Sports Extortion (Cont'd)

The Sacramento Bee asked me for my take on the question of whether Sacramento ought to spend $200 million to subsidize a new arena for the Sacramento Kings and the National Basketball Association. You can read my answer on the Bee’s site.

The Bee gave me only 800 words, so I wasn’t able to flesh out the argument as well as I would have liked. Fortunately, we have the web for that.

If you want to understand the economics better, you can check out the longer reporting piece I wrote for the Bee when I worked there. The most accessible book on the subject is Neil deMause and Joanna Cagan’s splendid Field of Schemes: How the Great Stadium Swindle Turns Public Money into Private Profit. Neil deMause also runs a companion web site, Field of Schemes, where he tracks and analyzes the money grabs of welfare-seeking sports owners around the country.

Given more space, I would have also repeated what I wrote here last spring: The best way to limit the extortion game is for the California Legislature to prevent the billionaire sports owners and their leagues from playing city against city. It should ban any local jurisdictions from using public funds to subsidize professional sports teams.

California is at a critical moment on this issue.

The extortionists are on the attack right now all over the state: Sacramento, San Diego, Santa Clara, Anaheim, Los Angeles. But as we all know, from the news and daily life, core California public services reducing the state’s quality of life. Every public dollar extorted today steals from California’s future.

Ideally, local politicians would do the right thing. But there’s something about sports that makes them go weak in the knees and soft in the head. (My wife blames it on testosterone poisoning.) They need to be saved from themselves with a law that protects them against their worst instincts.

That law would set budget priorities right at a time when we need to be putting first things first. But it would also send a bracing message to the rest of the country. If California cities, home to one in eight Americans, can no longer be used as leverage in the extortion game, other states will gain some protection, and perhaps even be encouraged to protect their taxpayers as well as California does.

Contrary to the moans of the extortionists, that wouldn’t mean the end of pro sports. As Scott Lewis points out, at Voice of San Diego, we would then be on track to replace sports socialism with true sports capitalism. And who can disagree with that?

The Facebook Effect?

Over at The Reality-Based Community Matthew Kahn has a post suggesting that the Facebook IPO and the minting of a thousand new millionaires will make property tax revenues “soar” in Silicon Valley and help local schools. Matthew Yglesias picks up the theme on his blog. They both seem to forget that, in California, public finance is, well, different.

Even if the demand created by Facebook employees were to raise housing prices in the Bay Area, the effect on property tax revenues would be small. Under Prop 13, increases in the assessed value of existing homes are limited to 2 percent a year. The Facebook effect would be limited to houses at the margin—either those newly built (which Kahn sees as unlikely under the Bay Area’s restrictive housing policies) or those existing homes whose sale would not have happened in the absence of the Facebook IPO and whose new and higher value would result in a higher tax on the property.

How big would that marginal effect be?

Let’s assume all thousand Facebook millionaires buy a house and each sale (both new construction and upward assessment of an existing house) results in an increase in assessed valuation of $500,000. The resulting annual increase in property tax paid would be 1 percent of $500 million, or $5 million. (There would be some extra in jurisdictions that have passed bonds that add an increment over the basic 1 percent rate.) Even if we assume that all the Facebook millionaires buy their houses in Santa Clara and San Mateo counties, the increased property tax revenue amounts to only one-tenth of 1 percent of the roughly $5 billion a year in property tax collected by those two counties, of which about 60 percent goes to schools.

But because this in California, not even that $3 million necessarily helps the local schools. Under its Prop 13 and Prop 98 school financing system, California imposes revenue limits on school districts. Changes in local property tax revenue collections for schools are offset by increasing or lowering general state aid to districts to maintain the revenue limit. In the typical district, the increase in property tax revenue from a Facebook millionaire will flow to back to the state budget, not the local school.

The exception is for what are called “basic aid districts,” those whose local property tax revenues for schools exceed the statewide revenue limit, permitting them to spend over the limit. Because many of the school districts in Silicon Valley are basic aid districts, they would receive some of that $3 million in new revenue. Their new revenue would be dwarfed, however, by the money they have lost from the state’s new policy of reducing categorical funding for basic aid districts.

If the Facebook IPO will make for “a neat event study,” it will not be for the reasons Kahn suggests. The more interesting story here is how, under California’s strange and radical system of public finance and governance, an event so large in economic terms can have so little effect on the public finances of the local communities in which it is happening.

Sacramento's War on Blight

Now that California redevelopment agencies, and tax increment funding, look headed to the dust bin of history, Zócalo Public Square asked me what redevelopment looked like on the ground, from the perspective of a single place, and what might replace it.

You can find my answer here, on Zócalo's site.

Redevelopment Greed Backfires

The best thing about the California Supreme Court redevelopment decision isn’t that the justices upheld the power of the Legislature to abolish the agencies that suck up and waste billions of tax dollars. No, the best thing was how the court did it: by picking up Proposition 22—the 2010 measure the redevelopment agencies wrote to exempt themselves from California’s budget crisis—and shooting the agencies with their own gun.

For those who haven’t been scoring at home, here’s the two-minute recap of the issue:

• Redevelopment agencies are devices for grabbing property tax dollars that would otherwise go to schools, colleges, and other useful public services. The agencies instead use them to subsidize development that voters would be unlikely to support if they had to pay for the projects with new tax dollars.

• Faced with diminished revenue and the prospect of deep cuts in essential programs, state lawmakers decide schools are a higher priority than downtown hotels, convention centers, and ornamental street lights. They shift the money grabbed by redevelopment agencies back to education.

• Redevelopment agencies fight back by writing and passing Prop 22, which bars the Legislature from taking away from redevelopment agencies the money they are taking away from schools.

• New Gov. Jerry Brown responds by proposing, in his 2011-12 budget, to abolish redevelopment agencies in their current form and reclaim, once and for all, the money for schools. He proposes a constitutional amendment to allow communities to pursue future redevelopment projects, but using their own money.

• Legislature enacts a two-bill compromise. One bill abolishes redevelopment agencies; a second bill hands them a lifeline, rescinding the death sentence of redevelopment agencies that agree to shift their tax booty to schools.

• Redevelopment agencies sue, arguing that Prop 22 prevents the lawmakers from mucking with their money or their fate.

Not so, the Supreme Court has now decided. The Legislature had the constitutional authority to create redevelopment agencies and likewise has the authority to end what it created. Prop 22 did not change that. But what Prop 22 did change, the justices found, was the Legislature’s power to shift redevelopment property tax dollars to higher priority uses. It therefore found that, under Prop 22, the Legislature no longer has the power to offer them a conditional lifeline.

“The irony of these circumstances concerning Proposition 22 should not be ignored — the very measure that was crafted to protect financing for new redevelopment projects has been broadly interpreted in a manner that effectively ends all financing for new redevelopment projects,” Chief Justice Cantil-Sakauye wrote. “This cannot be a necessary result intended by the proponents of Proposition 22 concerning redevelopment.”

Not the intended result, perhaps. But certainly the result they deserved.

ProPublica: The Anti-Politics Police

Try to imagine Lady Chatterley’s Lover written by the Anti-Sex League. If you can, you’ve grasped the basics of ProPublica’s story on California redistricting, which floats a few morsels of detail in a broth of disgust and ideological loathing that renders it worthless and misleading.

The gist of the (badly edited) ProPublica piece is that, while the Republicans who control the House of Representatives sat helplessly on the sideline, “savvy” House Democrats “fooled” a hapless and self-blinded California Citizens Redistricting Commission into drawing a congressional district map that helped some incumbent Democrats at the expense of the public interest.

I’ll refer you to others more steeped in the intricacies to see show how flimsy the ProPublica piece is in some of its particulars:

1. As Paul Mitchell, a Democratic redistricting guru, notes, it’s “ludicrous” to believe that incumbents and parties wouldn’t take an active role in trying to influence the outcome. (If Speaker John Boehner and House Republicans really ignored the redistricting of the largest state, ProPublica has missed the story here—one of the greatest acts of political malpractice in American history.)
2. If the Democrats “fooled” the commission, as Robert Cruickshank and Calbuzz write, they did it in the odd way of throwing Democratic incumbents into districts with each other. And ProPublica reaches its conclusion that Democrats achieved unnatural gains by simply ignoring the evidence and analysis it received from political scientists Vladimir Kogan and Eric McGhee, who found that the commission maps yield the expected amount of competition.
3. The law creating the commission forbids it from considering the place of residence of any incumbent or drawing maps to help or hurt any party. As John Myers of KQED points out, had the commission done what ProPublica criticizes it for not doing—looking at the partisan effect of its maps—the commissioners would have been criticized too. Damned if they don’t, damned if they do. (I’ll go one step beyond John here. They would not only have been criticized—they would have been criticized by these very same ProPublica reporters, who would have taken the commission’s knowledge of the political consequences of their maps as evidence the commission was in cahoots with the Democrats. The first rule of journalism written from the anti-partisan, anti-political perspective is that the person in the public sphere must always be wrong.)

What interests and appalls me most is the craziness of that perspective—that you can have politics without politics. It pervades the story and explains why it has the elements and all of the subtlety of an old-fashioned melodrama of virtue debauched: wily seducer slips by inept chaperone to ravage the unprotected virgin.

The ProPublica reporters go to great lengths to tell us the villains plotted their debauchery in “secret.” (As opposed to all the times that political or business operators conduct their strategy discussion in public?)

They tell us that Democrats slipped by the commission’s defenses to testify at hearings in the guise of “ordinary citizens.” Such language betrays how deeply ideological is the reporters’ anti-partisan view. The most ordinary and common activity of a citizen in a democracy is to advance his or her partisan political identity by organizing, arguing, contributing, or voting. Yet to ProPublica, that activity is less legitimate than that of the economic and ethnic groups that went before the commission to plead for narrower and more selfish interests.

They tell us how the seducers inveigled the virgins with the sweet words of “communities of interest” that they wanted to hear, when all the seducers really wanted was to get into the commission’s maps.

If the ProPublica reporters had approached the story without anti-partisan ideological blinders, they might have seen the meaning and irony of this. After all, political parties are the largest and most pervasive “communities of interest” in our politics. But the law creating the commission, written from the same anti-politics, anti-partisan ideology that blinds ProPublica, explicitly prohibits treating parties as such. So California was trying a grand experiment: What happens when you piss into the wind?

We can see pieces of the answer to that question in ProPublica’s story. Politics doesn’t go away. Parties and incumbents adapt and jostle for advantage as they always have. Though the law tries to elevate other redistricting criteria over party, the thing that continues to matter most in public discussion—to activists, voters, and journalists, including ProPublica—is how redistricting affects partisan balance and the careers of incumbents.

But someday we’ll get the fuller answer, told by someone competent, who both understands and doesn’t hate politics. In other words, someone other than ProPublica.

Cal-Access: Let the Users Pay

Some of California’s editorial writers and political consultants have worked themselves into a tizzy over the crash and lengthy outage of the California Automated Lobbying and Campaign Contribution and Expenditure Search System (Cal-Access to its friends.)

As Joe Mathews explained yesterday at Prop Zero, Cal-Access, a database of campaign/lobbying contributions and expenditures, is powered, as is much of the state government’s information infrastructure, by aging 2oth-century technology. When the system crashed a few weeks ago, the Secretary of State’s office found itself with an expensive and technically tricky repair job on its hands.

There seems little disagreement that the state needs to buy a new system to run Cal-Access. But California, with a broken system of government that leaves it in perpetual budget crisis, has no money sitting around to invest in such things. And at a time when the state is making cuts that jeopardize the public safety, health, and education of its citizens, no sane person would suggest that buying a new Cal-Access system would have a high claim on any new general fund revenue that might become available.

That makes Cal-Access a perfect candidate for user financing.

Although it is offered as a general public service, it is used most heavily by a small and selective group of inside political players: media companies, political consultants, lobbyists, special interest donors, vendors of political services, non-profit organizations. It is how they keep track of the political money game, monitor the moves of rivals, and check the prevailing prices and wages in the political game. You can tell how much the inside players value the service Cal-Access provides by the volume of their complaints over its absence. Here is a market opportunity for government.

So, by all means, let’s get Cal-Access up and running, and then invest in a modern system. And let’s do it by having the users pay.

People who want to use the system would set up accounts. As at many media sites, there would be tiered pricing. Users would get a small amount of access free, enough to meet the needs of ordinary voters. Heavy users would pay according to their usage. Nonprofit organizations that repackage and interpret the information in forms freely available to the public would get free access. The money paid by users would support both the capital and operating costs of the site.

This is a solution everyone should love. Liberals will get political transparency. Inside political players will get a modern and reliable Cal-Access system. Conservatives will get an example of government's operating like a business and responding to the demands of the market. Policy wonks will move closer to their goal of having user-financing for non-general services, reserving general revenue for general needs.

And California will have made an important point: You can’t have something for nothing, even if you’re an editorial writer or a political consultant.

Think Long's Bad Rap on California

There’s been a lot of commentary on the Think Long “blueprint” for California, not much of it glowing. Peter Schrag and David Kersten have published extensive reviews. Joel Fox and Jeff Schauer have focussed, as I did, on its proposal for an unelected executive council.

There’s one thing, though, that no one has mentioned. The indictment embedded in the group’s name and made explicit in its “blueprint”—that California has failed to “think long”—is a bad rap.

I don’t know of any scientific measure of states’ policies and actions on a long-term/short-term scale. But by any fair standard California has a good record on long-think.

In K-12 education, it has set the school reform pace. In the 1990s, long before President Bush and Congress enacted No Child Left Behind, it had put in place a system of tough curricular standards, testing, and school accountability, and led the way on charter schools. On energy, California has thought long for so long, going back to Jerry Brown’s first incarnation as governor, that we now live in the very long term California was thinking about back then, with per-capita energy use now a third lower than the national average.

California pioneered clean air standards, pushing Congress (and the world) to follow. It enacted the first state-level global warming legislation, where Congress hasn’t followed. It tackled health care costs with HMOs and PPOs and Medi-Cal contracting long before any other state, and it's now out in front on ramping up the health reform act. It's done lots of planning in transportation, and, of course, there's the higher education master plan.

Whatever you think about the usefulness of any of those things, they don't fit the profile of a state unconcerned with the long haul and consumed by “short-term politics.” Unsurprisingly for a place that likes to boast of having its own dream, California has done its share of big planning and long thinking.

No, California's problem isn't aspiration, it's execution. A government hobbled by competing systems operating on contradictory principles and hamstrung by supermajority rules and the rigid centralization imposed by Prop 13 (two things Think Long doesn't even mention) can't even do the simple things, let alone deliver on dreams. If California had the constitution of, say, Iowa, would anybody be complaining about its failure to think long?

Calling Charles Ponzi

In his December 1 appearance before the California Legislature to push his pension reform plan, Governor Jerry Brown responded brusquely to suggestions that his plans might raise pension costs in the short term. “Well, that tells you you’ve got a Ponzi scheme,“ Brown said.

In fact, it proves exactly the opposite.

In a Ponzi scheme, an operator solicits cash from his mark on the promise that he will place the money is some spectacular investment and deliver equally spectacular returns. Instead of investing it, however, he spends the money. He covers the theft by bringing in more suckers, some of whose dollars are used to pay dividends to the initial investors. The scheme collapses when he can no longer bring in enough new suckers to keep up with the promised payments. He runs off and leaves the investors penniless.

As a matter of law, the pensions run by California Public Employees’ Retirement System cannot fit the description of a Ponzi scheme. Public employers are required each year to pay into the system the actuarially required contribution needed to cover the pension promises they have made to their workers. The money put aside for employee pensions is invested, not spent.

Indeed, it is precisely because CalPERS doesn’t operate as a Ponzi scheme that California is now having a pension policy debate. The combination of the big pension promises made in 1999 and the big investment losses in the 2008-09 financial crisis has pushed up required pension contributions for state and local governments. The higher contributions put pressure on budgets, forcing unpopular service cuts and tax increases.

A lot of politicians would like to relieve the pressure by going Ponzi—either by breaking the promises or finding a way of not having to make the required contributions. But the law doesn’t let them. They will have to settle for a useful but still painful alternative: revising the pension system going forward so California no longer will make promises it doesn’t want, or can’t afford, to keep.