golden State, according to The Tax Foundation, an independent Washington, D.C., tax policy nonprofit. (Story continues below graphic.)

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Like California, Texas and Florida are big coastal states with miles of beaches, large, diverse, multilingual populations and all the urban complexities that come with hosting some of the country’s biggest cities. Yet they have more public school teachers per pupil and higher test scores, they have more cops per crime, more firefighters per resident and more criminals behind bars.

As the federal tax overhaul puts a spotlight on high-tax states like California, which just unveiled a new $131.7 billion budget proposal with a $6.1 billion surplus tabbed for rainy-day reserves, it has renewed debate over whether Californians pay too much for their government.

To read the entire story in the San Jose Mercury News, please click here.

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Tonight’s city council meeting agenda

The AgendaTo read or download tonight’s detailed council meeting agenda, please click here (pdf).

The public participation portion of the meeting begins at 6:30 with presentations and awards. Actual city business normally doesn’t start until 7:00 or thereafter.

And you can always watch it on cable Channel 3 (Spectrum — formerly Time Warner Cable).

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California, a state of unintended consequences

By Jon Coupal | California is notorious for enacting laws that result in outcomes precisely opposite of what the law was designed to address. Think of trying to cure obesity by prescribing donuts.

A weekly column by Jon CoupalLet’s start with high-speed rail. One of the “problems” HSR is supposed to address is climate change. The theory is that the rail project will supplant greenhouse gas emitting automobile traffic. But because of the cost of tickets, lack of promised speed and general inconvenience, transportation experts are in near-universal agreement that HSR will not take cars off the road. In the meantime, the construction of the project is itself putting millions of tons of GHG emissions in the air. Even California’s nonpartisan Legislative Analyst’s Office acknowledged that HSR is a net producer of GHG emissions and will be for the foreseeable future.

How about minimum wage policies? The theory is that low-income people need a “living wage” in order to survive. But if those policies reduce workforce participation and increase unemployment, how does this help low-income people who now have to rely on welfare? If California were serious about its higher-than-average unemployment rate, especially among urban youth, it would relax some of these laws rather than contribute to the disaffection of young people.

To read the entire column, please click here.

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How much more will cities and counties have to pay CalPERS?

CalPERS' Board of Directors


By Ed Ring
| When speaking about pension burdens on California’s cities and counties, a perennial question is how much are the costs going to increase? In recent years, California’s biggest pension system, CalPERS, has offered “Public Agency Actuarial Valuation Reports” that purport to answer that question. Notwithstanding the fact that CalPERS predictive credibility is questionable – i.e., they’ve gotten it wrong before – these reports are quite useful. Before delving into them, it is reasonable to assert that what is presented here, using CalPERS data, are best case scenarios.

In partnership with researchers at the Reason Foundation, the California Policy Center has compiled the data for every agency client of CalPERS, including 427 cities and 36 counties. In this summary, that data has been distilled to present two sets of numbers – payments to CalPERS for the 2017-2018 fiscal year, and officially estimated payments to CalPERS in the 2024-25 fiscal year. In calculating these results, the only assumption we made (apart from the assumptions made by CalPERS), was for estimated payroll costs in 2024. We used a 3% annual growth rate for payroll expenses, the rate most commonly used in official actuarial analyses on this topic.

So how much more will cities and counties have to pay CalPERS between now and 2024? How much more will pensions cost, six years from now?

On the table below, we provide information for the 20 cities that are going to be hit the hardest by pension cost increases. To view this same information for all cities and counties that participate in the CalPERS system, download the spreadsheet “CalPERS Actuarial Report Data – Cities and Counties.” [Download the spreadsheet to see where Fullerton stands.]

CalPERS Actuarial Report Data
The Twenty California Cities With the Highest Pension Burden ($=M)

If you are a local elected official, or if you are an activist, journalist, or anyone else with a keen interest in pensions, these tables merit close scrutiny. Because they not only show costs estimates today, and seven years from now, but they break these costs into two very distinct areas – the so-called “normal” costs, which are how much employers have to pay into the pension fund for current workers who are vesting one more year of future benefits, and the “catch-up” costs, which are what CalPERS charges employers whose pension plan is underfunded.

Take the first city listed, Millbrae. By 2024, we predict Millbrae will have the highest total pension payments of any city in California that belongs to the CalPERS system.

The table presents are two blocks of data – the set of columns on the left show current costs for pensions, and the set of columns on the right show the predicted cost for pensions. In all cases, the cost in millions is shown, along with the cost in terms of percent of total payroll.

Currently, as can be seen on the table, for every dollar it pays active employees in base wages, Millbrae must contribute 59 cents to CalPERS. This does not include payments to CalPERS that Millbrae collects from its employees via withholding. The same data show that, by 2024, for every dollar Millbrae pays active employees in base wages, they will have to contribute 89 cents to CalPERS. Put another way, while Millbrae may expect its payroll costs to increase by $1.4 million, from $6.3 million today to $7.7 million in six years, their payment to CalPERS will increase by $3.1 million, from $3.7 million today to $6.8 million in 2024.

But here’s the rub. Nearly all of this increase to Millbrae’s pension costs are the “catch-up” payments on the city’s unfunded liability. In just six years Millbrae’s payment on its unfunded liability will increase by 99%, from $2.9 million today to $5.8 million in 2024.

Why?

What are the implications?

It is difficult to overstate how outrageous this is. Here’s a list:

1 – Virtually every pension “reform” over the past decade or so has exempted active public employees from helping to pay down the unfunded liability via withholding. Instead, their increased withholding – in some cases supposedly rising to “fifty percent of pension costs” (the PEPRA reforms) – only apply to the normal contribution.

2 – In order to appease the unions who, quite understandably, lobby for the lowest possible employee contributions to pension funds, the “normal cost” is calculated based on optimistic projections. The longer an actuary predicts a retiree will live, and the more an actuary predicts investments will earn, the lower the normal contribution.

3 – In order to cajole local elected officials to agree to pension benefit enhancements, the same overly optimistic, misleading projections were provided, duping decision makers into thinking pension contributions would never become a significant burden on cities and counties, and by extension, taxpayers.

4 – Because cities and counties couldn’t afford to pay down the growing unfunded liabilities attached to their pension plans, tricky accounting gimmicks were employed, where minimal catch-up payments were made in the present in exchange for bigger catch-up payments in the future. The closest financial analogy to what they did would be the “negative amortization” mortgages that were popular prior to the housing crash of 2008.

5 – The consequence of this chicanery is that today, as can be seen, catch-up payments on the unfunded liability are typically two to three times greater than the normal contribution. And it’s getting worse. In 2024, Millbrae, for example, will have a catch-up contribution that is nearly six times as much as their normal contribution.

6 – When a normal contribution isn’t enough, and the plan becomes underfunded, the level of underfunding is compounded every year because there isn’t enough money in the fund earning interest. The longer catch-up payments are deferred, the worse the situation gets.

Yet the normal contribution has always been represented as all that should be required for pension plans to remain fully funded. Just how bad it has gotten can be clearly seen on the table.

Take a look at Pacific Grove, fourth on the list of CalPERS cities with the highest pension burden. Pacific Grove is already paying 40 cents to CalPERS for every dollar it pays to its active employees. But in six years, that amount will go up to 75 cents to CalPERS per dollar of salary to active employees. And take a look at where the increase comes from: Their catch-up payment goes from 1.7 million to $4.4 million in just six years.

Why?

Why isn’t Pacific Grove paying more, now, so that it can avoid more years of having too little money in its pension plan, earning interest to properly fund future pensions? The reason is simple: Telling Pacific Grove to go out and find another $2.7 million, right now, is politically unpalatable. In six years, most of the local elected officials in Pacific Grove will be gone. But where is Pacific Grove going to find this kind of money? Where are any of California’s cities and counties going to find this kind of money?

One final point: These pension plans are underfunded after a bull market in stocks has doubled since it’s last peak in June 2007, and has nearly quadrupled since it’s last low in March 2009. When stocks and real estate have been running up in value for eight years, pension plans should not be underfunded. But they are. CalPERS should be overfunded at a time like this, not underfunded. That bodes ill for the financial status of CalPERS if and when stocks and real estate undergo a downward correction.

CalPERS, and the public employee unions that dominate CalPERS, have done a disservice to taxpayers, public agencies, and ultimately, to the individual participants who are counting on them to know what they’re doing. They were too optimistic, and the consequences are just beginning to be felt.

[Cross-posted from the California Policy Center.]

Posted in CalPERS, Ed Ring, Pensions | Leave a comment

Another update on the gas tax repeal initiative

San Diego talk show host Carl DeMaio again joined John and Ken on KFI Radio yesterday to provide a status report on the initiative’s signature-gathering effort:

The deadline to submit signatures is February 2, 2018.

To sign the petition now, CLICK HERE.

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Fullerton City Hall is closed today for another three-day weekend

City Hall Closure Dates and
Observed Holidays

2018
January –1*, 12, 26
February – 9, 19*, 23
March – 9, 23
April – 6, 20
May – 4, 18, 28*
June – 1, 15, 29
July – 4*, 13, 27
August – 10, 24
September – 3*, 7, 21
October – 5, 19
November – 2, 11*, 16, 22*, 23*,30
December – 14, 24*, 25*, 26^,27^, 28, 31*

*Holiday observed
^Winter Closure

Fullerton City Hall

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Proposition 13 on Jerry Brown’s mind

Joel FoxBy Joel Fox | By my count, Governor Jerry Brown mentioned Proposition 13, the nearly 40-year old property tax reform, three times during his press conference presenting a new state budget. Brown’s discussion of Prop 13 came in the context of the fiscal world California lives in because of the mandates of that tax measure.

But when Brown was asked if he would tackle changes to Proposition 13 by commenting on a spit roll property tax proposal or other measures that deal with Prop 13, he said, “The fact is there is more property tax collected than ever.”

A fact often ignored by those who want to amend Proposition 13 is that California governments are flush with cash despite Proposition 13’s tax limitations. In fact, property taxes alone have increased 1000% since 1978 according to the Legislative Analyst.

Brown’s new General Fund budget is a record $131.7 billion, a 4.1% increase over last year. The entire state budget is $190 billion, which includes bond revenue and special funds.

Responding to a question on how the governorship has changed over the 40-plus years Brown served his four terms as governor, he began by saying, there is more money circulating now. Because of Proposition 13, Brown said the legislature is more involved in local decision-making and local funding today. He argued for local empowerment but crafted his budget considering the realities of California’s tax structure.

The governor argued that the state moved to a less stable tax situation relying more heavily on income taxes and capitol gains taxes. Unlike 40 years ago, he said, the state now faces more up and down budget cycles.

Given the way California now collects taxes, Brown said the state must rely on a budget surplus rainy day fund for dips in the economy. He said that is why California needs to collect a large surplus. Brown is taking advantage of the strong revenue numbers to fully fund the rainy day fund at $13.5 billion.

However, he employed that same reasoning of potential volatile budgets to reject returning any of the surplus to voters through tax cuts.

Republican Assembly members Vince Fong and Matthew Harper have introduced tax cut measures in the legislature.

Brown also expressed concerns that the new federal tax bill would hit high-end taxpayers in California and tempt them to leave the state. He is banking on a new congress after the 2018 elections to reverse the new tax policy.

[Cross-posted from Fox & Hounds.]

Posted in California Budget, Jerry Brown, Joel Fox, Prop. 13 | Comments Off

Royce endorses Young Kim to replace him

A day after announcing he would retire at the end of 2018, Rep. Ed Royce (R-Fullerton) has weighed in on who should replace him.

Young KimRoyce has endorsed former state legislator Young Kim, a one-term assemblywoman who was unseated in a 2016 rematch with Democrat Sharon Quirk-Silva. Kim worked in Royce’s district office before being elected to the Assembly.

To read the entire story by reporter Christine Mai-Duc in the Los Angeles Times, please click here.

Posted in 39th House District, 65th Assembly District, Ed Royce, Young Kim | 1 Comment