Ballot analyses, California statewide, 2016 – part 1

With a full 17 measures on the statewide ballot alone, this year I am doing something new. Some people may feel there should be a strong presumption that Legislature should mediate disputes, come to compromises, do its job of representing us, and not annoy and burden voters by punting complicated issues onto the ballot. (They might think that; I couldn’t possibly comment.) At the same time, there are many reasons that in practice, an issue cannot move forward without voters’ weigh-in, either legally or practically due to politics.

To accommodate people with this viewpoint, I am making a dual set of recommendations per measure. The utilitarian recommendation only asks whether the measure would have a positive or negative impact on its own terms. The anti-clutter recommendation will mostly look at impact, but will be prepared to say “no” to measures that have only a minor benefit and that we could expect the Legislature to handle on its own. Of course, a utilitarian “no” is automatically a “no” on both sides.

I plan to make these analyses and recommendations for all the statewide measures as well as for the local propositions before Oakland voters. Possibly also San Francisco, but they have an especially horrid glut this year (over 20!) so I may have to pick and choose.

Part 1: Bonds, taxes, and constitutional amendments

Propositions 51-57 come first on the ballot because they more inherently require a public vote to move forward, for one reason or another. For most, it’s because they are changes to the state constitution. There must also be votes on general obligation bonds. Tax measures in particular tend to come in the form of constitutional amendments, although they could technically be passed by the Legislature, but only with a two-thirds vote (“thank” Prop 13), which is very difficult to assemble; instead, a simple majority of the popular vote is also sufficient.

Proposition 51: School bonds

This measure is a kind we have seen fairly routinely seen in the past. The state takes out a bunch of loans, lets districts spend it on school construction and modernization, it gets paid back in interest over about 35 years. With Proposition 51, we would borrow about $9 billion and pay it back with about $500 million payments a year. For context, this repayment amount would be about 0.3% of the state General Fund yearly resources, compared to about 5% of GF in debt service for all of our borrowing every year for the past several years. Since many earlier bond issues are running out, debt service is projected to drop to about 3% of GF in ten years if nothing else changes.

Of the $9 billion, $7b would go to K-12 schools and the remaining $2b to the community college system. Of the $7b to K-12, $3b each would go to new construction and to modernization, with the final portions to career technical education and charter schools. Allocation to K-12 would require “local match,” meaning the district has to find up to 50% of the total project cost on its own, such as through additional local bonds or developer fees.

Of course these are good spending choices in the abstract, but there remain two big issues surrounding Prop 51. First, is debt the right means for financing this spending? Second, since this measure also makes decisions about how to distribute the spending, are they good decisions, or (possibly) fatally flawed?

Appropriateness of debt. It is true that California is paying down a great deal of debt and has other non-debt obligations that will grow over time; there are those, including the Governor, who talk about paying down old debt and not taking on new debt where possible. At the same time, the lasting impact of Prop 13 makes state funds perennially scarce, and bonds can play a crucial role in smoothing out resources: construction inherently requires a lot of money up front for infrastructure that will be useful for decades, and bonds make that money available. Given the low interest rates available to the federal government, we know it benefits the economy in the short and long run to use borrowing for this purpose, especially when the infrastructure in question is so vital to the economy at large. So yes, this is a good kind of debt to undertake – in the abstract. At the same time, California’s long-term interest rates are over double what the federal government can manage, so borrowing is more expensive, and the stimulus effect may not be as much of a slam-dunk, macroeconomically.

Flaws with system. The main other reason offered to reject Prop 51 is that the system used to distribute funds is outdated and inequitable. The US system of local control of schools has traditionally meant richer districts have access to more funding. California’s school financing has significantly less inequity than nationally: here, most education spending comes from the state on a per-student basis, and under a new formula in effect since 2013, the per-student amount is higher for low-income, English-learning, or foster children. But wealthier districts can still muster resources over and above what the state allots, such as through additional local bond measures, which are more frequently undertaken and more likely to succeed in the wealthier or more progressive districts that can afford it or that are more receptive to it. In some cases districts pursue developer fees as a funding source instead, but that is also bound to work better in wealthier districts. From 2007 to 2011, annual capital spending was $1,355 per student in the districts with the fewest low-income students, but only $1,010 per student in the districts with the most low-income students.

Unfortunately, the existing system to distribute school bond money perpetuates the current inequities by awarding largely on a first-come, first-served basis – better for those well-funded and larger districts that will have proposals polished and ready to go, but not prioritizing the neediest systems with the most disadvantaged student populations.

So there is some consensus among policy thinkers, including the governor and the nonpartisan Legislative Analyst’s Office, that the system is badly in need of reform. Prop 51 does not contain reform; in fact, it freezes a good deal of the existing system in place. Besides continuing the first-come first-served structure, it would also prevent the Legislature from increasing fees on developers, a reasonable alternative funding source, until 2020. This reflects cozy relationships between public education and those who profit from having bond money flowing freely: construction companies, architects, planners, consultants, financial firms, etc., who are the major donors to Prop 51. There are often even more questionable arrangements out there, like “lease-leaseback” arrangements evading competitive bidding procedures, or districts hiring the same consulting firms to manage local bond campaigns and then issue the bonds. Governor Brown is in opposition to Prop 51, saying the system should be overhauled before a new bond measure is made, but there are no major groups getting this message out, probably because the status quo does not hurt any specific interest.

Despite all of the above serious problems with the system in place, I still support the measure, because of the practical and moral urgency. Public education funding is an imperative to the next generation and to the healing and maintenance of society. Californians are still suffering from the long-term debilitations of disinvestment in public education. Over 70% of school buildings are over 25 years old, and we continue to have tens of thousands of mobile units used as classrooms. With the last bond money from the most recent 2006 measure now spent, many vital projects are sitting in limbo having been approved by the state. Voting “no” on policy grounds might force a better measure in the future, but that is far from guaranteed. At the moment, with the state of the economy, education spending is doing very well (see Prop 55 below for more reasons), but virtually all of the new tax revenues have to go to operations, not infrastructure. If Prop 51 fails, the decay will inevitably continue and be harder to catch up with in the future, especially if a recession hits and revenues shrink again. It would also ill-serve the community college system and the millions of people it educates.

It is a close thing, and I have gone back and forth as I put this analysis together, but in the final analysis, voting no on Prop 51 would be making the perfect the enemy of the good, and leaving students and communities in the lurch.

Utilitarian recommendation: Yes

(In this case, there is no reason for the anti-clutter recommendation to differ from the utilitarian recommendation, as any bond measure must go before the voters, and non-bond funding does not seem feasible at this point.)

Proposition 52: Medi-Cal funding

Proposition 52 is arcane and connected to a great deal of squabbling out of the public eye. I will try to keep it as simple as I can.

Medi-Cal is our state’s main program providing health care to the low-income and disabled. It’s a joint state-federal program, with 50% of the costs for most patients being paid by the federal government and the remainder from state and local sources. Most Californians newly insured through the ACA have Medi-Cal. The topic of Prop 52 is a part of Medi-Cal called the “hospital fee” program, where hospitals contribute some of their own money to it, to be matched with federal dollars and converted into higher rates to hospitals for serving Medi-Cal patients. The rates are typically very low due to the state’s chintziness, and the hospital fee makes them more bearable for hospitals.

However, the fee has been a source of conflict since it was enacted in 2010. The state always skims some off the top, and in crisis years it has sometimes unilaterally decided to take more to help balance the budget, which hospitals hate. Prop 52 would embed the hospital fee into the Constitution: the program has to continue, and the state can continue taking its current cut, but no more.

My feelings here are mixed. It’s good for the hospital fee money to go to services, and bad for the state to dip into it for its convenience. (Technically they call it spending on other state health programs, but the state would have been putting its own money there otherwise.) But this measure boils down to squabbling among institutions and interest groups that they really ought to be able to solve these issues on their own, without spending tens of millions of dollars campaigning and taking up an unquantifiable amount of the public’s time and attention. It’s also a little manipulative that the hospital industry put it on the ballot hoping the public would imprecisely see it as more funding for health care. It also makes the Constitution even more complicated, tying the hands of future legislatures.

The official arguments against Prop 52 are pretty poor quality, coming from a union often at odds with the hospital industry. Technically, no, there’s nothing preventing hospitals from spending the fee money on executive salaries as it suggests, but that’s because the money is payments for services: treat more Medi-Cal patients, you get more money, but almost never actual profits, which hospitals get elsewhere, like from commercial insurance. The hospital fee is not a sweetheart deal, just a kludge.

(The biggest real threat Medi-Cal faces is if the Republicans gain more power at the federal level and engage in “reforms” like block-granting or a per-capita cap which defund and eviscerate it – or if Democrats acquiesce to such destruction as a “grand bargain”. Just to talk about the real issues for a second.)

I support the measure in the most abstract terms, but if you prefer to punish measures that do not really belong on the ballot, this is exactly the sort of measure that philosophy should reject.

Utilitarian recommendation: Yes
Anti-clutter recommendation: No

Proposition 53: Revenue bonds

Bonds again! This measure, unlike Prop 51 is not about general obligation bonds, where repayments just come out of state funds every year, but revenue bonds, which are matched to a prospective source of revenue, like fees or tolls, that will pay back the bonds once the project is completed.

General obligation bonds need voter approval, hence Prop 51, but revenue bonds don’t, since in principle they don’t draw on state tax money. Prop 53 would instead newly require voter approval before issuing revenue bonds above $2 billion. If it sounds strangely specific, it is because it is a vanity project, wholly funded by a wealthy Stockton agribusinessman and friend of the Kochs, Dean Cortopassi. He seeks to block a single project, the large tunnel project intended to get water through the Sacramento River Delta more efficiently and with less environmental impact, presumably because he profits from cheap water and doesn’t want to pay more in fees. He may also dislike the (worthy) high-speed rail project, which this would also endanger. I do not know if the Delta tunnel is the best idea, but it is a good rule of thumb not to tie the Constitution into knots to change the outcome of a specific issue, or so that a rich man can get his way.

On pure policy grounds, this is a bad idea too. As I argued above in Prop 51, taking out debt to build infrastructure is a vital function of government. When you can put together revenue bonds, that means you can make it work without spending more tax dollars, making the project even more of a good deal, that should not need a vote. (I am inclined to agree it is sketchy that the state apparently structures some prison construction as revenue bonds by having one entity make lease payments to another, but that needs reform separately.)

Prop 53 reveals its vindictiveness through its internal contradictions: if it made sense to impose this new obstacle on bonds for statewide projects, it would also make sense to do so for city, county, and school projects, but instead it specifically exempts them. Prop 53 is opposed by everyone in the state from unions to the Chamber of Commerce. This is an easy “no”.

Utilitarian recommendation: No

Proposition 54: Legislative transparency

This proposition is procedural, changing details of how the Legislature conducts business in an effort to make the outcomes better.

Prop 54 does two things:

• Requires the text of any legislation to be made public for 3 days before final passage – no more of the “gut-and-amend” practice completely changing bills at the last minute. (This is the biggest piece.)
• Requires that all open legislative sessions and committee hearings be recorded and made available online (right now it’s just most of them).

(Perhaps Munger’s goal is to fill up the ballot and make voters sour and less receptive to the many other progressive measures this year? In which case, press on, reader, we have some critical ones next.)

Utilitarian recommendation: Yes
Anti-clutter recommendation: No

Proposition 55: Upper-income tax 

In 2012, California was in a long-running budget crisis, cutting more services every year and still coming up short. You can read my blog post at the time in support of Prop 30 here; the short version is that the public services Californians fund with taxes are vital – education, health care, to some extent criminal justice – and we by and large recognize that, but we also dislike paying taxes in the abstract, and for too long we have let these services languish, prioritizing the hatred of taxes, helped by a constitutional structure crafted by right-wingers that is designed to prioritize in this way. The Recession put the mismatch in especially stark terms.

Prop 30 turned things around, increasing the state income tax on high earners only (the top 3%) and increasing the sales tax, which everyone pays, by a quarter-cent. It prevented massive cuts at the time, and now that the economy is rebounding, helped us reinvest in our key services, pay down some debts, and even build up a small reserve (Prop 2).

If we do nothing, the Prop 30 income tax increase will expire in 2018, and the sales tax increase will expire at the end of this year, 2016. Prop 55 would keep the income tax increase in place for another 12 years, but let the sales tax expire as planned, benefiting people with low incomes especially, since they spend more of their income on goods. The top 1% of earners in the state pay 99% of Prop 30’s income tax revenues.

The great improvement in the California budget is partly due to Prop 30 but also partly due to the recovery. Here are tax revenues from these two large sources during the recession and since:

Sources: State Controller’s Comprehensive Annual Financial Reports through 14-15, enacted state budget thereafter.

So income tax revenues have risen by over $25 billion since 2011-12; by contrast, if the nonpartisan Legislative Analyst’s Office has it right, Prop 30 will account for for no more than $9b in income taxes during a strong economic year. Our revenue is more volatile than it ideally should be, due to longstanding tradeoffs that no single reform can change. So if we have a recession, we will be facing steep budget cuts either way, but they will be even steeper unless we extend the income taxes, which would bring in about $4b even in lean years.

Critics say Prop 30 was “supposed to be temporary”, but voters are allowed to change their minds. I hope the experience with Prop 30 and the rapid growth that followed has shown the public that higher taxes on the wealthy are not a sad necessity for crises only. In fact, they promote growth and enable the essential services that allow everyone to prosper.

Progressive taxation is also part of the moral economy: part of how we make the economy work for everyone, countering its natural tendencies to redistribute upwards. We are now seeing growth as unequal as any we have seen before, if not more so; we are number 7 out of the 50 states in inequality, with the top 1% earning 22% of all income. We need to do more to make growth equitable before taxes, such as through the minimum wage increases now underway, but progressive income taxes will remain a key part of the equation into the future.

Prop 55 would devote about half of its revenue to education, and most of the remainder to health care, reducing debt, and building reserves. Is this ballot-box budgeting? Technically, yes, as it ties the Legislature’s hands in how the money can be used; but that’s more or less how the Legislature would spend the money anyway, on the vital services where our efforts are pledged. We should vote yes.

Utilitarian recommendation: Yes
Anti-clutter recommendation: Yes

Proposition 56: Tobacco tax

Prop 56 increases the state tax on cigarettes by a significant $2 a pack, and higher on other tobacco products. This will raise funds for a number of good causes and greatly promote health in the process – a win-win.

There’s a folk belief that smokers smoke and will continue to do so regardless of what any government nanny may attempt; but this is not borne out by the data. Haranguing does little, true; but money talks. A smoker may not be able to recalculate their finances in light of a new tax and say “Okay, I’m out,” but higher taxes make smoking more of an ongoing financial strain, make quit attempts more frequent and more likely to succeed, and most crucially, make it harder for young people to start. In five years, smoking will have dropped as a direct result of Prop 56.

I can go a step further than the LAO in analysis: there is enough research on this subject to do some rough, back-of-the-envelope analysis of just how much Prop 56 could reduce smoking. A large body of research has found demand price elasticity – how much people change their consumption based on price – averages to about 40% in high-income countries. $2 is about 36% of the current average price of about $5.50. To be safe, call that 25% since the tax might not be fully passed down to retail. So very conservatively, smoking could decline by 0.25 * 0.4 = ten percent!

There were about 3.4 million smokers in the state in 2014; so we get about 300,000 fewer smokers, in the long term, as a result of Prop 56 alone, with all the health benefits that go along with that. That’s a simplification, since technically, the prediction is that total consumption of cigarettes – packs bought per year – would drop 10%, and not everyone smokes the same amount; but 300,000 people still gives you a good rough idea of the health benefit. (For example, maybe it’s actually 200,000 people, but 100,000 of them smoked twice as much as average; or 600,000 people all cut their consumption by one-half; those are both still very good things.)

Some other common myths about tobacco taxes in general, answered:

1. “It might reduce smoking, but because of that, the tax money will dwindle fast and not actually be useful.” Yes, the tax revenue will go down as people reduce and quit, but based on experience, it will take a long time for reduced smoking to offset the new tax revenue, and even then, we will still be left with the health benefits, which the tax will preserve.
2. “People will just buy on the black market and not pay the tax.” A few will, sure, but law enforcement is a thing that exists, and that can keep the black market reasonably in check. There will still be plenty of new tax money raised, with evasion a minor bleed. It is a major problem in New York City, but there, state and local taxes add up to $5.85, making the black market much more attractive to most; and with so many nearby jurisdictions, smuggling is also much more practical there.
3. “It’s regressive, hurting the low-income disproportionately, because they have less money to spend on cigarette taxes.” Actually, that is part of why it benefits the low-income disproportionately – research has found that the low-income have a higher price elasticity of demand for tobacco, meaning they are more likely to reduce consumption due to taxes, and thereby get more of the health benefits. 

Prop 56 would raise over $1 billion a year, and devotes about 4/5 of the new funds to Medi-Cal — health care for the low-income, children, and the disabled. Some also goes to providing dental care and training new physicians. The remainder goes to various subsets of tobacco policy: tobacco law enforcement (keeping the black market down!), tobacco control programs from public health, and tobacco disease research. In 2012 there was an failed attempt to raise the tobacco tax but to spend almost all the funding on cancer research; I think this version is better, as it chooses to help the needy and impacted by tobacco as a more urgent matter.

There is a critique that the measure does not decree precisely how Medi-Cal uses the majority of funds – does not require it to go to doctors or hospitals or clinics – but that too is a plus, because it gives the Legislature the authority to adapt to changing circumstances, and declines to tie the lawbooks in yet further knots just to better market an already good measure.

Also, yes, it is technically ballot-box budgeting, but to vital enough services that I can easily look past that, and the generality of implementation helps. (The way politics works, if it did not specify some of the money would be spent, all the tobacco industry’s ads would lay on with a trowel “they’re going to blow all the money on administrative bloat”.)

Prop 56 makes e-cigarettes newly subject to the tobacco tax, which is new. In fact, it taxes them at a higher effective rate, as for all non-cigarette tobacco products like cigars and chewing tobacco. I think this is a little premature: we have no good data at this point whether whether e-cigarettes are as or less dangerous than cigarettes. There is sometimes a censorious vibe from antismoking activists on this subject, the notion that e-cigarettes are necessarily bad merely because they are like smoking, or encourage smoking, and data is not necessary. A faint resemblance to sex-ed politics… Anyway, it would be nice if Prop 56 at least allowed the Legislature discretion to reduce the e-cigarette tax if favorable research were to come in. But that is a small consideration, and the measure is well worth supporting otherwise.

Another gripe on a similarly low level: Prop 56 does not index the tax for inflation, which would be a simple improvement to help preserve its impact over time. 

Utilitarian recommendation: Yes
Anti-clutter recommendation: Yes

Proposition 57: Parole and juvenile justice

Peaking in the 1980s and 1990s, California imposed a number of different “tough-on-crime” laws over the years, taking the position that the only effective response to rampant crime was to lock up as many people as possible, for as long as possible. We were following a national trend, but in some ways exceeded it, like our three-strikes law that once gave a man 25 years to life for possessing a stolen cell phone. Crime is now way down, but there is strong evidence that the long sentences are not the cause: for example, many other countries saw the same crime drop despite very different policy responses. What we know for sure is that the criminal justice system as we rebuilt it is arbitrarily cruel, has a catastrophically disparate racial impact, deprives judges of discretion and low-income defendants of options, and of course is extremely expensive.

Today, we are finally starting to turn around: even Hillary Clinton has said we need to end the era of mass incarceration, and some solid red states like Texas are quietly coming to the same realization. And it is working: as states find ways to cut how many people they imprison, crime continues to decrease.

California, for example, has now eliminated the most irrational part of Three Strikes, the fact that a nonviolent crime could count as a “third strike” (Prop 36, 2012). We more recently changed many low-level felonies to misdemeanors with much lower sentences (Prop 47, 2014). Both actions were retroactive, resulting in the release of thousands, and the fairer treatment going forward of many more. And crime has remained at its historically low levels.

Prop 57 is another modest step in the same direction, being pushed by Governor Brown in particular. It tries to revitalize parole for nonviolent offenders as a tool for rehabilitation. One challenge in sentencing reform has been the various “enhancement” laws that have been added over the years. On top of the basic sentences, enhancements automatically add years to a sentence if certain conditions are met, like prior convictions, or being armed during the crime, or the crime being “gang-related”. This has created some ridiculous outcomes: you might first get seven years for manslaughter, but then have 25 years to life added because it was also shooting into an occupied dwelling. The penal system often has no power to parole inmates before the enhanced sentence is up, so many people languish for far too long compared to their underlying offenses, even when they are aging and could easily be rehabilitated. The lack of parole even as a prospect is also likely damaging to their rehabilitation.

Prop 57 would create the prospect of somewhat reduced sentences by enabling parole boards to grant parole after the basic sentence is served, but before the enhanced sentence is complete. This change would be relatively small in scope, because it would only apply to non-violent criminals with shorter sentences on average: a reasonable, cautious step forward. It bears a similarity to what the state is already doing under a federal court order to alleviate overcrowding.

I am not sure why the opposition argues that it would define various specific crimes as nonviolent; the text leaves the Legislature free to define “nonviolent”. Finally, as I read it, the opposition is right that if someone is serving prison time for a nonviolent crime, but they have a violent prior offense, this could give them earlier parole; I don’t see that as a problem, because they have already served their time for that earlier offense, and should not be re-punished.

At some point we are going to have to take bolder steps if we want to truly end the era of mass incarceration. As of 2013, 90% of the 112,300 state inmates had current or prior violent or serious felony convictions, and 21% were at least 50 years old – this is because those given long sentences pile up behind bars over time, while those with short sentences cycle out. As a result, we are starting to run into the limits of how much you can cut down on incarceration if all the sentences you are willing to change are for nonviolent or drug crimes. Obviously if we look to further reform of the incarceration state that addresses violent-offense sentences, that must go together with better policing, protecting all communities, and better opportunities for people leaving prison to establish themselves.

The other major piece of Prop 57 is that it would cut back on the practice of trying teenagers as adults. Currently, in many cases, prosecutors may divert 14 to 17-year-olds to be tried as adults with virtually no oversight, on their own authority. This is almost entirely the result of a past panic over young Black men (as seen in the old term “superpredators”) and a desire to be able to view them as adults, the same instinct that once led Donald Trump to take out a full-page ad roaring for violent retribution against children. Prop 57 would revert to the previous practice of requiring the prosecutor to make a motion to the judge, who evaluates the minor for suitability for adult treatment. This is unlikely to affect very many teenagers, but those it does will be greatly helped, and it makes perfect sense procedurally and morally.

Could the proposition’s goals have been achieved without a ballot measure? I don’t think so, because of the old initiatives it has to amend, and because the Legislature is very wary of doing this sort of thing without a public seal of approval. Therefore, although it’s a relatively small issue, my anticlutter recommendation is also yes.

Utilitarian recommendation: Yes
Anti-clutter recommendation: Yes

Coming next week: initiative statutes, 58 through 67.