Hope is not a plan

Proposition 1A: "Rainy Day" Budget Stabilization Fund. - recommend No

This is a bad time to be trying to operate an American state. According to this helpful overview from the National Conference of State Legislatures, the majority of states are looking at significant budget shortfalls for Fiscal Year 2009. Interestingly, as much as California is looking like a train wreck for the coming year, it's still in the "Less than 10% of state's general fund" budget gap category, whereas Alaska, Colorado, Illinois, Tennessee, Mississippi, and Alabama are all in the 10-15% shortfall bracket (one wonders how this fits into that good old frontier independence in Alaska).

NCSL is also tracking states' efforts to overcome their financial deficits here. States are exploring saving money by any number of measures, including shutting down parks, reducing aid to local governments or industries, reducing employee salaries, closing prisons, and so forth. Among the states, California is looking at by far the most severe cut in education funding for FY 2010, with a reduction in $7.3 billion (that said, I don't know how this will influence per-student spending, which is a better metric for this kind of comparison). Moving over to tax increases, most states that are monkeying with general taxes have chosen to play with the sales tax. I suspect this is because people find this the most conceptually inoffensive, as it's just "a little more" skimming off the top rather than a direct debit from your paycheck. In California, this was an increase in the sales tax; in other states it's involved repealing certain sales tax exemptions (e.g. on bottled water in Florida). Some of the states have proposed corporate income tax increases as well (for example, Illinois could potentially raise its corporate income tax rate from 4.8% to 7.2%). There are also proposed increases in selective taxes, such as taxes on liquor.

Proposition 1A is a package of changes in how the state collects and spends money. It would increase the size of the state's "rainy day" fund, would require excess money to be funneled back into state needs in a prioritized order (with education first), and would extend the sales and income tax increases that were enacted for the 2009 and 2010 fiscal years out to 2013. More specifically, it would build the "rainy day" fund up from 5% to 12.5% of the general fund - in other words, in good years, we'd have to funnel money we gained above the historic trend (for the prior ten years) into the rainy day fund first, with the fund to be tapped in years where revenues fall below the trend amount. Some of this money would then go to specific states needs. If Prop 1B passes, $9.3 billion would go to counterbalance current education budget reductions, with another 1.5% of state revenues to go to debt service and infrastructure afterwards.

I am not in principle opposed to many of the concepts undergirding this proposition. It would be better to put more money into "rainy day" funds during times of economic waxing, so that we don't find that we suddenly have a raft of unfundable programs when we go into economic wane. Similarly, the idea of putting funding first into gaps in education and infrastructure seems quite reasonable. I'm not as fond of the raise in sales tax, as that is particularly brutal for everyone in the lower ranges of our economy.

Fundamentally, however, proposition 1A represents an attempt to budget via proposition rather than via legislature. The state of California has seen a series of this propositions, meant to "fix" spending in certain areas (e.g. education) via proposition mandate, rather than relying on the legislature to take care of proper spending. This is heavily rooted in the common belief that politicians are a different species who cannot be relied upon to make proper spending decisions, rather than our legally elected representatives who try to promote the interests of their constituencies. This is best reflected in this quote from the rebuttal to the argument against (that is, an argument for Prop 1A):

"Politicians commit the state to spending it cannot sustain."

Honestly, we as voters like to commit the state to spending it cannot sustain. For example, in the last election, Californians passed Proposition 1A and Proposition 3, both of which added significantly to our state's debt burden. The proposition system is often used to push spending or debt accrual the state cannot sustain which we might expect to find quashed in the legislature.

Most of these measures are workarounds to deal with bloat and delay in the California budget process. However, it seems likely that the fundamental issue here is the supermajority vote requirement for passing our state budget. California is only one of three states (Arkansas and Rhode Island being the other two) that requires more than a simple majority to pass the state's non-educational budget. The upshot of this is that the minority party in one of these states can stall a budget indefinitely and ask for unreasonable compromises. The easy solution to pass a California budget in the current setup, then, is to just give everyone what they want. Consider the following bit from NCSL's evaluation of supermajority budget vote requirements:

There is little empirical evidence identifying the effects of supermajority vote requirements on the budget process. Anecdotal evidence suggests that they may cause states to miss or bump up against their budget deadlines, making it even harder to pass a budget on time. And, according to a new report released by the California Citizens Budget Commission, instead of slowing the growth in state spending, California's two-thirds vote requirement may have the opposite effect, allowing the legislative minority to frustrate the process of reaching compromise by withholding votes for spending in other areas. Ultimately, however, it is important to note that difficult budget decisions are probably more likely to be an obstacle to getting the budget passed on time than the number of votes required.

As they say, there's a dearth of empirical evidence to work with here, so it's hard to say if that final line is anything other than a nicety to say that it's not the fault of the supermajority setup. That said, the simple lateness of the budget each year, which is often pointed to as some sign that the dreaded "politicians" are defective, is more than likely the direct result of requiring a supermajority. This, alone, is disruptive enough to warrant a change.

Notably, there are two propositions in the petition stage right now that would revoke the supermajority requirement for passing a budget and replace it with a 55% majority requirement (one of the two would maintain the supermajority requirement for raising of property taxes). I hope that some version of this makes it onto the ballot, but I am concerned that people will see this as a license to raise taxes rather than as a license to not have to bribe the minority to get a budget passed on time. It's important to recall that no representative is fond of raising taxes on their own constituents - that makes you vulnerable to being voted out of office, and no one likes to lose their job.

In the meantime, I am unwilling to support more proposition-based mandated spending directions, and prefer to hold out until we can remove this particular stumbling block from the path of our state government.

Significant opposition to this proposition comes from various faculty, nurse, public employee, and service employee organizations. Major financial support for it comes from a mix of businesses, including (intriguingly) some cigarette companies. The major business push appears to be from California-oriented businesses, however, including Disney, Universal, and other media companies. Outside of businesses, there have also been significant contributions from school-associated groups. Presumably these groups are interested in the mandate to repay cuts in education funding; I'm not sure about the business interest, but suspect there's some appreciation for the mandated rebuilding of infrastructure, as well as finding a way to get more money into the state via personal income taxes and sales taxes rather than increased corporate income taxes.

You can look at the people spending money for or against this proposition by clicking here.

You can read the full text of the proposition and the legislative analyst's summary here.

Proposition 1B: Education Funding. Payment Plan. - recommend No

As is no doubt apparent from the numbering, Prop 1B is a companion piece to Prop 1A. Specifically, Prop 1B covers the education spending that would be enabled by Prop 1A.

Under the provisions of Prop 1B, if Prop 1A is passed, $9.3 billion would be funneled from the "rainy day" fund established by Prop 1A into K-14 education. That part seems pretty straightforward. The concern, however, is that there's some lack of clarity in how this adjustment to education funding interacts with Prop 98 rules on education funding. One of the potential problems is that under one interpretation of how the final Prop 98 / Prop 1B mix would interact, the new rules would generate several billions in additional state obligations each year. Naturally, this doesn't mix well with our lack of knowledge about (1) when the economy will recover and (2) whether there will ever be a significant downturn in the future (I'm willing to guess there will be).

This proposition contains the same fundamental error I dislike in Prop 1B, that of attempting to budget via proposition rather than using this legislature we voted into office. That said, it's basically just an adjunct to Prop 1A, and as I'm downchecking 1A, I'm downchecking this one as well.

Support for 1B comes from most of the same people as for 1A, including major corporate interests within and outside of our state. You can check on the full list of financial supporters and opposition by clicking here.

You can get to the full text of the proposition and the legislative analysis here.

Proposition 1C: Lottery Modernization Act - recommend No

The legislative analyst's summary tells us that the average Californian spends $83 per year on lottery tickets, which may well seem surprisingly high if you never buy a lottery ticket, but is also significantly below the average across all the states that have lotteries (that average being $190, or $105 for states west of the Mississippi, which may or may not be an interesting commentary in itself). Proposition 1C hopes to up that amount, as well as to reconfigure how California lottery money can be used.

Prop 1C would enact a handful of significant changes to the lottery.

First, it would let the state increase the portion of lottery money taken in that is subsequently kicked back out in payments. Based on examples in other states, higher percentage payouts correlate with higher lottery uptake. The goal, then, would be to increase the purchasing of lottery tickets by making bigger payouts. Higher payouts would naturally impinge on the increased intake of money, but the overall effect would be more net funds coming in from the lottery.

Second, Prop 1C would rework how lottery money is used. Currently, money from the lottery that does not go into payouts, operating the lottery, and advertising for the lottery goes directly into education. Under the revisions in this proposition, the payments would go into the state's General Fund instead. New rules would be put into effect increasing the required payout from the General Fund into education in an attempt to maintain parity on the funding going into education. This may seem arcane and pointless, but makes sense in light of the third change.

Third, this proposition would allow borrowing worth up to $5 billion against future profits from the lottery. The upshot here is that the state could immediately borrow that $5 billion, drop it into the General Fund, and use it to pay off immediate needs, while still maintaining roughly the same level of required lottery payout to education on a year-by-year basis.

The downside of this approach, as indicated in the legislative analysis, is that debt service on this $5 billion in borrowing would have to be paid off by future lottery proceeds, which could eventually lead to the state having an annual deficit in its funding. Or, put more briefly, debt is debt.

The three components of this propositions are not all of equivalent value. The modifications to lottery procedure to increase payouts seem reasonable (putting aside concerns about who the lottery is effectively taxing, which is a separate issue that bears its own evaluation). However, the second and third elements are basically a scheme to generate new debt to dig us out of our short-term budget problems. Consider this disingenuous quote from the argument in favor of Prop 1C:

By modernizing our state lottery, Prop. 1C will immediately raise $5 billion in new revenues without increasing taxes. Our lottery is out of date and underperforming. With a few simple changes, OUR LOTTERY CAN BRING IN MUCH MORE REVENUE TO THE STATE—$5 billion immediately without costing taxpayers a dime, while protecting funding levels for schools currently provided by the lottery.

To be clear, when I say 'disingenuous' I mean 'lying.' I loathe the line of falsehood that suggests that adding $5 billion in additional debt to the state does not raise taxes. Although it literally does not, it's just like saying that you can buy a car with your credit card at "no additional cost to you." The fact that this is their opening line of argument shows that the proponents of this measure know that if you explained it properly that voters would not want to go for it.

An additional giant pile of debt is likely not the best approach to working out our state's economy, and for that reason, I'm recommending against it.

The single strongest supporter for Prop 1C is GTECH, a company that refers to itself as "a leading provider of lottery technology." That's not so surprising.

You can check the full list of financial supporters of Prop 1C by clicking here.

You can get to the full text of the proposition and the legislative analysis here.

Proposition 1D. Protects Children's Services Funding. Helps Balance State Budget. - recommend Yes

Now, that's a misleading title.

I've had this conversation with a good friend of mine in the past, about how every proposition is pretty much named "The Save the Puppies and Kittens and Babies Act" regardless of content.

This bill is utterly straightforward. It pulls Proposition 10 revenues (taken from a state excise tax on cigarettes) that are currently required to be assigned to First 5 programs and lets them be used instead for other state programs for children. This will effectively pull about $600 million into the General Fund and cut the same amount from First 5 programs. In other words, we'd be cutting the First 5 program for the next two years.

As I said, straightforward. This is the kind of program cutting that other states are already planning in response to the current budget crunch. It's also likely to be the kind of budget cutting that is facilitated by not requiring a supermajority to pass a budget (see the Prop 1A analysis for more on this issue.

I'm not at all a fan of cutting children's programs, but looking at the overall state budget, it's not clear to me that there are any specific programs one should be sanguine about cutting. The fact that we have various propositions that have mandated specific spending from certain taxes hinders the state legislature, limiting its flexibility and agility in response to budget problems like our recent economic crash. For this reason, I'm recommending a "yes" on Prop 1D.

Once again, I'll take a moment to highlight some pathetic rhetoric from an argument, in this case the argument against Prop 1D:

Prop. 1D was placed on the ballot by Sacramento politicians to take local funding from children’s health and education programs in every community. These funds were approved by voters in two previous elections. Don’t be fooled by the deceptive ballot description written by Sacramento politicians. Prop. 1D seizes money from local medical, health, and education experts and puts it in the hands of Sacramento politicians and bureaucrats.

Damn those politicians! Oh, wait, no. We voted for them in two previous elections, too.

I'm tired of the lame approach of treating the people we elected to represent us as if they were aliens. You voted for your representative (or, minimally, a majority of people in your district did). If you don't want the budget to operate the way it does, let them know. If they still aren't representing your needs, vote for someone else. If, in the extreme, you think that our legislative system doesn't work, then it's time to promote a proposition that does away with it in favor of something else.

But seriously, the argument that these weird aliens are out to steal your money for nefarious purposes is stupid. Prop 1D "seizes money" and "puts it in the hands of Sacramento politicians" who will then, in turn, use it to pay for different child and family health programs. Well, shucks. That's evil, right?

You can get to the full text of the proposition and the legislative analysis here.

Proposition 1E. Mental Health Services Funding. Temporary Reallocation. Helps Balance State Budget. - recommend Yes

Prop 1E benefits from a more accurate and less misleading title than the very similar Prop 1D. Like Prop 1D, it's an utterly straightforward measure that would redirect funding from an area with legally mandated funding into the General Fund where it would be spent to cover fairly similar state needs. Specifically, this reallocates money that was generated by the 2004 Prop 63 tax on very high incomes, switching it from one batch of mental health programs to cover the costs of the state's Early and Period Screening, Diagnosis, and Treatment Program (to the tune of reallocating $460 million or so, total).

Or, in other words, it's a $460 million cut in overall mental health spending in the state.

As I said in my overview of Prop 1D, I am not happy about a cut in these specific services, but I believe our state legislature should be able to reallocate funds more readily, and I do not appreciate the various workarounds people have attempted involving using propositions to mandate specific segments of state spending. With that in mind, I recommend "Yes" on this proposition with the understanding that when there are no specific state programs I want to see receive major cuts, cuts will necessarily have to come from good, quality state programs that help me and my fellow citizens.

You can get to the full text of the proposition and the legislative analysis here.

Proposition 1F. Elected Officials' Salaries. Prevents Pay Increases During Budget Deficit Years. - recommend No

Prop 1F would do exactly as it says, blocking pay increases for members of the legislature and other state officers in years when the state is running a deficit.

Sure, why not?

It's risible to think that this will "punish" our elected representatives into line and make the budgets work better, but it also won't significantly impact them. Or, to put it another way, any minority member (say) who was blocking passage of a budget is not going to suddenly think, "Shoot! What about my 1% cost-of-living pay increase? Forget that giant block of money I was trying to funnel into my district, I need my 1%!" and suddenly fall into line.

But if it makes you feel better, go ahead and vote for it. It won't make a difference.

I'll leave with a quote from Pete Stahl, who wrote the argument against Prop 1F:

And how good will you feel about freezing legislators' salaries when you know that their votes wouldn't change whether their salaries were frozen, reduced, or entirely eliminated? After all, they're clearly not in this for the money.

Let's not make that discrepancy even worse just for an empty, childish, feel-good moment. Vote no on Proposition 1F.

Indeed.

You can get to the full text of the proposition and the legislative analysis here.

I apologize for being so late in posting my overviews and recommendations this time around. Here's the roundup of titles and recommendations. As always, you can click on through to each entry for a discussion of the background behind the proposition, what the new law would do if enacted, and links to the text of the law, the legislative analysis, and in many cases additional information on who's backing or opposing the proposition.

Here we go:

Prop 1A. "Rainy Day" Budget Stabilization fund." - recommend "No" because more rules on the use of state funding is not the route to successfully managing our budget.
Prop 1B. Education Funding. - recommend "No" for exactly the same reason as I gave for 1A. Mandated spending rules are not the path to victory here.
Prop 1C. Lottery Modernization Act. - recommend "No" because it is fundamentally a tool to add $5 billion in state debt.
Prop 1D. Children's Services Funding Reallocation. - recommend "Yes" because it frees our state to make necessary if distasteful budget cuts.
Prop 1E. Mental Health Services Funding Reallocation. - recommend "Yes" for the same reason as Prop 1D.
Prop 1F. Elected Official Pay Increase Block During Deficit Years. - recommend "No" because it's foolish and infantile, and will not achieve its stated goal.

And there you go. As always, I welcome comments, and I hope the overviews are useful for your own decision-making process this week.

Reporting on American casualties in Iraq is intermittent these days. As we enter into the seventh year of war, it takes something 'exceptional' to merit American deaths making it beyond local news. If you'd like to keep yourself informed, however, remember that you can always refer to icasualties.org to track deaths among American and allied forces in both the Iraq and Afghanistan theaters.

So far in 2009, 75 American soldiers assigned to operation in Iraq have died. Of these deaths, 41 were due to enemy action, with a reasonably even mix of small arms fire and explosives.

One of the soldiers killed was 22-year-old Pfc. Jessica Sarandrea, who is remembered here, and whose husband is also serving.

The highlight news piece all day today was the newly announced efficiency targets for American vehicles. I'm unwilling to dip too deeply into the discussion that certainly surrounds this, but I think it's interesting to note two things:

1) Anyone who complains about the up-front cost increases in cars clearly needs to do the arithmetic about lifetime fuel use on the vehicle, even if "lifetime" just means five years or so.

2) Alan Mullaly has clearly decided that Ford is winning this whole "collapse of the American auto industry" event, and now that GM is bleeding out in a Detroit back alley, he's cool with not trying to promote the status quo vis-a-vis fuel efficiency.

al Jazeera article

(It's also nice to hear that new CAFE standards are coming, since they've been static since 1990 or so.)

Consider a modern fable of interconnectedness.

China, in an effort to clean the air before the recent Olympics, shut down a large swath of industrial production, including production that supplied acetonitrile. Around the same time, a hurricane shut down acetonitrile production off the American gulf coast. Things might have picked back up since then, but for the global economic downturn, which has naturally led to a decline in production of acrylonitrile, which is used for production of resins and plastics. As it happens, much of the acetonitrile produced comes as a by-product of acrylonitrile production.

So what does that mean here in the U.S.? Well, notably, it means that if you're trying to synthesize DNA for research (say, for example, you were researching a recent epidemic disease), your DNA would cost significantly more, because acetonitrile is the most important solvent used in the DNA synthesis process.

Derek Lowe breaks it down here in a writeup from earlier this year. Much as we saw during the 2002 West Coast port shutdown, modern just-in-time shipping and manufacturing and highly efficient use of material streams mean that we are prone to all sorts of curious knock-on effects that, while they are predictable, are not necessarily intuitive or on our mental radar, except for those people who work directly on managing these supply lines and production methods.

Props 1A-E failed, with only the pointlessly and uselessly punitive Prop 1F passing. The last minute push against 1D and 1E was unsurprisingly irrational; I saw that enterprising campaigners had peppered the local train station with fliers decrying the victimization of kids by these proposed cuts.

The problem is that there are no significant, nonpainful cuts we can make. The majority of the state budget goes to care, in the trifecta of education, health and wellfare, and prisons. There are no good cuts. If we want to keep the state running without making painful cuts, all of us who still have jobs are going to have to be prepared to pay a lot more in taxes.

Cut or spend. There's no magical third option.

You can see the results from yesterday's special election by clicking here. Officially, the formal final tally isn't done until 35 days after the election, when all absentee ballots and legitimate provisional ballots will be counted, but none of the margins on the propositions are even vaguely close enough for that to make a difference.

As I've relayed in the past, when the GAO looks into the effectiveness and costs of private contractors, they often find that these contractors cost more than government employees covering the same jobs. Nonetheless, we continue to use private contractors, both out of necessity (e.g. we don't maintain a government concrete pouring agency when we can just use Bechtel) and out of less reasonable ideas, including padding pockets and the irrational belief that private industry is always cheaper.

One would hope that we'd track past performance of private contractors as one way of evaluating their likelihood of bringing in projects on specification and within budget. Conveniently, half a decade ago the PPIRS (Past Performance Information Retrieval System) was instituted to let contracting officers track just that. Less conveniently, use of this system by those contracting officers has been neither complete nor thorough, both in terms of tracking past performance and using that past performance to evaluate future bids.

In a report titled Federal Contractors - Better Performance Information Needed to Support Agency Contract Award Decisions, the GAO evaluates the tendency of contracting government agencies to actually record performance data on private contractors and whether or not that information is used.

To give you an idea of the scope of the situation, take a look at the contractors employed and money spent on them in 2007:

Now, let's take a look at the percent of contracts receiving an assessment in that same year:

So what does that tell us?

Well, first of all, it tells us that even the top performer in terms of filing performance reports on contractors, DOD, averages about a 36% reporting rate. Air Force is the top reporter out of DOD, accounting for 47% of all performance assessments in 2007, and 75% of all reports to date. NASA performs somewhat worse than DOD, with the Department of Energy being even worse. The Department of Homeland Security, however, was dismal, clocking in at a mere 13%.

Naturally, DHS complained about GAO's assessment. On reviewing their complaints, however, GAO determined that their assessment was sound; DHS really is just barely turning in more than a tenth of its required reports. Thus, the evidence base for estimating the likelihood of good future performance just isn't there.

GAO also found that, reasonably enough, the technical approach (the 'how we'll do this') aspect of a contractor's proposal or bid was the most-cited "top" factor in contract decisions. That said, past performance was the top factor in 38% of contracts. All things considered, it makes a great deal of sense to consider both the stated technical approach and the contractor's performance history. This second aspect has become more common lately, as we saw when KBR lost a bid partially because it had a history of overcharging on similarly structured bids.

GAO found that contracting officers who did not use the PPIRS system as a source of evidence in making award decisions cited a lack of relevant information as their reason for not doing so. In other words, all those missed performance reports make the system less useful.

The report also points out that there's significant overlap in contractors between all these agencies (as is clear if you work with one or more of them yourself). Given that, the problems at NASA and DOE and the outright failures at DHS negatively impact even those who are relatively responsible in their filing practices, such as the Air Force.

We have the technology to allow this kind of uniform tracking of government contractors. Given the significant sums involved and the need to choose the most cost-effective providers, it's certainly worth our time as taxpayers to let the right people know that DHS and friends need to get on the ball and track contractor performance.

The California state supreme court ruled today that Prop 8 is legal, if distasteful.

"All political power is inherent in the people," George said, quoting the Declaration of Rights in the state Constitution. He said the voters' power to amend their Constitution is limited - and might not include a measure that, for example, deprived same-sex couples of the right to raise a family - but that Prop. 8 did not exceed those limits.

It was fundamentally odd to see a legal challenge concerning the constitutionality of a constitutional amendment, and the 6-1 decision follows from that. If the court had somehow come to rule that the amendment were not legal, that would fundamentally break the amendment process going into the future, as each new amendment could potentially face a legitimate challenge to its constitutionality based on its divergence from the standing constitution.

Or, to quote my lawyer friend, "This should be fought in the proposition process."

The one real point of judgment here was whether the passage of Prop 8 invalidated those same-sex marriages that had already taken place. Based on the wording, it didn't seem as if it should be retroactive, and the court has ruled that it is not. So congratulations to those of you who made it in under the wire last year, and to the rest of you, we'll try to help you out on the ballot next time around.