March 2014 – Public Policy Institute of California

Video Highlights New Survey’s Key Findings

The March PPIC Statewide Survey examines several major issues in California, including water, high-speed rail, marijuana legalization, and taxes. The survey also finds that three months before the primary, Governor Jerry Brown remains a strong favorite for re-election this year.

The wide-ranging survey also looks at Californians’ views on national issues—such as immigration and health care reform, and abortion —and provides approval ratings on federal elected officials.

PPIC research associate Jui Shrestha presented the results of the survey at a luncheon briefing in Sacramento.

Testimony: Funding to Promote Drought Resilience

The Assembly Budget Subcommittee for Resources and Transportation–which oversees budget allocations for water-related state agencies–convened a group of experts on Wednesday to provide an update on the current drought. PPIC senior fellow Ellen Hanak gave the members an overview of state and federal emergency drought funding for California and suggested other fiscal measures that the legislature should consider to make California more drought resilient. Here are her prepared remarks.

Good morning and thank you for the invitation to address the committee. I’d like to focus my remarks on how the legislature can help California become more drought-resilient, both in the near term and over the longer term. And since your committee is tasked in particular with considering budget measures, I will highlight the question of funding.

As you all know, several weeks ago the legislature passed, and the governor signed, emergency drought legislation. These bills made $687 million available for a variety of programs. This state funding package came on the heels of an announcement of $222 million in federal drought funding for California—bringing the total to $909 million. In the state’s case, most of the funds (80%) come from previously authorized state general obligation (GO) bonds, with the remainder from the general fund (11%), new cap and trade auction revenues (6%), and a variety of other funds (3%). A large portion of the federal funds comes from the 2014 Farm Bill.

The table provides an overview of the allocation of these funds. About a quarter ($239 million) is for near-term emergency assistance to communities facing special hardship because of the drought. A small share (0.3%, or $2.3 million) is directed to emergency ecosystem support. And nearly three-quarters of the total ($668 million) is directed toward improving water use efficiency and reliability. Although some of the investments in this last category may help in the near term, most should be viewed as efforts to make the state more drought-resilient over the longer term.

This breakdown between near- and longer-term impacts of drought spending reflects the realities of drought response: In the very near term, cash can provide helpful support to affected communities, but it can’t fundamentally change the water supply situation. One of the very interesting lessons from the current drought is that two decades of investments by California’s major urban utilities—in areas such as water use efficiency, above- and below-ground storage, and non-traditional supplies like recycled wastewater and stormwater—has made these communities much more capable of getting through droughts. The new spending earmarked for improving efficiency and water supply reliability should help California continue to build its resilience to future droughts.

The drought has also renewed legislative attention on putting a new GO bond on the November 2014 ballot to fund water management in California. As we show in a new PPIC study on water finance, Paying for Water in California, state bonds approved since 2000 have helped fund a range of important water management activities. However, bonds can at best be just a part of the overall solution to meeting California’s critical water funding needs. The legislature can and should pursue other actions to give California a sustainable and reliable funding system for water. Some examples include:

Adopting new state fees and special taxes to fill critical gaps. For instance, a small surcharge on water use could support integrated water management and protect our threatened aquatic ecosystems, and a small surcharge on chemicals could help fund pollution prevention and safe drinking water in affected communities.
Passing enabling legislation to make it easier for local agencies—the front-line managers of water resources—to raise the funds they need. One example would be extending the authority to assess fees for groundwater pumping and basin replenishment—now available to just a handful of communities—to groundwater management agencies across the state.
Providing guidance to the courts on how to interpret California’s Constitution so that local water agencies can improve water supply reliability. In particular, agencies should have the flexibility to adopt tiered, conservation-oriented rate structures and fund activities such as recycled wastewater and stormwater capture. In some cases, narrow judicial interpretations of Proposition 218—a voter-approved amendment passed in 1996—have created uncertainty about the ability of local agencies to use fee revenues to carry out such programs, which are essential for drought resilience.

In closing, it’s worth recognizing that droughts are a recurring feature of California’s climate. The current crisis presents an opportunity to continue improving our water system’s ability to cope with water scarcity in the face of population growth and a changing climate. By supporting the emergency funding package, the legislature has already taken some important steps to help alleviate the worst effects of this drought and to build future drought resilience. With additional steps, the legislature can help ensure that our water system can support a healthy economy, society, and environment over the longer term.

Table sources: California Senate Bills 103 and 104 (chaptered March 1, 2014); White House Fact Sheet on drought response (February 14, 2014).

Should Marijuana Be Legal?

As advocates of marijuana legalization consider another ballot measure in California, how do residents view the issue today?

Currently, our new PPIC Statewide Survey shows that Californians are split: 49 percent favor legalization and 47 percent want to keep it illegal. Last September for the first time a slim majority of residents—52 percent—said they were in favor of making marijuana legal.

Likely voters are more supportive of legalization, as they have been since we first asked about legalization in 2010. Today, 53 percent are in favor and 44 percent are opposed.

There are stark differences across parties and demographic groups on this issue. Majorities of Democrats, independents, whites, blacks, residents with at least some college education, Californians age 18–34, men, and residents in the San Francisco Bay Area and Inland Empire favor legalization. Opponents include majorities of Republicans, Latinos, residents with a high school degree or less, women, and those age 35–54, parents with children age 18 or younger, and Californians living in Los Angeles and Orange/San Diego Counties.

There are divisions, too, among the state’s leaders. Governor Brown and Senator Feinstein have recently expressed reservations about legalization, while fellow Democrat Lt. Governor Gavin Newsom disagrees.

Nearly four years ago Proposition 19—which would have legalized marijuana and allowed it to be regulated and taxed—failed in California by 6 points (47% yes, 53% no). Today, other states are considering following the lead of Colorado and Washington to legalize. It’s clear that the issue is not going away in California—the first state to legalize medicinal marijuana nearly 20 years ago.

Looking at the demographic divisions in California, it will be interesting to see what strategies proponents and opponents use the next time the issue makes the ballot.

Chart sources: PPIC Statewide Surveys: March 2014, September 2013, May 2010.

Boosting Transfers From Community College to CSU

To increase the number of college graduates in California, state policymakers are working to make it easier for community college students to transfer to four-year institutions, particularly the California State University (CSU) system. Legislation in 2010 required state community colleges to create a special degree that would ease the transition to CSU campuses.

Researchers Colleen Moore and Nancy Shulock provided a progress report on the implementation of this new degree at a PPIC briefing on Friday. These two researchers are from the Institute for Higher Education Leadership and Policy at CSU Sacramento and are the authors of a new report for PPIC, From Community College to University: Expectations for California’s New Transfer Degrees.

They found that the new degrees have improved pathways for community college students. But many community colleges still offer transfer degrees in only a few majors, and some CSU campuses accommodate the degree in only some of their degree programs. In other words, the program still has a long way to go before it is fully implemented.

UC President Napolitano on Tuition, Online Learning, and the Role of the University

Janet Napolitano, the new president of the University of California and the former U.S. secretary for Homeland Security, said Monday that she told President Obama that the United States cannot thrive unless California thrives—and California cannot thrive unless the University of California thrives. Napolitano was responding to a question about why Californians should care about the public university system. Her comments were part of PPIC’s 2014 Speaker Series on California’s Future, which drew an online and in-person audience of nearly 500 to a conversation with PPIC President Mark Baldassare at the Sheraton Hotel in Sacramento. The wide-ranging discussion opened with a presentation from Hans Johnson, PPIC senior and Bren fellow, who provided context about the state’s need for educated workers.

The UC president, who also served as governor of Arizona, talked about tuition and budget issues, as well as online education, access for low-income students, and the lessons she’s learned since starting this job about six months ago. Napolitano said there was much the university is doing well: 42 percent of UC students are eligible for grants to low income students, 46 percent are the first generation in their families to go to college, and more than one-third are from families where English is not the primary language. She also said no public research university in the country is more efficient at helping students graduate within four years.

Still, she talked at length about the changes underway in funding for higher education and the need for new models. She emphasized that tuition will not increase for the 2014-15 school year and said that the university is dedicated to a tuition rate that is “as low and predictable as possible.” She also said she hoped to increase the university’s financial connection to philanthropy and the private sector. She said the state could do more and it should do more to support higher education.

Speaking about the future of higher education, Napolitano said online learning “is a tool in the tool box,” not a silver bullet. She said it is not necessarily cheaper than traditional classroom instruction and—despite some claims—no more effective at remedial education. She said, however, that it could get students access to classes not available on their campus.

How Does Access to Care Affect Health?

Enrolling eligible, low-income Californians—including the 1.7 million uninsured projected to be eligible for Medi-Cal—is the focus of Affordable Care Act implementation right now. But in the longer term, there is a bigger question: How will the expansion of Medi-Cal under the Affordable Care Act impact the medical care and health of those who gain coverage?

It may come as a surprise, but the effect of insurance on health care use and outcomes is not well understood. The best recent evidence we have comes from the Oregon Health Insurance Experiment, a collaborative effort among academic researchers and state health department officials to evaluate how access to public insurance affects the health of low-income residents.

Early results from this rigorous study, which began in 2008, indicate that people who gain Medicaid coverage use more health care services—both inpatient and outpatient. The study found improvements in primary care access and significant increases in the use of preventive care such as mammograms and cholesterol screening. Medicaid coverage also reduced observed rates of depression and greatly reduced financial hardships and medical debt. But these positive results were not accompanied by signs of improved physical health outcomes, such as changes in blood pressure or cholesterol levels, and the study found evidence of increased use of emergency rooms among those who gained Medicaid coverage.

Of course, these results are from a short period of time: the first one to two years of coverage. If people are able to maintain coverage and consistent contact with providers, we could see improvements in health outcomes and decreased use of high-cost care settings such as ERs over time.

The good news is that these improvements may have gotten a head start in California.Before this year’s Medi-Cal expansion under the Affordable Care Act, the state expanded access to more services and better coordinated care through county-based programs under a federal waiver designed to prepare California for health care reform. This means that more than 600,000 uninsured residents, who will comprise a large share of new Medi-Cal enrollees this year, were brought into systems of care and already had the opportunity to receive needed services. This could mean that utilization in California will not increase as much as it did in the Oregon experiment. Evaluations of these county-based programs suggest that hospitalizations and ER visits could be reduced, but this will probably take longer than one or two years.

So while there is promising evidence of the benefits expanded Medicaid coverage can offer, including financial protection and increased use of preventive and primary care, it will probably take some time to bring about other desired changes.

Reforming Proposition 13

In the current legislative session there has been a movement toward making changes in the Proposition 13 tax limits that voters approved in 1978. Democratic legislators have been emboldened to take on some key elements of the so-called “third rail of California politics” after the surprisingly easy passage of the Proposition 30 tax initiative in November 2012.

Voters have already been making changes to the laws that govern the state. Recently, they changed their legislators’ term limits and the legislative redistricting process, lowered the threshold for state budget passage from a two-thirds vote to a simple majority, and changed the partisan primary to a top-two primary. Surprisingly, they also voted to change the once highly popular Three Strikes Law. So, will reforming Proposition 13 be the next big thing?

One Proposition 13 tweak that is a perennial favorite among tax reformers is lowering the two-thirds vote that is needed to pass local special taxes. Proponents argue that this change would allow local governments to more easily raise needed revenues for schools, public safety, transportation, and water projects.

However, the backers of this particular Proposition 13 reform would face substantial opposition among the electorate today. In our January PPIC Statewide Survey, just 44 percent of voters were in favor of lowering the vote threshold from two-thirds to 55 percent, while 51 percent were opposed. These findings are consistent with most of our polling over time.

Looking more closely at the January survey findings, 50 percent of Democrats want to lower the vote threshold to pass local special taxes to 55 percent, but fewer than half of independents and Republicans favor it. Voter support falls below a majority among men and women, renters and homeowners, across age, education, and income groups and the state’s major regions. In other words, proponents of this change would start with less than majority support and need to run an expensive campaign to convince some “no” voters to vote yes. This would be an uphill battle, given that efforts to change Proposition 13 have always faced a well-organized anti-tax coalition in the past.

But there is a Proposition 13 change that has substantial voter support: creation of a “split roll” property tax. Under this proposal, commercial property would be taxed according to current market value and Proposition 13’s strict limits on property tax assessments and annual property tax increases would apply only to residential property. Advocates for this idea argue that business interests have reaped tax benefits that were supposed to be directed at homeowners and that a split roll would generate billions in new revenues for state and local programs.

This proposal has support among 60 percent of voters in our January PPIC Statewide Survey, with majority support among men and women, homeowners and renters, and across age, education, income, race/ethnic groups and the state’s regions. This reform has solid majority support among Democrats and independents, and 43 percent of Republicans also favor it. What gives the proponents pause for mounting an initiative campaign for a split-roll property tax? The likelihood that a campaign against it by well-funded business and commercial interests would succeed. Also, six in 10 voters say that Proposition 13 has been mostly a good thing for the state in our May 2013 PPIC Statewide Survey, making it easy for split-roll opponents to cast doubts about making changes to this popular initiative.

California voters started a national tax revolt when they approved Proposition 13 during Jerry Brown’s first term as governor—and he does not mention taking aim at Proposition 13 as a priority as he seeks a record fourth term. So what may be in store for change-minded voters? In our January poll, voters liked the governor’s plans for a rainy day fund and paying down the debt. We can expect to see legislation and ballot measures reflecting a desire to get the state’s fiscal house in order. In this election year, it seems unlikely that the state’s politicians will challenge the voters’ longstanding love affair with Proposition 13.

Good News on the California Economy

Information released today shows that the state’s economy in 2013 was stronger than we thought. According to revised data, California’s economy created 447,400 jobs during 2013, on an annual average basis. This is about 200,000 more jobs than the government initially reported. (Previous estimates understated this number because some jobs were erroneously excluded and because of errors inherent in sampling methodology.)

How are these numbers generated? On a monthly basis, a survey of employers helps to estimate payroll employment for California’s “nonfarm” workers (which excludes proprietors, the self-employed, unpaid family workers, farm workers, domestic workers in private households, and uniformed members of the armed services). In March of each year, these initial estimates are reconciled to actual counts of employment derived from unemployment insurance tax records, and revised estimates are released.

The effect of these revisions on the underlying employment trend is significant, with California adding jobs at an average annual rate of 3.0 percent during 2013. This is nearly double the rate that the government had previously reported (1.7%), and is significantly higher than the national rate. In fact, starting in the last quarter of 2012, California’s employment has grown at an annual rate that is 1.4 percentage points higher, on average, than the national rate. We have not seen a California-U.S. job growth gap of this order since 2009—and this time around, California is outpacing the nation. Relative to other states, the state’s job growth ranked third in 2013, surpassed only by North Dakota and Utah.

Job growth has been revised upward in most industry sectors. Traditionally, the revision process most impacts those industries experiencing unexpected growth. In 2013, those industries included health care, management, and construction. Jobs in health care and management grew 4.9 and 3.2 percentage points faster, respectively, than originally estimated. Previous estimates had not pegged either of these industries with the fastest job growth. Construction jobs grew at an average annual rate of 8 percent during 2013 (2.7 percentage points up from the initial estimate), which points toward a housing recovery that’s even stronger than expected.

In contrast, jobs in the arts, entertainment, and recreation sector grew at a slower pace than previously reported (3.7% instead of 5.5%). But even so, annual average job growth in this sector remained among the highest. The revised data also revealed that government hiring finally picked up in the last five months of the year—adding on average 25,800 jobs more than previously reported, a reversal of the trend reported in the initial estimates.

Upward revisions pushed job growth higher throughout the state. For example, in 2013 the Los Angeles-Long Beach-Santa Ana metro area is now reported to have created 50,900 more jobs than previously thought, for a total of almost 143,000 jobs created. Likewise, the San Francisco-Oakland-Fremont and the Riverside-San Bernardino-Ontario metro areas created 42,400 and 33,600 more jobs, respectively, than originally reported. This means that employment in these two metro areas grew at an annual rate of 4 percent.

Before the revisions, the state government projected that California would continue to add jobs this year at an annual rate of about 2 percent (around 340,000 jobs). In light of 2013’s stronger-than-expected job growth, we are anticipating an upward revision on job growth projections for 2014, too.

Chart source: California Employment Development – Labor Market Information Division and Bureau of Labor Statistics.

Drought Watch: Roadblocks to Efficient Funding

This is part of a continuing series on the impact of the drought.

The drought has prompted California to redirect hundreds of millions of dollars of remaining state bond funds and other revenues to make the state more resilient in the future. These funds are certainly welcome, but it’s important to see this spending in perspective. As we show in a new PPIC report—written with a team of co-authors from other institutions—the contributions of state money are small change when it comes to spending on water. Most of the $30 billion spent annually to support California’s water system is raised by local and regional water agencies.

The good news is that California’s urban water and wastewater utilities are in relatively good fiscal health. Thanks to their significant investments to improve water supply reliability in the two decades since the last major drought, California’s major urban areas—and the state’s economy—will largely be able to weather this one. Crucially, these utilities have been able to make the needed investments by raising local water rates.

However, looming legal challenges may limit the ability of local agencies to make continued investments in modern, integrated water management—investments that would better prepare us for population growth, climate change, and future droughts. Proposition 218, a constitutional amendment adopted by the state’s voters in 1996, requires water bills to reflect the costs of service to each individual parcel. As some recent court cases have shown, a narrow interpretation of this requirement can present roadblocks to several important management tools:

Conservation pricing. Tiered pricing—which charges higher per gallon prices for larger amounts of water use—can promote conservation. And, because new water sources often cost more than existing supplies, higher-priced tiers are justified. But it is difficult to establish a precise link between the price paid and the amount of water saved at each property. As a result, these rate structures may be legally vulnerable even though they improve utilities’ ability to maintain reliable water service.
Use of new water sources. Non-traditional sources of water, such as recycled wastewater and stormwater, improve overall system reliability for existing customers, even if not all customers use those specific sources. But a recent trial court interpreted Proposition 218 to mean agencies could not charge customers for any part of water service (in this case, recycled water) that was not physically available to them.
Sustainable groundwater management. One promising way to stabilize California’s overtaxed groundwater basins is by charging a per gallon fee to limit pumping and to cover the costs of recharging basins with other supplies. But because groundwater overdraft doesn’t affect each parcel in exactly the same way, groundwater agencies have also faced court challenges regarding the legality of these fees.

To enable our water system to respond effectively to future droughts, the courts need to keep the entire water system in mind when responding to rate challenges. And over the longer term, California needs to better align its funding laws to the goals of modern water management. In a state where drought is a fact of life, this alignment will allow us to manage this crucial resource far into the future. Asking our water managers to account for the cost and location of each drop of water when developing their water rate structures will undermine recent momentum toward a more sophisticated and interconnected water system.

No-Stakes Testing

Beginning March 18, California’s schools will pilot a new type of standardized test for students in grades three through eight and grade eleven. (A small sample of students in grades nine and ten will also take some tests.) These tests represent a significant departure from the standardized exams that were administered in school classrooms in the past.

First, the examinations are aligned with the new Common Core State Standards; they will attempt to assess conceptual understanding and problem solving skills in mathematics and English. Second, they will be given on computers, replacing the infamous #2 pencil and bubble sheets. Third, and perhaps most important, this spring’s exercise is really a “testing of the test” that will have no consequences for students, teachers, or schools. In fact, the U.S. Department of Education removed the most significant consequence last week when it issued a letter stating that the pilot testing would satisfy the federal requirement that California test its students as part of the No Child Left Behind law.

California is a member of the Smarter Balanced Assessment Consortium (SBAC), one of two multi-state consortia to get federal funding to develop assessments aligned with the Common Core standards. Since 2011, SBAC has been working with teachers, college professors, testing experts, administrators, and technicians to develop a new generation of tests. Though there will be some multiple-choice elements, these new exams will feature open-ended questions as well as tasks for students to perform that involve showing their work. (Some of the open-ended and task-oriented questions will have to be hand-scored by professional readers.)

In theory, the SBAC tests represent a big jump forward in trying to measure learning. This pilot exercise will put that theory to the test, as students try out the questions and the technology used to deliver the tests.

This past summer, the state legislature made some important decisions regarding the transition to the new testing regime (AB 484) that we will now watch play out. One of the biggest was that the pilot tests would replace the old Standardized Testing and Reporting (STAR) assessments, saving time for teachers and money for the state.

Because the legislators decided that there would be “no consequences” to this pilot, no letters will appear in the mailboxes of parents over the summer with colored bar charts declaring whether or not their children are “proficient.” The results will not be used to develop accountability scores for schools; nor will they be associated with individual teachers. The purpose of this year’s testing is really to determine whether the tests are doing what they were designed to do: assess student learning.

The demise of the STAR tests will probably warm the hearts of more than a few students. There is a downside to this transition, however. First, it is likely that the results will be publicly reported in the broadest terms, which will limit the chances of anyone other than SBAC to learn from the exercise. Second, given that 2014–15 will be the first full year of SBAC testing, we will have to wait at least until the 2015–16 school year to begin measuring our progress.