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.

Cracking Up in Modesto

For those who like their California fixes in person, I'll be in Modesto on December 8 to speak to the Valley Futures Forum, a group of real California long thinkers. The event will be 5:00 pm at Modesto Junior College East Campus, in Forum Building Room 101.

Talking Heads

KQED is devoting a special edition of “This Week in Northern California” to what it calls “Broken California,” with a discussion among Susan Kennedy, former right-hand woman to both Governors Davis and Schwarzenegger; Dan Schnur, director of the Unruh Institute at USC; Don Perata, former president pro tem of the Senate; and yours truly. The show airs Friday, November 11 at 7:30 p.m.

Or you can watch it online here:

"Broken California" A special edition of "This Week in Northern California." Guest host PBS NewsHour correspondent Spencer Michels

The initiative: A tool for fighting

Californians—or at least those Californians of a wonky sort—are marking the 100th anniversary of the state’s initiative process, October 10, with a series of events around the state. But I doubt any of the words spoken at those events will be truer than those delivered by Bruno Kaufmann, a journalist and president of the Initiative and Referendum Institute Europe, at a September 21 forum hosted in San Francisco by the Swiss consulate.

Contrasting California’s use of the initiative with the Swiss system Hiram Johnson and the Progressives used as their model, Kaufmann said:

Your process is much more about enabling conflict, but not about solving conflict. You use it like a hammer, when what you need is a screwdriver.

Cheryll Barron offers a fuller account of the event at post-Gutenberg.

Don't Californicate Minnesota

As Joe Mathews and I point out in our talks about the California Crackup, there’s one silver lining in having America’s most dysfunctional government: You can reliably make things better by taking almost any other government as a model.

That principle works in reverse, too. Other states can assess whether proposed “reforms” will make them more like California.

That’s what the Minneapolis Star Tribune does in this editorial. It reads California Crackup and concludes that proposals to require supermajority vote requirements for legislative action will hurt the state: “With back-room dealmaking thus encouraged and neither party fully in charge, the California Legislature became less accountable to the voters and less able to produce new budgets on time. That’s not a result Minnesota should replicate.”

Amen.

GOP Mourns the Loss of a Good Thing

In an op-ed in the Los Angeles Times, Harold Meyerson reminds Republicans, cheekily but correctly, that they have no reason to complain about the congressional districts drawn by California’s Citizens Redistricting Commission. The Republicans did this to themselves.

You can read Meyerson to get the story. But I’ll just note one thing he leaves out. The House districts were inevitably going to come out worse for Republicans in a 2011 redistricting. Why? Because Jim Brulte, state senate minority leader during the 2001 redistricting, dutifully following the lead of Karl Rove and the Bush White House, put a priority in last decade’s bipartisan gerrymander on protecting GOP seats in the House. As Peter Schrag reported then, the combination of Brulte’s savvy and Gray Davis’ indifference gave Republicans more safe seats in the House than most experts expected going into the process.

If Republicans are unhappy with the commission’s House district, it’s at least in part because they have forgotten what a good thing Brulte gave them in 2001.

How We Got Here

With California fast approaching the hundredth anniversary of the 1911 election that brought us our system of direct democracy—the initiative, referendum, and recall—it seemed a good moment to review the history we tell in California Crackup of how California built and broke its political system. Below is a handy timeline version of the story.

You can see a full-page view here.

Some Day We'll Say Go Away

Jeff Stone, a Riverside County supervisor, is basking a moment in the media sun by resurrecting that hoariest of notions, that California be split in two. He wants to free his constituents of their bonds to the high-taxing, big-spending, business-regulating, gay-marrying folks of the Bay Area, northern California, and Los Angeles and break off a new state of South California, comprising 13 inland counties from Mariposa and Mono on the north to Imperial and San Diego on the south. His proposal will quickly go the way of all such gimmicks. And for that the people of his proposed South California should be very glad. Because one of these days the rest of California might very well take them up on the offer of divorce.

Like other recent would-be state splitters, Stone seems unaware of the big fact of California’s political-economic geography. In California, water flows south and west from the mountains to the valley and coast, but money flows west to east, from the coast toward inland areas. The big money in California is earned and the big ideas are hatched within reach of the summertime Pacific fog. Hollywood, Silicon Valley, the premium vineyards, the most productive marijuana plantings, and seven of ten University of California campuses: All are within 40 miles of the surf. And a disproportionate share of the taxes paid by the robust economy on the coast ends up financing public services for people living in the less affluent interior.

The chart below shows how Stone’s proposed SouthCal would stack up on spending and taxes compared to California as a whole.

Out of Balance

View fullsize

State government educates, medicates, and incarcerates. Public education, health care, and criminal justice account for more than 80 percent of the state budget. The counties that Stone would turn into SouthCal receive at or above their proportional share of those key three functions. (And an even higher share of social welfare benefits.) But as the table shows, they fall far below their share in generating income or revenue. As it’s now constituted, state government is a machine that raises money on the coast and ships a lot of it inland to Stone and his fellow South Californians. His proposal would break that conveyor belt and leave SouthCal (which already has an unemployment rate higher than the state as a whole) much worse off.

But notice that Stone doesn’t propose to divorce the entire coast. Like former Assemblyman Bill Maze, who proposed a similar split a few years back, he wants to include Orange and San Diego counties in his new paradise. He didn’t ask their permission to include them in his breakaway state, and if you look at the third column of the table, which shows how SouthCal would fare without Orange and San Diego, you can see why. Even more than the current state, SouthCal would be dependent on its coastal higher earners to pay for services for people in the inland areas. It is hard to understand why Orange and San Diego residents would want to sign up for that duty.

In fact, they and the rest of the California that Stone wants to divorce may begin to see some merit in his offer to walk away from the rest of us. Shorn of SouthCal, the remainder of California would find itself without a budget deficit. There would be many more places for California children at UC and CSU campuses, where the sons and daughters of Fresno and Riverside would now be paying out-of-state tuition. And there would be a lot fewer elected Republicans screaming about high taxes but then complaining when the Legislature cuts spending for their redevelopment agencies, cities, and local schools. Right about now, a lot of Californians might see that as a very good outcome.

Defining Failure Down

One of the consequences of having the least functional governing system in the world is that the bar for determining what constitutes success gets set very low. Even the most ordinary and trivial things in California get counted as a victory.

A case in point is George Skelton’s column in the Los Angeles Times, triumphantly announcing “that Proposition 25 [the majority-vote budget measure] worked. California’s Capitol has become less dysfunctional.”

Yes, the Legislature and governor have enacted a budget before the July 1 start of the fiscal year, a rare event in Sacramento over the last quarter of a century. It’s good to have a budget in place as the fiscal year begins. It lets the state borrow the operating cash it needs and avoids the messy business of delaying payments to vendors and local governments that happens when a budget isn’t enacted before the fiscal year begins.

But as nice as it is to have a timely budget, it’s more critical to have a good one, and to have political accountability for the result. Looked at in that light, California’s first experience with the Prop 25 system has been a rocky ride:

• As you might expect in cases where it takes a majority to pass a spending plan but a two-thirds supermajority to pass the taxes to fund that spending, the budget is dubiously balanced. It depends on school funding provisions that probably do not meet the state’s Prop 98 constitutional minimum but won’t be challenged because the California Teachers Association (CTA), the group most likely to sue, was in on the deal. It assumes $4 billion in revenue that the state in all likelihood will not collect. This assumption is offset by provisions that will trigger additional mid-year cuts, largely to higher education and schools. But the budget also contains language that prevent school districts from taking steps to reduce staff to meet these anticipated trigger cuts. To the extent the state budget is balanced, it is at the cost of driving many school districts into insolvency through payment deferrals and restraints on their ability to reduce costs.

• Prop 25’s debut was marked by the Controller John Chiang’s unconstitutional announcement that it somehow gave him the power to withhold legislators pay even though they had met the measure’s requirement that they pass a budget by June 15. Chiang contended that he had the authority, nowhere present in the constitution, to check the Legislature’s arithmetic to determine whether the budget was balanced. By the criteria he used on June 21 in withholding pay, the arithmetic is still dicey. But Chiang will now resume legislators’ pay. Why? Maybe the budget is only unbalanced when CTA doesn’t like it.

• Once again, California has a budget for which no one is clearly accountable. Democrats passed it, but none of the Democratic lawmakers who voted for it, nor the governor who signed it, wanted this budget. It was the best they could do without extending the 2009 temporary taxes, for which there were no Republican votes. But neither did GOP legislators want this budget; they all voted against it. Some of them are already complaining of cuts that harm pet projects in their own districts. So who do we now hold accountable? The people who voted for the budget they didn’t want, or the people who made inevitable the budget they didn’t vote for and claim not to like?

• And if there is any budget for which we Californians would want to hold accountable, it is this one. It is disastrous for California’s future. It hacks $1.75 billion out of higher education. It will most likely slash the length of the school year, already the shortest in the world. It will take away services from hundreds of thousands of the blind, disabled, elderly, developmentally disabled, and the working poor.

If that is what the media now count as California getting “less dysfunctional,” we’re in much deeper doo-doo than I ever imagined.