Friday, October 12, 2018

November 2018 Propositions: How I am voting

The November 2018 California ballot has 11 Propositions, most of which are focused on economic issues.  Because of this focus on economic issues, the Center for Business and Policy Research included recommendations and analysis from myself and Associate Director Thomas Pogue (the guest blogger on proposition 7) in the economic forecast we released this morning.

This morning I took a look at the Democratic and Republican parties endorsements, and found that I agree with Democrats on 6 out of 11 Propositions, and agree with Republicans on 6 out of 11 Propositions as well.  I guess that makes me a moderate.  Interestingly, Democrats and Republicans agree on three Propositions (2-Yes, 3-Neutral, and 7-Yes).  I disagree with both parties in one of these cases, Proposition 3, where I oppose and both parties are neutral.

In general, bond issues have a lot more credibility when they go through the legislature like Propositions 1 and 2, and thus have been considered in the context of the full state budget.  Voters should be highly skeptical of bond propositions that go directly to voters to seek public subsidies like Propositions 3 and 4.  The enormous size of the water bond ($9 billion, 50% larger than the combined total of legislatively backed housing bonds) is a good example of the fiscal problems of special interest financed bond initiatives.

Proposition CBPR Dem Repub
1 Yes Yes No
2 Yes Yes Yes
3 No Neutral Neutral
4 No Yes No
5 No No Yes
6 No No Yes
7 Yes Yes Yes
8 No Yes No
10 No Yes No
11 Yes No Yes
12 Yes Yes No

Proposition 1:  Yes.  Proposition 1 authorizes $4 billion in bonds for various affordable housing programs.  The availability and affordability of housing is a worsening problem across all of California, and is arguably the State’s biggest economic challenge.  The cost of developing affordable housing is extremely high in California, more than double some other states, and thus the funding in this bond will not deliver as much housing as it should.  While it is tempting to vote no until stronger actions are taken to reduce costs, the need for affordable housing is so great that we support the bonds.  
Proposition 2:  Yes.  Proposition 2 authorizes $2 billion for housing programs for individuals with mental illness.  It passed the California Senate unanimously, and the Assembly 72-1.  This bond deserves support, although we urge further actions to reduce the cost of developing affordable housing in order to maximize the benefits of this funding.
Proposition 3:  No.  Proposition 3 would authorize $8.9 billion in bond borrowing for a variety of water related projects, and creates an unjustified subsidy from the state’s greenhouse gas cap and trade program for 4 designated water agencies supporting the bond, including the Metropolitan Water District and Westlands Water District.  While a portion of Proposition 3’s funding would go to needs that are worthy of state public funding, the majority of Proposition 3 is terrible policy that provides undeserved subsidies to special interests that represents California water politics at its worst.  Since 2014, the legislature and Governor Brown have supported over $11 billion in new water related bonds in 2 separate elections, including the $4 billion Proposition 64 in June 2018.  Thus, most of Proposition 3 consists of poorly justified subsidies that couldn’t make it through a legislature and Governor that have been very supportive of water spending.  In addition to the enormous size and weak justification of the Bond, the hidden inclusion of an energy subsidy for water agencies that divert and pump water uphill from the environmentally troubled Delta is reason enough to vote no on Proposition 3.
Proposition 4:  No.  Proposition 4 would authorize $1.5 billion in bonds for children’s hospitals and was placed on the ballot by a petition funded by an association of children’s hospitals that would receive the subsidies.  While children’s hospitals are valuable institutions in California, funding them through state general obligation bonds is poor public policy. 
Proposition 5:  No.  Proposition 5 would expand the property tax limitations from Proposition 13 for California homeowners over the age of 55, by allowing them to transfer the lower property tax bill of their current home to any other home they purchase in the state.  Proposition 5 would address one of the negative consequences of Proposition 13, inefficient “house lock” that occurs since moving often triggers higher property tax bills for homeowners because the new home is assessed at its current market value.  Proposition 5 eliminates this perverse incentive, and thus would have a positive effect.  Unfortunately, Proposition 5 solves a Proposition 13 problem by further increasing the large tax burden inequities embedded in Proposition 13. 
Proposition 13 is inequitable because homeowners with similarly valued homes pay vastly different property tax bills based on when they purchased the home.  It conveys large tax benefits on older homeowners who bought their houses decades ago, as well as those who had fortunate market timing and bought during the dips of California’s roller coaster real estate cycles.  The Executive and Associate Director of CBPR both bought houses in 2010 near the bottom of the market, and would likely benefit handsomely from Proposition 5 in a few years as we become eligible empty nesters.  While we would personally benefit from Proposition 5, we oppose it because it perpetuates and expands Proposition 13’s inequities and distortion of California’s real estate markets and local public finance.  The “house lock” incentives could be addressed by reforming Prop. 13 to reduce its inequities rather than by expanding them.      
Proposition 6.  No.  Proposition 6 would repeal gas and vehicle taxes passed by the legislature in 2017 to fund transportation projects around the state.  While we don’t generally favor tax increases and understand that the high cost of motor fuels imposes a heavy cost burden on many Californians, these taxes are an appropriate and fair approach to funding much needed transportation improvements.  Fuel and vehicle taxes are far more economically efficient than funding transportation with general fund revenues (primarily income and sales taxes) as many Proposition 6 advocates have argued. 
Proposition 7. Yes.  Proposition 7 would start a process that could lead to year round daylight savings time (DST) with federal approval.  The proposition would potentially end twice yearly time changes and their associated disturbance to sleep patterns. While the energy saving benefits of DST are questionable, increasing evidence shows the sleep disruption from the time changes may be associated with a range of social costs ranging from pedestrian, motor vehicle, and workplace accidents to workplace productivity losses and declines in student learning. The proposition’s adoption of year-round DST would also facilitate potential increased consumer impacts in shops and restaurants as well as outdoor recreational activities because of the extra-daylight.  Plus, if Tom were to recommend a no vote his wife and son would combine their late-night and early morning preferences to ensure he is sleep-deprived no matter what the time change. 
Proposition 8.  No.  Proposition 8 would regulate prices charged by dialysis clinics based on the cost of care.  In general, attempts to limit prices by law reduce economic efficiency, reduce the supply of goods and services and can have many unintended consequences.  Prop. 8 has been supported and funded by labor unions seeking to unionize staff of dialysis clinics, and is opposed by the owners of dialysis clinics, and many major medical professional organizations in the State.
Proposition 9.  “Three Californias” initiative was removed from the ballot.
Proposition 10.  No.  Proposition 10 would greatly expand the ability of local governments to enact rent controls on residential property.  Economic theory and decades of research are clear that rent control reduces the quality and quantity of rental housing over time, leads to an inefficient allocation of rental units by reducing mobility and encouraging overconsumption of housing by those who are able to secure rent controlled apartments.  California’s affordable housing crisis is severe, and the desire for rent controls to create some immediate relief and cost savings for some is understandable.  On the other hand, the many harms caused by rent controls accumulate more slowly over time and the research is clear that it will do more harm than good for California’s housing market in the long-run.
Proposition 11.  Yes.  Proposition 11 would allow private ambulance companies to require their employees remain on call during meal and rest breaks.  This is current practice, but a recent ruling in a lawsuit requiring uninterrupted breaks for private security guards, is expected to end the practice of on-call breaks by ambulance companies.  Eliminating on-call breaks would significantly increase the cost of maintaining current EMT service standards, requiring increased staffing that would raise health insurance and local government costs.
Proposition 12.  Yes.  Proposition 12 would require cage-free housing for egg-laying hens by 2022, and increase required space for breeding pigs and veal calfs.  Interestingly, UC-Davis agricultural economists have been silent on the economic effects of this bill after receiving withering criticism and a lawsuit from the Humane Society over a study of the costs of 2008’s Proposition 2, which increased space requirements for hens but did not go as far as the current proposition to require cage free production.  Economic studies have shown Prop. 2 raised egg prices in California by between 50 cents and $1 per dozen.  The cost of living index data we collect for the Stockton and Sacramento areas finds that eggs are more than twice the price seen in many other parts of the county, a much higher cost differential than any other grocery product we survey.  Proposition 12 will likely further increase the cost of eggs in California and its costs will be disproportionately felt by low-income households.  However, the California cost difference will likely decrease over time as major retailers and restaurant chains around the country have announced plans to shift to cage free eggs that will change production methods across the industry.  Surprisingly, the most public opposition is not from the agriculture industry or consumer activists, but animal welfare activists who claim the Prop. 12 does not go far enough.  While concerned about the cost to low-income households, we recognize the legitimacy of growing animal welfare concerns and that an industry shift is already underway.  Plus, if Jeff were to recommend a No vote, his wife and kids would have him sleeping outside next to his backyard chicken coop.

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