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Regulating Marijuana

In all likelihood, California voters will be asked to decide the legal status of marijuana on the 2016 ballot. Advocates of legalization are hoping to build on the momentum in four states (Alaska, Colorado, Oregon, and Washington) and the District of Columbia that made the recreational use of marijuana legal. Two national advocacy organizations—the Drug Policy Alliance and the Marijuana Policy Project—have made California a major focus for the 2016 election year.

Will a legalization initiative pass in California? Our May PPIC survey suggests that support is relatively high among likely voters: 56 percent said that marijuana should be legal. When we first began asking about legalization in May 2010, California voters were sharply divided. While support for marijuana legalization has fluctuated, since March 2014 we have seen an incremental trend toward support for legalization among likely voters. Among likely voters today, majorities of Democrats, independents, younger voters, and parents favor legalization. However, among some key electoral groups—including Latinos, Republicans, and older voters—legalization fails to get majority support. The success of any initiative aimed at legalizing the recreational use of marijuana is likely to depend on whether supporters can make inroads among these groups.

Would marijuana legalization be good public policy? That is an even more difficult question. This week a Blue Ribbon Commission on Marijuana Policy—chaired by Lt. Governor Gavin Newsom—made a series of recommendations to consider in crafting an initiative. The list includes ways to limit children’s access, reduce illegal activity and regulate sales.

Should an initiative pass, a significant degree of implementing legislation and regulation are likely to follow. In short, the devil is in the details.

These details may not only determine whether legalization is good public policy—they may also affect the electoral fortunes of any marijuana legalization initiative on the 2016 ballot. In our March 2015 survey, Republican (51%) and Latino (56%) likely voters were among the most likely to say they would be bothered if a store selling marijuana opened up in their neighborhood. Similarly, in our May 2015 survey, Republican (58%) and Latino (55%) likely voters were among the most likely to say that they are very concerned about more underage people trying marijuana if it were made legal. The details of regulation and implementation are likely to play an important role in addressing some of these voters’ concerns.

In the coming months, PPIC plans to contribute to the discussion surrounding the legal status of marijuana in the state. As always, our aim will be to provide essential information and help frame the debate. By identifying some of the key issues the state will have to address, we hope to help policymakers—and, ultimately, the voters—improve California’s marijuana policies.

Focus on Medi-Cal Funding

The legislature is currently in a special session to address Medi-Cal financing issues. The governor called the session to deal with his proposal to restructure the tax on managed care organizations—which currently generates about $1 billion in federal funding for Medi-Cal—so that it meets federal guidelines. In addition to complying with federal requirements, the governor’s proposed changes to the managed care tax will also provide revenue to increase payment rates for providers of services to the developmentally disabled and undo cuts to the In-Home Supportive Services (IHSS) program. In the absence of these changes, the state could face a $1.3 billion shortfall in Medi-Cal financing.

Regardless of the outcome of this special session, the state faces the challenge of establishing a stable and sustainable state funding base for Medi-Cal, which now covers nearly one-third of the state population. Since Medi-Cal expanded under the Affordable Care Act (ACA) less than two years ago, enrollment has increased by nearly 40 percent, and about 12 million Californians are now covered. Nearly all new enrollees are in Medi-Cal managed care, which has also grown considerably over the past few years. The federal government is providing most of the financing for Medi-Cal expansion, but there is uncertainty about state costs in future years.

Enrollment growth has increased the total costs of the program, which are expected to be more than $90 billion in the 2015–16 budget year—an increase of nearly 50 percent from the 2013–14 fiscal year, which included the first six months of the ACA’s Medi-Cal expansion. More than two-thirds of this increase has been funded by the federal government, which pays 100 percent of the costs of those who became newly eligible for Medi-Cal during the first three years of the ACA.

But the state will assume responsibility for 5 percent of costs for the newly eligible in 2017, and this share will gradually increase to 10 percent in 2020 and thereafter. Based on cost estimates for the newly eligible from the current state budget, this amounts to an additional $700M in 2017 and $1.4B in 2020. And this estimate doesn’t account for any increases in health care costs.

While state General Fund spending for Medi-Cal has grown relatively modestly since the ACA expansion, there are additional sources of uncertainty about future state costs for Medi-Cal, including (but probably not limited to):

  • Pressure to increase Medi-Cal provider rates, which are among the lowest in the country.
  • The legal status of President Obama’s executive order allowing many undocumented immigrants to get health coverage and the number of immigrants who could become eligible for full Medi-Cal benefits—which would be financed entirely by the state.
  • The effect of changes to state financing for county indigent care (under AB 85), which is expected to offset some of the state costs of the Medi-Cal expansion.
  • Ongoing negotiations with the federal government over the renewal of California’s 1115 Medicaid waiver. These waivers are designed to give states more flexibility to expand and improve their Medicaid programs. Over the past five years, California’s waiver brought in about $10 billion in federal funding to support Medi-Cal and the state public hospital system.
  • Planned reductions in federal funding from the Disproportionate Share Hospital (DSH) program, which provides additional funds for California hospitals that serve large shares of uninsured and publicly insured Californians. The lion’s share of DSH funds in California go to public hospital systems—an important source of specialty and inpatient care for Medi-Cal beneficiaries.
  • Required expansions to behavioral health benefits, including mental health treatment and substance use disorder services.
  • The high cost of new drugs—most notably for the treatment of Hepatitis C. Nationally, prevalence rates of Hepatitis C are higher among low-income men, who are among those most affected by ACA changes in Medi-Cal eligibility.

Long a complex issue, Medi-Cal financing has been complicated even more in recent years by the ACA, which affects all aspects of California’s evolving health care delivery system. But it will be important for the state to meet the challenge of developing a sustainable funding plan for this program, which provides for comprehensive health services for nearly a third of state’s population.

Sources: Medi-Cal enrollment totals are from the Department of Health Care Services, Research and Analytic Studies Division, Medical Certified Eligibles, Summary Pivot Table, Most Recent 24 months, May 2015. Medi-Cal funding sources are from the Medi-Cal Local Assistance Estimates, May 2014 and May 2015.

The “Inexact Science” of Water Pricing

How can the price of water help us manage the drought? Like everything to do with water management in California, there is no easy answer. The State Water Resources Control Board recently held a workshop to examine the current pricing climate and explore the state’s role in helping urban water utilities adopt conservation-oriented water rates.

Currently, more than half of the state’s urban water utilities use some form of tiered water rates, which increase the per-gallon charge for higher levels of water use. While tiered pricing can encourage conservation, utilities also must meet other competing objectives, particularly covering the cost of providing services. When water sales fall, balancing the books can be a challenge, because fixed costs make up as much as 70 to 80 percent of total utility costs.

Ellen Hanak, director of PPIC’s Water Policy Center, presented findings from recent PPIC research on water system finance at the workshop. She noted that “urban water agencies have been successful so far at using revenue from water rates to remain fiscally stable.” But while utilities have generally been investing at a healthy pace, they are likely to be drawing down their financial reserves as water sales have fallen during this drought. Hanak also said that while pricing “is not an exact science,” water agencies could improve communication with customers about the major costs that must be covered even if water use declines.

One complicating factor lies with Proposition 218, a 1996 initiative that sought to ensure that the charges for many local services, including water, are closely linked to the costs of service to individual properties. Hanak and other panelists expressed concern that courts are interpreting the proposition’s cost-proportionality requirement too rigidly to allow tiered pricing to work effectively. For instance, a recent ruling in a case against San Juan Capistrano’s tiered pricing states that while this type of pricing is legal, the tiers must correspond to the actual cost of providing service at each level of usage – something easier said than done.

Ken Baerenklau, an associate professor at UC Riverside and a member of the Water Policy Center’s research network, studied a Southern California water district’s use of a specific type of tiered pricing, and found that household water demand was reduced by approximately 15% without significantly increasing the average price of water service. Baerenklau emphasized the need for better data collection on water rates and consumption in order to examine the effectiveness of various pricing mechanisms. He also noted that “there is a difference between the price and value of water,” and that we are currently not paying the true cost, especially with respect to the environment.

Lester Snow, executive director of the California Water Foundation and member of the PPIC Water Policy Center’s Advisory Council, recommended renewed investment in water infrastructure and management to adapt to our changing climate. Snow said that fundamental water policy changes should be made now while attention on water issues is high. He also advocated for reform of Proposition 218, saying that we are pushing people to conserve, but have systematically withheld some of the tools water agencies need.

Water Board members expressed interest in creating a clearinghouse of rate-setting tools for water agencies and case studies of agencies with successful conservation pricing. This will help agencies better understand what has worked and how to minimize the risk of adopting new pricing structures. Another important step mentioned by a number of panelists was the need for a statewide fee that could fund “fiscal orphans”—areas that are difficult to fund locally—such as lifeline rates for disadvantaged communities, stormwater capture, and investments to improve drought management.

Testimony: Measuring Poverty

The Assembly Human Services Committee held a hearing on Tuesday, July 14, to consider a joint resolution regarding official poverty measurement tools. PPIC research fellow Sarah Bohn provided background on official poverty statistics and explained how different measurement tools affect our understanding of poverty in California. Here are her prepared remarks.

 

My name is Sarah Bohn, I am a research fellow at the Public Policy Institute of California. PPIC is a nonpartisan, independent research institute and as such does not take positions on bills before the legislature. I am here today to inform the committee on facts related to Assembly Joint Resolution 22 (AJR 22). As some of you know, PPIC, in collaboration with the Stanford Center on Poverty and Inequality, has been deeply involved in research on alternative poverty measurement for the past three years. I will provide background on the shortcomings of official poverty statistics and offer an updated view of poverty measurement—and poverty in California.

According to official statistics, poverty is significantly higher (50% higher) than it was 50 years ago, when the War on Poverty began. As we shall see, this finding should be taken with a big grain of salt. Poverty status, as you know, is based on how family income compares to the “federal poverty line.” This was developed in the early 1960s as the first working definition of poverty in the U.S. It is based on family budgets of that time, when a typical family spent one-third of its income on food. So the threshold was (to simplify a bit) three times the cost of food a family would need to meet basic needs. While this was a novel use of the facts and information available then and was hugely important in creating a standard metric to inform policy, it’s hard to apply the same metric to modern families and derive a clear understanding of how families—and policy—are doing. There are two main reasons for this: (1) the cost of living and family budgets have shifted considerably, with families spending more on housing, work expenses (like commuting and child care), and medical care and less on food overall (2) several government programs have changed and expanded, but are not counted in family income data in the official poverty measure. For these reasons, official poverty statistics are hard to interpret; they essentially compare a part of family resources to an outdated benchmark.

Two current measures—the Census Bureau’s “Supplemental Poverty Measure” and the PPIC-Stanford “California Poverty Measure” (which uses a similar methodology)—update and realign the basic poverty concept that is now more than 50 years old. There is quite a lot of momentum and agreement around the benefits of these “supplemental” measures. In summary, the methodology aims to improve on official poverty measurement in the following ways. First, both measures use detailed data on what families actually spend to meet basic needs, rather than relying on a 1960s-era approximation. Second, these metrics allow for the cost of living to vary (conservatively), depending on where one lives. Third, they make use of a comprehensive estimate of resources families have on hand, which includes cash income, program benefits, taxes paid or credited, net of medical and work expenses.

The Supplemental and California Poverty Measures provide new insights to poverty. I’ll highlight a couple that are especially related to the impact of policy. First, I’ll return to the effects of the War on Poverty. Using supplemental measures, researchers find a clear downward trend in poverty—specifically, that government programs reduced poverty by 15 percentage points since the mid-1960s. These are facts that cannot be uncovered by official poverty data, which, you may recall, suggests that poverty rates rose 50 percent despite policy efforts. Second, poverty in California today would be much higher were it not for the safety net. Without major programs like CalWORKs, CalFresh, the federal Earned Income Tax Credit, and housing subsidies (among others) nearly 40 percent of children in California would be poor—or 30 percent of state residents overall.

It’s possible that the safety net in California could have an even longer reach than it already does. For one, increasing program participation among eligible families could reduce poverty. Also, because many poverty programs are not scaled to cost of living, their ability to materially affect families in poverty varies substantially across the state. In high-cost areas, safety net benefits reduce poverty by about 30 percent, but they reduce it by 50 percent in the Central Valley and far north. Poor families in coastal (and the most populous) parts of the state face costs $7,000 to $12,000 higher than the federal poverty line accounts for. Although we find that poor families in high cost areas are more likely to be working—and earning more—than their counterparts elsewhere, their earnings are not enough to boost them above the more realistic cost-adjusted supplemental poverty threshold. But their slightly higher earnings (which are still low by California standards) make them less likely to qualify for some safety net programs.

These examples scratch the surface of what is possible using the tools of improved measures like the Supplemental and California Poverty Measure. We also hope to use our research to assess how proposed changes to programs could move families out of poverty. But beyond these efforts, I would argue that simply tracking poverty in and across California and the U.S.—using truly comprehensive and accurate metrics—should be a regular contribution to the policymaking process. For those of us at PPIC and for other researchers involved in poverty research across the country, including those at the Census Bureau, alternative measures of poverty are still in their early phases, and, as such, rely on policymaker awareness and on funding to continue to produce. Thank you for your interest in the topic and your time today.

 

Don’t Count on El Niño to End the Drought

El Niño is back in the news, much as it was last year at this time. But this year, El Niño conditions in the tropical Pacific have intensified, and some climate scientists think the outcome this winter could be the return of much-needed rain. Hopeful media reports are describing the growing El Niño as a potential drought buster.

How solid are these predictions and should we count on a wet winter? Unfortunately, El Niño is an unreliable predictor of winter storminess. Although some of our wettest years have occurred during El Niño events, some very dry years have also occurred.

El Niño is the name given to a climatic pattern that originates in the Pacific tropics, and involves both the ocean and the atmosphere. It is defined by unusually warm upper-ocean waters in the central and eastern tropical Pacific, and is linked to slackened trade winds. El Niño conditions usually persist for several months and recur, irregularly, roughly every two to seven years. El Niño (and its opposite phase, a cool tropical Pacific condition known as La Niña) is Earth’s strongest and most important short-term climate variation because of its global reach: it disturbs climate and ecosystems in the tropics but also unleashes altered atmospheric patterns well beyond the tropics.

One of the regions it affects, usually during the winter, is California. Some El Niño events are strong enough to impact the North Pacific jet stream, which steers winter storms into California. Because the bulk of our seasonal precipitation occurs in a handful of strong winter storms the additional El Niño events make a big difference to the state’s water supply.

But El Niño often produces strong regional differences in precipitation. In many El Niño years, Southern California can be unusually wet, but the state’s important water supply areas in Northern California are often not—sometimes they are even unusually dry. When this happens, the water supply benefits of El Niño are limited. What’s more, in some El Niño years the entire state remains dry. The figure below shows how widely precipitation can range, with or without El Niño.

So why are climate scientists so energized about El Niño this summer?

El Niño conditions, once established, tend to last for several months. Beginning this spring and continuing through this summer, scientists have observed unusual heat build-up in the upper layers of the tropical Pacific. Climate models are pointing to a moderate to strong El Niño through the summer and into the fall. But summer and early fall are the dry season in California, and El Niño conditions at this time will not make much of a difference in the ongoing drought. These same models indicate that El Niño conditions are likely to persist into the coming winter, which is key to shifting the jet stream and increasing the number of winter storms. Historically, unusually strong El Niño events have been linked to record wet years in California. Two of the wettest water years on record in the state—1983 and 1998—occurred during very powerful El Niño conditions. So while the warmth this year is impressive, so far the 2015 El Niño is not in the same league as the extraordinary cases of 1983 and 1998, and the uncertainties over its intensity into next winter remain considerable.

As tempting as it is to hope this El Niño will take us off the hook for planning for a fifth year of drought, it would be unwise to bet on this, given the uncertainties. With reservoirs and groundwater at historic low levels after four consecutive dry, warm years, a single wet year is unlikely to erase the drought. Rather, it is prudent to plan now for continued impacts of our long dry spell. Major relief would be a pleasant surprise, but for now, continuing our efforts to conserve will pay off even if the hard rains come.

Chart note: This graph shows annual winter precipitation in the Sierra Nevada in relation to the Southern Oscillation Index, a measure of El Niño. Typically, the more negative the value, the stronger the El Niño, with greater global impacts on weather.

Chart source: California Department of Water Resources (precipitation); National Weather Service, Climate Prediction Center: Monthly Atmospheric Indices ( <ahref=”http: www.cpc.ncep.noaa.gov=”” data=”” indices=”” soi”=”” target=”_blank”>Southern Oscillation Index). Modified from a graphic provided by Western Regional Climate Center.

Tax Increases and Voter Distrust

The California budget passed on time and without much drama this June, as tax revenues once again exceeded expectations because of the improving economy. The new budget will increase education spending, restore some human services funding cuts, pay down the government’s debt, increase the rainy day fund for future recessions, and support drought emergency funding—all without any new taxes. Still, many lawmakers and advocacy groups argue that the state’s tax system must change in order to generate adequate revenues for current spending while making future investments. In this context, the governor has called for special legislative sessions to find new funding for rising health care costs and transportation projects. At the same time, several interests groups are preparing tax initiatives for the November 2016 ballot.

Many political experts believe that the upcoming general election will be the most opportune time in the next four years to ask California voters to raise their taxes. The presidential race is likely to produce a high voter turnout and, specifically, a more youthful and liberal electorate with pro-tax leanings. Voters are currently in a relatively good mood about state leaders and their own finances.

In our May poll, we tested support for five tax proposals that are being considered by the legislature and tax proponents. Support among likely voters for four of the five proposals was underwhelming (41% sales tax extension, 46% Proposition 30 tax extension, 47% oil and natural gas severance tax, 50% commercial property tax increase, 67% cigarette tax increase). What explains voters’ reluctance to increase state taxes?

For one thing, despite improved fiscal conditions the widely-held perception that “the people in state government waste a lot of the money we pay in taxes” has hardly budged in four years (58% May 2011, 57% May 2015). Today, across all political and demographic groups, large proportions of likely voters say that there is a lot of wasted tax money.

Meanwhile, the perception that the state’s budget situation is a “big problem” is down sharply from four years ago (82% May 2011, 52% May 2015). Still, a majority holds this negative fiscal view even during these exceptionally good times. And there is an important connection between these two fiscal perceptions: among the likely voters who say the state’s budget situation is a big problem, 78% say that the people in state government waste a lot of tax money.

Notably, support for all five of the tax proposals is significantly lower among those who say that the state government wastes a lot of money. Even for the cigarette tax increase, two-thirds favor falls to 58% in this group, indicating that support for this popular tax proposal could erode in an election campaign. In sum, voter distrust will be a big hurdle for gaining majority support for new taxes in 2016.

Tax proponents may take solace in the fact that a majority of likely voters say that the state and local tax system is in need of major changes. However, support for making major tax changes has declined as the state’s budget situation has improved (65% January 2011, 54% May 2015). And the desire for major tax changes is tied to distrust: 70% with this view say that the state government wastes a lot of money.

Majority support for the Proposition 30 tax increase in November 2012 offers a textbook example of how the stars can align in a presidential election. But the PPIC poll tells us that voter distrust is a major obstacle even in good budget times. Voters will want assurances that current funds are well managed but inadequate—and that new taxes are needed for essential purposes. The special sessions could be a unique opportunity to begin a public dialogue about the fiscal ingredients necessary for creating a better future for all Californians.

Proposed Reservoirs Are No Panacea for Drought

This commentary was published on Sunday, July 5, 2015, in the Sacramento Bee.

The acute water shortages now hitting California have prompted many in Congress and the state Legislature to call for new surface reservoirs to reduce the impacts of future droughts. Some have even blamed the lack of reservoir development as a primary cause of water scarcity during the current drought. The reality is that new surface storage would have added only modestly to the state’s water supply. We’d still be in the midst of a severe drought. Building drought resilience requires a much broader set of actions, including conservation, water trading, managing groundwater and expanding nontraditional supplies like recycled wastewater and stormwater.

(Continue reading on Sacbee.com.)

Drought Bills: Small Changes, High Impact

As Californians continue to cope with the impacts of the ongoing drought, actions to improve the way we manage water are being taken at all levels of government. Last week Governor Brown signed into law Drought Trailer bill (SB 88) and Resources Budget Trailer bill (SB 83). These bills will improve the way we respond to the current drought and better prepare us for future droughts. Here are three ways they will do this:

  • Consolidation of some small water systems with bigger ones to increase drinking water accessibility for at-risk communities. Many small, disadvantaged rural communities in California lack reliable and safe drinking water. These communities often lack economies of scale because the cost of improving and maintaining these systems is high and their customer base is small. Even when these small water systems are eligible for state funding for capital improvements like water treatment systems, they often lack the technical and operational capacity necessary to sustain them over time. In some cases, consolidation—the physical or administrative merging of drinking water systems—can be a cost-effective solution. The bill allows the State Water Resources Control Board to pursue consolidation when other solutions are not appropriate, and it provides protection against liability issues that may make larger agencies unwilling to consolidate. In our report Paying for Water in California we recommended consolidation as one of a suite of actions that could help address chronic safe-drinking water challenges.

  • Better monitoring and reporting requirements for water diverters and some water rights holders. Earlier this year we recommended improving the state’s water information system to effectively manage water resources during droughts. This bill takes California one step closer to this goal. For example, individuals who divert water under the most senior water rights were previously required to report their diversions to the Water Board every three years; now they’ll be required to report annually. Surface-water diverters who use more than 10 acre-feet a year will also be required to install measuring devices. Well-drilling logs will also become public. The new reporting requirements reflect progress in modernizing California’s water accounting capabilities. The next step is to integrate improved water information and resource planning tools to better manage water scarcity.

  • Temporary environmental oversight exemptions for groundwater recharge projects, recycled water system standards, and local decisions to prohibit drilling of new groundwater wells. The California Environmental Quality Act (CEQA) can play an important role in evaluating the environmental impacts of projects or regulations, but the length and cost of the review process can discourage responsive policymaking. This bill streamlines review for projects and policy decisions that are low-risk and well-tested, but could immediately increase drought resiliency. California’s regulatory framework is such that these projects will likely be reviewed in other forums, so this bill doesn’t eliminate all oversight. As we heard from San Jose Mayor Sam Liccardo at our April “Water in Silicon Valley” event, this kind of streamlining would have real-world impacts. San Jose is seeking an expedited process from CEQA to begin building a groundwater recharge system that would expand use of San Jose’s existing recycled water system.

As the legislative year continues we can expect more statewide policy changes that address our stressed water system. We’ll provide regular updates on key water legislation in this blog.

Online Learning and College Costs

As the price of attending college has risen and access to higher education has declined, policymakers are looking to online learning as a way to better serve student needs, increase access—and lower the costs of higher education. In California, the state’s community colleges have taken the lead in online learning, with total course enrollment reaching about one million. We have been able to study the impact of online education on hundreds of thousands of students at the state’s community colleges. What we found points to important issues in the discussion of higher education access and costs.

It is easy to understand why online education is being championed as a cost-saver. Online courses do not require classroom space, and the cost of developing courses can be amortized over time. Savings could come through economies of scale, including centralization of online student services. If faculty members do not have to invest as much time designing, facilitating, and seeking approval for individual online courses, the colleges’ overall labor costs could drop.

But at this point, these savings are theoretical. So far, there is no empirical evidence that online learning is less expensive than face-to-face learning. In fact, research shows that preparing an online course is usually more time consuming—and therefore expensive—than preparing a traditional class.

And there are other drawbacks to online education as it’s currently practiced. In California’s community colleges, online student success rates are lower than success rates in traditional courses. Success rates for African American and Hispanic students are significantly worse. If these gaps persist and online enrollment continues to increase, then community colleges will be less equitable. The result will be increased costs to students and the state—and a failure to realize the promise of online education.

Despite these drawbacks, certain online courses are highly successful. Our analysis of these courses led us to recommend that the colleges move away from the current model, which relies on an individual faculty member to design and deliver an online course, and adopt a more systematic approach to creating online courses. A team that supports faculty members—including administrators, media developers, and information technology experts—would be better able to maximize the potential of the online learning environment.

However, it is unclear how moving to a team model would affect costs. Incorporating specialists in course design would raise upfront costs. Regularly updating software and updating course material could quickly exceed any savings from economies of scale. Providing essential student support services, such as technical support, online tutoring, and counseling, might also significantly raise costs.

But online learning is an important tool for improving access to higher education in California, even if it does not cost less. Online classes are increasingly popular in the community colleges—which are the higher education institutions most likely to serve nontraditional students. Incorporating best practices into these courses would improve the colleges’ ability to serve the state’s diverse students.

The community college system’s Online Education Initiative is an important step in the effort to accommodate demand for online learning and improve student outcomes. If it is successful, it can serve as a model for other online learning programs in higher education.