On a CalChiefs podcast, which its creators describe as “the voice of the California Fire Service,” Southern Marin Fire Protection District Deputy Chief Ted Peterson provided some details on exactly how municipal fire departments are seeking to take over emergency medical services (EMS) delivery from county-level EMS systems: increased reimbursements for transporting Medi-Cal patients through the Public Provider Ground Emergency Medical Transport (PPGEMT) program.  

The federally-funded program is increasing nearly threefold, but the private ambulance companies that perform most of the EMS work for counties in California cannot access it. Thus, union officials argue that since municipal fire departments are already handling the first responder element of EMS and can access PPGEMT funds as a public agency, why not let these municipal fire departments control it all, draw more federal money, and strongarm ambulance contractors already providing services today into accepting less money for the same work by taking over their contracts from counties?  

One reason the fire unions’ desired scenario would be problematic lies in their chosen accounting methods, which ensure fire unions would receive much more money for doing no more actual work. The federal reimbursement of the PPGEMT program doesn’t rely on any formal financial reporting documents, but a standardized, averaged reimbursement rate fueled by informal cost reports that are “proprietary to each agency so they cannot be shared,” as Peterson notes. Basically, each fire department must, on its own, determine how much it costs to perform its first responder function,s and those costs are averaged out to a flat reimbursement rate.  

Setting aside obvious questions like how government cost reporting could possibly ever be considered “proprietary” and not transparently reported like other government budget figures, the podcast mostly served as a rallying cry for fire departments to adopt similar accounting practices and gimmickry to ensure those “informal” and “proprietary” cost reports show losses as high they can get away with, even encouraging colleagues to “appeal” if they get audited over their cost reports. 

Over time, Peterson says, the increases will lead to “billions” of dollars for fire departments “for not doing anything except filling out some forms” and “increase(ing) our cost per transport two to three times what it is today.” 

While shielding private intellectual property and trade secrets from public view is not unusual in private businesses in market competition, the same is not true of governmental budgetary information and financial statements, which require public, transparent reporting. Public agencies should not get special treatment to hide their accounting methods from taxpayers. 

But there’s no reason to stop at accountability of accounting methods. For EMS to maintain effectiveness, much less improve, competition needs to be preserved. That becomes increasingly difficult as municipal fire agencies exploit their ability to access taxpayer funding to dominate EMS, while private ambulance company workers provide most EMS services. Peterson speaks of fire agencies playing a part of the larger EMS “team,” but typically, on a team, those who contribute the most get paid the most. 

Instead, private ambulance companies could find themselves at the mercy of whatever municipal fire department administrators are willing to give them, threatening the exit of providers. The fire takeover of EMS in the city of Chula Vista has already shown that. The city raised the money provided for EMS to nearly $4,000 per trip, but the subcontractor company running the ambulances received less funding than they did under the previous arrangement and, overall, less than the fire agency that managed, but didn’t provide, the actual ambulance services.   

What’s more, the Chula Vista fire department blamed the ambulance company for the rate increase it fought for, even though the incremental new revenue from the rate increase went to the fire department.  

Those tactics threaten the exit of ambulance providers from the system entirely, which would be bad for taxpayers since fire departments are so dependent on them. Even if fire departments invest enough in ambulances, equipment, and services to provide full EMS, without competition and transparency, who is to say whether taxpayers are getting the best allocation of their funds? 

Ironically, the podcast inadvertently highlights the need to emphasize cost and accountability. For example, if it costs over $2,000 for a trip to bring first responders to an accident, as Peterson claims in the podcast, the first thing to ask should be if there’s a way to do that more efficiently. How many emergency calls actually require the use of a ladder truck and personnel? Peterson says that departments charging much less were found to understate costs—should they not be subject to competitive pressure? Are there no better ways? 

A level playing field between public and private actors best ensures EMS services in California toe the line between competitiveness and providing care to all patients. But California’s existing laws prohibit private EMS service providers from dedicated PPGEMT funding, so as fire agencies take over EMS, they can hold that funding over private providers’ heads based solely on their status as public agencies, as Chula Vista’s experience shows.  

More so, EMS providers asking for federal reimbursement should open their cost accounting to the public. Fire departments insisting the cost accounting of their EMS first responder functions that go to determining federal awards remain hidden from public scrutiny should raise a red flag for every taxpayer. If fire departments are so confident their claims are legitimate, they should welcome the added transparency. 

The post With EMS takeover attempts, California’s fire departments seek more taxpayer funding to do less  appeared first on Reason Foundation.

Fines and fees are commonplace throughout the justice system. In many cases, fines are considered desirable because they are an intermediate form of punishment. Slapping someone with a fine is less severe than incarceration but is tough punishment for many low-level offenses. A person may be charged a fine for criminal or civil infractions. In addition to fines, a person might also be charged a host of assessments, fees, and surcharges explicitly intended to raise government revenue and offset the costs of administrating the justice system.

Traffic tickets are among the most common sources of fine revenue in California. The hidden fees attached to traffic fines can add up fast. For instance, the base fine for going 15 miles per hour over the speed limit in Orange County is just $35. But, after a menagerie of assessments, fees, and surcharges are added, the total ticket amount typically climbs to $226. Ticket revenue is then used for many government purposes unrelated to the traffic ticket, including funding the construction and maintenance of court buildings, DNA testing, and county emergency medical services.

Cities, counties, and the state government all get a slice of ticket revenues. Among the various hidden fees in California traffic tickets is a 20 percent state surcharge which adds $7 to a $35 speeding ticket. As State Assemblymember Adam Gray once explained, that surcharge was created in 2002 to help alleviate the budget deficits of that time and was supposed to be rolled back in 2007. But, 15 years after the supposed expiration, California continues to generate revenue for the state government via the surcharge from traffic tickets.

The primary responsibilities of the legal system are to promote public safety and uphold justice. Pressure to raise revenue, at best, undermines—and at worst, directly conflicts with—those responsibilities. A recent report from Catalyst California and the American Civil Liberties Union of Southern California found that the Los Angeles Sheriff’s Department dedicates significant time and resources to traffic stops with few public safety benefits.

Fines and fees are also highly regressive relative to alternative revenue sources. In other words, they tend to burden lower-income individuals disproportionately. A $226 speeding ticket is a minor inconvenience for many Southern Californians but could be catastrophic for many other lower-income drivers. According to a recent Federal Reserve report, nearly one-third of Americans could not afford a $400 emergency expense if it arose.

California lawmakers have wisely passed several reforms in recent years aimed at reducing fines and fees. For example, California notably became the first state to abolish all administrative fees in juvenile delinquency cases back in 2018. And the state’s counties are now no longer allowed to charge fees to cover the cost of incarceration, legal representation, electronic monitoring, probation, home supervision, or drug testing in juvenile cases.

Last year, the California State Assembly rolled back late fees on outstanding court debts. Previously, if someone missed the initial deadline to pay their traffic ticket, they’d be fined an additional $300 regardless of how much they owed. Now late fees are capped at $100. The legislation is estimated to have relieved more than $500 million in outstanding court debts.

Those reforms represent meaningful progress in reducing government’s reliance on fines and fees. Unfortunately, taxation by citation remains widespread across the state. More reform is needed. Reducing the remaining laundry list of assessments, fees, and surcharges that are added to traffic fines would be good next steps.

A version of the column first appeared in the Orange County Register.

The post California should stop relying on taxation by citation appeared first on Reason Foundation.

California Gov. Gavin Newsom’s recently-released budget projects a $22.5 billion deficit, which means school districts, especially those experiencing dramatic student enrollment declines like the Los Angeles Unified School District, will likely need to rightsize operations. School districts should be finding cost savings in areas such as reductions to the currently very generous post-employment health care and dental benefits for retirees, which are controlled at the district level.

California policymakers should also allocate any remaining federal funding for pandemic relief to tutoring services and programs that allow local school leaders the most discretion over how to use the money to help students. As of Sept. 30, 2022, California schools had spent just over 43 percent of the $21.5 billion federal stimulus funds allocated to the state’s school districts and charter schools during the pandemic. School districts need to ensure they don’t create new costs that outlast federal funding set to dry up. Schools must be shrewd about whether or not to add new staff. Many school districts aren’t in a financial position to make new hires due to their declining student populations.

Los Angeles Unified and Oakland Unified School District have heavily invested in tutoring, universal summer school, and small-group literacy programs since the spring of 2020. These programs may help explain why each school district gained ground in some reading metrics and experienced less significant overall National Assessment of Educational Progress (NAEP) score declines than many other urban school districts across the country. And because different student populations have vastly different learning needs, the more discretion local leaders have on how to use these resources, the better.

At the state level, policymakers should resist the urge to funnel education dollars through specific grants and earmarks. These programs make it difficult for school leaders to prioritize the programs they see helping their students when budget cuts are necessary.

Finally, California must consider ways to provide families with more education choices. Improving the state’s public school open enrollment programs is one way to do so. Ensuring that all public schools are participating in within-district and cross-district open enrollment would allow students to enroll at public schools that better fit their academic and social needs.

A 2021 study conducted by the nonpartisan Legislative Analyst’s Office gave the state’s biggest open enrollment option, the District of Choice program, good marks. Students using the program often enrolled in higher-performing school districts, and districts that lost students to the program showed increased community engagement in an effort to win families back. By consolidating and expanding California’s open enrollment offerings, policymakers would empower more families to find education options that better fit their children’s needs. Unfortunately, a recent Reason Foundation study of K-12 open enrollment policies found California’s open enrollment programs fall short in every key benchmark, so much work is needed.

With the state facing a significant budget deficit, federal COVID funding to schools set to dry up in 2024, and the need to help students make up for learning losses suffered during the pandemic, California’s schools and policymakers have their work cut out for them in 2023. But practical solutions like improving open enrollment policies and rightsizing schools can start to put the state on the right path to providing a higher-quality education to California’s students.

A version of the column previously first appeared in the Orange County Register.

The post California’s schools need to adapt to the state budget woes appeared first on Reason Foundation.

But last October, Fitch Ratings warned that “tax revenues from July through September 2022 grew at a median rate of 7.6%” year-over-year in other states, “with only California reporting a [year-over-year] decline” in tax revenues. In other words, all 49 other states saw tax revenues increase. Then, in November, California’s nonpartisan Legislative Analyst’s Office predicted a massive state budget shortfall this year because “income tax payments for 2022 so far have been notably weaker than 2021, likely due in part to falling stock prices.”

Newsom’s budget proposal aims to meet California’s balanced budget requirement without drawing from the state’s reserve funds by making some spending cuts along with various deferments. Nevertheless, Republicans like State Sen. Roger Niello, R-Fair Oaks, offered some cautious praise on that front. “Republicans fought to fill the rainy day fund, and we applaud today’s commitment to not tap into it,” Niello said when the budget was unveiled.

The most significant cuts aim to trim the climate change spending package passed last year, upsetting many progressives and climate change activists. “California can’t afford a short-sighted budget,” Mary Creasman, chief executive officer of California Environmental Voters, said. “To further delay these investments will further compound the climate crisis and the cost of inaction will be far worse.”

State Sen. Scott Wiener, D-San Francisco, was similarly concerned about potential cuts to mass transit projects. “While I fully understand the tough choices we have to make, we must not let our public transportation systems go over the impending fiscal cliff and enter a death spiral — where budget shortfalls lead to service cuts that lead to ridership drops that lead to further budget shortfalls and service cuts,” Wiener said.

Wiener is correct: The state must make tough choices. But one easy choice should be to kill the high-speed rail project once and for all. Over 14 years ago, a 2008 high-speed rail due diligence study by Reason Foundation and the Howard Jarvis Taxpayers Foundation found the travel times promised to voters that year were unachievable, the construction timeline was off by decades, and the price would likely rise to over $80 billion in 2008 dollars. Those predictions have all proven true.

The latest cost estimate for the high-speed rail system is $113 billion, the system is still decades away, and the only major construction is in the Central Valley—a far cry from the full San Francisco to Los Angeles system promised voters, and even if it is ever built the system won’t offer true high-speed rail speeds. As the Los Angles Times reported, the rail authority still claims it will hit promised travel times but:

The premise hinges on trains operating at higher speeds than virtually all the systems in Asia and Europe; human train operators consistently performing with the precision of a computer model; favorable deals on the use of tracks that the state doesn’t even own; and amicable decisions by federal safety regulators.

On high-speed rail, It is time for Newsom and the state to admit failure and stop wasting taxpayers’ money. Newsom would also be wise to encourage every state agency to look for opportunities to utilize public-private partnerships that can improve quality, increase accountability, and lower costs.

Public-private partnerships can shift costs and financial risks from the government, i.e., taxpayers, to the private sector, especially on significant infrastructure projects like highways and airports. And industries from information technology to emergency medical services to recycling have numerous quality private providers available.

In addition to helping solve the immediate budget crisis, public-private partnerships have lasting benefits. The private sector tends to be more likely to embrace performance measures, ensure ongoing maintenance schedules are adhered to, invest in technological upgrades and modernization efforts that can further reduce costs, and bring highly specialized knowledge and expertise to solve problems plaguing a bloated bureaucracy.

While the $22.5 billion state budget deficit is troubling, it was also predictable. Great economic times don’t last forever. California’s big spending has continued to grow, as has its overregulation and maze of rules. Rather than solving the state’s biggest problems, the government has made most of them worse.

Gov. Newsom should take this opportunity to start to eliminate regulations stifling things like infrastructure and housing projects and right-size government by pushing performance-based measures and public-private partnerships that can help produce the outcomes Californians deserve.

A version of the column first appeared in the Orange County Register.

The post Cutting California’s budget deficit and reforming state government appeared first on Reason Foundation.

CalPERS announced that its investment losses were -7.5% for its fiscal year, a further downgrade from the -6.1% returns reported a few months ago. These losses were in stark contrast to last year’s outstanding investment results when CalPERS posted 21.3% gains, which were mistakenly taken by many as a sign of stabilization.

Currently, the retirement system’s annual assumed rate of return—an estimate of the plan’s investment gains—is 6.8%. Through the years, CalPERS’ failure to meet its assumed rate of return has been the main driver of the system’s unfunded liability. With the latest investment losses applied, Reason Foundation estimates CalPERS’ debt is now $164 billion. This public pension debt roughly translates to over $4,000 in debt for every Californian.

Another marker of a pension plan’s financial health is the ratio of its debt to assets, also known as its funded ratio. After this year’s financial losses, CalPERS reported that its funded ratio plummeted from 81% in 2021 to 72% as of June 30, 2022, which means the pension system now has just 72 cents of each dollar needed to provide the pension benefits that have already been promised to current workers and retirees.

California’s public sector workers’ pensions are guaranteed by the state—meaning that state and local taxpayers are ultimately on the hook for CalPERS’ debt. When pensions are underfunded, like CalPERS is, the state must compensate for the debt through increased contributions. The 2022 fiscal year’s financial losses will likely cause state and local government contribution rates to rise in the next few years as governments, i.e., taxpayers, make up for the difference between the assumed rate of return of 6.8% and this year’s -7.5% loss.

The nonpartisan Legislative Analyst’s Office has determined that required public pension “contributions may increase 5%-12% of payroll over the next several years.” When a more significant chunk of state and local budgets is shifted to cover the rising costs of these pension benefits, other government services must be cut, or governments must pursue tax increases to maintain their current spending levels.

Recognizing that long-term investment forecasts are warning of lower annual returns in the coming decade, CalPERS has wisely lowered its assumed rate of return over the last several years. It has also created an asset liability management process that sets the ground for better balancing the cost of pension payments with expected future investment returns.

However, this year’s dismal financial returns, ongoing worries about a possible recession, the economic slowdown hitting California’s technology sector especially hard, and a state budget deficit that the Legislative Analyst’s Office says will reach $24 billion in 2023-24 are sending strong signals that further action is needed.

CalPERS should be even more proactive in accounting for these economic trends by further lowering its investment return expectations. Based on market expectations of asset growth for the upcoming decades, CalPERS should lower its expected rate of return to under 6.25%.

In addition, the pension plan’s leadership should encourage more government agencies and employers to take advantage of the California Employers’ Pension Prefunding Trust. Prefunding allows employers to generate investment income to pay the required contributions and reduces budget dependency on investment income. Moreover, it helps government employers during challenging financial times by offsetting their pension costs. This strategy would help pay down pension debt faster and stabilize some local government budgets.

During this economic uncertainty, many CalPERS stakeholders likely recognize that the problems that have kept so many public pension systems underfunded for the last few decades still exist. As a result, public pension plans—and thus taxpayers—are as vulnerable to financial shocks as they were in the past. California should prioritize solutions that minimize these risks in the future, making efforts to pay down its pension debt and making CalPERS more resilient and prepared to deal with the ups and downs of an uncertain economic future.

A version of this column first appeared in the Orange County Register.

The post California’s public pension debt grows appeared first on Reason Foundation.

For example, Plan Bay Area 2050, the official regional long-range plan finalized by San Francisco’s Metropolitan Transportation Commission and the Association of Bay Area Governments in Oct. 2021, used a scenario-based process they called Futures Planning to examine “which strategies that could be advanced by local jurisdictions, regional agencies, or the state in the coming decades are effective under a variety of uncertain conditions?”

The first part of the process created three divergent scenarios it called “futures.” The second part analyzed and simulated how the Bay Area would likely fare under each scenario, assuming no changes to regional strategies. The third part identified strategies to address future challenges assuming changes to regional strategies. The future challenges were different in each scenario but consistent in the second and third parts.

In the first hypothetical scenario, “Rising Tides, Falling Fortunes,” the federal government reduces funding to cities and states, and international cooperation declines. In the second scenario, “Clean and Green,” an “aggressive” carbon tax is implemented, “electric vehicles become nearly universal,” and automation and telecommuting increase. In the third scenario, “Back to the Future,” the Silicon Valley economy is thriving, there is increased infrastructure investment, and a comprehensive immigration reform bill helps drive population growth in the Bay Area.

To test each of these scenarios, the Metropolitan Transportation Commission (MTC) examined a variety of external forces, including two environmental forces (like earthquakes), four economic forces (such as tax rates), five land-use forces (like shifts to telecommuting), six transportation forces (autonomous vehicles, for example), and nine political forces (like changes to trade and immigration policies). After compiling these forces, MTC created 35 strategies: one revenue strategy, six economic strategies, six environmental, nine housing, and 13 transportation strategies.

For the transportation inputs, each of the 13 strategies is rated on a scale from one to three stars, with three stars being the most effective at meeting the program’s goals and one star being the least effective. For some reason, operating and maintaining the region’s road and transit network received only one star. Meanwhile, adding new general-purpose lanes and interchanges, as well as converting high-occupance vehicle, or carpool, lanes to high-occupancy toll (HOT) lanes and adding additional HOT lanes received three stars. Adding new transit capacity, including rail lines, earned two stars. Creating a network of bus lanes received three stars. Building a new transbay rail crossing received two stars.

One problem with this approach is that MTC created an overly complex process with so many arbitrary decisions embedded in it that only people with a master’s degree in transportation planning can even begin to figure out what the plan is claiming. And even for those folks, this confusing process is a puzzle that requires a lot of effort to piece together.

A second problem with this scenario planning is the evaluation process used. Building new capacity should never receive a higher score than operating and properly maintaining useful existing assets. It’s not clear what unbiased model based on moving people and goods effectively would prioritize building new rail lines in the Bay Area when per capita ridership has been dropping for years or how that would score better and be more of a priority than maintaining highly relied upon roadways, which are also what buses use. Clearly, the scenarios are either ineffective or logically flawed.

To MTC’s credit, the agency ignored some of the results of the scenario planning and prioritized maintenance and existing operations over new projects in the long-range plan. But that did not noticeably change the exercise’s bias in favor of rail transit.

A third problem is that the 2050 plan spends 56% of all its funding on transit projects and another 4% on projects to support transit. Most of the transit funds go to new rail projects even though existing rail lines are underused. In the final plan, less expensive, more flexible bus rapid transit seems to be an afterthought, despite scoring higher than rail in the scenario planning process. Only 6% of trips in the Bay Area were made by transit in 2015, a number that is now far lower as many Silicon Valley workers and companies continue to embrace remote work after the COVID-19 pandemic. There is almost no new roadway capacity in the final version of the plan, even in parts of the Bay Area suffering from significant traffic congestion, despite more road capacity enhancements receiving three stars in the exercise.

A fourth problem is, despite federal law requiring it to be primarily a transportation plan, only six of the 26 criteria used to select plan projects are related to transportation. Compare that to the nine related to political dynamics. There is no escaping politics and things like trade policy certainly impact infrastructure needs, but guessing about nine unknowable and arbitrary political forces is too high a number to significantly influence a 30-year regional transportation plan.

How do cities and regions learn from the Bay Area to avoid or fix these problems? First, urban planners need to come up with realistic scenarios. One could favor realistic technology such as electric vehicles, one could forecast slow population or economic growth, and one could favor something resembling the status quo.

However, for a long-range transportation plan to be useful, it has to be realistic based on the best data and trends we have access to now. The status quo scenario cannot resemble an apocalyptic wasteland from a movie, nor should the technology scenario predict everyone getting to work on shared hoverboards. In Silicon Valley computer firms, the saying used to be garbage in, garbage out. Put in bad data, and you’ll get nonsense from it. Transportation planners could run the Bay Area scenarios and models it chose dozens of times and still not get credible data to create an effective, viable long-range mobility plan for the region.

Planners need to be sensitive to real-world conditions and budget constraints. It does not make sense to spend so much money on new rail capital projects when rail ridership is declining and showing no sign of returning amidst telecommuting and technological trends. Similarly, he amount of money devoted to maintenance in Plan Bay Area 2050 cannot bring highways and transit to a state of good repair. California’s highway system is perennially in the bottom 10 nationwide, largely because the roadway pavement is in terrible condition.

Rather than creating dream scenarios and the transportation systems planners would like to build from scratch, scenario planning is only effective if planners utilize realistic user and budget scenarios with solid data and extrapolation techniques that create realistic models designed to best serve the people who will actually be using the transportation system in the next few decades.

The post Long-range transportation plans need to be grounded in reality appeared first on Reason Foundation.

The midterms helped illustrate school choice can be a winning policy issue for candidates. Voters in Florida’s Miami-Dade County, where about 75% of students are enrolled in school choice programs, issued a strong rebuke to Charlie Crist, a former Republican governor running as a Democrat, and his anti-school choice running mate Karla Hernandez-Mats, president of United Teachers of Dade. While President Joe Biden won Miami-Dade by seven points in 2020, Gov. Ron DeSantis trounced Crist with an 11-point victory in the county.

And this trend is not unique to school choice bastions like Florida. Corey DeAngelis pointed out in The Wall Street Journal that Democrats like Pennsylvania Gov.-elect Josh Shapiro, Gov. J. B. Pritzker of Illinois, and Gov. Kathy Hochul of New York won their races while supporting school choice policies.

Earlier this year, Pennsylvania Democrats in the state legislature, in particular, showed significant support for school choice when most “joined all legislative Republicans in enacting the largest expansion of the Keystone State’s school-choice policy in state history.”

In the wake of the COVID-19 pandemic, support for school choice policies is strong. For instance, nearly 80% of Pennsylvania respondents, 76% of Illinois respondents, and 80% of New York respondents with school-aged children supported education savings accounts, according to an EdChoice poll.

Support for more flexible education options is unsurprising. Gallup polling from August 2022 showed that 55% of respondents were either somewhat or completely dissatisfied with the state of K-12 education, the highest level of dissatisfaction in the poll since 2018. 

As the American Enterprise Institute’s Fredrick Hess noted, “Parents don’t really want to return to the status quo ante of public education. Indeed, more than half of all parents say—after the pandemic experience—that they’d like to retain some element of homeschooling going forward.” 

In light of some sweeping school choice victories, policymakers and candidates on all sides of the aisle should embrace school choice policies that help students and appeal to parents and voters.

From the States

Reason Foundation’s new report, “Public schools without boundaries: A 50 state ranking of K-12 open enrollment,” shows that most states need to implement better student transfer policies.

Unfortunately, the study finds most states’ open enrollment options fall short of good policy. In fact, only 11 states require all school districts to participate in open enrollment, just three states require state education agencies to publish annual reports on student transfers, seven states require school districts to post their open seats by grade level, and only 24 states prohibit school districts from charging transfer students tuition. While no state meets every policy best practices on Reason Foundation’s open enrollment checklist, some states provide good models for other states to replicate. 

Florida: The state’s open enrollment law could serve as a model for other states. All school districts in the Sunshine State are required to participate in both cross-district and within-district open enrollment and must regularly report the number of available seats by grade level so parents have access to this important information. Moreover, Florida cannot charge transfer students’ families tuition or fees, and the state’s school districts are allowed to provide transportation to transfer students, two barriers families in many other states face.

Wisconsin: The most laudable facet of Wisconsin’s open enrollment option is the state’s funding mechanism for transfer students, which ensures state and local education dollars follow transfer students. This approach maximizes transparency and financially incentivizes all districts to participate in open enrollment. Moreover, the Badger State is one of the few states to have robust, transparent open enrollment reporting. Every year Wisconsin publishes an open enrollment report which provides important data on student transfers, such as the number of transfer students, how many transfer applications were rejected, and the reasons for their rejection. 

The study also highlights policies in each that are limiting students’ options and need to be reformed. For example:

Tennessee: Although Tennessee established a good within-district open enrollment policy in 2021, the state falls short in other important ways. For instance, cross-district open enrollment is voluntary in Tennessee, and all student transfers are at the discretion of the receiving local boards of education. Moreover, school boards can charge tuition or fees to transfer students. This can be a mammoth barrier for students whose families cannot afford the cost and creates perverse incentives for schools to “sell” their seats.

Ohio: Many wealthy and high-performing suburban school districts surrounding Ohio’s eight major cities refuse to participate in the state’s voluntary cross-district open enrollment program. This policy effectively keeps inner-city and nearby rural children from transferring to better schools in the suburbs. All too often, voluntary open enrollment means that the best schools with open seats can continue to exclude children from outside their boundaries, fundamentally undermining the program’s purpose. 

Texas: In Texas, cross-district open enrollment occurs only upon the approval of the receiving school district. Similarly, voluntary within-district transfers are at the discretion of the school district, and parents must petition their school district, making a case for why their children should be transferred to another school. The school district then decides to accept or reject the transfer students’ petitions. To make matters worse, Texas allows school districts to charge transfer students tuition even though they receive additional state aid for transfer students.

What to watch

Report: Enrollment declines were larger in schools that stayed remote for the longest
A new Education Next report by Nat Malkus and Cody Christensen showed that schools that remained fully remote for longer periods suffered more significant drops in K-12 enrollment. In particular, the largest enrollment drops involved younger children in kindergarten and elementary school grades.

California voters support mandated K-12 arts funding as deficit looms
Over 60 percent of California voters approved Proposition 28, a ballot initiative that increases funding for K-12 music and arts education by approximately $1 billion. The Los Angeles Times reported that the new law establishes a “guaranteed annual funding stream for music and arts education by requiring the state to set aside an amount that equals 1% of the total funding already provided to schools each year.”

While music and arts can play important roles, the need will vary, and this new law illustrates how mandated state spending can encumber local education leaders’ decision-making and prevent them from putting resources where they are needed most. California policymakers recently approved increasing K-12 education funding by $9 billion for the 2023 school year–an increase of nearly 13% even though K-12 student enrollments dropped by 4.4% during the pandemic, so most schools should’ve already had the money needed for music and arts. As California’s state leaders predict a $24 billion deficit for the upcoming year, the new spending mandate could very well take funds away from other instructional programs educators would normally prioritize. 

Recommended Reading 

A Crypto Warning From the Ontario Teachers Pension Plan
Mike McShane at Forbes
“Making teacher benefits more portable and flexible would allow teachers to determine their own risk tolerance and invest accordingly. It would free up state funding for classrooms and the salaries of the people that work in them. And, it would help eliminate the incentives for these large pension funds to take on more and more risk, hopefully helping stabilize our financial system writ large.”

As New York City Schools Face a Crisis, Charter Schools Gain Students
Troy Closson at The New York Times
“As traditional public schools in the nation’s largest system endure a perilous period of student loss and funding shortfalls, New York City’s charter schools are on an upward trajectory. The schools gained more than 10,000 children during the pandemic, though the expansion slowed last year, even as enrollment at other schools across the city — both public and private — fell steadily.”

Beyond School Choice: A Conservative K-12 Agenda
Fredrick Hess at American Enterprise Institute
“Conservatives have generally lacked a cohesive K–12 agenda, but they can win parents over by enhancing educational choice, increasing school accountability, and adhering to standards of academic excellence.” 

The post Funding Education Opportunity: Midterm school choice success, new K-12 open enrollment report, and more appeared first on Reason Foundation.

In the United States, school assignments are determined by families’ residences, casting unseen dividing lines in communities throughout the country. These government-imposed district boundaries or catchment zones divide communities, sorting children—often by wealth or ethnicity—into schools based on where they live. Many are unaware of these divisions until they realize that access to certain public schools often comes down to where you live.

Open Enrollment Best Practices by State

For example, Kelsey Williams-Bolar—a single mom completing her degree and working as a teacher’s aide—realized that she could not continue to enroll her daughters in their assigned public school in Akron, Ohio. Not only were her daughters being bullied at school, but Akron public schools were low-performing and in poor condition.

She decided to have her children live part-time with her father in the suburbs. While there, she enrolled her children in the Copley-Fairlawn School District, where her father’s home was zoned. However, Williams-Bolar and her father were charged with felonies after a private investigator, hired by the Copley-Fairlawn School District, discovered that Williams- Bolar did not live inside the school district. Williams-Bolar received two concurrent five-year sentences (suspended to 10 days) for using her father’s address to enroll her children in a better school district. Nineteen cases, similar to Williams-Bolar’s, have been reported in eight states since 1996.

Williams-Bolar’s story illustrates how school district boundaries often serve as barriers to better education options for many families. Residential assignment can have long-term ramifications for students, even after they graduate from high school. For instance, Advanced Placement (AP) courses are a valuable tool for high school students, allowing them to receive college credit while still in high school. As of 2021, however, US News reported that nearly a quarter of high schools—mostly in rural areas—did not offer AP courses. This means that students assigned to rural public high schools could end up paying thousands of dollars more for college.

In fact, the Missouri Business Alert reported in 2020 that the difference in AP courses offered at two Missouri high schools, located less than 20 minutes from each other, could cost their respective graduates thousands of dollars. Students assigned to the rural Southern Boone High School could earn a maximum of five college credits, whereas students assigned to its more urban counterpart, Hickman High School, could earn a maximum of 18 college credits. This difference in available AP courses means that graduates from Southern Boone could end up paying nearly $4,000 more in college tuition at the University of Missouri than their peers from Hickman High.

These examples show that residential assignment locks students into their assigned schools even if they aren’t a good fit. Students need flexible education options that may not be available in their assigned district, such as specialized programming, school culture or learning philosophy, or better academic opportunities.

K-12 open enrollment provides a solution for families assigned to public schools that aren’t a good fit for their children. This policy would allow children to enroll in any public school so long as it has open seats. While 43 states have some sort of open enrollment, only 11 states have mandatory open enrollment laws.

This analysis is a roadmap for developing robust open enrollment. It explores the benefits of open enrollment, outlines the core tenets and best practices for open enrollment, examines which states have the best open enrollment policies on the books, and provides an open enrollment snapshot of all 50 states. These state snapshots show policymakers what each state is doing well, where each state falls short, and the necessary steps to establish robust open enrollment.

Reason Foundation’s Five Best Practices for Open Enrollment

1. Mandatory Cross-District Open Enrollment: School districts are required to have a cross-district enrollment policy and are only permitted to reject transfer students for limited reasons, such as school capacity. Policies, including all applicable deadlines and application procedures, must be posted online on districts’ websites.
2. Mandatory Within-District Open Enrollment: School districts are required to have a within-district enrollment policy that allows students to transfer schools within the school district, and are only permitted to reject transfer requests for limited reasons, such as school capacity. Policies, including all applicable deadlines and application procedures, must be posted online on districts’ websites.
3. Transparent Reporting by the State Education Agency (SEA): The State Education Agency annually collects and publicly reports key open enrollment data by school district, including transfer students accepted, transfer applications rejected, and the reasons for rejections.
4. Transparent School Capacity Reporting: Districts are annually required to publicly report seating capacity by school and grade level so families can easily access data on available seats.
5. Children Have Free Access to All Public Schools: School districts should not charge families transfer tuition.

This report evaluated each state on these best practices to get a snapshot of where each state stands and provides recommendations for each state to improve open enrollment practices.

State-by-state Open Enrollment Analysis

State	Total Best Practices (out of 5)	Cross-District Open Enrollment	Within-District Open Enrollment	Transparent SEA Reporting	School Capacity Reporting	Law Against Public School Tuition for Students
Alabama	0	X	X	X	X	X
Alaska	0	X	X	X	X	X
Arizona	4			X
Arkansas	1	X	X	X	X
California	0	X	X	X	X	X
Colorado	3			X	X
Connecticut	1	X	X	X	X
Delaware	3			X	X
Florida	4			X
Georgia	1	X		X	X	X
Hawaii	1	N/A	X	X	X
Idaho	1	X	X	X	X
Illinois	0	X	X	X	X	X
Indiana	0	X	X	X	X	X
Iowa	1		X	X	X	X
Kansas	4		X
Kentucky	0	X	X	X	X	X
Louisiana	1	X	X	X	X
Maine	1	X	X	X	X
Maryland	0	X	X	X	X	X
Massachusetts	1	X	X	X	X
Michigan	1	X	X	X	X
Minnesota	1	X	X	X	X
Mississippi	1	X	X	X	X
Missouri	0	X	X	X	X	X
Montana	0	X	X	X	X	X
Nebraska	2	X	X	X
Nevada	0	X	X	X	X	X
New Hampshire	1	X	X	X	X
New Jersey	0	X	X	X	X	X
New Mexico	0	X	X	X	X	X
New York	0	X	X	X	X	X
North Carolina	0	X	X	X	X	X
North Dakota	0	X	X	X	X	X
Ohio	0	X	X	X	X	X
Oklahoma	4		X
Oregon	0	X	X	X	X	X
Pennsylvania	1	X	X	X	X
Rhode Island	1	X	X	X	X
South Carolina	0	X	X	X	X	X
South Dakota	0	X	X	X	X	X
Tennessee	2	X		X		X
Texas	0	X	X	X	X	X
Utah	4			X
Vermont	1	X	X	X	X
Virginia	0	X	X	X	X	X
Washington	0	X	X	X	X	X
West Virginia	1	X	X	X	X
Wisconsin	3		X		X
Wyoming	0	X	X	X	X	X
Total States Implementing Best Practices		9/49	7/50	3/50	7/50	24/50

The post Public schools without boundaries: Ranking every state’s K-12 open enrollment policies appeared first on Reason Foundation.

In 1989, the state constitution was changed by voters through Prop. 98, a school finance mandate setting minimum education funding levels. Today, through Prop. 98’s formula, California is required to spend roughly 40% of the state’s general funds on K-14 education—public schools and community colleges. California is spending $95 billion on K-12 education in its most recent state budget.

Advocates are right to worry whether California’s next generation will be equipped for jobs of the future. Despite spending the equivalent of $17,000 per pupil, California’s students are underperforming the national average on standardized testing. For example, the National Assessment of Educational Program, which is called the nation’s scorecard, shows only 29% of California’s eighth graders were at or above proficiency in mathematics, and 30% were at or above proficiency in reading in 2019, the most recent year available.

It’s fair to ask, why should arts and music education spending be mandated by the state constitution, especially when student proficiency in core areas like reading and math is far from desired? Only a few years ago, then-Gov. Jerry Brown championed eliminating so-called “categorical funds” which earmark state education money for specific programs. However well-intentioned the funding restrictions are, they inevitably narrow local school officials’ budgeting options. Brown saw this problem plague Oakland during his time as mayor of the city. When he returned to Sacramento, Brown reformed the state’s K-12 finance system by reducing formula complexity and empowering local policymakers who are, by definition, closer to students. Several studies have given this reform high marks, and California school district superintendents have shown widespread support for the new funding formula.

The state government already mandates that school districts provide visual and performing arts instruction for students in first through sixth grade. It also requires them to be offered as an elective, for seventh- and eighth-graders.

To graduate from a California high school, students must also complete a year’s coursework in the arts or supplement this requirement with a foreign language or career technical education. Additionally, nearly half of California’s school districts have independently adopted even more rigorous arts and music graduation requirements on top of the state’s.

The best practices in education finance policy show that governments should be moving away from state spending mandates and toward giving local leaders and schools more control over how money is spent to best serve their students. The more that local school districts are empowered by state government and held accountable by parents and voters, the more that education reforms and innovation can be responsive and effective.

For example, under California’s 2017 District of Choice Program, a school district may designate itself as a District of Choice, which allows students from other localities to enroll in its programs as long as space permits. Under this environment of open enrollment, school districts have been incentivized to build tailored programs, including some schools specializing in the arts, foreign language, science, and technology. Expanding and improving the state’s open enrollment program so that every school district in the state participates could further benefit students.

Going forward, California would benefit from implementing “learn everywhere” policies. The state board could approve education providers offering curricula that allow students to take courses from California’s large array of businesses and nonprofits in the music, arts, and entertainment industries. Students could earn credits while developing skills with professionals from diverse artistic backgrounds.

Arts and music are important for students, and many innovative options are available to California’s schools. Unfortunately, decades of rising state education spending show that an influx of tax dollars does not guarantee improved student outcomes. In this case, Prop. 28 would tie the hands of legislators and school officials with unnecessary budget mandates that ultimately mean less flexibility for students and teachers.

A version of this column first appeared in the Orange County Register.

The post California’s Prop. 28 would erode local control of education budgets appeared first on Reason Foundation.

California Proposition 1 (2022): Amends the state constitution to protect abortion rights, guarantee reproductive freedom

California Proposition 26 (2022): In-person sports betting regulation and tribal gaming expansion

California Proposition 27 (2022): Legalizes online sports betting, funds homelessness and mental health programs

California Proposition 28 (2022): Art and music K-12 education funding

California Proposition 29 (2022): Dialysis clinic requirements

California Proposition 31 (2022): Banning flavored tobacco products

Voters’ guides for other states and policy issues can be found here.

The post Voters’ guide to the 2022 California ballot propositions appeared first on Reason Foundation.

Prop. 28 would also direct a higher proportion of this dedicated funding to schools with a concentration of low-income students. Larger schools, with 500 or more student, would have to use 80% of the funding for employing teachers and 20% for training and materials.

Fiscal Impact

Proposition 28 would require education funding in addition to the state’s Proposition 98 minimum guarantee. Therefore, according to the California Legislative Analyst’s Office, public school spending in the state would likely increase between $800-$1 billion annually in 2023-24 if passed. The LAO finds, “Beginning next year, Proposition 28 would increase state costs by about $1 billion annually. This amount is less than one-half of 1 percent of the state’s total General Fund budget. The additional funding would be considered a payment above the constitutionally required amount of funding for public schools and community colleges.”

Proponents’ Arguments For

Few places conjure the image of the creative economy like California. Former education policymakers Arne Duncan and Austin Beutner wrote in CalMatters that this status, however, rests on tenuous ground. They claim that only “1 in 5 public schools in California has a dedicated teacher for traditional arts programs like music, dance, theater and art, or newer forms of creative expression like computer graphics, animation, coding costume design and filmmaking.”

The campaign for “Yes on 28” warns that across grade levels, 90% of elementary schools, 96% of middle schools, and 72% of high schools in California are not providing a high-quality course of study across arts disciplines.

A decline in arts programming may be due to prolonged underfunding, supporters of Prop 28 say. Without raising taxes, Prop 28 supporters hope to reserve 1% of combined state and local education spending for developing and maintaining arts education.

Accountability would be ensured through both spending restrictions and reporting requirements. School officials could only spend the new revenue on arts teachers, classified personnel, and teaching aides. Annual reporting from each school district would require details on arts programs, including student participation levels.

Supporters expect Prop. 28 to not only increase student engagement, cognitive development, and creative and critical thinking skills but also equip students for good-paying jobs. This could be especially critical to students from families struggling financially. For this reason, advocates included additional curriculum funding for schools serving low-income communities.

Advocates further argue, that when compared to other high-cost states, such as New York, California lags in education per-pupil spending overall. While there may not be the political will for a tax increase to fund arts education, simply prioritizing existing spending not only reflects the values of California, in their mind but invests in its future workforce, supporters say.

Opponents’ Arguments Against

In 1988, voters passed Proposition 98 requiring roughly 40% of California’s general funds to be spent on public schools and community colleges. Proposition 28, if passed, will require additional education spending on top of Proposition 98’s minimum guarantee.

California already spends $95.5 billion on its public school system, translating to around $17,000 per student. This figure puts California in the top 10 states for per-student education funding. California’s current spending on K-12 education has reached a historic high, while public school enrollment is the lowest in two decades. Prop. 28 opponents wonder whether this level of spending can be sustained, especially if the student population continues to drop.

Prop. 28 opponents such as Reform California further warn of locking in nearly $1 billion of education spending through an earmark that may come at the expense of other education spending priorities. A mandate on arts spending would be unique, as no such mandate exists for math, science, reading, or physical education, opponents say.

Locking in spending requirements could also reduce financial flexibility when leaders respond to education policy under new economic and social changes over time, including public school enrollment decline. Leaders would have fewer resources to address the state’s backlog of debt or the next economic downturn.

Discussion

California is no stranger to financing arts education through its state budget. Tens of millions of dollars are appropriated annually for arts initiatives. Visual and performing arts instruction, including music, is currently required for all students in grades 1-6, and schools are required to provide these courses to 7th-8th grade students as electives.

To graduate from a California high school, students must choose to complete a year’s course work in visual or performing arts, a foreign language, or most recently, career technical education.

Each local school board may set additional graduation requirements. For example, a 2017 study found nearly half of the state’s school districts prohibit swapping a year’s course work in visual or performing arts with a foreign language or career technical education. This change sought to reflect California public university admission requirements, which demand a year of exclusively visual or performing arts education credit.

If Prop. 28 passes, a 1% combination of state spending, in addition to the spending of each locality through property taxes, would be solely dedicated to music and arts education. Based on previous year enrollment figures, 70% of this newly authorized spending would be distributed among California school districts. The remaining 30% would be reserved for school districts based on their proportion of economically disadvantaged students. Among California’s six million public school students, 60% come from low-income families.

While laws in California require arts education to be included, to varying degrees, across students’ public school careers, Proposition 28 would create the first-ever revenue stream dedicated to these programs exclusively. This creates a tradeoff between a value for arts education and a value for local control by schools over how to use resources. If the primacy of local control is retained, students, parents, and other advocates can make the case in their own school communities about spending priorities, including the arts.  There is no guarantee, either, that this new influx of spending will improve student academic or social outcomes. Higher spending in the public school system has largely failed to guarantee greater student achievement. 

Voters’ guides for other propositions on California’s 2022 ballot.

The post California Proposition 28 (2022): Art and music K-12 education funding appeared first on Reason Foundation.

California’s Proposition 1 would add an amendment to the state constitution (Section 1.1, Article 1) prohibiting the state from interfering “with an individual’s reproductive freedom in their most intimate decisions, which includes their fundamental right to choose to have an abortion and their fundamental right to choose or refuse contraceptives.”

The amendment was drafted and passed by both houses of California’s state legislature in response to the U.S. Supreme Court’s May 2022 Dobbs v. Jackson Women’s Health Clinic decision overturning Roe vs. Wade and other precedents. The ballot initiative must pass with a two-thirds majority to be added to the state constitution.

Fiscal Impact

The California Legislative Analyst’s Office found that Proposition 1 would have no fiscal impact because California’s law already provides these rights. Critics and opponents of the amendment as drafted have proposed scenarios in which adding this right to the state constitution would cost the state more due to litigation, potentially broader interpretations of abortion rights than exist by current law, and the provision of abortions to patients from other states. No estimates of these costs have been circulated, and we discuss such scenarios.

Arguments in Favor

Arguments in favor of the amendment come from advocates of abortion rights and are targeted to the majority of California residents that polls show favor abortion rights and oppose the U.S. Supreme Court’s Dobbs v. Jackson Women’s Health Clinic decision. Most of the state’s prominent Democrats, including Gov. Gavin Newsom and majority leaders in the state legislature, have endorsed the amendment, along with groups such as Planned Parenthood Affiliates of California, The League of Women Voters of California, and the California Medical Association.

Proponents argue that while abortion rights are already a part of California law, enshrining them in the state constitution would add another layer of protection. State Assembly Speaker Anthony Rendon’s endorsement is representative of almost all California Democratic officials: “We know from history that abortion bans don’t end abortion. They only outlaw safe abortions. We must preserve the fundamental reproductive rights of women here in California because they are under attack elsewhere.”

While the political nature of the short and simply worded amendment is often used by opponents to dismiss it, many endorsements and op-eds favoring the amendment also suggest Proposition 1 appeals to the state’s majority voters on political grounds. Gov. Newsom says, “California will not sit on the sidelines as unprecedented attacks on the fundamental right to choose endanger women across the country.”

Arguments Against

Arguments against Proposition 1 fall into two distinct categories. The first are straightforward arguments by those who oppose abortion. The California Republican Party, California Conference of Catholic Bishops, and prominent pro-life groups oppose the amendment on grounds familiar to the debate about abortion that has unfolded over several decades.

The second category of arguments against Prop. 1 are best characterized as pragmatic arguments targeted to pro-choice voters. They begin by arguing the amendment will be of limited benefit, as California law already protects abortion rights, and express concerns that adding these protections to the state constitution could entail additional costs and, potentially, new lines of attack on, or risks to, Californians’ abortion rights.

Of particular concern to these pragmatic opponents of Prop. 1 is the very simple wording of the amendment, which some fear could be interpreted by California’s courts as enshrining a broader right to abortion than California, as well as now-overturned precedent in Roe v. Wade, allow. California’s current law places limits on abortion at the point of fetal viability, whereas the wording of the proposed amendment simply refers to the “fundamental right to choose to have an abortion.” 

If state courts were to hear a case and rule that the new amendment enshrines a right to all abortions, late-term abortions could be legalized in California. This could be of concern to generally pro-choice California voters, opponents of the amendment argue, for several reasons. First, many who support abortion rights generally may not support late-term abortions. In a San Francisco Chronicle column, Joe Matthew notes recent polling indicating that 70 percent of Californians oppose late-term abortion, numbers almost as high as Californians’ supporting abortion rights earlier in a woman’s pregnancy.

A June 2022 article by legal scholars Allison MacBeth and Elizabeth Bernal urged top-ranking state Democrats to add technical language to the amendment referencing past national legal doctrine—specifically “Griswold v. Connecticut, Roe v. Wade, or Planned Parenthood v. Casey.” The authors argue that citing earlier precedent would effectively limit late-term abortions, while not clarifying the language of the amendment could create a new way for abortion opponents to mount a challenge in federal courts.

The authors of the official argument against Prop. 1 also express concern about California becoming a “’sanctuary state’ for thousands, possibly millions of abortion seekers from other states, at a staggering cost to taxpayers.”

Discussion

Many ballot initiatives in California and other states require the informed voter to familiarize themselves with details of fiscal policy and regulation that are not usually at the forefront of political debate, and on which voters may not have strong opinions when walking into the voting booth. California’s Proposition 1 is just the opposite.

Almost all American voters are familiar with this issue, and most Californians will vote according to whether they believe it should be legal for a woman to get an abortion. Recent polling confirms that a majority of Californians consider themselves pro-choice and that, as of this writing, Prop. 1 seems very likely to pass. California’s pro-life voters are likely to vote against Prop. 1 in overwhelming numbers.

California’s pro-choice voters must decide if there are costs or risks to enshrining the language of the proposed amendment in their constitution. The benefits, from a pro-choice perspective, are the reduced risk of a future state judiciary overturning abortion rights, as well as the political benefits pro-choice voters attach to this contentious issue. While quantifying these benefits is not possible, pro-choice voters must weigh them against the costs laid out by those favoring abortion rights but no constitutional amendment.

It is plausible if not likely that the amendment will create new ground for legal maneuvering and political engagement for pro-life activists in California and nationwide. However, those arguing this point broadly undercut the foundations of the argument that pro-choice voters should not support the amendment—that Californians’ abortion rights are already safe. Pro-choice arguments against the amendment appear to simply ignore that political and legal resistance will continue in the absence of an amendment as well as if it is passed. California is already a political and legal lightning rod for this contentious issue. If we can learn one thing from this seemingly circular argument, it is that activists, lawyers, and energized voters on both sides of the issue will find a way to keep these battles alive not just in California but in all 50 states.

The specific concern about the amendment’s language possibly being flawed is potentially of more concern to pro-choice voters. Opening up new battlegrounds on the particularly hot-button issue of late-term abortions could very likely complicate matters in the future. Citing legal precedents as Allison MacBeth and Elizabeth Bernal proposed may have foreclosed that possibility. Instead, California’s top Democrats and pro-choice groups appear to have opted instead for a simple statement of purpose.

A more carefully worded amendment may have served the dual purpose of preventing legal battles in state court (with the amendment itself) as well as federal courts (with the more precise language). But once again, the idea that either side would simply give up in any scenario, especially in the nation’s largest and most progressive state, is not credible. With future political and legal battles almost guaranteed no matter the amendment’s fate, pro-choice voters may simply value the statement in itself.

Voters’ guides for other propositions on California’s 2022 ballot.

The post California Proposition 1 (2022): Amends the state constitution to protect abortion rights, guarantee reproductive freedom appeared first on Reason Foundation.

On August 28, 2020, California Gov. Gavin Newsom signed into law a ban on the sale of flavored tobacco products. California Senate Bill 793 bans menthol cigarettes, e-cigarettes in flavors other than tobacco, as well as oral tobacco products. Exceptions were made for hookah, premium cigars, and pipe tobacco. Retailers selling flavored tobacco products may be subject to a $250 fine for each sale. Proposition 31 on California’s November 2022 statewide ballot seeks to overturn that law, SB 793, so that the sale of flavored tobacco would remain legal in the state. 

Fiscal Impact

“Proposition 31 likely would reduce state tobacco tax revenues by an amount ranging from tens of millions of dollars per year to around $100 million annually,” according to the Legislative Analyst’s Office (LAO).

If a substantial number of smokers quit because of the ban, it could engender some savings to the state’s health care system. On the other hand, the LAO points out that if these smokers quit and live longer, it could increase the government’s health care costs. “Given the possibility of both savings and costs, the resulting long-term net impact on government health care costs is uncertain,” LAO concludes.

Arguments in Favor

Supporters of a ‘yes’ vote to uphold the law passed by the state legislature and signed by the governor include California Gov. Gavin Newsom, Campaign for Tobacco-Free Kids, American Cancer Society Action Network, California Teachers’ Association, and many others.

Proponents of prohibition argue flavors such as menthol in combustible cigarettes, sweet and fruit flavors in e-cigarettes, oral tobacco, and little cigars are targeted to and disproportionately impact young people and minorities.

In the case of menthol cigarettes, supporters of the law observe that around 85 percent of black smokers use a menthol cigarette, compared to a little more than a third of white smokers, with the tobacco industry gearing its marketing of menthol cigarettes toward black Americans. It’s also alleged that menthol cigarettes are especially appealing to young people because menthol acts as a cooling agent masking the harsh taste of burnt tobacco allowing new smokers to become hooked easier than they would if they tried a regular cigarette.

Regarding flavored e-cigarettes, the sweet flavors and fruit e-liquids are claimed to be responsible for the upswing in youth vaping that California and the rest of the country experienced beginning in 2017. Supporters of prohibition argue these flavors are hooking a new generation of kids on nicotine. Banning flavors, proponents claim, would help reduce the number of young people trying tobacco products and cause a substantial portion of adult smokers and vapers to quit nicotine for good.  

Arguments Opposed

The groups arguing for a ‘no’ vote on Prop. 31 include companies in the tobacco industry, the Howard Jarvis Taxpayers Association, and the Republican Party of California.

Opponents of the bans argue that the increase in the tobacco age to 21 in 2020 has already substantially reduced youth access to tobacco products. While the desire to protect youth may be well-intentioned, opponents say the laws would primarily affect adult tobacco users who enjoy flavors and argue that adults should have the right to choose whether to use these products just like with alcohol and marijuana.

They also say there is an unfairness to the legislation since hookah, pipe tobacco, and premium cigars are exempted.

The opponents warn that prohibition would have a negative financial impact on small businesses operating on tight margins. The ban would transfer flavored tobacco sales to the black market, which would mean not just a loss of tax revenue for California.

A ban would also entail criminal enforcement, which brings with it the possibility of increased targeting of minorities by law enforcement, opponents note. The ban on flavored e-cigarettes is also problematic from a health care standpoint because e-cigarettes are safer than combustible cigarettes and limiting access to these products could cause many vapers to relapse to smoking and prevent some smokers who would otherwise have switched from doing so, limiting tobacco harm reduction. 

Discussion

The claims made against menthol cigarettes in California mirror the arguments that were made to the Massachusetts legislature when it was considering a ban on flavored tobacco in 2019. To date, Massachusetts is the only state in the country to have implemented a comprehensive flavored tobacco ban.

According to a pre-print (not yet peer-reviewed) analysis by Reason Foundation Policy Analyst Jacob Rich, one year after the ban, menthol sales within Massachusetts did decline dramatically. But the sales of non-menthol cigarettes within Massachusetts increased substantially. There was also a dramatic rise in cigarette sales in the states bordering Massachusetts. The entire six-state region near Massachusetts reported a net increase in cigarette sales of 7.21 million packs compared to the year before the state ban came into effect. According to the Tax Foundation, the ban also cost Massachusetts $125 million in tax revenue in its first year.

When adult products are relegated to the illegal market consumers often respond by seeking out these products or substitutes on the black market, presenting opportunities for criminals to supply these goods as we’ve seen with alcohol and illegal drugs and sex work.

Supporters of a ‘yes’ vote on Prop. 31 are correct that black smokers, young people and adults, disproportionately use menthol cigarettes. But this obscures some important facts. According to the most recent data from the Youth Risk Behavior Surveillance System in 2017, California’s black youth have the lowest smoking rates of any group, while black adults have the highest. If menthol cigarettes are as appealing to youth as has been suggested it is unclear why youth who are most exposed to menthol have the lowest smoking rates. The data is however in accordance with a Reason Foundation study published in 2020 showing that states with higher menthol sales, such as California, have some of the lowest youth smoking rates in the country. According to the Centers for Disease Control and Prevention (CDC) most of the young people who do smoke, 61 percent, use nonmenthol cigarettes. While we do not have recent data for youth smoking rates in California, nationally, they’re at a record low of 1.5 percent. Considering California’s smoking rate historically underperforms the national average we should expect the state’s smoking rate to be even lower. 

While the ban purports to target only retailers, the reality is that prohibition creates a significant potential for menthol cigarette smuggling and black market activity. Given that menthol products are disproportionately popular among black smokers it’s reasonable to assume black communities could suffer from further unnecessary contact with law enforcement if menthols are banned. The American Civil Liberties Union (ACLU) and law enforcement organizations such as the National Organization of Black Law Enforcement Executives (NOBLE) are among the groups that have voiced concerns as it relates to a proposed national menthol ban by the Food and Drug Administration. Similar concerns would exist in California.

The other major target of the flavored tobacco ban is e-cigarettes. As the use of vaping products by young people rose from 2017 to 2019, it’s unsurprising that some legislators saw prohibition as an easy answer to the problem. But it is important to note that e-cigarettes are a much safer form of nicotine consumption than traditional combustible cigarettes and have helped many Americans quit smoking. Because e-cigarettes heat a liquid solution containing nicotine instead of burning tobacco the number and levels of harmful and potentially chemicals are substantially reduced.

The Royal College of Physicians reports that the risks of vaping are unlikely to exceed five percent of those of smoking. There’s also a growing body of evidence showing that e-cigarettes are more effective than traditional nicotine replacement therapies at helping smokers quit. While e-cigarette flavors are portrayed as being targeted at youth, most adult vapers trying to quit smoking use non-tobacco flavors. According to research conducted by Yale University’s Abigail Friedman, vapers using non-tobacco flavors are more likely to successfully quit smoking than those who don’t.

Banning e-cigarette flavors may have the unintended consequence of not just damaging the state’s vape stores, but could push some vapers back to smoking cigarettes. It could also reduce the number of smokers looking to transition to a safer alternative to cigarettes.

While there is limited evidence on the effects of e-cigarette flavor bans thus far, a recent study published in the journal Nicotine and Tobacco Research examining seven California cities that implemented flavored tobacco bans found no significant effect on the likelihood that youth would vape.  An earlier study published in 2018 concluded that a comprehensive tobacco flavor ban would reduce overall tobacco use, but there would be more cigarette smoking than the status quo. Fortunately, youth vaping has fallen by 60 percent since 2019, despite there being no federal prohibition of e-cigarette flavors. 

California’s voters have to decide whether banning flavored tobacco products is likely to achieve the intended public health benefits at minimal cost to taxpayers and social justice, or whether a path of using e-cigarettes and flavors as a harm reduction tool to reduce smoking in a regulated market can achieve similar outcomes without the unintended negative consequences we’ve witnessed with previous experiments in prohibition.

Voters’ guides for other propositions on California’s 2022 ballot.

The post California Proposition 31 (2022): Banning flavored tobacco products appeared first on Reason Foundation.

California’s Proposition 27 on the November 2022 ballot would authorize online and mobile sports betting throughout the state operated by tribal authorities or non-tribal businesses that partner with tribes. Revenue generated from the taxes and fees related to online sports betting would primarily go to fund programs to address homelessness and mental health, with a smaller portion distributed to all tribes in the state.  

Fiscal Impact

Proposition 27 would tax sports betting revenue from online and mobile platforms at 10 percent, which the California Legislative Analyst’s Office (LAO) estimates would increase state tax revenue by up to $500 million annually.

After enforcement costs, which LAO estimates could reach up to “the mid-tens of millions of dollars a year,” 85 percent of the tax revenue generated under Prop. 27 would go to the newly-created California Solutions to Homelessness and Mental Health Support Account to create long-term housing for those in need. The remaining 15 percent of tax revenue from the proposition would go into a fund for distribution to tribes in the state that do not participate in gambling activities. 

Arguments in Favor

Proponents of Prop. 27 include three of the state’s smaller tribes, national gambling companies like DraftKings and BetMGM, homelessness groups, local elected officials, and community leaders. Their coalition in support of Prop. 27 asserts the measure would create a competitive and safe online sports betting market in California and provide significant funding to help address homelessness in the state. They argue Prop. 27 is the only measure on the ballot that would guarantee a large and stable source of funding, an estimated $300 million annually, for homelessness, mental health, and addiction services. They also say that Prop. 27 would benefit the state’s tribal population by allocating 15 percent of the tax revenue from sports betting to non-gaming tribes. 

Arguments Against

Opponents of Prop. 27 include some of the state’s tribes, faith-based groups, political organizations, including the California Democratic Party, several elected officials, and other groups. Some of the arguments are that online and mobile wagering would put the state’s youth at risk, exacerbate problem gambling, and threaten tribal economies. Additionally, some opponents say that Prop. 27 would give large, out-of-state online gambling businesses too much control over California’s sports betting market and would put those tribes who wish to offer online sports betting on their own at a competitive disadvantage against well-recognized national brands. 

Discussion 

Since the U.S. Supreme Court overturned the federal prohibition on sports gambling in 2018, more than 30 states have legalized the activity in some form, generating more than $142 billion in wagers and over $1.5 billion in tax revenue. California, with its nearly 40 million residents, could be the largest and most lucrative sports betting market in the country, yielding operators between $350 million and $3 billion in profits and the state up to $300 million in new tax revenue, depending on the way it is regulated. 

California’s gaming tribes currently enjoy a state-granted monopoly over slot machines and casino-style games, which nets them around $8 billion in revenue each year. That money is vital for tribal economic welfare as well as tribal political power. Tribes have used that power to deftly defend their control over gambling in the state, expanding the types of games tribes can offer while blocking attempts at encroachment by competitors. Legalizing sports betting represents a significant opportunity to increase foot traffic and revenue for tribal casinos. It is also a threat should the new market bolster its competitors’ profits and influence in state politics. 

That is among the reasons many of California’s gaming tribes, 26 at last count, have thrown their support behind Proposition 26, which would restrict legal sports betting to in-person bets at tribal casinos and the state’s four licensed horse racetracks. Along with those tribes and racetracks, some chambers of commerce, faith-based organizations, and social justice-oriented groups have also backed Prop. 26. Some, but not all of these Prop. 26 supporters have also joined the ballot measure committee in opposition to Prop. 27, which would allow non-tribal entities to offer online and mobile sports betting if they strike a deal with one of the state’s gaming tribes.

Those supporting Prop. 26 argue that limiting sports betting to in-person bets at tribal casinos will mitigate the risks of underage and problem gambling, prevent profits from leaving the state, and bolster tribal sovereignty and self-sufficiency. 

Prop. 26 supporters point to the 20-year history of responsible gaming operated by tribal casinos, arguing that they are better equipped to prevent underage bets than online or mobile businesses, while Prop. 27 offers no such protections. Using the rhetoric long-used by land-based casinos opposed to online gambling, Prop. 27 opponents argue it would turn “every cellphone, laptop, tablet, and even video game console into a gambling device, opening up online gambling to anyone, anywhere, anytime.” However, it is worth noting that at least some of the tribes opposed to Prop. 27 are open to authorizing online and mobile sports betting so long as the tribes control it, with some already lending support to a 2024 ballot initiative that would do just that.

Supporters of Prop. 27 claim allegations about online gaming spurring youth betting are little more than fear-mongering and highlight the successful prevention of youth online betting in other countries that have legalized online gambling, as well as the seven U.S. states with legal online poker, the 20 states with legal online sports betting, and the 45 states with legal daily fantasy sports betting online. In the near-decade since legal online gambling has been authorized, dire prophecies about online youth gambling have failed to materialize, with online operators rarely receiving fines for underage gambling. Furthermore, technology makes it possible for online platforms to be at least as capable of verifying their customers’ age, identity, and location as land-based casinos, which rely almost exclusively on a visual scan of identification cards. In addition to scanning IDs, online gambling platforms typically ask for additional details, which, depending on state regulations, may include Social Security numbers and answering questions about personal history, such as previous addresses at which they lived. Those details are then checked against government databases to verify customer identity. They are also stored so that, if there are doubts about an operator’s compliance with state laws, regulators can follow a digital trail of evidence to prove such violations occurred, fine operators, or shut them down. 

Another fear raised by the ‘yes on Prop. 26’ and ‘no on Prop. 27″ campaigns are that online sports betting would exacerbate problem gambling or “gambling addiction.” Such concerns are an inevitable part of any debate over expanding access to gambling but based on data and real-world experience, these fears are largely unjustified. Despite extraordinary increases in access to gambling, problem gambling continues to be rare, and its prevalence has been remarkably stable in the U.S. since the 1970s. This is not to say that problem gambling should be ignored, only that the risks should not be overblown. 

As with age and identity verification, online platforms can employ technological solutions that can address problem gambling, such as pattern-recognition software, responsible gaming “speedbumps,” which force players to set limits on their spending, and the ability to self-exclude themselves from access to gambling websites. Moreover, whether land-based or online, the risks of problem gambling are better addressed when the gambling occurs in a legal, regulated market, as opposed to illicit markets. And on that note, it is worth pointing out that the absence of legal sports betting has not stopped the activity, with experts estimating that Californians already place an estimated $15 billion in illegal sports bets each year. Most of that money is sent to overseas illicit operators, and those operators do little, if anything, to stop underage or problem gambling. 

Another central argument made by supporters of Prop. 26 is that restricting sports betting to tribal casinos would be more beneficial for tribal economies and welfare. Indeed, a near-monopoly on sports betting would be in gaming tribes’ financial interest. But, supporters of Prop. 27 have controversially argued that Prop. 26 mainly benefits the wealthiest tribes with large casinos while Prop. 27 would spread the wealth more evenly, earmarking 15 percent of the tax revenue it would generate (an estimated $45 million annually) to be split among the state’s non-gaming tribes. 

Prop. 26 and Prop. 27 also impact other industries and communities. Cardrooms in the state, along with many workers’ unions, local elected officials, social justice organizations, and animal welfare groups have joined a coalition against Prop. 26 because they say it would create an unfair advantage for tribal casinos, siphoning customers away from other gambling businesses in the state and putting at risk the entire cardroom industry, along with the 32,000 jobs it supports and the $5.5 billion in economic activity it generates, which could “devastate other communities of color in California.”   

Another argument made by Prop. 27 proponents is that their measure would provide significant funding to address the state’s homelessness problem, earmarking 85 percent of the tax revenue—potentially $250 million annually—to programs aimed at creating long-term housing for those in need, a figure that could total more than  

Proponents of Prop. 26 concede that Prop. 27 would generate far more revenue by allowing large national brands, like DraftKings and BetMGM, to participate in California’s market. Those operators would be subject to taxes, unlike tribal casinos. However, Prop. 27 opponents argue that this would be bad for California and tribal casinos because it would primarily benefit out-of-state businesses and “wall street investors funding Prop 27.” While Prop. 26 would generate less revenue, supporters argue it would keep all that money in the state. 

Prop. 27 would create a more robust and competitive sports betting market than Prop. 26 by allowing online and mobile betting, generating billions in revenue for the state, gaming tribes, and operators under agreement with those tribes. Still, it could divert some revenue from in-person betting at tribal casinos. It might also put those tribes who wish to enter the online sports betting market but do not want to partner with national brands at a disadvantage in the market.

Proposition 26 would benefit the state’s gaming tribes and block out-of-state gambling companies from California’s market. But, the benefits generated by Prop. 26 may come at the cost of Californians having competitive choices of where to gamble and would mean forgoing hundreds of millions in tax revenue Proposition 27 would have generated for other communities, non-gaming tribes, and housing programs.

Voters’ guides for other propositions on California’s 2022 ballot.

The post California Proposition 27 (2022): Legalizes online sports betting, funds homelessness and mental health programs appeared first on Reason Foundation.

California’s Proposition 26 would authorize Indian tribal casinos and four-horse racetracks in the state to offer in-person sports wagering on college sports, amateur athletics, and other competitions. Still, it would prohibit wagering on high school sports and events involving California-based college teams. The measure would also authorize gaming tribes in the states to offer roulette and dice games, like craps. Revenue generated from sports betting would go to the state’s general fund, enforcement costs, and programs aimed at addressing problem gambling. 

Fiscal Impact

The measure would tax sports betting at racetracks at 10 percent. The state’s four licensed horse racetracks would be the only ones to pay that tax since tribes as sovereign entities are tax-exempt. But, gaming tribes contribute funds to the state in other ways, such as fees stipulated in tribal-state compacts that each tribe would strike with the state before offering sports betting. Altogether, Prop. 26 is expected to increase state revenue by tens of millions of dollars annually, according to the California Legislative Analyst’s Office (LAO), with 70 percent going into the general fund. The remaining 30 percent would be divided equally between paying for enforcement costs (LAO estimates in the low tens of millions of dollars annually) and programs that address problem gaming. 

Argument in Favor

Proponents argue that giving California’s tribes and racetracks exclusive authority to offer sports betting would bolster tribal self-sufficiency, create jobs, and generate revenue for the state. They point out that sports gambling online is extensive and that Prop. 26 would keep much of that spending in California rather than going to out-of-state online gambling companies. They assert that limiting the activity to in-person betting operated by facilities with long track records of responsible gaming will prevent underage gambling and mitigate problem gambling. 

Arguments Against

Opponents of Prop. 26 argue that the measure is anti-competitive, unfairly granting tribes a near-monopoly on sports betting and an actual monopoly on roulette and craps, in addition to their existing monopoly on slot machines. They allege that the measure benefits a handful of wealthy tribes with large casinos at the expense of smaller tribes, California’s non-tribal gaming industry, and other communities of color in the state, costing them thousands of jobs and millions in revenue. Some also oppose the measure for propping up the horse racing industry and promoting animal abuse. And, as with any measure to expand gambling, some oppose Prop. 26 for concerns that such expansions threaten the integrity of youth sports and could increase problem gambling. 

Discussion 

Since the U.S. Supreme Court overturned the federal prohibition on sports gambling in 2018, more than 30 states have legalized the activity in some form, generating more than $142 billion in wagers and over $1.5 billion in tax revenue. California, with its nearly 40 million residents, could be the largest and most lucrative sports betting market in the country, yielding operators between $350 million and $3 billion in profits and the state up to $300 million in new tax revenue, depending on the way it is regulated. 

California’s gaming tribes currently enjoy a state-granted monopoly over slot machines and casino-style games, which nets them around $8 billion in revenue each year. That money is vital for tribal economic welfare as well as tribal political power. Tribes have used that power to deftly defend their control over gambling in the state, expanding the types of games tribes can offer while blocking attempts at encroachment by competitors. Legalizing sports betting represents a significant opportunity to increase foot traffic and revenue for tribal casinos. It is also a threat should the new market bolster its competitors’ profits and influence in state politics. 

That is among the reasons many of California’s gaming tribes, 26 at last count, have thrown their support behind Proposition 26, which would restrict legal sports betting to in-person bets at tribal casinos and the state’s four licensed horse racetracks. Along with those tribes and racetracks, some chambers of commerce, faith-based organizations, and social justice-oriented groups have also backed Prop. 26. Some, but not all of these Prop. 26 supporters have also joined the ballot measure committee in opposition to Proposition 27, which would allow non-tribal entities to offer online and mobile sports betting if they strike a deal with one of the state’s gaming tribes.

Those supporting Prop. 26 argue that limiting sports betting to in-person bets at tribal casinos would mitigate the risks of underage and problem gambling, prevent profits from leaving the state, and bolster tribal sovereignty and self-sufficiency. 

Prop. 26 supporters point to the 20-year history of responsible gaming operated by tribal casinos, arguing that they are better equipped to prevent underage bets than online or mobile businesses, while Prop. 27 offers no such protections. Using the rhetoric long-used employed by land-based casinos opposed to online gambling, Prop. 27 opponents argue it would turn “every cellphone, laptop, tablet, and even video game console into a gambling device, opening up online gambling to anyone, anywhere, anytime.” However, it is worth noting that at least some of the tribes opposed to Prop. 27 are open to authorizing online and mobile sports betting so long as the tribes control it, with some already lending support to a 2024 ballot initiative that would do just that.

Supporters of Prop. 27 claim allegations about online gaming spurring youth betting are little more than fear-mongering and highlight the successful prevention of youth online betting in other countries that have legalized online gambling, as well as the seven U.S. states with legal online poker, the 20 states with online legal sports betting, and the 45 states with legal daily fantasy sports betting online.

In the near-decade since legal online gambling has been authorized, dire prophecies about online youth gambling have failed to materialize, with online operators rarely receiving fines for underage gambling. Furthermore, technology makes it possible for online platforms to be at least as capable of verifying their customers’ age, identity, and location as land-based casinos, which rely almost exclusively on a visual scan of identification cards. In addition to scanning IDs, online gambling platforms typically ask for additional details, which, depending on state regulations, may include social security numbers and answering questions about personal history, such as previous addresses at which they lived. Those details are then checked against government databases to verify customer identity. They are also stored so that, if there are doubts about an operator’s compliance with state laws, regulators can follow a digital trail of evidence to prove such violations occurred, fine operators, or shut them down. 

Another fear raised by the ‘yes on Prop. 26’ and ‘no on Prop. 27’ campaigns are that online sports betting will exacerbate problem gambling or “gambling addictions.” Such concerns are an inevitable part of any debate over expanding access to gambling but based on data and real-world experience, these fears are largely unjustified. Despite extraordinary increases in access to gambling, problem gambling continues to be rare, and its prevalence has been remarkably stable in the U.S. since the 1970s. This is not to say that problem gambling should be ignored, only that the risks should not be overblown. 

As with age and identity verification, online platforms can employ technological solutions that can address problem gambling, such as pattern-recognition software, responsible gaming “speedbumps,” which force players to set limits on their spending, and the ability to self-exclude themselves from access to gambling websites. Moreover, whether land-based or online, the risks of problem gambling are better addressed when the gambling occurs in a legal, regulated market, as opposed to illicit markets. And on that note, it is worth pointing out that the absence of legal sports betting has not stopped the activity, with experts estimating that Californians already place an estimated $15 billion in illegal sports bets each year. Most of that money is sent to overseas illicit operators, and those operators do little, if anything, to stop underage or problem gambling. 

Another central argument made by supporters of Prop. 26 is that restricting sports betting to tribal casinos would be more beneficial for tribal economies and welfare. Indeed, a near-monopoly on sports betting would be in gaming tribes’ financial interest. But, supporters of Prop. 27 have argued that Prop. 26 mainly benefits the wealthiest tribes with large casinos while Prop. 27 would spread the wealth more evenly, earmarking 15 percent of the tax revenue it would generate (an estimated $45 million annually) to be split among the state’s non-gaming tribes. 

Prop. 26 and Prop. 27 also impact other industries and communities. Cardrooms in the state, along with a number of workers’ unions, local elected officials, social justice organizations, and animal welfare groups, have joined a coalition against Prop. 26 because they say it would create an unfair advantage for tribal casinos, siphoning customers away from other gambling businesses in the state and putting at risk the entire cardroom industry, along with the 32,000 jobs it supports and the $5.5 billion in economic activity it generates, which could”devastate other communities of color in California.”   

Another argument made by Prop. 27 proponents is that their measure would provide significant funding to address the state’s homelessness problem, earmarking 85 percent of the tax revenue—potentially $250 million annually—to programs aimed at creating long-term housing for those in need, a figure that could total more than  

Proponents of Prop. 26 concede that Prop. 27 would generate far more revenue by allowing large national brands, like DraftKings and BetMGM, to participate in California’s market. Those operators would be subject to taxes, unlike tribal casinos. However, Prop. 27 opponents argue that this would be bad for California and tribal casinos because it would primarily benefit out-of-state businesses and” wall street investors funding Prop 27″ While Prop. 26 would generate less revenue, supporters argue it would keep all that money in the state. 

Prop. 27 would create a more robust and competitive sports betting market than Prop. 26 by allowing online and mobile betting, generating billions in revenue for the state, gaming tribes, and operators under agreement with those tribes.

Still, it could divert some revenue from in-person betting at tribal casinos. It might also put those tribes who wish to enter the online sports betting market but do not want to partner with national brands at a disadvantage in the market. Proposition 26 would benefit the state’s gaming tribes and block out-of-state gambling companies from California’s market. But, the benefits generated by Prop. 26 may come at the cost of Californians having competitive choices of where to gamble and would mean forgoing hundreds of millions in tax revenue Proposition 27 would have generated for other communities, non-gaming tribes, and housing programs.

Voters’ guides for other propositions on California’s 2022 ballot.

The post California Proposition 26 (2022): In-person sports betting regulation and tribal gaming expansion appeared first on Reason Foundation.

California’s Proposition 30 would increase state taxes on personal income over $2 million by 1.75% for individuals and married couples. Prop. 30 would allocate the increased tax revenues as follows: (1) 45% for rebates and other incentives for zero-emission vehicle purchases and 35% for charging stations for zero-emission vehicles, with at least half of this funding directed to low-income households and communities; and (2) 20% for wildfire prevention and suppression programs, with priority given to hiring and training firefighters.

Fiscal Impact

The Legislative Analyst’s Office estimates that Prop. 30’s additional tax would raise between $3.5 billion and $5 billion annually which would be split across the zero-emission vehicle and wildfire prevention programs. Although LAO notes that “some taxpayers probably would take steps to reduce the amount of income taxes they owe,” it does not attempt to quantify any potential revenue losses.

Arguments in Favor

Proponents argue that the state must take more vigorous action to reduce air pollution and greenhouse gas emissions while countering wildfires which have become worse in recent years. Supporters say the funds from Proposition 30 would accelerate the transition to electric vehicles by making electric vehicles more affordable and increasing the number of charging stations, thereby making charging more convenient and encouraging more people to buy EVs. Politico reports that ride-sharing company Lyft, environmental groups, and “unions that would build electric infrastructure” are among those supporting Prop. 30.

“The initiative will expand access to electric vehicle chargers for every Californian, regardless of where they live or work. In the first year alone, over 500,000 apartments and houses will be equipped with EV chargers,” claims the Yes On 30 Clean Air Coalition.

In an effort to reduce wildfire risks, Proposition 30’s proceeds would also be used to clear dry vegetation and increase protective spaces around homes and businesses. To fight fires more effectively once they start, the measure would also fund additional personnel and equipment. Proponents say reducing the number and size of fires and fighting them more effectively would improve the state’s air quality.

Arguments Against

Opponents are concerned that Prop. 30 reduces the state legislature’s ability to allocate state resources and might take funding away from schools and other priorities.

“We already have some of the highest taxes in the country,” Jon Coupal, president of the Howard Jarvis Taxpayers Association, told the Mercury News. “A lot of the air pollution in Southern California could be eliminated by spending transportation dollars on freeway improvements to reduce traffic jams. If these proposals are really priorities, they should be paid for out of the existing general fund.”

The California Teachers Association and Gov. Gavin Newsom are among others who oppose the proposition. “California’s tax revenues are famously volatile, and this measure would make our state’s finances more unstable — all so that special interests can benefit,” said Gov. Gavin Newsom. “Californians should know that just this year our state committed $10 billion for electric vehicles and their infrastructure, part of a $54 billion nation-leading package to fight climate change and build a zero-emission future. Don’t be fooled. Prop. 30 is fiscally irresponsible and puts the profits of a single corporation ahead of the welfare of the entire state.”

Opponents also contend that by hastening the conversion to electric vehicles, Proposition 30 would increase demand for electricity without funding increased power generation capacity, thereby straining the state’s electrical grid, which is facing issues in September 2022. As a result, future heat waves are more likely to result in emergency conservation measures, which can include rolling blackouts as well as restrictions on air conditioner use and electric vehicle charging.

Discussion

Although it is possible to charge electric vehicles at home, EV owners often need to use public charging stations if they run low during the day, typically due to long-distance travel. Also, apartment dwellers may not be able to charge their vehicles at home.

California has almost 38,000 EV charging ports at over 14,000 public charging stations, more than any other state both in absolute and per capita terms. But a 2021 report from the California Energy Commission concluded that public charging infrastructure was not keeping up with the state’s growing need for these facilities.

Additional public funds have been earmarked to subsidize the addition of more charging stations. The 2021 Infrastructure Investment and Jobs Act included $7.5 billion for EV charging infrastructure, of which about $383 million is expected to be spent in California. The state government also plans to spend about $2 billion on its own funds with a goal of reaching 1.2 million charging stations statewide by 2030.

With respect to wildfires, the legislature committed an additional $1.2 billion to “wildfire and forest resilience” in its 2022-2023 budget over a two-year period. But much more could be spent to minimize fire risk. For example, the cost of undergrounding all above-ground power lines statewide has been estimated to be $243 billion. That said, not all above-ground power lines are close enough to forests to present a risk of wildfires, and Pacific Gas and Electric Company (PG&E) has begun the process of undergrounding 10,000 miles of high-risk lines at an expected cost of at least $15 billion to 20 billion of ratepayer revenues, reducing the need for state spending.

The fiscal impact of Proposition 30, if approved, would be heavily dependent on the relocation decisions of a small number of the state’s high-income taxpayers. Those affected by this measure—Californians with incomes of over $2 million annually, currently face a marginal state tax rate of 13.3%. This rate is higher than maximum rates in other states: Hawaii has the second highest marginal income rate of 11%. Some New York City taxpayers face a higher combined state and local income tax rate than their California counterparts.

According to 2019 statistics published by the state’s Franchise Tax Board, only 35,000 taxpayers reported adjusted gross incomes greater than $2 million. In that year, those taxpayers had a cumulative state tax liability of $27.3 billion or 33% of the statewide total in income taxes collected.

During the COVID-19 pandemic, outmigration from California increased as remote work became more common. Four of the states that are receiving significant numbers of departing Californians— Florida, Nevada, Tennessee, and Texas—do not have state income taxes. Historically, California has been able to retain most of its high-income residents due to its weather, extensive business opportunities, lifestyle, and unparalleled social networks, especially in the entertainment and technology industries. While some of these benefits remain intact, growing technology clusters in places like Austin and Miami are now in a stronger position to compete for high-income Californians.

As noted by the Legislative Analyst’s Office, it is impossible to predict how many high-income Californians will relocate if Proposition 30 passes. On the one hand, an extra expense of 1.75% on a certain portion of an individual’s income may be seen as a relatively minor cost that would not drive the behavior of high-income individuals or families. But, for some others, it could be the last straw, pushing some families who may have already been considering moving out of California to go ahead with their plans.

Outmigration of high-income taxpayers would not only cut into the state’s marginal income from the 1.75% tax increase those individuals would have paid, but it would also cause the state to lose the rest of the income taxes they were previously paying. Consider, for example, a married taxpayer filing jointly and reporting $5,000,000 of adjusted gross income net of deductions. In 2021, that taxpayer would have incurred a state tax liability of $582,739. Had the new Prop 30 tax been in place, he or she would have paid an additional $52,500 in state taxes toward vehicle charging infrastructure and wildfire protection. But if the taxpayer leaves, the state will not only lose this additional revenue from Prop. 30 but also the opportunity to collect the existing obligation which, in this case, is $500,000 for just one taxpayer.

If many high-income taxpayers leave, this loss of base income tax revenue could offset some or even most of the expected revenue gain from Prop. 30. Further, it has distributional effects within the state budget. While extra taxes collected from the marginal tax increase would go to Proposition 30 priorities, revenue losses from relocations out of state would impact the state’s general fund, which primarily funds K-12 education and Medi-Cal. It may be for this reason, that the California Teachers Association and California Gov. Gavin Newsom oppose Proposition 30.

If Proposition 30 passes and the state loses a significant amount of base tax revenue from outmigration, the state legislature could have to divert planned general fund spending from electrical vehicle infrastructure to other priorities. That would theoretically enable the state to maintain its education spending levels but would frustrate Prop. 30 proponents’ goal of increasing overall state support for electric vehicles.

The post California Proposition 30 (2022): Tax increase on incomes above $2 million appeared first on Reason Foundation.

California’s Proposition 29 on the state’s November 2022 ballot would require physicians, nurse practitioners, or physician assistants with six months of relevant experience to be on-site during treatment at outpatient kidney dialysis clinics. It would also require increased disclosure of clinic ownership and dialysis-related infections. Proposition 29 would prohibit clinics from closing without state approval or discriminating against patients based on the type of coverage they have.

Fiscal Impact

The Legislative Analyst Office estimates that Proposition 29 would cost Californias state and local governments— taxpayers—”tens of millions of dollars annually.” Dialysis centers would incur additional costs to implement the measure some of which they would be expected to pass along in the form of higher fees and charges to California’s Medi-Cal system and to health care plans for public sector employees and retirees.

Arguments in Favor

Proponents of Prop. 29 say that because kidney dialysis services are essential to the continued survival of 80,000 Californians a month, the industry requires common-sense regulation that ensures these services are provided safely. Specifically, because dialysis is a dangerous procedure, it is essential that a trained clinician be nearby to react if something goes wrong. State approval of clinic closures would protect rural communities from losing access to needed dialysis services. Supporters also say that greater financial disclosure is required so that researchers and the public can better assess the impact of physician ownership of clinics. Dialysis companies are so profitable that they can easily afford to make the proposed changes while still covering their operating costs.

Arguments Against

Opponents claim Prop. 29 would increase the cost of providing dialysis services, and force some dialysis centers to shut down and others to reduce hours, thereby reducing access to this lifesaving treatment. Opponents assert, “Missing even a single dialysis treatment increases patients’ risk of death by 30%.” Dialysis centers are already subject to substantial state and federal oversight and are thus quite safe. Further, tying up physicians and other highly trained medical personnel at dialysis centers would worsen the shortage of healthcare workers across the state and increase waiting times at emergency rooms.

Additional Discussion

Since many dialysis patients are highly vulnerable, the requirement that a licensed medical professional is on-site during procedures appears to make sense. On the other hand, opponents question whether an on-site medical practitioner could effectively respond to a medical emergency given the lack of equipment at most dialysis centers. As Dahlia Ackerman, a longtime dialysis nurse opposing Proposition 30, told the San Francisco Chronicle, “The only thing that we, including a physician, can do in an emergency would be to call 911.”

California’s shortage of medical professionals would also pose challenges for implementing the on-site medical staffing requirement in Prop. 29. In 2020, Gov. Gavin Newsom wisely used his powers under the state’s COVID-19 state of emergency to authorize the state director of public health to waive licensing requirements on medical practitioners and restrictions on out-of-state medical professionals to help increase the number of medical practitioners in California. These waivers, intended to ensure adequate staffing at medical facilities, remained in place as of Aug. 2022, with no end in sight but Prop. 29 would increase the state’s need for more medical professionals.

Another potential issue for Prop. 29—infection data is already collected at the federal level by the Centers for Disease Control and Prevention’s (CDC’s) National Healthcare Safety Network (NHSN), so state collection would largely be redundant. If federal data is insufficiently timely or complete, health advocates’ purposes would seem better served by working with the CDC to improve that data rather than imposing a second collection system in just one state un Prop. 29

The proposition is also partially an effort by the Service Employee International Union to introduce state regulation of dialysis clinics through the ballot box. Previous SEIU-sponsored measures in 2018 and 2020 were defeated by large margins.

Finally, the dangers of dialysis could be better minimized by reducing the number of patients who require this procedure. The federal government could consider relaxing the prohibition of cash compensation for live kidney donors included in the National Organ Transplant Act (NOTA). A bipartisan bill introduced in Congress, House Resolution 3569, would amend NOTA to clarify that organ donors could be compensated for out-of-pocket expenses, lost wages, and other costs associated with donating. Further options, short of creating a market for kidney donations, could include offering tax credits for donors.

Currently, there are over 19,000 candidates in California on the kidney organ transplant waiting list. Kidney donors must take time off work, suffer discomfort, and accept the increased health risks that come with having only one kidney. If donors were properly compensated for their considerable sacrifice, more people would likely be willing to donate reducing the need for dialysis—and reducing the need for this type of ballot initiative.

The post California Proposition 29 (2022): Dialysis clinic requirements appeared first on Reason Foundation.

“Nothing epitomizes market failures more than the cost of insulin. Many Americans experience out-of-pocket costs anywhere from $300 to $500 per month for this life-saving drug,” Gov. Gavin Newsom remarked when announcing the passage of the insulin plan. “California is now taking matters into our own hands.”

While it is very unfortunate that Americans pay high prices for lifesaving insulin, high insulin prices are caused by a maze of regulation, bureaucracy, and pharmacy benefit managers that drive up the costs. While California’s efforts are well-intentioned, high insulin prices would be better addressed by regulatory reform and private initiative rather than a government-run program administered by a state with a dubious track record of competence and efficiency.

Evidence that the private sector can produce affordable insulin is available just south of the border. In Mexico, insulin prices are about one-sixth of those in the United States for a variety of reasons. Some Americans cross the border to take advantage of the lower costs. While it is illegal to import prescription drugs to the United States, the federal government generally does not enforce the prohibition for personal importation of up to a three-month supply of most medicines. But making regular trips to Mexico isn’t a sustainable solution for most California insulin users.

One problem in the United States is a lack of competition arising from patent protection for insulin delivery devices and barriers to getting approval for biosimilar products. There is some promise on the latter front as the Food and Drug Administration approved two biosimilars in 2021.

But additional reforms will likely be needed to bring US insulin prices down to international levels. Writing in Mayo Clinic Proceedings in 2020, the Mayo Clinic’s Dr. Vincent Rajkumar recommended that the United States participate in a reciprocal approval process with Canada and Western European countries. If a drug regulator in one of those nations approves a new insulin treatment, it could also be sold in the United States.

Further, Rajkumar recommended limiting the length of initial patents and preventing the use of additional patents on a single drug to extend market exclusivity. Although generous patent protection is defended as a means of encouraging innovation, incremental changes in how insulin is produced or delivered may not merit long exclusivity periods.

Costs could also be reduced if patients could obtain newer insulin formulations without a prescription. Early insulin formulations are still available on a non-prescription basis, having been grandfathered in before the Food and Drug Administration acquired the authority to classify new drugs as prescription-only. Although non-prescription insulin accounts for a small portion of the market, its availability without publicized safety incidents likely suggests that all insulin formulations could be safely dispensed without a prescription.

Some price relief might also come from disruptive new market entrants such as Civica RX, a nonprofit generic drug company that plans to sell insulin for $30 per vial. Civica was founded in 2018 with the support of major health systems, including the Mayo Clinic, and large philanthropies (one of which also supports my employer, Reason Foundation). Nonprofits that prioritize delivering social benefits over net income can reasonably be considered a market response since they address consumer needs without the coercion and top-down thinking that characterizes government interventions.

For-profit companies can also address the high price of insulin. Mark Cuban’s Cost Plus Drug Company is offering prescription drugs at steep discounts by selling direct to consumers, eliminating markups imposed by pharmacy benefit managers and other middlemen. Cuban’s company appears to be working on adding insulin to its low-cost generic drug offerings.

Meanwhile, the same state government considering entering the complex pharmaceutical industry is struggling with basics, like upgrading its own computers and information technology systems. Rather than take a state-driven insulin approach, California could more effectively bring down insulin prices by importing it or purchasing it from new entrants like Civica RX and Cuban’s company.

The post California’s misguided plan to make its own insulin appeared first on Reason Foundation.

To its credit, BART publishes hourly station entrances and exits by station pair on its website. For each hour, the data set shows how many individuals traveled between any two named stations throughout the system. By classifying stations by the side of San Francisco Bay in which they are located, it is possible to estimate the number of hourly trips passengers took beneath the bay. 

If cross-bay ridership in any given hour approaches the system’s capacity, there is a case for adding capacity by, for example, adding a second tunnel. But, if usage is well below capacity, large capital expenditures to increase capacity are not warranted. 

While ridership varies widely across days and times, it is best to focus on the busiest travel times, which have historically been the morning and evening rush hours. Suppose the existing tunnel is reaching maximum capacity. In that case, a new tunnel may be needed irrespective of usage during less busy periods (although authorities might also consider negotiating arrangements with large employers to stagger employee hours, implement variable fares to deter peak travel, or use other techniques to lower utilization during peak periods). 

Today, the theoretical capacity of the single BART San Francisco Bay tunnel is 48,000 passengers per direction per hour based on a maximum of 24 trains per hour, 10 cars per train, and 200 passengers per car (representing what BART officials call “crush capacity” with standees packed into each car like sardines). For various reasons, not the least of which is passenger comfort, planners should try to avoid approaching this theoretical maximum.  

BART is already investing in a capacity increase. By upgrading its train control system and purchasing more rolling stock, the system should be able to run 28 cars in each direction under the Bay by 2030, raising the theoretical maximum to 56,000. This upgrade project, known as the Transbay Corridor Core Capacity Program, has an estimated cost of $2.7 billion, including $1.2 billion in federal funding. 

I examined BART ridership data for the last eight years to determine whether a second tunnel is needed. For each month between January 2015 and July 2022, I found the highest single hour of cross-bay ridership, as shown in the accompanying chart. Between 2015 and the pandemic’s beginning, peak hour usage hovered around 30,000—comfortably below today’s theoretical maximum.

However, the data shows a slight upward trend, even though BART’s total ridership declined during this period. Further, the all-time peak of 33,794 was reached recently in May 2019. This evidence supports the need for the Core Capacity Program, and possibly, during the pre-pandemic period, may have made the case for the second tunnel.

However, as one would expect as the COVID-19 pandemic really hit the United States in March 2020, BART's peak hour ridership declined sharply in March and April 2020.

Over the past two years, ridership has been recovering slowly. There was a significant bump in June 2022, but that was the result of East Bay residents traveling to San Francisco to join in on the Golden State Warriors NBA championship parade and not indicative of any regional commuting trend. 

In July 2022, BART's peak hourly cross-bay ridership was just 27% of the level reached in July 2019. This percentage is considerably below the 34% to 35% levels BART reported for all-day ridership on most Tuesdays, Wednesdays, and Thursdays in July.

BART computes its ratios by comparing overall daily ridership in July 2022 to pre-pandemic levels. The difference between the ratio I calculated and those reported by BART is consistent with the intuition that, in the current pandemic era, work and travel patterns are more varied, with the share of riders using mass transit for their traditional morning and evening commutes falling as a percentage of total trips. 

To determine whether building a second transbay tunnel is a wise investment of public funds in the coming decade, one must answer two questions: Will overall system usage return to and then exceed BART's pre-pandemic levels? And will BART's ridership once again become more concentrated at rush hour peaks?

Mounting evidence suggests that the answer, at least to the first question, is no. 

In the early months of COVID-19, most urban planners worked on the assumption that there would be a discrete end to the pandemic, after which offices would reopen, workers would return, and BART would rapidly recapture most of its lost ridership.

That discrete ending may have appeared to be in sight during the COVID-19 vaccine rollout early in 2021. But, instead, the pandemic has been prolonged as new COVID-19 variants emerged, Bay Area case levels experienced multiple spikes, and many workers have resisted returning to offices.

Now, it looks like there will not be a clear or sudden end to the pandemic, but rather a gradual transition to endemicity, with COVID-19 remaining a background threat to many, including those with underlying health risks and conditions, for the foreseeable future. 

Given the combination of COVID and new technologies, remote work has become the norm rather than the exception for many types of employees, especially in the Bay Area. According to a survey of mid-size and large public firms conducted by the San Francisco Standard, "More than half of the 73 mid-size and large public firms with headquarters in San Francisco said their office workers can work remotely full-time for the foreseeable future, according to publicly available company information, employee interviews and job postings." Most other companies intend to use a hybrid model where employees work on-site fewer than five days per week. 

Another factor limiting commuting is the slowdown in technology industry employment growth. We may be reaching the end of the megatrend toward increased use of online technologies leading into the pandemic and then accelerated by it as people avoided in-person contact. Now that most people have become willing to return to physical stores and restaurants, technology utilization is flattening along with the demand for software engineers.

The Mercury News recently reported, "In an unsettling trend, some tech companies such as Apple, Google, Facebook app owner Meta Platforms and Tesla have revealed plans to pause or scale back hiring amid ongoing economic uncertainties."

"The rebound from the pandemic appears to be losing steam, and hiring is clearly slowing in the tech sector,” Mark Vitner, senior economist with Wells Fargo Bank, told the Mercury News.

It is possible that local technology hiring could rebound in the coming years, and it is also possible that San Francisco’s economy could experience a rotation in which another growing industry sparks a new round of employment growth. But current evidence suggests that the number of individuals commuting to work in downtown San Francisco may not return to 2019 levels for decades, if ever. 

As to the second factor that determines needed BART capacity under the Bay—whether commute times will once again become concentrated during the typical rush hours of 8-10 am and 4-6 pm— less evidence is available. However, we know from surveys conducted by Adobe Corporation and others that many employers have adopted flexible work schedules since the onset of the pandemic and that employees would like to see them go further in this direction.

So, the traditional 9-to-5 workday and its concentrated commuting pattern may become a thing of the past. Other research suggests that inbound commuting times are becoming more variable post-pandemic than outbound commutes, but, in the case of BART, inbound passenger volumes were more concentrated than outbound volumes, so this trend will most likely lead to the two commute peaks balancing out at much lower levels. 

While we should not completely rule out the need for a second Bay tunnel someday, the $29 billion required to build it could undoubtedly be reprogrammed to support other infrastructure projects that have a far greater chance of benefiting the Bay Area in the near-to-intermediate future.

The post Ridership data and work trends continue to undermine the case for a second BART tunnel  appeared first on Reason Foundation.

“In the face of new challenges and uncertainties, we’re providing over $17 billion in relief to help families make ends meet and doubling down on our investments to keep building the California Dream on a strong fiscal foundation,” said Gov. Gavin Newsom of the state spending plan he signed in June.

Stimulus checks marketed as ‘inflation relief’ are the largest item in that $17 billion portion of the budget. The payments will go to single adults making up to $250,000 a year and couples making up to $500,000, costing taxpayers $9.5 billion. Another spending item getting far less attention, but with nearly an identical price tag, is a $9 billion increase in the base student funding for California’s public school funding formula, which determines how much money school districts receive each year.

For a variety of reasons during the pandemic, statewide public school student enrollment dropped by 2.6% in the 2020-21 school year and 1.8% in the 2021-22 school year. The declines in major metro school districts were more acute, according to data from Burbio, a school data site. In Southern California, Los Angeles Unified School District wasn’t the only one losing large numbers of students. San Diego Unified School District and Long Beach Unified each lost more than 3% of their student populations last year. Orange Unified School District and Capistrano Unified fared better, losing less than 1% of their students. Overall, school districts located in cities and suburbs lost 2.5% and 1.6% of their students, respectively, last year.

Even though there are fewer kids in public schools, the state’s education spending continues to go up. But higher education spending isn’t leading to higher student test scores. Despite increasing education spending by 36% since 2002, California students produced only small increases in math and reading test scores as of 2019.

CalMatters reports: “Since California students began taking the new standardized exam — known as ‘Smarter Balanced’ — statewide reading and math scores have inched up an average of about 1 percentage point each year for the past five years.”

However, many education researchers fear school closures and other learning disruptions during the pandemic are likely to have erased any progress student outcomes made in the last decade. California’s current combination of a declining population and increased education spending is a recipe for fiscal challenges in the coming years. As a potential recession looms and inflation continues to rise, state leaders and school districts should be preparing their budgets accordingly, not continuing a spending spree.

The state budget is heavily reliant on personal income taxes, which, although more stable than many other revenue sources, can make state revenues volatile and contribute to large surpluses and deficits. During the 2008-09 recession, for example, a drop in revenue from income and corporate taxes coupled with years of runaway spending helped cause the state education budget to be cut by nearly 14%.

Right-sizing California’s education budget now, while the state has a surplus, certainly goes against the political pressures to perpetually increase spending. But California can’t keep increasing education spending while losing students and failing to produce significant achievement gains. To avoid sudden and drastic cuts when the next financial crisis inevitably hits the state and public schools, students and taxpayers would be better served by strategically rightsizing schools and the education system right now.

A version of this commentary originally ran in The Orange County Register.

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