Know When to Walk Away

Political Consultant specializing in issues management and strategic research

As Governor Schwarzenegger’s analysis notes, California ranks "dead last" in terms of per capita lottery sales.  Several east coast states, including Massachusetts, New York and Pennsylvania do far better.  Interestingly, the independent Legislative Analyst’s analysis reports that the average revenue of lotteries in states west of the Mississippi are significantly lower than those east of the Mississippi.

While a thorough analysis of the states’ games, demographics, and marketing could help explain this difference, a simple explanation occurred to me:  lotteries have just been around longer in many eastern states.

Maybe playing the lottery, like many other behaviors, is passed on from parents to their children, and there just aren’t as many age groups, and therefore as many people, playing the lottery in California – too many of today’s lottery players don’t have children old enough to play, never mind grandchildren.

I looked at brief histories of the states that the LAO highlighted…indeed, Massachusetts, with one of the most successful lotteries in the country (successful for the lottery itself, not its players) began in 1971, as did Pennsylvania’s very profitable one.  New York’s began in 1966.

Then the lottery spread west – to Arizona in 1981, California and Oregon in 1984, Colorado in 1989 and Texas in 1992.

If this longevity/heredity theory has any truth to it, and the age of the lottery is in fact a contributing factor, this is important because it means that promoting the lottery or changing its games won’t increase revenue to the degree that the Governor hopes.  Time and good breeding will do that.  Teach your children well…And feed them on their dreams….

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When Healthcare is Fixed for Small Business, It’s Fixed for America

John Kabateck
NFIB State Director in California

As our leaders look to revive the flat-lined 2007 "Year of Healthcare", it is important to remember that small business owners, employees, and family members make up 60 percent of the uninsured, so until healthcare is fixed for small business it is not "fixed".  But what does truly "fixed" health care look like for California’s job creators?

NFIB has put forth ten principles for small business healthcare reform which include:

  • Universal: All Americans should have access to quality care and protection against catastrophic costs.  A government safety net should enable the neediest to obtain coverage.
  • Private: To the greatest extent possible, Americans should receive their health insurance and healthcare through the private sector.  Care must be taken to minimize the extent to which government safety nets crowd out private insurance and care.
  • Affordable: Healthcare costs to individuals, providers, governments, and businesses must be reasonable, predictable and controllable.
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Taking a Good Hard Look in the Mirror

Patrick Dorinson
Host of The Cowboy Libertarian Radio Talk Show in Sacramento

There’s an old saying about the weather. Everybody talks about it but nobody ever seems to do anything about it. The same can be said about the price of gasoline. And while the pain at the pump continues, everyone is looking for scapegoats to blame for high gasoline prices.

Number one on the list are the "greedy" oil companies and their "windfall profits", followed by the Saudis and their fellow travelers at OPEC, China and India for daring to prosper and thus increasing demand, and a whole host of other things. All convenient, but something is missing.

The one thing we always leave out is ourselves.

Now before you start heating up the tar, gathering the feathers and looking for a rail to run me out of town on, hear me out.

In 1990, the United States imported 42% of its oil needs. Today we import 60%. Congress has placed huge potential areas of development off-limits to exploration-and while we are speaking about energy we have also restricted the exploration of natural gas as well. Don’t take my word for it — read what Business writer and author Robert Samuelson wrote recently about our energy situation by clicking here.

Environmentalists have succeeded beyond their wildest dreams in cutting off oil and gas exploration in the United States. And as long as gasoline was at a low price, the public and the voters went right along with it. Whenever exploration was proposed anywhere, they ginned up their PR machine and their lawyers and quickly ended the discussion.

And that’s not just oil. That includes coal, natural gas, new refineries, power plants, nuclear energy, LNG facilities and new pipelines.

Likewise, we continue to elect politicians who give us pie-in-the-sky solutions that are years away but tell us nothing about what they will do today. And we gullibly go along with it, never asking the hard questions.

Liberal economic commentators like Paul Krugman see high oil prices as the perfect time to further their social engineering goals, so that we all start leaving the suburbs and start living more like Europeans, abandoning our cars and using public transit. I don’t think that would sit too well with most Americans and try telling Californians to leave their cars at home.

Don’t get me wrong — I am 1000% behind alternative fuels, good public transit, high speed rail, and making sure California becomes the leader in developing green technologies. It makes sense economically and will create a new generation of high paying jobs.

And someday we will live in a world where we have moved beyond fossil fuels. But that day is realistically 30 to 50 years away. Changing what and how we consume energy and having the infrastructure in place to do so is a monumental undertaking. Right now we can’t even build roads, freeways, bridges, water systems and levees.

We have both actively and passively agreed to not doing the kinds of things necessary in order to provide gasoline and other forms of energy during this "Era of Energy Transition" as I call it.

So when you wake up to start out on your Memorial Day weekend, take a few moments to think about how we got into this mess.

And when gasoline gets to $5 a gallon we’ll see if the rest of the country who don’t have beachfront property in California or Florida, and even Californians, still all say no to new energy exploration.

If they do, then they need to take a good hard look in the mirror before they start looking for scapegoats.

Before, it was easy to be "green" as long as there was no associated cost. Now there is.

Environmental activism, may I present economic reality.

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Lesson One in the Initiative Game Playbook

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

If you are trying to defeat an initiative measure destined
for the ballot, lesson one in the initiative game playbook is to cause
confusion and uncertainty with the voters. One of the chief weapons to
accomplish this goal is to file a rival measure of your own on the same
subject. If both measures qualify for the ballot, the voters will have the extra
task of not only trying to decide if a reform is needed, but also which reform is the
best one to solve the problem the measures are intended to address.

Once the campaign attacks start flying on the supposed
hidden agendas or flaws in the rival measures, the voters often throw up their
hands in disgust and vote NO on both entries. That is often an acceptable
result for the supporters of the second measure. They don’t want Measure A to
pass. If Measure B, their own initiative, goes down in the process, they will
accept that collateral damage because their first priority is to defeat Measure
A. 

Californians have seen that scenario play out time and
again. In 2005, the pharmaceutical companies filed Proposition 78 as an
alternative to what became Proposition 79, a measure its proponents had intended to
reduce the cost of drugs. Without getting into the pros and cons of each
measure, the defeat of both initiatives meant that Prop 79 did not become law,
which was a satisfactory result for the companies.

It’s happening again in this coming June primary. The League of
California Cities is determined to defeat Proposition 98, an eminent domain
reform put forth by the Howard Jarvis Taxpayers Association and the California
Farm Bureau Federation. The League qualified Proposition 99, a much softer
version of eminent domain reform. 

Frankly, the League would be just as happy to see both
measures go away. League spokespeople will argue they really want their measure
to pass because they can then claim eminent domain reform has been
accomplished. Their hope is the issue will not come back on a future ballot.
But, they also tell you there really is not an eminent domain problem in California, which is an
argument that the status quo is just fine.

This strategy doesn’t always work. In 1978, with the people
in revolt over out-of-control property taxes and Proposition 13 on the ballot,
the Legislature hurried a weaker measure onto the ballot that promised property
tax relief for homeowners. This measure, Proposition 8, was considered too
little, too late by the voters in the high profile debate over soaring property
tax bills. Proposition 13 passed with about 65% of the vote. Proposition 8 was
defeated, 47%-53%.

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Civic Engagement?

Political Consultant specializing in issues management and strategic research

"Cut Welfare, public housing and job programs. I’m tired of paying for worthless lazy scum bags who spread theirs legs and make us pay for their kids."

That’s "Sandwich8’s" thoughts on the budget. Not something regrettably leaked from a private email, but a comment purposely posted to a public website.

Whether it’s an article on the budget crisis, the lottery, health care, retirement income, or an increase in California’s teen birth rate, we need all Californians to think about real ideas and embrace genuine solutions to the state’s problems.  Here are some alternatives to the prevailing themes that most readers of California’s newspapers and blogs embrace in their online comments:

Theme: Most elected officials take bribes ("are crooked").
Alternative suggestion: Elected officials just want to be popular and get re-elected to political office.  Taking bribes is usually not an efficient way to accomplish this; most legislators in California probably aren’t even offered bribes.

Theme: Public policy doesn’t really matter; we’ll get screwed either way.
Alternative suggestion:  You can at least support the lesser of two (or three or four) evils.

Prevailing Theme: EVERY problem is related to illegal immigration.
Alternative suggestion: Immigration brings benefits and costs to California, and we can discuss it with an adult vocabulary.  (And immigrants are people, too.)

Prevailing Theme: Using CAPS increases the validity of my opinion.
Alternative suggestion:  If you have to use CAPS, you probably shouldn’t say it.

Commenting on a San Francisco Chronicle article on the increase in California’s teen birthrate, "Chronic08" and "Crustyoldseaman" succinctly combine these themes:

"Illegals drop babies; Stupid Gringo pays for it, wonders why there is a budget deficit. SFGate, you suck."

"Lovely. More ignorant trash (of ALL colors and creeds) spitting out more morons they can’t raise."

One reader plans his/her suicide:

"My plan is to take my life voluntarily if I get cancer or some other condition that would create disability. I have no family to take care of me. My suicide note will be a letter to the insurance company, saying that my death will save them money so I am doing them a favor…."

The comments sections are rife with public policy solutions in the form of (what I hope are) modest proposals to deal with the issues of the day:

"The state has property it can sell. It can sell oil leases off the coast. It can offer inmate labor to farmers and others in need of strong backs and weak minds. Log state forests. Trees grow back."

"Instead of increasing taxes on liquor, cigs, cars, boats, millionaires, etc. We should raise the sales tax on diapers, formula, cribs, baby clothes, etc.

"UNTIL WASTE AND CORRUPTION IS CLEANED OUT, THERE IS NO,NO,NO reason for a tax increase. That will only enable the crooks more."

Since some people would be fired from their jobs or chastised by their children for saying such things, these opinions almost certainly come to us courtesy of the relative anonymity of the Internet.  They are also the real thoughts of real people, and I didn’t just choose the most shocking, most offensive ones for exhibit.  

There is so much energy online, and the Internet gives us all a genuine opportunity to engage in honest, well informed and much needed debate. Let’s use it.

Comments, anyone?

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The Tax Collector’s Conscience

Michele Steel
Orange County Supervisor (2nd District) and Former California State Board of Equalization Member

Forget the new Indiana Jones thriller, for real action-packed excitement just tune into the State Senate Revenue and Taxation Committee. Last week’s hearing had it all: a tax temper tantrum, rowdy debate over parliamentary procedure and even controversial remarks about the tax agency’s conscience.

Check out the video:

Youtube: Tax Collector’s Conscience

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Goodbye Ugly Betty — And 75 Million Dollars

Bonnie Reiss
Director of the University of Southern California's Schwarzenegger Institute

Last week I was meeting with Tony Plana, the actor that plays Ugly Betty’s father at their Hollywood studio set, and while the show is a huge success with ABC having ordered 26 episodes for their upcoming season, it felt like a funeral on the set that day. The reason for this — Ugly Betty is just the latest production lured away by New York’s lucrative tax incentives, one of 40 states now offering such incentives.

Those who think tax breaks for TV and movie productions are a giveaway to rich actors, directors and producers are very wrong. The actors and other "above the line" people go with the production to whatever state they move to. It is the "below the line" people who lose their jobs-the drivers, carpenters, set designers, make up artists, craft services and production assistants.

The entertainment industry is iconic to California, contributing 38 billion dollars to our economy and employing over 250,000 people. During the recent writers strike the LAEDC estimated the cost to California was 2.5 billion dollars. Yet, while 40 states see the merit of offering financial incentives to "steal" these jobs from California, some in our legislature are too shortsighted to take smart aggressive action.  In 2006 the Governor, speaker Nunez and minority leader Kevin McCarthy joined together to push such a bill, but the Senate refused to consider it. The legislation would not have even cost the taxpayers or state budget anything, as it used a "revolving fund" which was more than made up for by the productions themselves.

Perhaps next year when the Chamber lists their "job killing bills" they can suggest a list of "job creating bills", and perhaps with the new Senate President Steinberg having served as Assembly budget chair, the Governor will have more success in supporting an industry that the whole world associates with California, and keep these "below the line" jobs from leaving our state.

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The Breathing Fee

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

Businesses will be forced to pay an annual fee based on greenhouse gases each emits after the Bay Area Air Quality Management District voted to levee the fee yesterday (see article here). The fee will hit every size business-big and small-at a rate of 4.4 cents per metric ton of carbon dioxide.

According to the Bay Area AQMD, which regulates smog in nine San Francisco Bay area counties, the proposal will rake in over one million dollars to pay for collecting and tracking data on greenhouse gases.

Let’s call this fee what it really is….a carbon tax.

The tax just adds another weight on businesses. That is unnecessary when there is an alternative to this tax—a carbon cap and trade system. If government demands that business carry extra loads to benefit society, then government should lessen the burden of taxes and regulations in other areas to keep businesses functioning properly.

While bigger businesses will get hit with the greater fees under the AQMD plan, smaller businesses will not escape. The Shell Oil refinery in Martinez would pay about $200,000 a year under the proposal. Smaller businesses would pay a minimum of $1.

The idea of charging a tax for greenhouse gas emissions has been floating around for some time but this effort in the San Francisco area will be the first time it is tried. Other areas of the state, as well as other places in the nation, are watching carefully to see if the Bay Area AQMD can successfully make this tax stick.

Businesses are concerned that once the door is opened, other tax and fee proposals might follow, and that the initial tax put forth by the AQMD will be raised.

In addition, the proposed tax will add to the cost of goods and services in the Bay Area if the business is not able to offset the costs in another way. Adding a tax to refineries and gas stations will up the cost of gasoline in the Bay area.

Businesses also are right to worry about a crazy quilt of different taxes and fees in different areas of the state, and a state imposed solution that will come down to implement the bill Governor Arnold Schwarzenegger signed two years ago to deal with greenhouse gases.

Businesses should not be hit by both a state solution to this problem and at the same time be punished with a local tax.

You can’t help but feel this is the beginning of a fee and tax driven enterprise that may or may not deal successfully with the global warming concerns. And you never know where proposals like this will lead. Carl Pope, national executive director of the Sierra Club said, "There are costs associated with emitting carbon dioxide and the people who emit it should pay the costs."

We humans exhaust carbon dioxide. Soon, we all may be hit with a fee for breathing.

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Why Helping Small Business Helps the Country

John Kabateck
NFIB State Director in California

When President Bush outlined his principles for an economic stimulus plan, he emphasized the need to help small businesses. He reiterated that theme in his State of the Union message.

There’s a good reason for that: Small businesses are creating the bulk of the new jobs in this country.

You might have missed that news amidst the recent front-page reporting of economic gloom and doom and headlines about interest rate cuts. Businesses with fewer than 50 employees actually added 66,000 jobs in December. During 2007, small businesses added a total of 716,000 jobs, according to the ADP National Employment Report, which tracks the payroll data of several hundred thousand businesses. In fact, the firm says that in 11 of the past 12 months, small businesses added more jobs than medium- and large-size businesses combined.

If American small businesses were a separate economy, it would be the world’s third-largest, trailing only the U.S. as a whole and Japan. Small business produces roughly half of the private Gross Domestic Product and, as the numbers demonstrate, clearly continues to drive our economic growth.

At the same time, entrepreneurs read newspapers and watch television like every other American, and there are indications that they’re starting to get a little unnerved by the economic news. So it’s a good time to consider an economic stimulus package to avoid a recession, which Congress is now doing.

One of the most important provisions included in the stimulus package is doubling the dollar amount for small-business expensing limits from $125,000 to $250,000. This will allow small-business owners to immediately write off investments in their business and will help small-business owners expand their businesses, as was demonstrated several years ago when expensing was increased to $100,000.

Another key provision included in the economic stimulus package is a 50 percent bonus depreciation deduction. Bonus depreciation is another incentive for businesses to invest in their business now, providing an immediate deduction for half the cost of the investment.

These are both good starts and policymakers are right to want to move quickly to get this package passed.

In addition to action on the economic stimulus plan, Congress intends to consider overhauling the tax code later this year. At that time, Congress should act to give permanent relief to small-business owners. For example, most small businesses file as S-corporations, which pay the same tax rates as individuals. These rates were slashed in 2003, but only until 2010. Making those tax cuts permanent and avoiding any future increases will be a great help to millions of small-business owners.

In addition, entrepreneurs are treated differently than Americans who receive their health care benefits from a corporation. They are not permitted to deduct health care costs from their wage base for self-employment taxes. Simply put, they’re forced to pay higher taxes because they’re self-employed. This tax bias should be eliminated to help make health insurance more affordable.

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It’s time for Real Budget Fixes

Physician and Health Care Industry Executive and Former California State Assemblyman

Well, it’s been just about a week since the Governor came out with his May revision and the commentary hasn’t slowed down one bit. Most of the attention thus far has focused on the "sale" of the lottery and whether that truly is more borrowing or not.

No matter how you look at (borrowing or not borrowing), this one time source of revenue would be used to plug the deficit for up to three years, but wouldn’t solve the long term budget problem.   It‘s pretty ironic, since Governor Schwarzenegger came into office with a promise to fix the budget, that the real budget fix will be left for the next Governor.

The most important issue in this budget is the "ongoing structural deficit". Spending on an ongoing basis will continue to outpace revenues, and the estimates are that the ongoing deficit will be between $5-6 billion annually.  This does not include the payments that will come due for the unfunded retiree health liabilities, which are likely to add at least another $2 billion or more on an annual basis.

The Governor has proposed a spending limit and a reserve fund, but one of the major issues that continues to be unaddressed is the volatility of our state tax system.  The bulk of the State’s general fund revenues are made up of receipts from three different taxes-income tax, sales tax, and the corporate and banking tax. Over the years the income tax has provided an increasing percentage of the general fund revenues and of the three major sources of revenue it is by far and away the most volatile.

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