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A deeply flawed CFA Institute report on shareholder empowerment

April 20, 2016, 7:24 AM

The following oped was coauthored by R Street Senior Fellow R.J. Lehmann.

Over the past year and a half, the shareholder-empowerment movement has been deeply enamored with an August 2014 CFA Institute report that called for mandatory proxy access – that is, the ability of shareholders to have their own slates of nominees to corporate boards included in the proxy materials companies must distribute ahead of their annual meetings.

Shareholder activists who advocate shifting decision-making authority to themselves, and away from corporate boards of directors and executive management, have used the report to support their claims that proxy access will create value for shareholders.

Unfortunately, as outlined in a recent policy brief authored by Bernard Sharfman and published by the R Street Institute, the CFA Institute report was deeply flawed in ways that should disqualify its use as support for mandatory proxy access; for shareholder proposals on proxy access; for board discussions about whether a proxy-access bylaw should be implemented; and, perhaps most importantly, for board discussions about whether a proxy-access bylaw needs to be rescinded.

So far, the silence from those same shareholder activists – either to defend the CFA Institute report or apologize for using it – has been deafening.

The importance of the CFA Institute report in the debate over proxy access can’t be overstated, given its prominence in proxy-access proposals that continue to appear in corporate proxy statements. Shareholder proposals on proxy access – of which, some 200 are expected to be voted on by shareholders of U.S. companies in 2016 – typically have included a supporting statement noting the CFA Institute’s finding that mandatory proxy access could raise overall U.S. market capitalization by up to $140.3 billion, if it were adopted market-wide.

This would be wonderful if it were true, but it is not. The report is full of errors, contradictions and practices of questionable methodology. The study excluded the results of two papers that appeared in esteemed journals which found mandatory proxy access actually produced negative shareholder value. While citing the “methodological shortcomings” of those studies as the reason they were excluded, the report’s authors included another study that used much of the same methodology. In another case, they misused the results of a study in a way that produced an absurdly inflated estimate of the market value of mandatory proxy access.

These flaws are big and they are obvious. The report’s persistent use by those in the shareholder-empowerment movement suggests either that some in the movement are intellectually dishonest or that they are, at the least, reckless in their arguments. A close reading, even by one who hasn’t read the underlying empirical studies used to come up with the $140.3 billion figure, should have raised concerns about its value. Nevertheless, it has been full speed ahead in using it to support implementing proxy access.

The real problem this episode exposes is that those who advocate for “shareholder empowerment” are proceeding almost unchallenged in the debate over what constitutes good corporate governance. A rigorous vetting of the report’s flaws should have been done long ago, probably within the first three months after its publication. Where was the intellectual firepower or even the interest on the other side of the debate when the report first came out?

The deeper implications of this dereliction of duties to vet and verify is that those who advocate for shareholder empowerment will be able to continue do so with intentional or reckless disregard for the truth, unless resources are committed to hold such disregard in check.

Determining good corporate governance is not about winning or losing, or about whether shareholders gain or lose power in corporate decision-making. The point is to find those corporate-governance arrangements that maximize shareholder value. If one side is intellectually dishonest or reckless in its arguments, while the other fails to offer reasoned objections and rigorous analysis in a timely fashion, then it’s not just shareholder value we put at risk – it’s the very health of our economy.

Alabama Legislature could turn BP settlement into roadkill

April 20, 2016, 7:00 AM

Rather than paying off money they’ve already spent, our politicians always seem to find one reason or another to spend on something else. Six years after the Deepwater Horizon oil spill, Alabama politicians plan to do just that with the state’s $1 billion economic-damages settlement with BP. 

With BP money, we’ve already decided to build a convention center and restore the governor’s beach house. If we’ve gone that far down the restoration priority list, state politicians clearly feel plenty of latitude in spending BP funds for economic harm to the state.

The idea with the most momentum is a constitutional amendment from Sen. Bill Hightower, R-Mobile. The Alabama Strategic Investment Initiative (ASII) pays off $161 million the state borrowed from the Alabama Trust Fund (ATF) in 2010 right off the top. It also funds $260 million in road projects along the coast, $5 million to the Strengthen Alabama Homes Fund and then around $230 million for road projects for the rest of the state.

“Without SB 267, the coast will not receive any funds for the tremendous damage done to the region as a result of the spill,” said Hightower. He sees the BP settlement as shifting money away from the RESTORE Act process that would have more directly benefited coastal communities and into the state settlement, which BP would be able to deduct from its taxes. “This shift took coastal dollars, intended to restore our region, and gave it to Montgomery,” he said. “Justice requires the coast receive proportional recognition from this $1 billion for the damage it experienced.” 

Road projects are powerful legislative currency. The coastal representatives to the Legislature don’t have enough votes to simply spend the BP spill money how they’d like, so the amendment essentially picks up the extra votes by spreading $230 million in blacktop love across legislative districts statewide. 

ASII just misses a little—debt, that is. The measure doesn’t pay back the $422 million remaining from the $437 million the state used to prop up the General Fund in the years after the oil spill.  

Here’s a wild idea: Pay off what you’ve already spent before passing out the goodies.

Sen. Arthur Orr, R-Decatur, suggested just that in an amendment that the Senate defeated by a vote of 23-9.

Legislators are able to point to road projects – constituents drive on them and businesses that access them are appreciative. It’s obvious why they’re useful in swaying votes. Paying off debt is more like a visit to the dentist. It’s good in the long run, but not always fun.

We have a problem with fiscal responsibility — in Washington, in Montgomery and at home. It’s why we have a national debt that’s out of control and a state budgeting process that’s about as shortsighted and reactionary as they come.

“Right now, we need jobs and infrastructure,” says Hightower. He’s right. He would have also been right when we took money from the ATF in 2010 and again in 2012. It’s the same argument presently used to promote the gas-tax increase in Alabama. It was the same argument President Barack Obama used to justify the $831 billion American Recovery and Reinvestment Act in 2009 that was widely panned by Republicans.

The amendment also ignores the fact that the Alabama Legislature is simultaneously considering raising the state’s gas tax to generate another $200 million for infrastructure spending. There’s been no mention of the BP settlement spending in the accounting used to justify a gas tax hike. The “conservative” Alabama Legislature might very well propose spending hundreds of millions of dollars on infrastructure, raise gas taxes to spend a couple of hundred million more and leave more than $400 million in debt untouched. If that’s conservative, then the word has lost its meaning.

Instead, we’re turning the BP settlement into roadkill, paving over it with a tax hike and ignoring the bulk of our indebtedness. Apparently, blacktop really can cover a multitude of political sins. 

Optometrists push for state laws blocking online eye exams

April 20, 2016, 6:00 AM

Billing itself as a sort of Uber-for-eye-exams, telemedicine startup Opternative recently came on the scene offering a quick, inexpensive alternative to traditional optical exams that uses your computer and smartphone. Following a 25-minute online exam, an ophthalmologist will approve your results and issue a prescription for a cost of $40. No doctor visit is required.

Unfortunately, just like Uber, there’s a powerful lobby of incumbents who don’t want the status quo disrupted. Now they’re pushing legislation in several states to shut down online eye exams.

As someone who recently had to get glasses, I like the idea of an online option the next time I need a checkup (and unlike many people, I only have to walk a few blocks from my office to see an eye doctor). Of course, my first question was: “Is it accurate?” But, at least according to its clinical trial, the online version appears to be equivalent in accuracy to its analog counterpart.

The technology is approved in 45 states, and the service is currently available in 33. So, unlike transportation network companies like Uber that had to contend with onerous insurance, safety and liability questions, the regulatory status quo of telehealth services like this is that they are legal in most jurisdictions.

Indeed, telemedicine is nothing new. Through its more than 40-year history, it has shown greatpotential for cost savings in both private sector and government programs. This potential will only grow, as wearables and smartphones become more sophisticated and ubiquitous. For instance, in Opternative’s case, the service is about half as expensive as a traditional eye exam. Future competitors in the space, or economies of scale, could bring costs down even further.

Unfortunately, a powerful lobby of brick-and-mortar optometrists is pushing for legislation to shut them down. In Georgia, a bill (HB 775) was passed by both houses of the state Legislature that would ban these online eye exams. Aptly listed as “restrictions on sale and dispensing of spectacles,” this legislation is clear in its purpose to protect licensed brick-and-mortar optometrists from unwanted competition. Now it’s up to Gov. Nathan Deal to sign or veto the bill. He has until the first week of May to decide.

Blocking new telehealth applications like this one will only serve to raise prices, reduce the ability of low-income or rural individuals to access care and stifle future smartphone-driven innovations. As former Speaker Newt Gingrich wrote in a column for USA Today:

There are more than 100,000 smartphone apps for health purposes, including one that detects heart attacks and another that helps diabetics monitor their blood sugar….And every day more are invented. Many of these smartphone enabled apps and devices will be better than the methods they’re replacing — more convenient, faster, less expensive, and, in a growing number of cases, more accurate…. In healthcare, however, there is a growing effort by the existing, expensive systems to defend old, costly, less convenient, and slower methods by simply outlawing most of the competition.

What’s happening in Georgia, Indiana, Nebraska, South Carolina, Oklahoma and elsewhere, is a shameless attempt to capture the regulatory apparatus by a rent-seeking cartel that wants to preserve the status quo at all costs. If these acts of cronyism are allowed to proceed unchecked, they inevitably will contribute to a disastrous chilling effect for innovation in the health sector — an area already encumbered by a massive regulatory burden.

This will only make us all poorer, and less healthy.

Billionaire ‘farmers’ rake in big taxpayer bucks

April 19, 2016, 3:21 PM

When it comes to agriculture subsidies, the farm owners who need your money least are the ones getting the heftiest government payouts.

Analysis published this week by our friends at the Environmental Working Group (EWG) revealed that 50 members of the Forbes 400 list of richest Americans received at least $6.3 million in farm subsidies between 1995 and 2014. These billionaires include David Rockefeller Sr., Commerce Secretary Penny Pritzker, the owners of three professional sports teams and dozens of other billionaires, ranging in net worth from $1.85 billion to $33.7 billion.

EWG notes the billionaires likely received even more in crop-insurance payouts, but we will never know, since our federal crop-insurance program lacks basic transparency measures. While the government subsidizes an average of 62 percent of farmers’ crop insurance premiums, at an annual cost of $9 billion, small farmers receive only about 27 percent of the subsidies.

According to a previous EWG analysis, the top 1 percent of crop-insurance subsidy recipients received an annual average of nearly $227,000 in premium support in 2011, while the bottom 80 percent of recipients received only about $5,000 a year. While our federal crop-insurance program ostensibly is designed to protect the kinds of family farms that are especially vulnerable to the risk of drought and bad weather, it has evolved into a massive corporate welfare program that funnels billions of taxpayer dollars to major agribusinesses each year.

If Congress wants to get serious about eliminating wasteful spending and cronyism, fixing America’s broken farm-subsidy system is a great place to start. Check out EWG’s full list of the Forbes-list billionaires who received taxpayer-funded subsidies here.

This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.

R Street urges House Appropriations Committee to pass amendment changing predicate date for tobacco-related products

April 19, 2016, 12:27 PM

Dear Chairman Rogers and Members of the Committee on Appropriations,

R Street Institute is a free-market think tank focused on a pragmatic approach to public policy challenges. As advocates of limited, effective government who are deeply concerned about the public-health hazards of cigarette smoking, we urge you to support the amendment offered by Rep. Tom Cole, R-Okla. to the FY 2017 Agriculture Appropriations bill. This amendment would change the predicate date for tobacco-derived products in order to preserve a friendly and competitive environment for safer alternatives, like electronic cigarettes.

There is no question that cigarette smoking presents a real threat to public health. But research clearly indicates that some forms of tobacco and nicotine products are less harmful than others. E-cigarettes and related vapor products contain nicotine extracted from tobacco, but have no combustion, no tobacco and no tar. Although no form of nicotine delivery can be considered risk-free, research has shown that e-cigs present less than 5 percent of the health risks posed by cigarettes and are relied upon by thousands of Americans as a tool to help them quit smoking.

Without congressional action, the e-cigarette market will be effectively wiped out. Under current Food and Drug Administration (FDA) regulations, all tobacco or tobacco-related products entering the market after the established predicate date of Feb. 15, 2007 must undergo an extensive and costly approval process unless they can establish “substantial equivalence” to existing products grandfathered in before the predicate date.

Since virtually all electronic cigarette and vapor products entered the market after this deeming date, if the FDA’s current regulatory approach is implemented, producers would be required to submit expensive and burdensome applications for every single product. In order to preserve the products already on the market and allow continued innovation in the vapor-product industry, it is essential that Congress act to amend the predicate date. If not, millions of consumers across the country will be denied the option to use these safer alternatives. From the perspective of both public health and basic logic, we should be doing everything we can to steer smokers away from combustible tobacco and toward lower-risk alternatives—not enforcing an arbitrary regulatory regime that privileges the deadliest forms of nicotine delivery.

Opponents of e-cigarettes claim that the products will attract nonsmoking teens to nicotine addiction. Yet research shows that almost no e-cigarette users transition from vaping to cigarette smoking. Nearly all vapor-product use is by smokers and former smokers who use them as an alternative to combustible tobacco or as a steppingstone to quit nicotine consumption altogether.

It’s also important to note that amending the predicate date does not prevent the FDA from regulating electronic cigarettes in a wide range of ways to prevent teen use and ensure consumer safety. The FDA will still retain full authority to issue marketing restrictions, labeling requirements and other regulations to ensure standards in the vapor-product industry. In addition to moving the predicate date, the proposal also contains a number of new requirements designed to strengthen the FDA’s oversight and alleviate concerns about children accessing the products.

Amending the predicate date is a simple fix that will save electronic cigarettes from being wiped out through arbitrary regulations. From a public-health perspective, the case to preserve consumer access to vapor products as a lower-risk alternative to smoking is indisputable. Please act to push back the deeming date for tobacco and tobacco-related products to ensure that smokers and former smokers have access to life-saving nicotine-delivery alternatives.

Sincerely,

R Street Institute

Sonoma should step back from punitive tobacco law

April 19, 2016, 12:20 PM

A version of this post also appeared as a letter to the editor in the April 19, 2016 edition of the Press Democrat newspaper. 

The Sonoma County Board of Supervisors still has a chance to step back from its overly punitive anti-tobacco ordinance as it comes before the board for a second reading Tuesday. That seems unlikely, of course. Something so illogical and poorly drafted could never have gotten so far if it were driven by thoughtful deliberation.

The county already has embraced some of the toughest anti-tobacco restrictions in the nation. Yet by its own admission, middle- and high-school students still smoke cigarettes at nearly double the statewide rates. This Tobacco Retail Licensing (TRL) ordinance is designed primarily to “reduce illegal sales of tobacco products to minors by enacting retailer conditions that reduce the appeal and access of products to underage youth,” according to the county’s own summary.

Think of that logic. It obviously already is illegal to sell tobacco products to those who are under the legal age to buy them. The state, by the way, aggressively enforces such rules. Sonoma supervisors figure that, because already-tough rules aren’t working, they need even tougher rules.

Instead of cracking down on retailers or customers who break the law, they’ve decided to harass all retailers and buyers by artificially driving up the cost of the products for everyone, in hopes that they become too expensive for the kids to buy them.

“Any hopes that $7 a pack would dissuade adults … were probably smothered with Gov. Brown’s announcement of the plan to raise the state minimum wage,” wrote one local editorialist. That argument at least spotlighted the “Alice in Wonderland”-like absurdity of having the state manage prices (and wages) as a means to prod people into making wise choices.

The rules also focus heavily on cigars, whereas cigarettes are the main concern regarding teens. Specifically, these sales restrictions include setting a minimum price for a pack of cigarettes to $7, which would be adjusted annually by the cost of living. As it currently reads, the ordinance also sets a minimum price of $7 for a single cigar and packs of mini-cigars.  There are myriad and contradictory limits on retail licenses based on formulas best understood by bureaucrats.

California already is facing burgeoning tobacco black markets. Those who want to smoke also can order such products online – or simply drive to another county. And many of the poorest residents will simply have to pay more to sustain their admittedly bad habit. Furthermore, county officials have ignored many of the concerns raised over the past year by retailers.

That’s no surprise. Instead of seeking productive ways to reduce teen smoking, it has embraced a policy based on posturing and emotion.

This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.

Punitive tobacco law

April 19, 2016, 12:03 PM

Sonoma County supervisors still can step back from their overly punitive anti-tobacco ordinance as it comes before the board for a second reading today.

This ordinance is designed primarily to “reduce illegal sales of tobacco products to minors by enacting retailer conditions that reduce the appeal and access of products to underage youth,” according to the county.

Think of that logic. It obviously already is illegal to sell tobacco products to those who are under the legal age. Sonoma supervisors figure that, because already-tough rules aren’t working, they need even tougher rules.

Instead of cracking down on retailers or customers who break the law, they’ve decided to harass all retailers and buyers by artificially driving up the cost of the products for everyone (to $7 a pack), in hopes they become too expensive for kids to buy them illegally.

California already is facing tobacco black markets. Those who want to smoke can drive to another county. Many poor residents will have to pay more to sustain their bad habit. Instead of seeking productive ways to reduce smoking, the county has embraced a policy based on posturing.

California’s pension hubris

April 19, 2016, 7:00 AM

Instead of addressing the estimated $600 billion in unfunded liabilities in California’s beleaguered public-employee pension system, Democrats in Sacramento have instead decided to “solve” a growing pension crisis in the private sector. In 2012, Governor Jerry Brown signed a measure that created an investment board and authorized a “feasibility study” of various options for a state-backed private-pension system. That study came out last month, and the legislature is now vetting bills that would put its recommendations into action.

The plans under consideration would mandate participation in the new state-run retirement system for firms with five or more workers, though the workers themselves could opt out. Employers that don’t comply would face fines and other penalties. They would automatically deduct 3 percent to 5 percent of each employee’s earnings (the exact percentage is not yet determined) and deposit the money in an IRA, likely managed by the California Public Employees’ Retirement System (CalPERS)—the same union-controlled government entity that uses its investment muscle to promote liberal causes. Unlike the public-employee pension plans (or even Social Security), however, the envisioned private-pension system is a 401(k)-style, defined-contribution plan. It could not accumulate unfunded liabilities, at least in its current design.

After winning assurances that firms won’t be liable for any losses, the state’s business community has stayed mostly neutral on the scheme. A state senate analysis in support of the bill points to a genuine problem. “Today, due to inadequate retirement savings, nearly 50 percent of middle-income California workers will face living in or near poverty during their senior years,” it says. Social Security is inadequate, and more than 7 million private-sector workers “do not have access to a retirement savings plan through their jobs.”

The obvious rebuttals: workers do have access to such plans in the private sector, and it’s not the government’s job to create such a program. Low-income earners might not be thrilled to see their paychecks decline by 5 percent if the new proposal takes effect. Additionally, employers would face unexpected costs and red tape. The plan would almost certainly lead private employers with their own pension programs to dump their workers onto the new state system. And a government-administered pension system would likely crowd out private companies that manage and sell 401(k) investments.

The state’s public-sector unions backed Brown’s bill. As it turns out, union-friendly politicians hatched the private-sector pension plan a few years ago as a way to deflect attention from the public system’s massive unfunded liabilities. The idea was to give private-sector workers some modest benefit as a way to dampen public support for pension reforms.

Union members’ pensions are enormous. Public-safety officials in California typically receive the “3 percent at 50” formula, which means they (and their spouses) are guaranteed 3 percent of their income multiplied by the number of years worked, available at age 50, which translates to 90 percent of their final years’ pay after 30 years. And that’s before myriad pension-spiking gimmicks. Other public employees often receive formulas that guarantee 80 percent or more of their final pay, which is quite generous. The state’s $100,000 Pension Club is expanding rapidly for precisely that reason. Recently, the San Jose Mercury News reported on Alameda County’s top bureaucrat retiring with a $500,000 annual pension.

Should California go ahead and put the new system into place, and see positive results, expect political pressure to build to expand it into a bigger program—one that could eventually put taxpayers on the hook. Would you trust this crowd to solve any pension crisis?

Oklahoma lawmakers propose taxing new bill on online sales

April 18, 2016, 6:00 PM

From Heartland

Andrew Moylan, executive director and senior fellow of the R Street Institute, says the proposed bill makes “mincemeat” of tax policy.

“Oklahoma’s Internet sales tax bill makes mincemeat of the ‘physical presence’ standard, a common-sense principle that says the state can only impose tax obligations on businesses that are located in the state,” Moylan said. “This bedrock principle protects businesses and taxpayers from aggressive tax collection by states where they have no significant connection.

“The supposed upside is a small amount of additional revenue, but in a classic case of the cure being worse than the disease, the downside is a future where state tax powers have no geographical limits and any tax collector can target any business nationwide,” Moylan said.

You, too, should celebrate the end of the Google Books litigation

April 18, 2016, 12:15 PM

If you felt a vibration in the air this morning, it may have been the final sigh of relief so many of us heaved when the U.S. Supreme Court announced it will not review last fall’s expansive, pro-fair-use appellate court decision in the Google Books case. (Here’s The New York Times‘ account.)

Now, law professors will tell you that when the Supreme Court opts not to hear a case, it doesn’t necessarily mean the court has decided a lower court got the case right. That’s just as true in the Google Books case as it is in any other. Formally, the Supreme Court is simply letting stand a decision by the 2nd U.S. Circuit Court of Appeals which held that Google (now a division of Alphabet Inc.) is acting within the “fair use” doctrine of copyright law when it makes millions of books in university research libraries searchable.

But symbolically, the court’s announcement this morning brings to an end more than a decade of litigation centered on whether the Google Books project, in making millions of library volumes digitally searchable from the comfort of your computer (or phone), was engaged in copyright infringement.

It’s been strenuous to follow that decade of lawsuits. Fortunately the Library Copyright Alliance has given us a helpful “Google Books Litigation Family Tree,” updated to the present day:

(We use it here with permission, of course.)

Last fall, I wrote in Slate on the appeals court decision that led to today’s Supreme Court announcement. Fortunately both for Google Books and for the rest of us, Judge Pierre N. Leval, a copyright-law expert, had previously written a profoundly influential Harvard Law Review article back in 1990 on the theory of fair use under our copyright law. And so it was poetic justice to see Judge Leval craft remarkably clear, readable analysis for the Court of Appeals on of how the doctrine of fair use applies to Google’s longstanding project designed to make research libraries more accessible online. You can find Leval’s decision here as a viewable and downloadable PDF. As I wrote at the time:

The Authors Guild, unsurprisingly, has said it will appeal this latest 2nd Circuit decision to the Supreme Court. But it will be quite surprising indeed if the Supreme Court gives these plaintiffs what they’re asking for, given how the high court has interpreted fair use ever since Judge Leval, in a cautiously noninfringing law review article, seeded the modern transformative evolution of fair use.

This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.

Some in GOP yield to Sacramento’s secrecy lobby

April 18, 2016, 10:41 AM

In one of my favorite “Far Side” comic strips, the first panel offers what people typically say to dogs: “OK Ginger I’ve had it. You stay out of the garbage! Understand Ginger?” The next panel translates what dogs actually hear: “Blah blah Ginger, blah blah blah Ginger.”

I think of that comic sometimes when I’m stuck on the floor of the state Assembly or Senate and hear a Republican legislator giving a speech about “freedom.” All I hear is, “Blah blah Constitution, blah, blah limited-government.” My comprehension skills are better than the average mutt’s, but I’m trained to know blather when I hear it.

On two of the clearest liberty issues to come before the Legislature in recent years, most Republicans have sided with big-government secrecy. Those issues are back this year in the form of Senate Bill 1286, which calls for transparency by California’s law enforcement agencies, and SB443, which reins in some of the government’s most corrupt property-taking tactics.

Because of a 2006 state Supreme Court decision, Californians have had virtually no access to information about police officers who may have engaged in pattern of misbehaviors or who have been involved in multiple shootings. In Copley Press v. Superior Court, the San Diego Union-Tribune sought access to the disciplinary hearing of a San Diego deputy sheriff who appealed his termination.

The far-reaching ruling blocked the public’s access to information that previously was available and that remains widely accessible in most other states. A 2010 report by the Investigative Fund found that 25 of 27 Fresno police officers who were involved in repeated shootings remained on the force. The Copley decision meant the public had no right to learn who they were. That can allow bad officers to fester within a department.

In Tuesday’s hearing, Sen. Mark Leno, D-San Francisco, stood up for accountability, while Sen. Jeff Stone, R-Riverside County, did not. “This is not an anti-law-enforcement bill,” Leno said. “This bill is not opening all personnel files for public consumption. It’s an attempt to rebuild community and police trust through greater public access to sustained charges of egregious law-enforcement conduct.”

Perhaps the nation wouldn’t be facing so much turmoil over police use-of-force issues if there were fewer union prerogatives and more accountability. The bill recently was amended to deal solely with public records (and not personnel hearings), but even that won’t mollify the “secrecy lobby.”

“People need to be proven guilty before we disclose their identity and potentially enrage the public,” Sen. Stone said.

However, members of myriad professions have their disciplinary proceedings open to the public. We mere citizens could have allegations publicly raised against us (in a court proceeding, for instance) before any finding of guilt.

On the encouraging side, Sen. John Moorlach is a co-sponsor of SB 1286. The Costa Mesa Republican also supports reform of the asset-forfeiture process by which police agencies grab the property of citizens who have never been convicted, or even accused, of a crime. The process was designed to battle drug kingpins but has morphed into something despicable.

“The tactic has turned into an evil itself, with the corruption it engendered among government and law enforcement coming to clearly outweigh any benefits,” two U.S. Justice Department officials, who developed the program in the 1980s, wrote in a 2014 Washington Post column. New Mexico’s governor last year limited the practice after a city attorney was taped bragging: “We could be czars. We could own the city. We could be in the real estate business.”

California’s current law has some fairly tough restrictions on these takings, so local agencies partner with the feds and operate under more lenient federal laws. Then they split the loot. SB443 would shut down that loophole. Last year, the bill had widespread support, but then police agencies – fearing a loss of revenue – began arm-twisting at the Capitol.

Only a handful of Republicans held firm in the final vote, with Orange County putting in the best showing. Assemblymen Bill Brough, R-Dana Point, and Matt Harper, R-Huntington Beach, were two of only four Republicans in the Assembly who voted “yes” on a bill that did little more than uphold the Fifth Amendment’s requirement for due process.

Politicians from the party of Reagan and Lincoln should instinctively know the dangers of giving government officials unaccountable power. That so few of them do is a reminder that, when many of them talk about liberty, all the rest of us should hear is “blah, blah, blah.”

Treat kids like kids until 18

April 18, 2016, 10:30 AM

The following oped was coauthored by Marcy Mistrett, chief executive officer at the Campaign for Youth Justice.

The state Senate should be ashamed of itself. For the second time in as many years, it has refused (so far) to give serious consideration to widely supported efforts to make sure 16- and 17-year-olds don’t get sent to the adult criminal justice system when they get into trouble with the law. The right policy solution — doing what all neighboring states do and treating kids like kids until their 18th birthday — is simple. Now New York just needs the political will to do the right thing.

The facts, indeed, have widespread agreement on both the left and the right. The two of us, one a conservative think tank leader and one a progressive youth advocate, think the same way about this issue — as do Gov. Andrew Cuomo and the state Assembly and many law enforcement experts around the state.

We are not alone. The National Association of Counties, the American Bar Association, the conservative American Legislative Exchange Council and the American Correctional Association all support this smart-on-crime policy.

A bevy of research has shown the state’s current policy is simply bad for public safety. Children under 18 who are charged as adults commit more additional crimes and get involved in more serious offenses than their peers who remain in the rehabilitation-focused juvenile justice system.

Adult prisons are necessary for some offenders, to be sure, but sending children in trouble with the law into the clutches of hardened criminals simply ends up turning many misguided kids into career criminals.

This shouldn’t be surprising; high school students are known for needing adult support and guidance in order to navigate the complexities of adolescence. And even those who end up in the adult system but don’t actually serve a prison sentence still carry around the lifelong stigma of a public criminal record.

And it isn’t just a matter of dry academic research. The five states that have raised the age of criminal responsibility to 18 in the past decade (Connecticut, Illinois, Massachusetts, Mississippi and New Hampshire) have all seen falling arrests, lower correctional system costs and generally sinking crime rates.

To be clear, we aren’t calling for a simple slap on the wrist for offenders. The juvenile justice system isn’t a walk in the park for those caught up in it. Well-run programs put very real demands on their participants, and for many offenses, sentences can be just as long as those in the adult system. The few children who commit very serious offenses like murder and violent rape, likewise, are almost always eligible to be tried as adults in New York and everywhere else.

Indeed, it’s particularly disappointing that, while the Senate dithers, other states, some of which allow 17-year-olds to be charged routinely as adults, are taking action. Both South Carolina and Louisiana have recently introduced bills that keep most children out of the adult criminal justice system. And Louisiana Gov. John Bel Edwards in his State of the State speech highlighted that this is a priority for Louisiana.

Michigan is also considering similar legislation, and both Missouri and Wisconsin had legislation introduced this session. In short, America is adopting a smart-on-crime idea that has been proven to improve public safety: Children should get different treatment than adults in the criminal justice system.

Failing to take action now represents nothing but a surfeit of cowardice on the part of the state Senate. The Empire State’s kids and communities deserve better. New York should raise the age.

 

Orange County’s political divide has officials seeing red

April 16, 2016, 9:55 AM

The real division in the Golden State isn’t between Northern California and Southern California; it is between the coastal cities and the grittier inland. That’s true even at the local level. Orange County brings to mind gently swaying palm trees and placid gated communities. But 10 miles from its picturesque coastline, in the struggling city of Stanton, it’s a different story.

A small-seeming political fight in this town, covering a mere 3.2 square miles with 39,000 people, says much about California’s enduring problems. Two years ago Stanton voters approved, 55 percent to 45 percent, a new 1 percent local sales tax. Add that to state and county sales taxes, and the combined rate hits 9 percent. Local officials say the tax is needed to prevent cuts in Stanton’s policing and firefighting budgets.

Yet a measure to repeal the tax has made it to the November ballot, after opponents gathered the required 1,285 signatures from city residents. Repeal is backed by a former mayor, a Democrat, as well as the Lincoln Club of Orange County, based in nearby Newport Beach. Stanton officials are using the GOP group’s support to depict the sales-tax vote as a coup by meddling outsiders.

Stanton is a pocket of rundown apartment complexes and decrepit strip malls with a mostly Latino population. Newport Beach is home to Fashion Island, an ultra-fancy shopping mall on a bluff overlooking the Pacific Ocean. Thus, Stanton officials have portrayed the coming tax battle as an existential fight between rich out-of-towners and hardscrabble locals trying to save their city from a wave of crime and blight.

“The group that’s against us, they live down in Newport, they live in Irvine, they all live in South County. They’re all wealthy,” Stanton’s mayor pro tem said at a public event in March. “They don’t live here. They’ve just picked our city because we’re a small city and they want to control us. We’re low-hanging fruit.” A councilman added: “Just because you’re wealthy doesn’t give you the right to come and repeal our votes.”

Yet that simple description, typical of the way some local media have portrayed it, is woefully inaccurate. There is a class battle going on in Stanton, but it’s the town’s own local officials who are representing the rich and powerful. One of the main reasons the city can’t pay its bills without the sales tax is that it gives outlandish salaries and benefits to its government workers.

When the tax was being considered in 2014, Ed Ring, the executive director of the California Policy Center, offered this idea: Negotiate a 14 percent decrease in the average pay and benefits of the town’s 44 sheriff’s deputies and 21 firefighters. This, he wrote at the website Union Watch, “would eliminate their structural deficit of $1.8 million—and their firefighters would still earn average pay plus benefits, after the reduction, of $187,285 a year, and their sheriffs would still earn average pay plus benefits, after the reduction, of $160,412.”

Total compensation for the city’s 26 other workers averaged nearly $105,000 a year in 2012, according to Mr. Ring’s analysis. You can bet that the preponderance of Stanton’s workers live outside boundaries of the tiny, crime-ridden city. (They’d be quite comfortable in Newport Beach, which has a median income of around $108,000 a year.)

There are other ways Stanton could help plug its budget hole. Like many troubled California cities, Stanton became addicted to something known as “redevelopment,” a process whereby cities would acquire properties, sometimes using eminent domain, and then float debt to pay for improvements. Gov. Jerry Brown cracked down on the practice during a state budget crisis in 2011. Yet Stanton still holds dozens of properties. These are no longer on the tax rolls, and they could be sold immediately.

Although Stanton is not the only city that ran up redevelopment debt and paid its public employees unsustainable salaries and pensions, it is less able to handle the fallout. Newport Beach came under fire in 2011 for paying two of its lifeguards more than $200,000 a year. But wealthy cities can weather such foolishness. Stanton is facing insolvency.

“When Gov. Brown killed redevelopment, Stanton was suddenly a big game of financial musical chairs,” Mark Bucher, CEO of the California Policy Center, said in a recent interview. “You had city council members just slicing and dicing city services, while spending more every year on county firefighters and sheriffs—the people who get them into office and keep them there.”

Raising taxes on retailers in a tiny city is problematic over the long haul, and a bad precedent for Orange County’s other 33 cities. Yet instead of fixing its structural problems, Stanton has embraced an approach that threatens its viability. Some see serious consolidation on the horizon. “Smaller cities will go broke, or merge, in order to achieve proper economies of scale,” Fred Smoller, associate professor of political science at Chapman University in nearby Orange, told me last month. “Something has to give.”

That’s not because a nefarious group of wealthy outsiders has come in to take over. It’s because a group of wealthy insiders—public employees and especially police and firefighter unions—already control the budget. Despite the good news about California’s recovery, one need not travel far from the coast to see the story unfolding.

Stop trying Michigan 17-year-olds as adults

April 15, 2016, 4:56 PM

In states across the nation, some bold Republican lawmakers are putting aside party affiliations and joining with Democratic colleagues in a bipartisan effort to reconsider previously accepted “tough on crime” approaches to criminal-justice policies.

With plenty of research and data at their disposal, policymakers are working alongside criminologists and economists to alleviate prison overcrowding, reduce high recidivism, and remedy state and local budget crunches.

But there is one glaring area where Michigan state law lags behind roughly 40 other states — the policy of automatically trying 17-year-olds in the adult court system.

Michigan is one of only nine states to make this arbitrary distinction, under which 17-year-olds are denied the opportunities afforded to other children in the juvenile court system. There are situations where a teenager should be tried as an adult for very serious crimes, but grouping teens with adults for every offense is simply bad policy from both a fiscal and public-safety perspective.

The Michigan House of Representatives recently passed a bipartisan legislative package to reform the current law. The law would raise the age at which individuals are tried automatically as adults from 17 to 18. The Republican-controlled Senate should follow suit and pass this essential reform, and Gov. Rick Snyder should sign it into law. This improves public safety while also saving taxpayers money.

Despite some misconceptions, nearly 60 percent of juveniles in the adult criminal system were convicted of nonviolent crimes that did not involve a weapon. What’s more, 58 percent of those entering the system at age 17 had no prior juvenile criminal record.

Youth prosecuted in adult court are significantly more likely to recidivate than their counterparts in the juvenile-justice system. And children incarcerated in the adult system are, on average, 34 percent more likely to be rearrested for a felony than youth who stay in the juvenile system. It isn’t surprising that being put in adult facilities creates a training ground for young criminals, rather than an environment conducive to rehabilitation. This leads to more victims, not fewer.

The juvenile court system steers delinquents into rehabilitation programs to address the root causes of criminality, while also allowing teenagers to continue their education. This helps to offer them a future when they ultimately re-enter society. These opportunities are not viable in the adult system, which forces many juveniles onto a path with little opportunity for self-improvement or job prospects.

Legislative reform also promises economic benefits to taxpayers and relief to cash-strapped state budgets. A 2012 University of Texas analysis found that Texas would save about $90 million a year by ending its practice of automatically trying 17-year-old offenders as adults. The taxpayers of Michigan might expect to see similar savings as well.

Rhode Island attempted to lower the age of adult jurisdiction from 18 to 17 in hopes of saving money, but found the change actually had the opposite effect. Lowering the age forced the state to spend more on 17-year-old offenders than it previously had.

There is no silver bullet to ensure public safety, but raising the age to try individuals in an adult court holds the promise of rehabilitation for juvenile offenders. These benefits will translate into lower levels of public spending, less crime, and stronger families.

Puerto Rico: Time for Congress to act

April 15, 2016, 3:34 PM

The finances of Puerto Rico’s government are unraveling rapidly. With the commonwealth government broke and scrambling, its Legislative Assembly already has empowered Gov. Alejandro García Padilla to declare a moratorium on all debt payments.

In a report that was kept secret, the Government Development Bank, which is at the center of complex intragovernmental finances, was found last year to be insolvent. Adding together the explicit government debt and the liabilities of its 95 percent unfunded government pension plan, the total problem adds up to about $115 billion.

There is no pleasant outcome possible here. The first alternative available is to deal with many hard decisions and many necessary reforms in a controlled fashion. The second is to have an uncontrolled crisis of cascading defaults in a territory of the United States.

Congress needs to choose the controlled outcome by creating a strong emergency financial control board for Puerto Rico—and to do it now. This is the oversight board provided for in the bill currently before the House Natural Resources Committee. The bill further defines a process to restructure the Puerto Rican government’s massive debts, which undoubtedly will be required.

Some opponents of the bill, in a blatant misrepresentation, have been calling it a “bailout” to generate popular opposition. To paraphrase Patrick Henry, these people may cry: Bailout! Bailout!…but there is no bailout.

Enacting this bill is the first step to get under control a vast financial mess, the result of many years of overborrowing, overlending and financial and fiscal mismanagement.

Again to cite Patrick Henry, “Why stand we here idle?”

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R Street warns Jolly bill would be a giant ‘beach house bailout’

April 15, 2016, 12:54 PM

WASHINGTON (April 15, 2016) – The R Street Institute today expressed its concern about the reintroduction of a deeply flawed legislative proposal to create a taxpayer-backed federal reinsurance scheme for state catastrophe funds.

Introduced by U.S. Rep David Jolly, R-Fla., H.R. 4947 would put the federal Treasury on the hook to cover shortfalls suffered by government-sponsored entities like the Florida Hurricane Catastrophe Fund in the event of a large disaster. According to R Street Senior Fellow R.J. Lehmann, the bill marks the latest iteration of a concept that Florida’s congressional delegation has been pushing for more than 20 years.

“As a Florida resident, I fully understand the frustrations Floridians feel at the high cost of homeowners insurance, an inevitable result of choosing to live on a low-lying peninsula that juts out into some of the most hurricane-prone waters in the world,” Lehmann said. “While it’s understandable that Florida would like to shift its problems onto the other 49 states, this sort of structure, which we call the ‘beach house bailout,’ is and has always been poor public policy.”

Whether structured as reinsurance or loan guarantees, the practical effect of federal support to state catastrophe funds is to subsidize risk-taking and development in environmentally sensitive regions, such as coastal wetlands, as well as to displace private insurance and reinsurance markets, Lehmann added. Moreover, there simply is no need for any legislation of this sort, as global reinsurance markets currently are as deep and competitively priced as they have ever been.

“Proposals for a national catastrophe fund are like the undead. They are killed over and over, as rational minds come to see just how ill-advised they are, but they slither back from the grave – just as brainless and stinky as ever,” Lehmann said.

 

¿Cuánto sube mi seguro de auto por una multa?

April 15, 2016, 7:25 AM

From Al Dia Dallas

“El asunto de fondo es que entre más riesgoso sea un conductor, más caro sale asegurarlo”, dijo Eli Lehrer, presidente de R Street Institute, una organización de estudio sin fines de lucro.

Should the Fed act as the world’s central bank?

April 14, 2016, 2:15 PM
05/05/2016 - 10:00 am - 12:00 pm
American Enterprise Institute
1150 17th St. NW
Washington

CCS credit credit backers see ‘new level’ of support on Hill despite FAA setback

April 14, 2016, 1:07 PM

From Inside EPA

The groups — Friends of the Earth, Taxpayers for Common Sense and the R Street Institute — also cite what they argue are hundreds of millions of dollars in taxpayer backing for clean coal programs that have provided little environmental benefit, including the defunct Future Gen effort.

 

Dumping water in the middle of a drought recovery

April 14, 2016, 12:20 PM

What would happen if the communists took over the Sahara Desert?” William F. Buckley asked during a discussion in 1972. “Nothing for 50 years. Then there will be a shortage of sand.” That laugh line can apply to any case in which the government — even a democratic one — has long-term control of a resource.

One could ask, “What happened after the California (and federal) government controlled the state’s water resources?” The obvious Buckley-esque answer: “Well, nothing much since construction of the State Water Project began in the early 1960s. Eventually, though,California started running out of water.”

The commonly accepted explanation for the state’s water shortages is a drought. It seems obvious a lack of rain eventually will lead to insufficient supplies of water, especially for a population that now tops 38.5 million. Environmentalists say this is a crisis of population growth. Democratic leaders also blame insufficient conservation and “profiteering.”

To state officials, even a relatively rainy winter is no sign the problems will let up. The New York Times reported this week that the Sierra Nevada snowpack, which provides 30 percent of the state’s water “after it melts and flows into rivers and reservoirs,” is at 87 percent of its historical averages. That’s up from 5 percent last year. But officials say global warming will turn snow to rain and reduce the amount of accumulation in the mountains.

The solution from these water officials, legislators, and environmentalists remains the same: tougher enforcement of water-conservation rules, more state and local regulations mandating less water usage by residents and businesses, fallowing fields that grow water-intensive crops such as almonds and stepping up the battle against climate change.

Gov. Jerry Brown also wants to spend $15 billion-plus to drill two tunnels under the Sacramento-San Joaquin Delta and bypass the aging levee system that channels Sacramento River water to the pumps. The project won’t necessarily send more water southward, but it might make the system more reliable by saving the Delta Smelt. Regulators routinely shut down the pumps at Tracy whenever one of these endangered bait fish is found in the screens.

Almost every proposal has one thing in common: giving state officials more control of water. Yes, the government built most of the system’s infrastructure, but the government has been the reason for chronic shortages ever since. Let’s look at the latest examples of what happens when bureaucrats, rather than market forces, allocate resources.

Item One: “After years of drought, Northern California has so much water that the state’s two largest reservoirs are releasing water to maintain flood-control safety,” the Sacramento Bee reported March 24. “Yet the free-flowing water remains a significant source of controversy throughout Northern California. Suburban Sacramentans wondered last month why water was being deliberately spilled out of Folsom Lake instead of stored for future use.”

The state is reluctant to ease water-conservation restrictions, even as it dumps so much water. One could be sure a private enterprise would find some profitable use for its most precious and apparently scarce resource rather than simply dumping it and letting it wash away into the ocean.

Item Two: The Oakdale Irrigation District sold up to 75,000 acre-feet of water to various water districts to meet its “obligation for swelling the river in April and May to propel young fish toward the ocean,” according to an April 4 Modesto Bee report. This is the latest in an ongoing and anger-inducing story.

Even as the drought was at its height, state and federal officials mandated massive water releases from the New Melones reservoir to help a handful of mostly hatchery-raised fish swim from the Stanislaus River toward the ocean (where they almost certainly were eaten by invasive species before getting there). It’s hard to comprehend such ideologically driven inflexibility.

“Last May … 25,000 acre feet of water was flushed out of Melones in an attempt to promote fisheries,” according to Jack Cox, chairman of the Lake Tulloch Alliance in nearby Copperopolis, in his written testimony before the district board. “The value of this water was $21 million. According to [the biology firm] Fishbio, the total number of fish pushed down the river was nine fish — at a value of $2 million-plus a fish.”

Item Three: “It looks as though the dams are coming down,” the Lost Coast Outpost reported April 4. “[H]igh-powered luminaries are coming to town … to make ‘a major announcement’ on long-running efforts to restore the Klamath, including the removal of four controversial hydropower dams along the middle stretch of the river.”

At a time when the state needs to store more water to meet the needs of its population, the feds and state are demolishing four dams. None of them provide immense water supplies, but this policy points to current priorities: environmental restoration, not providing water for farms or people.

Item Four: “San Diego’s overabundance of water during one of California’s worst droughts has reached a new, absurd level,” the Voice of San Diego reported last month. “The San Diego County Water Authority has dumped a half-billion gallons of costly drinking water into a lake near Chula Vista.” A lot of that water came from the county’s new desalination plant, meaning “water officials will now have to spend even more money to make the once-drinkable desalinated water drinkable again.”

One of the state’s driest regions has long been flush with water, a reminder that — even in the current, ridiculous system — it’s possible to have plenty of water if the bureaucrats plan ahead and (repeat slowly) build water-storage facilities.

Furthermore, while desalination is one critical piece of the state’s long-term water puzzle, the environmentalist-friendly California Coastal Commission has delayed permits for a desalination plant in Huntington Beach that’s nearly identical to the one recently opened Carlsbad. The commission’s concern? Its effect on plankton.

In what world would anyone put the needs of plankton before people or spend $2 million a pop to save a common fish? It’s the world Buckley pointed to — the one run by government, which would assure a shortage of sand if it were left in control of the Mojave.