For Clients & Friends of The Gualco Group, Inc.
IN THIS ISSUE – “Dangerously Underfunded & Unwilling to Plan Prudently”
CALIFORNIA FISCAL FITNESS QUESTIONED
- California Local Government Pensions Growing 6X the National Rate
- State Unemployment Fund Least Solvent in US
- State Auditor Forms Citizen Commission to Draw New Political Lines…10,000 Apply
HIGH TECH & LOW WATER
- Congress & Federal Regulators Probe Global Tech, Golden State’s Golden Goose
- CalEPA’s First Ag Leader Speaks Out
- Controversial Private Water Firm Diverts to Hemp Farming
- Draining Hetch Hetchy Creates $100 Billion Asset
Capital News & Notes (CN&N) harvests California legislative and regulatory insights from dozens of media and official sources for the past week, tailored to your business and advocacy interests. Please feel free to forward.
READ ALL ABOUT IT!!
FOR THE WEEK ENDING AUG. 2, 2019
Median pension costs for local governments grew nearly six times as much in California as the rest of the country over a decade, according to new data compiled by a UC Berkeley professor.
Median pension costs went up $7,022 per employee in a selection of cities, counties and special districts in California from 2007 to 2016, compared to a national median increase of $1,216, Sarah Anzia, an associate professor of public policy, said Wednesday in Sacramento.
The rising pension costs have consumed an increasing share of local government revenues, absorbing an additional 2 percent of general revenues over the 10-year stretch in California compared to a national median of 0.7 percent, according to Anzia’s data.
Anzia analyzed spending of 442 local governments around the country, including some from every state and 26 cities and counties in California.
Her results are in working paper form, and have yet to be peer-reviewed for publication in an academic journal. But she suggests her results could fill a gap in public policy debates, since most researchers have focused on pension plans and their performance rather than on local government impacts.
“This dataset is unlike any that existed before, and it is uniquely suited to the task of assessing the on-the-ground experiences of American cities and counties,” she wrote in the paper.
She found correlations between pension cost increases and union activity and collective bargaining, which is more common in California than many other states.
From 2007 to 2016, per-pension costs for local governments with less than 50 percent union membership increased by a median $740, while those with more than 50 percent increased by a median $2,950.
CalPERS administers pensions for many local governments in California along with state workers’ pensions. Like most pensions around the country, CalPERS doesn’t have enough money to cover all of its current and future obligations to public workers. The $377 billion fund, the nation’s largest, has about 70 percent of the assets it would need to pay all those obligations, leaving it with what is known as an unfunded liability.
Many of those obligations won’t come due for decades, and that distance has spurred disagreement among academics and policymakers over how urgent the underfunding is.
“California’s pension plans are dangerously underfunded, the result of overly generous benefit promises, wishful thinking and an unwillingness to plan prudently,” California’s Little Hoover Commission reported in 2011, after the Great Recession had deeply affected CalPERS’ funded status.
In 2014, another group of researchers concluded unfunded pension liabilities and financial problems in Detroit and Illinois didn’t signal a broader crisis.
“The question is whether cities across the country are about to topple like dominoes — and whether pensions are the problem. The answer, the authors write, appears to be ‘no’ on both fronts,” according to a study abstract.
Anzia said she doesn’t fall into either camp, but hopes her data can make the pension debate more tangible for a broader audience.
“It stands to affect everyone who relies on local government service provision, including police and fire protection, refuse collection, public parks, libraries, and county court systems,” she wrote of increasing pension costs. “Rising pension expenditures are already changing the landscape of local government, and the findings here suggest that the future of local government may look very different than the past.”
Part of the uncertainty about the future lies in pension funds’ expected rates of return on their investments. When the funds don’t make as much money in a given year as expected, and the shortfall isn’t made up in extra payments from employers, employees or another source, the unfunded liability grows.
CalPERS in 2016 started reducing its target return-on-investment rates from 7.5 percent. The fund returned about 6.7 percent this year, falling short of a new 7 percent target.
The changes mean local governments pay more to make the fund more financially sound in the long run.
Last year, the League of California Cities surveyed 170 local governments about their pension contributions, finding that most cities expected their contributions to increase by at least 50 percent by 2024, to an average of 15.8 percent of general fund budgets.
Anzia on Wednesday suggested CalPERS should reduce the target rate even more, a change she said would give local governments a more realistic picture of the costs of their pensions.
Her study was funded by the Laura and John Arnold Foundation, the Berkeley Institute for the Future of Young Americans and the Institute for Research on Labor and Employment.
Gov. Gavin Newsom and his predecessor, Jerry Brown, have repeatedly stressed the need to build state budget reserves to cushion the impact of the next recession, whenever it hits.
Thanks to a vibrant economy, they’ve squirreled away nearly $20 billion in various reserve accounts. When recession hits, however, the state budget is not the only fiscal system to take a big hit.
As the Great Recession of the previous decade revealed, payments to unemployed workers also gets hammered. In fact, the California Unemployment Insurance Fund, according to a report from the U.S. Department of Labor, is the least solvent of any state’s and even a tiny economic downturn would quickly drive it into the red.
History tells us how that came to pass.
During Gray Davis’ governorship, which began in 1999, he and the Legislature sharply increased unemployment benefits without raising payroll taxes to pay for them.
That irresponsible act reflected a political standoff between labor unions, which clamored for a benefit increase, and employers, who didn’t want to shoulder higher taxes.
What had been a healthy unemployment-fund reserve was drawn down by the new benefits, becoming too weak to handle a sharp increase in payouts when recession struck a few years later.
California turned to Uncle Sam for a bailout, borrowing $63.8 billion during the recession to keep unemployment insurance checks flowing as California’s jobless ranks swelled to more than 2 million workers and its unemployment rate topped 12%.
When the state continued its refusal to raise payroll taxes to repay the loans, the Department of Labor taxed employers to erase the debt.
Nevertheless, California’s fund remained weak. Last year, in fact, the Department of Labor reported that it was the only state with a zero-solvency level.
A new report was issued this year, revealing that from zero, California’s fund is now 15% of what’s regarded as minimum solvency—still the nation’s lowest.
It ended 2018 with a little over $2 billion in the kitty. But unless changes are made, it’s unlikely to improve even though unemployment today is very low and high employment means more payroll taxes flowing into the fund.
Even during this relatively prosperous period, the state is paying out far more than $5 billion a year in benefits while annual payroll tax receipts are only slightly higher, according to the state Employment Development Department’s own annual report, published in May.
The report projects that year-end balances will creep up to $3.2 billion by 2020, assuming there’s no recession. But that’s still a very low number vis-à-vis the potential hit. As the report puts it, “the current financing structure leaves the UI Fund unable to self-correct and achieve a fund balance sufficient to withstand an economic downturn.”
The fund’s weakness doesn’t score very high in terms of political sexiness. But it involves big money and the welfare of Californians who might lose their jobs during a recession.
There are four ways to make the fund truly solvent: raise the payroll tax rate, widen the wage base that’s taxed (it’s now $7,000 a year), reduce benefits and/or tighten eligibility for benefits.
Employers dislike the first two, and the latter two are politically impossible in a Democratic Legislature closely tied to unions.
Unless this political stalemate is resolved, California’s Unemployment Insurance Fund will be clobbered in the next economic downturn, forcing us to beg Uncle Sam for another bailout.
Such loans would incur hefty interest charges, and employers would still have to repay them one way or the other.
California State Auditor
Every ten years, after the federal census, California must re-establish the boundaries of its Congressional, State Senate, State Assembly, and State Board of Equalization districts to reflect new population data and shifting populations. The Voters FIRST Act gave this power to California citizens ensuring that new and fair political boundaries are drawn without special interests, politics and political influence.
Silicon Valley’s antitrust troubles in Washington got real this week, as it became clear that every possible entity in the U.S. is pursuing investigations that could fuel attempts to break up the nation’s biggest tech companies.
But the confluence of probes raises a host of challenges during the coming weeks and months for the investigators, which include people from the Justice Department and Federal Trade Commission, both chambers of Congress and several state attorneys general.
Much of what happens next will occur behind closed doors, as investigators meet privately with players from the array of industries that the online companies have disrupted — a list that by now includes media publishers, phone and cable companies, brick-and-mortar retailers and even smaller competitors from the tech world. Any company receiving formal notice that it is under investigation will have to disclose it in a public filing to regulators, as Facebook did this week.
Enforcers will have to assess not only whether any of the tech companies is flouting the law, but whether it’s possible to prove in court that the conduct is harming consumers, even though the businesses in question offer products and services that are wildly popular and often free of charge.
That means the agencies are entering uncharted territory — it’s been decades, at least, since such a wide array of major powers across an entire industry have faced this kind of antitrust scrutiny all at once. But with their actions this week, Washington’s biggest antitrust enforcers have sent a signal that they want to hear complaints. And odds are there will be many.
“The core question now is which cases” to pursue, said Roger McNamee, an early Facebook investor turned critic who delivered a speech to the DOJ antitrust division in March. “Now that the government has committed itself to protecting the consumer interest, it will be fascinating which cases they pursue and which companies find themselves in the crosshairs.”
Antitrust enforcers across Washington have met in both D.C. and Silicon Valley with industry critics in recent months as they search for anticompetitive behavior that would merit a formal investigation. Those critics have included smaller tech companies like the online review site Yelp, along with advocacy groups and tech whistle-blowers such as Facebook co-founder Chris Hughes, who has advocated breaking up the company he helped start.
Attorney General William Barr also convened a bipartisan group of state attorneys general at DOJ headquarters Thursday to talk antitrust enforcement prospects, where participants said one focus of the conversation was Google. The meeting occurred two days after Justice Department antitrust chief Makan Delrahim announced a broad investigation into whether Facebook, Google and Amazon are engaging in behavior that stifles competition or harm consumers.
Separately, Facebook disclosed in a corporate filing Wednesday that the FTC opened a new investigation into the company last month. The probe involves “social networking or social media services, digital advertising, and/or mobile or online applications,” the company said the following day.
Mounting pressure in Washington from both political parties to put the internet companies under a microscope may have ignited the “healthy rivalry” that exists between the Justice Department and the FTC, former agency officials and antitrust observers said.
FTC spokesperson Betsy Lordan said that for decades the two agencies have made sure not to launch duplicative investigations, though they could investigate the same companies for different types of conduct. She declined to comment on any ongoing investigations. The DOJ did not respond to requests for comment.
Some antitrust experts have warned that it could be hard to win cases against online companies based on the traditional legal standards — enforced for decades by federal judges — that have looked to metrics such as rising prices to prove anticompetitive harm to consumers. Google and Facebook in particular offer users their major services for free.
“It would be a very unconventional use of the antitrust laws to go after it, and it would be an entirely novel claim,” said Litan, who was principal deputy assistant attorney general in the department’s antitrust division during the Clinton administration. “A judge would never have seen such a claim. But maybe they’re trying to make new law.”
The big tech companies have rejected the notion that they are monopolies or anti-competitive bullies — on the contrary, representatives from Google, Facebook, Amazon and Apple told a House antitrust panel this month that their companies face stiff competition in their respective markets. Facebook, for example, competes with Apple and Snapchat as a messaging platform, while Apple notes that its iOS smartphone platform lags in the market behind Google’s Android.
In his speech in Israel, Delrahim noted that some digital markets like search, social media and e-commerce have just one or two dominant players.
The DOJ investigation got mixed response among tech critics on Capitol Hill, with some Democrats skeptical that the Trump administration would take meaningful steps.
“The rhetoric has to be matched by real action,” Sen. Richard Blumenthal (D-Conn.) told POLITICO. “Big tech’s bigness is not a violation of law, but its misuse of its monopoly power has been and will continue to be illegal and anti-consumer, so I hope some action will be forthcoming.”
The probe received a much warmer welcome from prominent GOP tech critics. Sen. Josh Hawley (R-Mo.), who asked Barr during his January confirmation hearing whether he would take a tougher stance against tech companies, lauded him this week for “following through” on ratcheting up oversight of the sector. “Very big news and very important,” he wrote on Twitter.
Former DOJ officials characterized the public announcement of the antitrust probe as unusual for a government agency that typically refuses to comment on pending or ongoing investigations. But in an era when questions about the market dominance of platforms are coming from both President Donald Trump and his 2020 Democratic rivals, the pressure is on.
“It could boil down to the simple fact because others have put these companies in the spotlight they feel the need to reassure those stakeholders, be it consumers or office holders, that the DOJ takes those concerns seriously,” a former agency official said.
And the investigation brings DOJ in line with other Washington power players looking to drop a hammer on major technology companies. Trump rebuked two of them publicly Friday, declaring on Twitter that Apple won’t get any waivers from tariffs on parts it imports from China and that Google’s relationship with Beijing “may or may not” pose “National Security concerns.”
The FTC, which slapped Facebook with a record $5 billion fine for privacy infractions, has also made it clear that its work is far from done.
The Commission’s Bureau of Competition established a 17-attorney tech task force earlier this year that is aimed at probing competition concerns in online markets. The task force’s leaders gathered complaints and insights about the industry’s behavior during a weeklong tour in Silicon Valley in May, POLITICO previously reported.
Meanwhile, House antitrust subcommittee Chairman David Cicilline (D-R.I.) has begun a series of hearings to explore anticompetitive behavior in the tech industry. And in the Senate, Marsha Blackburn (R-Tenn.) has created a task force to examine antitrust, privacy, speech moderation and other qualms Washington has with Silicon Valley. Hughes and Yelp CEO Jeremy Stoppelman, a Google critic, have met with both of their offices, POLITICO previously reported.
Hughes has also joined law professors Tim Wu and Scott Hemphill in meetings with the Justice Department, FTC and state attorneys general to discuss Facebook’s market power, The New York Times reported this week.
Enforcers have also met with Barry Lynn, executive director of the Open Markets Institute, a liberal think tank that has spent years advocating tougher antitrust enforcement against companies like Google. Lynn argues that strong antitrust action can alter the digital business models that have given rise to issues like disinformation — though companies like Facebook and Google contend those issues are best tackled with artificial intelligence technology and human moderators.
“That’s something that is really fundamentally important for democracy,” Lynn said. “It’s something competition policy enforcers can absolutely have a major hand in fixing.”
CalEPA’s First Ag Leader Speaks Out
PolitidoPro (No link)
Val Dolcini wears two hats in Gov. Gavin Newsom’s administration. He was appointed in March to a newly created position as CalEPA’s deputy secretary for agriculture. In June, he also began serving as acting director of the Department of Pesticide Regulation.
A Davis native, Dolcini previously served as administrator of USDA’s Farm Service Agency under President Barack Obama. Immediately after leaving the Obama administration, Dolcini was president and CEO of the Pollinator Partnership, a San Francisco-based nonprofit devoted to protecting bees, birds and other animals that pollinate plants. Earlier in his career, he worked as a staffer for House Speaker Nancy Pelosi and former Rep. Vic Fazio (D-Calif.).
In an interview with POLITICO, Dolcini said he sees his role in the Newsom administration as representing and elevating the Central Valley’s interests generally. He also will be shepherding a three-pronged process at DPR, announced in May and getting underway this month, to phase out the pesticide chlorpyrifos.
(Transcript has been edited for length and clarity.)
Describe both roles that you currently have.
I’ve been wearing both hats for the last five or six weeks, and I spend most of my time down here [at DPR]. But I get up to the 25th floor [of CalEPA headquarters] several times a day for meetings and other things. So it’s a bit of a juggle at this point, but things are working out well.
Part of it is meeting with farmers. Part of it is meeting with environmental justice groups. Part of it is meeting with other ag-related commodity groups or trade associations, just to reestablish the connections that I’ve had with them over the years, but also to provide them some insight into what we’re doing and what Jared [Blumenfeld] would like to accomplish and more directly what the governor’s goals are with regards to the Central Valley.
I think it was important for him and the governor’s office to look at ways to make sure that the Central Valley was a part of the conversation and had a seat at the table and had somebody that could represent their point of view and their interests.
So you’ve got the continuity represented by [Department of Food and Agriculture Secretary] Karen Ross, who has been in her position for some years. [Agriculture liaison] Bill Lyons provides him counsel on ag and water issues, and Bill was a former CDFA secretary and is a farmer from the Modesto area. You’ve got me here at CalEPA and various others salted around the administration who can provide that kind of input.
The chlorpyrifos ban is the biggest news that has come out of DPR in quite some time. What’s its status?
We announced on May 8th that we were going to embark on a process that would ultimately result in the cancellation of chlorpyrifos’ registration for use in most agricultural settings. Since then, the May Revise followed shortly thereafter and the governor had included $5.7 million for research for chlorpyrifos alternatives, but also to establish a working group that we’ll announce later in the summer to focus on finding good alternatives to chlorpyrifos.
The group will also look at ways where we can begin to devote more time to creating a structure that focuses on less toxic and more sustainable and safer alternatives to some of the pesticides that are used today.
So that’s a process that will kick off probably shortly after Labor Day. There’s a hope that by late next spring we’ll have a report that allows us to move forward having identified some alternatives. And then there’s a legal process that sort of runs simultaneous to that, that is ongoing right now. We hope that we’re able to do it within the two-year time frame that we’re allowed to do it in, and maybe sooner than that.
There’s also a bill in the Legislature that would duplicate that process or serve as a backstop.
It’s a slightly different process, and the Legislature certainly has some ideas about how to effect the same goal, ultimately. But we feel like this is a good process. It’s open and transparent and a process that those who register chemicals are familiar with, but also one where the public can be involved as well.
Do you foresee any new regulations or programs or are you focusing on existing ones?
I’m focused more on existing ones, from my DPR perspective. It’s still a little early to figure out what might be important for farmers or ranchers or rural Californians from my perspective as the deputy secretary for ag. Agriculture would probably tell you that there are too many regulations as it is, and so let’s work on streamlining, and I think that that’s an important area where we might find some common ground as well.
There may be regulations in the water sphere or in the air quality sphere that could be tweaked or tailored or streamlined a little bit more to make them more efficient.
I’ve heard a suggestion that DPR could change its name to reflect something broader than pesticide regulation.
You know, that’s been central to the mission and sort of core function of the department over the years. But I agree. I think that what we really do is manage pests and help people manage pests through the use of better tools. So that’s been talked about, as recently as this year, to maybe look at changing the name to the Department of Pest Management or any number of other good suggestions out there.
Do you have any thoughts on the recent UCLA report that faulted DPR for its oversight of county-level agricultural commissioners, who often don’t consider alternatives to the pesticides that farmers are proposing to use?
Actually, I met with Dr. Malloy, who was the chief author of the report, a couple of weeks ago. I would start by saying that our relationship with the ag commissioners is really important because we delegate a fair amount of authority to them to enforce pesticide rules and regulations in their respective counties.
I’ve met with the organization that represents the ag commissioners. I’ve shared my thoughts about the UCLA report and how we can clarify some of the issues around our authorities and their authorities and how ultimately we can just at the end of the day make sure that we’re better serving Californians.
Perhaps there’s an ag commissioner that needs some remedial training around the various enforcement provisions. Or maybe there’s somebody that needs help on media training, or maybe there’s an ag commissioner that wants to learn more about our emerging role in the cannabis policy area. I think that there’s a lot that we can do together and a lot that we can do to assure Californians that we take our own enforcement role very seriously, and we expect that the county ag commissioners are going to do the same.
Controversial Private Water Firm Diverts to Hemp Farming
PoliticoPro (no link)
The company behind a groundwater-pumping project in the Mojave Desert announced today that it is venturing into hemp farming, fresh off a Capitol defeat that dealt a blow to its main endeavor.
Cadiz Inc. is forming a joint venture with a cannabis company to grow industrial hemp on up to 9,600 acres of its 35,000-acre property in San Bernardino County, the company announced today.
The newly formed SoCal Hemp Farm will build on the 5-acre pilot project that Cadiz announced last month. Joining Cadiz in the venture will be Glass House Farms, a subsidiary of California Cannabis Enterprises.
The announcement comes on the heels of Gov. Gavin Newsom’s signing yesterday of CA SB307 (19R), a bill putting additional administrative hurdles on Cadiz’s proposal to extract enough groundwater from its property to supply 400,000 people.
The water project has been bitterly opposed for years by environmentalists and lawmakers who argue it will jeopardize animal habitat, including Sen. Dianne Feinstein (D-Calif.). The bill by Sen. Richard Roth (D-Riverside) will have the State Lands Commission, Department of Fish and Wildlife and Department of Water Resources conduct an extra analysis of whether the company’s plans would damage habitat or other resources on state or federal land.
Cadiz officials said they were still planning on pursuing their water-pumping plans and that they expected the hemp farming to be “fully compatible” with the groundwater project.
“Overlying farming demands will be coordinated with project operations and existing Court-validated permits,” the company said in a statement. “Cadiz will also continue to support the further scientific review of area mountain springs and water dependent ecosystems as called for in recently adopted legislation, and nothing in this venture diminishes that commitment.”
New report from ECONorthwest finds recreational value could reach $178 million a year alone; “Valuing Hetch Hetchy Valley: Economic Benefits of Restoration in Yosemite National Park,’ commissioned by Restore Hetch Hetchy, reinforces case for restoration
This week we released Valuing Hetch Hetchy Valley: Economic Benefits of Restoration in Yosemite National Park. It is a thoughtful and well-researched report, and I hope you will take a close look.
Restore Hetch Hetchy asked ECONorthwest, the report’s author, to evaluate a number of visitor-use scenarios for a restored valley, but instructed them to make no assumptions about developing any infrastructure (roads, lodges, campgrounds) within it. Restore Hetch Hetchy played no part in the study’s findings.
ECONorthwest found that the recreational value of a restored valley could be as much as $178 million per year: $62 million/year in visitor spending inside Yosemite National Park, $65 million/year in spending outside the park, and $51 million/year in additional consumer surplus. Also, by comparing Hetch Hetchy to other iconic western natural resources such as Grand Canyon, Mono Lake and Klamath River, the report concludes that the total increase in public value, including option values, bequest values and existence values, could exceed $100 billion over time.
I’ll acknowledge it’s a unusual to talk about the worth of a priceless treasure Hetch Hetchy in dollars, but we thought it was an important part of the conversation so we asked ECONorthwest to do so.
Finally, there has been a lot of talk, and disagreement, about cost. We are actively updating previous work in that area to incorporate important changes in law and technology, as well as to address the prospect of climate change.