Archive for California Budget

After Seven Years, California High-Speed Rail Still Lacks Comprehensive and Credible Plan for Financing System

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The California State Senate Transportation and Housing Committee held an informational hearing on March 27, 2014 entitled “Toward a World-Class Passenger Rail System in California:  Evaluating High-Speed Rail’s Potential for Success.” (See agendabackground information, a report from the California Legislative Analyst’s Office, and the video of the hearing.)

Of greatest concern to committee chairman Mark DeSaulnier (D-Concord) was the lack of a comprehensive and credible plan for financing the system in the California High-Speed Rail Authority Draft 2014 Business Plan.

Some things never change!

I have saved this old email from Governor Arnold Schwarzenegger’s office forwarding an opinion piece published in the May 4, 2007 Fresno Bee. In it, he claims to support High-Speed Rail but doesn’t want to provide significant money for it in the 2007-08 state budget because “there is still no comprehensive and credible plan for financing the system.” He compares the speculative nature of funding sources for High-Speed Rail with the well-outlined plan for complete funding of projects authorized in a proposed water bond – a ballot measure that has never come before California voters.

See the phrases highlighted in bold font below.


Date: Fri, 4 May 2007 08:57:45

Subject: Must Build High-Speed Rail


Fresno Bee: State Must Build High-Speed Rail

Governor Arnold Schwarzenegger

As the recent Bay Area freeway collapse illustrated — and as a recent Bee editorial correctly pointed out — Californians need and deserve a diverse array of transportation options. I absolutely believe high-speed rail should be one of those alternatives.

A network of high-speed rail lines connecting cities throughout California would be a tremendous benefit to our state.

Not only would its construction bring economic development and the creation of hundreds of thousands of new jobs, but once completed, we would also see improvements to our air quality, reductions in greenhouse gas emissions, congestion relief on our highways and greater mobility for people living in the Valley and other areas of our state currently underserved by other forms of transportation.

Yet it’s been more than 10 years, and the state has already spent more than $40 million in initial planning for the rail line. But there is still no comprehensive and credible plan for financing the system so we can get construction under way.

The High-Speed Rail Authority, the commission in charge of developing a plan for high speed rail in California, estimates the cost of building the system to be more than $40 billion.

Yet so far, the only financing party identified with specificity is the state, which the Authority proposes float a $9.95 billion bond. The remaining 75% of the project cost, or more than $30 billion, has yet to be identified with any specificity or confidence.

Before asking taxpayers to approve spending nearly $10 billion plus interest, it is reasonable to expect the authority and its advisers to identify with confidence where we will find the remaining $30 billion.

A perfect example of what I’m talking about is my $5.9 billion water infrastructure package. By using a public-private partnership approach, we’ve identified a plan that lays out exactly how we are going to pay for every piece of the proposal, from the reservoirs to the groundwater storage to fixing the Delta to our conservation efforts.

For the reservoir portion, the estimated building cost is $4 billion. We’ve proposed $2 billion in general obligation bonds for the public portion and $2 billion in lease revenue bonds to be paid for by the water users themselves, i.e. water agencies, irrigation districts, cities, etc. And to ensure that this funding materializes, we are requiring that contracts be in place to pay for the lease revenue bonds before public dollars are spent on the projects.

Identifying the exact funding sources for large transportation projects is more problematic, which is why we need the authority to come up with a well-thought out financing proposal before moving forward.

I want to commend the authority for its great progress so far in completing the necessary environmental studies and identifying future rights-of-way that we would need to acquire.

Yet even the authority’s executive director, Mehdi Morshed, says the longer the state waits to build a high-speed rail network, the more expensive it will get. I could not agree more.

That’s why I have directed my recent appointees to work with the authority and its financial advisers to develop a comprehensive plan for financing the project in its entirety, so we can make high-speed rail a reality in California once and for all.

Last year, my administration increased funds for the authority to continue its work, and this year, my budget proposes additional funding.

I am willing to explore multiple approaches in order to fund the balance and execute this project — whether through federal grants, local participation, vendor support, co-development opportunities, public-private partnerships or any other realistic financing plans in which the authority expresses confidence.

I look forward to working with the authority and reviewing its proposal as soon as possible.

But let me be clear: I strongly support high-speed rail for California, and especially for the San Joaquin Valley. Increasing the Valley’s transportation options, especially after voters passed Proposition 1B to repair Highway 99, would better serve the region’s growing population and enhance the Valley’s critical importance to our state’s economy.

The promise of high-speed rail is incredible. Looking forward to the kind of California we want to build 20 and 30 years from now, a network of ultra-fast rail lines whisking people from one end of the state to the other is a viable and important transportation alternative and would be a great benefit to us all.

With a responsible plan in place, we can feel secure in delivering high-speed rail and bringing greater opportunity — and a brighter future — to all Californians.



Governor Schwarzenegger had initially included only $1.2 million in his original proposed 2007-08 state budget to keep the California High-Speed Rail Authority operating. (The California High-Speed Rail Authority reportedly had requested $103 million.) The Los Angeles Times reported in the April 29, 2007 article State Puts Brakes on Bullet Train Plan that “Schwarzenegger’s budget would reduce the authority to an office with no more than six full-time employees — without the 75 consulting firms with 300 employees it has now. Outside contracts would need to be canceled, route planning put on hold and environmental and engineering work frozen.” He also proposed again postponing the 2008 ballot measure to authorize bond sales.

Environmental and transit groups criticized this. They claimed he was betraying a commitment to reduce greenhouse gas emissions through Assembly Bill 32, the Global Warming Solutions Act of 2006 that he signed into law.

In the end, the budget signed by the Governor included $1,159,000 for support of the High-Speed Rail Authority.

Another Tax Reform Group Backed by Unions: Don’t Be Fooled

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Perhaps the description “venerable” would be appropriate for a group called the California Tax Reform Association, which has been involved for almost 40 years in various campaigns to increase income taxes on “the rich” and corporate entities. (See Coalition Seeks to Eliminate Tax Breaks for Rich, CorporationsLos Angeles Times – November 21, 1991.) In recent years, the California Tax Reform Association made a public appearance when its executive director signed a support argument for Proposition 24, an unsuccessful ballot measure in November 2010 to “close corporate loopholes.”

On January 29, 2014, the Los Angeles Times ran a column by George Skelton (Lack of Leadership a Big Obstacle in Updating Prop 13) about proposed changes to Proposition 13 that would result in higher tax assessments against commercial property owners. It cited the executive director of the California Tax Reform Association, but did not indicate the agenda or backers of this organization for readers.

George Skelton began writing for the Los Angeles Times in 1974 and the California Tax Reform Association was founded in 1976, so perhaps it was assumed that everyone knew about this group and its historical influence. One might feel a little melancholy to see how the California Tax Reform Association has not kept up with changing times: it hasn’t posted on its web site since May 2012 and it does not appear to use social media.

My article Taxpayer Group Pushing to Gut California’s Prop. 13 is Union Front Group, posted on February 4, 2013 in, reveals the funding sources and leadership of this organization. It’s a front for public employee unions.

Sources for Claims That One-Party Control and Government Taking More Money Triggered a California Comeback

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Prominent “Progressives” identify a simple way for governments to ease economic and social problems: take more money from people as tax revenue and spend it on programs and projects. And in 2013 they can cite an example that seems to conform with their ideas.

Yes, it’s California.

Below is a fairly comprehensive list of sources for this claim. Notice that many of these sources are based on the East Coast.

Reporters and columnists for the New York Times seem to be particularly knowledgeable about the political and economic circumstances of California. They have even personified the claim through Governor Jerry Brown, as if one heroic, enlightened man alone engineered a “comeback” for the state. (Governor Brown doesn’t do much to dispel the myth.)

I’m guessing that the interest of the New York Times in California’s economy and budget is based primarily on needing to tout an example that the federal government should emulate. The nation’s intellectual elite continues to be frustrated that the “New New Deal” that Progressives were envisioning for America after the November 2008 election never came to fruition. The “Tea Party” has exploited outdated structural checks and balances of the republican model of government and permitted the thinking of the Reagan Era to linger, hindering Progress.

California Comeback:
One-Party Control and Higher Taxes as a Model for Success
  1. California Beaming – commentary by Tim Egan – New York Times – March 28, 2013
  2. Lessons From a Comeback – column by Paul Krugman – New York Times – March 31, 2013
  3. California Faces a New Quandary, Too Much MoneyNew York Times – May 25, 2013
  4. California’s New ‘Problem’: Jerry Brown on the Sudden Surplus, and the FilibusterThe Atlantic – May 26, 2013
  5. The California Comeback: How Progressives Stopped California’s Decline – video of panel discussion at 2013 Netroots Nation – June 22, 2013
  6. California Shows the Country How to Overcome GOP Dead-EndersNew Republic – July 1, 2013
  7. California Resurgent Under Brown, But Spending a Worry – Associated Press – July 5, 2013
  8. California Economy is on the Comeback Trail. Can America Follow?Christian Science Monitor – July 23, 2013
  9. Brown Cheered in Second Act, at Least So FarNew York Times – August 16, 2013
  10. Jerry Brown’s Tough-Love California Miracle: The 75-year-old governor rescued the Golden State from financial ruin – and is reshaping a national progressive agenda – Rolling Stone – August 29, 2013
  11. New Rule: Conservatives Who Love to Brag About American Exceptionalism Must Come Here to California – commentary by Bill Maher – Huffington Post – September 27 2013
  12. Jerry Brown Calls Washington Gridlock Dangerous, ‘Really Sick’Sacramento Bee – October 2, 2013
  13. Sacramento Not as Dysfunctional as Washington, D.C. – column by Tim Rutten – Los Angeles Daily News – October 11, 2013
  14. California Sees Gridlock Ease in GoverningNew York Times – October 18, 2013
  15. Gov. Jerry Brown’s Advice for WashingtonLos Angeles Times – October 24, 2013
  16. California, Jerry Brown Enjoying Rave Reviews, but Comparisons Are TrickySacramento Bee – October 25, 2013
  17. While Congress Stalls, the Golden State Moves Forward – commentary by Senator Hannah-Beth Jackson (D) – Santa Barbara Independent – November 5, 2013
  18. California Governor Brown: A Great Power Has To Find Some Unity – NPR – November 6, 2013
  19. California, Here We Come? – column by Paul Krugman – New York Times – November 24, 2013 (praise of Covered California)

After November 23, 2013

Jerry Brown’s Revenge – commentary by Tim Egan – New York Times – March 6, 2014

Palmy Days for Jerry – commentary by Maureen Dowd – New York Times – March 22, 2014

Jerry Brown’s 4th Act – Politico – October 28, 2014


Estimated Costs of the California High-Speed Rail 1996-2012, with Links to Sources

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It isn’t your imagination: cost estimates for the California High-Speed Rail have varied widely but generally have skyrocketed. The $9.95 billion that California voters authorized to borrow for the High-Speed Rail by selling bonds (through Proposition 1A in November 2008) isn’t going to get the job done, even if the Federal Railroad Administration does end up sending $38 billion to California. (Federal debt as of January 18, 2013 is $16,432,619,424,703.06 – $16.4 trillion.)

And don’t forget that money borrowed through bond sales has to be paid back, with interest and financial transaction fees. For the privilege of selling $9.95 billion in bonds, add another $19.4 billion to $23.2 billion for the cost of debt service, and hope that interest rates remain low and California stays out of bankruptcy.

While some experts blame inflation for the increase in the cost estimates, note that $16.5 billion in 1996 dollars should equal $24.1 billion in 2012 dollars, according to the Consumer Price Index (CPI) Inflation Calculator on the U.S. Bureau of Labor Statistics web site. In addition, the sharp decline in the prosperity of the California construction industry from 2007 to 2012 should have modified the market cost of construction services and labor. (Note that state-mandated wage rates – so-called “prevailing wages” – are determined for construction trades and certain professional services based on multi-year union collective bargaining agreements, and not wage surveys or statistics from the California Economic Development Department that might reflect actual market conditions.)

Cost Estimates for California High-Speed Rail 1996-2012
(if a range is given, the higher number is cited)
$16.5 billion 1996 September 1996 Final Report of the California Intercity High Speed Rail Commission
$25 billion 2000 2000 California High-Speed Train Business Plan
$37 billion 2005 August 2005 California High-Speed Train Final Program EIR/EIS 
$45 billion 2008 July 7, 2008 Senate Appropriations Committee Fiscal Study of Assembly Bill 3034
$45 billion 2008 Analysis by the Legislative Analyst in the Official Voter Information Guide for the November 4, 2008 Election – Prop 1A – Safe, Reliable High-Speed Passenger Train Bond Act “The authority estimated in 2006 that the total cost to develop and construct the entire high-speed train system would be about $45 billion.”
$33.6 billion 2008 November 2008 California High-Speed Train Business Plan
$43 billion 2011 May 2011 Report of the California Legislative Analyst’s Office
$98.1 billion 2011 November 1, 2011 California High-Speed Rail Program Draft 2012 Business Plan
$68.4 billion 2012 April 12, 2012 California High-Speed Rail Authority Revised 2012 Business Plan
$150 billion 2040 Common Sense! Huge infrastructure projects almost always end up costing a lot more than originally claimed.

Fleeing California

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The Manhattan Institute – based in New York City – continues to fill the vacuum of free-market-oriented public policy research in California. (I’m glad someone, somewhere still cares about our plight in this state.) Today (September 24, 2012) it released a new study explaining the continued flight of middle class and lower-middle class people from California: The Great California Exodus: A Closer Look.

The NET outflow from California to other states since 1990 is 3.4 million. In percentage terms, California joins New York, New Jersey, Massachusetts, Rhode Island, Illinois, and Michigan among the states where people are leaving at significant rates for metaphorically greener pastures. (Literally, they seem to be moving to the desert.)

In every region of California, more people are leaving than arriving. The Manhattan Institute study claims that people are leaving mainly to escape a difficult economic environment and a tax-and-spend political culture. They are seeking a lower cost of living, better management of public resources, and a business climate more suitable for economic growth and job creation.

Of course, motivations are in the eye of the beholder. From a perspective that puts a priority on environmental protection, departures from California (especially by adults of breeding age) are highly desirable. Many prosperous liberal Californians would opine that many of the people moving to other states lack sophistication, enlightenment, and social tolerance. The destinations of choice (ranked by the Manhattan Institute) elicit groans, snickers, and sneers from many of those who stay:

  1. Texas
  2. Nevada
  3. Arizona
  4. Oregon
  5. Washington
  6. Colorado
  7. Idaho
  8. Utah
  9. Georgia
  10. South Carolina

You can see both perspectives about this migration on full display in the 1629 comments posted in response to an article in the April 20, 2012 Wall Street Journal (Joel Kotkin: The Great California Exodus) about the flight of the middle class out of California. Someone who claims to have moved out of California three weeks earlier even commented with a top-ten list of reasons to leave (thus earning 117 reader recommendations):

  1. Artificially high Real Estate Prices, driven up by Government.
  2. Gov run by Unions without regard to the People of Cali.
  3. Failure to properly manage traffic, boondoggles on Rail as an example
  4. Idiotic Taxes at all levels
  5. Taxes spent on idiotic political projects
  6. Anti-American attitude of the Gov and Unions who run the state.
  7. Control mentality of the Politicians and Unions.
  8. Destruction of the California economy by Government and Unions.
  9. Attitude that the People work for the Gov.
  10. Lack of respect for non-liberals, and the law.

(Note: an appropriate California response to this list is that the word “idiotic” should not be used. It’s on the list of marginally un-PC words to avoid in public discourse.)

The observations of the Manhattan Institute are not new. In August 2000, the Public Policy Institute of California published a study called Movin’ Out: Domestic Migration to and from California in the 1990s. A press release announcing the study stated the following:

The 1990s marked a major shift in the domestic migration trends that have long characterized California. During the past decade, as many as two million more people left California to live in other states than came here from elsewhere in the United States, according to a new analysis by the Public Policy Institute of California. During most of the 20th century, domestic migration was a larger source of the state’s overall population growth than international immigration. The reverse is now true.

In Movin’ Out: Domestic Migration to and from California in the 1990s, demographer Hans Johnson finds that most domestic migrants left the state in the recession years of the early 1990s. However, he finds that California was still losing as many residents to other states as it was gaining during the boom times later in the decade.

In addition, for a few years I’ve heard critics of Big Government make speeches in which they cite the cost to rent a U-Haul from somewhere in California to Austin and compare it to the cost to rent a U-Haul from Austin to somewhere in California. The idea to make this comparison (called “U-Haul Economics” by a Club for Growth blogger or the “U-Haul Economic Indicator” by an American Enterprise Institute blogger) may originate with a study produced for the American Legislative Exchange Council (ALEC) called Rich States, Poor States. Numerous sources on the web claim that the 2009 edition contained this quote:

When comparing California with Texas, U-Haul says it all. To rent a 26-foot truck one way from San Francisco to Austin, the charge is $3,236, and yet the one-way charge for that same truck from Austin to San Francisco is just $399. Clearly what is happening is that far more people want to move from San Francisco to Austin than vice versa, so U-Haul has to pay its own employees to drive the empty trucks back from Texas.

Here are U-Haul prices as of today (September 24, 2012) for picking up a 20-foot truck on October 1:

Los Angeles to Austin: $1,376.00

Austin to Los Angeles: $678.00

San Francisco to Austin: $1,682.00

Austin to San Francisco: $735.00

How would Governor Jerry Brown and Democrat legislative leaders explain that away? Perhaps they would brush it off by exposing the American Legislative Exchange Council as a “right-wing organization” that advances regressive ideas such as limited government, free markets, and federalism. And the “U-Haul Economic Indicator” is worthless because it is used by the “right-wing” Club for Growth and the “right-wing” American Enterprise Institute.

Applying these labels typically brings finality to most public policy arguments in California. No wonder people want to leave.

Personally, I hope people eventually stop moving out of California, because soon the remnant will consist of rich people who don’t pay taxes, poor people who don’t pay taxes, and a small middle class that works in government. I don’t make enough money to keep this system operating for all of them.

What Happened to the Pacific Research Institute? California Needs a Policy Institute That Inspires and Dominates Intellectual Discussion about an Alternative Way to Govern the State

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The leftist magazine Mother Jones published an article today (July 19, 2012) critical of the President and CEO and the operations of the Pacific Research Institute, a free market think tank based in San Francisco. I am an Adjunct Fellow in Labor Studies at the Pacific Research Institute, although I probably won’t be after I post this commentary on my Dayton Public Policy Institute blog.

Here’s my perspective on this matter.

Once innovative, creative, and on the cutting edge of policy initiatives, many American free market think tanks in 2012 appear to be developing into a stagnant, protective, incestuous club of interlocking directorates and eccentrics who enjoy socializing in urban intellectual salons. This culture will react strongly against any outside pleas to reform the remnants of their comfortable “movement.” No version of the Tea Party has yet emerged among free market-oriented intellectuals to topple the decaying edifice and energetically rebuild it with fresh thinking and ambitious strategic planning.

The Pacific Research Institute perhaps excels among the thousands of people and organizations in this country who are trying to make a living pontificating about Obamacare. But is there any unique angle or aspect about Obamacare that still remains to be chewed on? While bashing Obamacare attracts attention and excitement, even I’m tired of it – I change the radio station whenever a talk show host begins rehashing it. (I recommend reading the June 28, 2012 U.S. Supreme Court decision and dissent in National Federation of Independent Business v. Sebelius for fresh, thoughtful perspectives on Obamacare.)

Meanwhile, the State of California and many of its local governments are careening toward bankruptcy while most citizens of the state are wringing their hands in helplessness. Almost everyone in this state knows something is terribly wrong (even the union officials and the union-backed politicians know it), but the state utterly lacks a recognized free market organization with a message that can effectively subvert the entrenched, self-preserving syndicate of politicians, big corporations, unions, and media. Some sort of intellectual force needs to develop and advance a thoughtful, principled alternative to the current way in which the state is governed.

The people of California desperately need a strong, vocal, prominent free market policy institute that not only identifies the numerous economic and governance problems in the State of California, but also proposes audacious, concrete long-term solutions that ordinary citizens can understand and support. The Pacific Research Institute in San Francisco should have that role. It has not held it for many years.

My Early Background with the Pacific Research Institute

I first met a Pacific Research Institute policy analyst – former Director of the Center for Enterprise and Opportunity Katherine Post – in Washington, D.C. in the mid-1990s. I was surprised and impressed to learn that a free market think tank was based in San Francisco.

When I began government affairs work for Associated Builders and Contractors in California in 1997, the Pacific Research Institute’s Senior Fellow in Education Studies Lance Izumi was one of the first people I met in the public policy arena. In the early 2000s, the Pacific Research Institute recognized my professional expertise on complex and costly construction labor issues and designated me as their one and only fellow in Labor Issues. I saw Milton Friedman at the institute’s 25th anniversary gala in San Francisco in September 2004.

The Pacific Research Institute especially took an interest in my lonely work researching and exposing a taxpayer-funded union propaganda program at the University of California, established in 2000 with $6 million in direct funding in the California state budget signed by Governor Gray Davis. I worked extensively on this and other labor issues with the Pacific Research Institute’s former Business and Economic Studies Director Lawrence McQuillan (now chief economist at the Illinois Policy Institute) and also with its former Editorial Director Lloyd Billingsley (author of Hollywood Party: How Communism Seduced the American Film Industry in the 1930s and 1940s).

Selected twice by the Pacific Research Institute for its Golden Fleece Award, the University of California Labor Program was an especially appropriate state issue for the Pacific Research Institute to examine and expose. Other than my employer (Associated Builders and Contractors), no other prominent organization in California was taking a leadership role in publicly criticizing the University of California Labor Program, even as the Labor Program grew to serve as the intellectual foundation of the California Labor Federation‘s political agenda at the California State Legislature and at California local governments. (The Howard Jarvis Taxpayers Association did include the program in its lists of unnecessary, wasteful, inappropriate government programs, but it necessarily had to focus on a thousand other examples of California fiscal foolishness.)

While independent free market-oriented think tanks such as the Pacific Research Institute rely on corporations, foundations, and individuals to fund their policy research, the California Labor Federation and the State Building and Construction Trades Council of California simply obtained taxpayer funding to start and maintain what should have been their own self-funded research and marketing program. To add insult to injury to California taxpayers, the Labor Program was hosted at the University of California, so union officials and their academic sycophants could add a degree of credibility to their phony and biased reports, web sites, and news releases by stamping the respected UC logo and name on them.

Neither Associated Builders and Contractors nor I had any sort of written or unwritten financial agreement with the Pacific Research Institute for any of its research and exposure concerning the UC Labor Program. The Pacific Research Institute staff was outraged about the taxpayer funding for the program and filled a policy vacuum by investigating it and reporting on it for several years, thus providing a valuable service to California taxpayers and businesses.

In 2002, I Propose to the Pacific Research Institute That It Establish the Nation’s First Free Market-Oriented Labor Studies Center

Here are a few excerpts of my October 10, 2002 memorandum to Pacific Research Institute officials, entitled “Proposal for Labor Studies Center at the Pacific Research Institute.”

New Union Think Tank Challenges Free Market Economics in California

At the request of the California Labor Federation, the California state legislature has provided a total of $17 million in the past three state budgets to establish and operate a “Multi-Campus Research Unit for Labor Studies” at U.C. Berkeley and UCLA. With taxpayer funding and the academic credibility of the University of California behind it, this “union think tank” has quickly become a powerful political tool for organized labor.

An Orange County Register editorial describes this union think tank as “a thinly veiled payoff to organized labor activists.” As cited in the same editorial, Associated Builders and Contractors contends that “studies and papers produced by this union think tank lack academic merit but make useful propaganda for the unions to advance their political agenda at the state and local levels.”

Legislators and news media now regularly cite the dozens of studies already produced by the union think tank, including studies on living wage and the supposed negative impact on the poor that would result from the breakup of Los Angeles. Directors for the union think tank have essentially become the media spokespeople for the union political agenda, displacing the angry rhetoric of union lobbyists with the calm impartiality of supposedly thoughtful university intellectuals. As one union leader said when presenting a union think tank study during a recent Antioch City Council meeting, “It’s from a college. Written by a doctor.”

There’s a Vacuum Where Opposing Views Should Be Heard

California lacks a clear voice from the free market perspective on the immediate labor issues before state and local governments. Responses from industry representatives and elected officials to union initiatives have often been lackluster or even apologetic. Unions and their Democrat supporters portray industry positions on proposed legislation as self-interested and motivated by corporate greed, and there lacks an alternative source of information to back industry positions.

On the national level, many of the intellectual champions of free market economics against the unions during the union heyday of the 1950s and 1960s have retired or died … compared to the prolific union think tank, output is minimal.

Pacific Research Institute Can Fill the Vacuum and Provide Balance

For a few years now, I’ve seen the need for an intellectual operation in California to challenge some of the unions’ academic production that is blindsiding business associations and interest groups. For example, when the UCLA union think tank and the California Research Bureau simultaneously issued studies in the fall of 2001 to support a Project Labor Agreement (PLA) for construction of U.C. Merced, opponents of PLAs lacked opposition studies. Studies and comments against the union political agenda from outside the political world could provide some balance on labor issues in the media and in Sacramento.

I believe that creating a Labor Studies Center at the already established Pacific Research Institute could be a solution. I have not been able to identify a purely research-oriented free market institute for Labor Studies anywhere in the country.

Although my proposal sparked some interest at the Pacific Research Institute, especially after the October 2003 recall of Governor Gray Davis and replacement with Arnold Schwarzenegger, the Labor Studies Center was never established, and the country still lacks anything like it.

My Relationship Fades with the Pacific Research Institute

On August 30, 2009, the San Jose Mercury-News published an opinion piece written by me under my title of Adjunct Fellow in Labor Studies at the Pacific Research Institute. It exposed the documented behind-the-scenes politics leading to a decision at the highest levels of the University of California administration to divert $4 million from other purposes to the University of California Labor Program, which had its annual budget appropriation vetoed by Governor Schwarzenegger in 2008. This op-ed stirred up a lot of controversy.

But the Pacific Research Institute seemed to be retreating from important issues at the state level. I was quoted and cited as a source in a comprehensive report released by the Pacific Research Institute in March 2011 outlining weaknesses and proposing solutions concerning California’s public records access laws (Bringing More Sunshine to California: How to Expand Open Government in the Golden State). I was disappointed at how little attention the Pacific Research Institute received for this well-documented, thoughtful report about another policy arena in which California governance is failing.

Then the Pacific Research Institute laid off some people I knew, and subsequently a few others I knew left for other employment – some to other states. The Pacific Research Institute was ditching California policy issues, while its staff – highly informed Californian policy experts – was simply moving out of the state for better opportunities. (Good riddance, I’m sure many leaders in this state are saying about those departures as they eagerly anticipate the bounty from higher tax rates on the people who are left.)

I’m guessing the unflattering profile in Mother Jones magazine will not alter the priorities of the Pacific Research Institute. I’m now waiting for the emergence of a new free market think tank, based near the state capitol in Sacramento and influential in changing the hopes and plans of the people of California. It would be ideal to see the Pacific Research Institute revitalized to tackle this ambitious project, but I expect someone outside of the traditional culture of free market think tanks will need to start it from scratch.

Barreling Down the Tracks: Project Labor Agreement for California’s High-Speed Rail – the Biggest, Costliest Union Construction Monopoly in History

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Background on Contracts for Construction of the First Section of the California High-Speed Rail, as Based on the Bill Approved by the State Senate Today (July 6, 2012)

This afternoon (July 6, 2012), the California State Senate barely passed a budget trailer bill (Senate Bill 1029) that authorizes $5.85 billion (actually, $5,849,752,000.00) to acquire land and build the “initial operating segment” of the California High-Speed Rail. According to the bill, the project will be reviewed and overseen by the (obscure) State Public Works Board.

In December 2012, the California High-Speed Rail Authority will award several contracts for this first segment through an alternative bidding procedure called design-build. Five entities that are conglomerates of major engineering and heavy construction infrastructure corporations have qualified to bid under this procedure. (This is the Big Time, although there is supposed to be a goal to have 30 percent of the work go to small businesses.)

Instead of awarding contracts to design the project and then awarding contracts to the lowest responsible bidder to build it, the California High-Speed Rail Authority is authorized to award contracts to qualified corporate entities that combine project design AND construction work. The California High-Speed Rail Authority will select the design-build entities using a somewhat subjective list of “best value criteria” that could result in design-build entities winning contracts without being the lowest price. The State Public Works Board and the California Department of Finance will approve the criteria to aware the design-build contract.

As directed by Assembly Bill 1029, the California High-Speed Rail Authority is now required to issue some reports related to construction:

1. By October 1, 2012, prior to awarding a contract to start construction of the first segment of the California High-Speed Rail, and prior to advertising additional contracts to be awarded in September 2013 and October 2013, the California High-Speed Rail Authority will provide a comprehensive staff management report that includes a list of “proposed steps and procedures that will be employed to ensure adequate oversight and management of contractors involved in the construction contracts funded in this act.” That same report will list “procedures to detect and prevent contract splitting.” The California High-Speed Rail Authority will also need to submit a report with the same content requirements before additional contracts are awarded in March 2017.

3. On or before March 1 and November 15 of each year, the California High-Speed Rail Authority will provide a Project Update Report approved by the Secretary of Business, Transportation and Housing to the budget committees and the appropriate policy committees of the Assembly and Senate on the development and implementation of the California High-Speed Rail.

4. On or before June 30, 2013, the California High-Speed Rail Authority will prepare and submit a report approved by the Secretary of Business, Transportation and Housing that provides an analysis of the net impact of the California High-Speed Rail program on the state’s greenhouse gas emissions. The report shall be submitted to the Assembly and Senate budget committees and transportation committees.

My observations about these provisions in Senate Bill 1029:

1. While it’s unclear how it will be implemented, it’s quite likely there will be a requirement for the design-build entities and their subcontractors to sign a Project Labor Agreement with unions for some or all of the construction work. I provided extensive background information about this Project Labor Agreement threat in my highly-read January 12, 2012 article in entitled California’s Top Construction Union Officials Love the State’s $100 Billion High-Speed Rail Project.

The eight-member Board of Directors of the California High-Speed Rail Authority includes Bob Balgenorth, head of the State Building and Construction Trades Council of California, and Russ Burns, head of the International Union of Operating Engineers Local No. 3. The Senate Rules Committee appointed Balgenorth, and former Assembly Speaker Karen Bass appointed Burns.

Balgenorth has spoken repeatedly and publicly in support of the California High-Speed Rail even as just about everyone with common sense has mocked the costly, beleaguered project. Surely someone will reward Balgenorth and Burns for their efforts with a requirement for contractors to sign a Project Labor Agreement with unions to work on construction of the California High-Speed Rail. Of particular benefit to the unions, a Project Labor Agreement will kill off what would have been fierce competition from non-union contractors to perform electrical work and build the stations.

2. According to its web site, the State Public Works Board (SPWB) “was created by the Legislature to oversee the fiscal matters associated with construction of projects for state agencies, and to select and acquire real property for state facilities and programs. The SPWB is also the issuer of lease-revenue bonds, which is a form of long term financing that is used to pay for capital projects.” Its five members are officials from the Department of Finance, the Department of General Services, the Department of Transportation, the State Treasurer’s Office, and the State Controller’s Office. Amazingly, there isn’t a representative of organized labor sitting in on this board.

3. According to the May 12, 2012 minutes of the State Public Works Board, the High Speed Rail Authority “anticipates acquiring 1,100 properties from Madera County to Bakersfield County over the next two years as part of the high speed train system.” Perhaps this explains why the California Construction Industry Labor-Management Cooperative Trust and its precedessor (the State Building and Construction Trades Council of California Labor-Management Cooperation Trust) made two huge campaign contributions ($1,000,000 and $250,000) to committees opposing statewide ballot measures to restrict government power to acquire property through eminent domain. (I’ll write more about this issue in a later post – it deserves its own analysis.)

4. It would seem that the report requirement in Senate Bill 1029 to explain oversight and management of the contractors on the California High-Speed Rail project would be fulfilled with implementation of the labor compliance requirements now outlined in California Labor Code Section 1771. This is language enacted in 2011 through union-backed Assembly Bill 436, a bill that also repealed language of California Labor Code 1771.9, which was enacted in 2003 by union-backed Assembly Bill 1506. That original language applied specifically to contractor labor law compliance for the California High-Speed Rail project. Note that the new 2011 law (Assembly Bill 436) allows a government entity to exempt itself from labor compliance requirements if “the awarding body has entered into a collective bargaining agreement that binds all of the contractors performing work on the project and that includes a mechanism for resolving disputes about the payment of wages.” (This is the definition of a Project Labor Agreement.)

5. What is “contract splitting,” and why does Senate Bill 1029 require the California High-Speed Rail Authority to report on its efforts to prevent it? These are interesting questions. Obviously someone somewhere is worried about something!

California Public Contract Code Section 20915 states that “It shall be unlawful to employ any means to evade the provisions of this article requiring contracts to be awarded after advertising and competitive bidding, including the splitting of projects into smaller work orders, the amendment of existing contracts, or the approval of a subcontract or subcontracts let under existing contracts. Every person who willfully violates this section shall be guilty of a misdemeanor.”

6. Senate Bill 1029 requires the California High-Speed Rail Authority to provide “an analysis of the net impact of the high-speed rail program on the state’s greenhouse gas emissions.” Realize that the construction of the California High-Speed Rail will result in significant greenhouse gas emissions from the diesel equipment used to build it. The Teamsters union was so “concerned” about greenhouse gas emissions in the Central Valley area where the first segment will be built that it filed a lawsuit in 2011 challenging the construction of a distribution facility in Visalia (where truck drivers would not necessarily be unionized).

In addition, the draft Environmental Impact Report for this project indicates that the California High-Speed Rail program may use diesel-powered switch locomotives associated with maintenance-of-way activities. See California High-Speed Train Project EIR/EIS – Fresno to Bakersfield Section – 3.3 Air Quality and Global Climate Change. (How could this be? I thought this High-Speed Rail was going to save the planet!)

The home page for California High-Speed Rail declares that “California Is Thinking Big Again.” I’ve only scratched the surface of a few of many issues involving this project, and I’m thinking California Is in Big Trouble if this project continues.

Jack Up Those University of California Fees Some More! Looks Like the UC Contracting Guidelines Slipped in the California Budget Will Hinder “Maximizing Efficiency”

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The California State Legislature’s Democrat majority has approved a budget (Assembly Bill 1464) and sent it to Governor Jerry Brown. Presumably it still includes the language (including the typographical error) added at the last minute providing funding to the University of California with the condition that it operate under extensive guidelines meant to suppress the contracting out of services to private companies. (Apparently this language could even apply to contracts with non-profit organizations and volunteers in certain circumstances.)

How will this budget section affect basic operations of the University of California, such as custodial and janitorial services, hospital staff at UC medical centers, library staff, clerical workers, food service and cafeteria workers, pest control services, and landscaping? A January 12, 2012 report (required by law) entitled 2011 Contracting Out for Services at Newly Developed Facilities from the University of California’s Office of the President to the California State Legislature states that “campuses and medical centers view contracting out for services as an important supplement to existing resources.” The report mentions concepts foreign to state legislative leaders such as “maximizing efficiency,” “new methods,” and “best practices.”

Democrat leaders whipped that budget proposal through so fast in the past few days that it was hard for legislators, the news media, and interest groups to digest the contents. I don’t see many signs that people are picking up on my report from yesterday (June 14, 2012) revealing the new language in the budget about UC contracting. My report was linked on today at the top of the “Golden Pen” column, but I haven’t found any news reports or press releases on the web mentioning it.

As I reported yesterday (see my post “The delay…would frustration their very purpose” – Hasty Last-Minute Add-On to California Budget Clamps Down on University of California’s Contracting Out), the insertion even includes a typographical error – see lines 38-43 on page 580: “The services are of such an urgent, temporary, or occasional nature that the delay incumbent in their implementation under the UC’s regular or ordinary hiring process would frustration their very purpose.”

This language in the budget for the University of California already applies to K-12 school districts and community college districts in Education Code sections 45103.1 and 88003.1, which became law in 2002 through Senate Bill 1419. I couldn’t find any studies on the web that focused on the actual effects of Education Code sections 45103.1 and 88003.1, but I was able to find scattered documents showing that the laws indeed discourage educational districts from contracting out services, and unions do cite these laws to fend off contracting proposals.

Evidence to Suggest This Budget Provision Will Hinder the University of California’s Efforts to Control Costs and Maximize Efficiency for the Benefit of Students 

1. This May 26, 2010 letter (see page 13 of the PDF) from the Berkeley Council of Classified Employees, American Federation of Teachers Local 6192 states bluntly that Section 45103.1 “significantly restricts the ability of the Berkeley Unified School District to contract out for services normally and customarily performed by classified employees.” (And that is the perspective from supporters of the law.)

2. This June 29, 2011 report from the California School Information Services Fiscal Crisis and Management Assistance Team (FCMAT) to the Mono County and Inyo County Offices of Education explains on page 13 that “the most significant impediment to the formation of school transportation JPA will likely be Education Code 45103.1.” Here’s an excerpt:

Known as the California School Employees Association (CSEA) signature anti-contracting bill, this section is the codification of SB 1419 passed by the California Legislature and signed by Governor Gray Davis years ago. The bill does not specifically outlaw contracting, but places strict accountability on a district to prove that contracting is less expensive than using the previous classified employees. Although the formation of a JPA is not technically contracting for work, the CSEA perceives it that way, and has challenged the formation of JPAs using this regulation in some areas of the state. The threat of potential lawsuit has dissuaded some school districts from forming a JPA. The CSEA has closely monitored school transportation in some areas of the state, but not in other areas or services such as food service. The California Association of School Transportation Officials (CASTO) and the School Transportation Coalition are working with the CSEA towards an amendment of E.C. 45103.1 that allows school districts to cooperatively provide services for each other or use a JPA. Support for this amendment is moderate.

3. A July 16, 2010 opinion letter from Jerry Brown when he was Attorney General to Assemblyman Sandre Swanson points out how this law potentially restricts contracting out:

Or, to take another example, if a school district’s contract with a private nonprofit organization involved contracting for services in non-academic positions, such as clerical, maintenance, transportation, and cafeteria services, the contract might be inconsistent with or limited by Education Code section 45103.1, which prescribes the conditions under which a school district may enter into a new contract after January 1, 2003 for personal services ordinarily performed by classified employees of the school district.

4. Here’s “Inter-Office Correspondence” in the Los Angeles Unified School District dated August 20, 2008 from Omar Del Cueto, Executive Director of iDesign Schools, concerning MLA Partner Schools (a program previously called Mentor Los Angeles):

Does MLA reserve the right to subcontract any and all services specified in the MOU to any District, public or private subcontractor permitted by law? How about Food Services?

MLA and the schools are subject to subtracting limitations to the extent that they exist in collective bargaining agreements, Personnel Commission Rules, or the law. Particularly important is Education Code section 45103.1. Section 45103.1 places significant limitations on the ability to subcontract for services that are performed by classified employees. That section applies to food service employees.

5. In a December 8, 2003 decision, the Public Employment Relations Board noted that the Long Beach Community College District Police Officers Association “argues that Education Code section 88003.1 prohibits the District’s contracting out of police services.”

6. I recalled the heady early days of the Schwarzenegger Administration when I found a January 7, 2004 press release from the now-defunct “Coalition for Local Control of School Spending” praising new Governor Arnold Schwarzenegger for calling for the repeal of Senate Bill 1419 in his first State of the State address:

My proposal gets more money into the classroom and thus increases per pupil funding. First, we must give local schools the power to meet the specific needs of their own communities. This will give schools the freedom to spend the money as they — not Sacramento — best see fit to serve the children. Second, school districts are forced to spend an average of 10 to 40 percent more than necessary on non-classroom services. We must give local schools the freedom to be more cost efficient. One way to do this is to repeal SB 1419, the law that prevents schools from contracting out services such as busing and maintenance. This will free up more money for textbooks and other vital classroom needs.

7. Governor Schwarzenegger’s ill-fated California Performance Review identified Education Code Sections Sections 45103.1 and 88003.1 as impediments to reducing non-instructional costs in schools. Here are some claims from the ultimately ignored recommendation:

SB 1419 can effectively prevent school districts from obtaining needed services at all. For instance, one Bakersfield school in the desert did not have functional drinking fountains for students during hot weather because the custodian was busy and the school could not hire a plumber, pursuant to current law. At Santa Ana Unified School District, new computers are still in boxes because, “even though the computer firm said it would install the computers as part of its service without extra charge, even a free service violates SB 1419.” Theoretically, exceptions are available in the law for “work of an urgent, temporary, or occasional nature.” However, because of the difficulties in surmounting the legal hurdles under the new law, school districts may not even contract for services in these cases. The main obstacle to successfully implementing competitive sourcing of necessary services is opposition from labor unions who represent the district employees. At Reed Elementary School District in Marin County, community groups offered to hire additional groundskeepers for field maintenance (the fields are also used by community groups), but this type of partnership is prohibited by SB 1419. Community members reported that, “…even the district groundskeeper supported the partnership” that would have resulted in an additional groundskeeper being hired.

8. When the legislature approved Senate Bill 1419 in 2002, it was opposed by the American Institute of Architects – California Council, the Association of California School Administrators, the California School Boards Association, the California School Bus Contractor’s Association, Cardinal Transportation Group, Inc., the Community College League of California, Durham School Services, First Student, Laidlaw Education Services, Los Angeles Unified School District, Orinda Union School District, and San Francisco Unified School District.

9. When Senator Bob Huff’s Senate Bill x8 61 to repeal SB 1419 was considered and rejected in 2010, the repeal was supported by the California Association of School Transportation Officials, the California School Transportation Association, the California Taxpayers’ Association, the Southwest Transportation Agency, and West County Transportation.

Yes, this section of the budget matters.

“The delay…would frustration their very purpose” – Hasty Last-Minute Add-On to California Budget Clamps Down on University of California’s Contracting Out

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Looks like there’s some sort of union effort to impose great administrative burdens on the University of California to prevent it from contracting out for services that could be done by UC employees. Look at the italicized (new) language on pages 577-581 of the newly-amended budget bill, Assembly Bill 1464, Section 17(a) of 6440-001-0001 “For Support of University of California.” The complete language is below.

My favorite line is 17(a)(2)(F), lines 38-43 on page 580: “The services are of such an urgent, temporary, or occasional nature that the delay incumbent in their implementation under the UC’s regular or ordinary hiring process would frustration their very purpose.”

Is this typo a subconscious expression of frustration with the budget process?

UPDATE: This language – newly added to the proposed FY 2012-13 California budget – is cribbed from California Education Code Sections 45103.1 and 88003.1, enacted through Senate Bill 1419, approved on a party-line vote in the legislature (Democrats in support, Republicans opposed) and signed into law by Governor Gray Davis in 2002.

The bill was sponsored by the California School Employees Assocation, supported by the American Federation of State, County and Municipal Employees (AFSCME) California, and authored by former Senator Richard Alarcon (D-Los Angeles). It is meant to restrict the ability of schools and community colleges from contracting out for services.

Opponents of Senate Bill 1419 argued at the time that the bill imposed “significant costs and administrative burdens by creating added state mandates that include the cost for the process of bidding and the requirement to hire someone if unable to contract out for services.”

Two Republicans have introduced bills to repeal the law since its enactment: (1) former legislator John Benoit (R-Riverside) introduced Assembly Bill 49 in the 2005-06 session (the bill was never considered in its original form and eventually became a vehicle for another proposal), and (2) Senator Bob Huff (R-Diamond Bar) introduced Senate Bill x8 61 in 2010, which was rejected by the Senate Education Committee on a 6-2 party-line vote (Democrats opposed, Republicans in support).

6440-001-0001—For Support of University of California


(a) Notwithstanding any other law, the University of California shall not expend moneys appropriated from the General Fund in the annual Budget Act to contract out for services currently or customarily performed by nonacademic employees to achieve cost savings in instances other than the following:

(1) If all the following conditions are met:

(A) The University of California (UC) or the contracting agency clearly demonstrates that the proposed contract will result in actual overall cost savings to the UC, provided that:

(i) In comparing costs, there shall be included the UC’s additional cost of providing the same service as proposed by the contractor. These additional costs shall include the salaries and benefits of additional staff that would be needed and the cost of additional space, equipment, and materials needed to perform the function.

(ii) In comparing costs, there shall not be included the UC’s indirect overhead costs unless these costs can be attributed solely to the function in question and would not exist if that function was not performed by the UC. Indirect overhead costs shall mean the pro rata share of existing administrative salaries and benefits, rent, equipment costs, utilities, and materials.

(iii) In comparing costs, there shall be included in the cost of a contractor providing a service any UC costs that would be directly associated with the contracted function. These continuing UC costs shall include, but not be limited to, those for inspection, supervision, and monitoring.

(B) Proposals to contract out work shall not be approved solely on the basis that savings will result from lower contractor pay rates or benefits. Proposals to contract out work shall be eligible for approval if the contractor’s wages are at the industry’s level and do not undercut UC pay rates.

(C) The contract does not cause the displacement of UC employees. The term “displacement” includes layoff, demotion, involuntary transfer to a new classification, involuntary transfer to a new location requiring a change of residence, and time-base reductions. Displacement does not include changes in shifts or days off, nor does it include reassignment to other positions within the same classification and general location or employment with the contractor, so long as wages and benefits are comparable to those paid by the UC.

(D) The savings shall be large enough to ensure that they will not be eliminated by private sector and UC cost fluctuations that could normally be expected during the contracting period.

(E) The amount of savings clearly justify the size and duration of the contracting agreement.

(F) The contract is awarded through a publicized, competitive bidding process.

(G) The contract includes specific provisions pertaining to the qualifications of the staff that will perform the work under the contract, as well as assurance that the contractor’s hiring practices meet applicable nondiscrimination standards.

(H) The potential for future economic risk to the UC from potential contractor rate increases is minimal.

(I) The contract is with a firm. A “firm” means a corporation, limited liability company, partnership, nonprofit organization, or sole proprietorship.

(J) The potential economic advantage of contracting is not outweighed by the public’s interest in having a particular function performed directly by the UC.

(2) If any of the following conditions are met:

(A) The services contracted are not available within the UC cannot be performed satisfactorily by UC employees, or are of such highly specialized or technical nature that the necessary expert knowledge, experience, and ability are not available through the UC.

(B) The services are incidental to a contract for purchase or lease or real or personal property. Contracts under this criterion, known as “service agreements,” shall included, but not be limited to, agreements to service or maintain office equipment or computers that are leased or rented.

(C) The policy, administrative, or legal goals and purposes of the UC cannot be accomplished through the utilization of persons selected pursuant to the regular or ordinary hiring process. Contracts are permissible under this criterion to protect against a conflict of interest or to ensure independent and unbiased findings in cases where there is a clear need for a different, outside perspective. These contracts shall include, but not be limited to, obtaining expert witnesses in litigation.

(D) The nature of the work is such that the criteria for emergency appointments apply. “Emergency appointment” means an appointment made for a period not to exceed 60 working days either during an actual emergency to prevent the stoppage of public business or because of the limited duration of the work. The method of selection and the qualification standards for an emergency employee shall be determined by the UC. The frequency of appointment, length of appointment, and the circumstances appropriate shall be restricted so as to prevent the use of emergency appointments to circumvent the regular or ordinary hiring process.

(E) The contractor will provide equipment, materials, facilities, or support services that could not feasibly be provided by the UC in the location where the services are to be performed.

(F) The services are of such an urgent, temporary, or occasional nature that the delay incumbent in their implementation under the UC’s regular or ordinary hiring process would frustration their very purpose.

(b) This section shall apply to personal service contracts entered into after January 1, 2013. This section shall not apply to the renewal of a personal services contract subsequent to January 1, 2013, if the contract was entered into before January 1, 2013, irrespective of whether the contract is renewed or rebid with the existing contractor or with a new contractor unless it has been significantly expanded.

(c) The University of California shall annually post both of the following on its Internet Web site:

(1) The number of, and contract amounts for, contracts entered into during the prior fiscal year, for services currently or customarily performed by nonacademic employees, to achieve cost savings.

(2) If compliance with (a) was required for the prior fiscal year, findings regarding how the University of California complied with that provision.