Thursday, October 15, 2020

California ballot propositions for November elections (pt. 1 of 2)

As a Californian, I'm used to the barrage of propositions that enter into our ballots every election season. For those less familiar with California state government: there are a number of institutional elements in our government that make it more of a direct democracy than other state governments in the U.S. One of these elements is the initiative statute which allows members of the public with sufficient signatories to place statutes - or propositions - on the ballot to be passed into law with a simple majority of votes. The initiative statute and other elements allow for greater citizen participation in the lawmaking process. This right to greater citizen participation is accompanied by greater responsibility on the part of voters to be informed on the often extensive slate of propositions that can have important political, social, and financial ramifications for California residents. Acknowledging these responsibilities, my family and I gather together every two years once we've received our sample ballots to discuss the merits of the propositions and come up with a voting strategy. Given the number of important propositions up for consideration this year and interest from other friends, I decided to open up the discussion around this year's propositions beyond the confines of our kitchen. 

Background on direct democracy elements in state government

Direct democracy allows for greater citizen participation in the lawmaking process. In some circumstances it can be viewed as a positive given that it allows for the majority opinion to be heard and legislated. In other circumstances it can be viewed as a negative given that the legislation of some issues may be better left to those who are more knowledgeable and more efficient at governing. In other words, mob rule is not necessarily the most enlightened rule. The balance between these elements is what led the founders of American government to construct a representative republic in which popular participation was used only for the election of representatives to the legislature. The institutional elements of California government that I discuss here - instituted in 1911 - are initiative statute, initiative constitutional amendment, recall, and referendum. 

The article here in the Southern California Law Review provides a more extensive legal discussion of these elements that I discuss here. Note firstly that  - the outdated - Table 1 in the article here on California government in the Southern California Law Review indicates that, while California was well ahead of the third-place contender Colorado on the list of states with the highest number of ballot initiatives between 1904-2000, it was also still behind Oregon. It serves as a reminder that California is not the only state with a history of using direct democracy tools. Here is a map that illustrates the states that do have initiative or veto referendum processes. 

Initiative statute - the element that I discuss here when I say ballot propositions - is a way for citizens to place statutes on the ballot by soliciting a minimum number of signatories. These statutes are then voted on and signed into law if a majority of voters accept them. Two years ago we even voted to go Daylight-Savings time all year round, which made me feel simultaneously that: of course a decision of this importance should only be made through majority voting (if someone is going to tell me when to wake up and go to bed everyday shouldn't it be the majority?) but at the same time question whether this issue is even important enough to merit the level of introspection granted to it by placing it on the ballot for 21 million registered voters to read (does it really matter that much?).  

Jokes about Daylight-Savings time aside, anyone that grew up in the U.S. likely watched this Schoolhouse Rock video in elementary school on how bills are legislated. This element of direct democracy bypasses this process - legislators are not needed to pass bills, rather, citizens can obtain the signatories to place statutes on the ballot and these statutes can be voted into law with a simple majority. It should be noted, however, that issues with this form of citizen lawmaking that doesn't require legislative input have led to recent reforms to the initiative process. For example, 2014 legislation now requires the secretary of state to notify lawmakers when a 25 percent threshold for signatures has been reached for ballot measures. This then allows lawmakers to engage with the lawmaking process by offering their suggestions and amendments to sponsors of the ballot measures. 

This op-ed in the L.A. Times outlines the problems with the initiative process including inadequate review of legislation, disconnect between a myriad of fiscal policies all voted on by the public (it has always amazed me that California voters can decide whether to undertake projects financed by bond sales even though the magnitude of these finances are probably a small share of the state's GDP), and a process that is subject to hijacking by special interest groups that can spend outsized amounts of money to convince voters of their proposals. Once initiative measures are passed, they cannot be altered by the legislature nor are they subject to an executive veto. 

Ballot measures for November elections

Hopefully the above has alerted you to the responsibilities associated with a California ballot. This November there are 12 propositions to be voted on at the state-level. One important resource for information on the ballot measures is the CalMatters 2020 Election Guide. This non-partisan, journalist driven site provides a high level summary of each of the propositions, who's sponsoring them, and who's in favor/opposed. Given the role that special interest groups play in propelling these measures to the ballot box, it's useful to follow the money (see the "how is this being bankrolled?" section on each proposition). 

For those looking for a more detailed analysis from the non-partisan California Legislative Analyst's Office see here

My takes on the propositions

These are my takes on the propositions. For those with a dash rather than Yes/No, I have yet to complete a thorough analysis of the proposition. Note that these mostly consist of 3 measures that have to do with property taxes as a revenue collection mechanism for state and local government: Props 15, 19, and 21. My main concern with these that I am still weighing the costs and benefits is the uncertainty of the real estate and housing markets in light of the ongoing pandemic and that these should be thought about in conjunction with one another (since they all relate to property tax collection) rather than independent of one another so that we have a more cohesive fiscal policy

Given how new the California privacy law - CCPA - is, I am unsure whether a measure that is on the ballot due to citizen signatures should be considered so soon in the process of our government legislating on this issue. 

However, for those which I've taken a stance - including the 3 measures related to criminal justice system - this indicates how I would be voting on these. 

(No) Prop 14: Stem cell research  

( - ) Prop 15: Commercial property tax assessment based on market value

( - )  Prop 16: Affirmative action

(Yes) Prop 17: Voting for parolees

(No) Prop 18: Voting at age 17

( - ) Prop 19: Property tax break for Californians 55+

(No) Prop 20: Increase penalties for property crimes 

( - ) Prop 21: Allow cities to enact their own rent control measures on housing over 15 years old

(No) Prop 22: Keep workers in "gig" jobs classified as contractors and limit their benefits

( - ) Prop 23: Requirements on dialysis clinics

( - ) Prop 24: Expand on recent CCPA data privacy law

(No) Prop 25: Replace cash bail with an algorithm that determines the likelihood of a person showing up to trial and grants bail based on this likelihood

Following is a more thorough analysis that I've done so far on three of the propositions. I aim to continue but thought this would be a good starting point. 

(No) Prop 14: Stem cell research  

Prop summary: California will continue to fund stem cell research by selling bonds worth $5.5 billion to be repaid with interest over a 30-year period for an estimated cost of $7.8 billion. 

Background: This proposition is a follow up to a proposition that passed in 2006. Prop 71 created the California Institute for Regenerative Medicine (CIRM) with $3 billion in funding from bonds. It was passed with a 59-41 percent majority. This financing was doled out in grants to California public universities, Stanford, research institutes, and for-profit companies working on stem cell cures. This article in the SF Chronicle details how the financing was spent between 2006-2019. 

The major critiques of Prop 71 are that: 

  1. Public was misled about how long the time-horizon was for cures and how big the ROI would be for investing in this research: Campaign promises made to incentivize voters on Prop 71 - that clinical trials were right around the corner and that the results could address a myriad of incurable diseases - were rolled back almost immediately. Would the public show up to vote as fervently for cures that would be at least 30 years down the line? Likely not. Almost half of the funding (nearly 40 percent or $1.1 billion) was spent on training programs and basic research indicating that the research was not as close to clinical trials as the campaign promises suggested. In fact only four clinical trials have taken place under the grants from Prop 71. As a result of this long time-horizon, the ROI thus far has been very low. As stated in the article: "The state, once told to expect as much as $1.1 billion in royalties from CIRM-backed discoveries within 35 years, so far has received just a tiny fraction of that amount: a single payment of $190,000 from the City of Hope medical research center in Los Angeles County." 
  2. Limited public oversight of CIRM and its governing board: The language of Prop 71 ensured that a change in the structure of the organization and the governing board would require another voter initiative or a 70 percent vote in both houses of the California state legislature and governor's approval. It also ensured that the leadership of the organization was composed of members of the institutions that were receiving the majority of the grants. This is a conflict of interest concern and it is well-documented in the SF Chronicle article. 
  3. (Critique of Prop 14) Prop 71 was passed at a time when there was a federal ban on funding for embryonic stem cell research and state-level funding: This ban was rolled back under the Obama administration and the climate around stem cell research is less hostile than it was in the early 2000s. Furthermore, a significant amount of the research funded by Prop 71 was adult rather than embryonic stem cell research with the former being far less controversial than the latter. Therefore there are more funds available today for this area of research than in 2006.

My take: Campaign promises are regularly utilized to get legislation passed by special interest groups (even public universities with an interest in curing cancer can be special interest groups though of a less-nefarious variety). 

What I am more concerned about is the conflicts of interest within the organization combined with a lack of oversight of a publicly-funded organization that should be responsive to taxpayers. It would be one thing if the originally legislation allowed for amendments to be made in subsequent years but the rigidity of a lot of propositions - see my subsequent comments to come on the rigidity embedded in Prop 22 - are in my opinion arguments against their passage. 

It is possible that the financial ROI is higher for Prop 14 funds than Prop 71 funds but financially it seems less of an investment to me and more of a grant (i.e. we should not expect to see substantive returns given that we are not seeing the financials and results of the companies that are being financed). Given the public's role in subsidizing this research for the past 15-year period, my opinion would be to see how private financing can be shored up for promising R&D over the next few years before providing more public financing. This is particularly given the current fiscal status: above average, coronavirus-induced public expenditures and below average, recession-induced public revenues. 

( - ) Prop 15: Commercial property tax assessment based on market value

Prop summary: Change the way commercial property taxes on businesses over $3 million in California property (farm land exempt) are assessed. Currently commercial property taxes are assessed based on price that was originally paid for the real estate and annual tax hikes from that base value are capped (according to 1978 Prop 13). Prop 15 would assess commercial property taxes based on the market value of the real estate for corporations with over $3 million in commercial property only. This would not directly impact residential property owners, commercial property owners with under $3 million in commercial property, or owners of farm land. The assessment would be done at least every three years rather than at the time of sale only. 

Background: Property tax assessments are currently made under the stipulations in Prop 13. Critics of this provision on commercial real estate in Prop 13 argue that while real estate prices soar, holders of said real estate are taxed based only on the initial price paid for the asset rather than its market value. Changing the way these assessments are done could raise an estimated $8-$12.5 billion in revenue annually and the proposition specifies that 60 percent of this revenue would go to cities and counties and the remaining 40 percent to schools. Given that property taxes would be tied to real estate prices, one can imagine that fluctuations in the latter would lead to fluctuations in the former as well which would require greater planning and forecasting on the part of commercial property owners to set aside the appropriate amount in property tax. 

My take: The reason that I am uncertain about this proposition is the uncertain nature of the state economy during and in the aftermath of the pandemic. If this were not a turning point for businesses in other ways - specifically the assessment by businesses on whether they would want to invest in commercial real estate in the first place given the remote nature of work for a significant number of Californians at the moment - then I would agree that now would be the time to change the way commercial property taxes are assessed. 

I agree that the mode of property tax assessments are out-of-date and out-of-touch with the realities of the revenue collection and expenditures of our state government and this is particularly true during the pandemic (a time when local governments and schools have higher than average expenditures). My concern would be that $3 million is too low a figure given the already-high property values in California. Proponents of the Prop 15 claim that 92 percent of the new taxes will be paid by 10 percent of commercial real estate owners but 10 percent is a high figure and may lead to opportunistic behavior by firms within that 10 percent to avoid the large hikes they will be facing. I tend to disagree that these taxes will be passed on to the rental market - a concern raised by opponents to Prop 15 - but I am concerned about the design of the measure and that there is a hard threshold rather than a phasing in of higher property taxes across the distribution. 

(No) Prop 22: Keep workers in "gig" jobs classified as contractors and limit their benefits

Summary: Prop 22 is a response sponsored by platform companies, including Uber and Lyft, that hire employees to recently legislated AB5. AB5 mandated that companies that hire independent contractors re-classify these workers as employees with some exceptions. The exceptions would take place through a test that would prove workers are independent contractors and not employees. What does it mean for companies to be mandated to treat their workers as employees rather than contractors? Employees are entitled to worker's compensation, unemployment benefits, paid sick and family leave, and health insurance, in addition to other benefits that are normally accorded to full-time employees. 

Given that I've been part of an email back-and-forth among friends and family on this proposition, I can provide a more detailed summary of this proposition. 

Prop 22 specifically states that gig workers should not fall under the mandates of AB5 (this means all workers for Uber, Lyft, etc... regardless of the hours that they work and if they work approximately full-time). However, it offers certain benefits to gig workers:

  1. 120 percent of the minimum wage in the area per "engaged" time - time that you spend driving on a particular ride - plus 30 cents per "engaged" mile. Wages are calculated per pay period (at most 2 weeks) meaning that it impacts the gig companies' bottom line only when revenues made by drivers are lower than the minimum wage calculation over an entire 2-week period. The current IRS 2020 mileage rate is 57.5 cents per mile.
  2. Companies will pay 82 percent of the Obamacare Bronze premium for only the driver (no dependents) if the driver has 25 "engaged" hours per week for a quarter. The health insurance payments are retrospective and made once the quarter is over meaning that gig workers who use employment through Uber or Lyft as full-time would have to save up for their own health insurance payments, face uncertainty over whether they would qualify for a reimbursement, and be reimbursed at the end of a 3-month period. 
  3. Drivers may have the option to purchase accidental medical coverage, disability coverage, and death benefits but this is also denominated based on "engaged" time. 

It also specifies that the proposition if passed will override local laws and regulations, that it will restrict labor organizing on the part of gig workers at these companies. and amendments to this proposition will only made if 7/8 of the membership of both houses vote for those amendments. 

My take: First of all, this proposition is a prime example of how citizen initiatives (bankrolled by private interests) can be extremely powerful given that within the text of the proposition it effectively guarantees that the proposition cannot be repealed or amended. It should be noted that requiring 7/8 majority in both houses of the legislature is an extremely strong mandate (beyond even a 2/3 majority in the federal legislature on constitutional amendments). 

The main issue here seems to be whether the workers at Uber and Lyft and other ridesharing companies are working at close to full-time and being shortchanged on benefits that have been traditionally accorded to full-time employees. How many of them fall into this category versus the category that ridesharing companies want us to believe most people are in (workers who use this form of employment to supplement income, benefits, etc... that they already get from a different job)? This would be the million-dollar question. It should be noted that the guaranteed "minimum wage" accorded in Prop 22 would be nowhere close to minimum wage in actuality when analyzed by economists/analysts at the UC Berkeley Labor Center and this would impact drivers whether they are the full-time equivalent that Uber and Lyft use for their classification (25 "engaged" hours per week) or not. 

Second, the pandemic has shown that gig workers that are not eligible for traditional unemployment insurance because their employers do not pay into the unemployment insurance pool on their behalf. However these employers have been encouraging their independent contractors to apply for relief packages that have opened up specifically for gig workers thereby shirking from any financial responsibility over contractors that may in fact be working at or close to full-time. This shirking of financial responsibility is not only detrimental to employees but also to taxpayers who are the ones to shoulder the burden of relief packages outside of traditional unemployment insurance programs. 

Third, the tax differential between contractors and employees is not insignificant. Self-employed workers pay 15.3 percent in taxes on every dollar net of income whereas traditional W2 employees pay only 7.65 percent. The change in classification can be impactful if only from a tax standpoint for individuals who are working exclusively for one ridesharing company, which brings me to my next point: to what extent is the exclusivity of working for a single company already in effect today? While proponents of the legislation claim that the ability to work across ridesharing companies as a contractor is a major benefit of the existing system, it it unclear without further evidence as to how many ridesharing companies' employees exercise this option in the first place. I.e. is preventing drivers from driving for both Uber and Lyft actually imposing a binding constraint? The flexibility option is touted as a "give" in Prop 22 but I'm curious whether it is symbolic or useful in practice. There are already a number of existing promotions that incentivize drivers to drive exclusively for one or the other, for example if you hit a certain mark in a certain number of days you would get a bonus, indicating there is already a degree of exclusivity in practice. 

While we don't have a lot of data on these questions, it is clear that due to the restrictive and stringent nature of the proposition - in terms of amendments and repeals - and its very limited concessions to labor it is not the appropriate choice to amend AB5 or its treatment of gig companies. There may be a significant number of workers who are treating their "gigs" at ridesharing companies as just that. But I suspect given broader trends in the U.S. workforce that there are many people who are also effectively employees but classified as "contractors" for opportunistic purposes on the part of their employers. While AB5 may not be a sufficient middle-ground on this issue, Prop 22 does not appear to be an answer that is respectful of labor and its due benefits. Given the large precedent that AB5 and Prop 22 will set going forward with independent contractors, this issue should be treated more carefully.

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