California State Propositions – November 2014

Proposition 1 – 7.1 Billion in Bonds Funding Water Projects.

Even casual Politomuse readers know that we are skeptical of bond initiatives when we feel that those provisions are being used in place of tax measures or to supplement underfunded budgets for government services. However, large capital improvements are an appropriate use for bond financing.  These projects, like major roadways, dams, and other water works require a large up-front cash outlay but benefit society for a long time.  Bond financing effectively amortizes the cost of these expensive projects over many decades while allowing society to enjoy the benefits of those projects as soon as they can be built.

For this reason, California has traditionally held between 5-10 billion in authorized bonds for various water works.  Presently, that stash of available credit is down to about 900 million.  This proposition also “retires” about half a billion of authorized but unused more expensive bonds and reissues them (resulting in $7.5 billion of total available bonds, $7.1 of which are “new” funds).  Of the proposed bonds, fully 5.7 billion of the newly authorized bonds require “matching” funds before they can be spent – a clever way of leveraging State spending to maximize taxpayer returns.

If fully utilized, the bonds will add about $360 million annually to the budget – a not insignificant amount.  That said, this Proposition was approved by an overwhelming majority of the legislature and is supported by fiscal maven and present Governor Jerry Brown as well as both major political parties.  So, presumably, that money is accounted for in current and future budgets.  There is also some criticism that the measure is vague in its allocation of monies.  (see http://blog.sfgate.com/inthepeninsula/2014/10/29/prop-1-california-water-bond/).  We think that is a fair criticism.  However, it is difficult to strike the correct balance between micromanaging such projects and providing insufficient controls – from what we can see this Proposition does a decent job of trying to leave decision making to the actual water districts to the extent possible while providing broad allocation requirements to make sure that certain water projects will be fulfilled.  Here is the Legislative Analyst’s breakdown of the broad allocations of bond revenues:

Uses of Proposition 1 Bond Funds

(In Millions)

Water Supply $4,235
• Dams and groundwater storage—cost share associated with public benefits. $2,700
• Regional projects to achieve multiple water-related improvements (includes conservation & capturing rainwater). $810
• Water recycling, including desalination. $725
Watershed Protection and Restoration $1,495
• Watershed restoration and habitat protection in designated areas around the state. $515
• Certain state commitments for environmental restorations. $475
• Restoration programs available to applicants statewide. $305
• Projects to increase water flowing in rivers and streams. $200
Improvements to Groundwater and Surface Water Quality $1,420
• Prevention and cleanup of groundwater pollution. $800
• Drinking water projects for disadvantaged communities. $260
• Wastewater treatment in small communities. $260
• Local plans and projects to manage groundwater. $100
Flood Protection $395
• Repairs and improvements to levees in the Delta. $295
• Flood protection around the state. $100
Total $7,545

The Proposition has also been criticized by some smaller environmental groups who oppose dam construction and similar works because they feel it has an adverse impact on the environment.  We think that is a fair criticism as well, but we also think that so long as we continue to want to house large numbers of humans in relatively arid areas we will need to accept some environmental impact.

Finally, critics charge that while voters overwhelmingly support this provision because of the current massive drought – it is highly unlikely that these bonds will do anything to address that current problem.  That too is true.  In our minds, however, it is irrelevant.  The fact remains that the State needs to continually invest in large water projects to ensure that future droughts are not as devastating as they would otherwise be.

Moderate Yes. 

Proposition 2 – Modification to Budget Stabilization Account.

We at Politomuse are always hesitant to set forth budget rules by proposition because fundamentally, we feel that those decisions should be made by our elected officials.  However, once such rules are enacted – as was the case when proposition 58 was enacted in 2004, simply opting to avoid the issue is not an option.  That is because the only way to change an enacted constitutional provision is through a constitutional amendment.  So, our analysis here is not whether a constitutionally mandated Budget Stabilization Account (“BSA”) is a good idea, but rather whether Proposition 2 provides a better version of that account than our present constitutionally mandated BSA.

Here are the key changes proposed:

Paying Down State Debt:  The current BSA does not require the state to pay down its debt; the proposal requires payments between $800 million and $2 billion annually toward debt repayment for the next 15 years (presumably because the debt situation may be much different after 15 years), depending on whether revenues are strong or weak.  When state revenues from capital gains taxes are unusually high, an even greater amount of money (based on a percentage of those unusually high revenues) is required.  Paying debt down earlier/faster means less interest expense for the state.  Generally speaking, we are big fans of paying debt down sooner rather than later.

 Amount that Goes into the Account:  The current BSA requires $3 Billion be set aside annually.  The proposal makes that amount equal to the amount required to be paid out.  Arguably in lean years that could be a lower amount than is currently required.  We are not thrilled about that.  But, we agree that with $300 billion in debt the state should use all money it sets aside to pay down debt, rather than keep it in reserves while paying interest on the borrowed money.  As differentiated from a private person who might face a “cash crunch” it is highly unlikely that a state will be unable to borrow more money if absolutely necessary.  Continuing to pay interest on debt while concurrently saving money when there is no real chance of an absence of available future credit, isn’t fiscally smart.

Reducing The Amount Set Aside:  Presently, the governor can reduce the amount required to be set aside.  Although this proposal is heavily backed by our current Governor and fiscal superstar, the proposal actually divests power from the governor.  Under the proposal both the governor and the legislature must agree to reduce the amount set aside based upon a stipulated “budget emergency.”  Given the co-equal power of the legislative and executive branches of state government, we think this is wise.

School Reserve Funds (state and local):  The proposal creates a reserve fund for schools to be funded when revenues from unusually high capital gains taxes are received by the state.  The proposal also caps the amount most schools can keep in reserves (there is already legislation mandating a minimum).  As for the first part, we see some logic in this as there is a need to ensure consistent funding there as well.  As for the second part, we assume (but have found no documentation) that some schools are holding excessive reserves – which, just like holding insufficient reserves, is not good policy.  We aren’t crazy about the idea of state legislation of the maximum amount a local school can hold in reserve, but we don’t see it as all that destructive either.

Conclusion: We admit to being quite taken with our current Governor.He has quietly done what critics have been bellowing about for 30 years:  He has balanced the budget, paid down the debt, and put money aside for future needs.  Amazing.  Moreover, he’s done it through consensus building. This proposal is supported by Governor Brown and a unanimous (yes, you read that right) vote in both the state assembly and state senate.  For all of these reasons, this proposal is a pretty easy call.

Strong Yes.

Proposition 45 — Healthcare Insurance. Rate Changes. Initiative Statute.

This initiative statute is based on the largely successful Proposition 103 that created an insurance commissioner and gave that commissioner powers over auto and homeowner’s insurance in California.  This Proposition, 45, seeks to add health insurance to the State Insurance Commissioner’s portfolio.  This initiative grants the Commissioner the power to reject insurance rate increases that the commissioner deems unreasonable.  It also prohibits health insurers from using a lack of prior insurance or a poor credit history as a basis for policy eligibility or rate – though the Legislative Analyst indicates this is not currently a commonly practice among health insurers.

Presently, there are two state agencies that review health insurer practices.  However, neither of those entities have the right to disapprove a rate increase – only to comment on it.  The two state regulatory agencies have repeatedly found health insurance increases to be “unreasonable” but have been powerless to take action.

Unsurprisingly, the top California health insurers have pumped upwards of $56 million into defeating Prop 45, while the proponents have managed to collect $6 million.  That huge disparity in funding has erased early support for proposition 45 through a concerted ad campaign. These same interests have successfully lobbied to defeat substantially similar laws proposed by the state’s legislators.  (Id.).

According to the San Jose Mercury News, just this month, the State Insurance Commissioner, who supports this initiative, reported that “Anthem Blue Cross plans to impose a nearly 10 percent premium increase for 120,000 members of its small-group health insurance policies.” And, he said, the state is ‘powerless to stop’ what he characterized as an unreasonable bump in prices.  Last week, Blue Shield of California wrote a check for a whopping $2.6 million to the No on 45 campaign, which has been flooding California’s television and radio airwaves with ads that some fact-checkers have criticized as misleading.”

Presently, California is among a small minority of states that does not require its health insurers to obtain government approval for rate increases.. It seems to us that it should join the majority of states that acknowledge the power wielded by the small number of companies that control the health insurance industry.  It also seems abundantly clear that just as these controls will not stifle the implementation of the Affordable Care Act in other states that have presently have such regulations, implementing these controls will do little to stifle implementation of the Affordable Care Act here.

Moderate YES

Proposition 46: Drug and Alcohol Testing of Doctors. Medical Negligence Lawsuits. Initiative Statute.

This is a legislative initiative that modifies portions of California’s Business and Professions Code and Health and Safety Code.  Skeptics (like us) will say this is a typical “spoon-full-of-sugar” initiative.  Here, the “medicine” (pun intended) is an increase in the long-established cap on medical malpractice damages.  The “sugar” coating comes in the form a shroud of “law and order” regulations that purport to try to address drug and alcohol abuse in the field of medicine and to curb prescription drug abuse.  In a nutshell this initiative will:

  • Require all doctors to be drug tested randomly at the cost of the physician (not the hospital, insurer etc.), within 12 hours after an “adverse event”, and upon the request of the medical board resulting from a complaint or tip.
  • Allow for reporting of doctors suspected of being under the influence and provides a shield for liability so long as the report is made in “good faith.”
  • Require disciplinary action against doctors if they are found to be under the influence while on duty or if they refuse to submit to a drug test; provide for a hearing mechanism and repayment of expenses by the doctor in the event of a violation.
  • Require all doctors to check a database for certain  narcotics to make sure a first-time patient has not already obtained a prescription for such a narcotic from another doctor.  Precludes prescribing again absent a particular need.
  • Change the $250K cap on non-economic damages in med-mal cases to adjust for inflation.  No adjustment has been made to this cap since its inception in 1975.
  • Create a presumption of negligence in the event a doctor is found to have been under the influence at the time of an “act or omission.”

Ironically, in our view the “bitter medicine”  in this initiative – the increase in liability limits is a no-brainer.  It’s the “sugar coating” that requires more careful analysis.

Limiting Liability For Medical Negligence:

The idea of limiting liability in medical malpractice cases is that doctors, like other people, make mistakes.  Except when doctors make those mistakes they can have horrific consequences.  So, in 1975, we decided that a good way to keep medical costs under control is to make sure that no matter how bad the consequences might be for patients, we will limit the payments those victims can receive for non-economic damages to $250,000.  That is very helpful to insurers and certainly does keep costs down because it makes life much more predictable for those insuring doctors, and in turn allows those insurers to charge lower premiums to cover those predictable expenditures.

This limit does not relate to economic damages – such as determinable out-of-pocket expenses associated with past or future care (think costs of corrective surgery, or long-term rehabilitation etc).  But it does limit the amount of “general” damages a jury is allowed to award to the victim for their loss (like pain associated with loss of a limb, or compensation for intangible harm caused by permanent disfigurement, the loss of support an orphaned child suffers as the result of the negligent death of his monther or father and the like).  We think there is room for healthy debate whether it is wise from a policy standpoint to push these costs of doctor negligence onto victims when those costs exceed $250,000.  After all, someone needs to bear those costs, the question is simply will those costs be borne by the patient/victim or by the medical provider, who presumably will amortize those costs across its business.

One factor to consider is certainly that the rising cost of health care represents a real problem for our society — especially since there seems to be a general consensus that basic medical care should be a right rather than a privilege.  (Curiously, while Obamacare consistently polls poorly, repealing the act consistently polls around 30% and support for the key provisions of the act consistently polls at over 50% – checkout poll).  However, according to the Legislative Analyst, medical malpractice costs account for only about 2% of annual healthcare spending in California.  So, while proponents of the damages cap always point to the burden born by providers in paying for malpractice suits, 98% of medical costs are unaffected by this expenditure.

Happily, this initiative does not really force us to re-litigate the thorny question of whether damages should be capped – they are.  This initiative only seeks to lift the cap on damages up to a level that accounts for the rate of inflation.  That is important because a cap that does NOT account for inflation (like the current one) means that as time progresses, the purchasing power (for anything, whether it’s a cup of coffee or long-term medical care, etc) generated by the maximum possible award decreases dramatically.  (For a detailed discussion of inflation, its causes, and effects, see this post).  By way of example, the $250,000 maximum damages award enacted in 1975, is able to purchase only $56,453.31 worth of goods in today’s inflation-adjusted dollars.  That’s a reduction of 77.4% in the purchasing power of every potential medical malpractice victim’s family.  That is a big difference and we think unquestionably needs to be addressed.

Opponents will doubtlessly point to the fact that the actual, real dollar limit increase is dramatic.  That is true, the new number will be about $1.1M.  But the cap is just that – the MAXIMUM limit that a jury can award.  In other words, if a victim, or a victim’s family is awarded this sum, a jury has already determined that they have suffered AT LEAST that amount of harm.

We think there is little question that the proposed changes would increase medical costs – both through higher awards, and an increase in the number of cases contingency lawyers are willing to take (see below).  The legislative analyst estimates that the proposed changes would result in increased medical malpractice costs of between 5-25%.  However, since those costs only amount to 2% of overall medical care spending in California, that increase translates into an increase in overall medical costs in California of .1 to .5 percent if this measure passes.  (See Official Voter Information Guide at p.30).

The same analysis also notes that an additional increase of between .1 and 1.0% of medical costs attributable to additional medical procedures that practitioners and providers are likely to order in response to the increased risk of costs associated with malpractice.  While we are sure opponents will point to this as “waste” caused by “needless tests” and “unnecessary procedures” we are not so sure that is a fair analysis.  To date, malpractice claims are undervalued because the true injury faced by the victims is not reflected in jury awards (because of the mandatory cap in existence since the seventies).  That will continue to be true if Prop 46 passes (because a cap will remain in effect) but the difference in valuation (between the actual value of the injury and that awarded by a jury) will be reduced.  We think there is a strong argument to be made that by providing a more accurate monetary valuation of the “injury” caused by the absence of the hypothetical test or procedure, we are actually forcing medical providers to make a more accurate analysis of whether that test or procedure is truly “appropriate.”

In sum, while we think that the discussion of whether or not there should be a cap – a legislated removal of power from the hands of jurors – is an interesting one (and one that opponents seem very interested in arguing) it’s just not at issue in this measure.  The only question here is whether the existing cap should account for normal inflation.  To us, that is an easy call.  If we have a cap, and we do, it certainly should rise as purchasing power decreases as a result of inflation.  The result of squaring the existing cap with inflation will result in a .1 to .5% increase in healthcare costs in California – we  think that is eminently tolerable.

Drug Testing For Doctors:

The other parts of this measure are what we find a little troubling.  On the one hand, do we really want drunk or high doctors?  No, not really.  But we are hesitant to increase bureaucratic requirements on individuals a the ballot box.  As long-time readers have heard us say before, we don’t consider ourselves “experts” and would much prefer our expert legislators handle these types of issues.

That said, our investigation into this issue shows that physician abuse of alcohol and narcotics is a legitimate issue. The California Medical Board estimates that 1-2% of physicians abuse alcohol or narcotics at any given time, at least one independent study has reported that 10% of physicians will become addicts at some point during their medical careers (a nod to our politopal who has experience as a hospital social worker is in order here).  The Legislative Analyst also makes the point that increased supervision over alcohol and narcotics use among medical providers will result in decreased malpractice claims.  To our surprise, the Analyst predicts that while the amount saved as a result of the drug database and the drug testing of physicians is “highly uncertain” it is “potentially significant.”  Meaning, while it’s hard to quantify, based on the data the Analyst has reviewed, the actual cost savings is large.  So, perhaps this aspect of the provision is less of a “solution searching for a problem” than we originally thought.

Whether we think of 1-2 out of 100 medical providers practicing under the influence at the moment we enter an ER, or 1 in 10 doctors over their career, those are not insignificant issues.  Accepting the Analyst’s estimates that monitoring these individuals will lead to “potentially significant” savings from decreased malpractice claims not only provides a financial justification for this bureaucratic intrusion, it also provides a moral one.

STRONG YES

Proposition 47 — Criminal Sentences. Misdemeanor Penalties. Initiative Statute.

In our view, Proposition 47 is the most important issue we will analyze in this election.  Curiously, however, the reasons it is so important are not directly addressed by the Legislative Analyst in your Official Voter Information Guide.  But first, lets talk about what the initiative does and what it does not do.

What it does (and doesn’t do):

The proposal reduces property crimes – theft, shoplifting, receipt of stolen property, writing bad checks, and check forgery, where the property at issue is valued at less than $950 to a misdemeanor, so long as the offender has not previously committed a serious or violent felony (such as murder, rape, certain gun offenses etc).  Currently, sometimes these are misdemeanors and sometimes they are felonies.  The proposal also reduces drug possession for personal use (as opposed to possession for sale) to a misdemeanor.  It also allows those previously sentenced to apply for a reduction in sentencing and/or a reduction in classification of their past crime from a felony to a misdemeanor (more on why this is critical later).  However, no convicted offender who has committed a serious crime would be eligible for either a reduced sentence or a reclassification from felony to misdemeanor.  Additionally a court would not be required to resentence if it finds a likelihood that the offender will commit a specified serious future crime if released.  Any resentenced offender would be required to serve one year of state parole absent a court order excusing that requirement.

The proposal does not reduce the penalties for possession of a stolen gun – that remains a felony.  In one of the more disingenuous arguments we’ve seen in an official ballot, opponents of this provision have argued that it should be rejected because stealing a gun worth less than $950 would no longer be a felony.  That is true, but misleading.  It misleads because the charge such a criminal will likely face will be the more serious “possession of a stolen gun”, carrying a concealed weapon, or carrying a loaded weapon charge (see e.g. Cal. P.C. §25850; see also Cal. P.C. §25400; for the Attorney General’s 2013 summary of the myriad of gun laws ).  All felonies and all far more weighty than the petty theft charge.  In short, changing the classification of property theft laws, will have no effect on other serious crimes like possessing stolen weapons, carrying concealed weapons etc.

The Proposal also re-allocates some resources.  It takes the actual savings from reduced prison costs and directs those monies toward certain victim and crime prevention programs – specifically 25% of savings are re-allocated toward truancy reduction and drop-out prevention programs in K-12, 10% toward victim services grants, and 65% to support currently severely under-staffed and under-funded mental health and drug abuse treatment centers.  The legislative analyst estimates that the actual savings as a result of this proposal would be several hundred million dollars.

Why It Matters

The classification of “felony” was created to connote a serious and permanent stigma on those committing the most serious crimes.  In fact, when originally created, there was only one crime worse than a felony – treason – and all felonies were so serious that the sentence for their commission was death.

Today, felonies are ubiquitous.  Persons convicted of a felony are (in addition to a sentence of at least 1 year of state prison) prohibited from voting both while they are in prison and during their entire post-incarceration parole period.  (Cal. Elec. Code 2101 ).  Additionally, the job prospects for a felon are exceedingly poor.  Although California Civil code prohibits reporting agencies from reporting on convictions after 7 years, there is no prohibition on employers inquiring about that information.  That means that a convicted felon who wishes to change his or her ways and reintegrate into society faces a litany of obstacles to doing so.  These challenges are commonly referred to as “reintegration” or “re-entry” barriers.  (See this New York study showing a 60% unemployment rate among previously incarcerated individuals).

Over the years (mostly in the 80s and 90s), a “law and order” movement has re-classified an increasing number of relatively minor crimes as felonies.  The result is that persons who commit minor property crimes are facing the same life-long societal exclusions faced by murderers, rapists, and pedophiles.  That seems ethically wrong, but more practically it creates a societal problem.  By permanently disenfranchising such minor criminals from the remainder of society, and thereby shutting down potential avenues for growth and financial stability, we dramatically raise the likelihood that they will continue to turn to crime in order to survive.  As we’ve noted before, society is always better served by rehabilitating an offender and turning that person into a law-abiding, tax-paying participant in society, rather than a resource-sucking individual destined for more costly incarceration.

The state’s propensity for throwing people in jail actually happened pretty quickly   In 1970 the state housed 20,000 inmate, after changing 1000 laws in the 80s and 90s to get “tough on crime” we increased our prison population to 173,000 resulting in severe overcrowding.  (read the former governor’s emergency proclamation outlining the specific levels of overpopulation in California’s prisons).  This proposition will not solve that problem, but it does take a step toward re-balancing some of our crime classifications system and undoes some of the injustice that has occurred as a result of those inaccurate classifications.

Conclusion

This proposition seems to address small parts of many of our penal problems at the same time.  It makes morally supportable changes to crime classifications, while concurrently addressing the prison overpopulation problems and the massive prisoner “re-entry” problems facing the tens of thousands of low-level criminals being released from these overcrowded institutions.  It saves money while addressing these important issues and concurrently re-allocates that money to an important area of criminal justice that we have neglected for decades:  early intervention and prevention.  While expanding funding for programs aimed at keeping kids in school and addressing drug and mental health issues may not provide as good a sound bite as “throwing the bums in jail;” we think it is a more fiscally  and morally responsible approach.

Strong YES.

Proposition 48 – Indian Gaming Compacts. Referendum.

Proposition 48 is yet another proposition seeking to “approve” an Indian gaming project, this one in the area of Madera.  Long-time readers will recall that we were not big fans of gaming in California.  We think there are real societal risks associated with it.  That said, voters approved gambling here decades ago, and since then we’ve not seen much sense in “splitting hairs” on the type of gambling, the tribes that get to operate such casinos, or the location of casinos.  Almost 15 years ago, Indian gaming was expanded, allowing more “Vegas-style” gambling than was previously permitted – there again, we saw no great distinction between one type of slot machine and another.

Proposition 48 is an attempt by a consortium of owners of other casinos together with some small groups that oppose gaming to block the most recent agreement between the State and the North Fork Rancheria of Mono Indians tribe and the Wiyot Tribe. The primary arguments against approving the agreements are that we already have too many such casinos, and that casinos should not be allowed off of traditional tribal grounds.  (Id. See also this post)  We view both of these arguments as contrived.  The lands at issue here were purchased by the tribes and it is therefore their decision how they use that land.  We might agree that California already has enough such casinos (we’d argue one was too many) but that seems like a poor reason to legislatively bar a business enterprise that has been deemed legal. If there really are too many such enterprises in the state, presumably the market will make that abundantly clear to the business owners.  Put another way, we didn’t hear the consortium of tribal casino owners complaining about this issue when their tribal gaming agreements were approved.

Here, the Governor reached an agreement with these tribes, which includes revenue sharing among the tribes and with the State.  The Legislature then approved that agreement by passing AB 277.  The Federal government also approved the agreements.  At that point Proposition 48 qualified for the ballot putting the agreements on hold pending the outcome of this election.  We agree with the Governor, Legislature, and Congress in seeing no reason that these tribes should be stopped from engaging in their desired business simply because another group of tribal casinos doesn’t want them to do so. If at some point there is a proposition limiting or repealing casino gambling across the board, we would take a closer look at it – but that isn’t presented in Proposition 48.  We urge a “Yes” vote to approve the existing agreements.

Moderate Yes.

  1. #1 by Robert Greeley on November 3, 2014 - 5:10 pm

    Regarding Prop 46: The real problem, as I see it, is that for anyone who is not working — children, the elderly, disabled people, etc. — there are no lost wages to push the value of the claim up high enough to make it economically viable to litigate a med-mal case. Almost no lawyers can afford to touch these people’s med-mal cases — and that is truly wrong and shameful.

  2. #2 by Ornah Levy on November 4, 2014 - 3:03 am

    I agree with Robert Greeley on that very good point.

  1. Make Sure You Vote — This Tuesday Novemer 4! | PolitoMuse

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