New York Media Stimulus Plans

Nothing wrong with this but I wonder how they come up with “8,000 jobs over the new 10 years” and doesn’t that seem a little anemic in a city of literally 8.3 million people? It’s also not clear how much money NYC is kicking in for this program, but from what I can gather it’s not a lot which also makes me wonder how committed they are to this beyond the press release. I guess having conservative expectations is a good thing but considering the challenges that NYC is facing, is this really what they should be spending their time on?

Mayor Michael Bloomberg announced plans Tuesday for a research lab, digital-media apprenticeships, a technology-equipment bond program and other initiatives designed to create 8,000 media jobs in New York over the next 10 years.

[From Bloomberg Announces New York Media Stimulus Plans - Digits - WSJ]

More on this topic (What's this?)
Week Ahead Magazine For August 10, 2014
Read more on Hang Lung GRP at Wikinvest

The Schizophrenia of California and How To Win an Election

Interesting, and very long, article in the New York Times Magazine about the challenges of governing California, along with profiles of the extended list of candidates aspiring to the job. I have lived in this state my entire life and like other lifelong Californians can attest to the fact that it is really 3 states rolled up into one, there is Northern California, Southern California, and the Central Valley. Each region behaves differently on social and economic issues but all are joined at the hip as the states fortunes rise and fall with alarming frequency and this tension makes effective government a fantasy. As a state we also over-reach, which is responsible for the fantastic successes that we have but also contributes to our massive failures; we simply have to reign in what our government is doing so that all of it does not fail.

On the point of California fortunes, I read somewhere once that we have a state with fantastic geography, a world leading agribusiness, tourism, a climate that is second to none, high tech industry, every kind of sport possible, arts, fashion, and an entertainment business that is the global standard… and yet we still managed to fuck it all up. There is much truth in that statement and as a result the California brand has fallen into serious disrepair. What was once “as CA goes so goes the nation” is now the butt of late night talk show jokes and derision around the country as states with far less serious financial problems eye CA with the realization that the state’s problems will impact every state that borrows money.

In addition to the oft referenced budget deficit and housing collapse, there is another time bomb that politicians have swept under the rug and that is public employee pensions, more specifically the underfunded public employee pensions. Curiously, at no point in the NYT Magazine piece did the author bring up the issue of labor unions and their stranglehold on government, but this is a huge issue that will dwarf anything to do with taxes and housing in the years ahead.

Not that any of them have asked but if I were to advise any of these candidates on issue strategy for the 2010 election, this would be my advice.

Social Issues:

Prop 8 proved rather decisively that gay marriage is unpopular in the state yet you don’t win statewide officer elections in California on social issues so the best strategy is to avoid it. Prop 8 is the law of the land so be politically cynical about it and support gay marriage but don’t campaign on it because as a legislative priority it is not significant for the majority of voters. Supporting gay marriage takes it off the table and socially conservative voters will object but what alternative would they have on the ballot?

Death penalty and abortion are non-issues in California… voters overwhelmingly support the death penalty even if it is rarely carried out and they support abortion. I guess you could say we are a pro-death state but in the case of the actual death penalty we are okay if it is just handed out at sentencing instead of actually done.

Immigration is a social issue but also an economic issue. We have an agriculture business that absolutely depends on a migrant labor workforce but a public that overwhelmingly rejects green lighting illegal immigration. The remittances that flow back to home countries also represents an economic drag on the CA economy. We simply have to have a rational policy that absorbs and integrates migrant work forces while reducing the impact on emergency room services, school systems, state services, and law enforcement.

It is estimated that illegal immigration costs California taxpayers about $10.5 billion a year (the governor acknowledges $6b, a number certainly to be low balled), which is almost half of the state deficit. These costs cover healthcare, education, incarceration (16k illegal aliens are in CA jails) and sundry other costs. We have to have a path to legal residency coupled with stringent enforcement of the CA-Mexico border, workplace enforcement, and denial of services for illegal immigrants. We have to make a choice about where we will draw the line when it comes to illegal immigration and the majority of Californians support at a minimum border and workplace enforcement, which when the results are evident makes path to legal residency much easier to gain support for.

Environment:

Even if they don’t behave green most Californians are pro-green. Environmentalism should be taken up as a conservative cause but when it comes to the intersection with economics we have to make a choice, do we adopt expansive environmental regulations that have the proven consequence of driving jobs out of the state or do we adopt a third way of embracing environmentalism with restrictions to ensure that manufacturing jobs stay in CA. I’m for the latter, I believe we need to adopt conservation measures if for no other reason than to be better stewards of our environment and to use our resources less wastefully, and whether or not you believe in climate change theories this is a solid middle ground to claim.

It’s no surprise that CO2 output in the state has declined by 22% in recent years… roughly 22% of the manufacturing capacity of the state has been wiped out, so the question is not what we do to more strongly regulate environmental impacts of industry but how do we offset the costs of regulatory compliance to ensure that those businesses stay in the state and subject themselves to regulation. Imposing regulations on business with the aim of reducing CO2 is pointless if those businesses pack up and leave for Nevada or Arizona, taking the jobs they support with them.

It’s all well and good to talk about low emissions vehicles but on balance these are a far lower emitter than industrial users so putting in place policies that address businesses without driving them out of the state should be a high priority. As for homeowners, we already have enough on our plate and the already mandated renewables targets put on CA utilities will add well over $100 billion of costs on these utilities which will then be passed on to consumers so I think enough burdens have already been loaded on to homeowners and consumers.

Closely related to the overarching topic of the environment is our food supply. There are 3 primary issues affecting agriculture that deserve attention: labor issues (migrant workforce), regulatory compliance, and water. When tomato farmers in the Central Valley don’t get the water allocation they require, the cost of complying with the patchwork of regulatory agencies and commissions is onerous, and the workforce gets more expensive, they pick up and move to Baja which means that in order for fresh tomatoes to arrive in our markets they need to be shipped hundreds of miles and be subject to a more lax food safety regime. Ultimately the consumer ends up losing due to the high cost of doing business in California.

California should be at the forefront of the locally sourced food movement, and the explosion of farmers markets suggests it is but it’s not enough. Community Supported Agriculture programs are nothing new and do enjoy strong support; California should be doing a lot more to advance these initiatives by providing marketing support, tax incentives, regulatory fast tracking, incentives for chain supermarkets to carry local produce and meats, and much more. These programs create jobs and strengthen ties between local communities and local agriculture and ranching, which to the surprise of many are everywhere in the state. When you are buying local instead of produce flown in from South America you are doing the environment and your local business community good.

Energy:

The simple fact of the matter is that California is running at great risk of a catastrophic failure in our power transmission system because we have done everything possible to ensure that power generation is done far away from the regional centers that use electricity. Our reliance on natural gas for electricity generation while at the same time politicians and environmental special interest groups block plans for a natural gas delivery terminal in Southern California also puts the entire state at risk. We generate a very small amount of power from hydro, geothermal, wind, and solar and the costs of increasing that supply to the 33% target could well bankrupt the state (again). The simple part of the argument is that we need more power generation capacity coupled with an expanded transmission network (which btw is already underway) while the complex part of the argument is where will the power come from.

Here Californians are conflicted and politicians simply have to take a side. Oil field development and nuclear power are two options that have strong safety track records. With oil comes natural gas and not unwelcome is the dollars that flow from a resurgent California oil industry. On the nuclear front the roadblock has been regulatory and judicial more than technology but reframing the debate in terms of clean tech, which nuclear most certainly is, will go a long way to delivering rising support numbers. Gone are the days of large scale nuclear, the future is most certainly found in 25 MWe “backyard” power plants, enough to support about 20,000 homes and located close to consumption, which puts less load on long range transmission networks and results in greater network reliability as well.

The energy issue is at it’s core an economic issue as high energy prices disproportionately affect low and middle class families. Government has an outright responsibility to articulate an energy policy that goes beyond “no, no, and no” and that simply has not happened in California for well over 30 years now, a time period over which the problem has gotten worse not better. Is it only a random coincidence, if there is such a thing, that the housing collapse came on the heels of skyrocketing energy inflation that affected everything from what you and I pay at the pump to what our food costs to how much an airline ticket costs?

Water:

The history of California is intertwined with the technology advances for delivering water to population centers. This is a state that for the most part sees little, if any, rain for 5 months out of the year where most of the people live, and the agribusiness owes its very existence to the water supply. With a population that continues to grow through illegal immigration and births (immigration itself is net negative as more Californians leave the state than residents of other states relocating here) and zero appetite for developing new watershed areas (dams) it is incumbent upon the leadership of the state to embrace and develop the only alternative available to us for new water supplies, desalination.

The cost of providing desalinated water (Tampa Bay in Florida has a cutting edge system) is about 4-5x more costly than what we do now, so we have to rethink how we are paying for water. Commercial users simply pass on costs to consumers so those rates should stay relatively constant, while residential users who are paying escalating amounts based on usage tiers are already paying quite a hefty bill for water so raising it 4x is utterly impractical. It’s not evident that you can run a desalination plant at breakeven on current water rates and the cost of shipping said water precludes doing it in the Central Valley where it is needed most.

The goal with any of these systems should be to ensure that the total basket of fees and taxes that a household is paying remains relatively constant, or better yet, declines. In order for this to be realized the state simply has to make living in California less expensive in other areas… which is kind of the whole crux of why California is in the mess that it is, despite having a whopper of pile of cash collected every year the state ends up spending a whole lot more. Cut baby, cut.

We are also at a crossroads with the Federal government about who controls California water. The use of resources within state borders is absolutely a states rights issue and every candidate running for governor should be adamant about fighting the Federal government to stay out of California water issues. Bureaucrats 3,000 miles away in Washington D.C. should not be telling California how to allocate water supplies, even water collected from watersheds on federal lands. California rain and snow belongs to Californians no matter where it falls.

Organized Labor:

About 1% of California’s population is employed by the state in some fashion and the result has been nothing short of disastrous. Term limited politicians thought nothing of agreeing to eye popping compensation and benefit raises for unionized public sector employees resulting in a system that is in complete meltdown. We have the best paid teachers in the nation in a school system that regularly competes for worst in the nation, police and police and fire employees retiring after 25 years with 90% of their salary as a pension, and the list goes on. There is simply no way to get out of the financial black hole CA is in without addressing the labor issues.

Changing contracts only solves part of the problem because existing retirees deserve to receive the benefits that were promised to them when they retired. As the population ages longer and retiree ranks grow, the cost of providing the promised services will certainly overwhelm public employee pension systems, which will then fall back to the state and county level for increased contributions to said systems. Calpers is already talking about $3-4 billion in additional contributions from counties in years forward, money that will come out of services in order to pay for retiree pensions and benefits. If you look at what happened with union retiree benefits in the U.S. auto industry it is a mirror image of what is happening in public employee systems only it’s 1000x worse with public employee pensions. Going forward we have to plan on a much lower public payroll, without dramatically sacrificing the services that government should be providing (more on that in a minute).

We have added $7 billion a year in retirement contributions to the state budget over the last 10 years and as people continue to live longer the result will be that this bill will grow to astronomical numbers in the decades ahead. The one certainty that the state has achieved is that future generations, our children, will be saddled with a huge annual bill for retiree benefits and facing that with fewer jobs and increasing taxes.

Any candidate running for statewide office should be outspoken in their desire for a smaller government payroll and in the process they should be demonizing labor unions in the court of public opinion (which already thinks very little of labor unions). The California voter class is far larger than the union member class and because people tend to vote with self-interest first instead of according to group affiliation, the strategy should be to drive a wedge between unions and the public, and to paint unions as just another special interest group that attempts to buy every election with outrageous advertising budgets and intimidation tactics.

Taxes:

There are four primary tax systems in California: property taxes, sales taxes, income taxes, and use fees (e.g. vehicle registration). There is much talk about the impact of Proposition 13 on property tax revenues but the inconvenient fact is that property taxes in CA are right in the middle of national averages, while our sales, income and use fees are near the top of the list. New York, New Jersey, and California regularly top the most heavily taxed state list and these 3 states combined form the bulk of the aggregate budget deficit that all but North Dakota and Montana are experiencing, yet politicians on one side of the aisle dare say that the residents of these three states are not taxed enough. That is the crux of the argument about property taxes in California, being average is not enough… we must pay more in taxes than any other state. While we are at it, we must also have the most radically progressive income tax system whereby fewer than 5% of the state income tax filers are generating over 50% of the gross income tax receipts, 144,000 taxpayers pay 25% of the income taxes. It’s straight up cognitive dissonance on a massive scale.

The voters spoke on May 19 and overwhelmingly they said “enough!” to new taxes and accounting gimmickry. Every candidate for statewide office should be adamant that s/he will not sign any legislation that raises taxes and fees. This crosses party affiliation, age demographics, and region (except San Francisco, which was the only county to vote in favor of raises taxes in the most recent election, but that’s about 2% of the population and hardcore Democrat so if you are a Dem you don’t have to worry about swing voters and GOP candidates won’t win SF in any election so why bother). Voters simply don’t trust Sacramento any more so instead of proposing more taxes that only serve to fuel the discontent of the average person and out of state business migration, simply do less and do it well in order to regain the trust of the citizenry.

Gubernatorial candidates should also be honest with the voters about the fact that fees for government services are in fact taxes and fees mandated on private sector activities are taxes. Just look at your cell phone bill or hotel checkout bill. Government requires revenue but there is something grossly unfair about the system we have today, in addition to the rather obvious observation that it isn’t working.

Scope of Government:

For decades California voters have been guilty of having their cake and wanting to eat it too… we vote for a comprehensive and socially activist form of government yet reject the revenue measures that are required to pay for these things, or worse we vote for bond measure after bond measure with what can only be described as obliviousness to the fact that bonds are debt and must be serviced with interest payments that rob the general operating budget of resources. California has authorized well over $110 billion in debt over the years, more than any other state by a very wide margin.

We also a guilty of voting for every feel good measure that hits a ballot even when their is little evidence, statistical or even anecdotal, that these programs work. California’s Head Start (preschool) program is a great example of this with taxpayers funding pre-kindergarten (bulk of children in program are 3 and 4 year olds) for 120,000 yet repeated regression analysis of test data with pre-head start generations shows no statistical improvement in testing. So basically California taxpayers are funding day care for 120k children… is this what taxpayers voted for? No.

Candidates should be rejecting the expansion of government and putting in place performance benchmarks on existing program in order to justify their continued funding.

Education:

Simply put, it’s a mess. We have the highest teacher salaries in the country and a K-12 system that competes for last place in the nation. Voters have time and again stepped up with funding measures and political support yet it has been squandered on a substandard education system that distorts property values (in a good school district, you home value pops) and more importantly, steals an education away from children. 50% of our education funding goes to overhead rather than the classroom, more than any other state in the nation. Bottom line, if you can afford it you will send your children to private schools or pay up for a house in a better district and justify it by writing off a portion of your mortgage expense on your taxes.

We need a better K-12 system but there is simply no way we will get it within the current system. My candidate for office would support school vouchers and frame the issue as one of basic human rights, every student should have the opportunity to get an education. The CTA, among others, will go nuclear but the fact is that they are already on thin ice so attacking them where it hurts, with parents, is a strategy that should not be avoided.

California’s K-12 system may be beyond repair but the larger point is that reform will be impossible if all the same interest groups are still in place. A candidate who wants to go beyond rhetoric would talk about wholesale dismantling and reassembly of K-12 rather than token measures that happen out at the edge. The time is right, and not just because parents and children are getting cheated but because the education money train is at the end of the line. The time for bold action is here.

Prisons:

California incarcerates a very large number of people. We can debate the societal consequences of prison but voters have said time and again that they want strict sentences for crimes, the 3 strikes system, and monitoring of special classes of parolees and sex offenders. All of these things have a cost associated with them and on some measures CA has totally failed in it’s responsibility to the inmates, namely with the prison healthcare system that is currently being run by the Federal government by court order.

We do need more prisons but we don’t need more prison guards, which have benefited significantly from rich contracts. We need more technology in prisons to improve the inmate/guard ratios and we need to shut down aging facilities like San Quentin. We should also be working on a regional basis with neighboring states to break up prison gangs by dispersing them across facilities in different states (already being done), and we should absolutely privatize minimum security facilities.

We have a parole system that is also of questionable benefit, especially considering that parolees form the single largest group of new criminal offenders. We rejected the notion that prisons could reform criminals, indeed it simply did not work, but what can we do to improve the conditions by which parolees that are ready to accept the responsibilities society puts on them can actually be successful in their parole process? Like any rehabilitation program we should be investing in the techniques to identify motivated parolees and provide them with the assistance they need, like job training, placement, and life skills… but if the state fails to create jobs on a massive scale it really doesn’t matter because without opportunity even the motivated will fail.

Healthcare:

Not going to touch this one. It’s big, it’s expensive, and it’s fully of nasty special interest groups… plus whatever California politicians would like to do the simple fact is that we can’t afford any of the options. Besides, if the government can prove that it can effectively manage a healthcare system by first reforming MediCal, then I’m all for more government involvement in healthcare but until then I pass.

Conclusion:

I think it’s a cop-out to say California is unmanageable, I prefer to think that we have been suffering from an illness caused by career politicians who are more interested in advancing their political careers than in advancing the causes that matter to Californians. How else can you explain the grand canyon sized disconnect between politicians and the citizenry, or the explosion of ballot initiatives as people and interest groups see no value in going to the legislature, instead focusing directly on the electorate? I shudder at the thought of what would happen if we did in fact convene a new constitutional convention, shudder at what a monstrosity of a document would come out of such a process.