Category: Fiscal & Governance Reform

A State of Water Independence

The presidential election has raised questions about how changes in federal environmental policy could affect California’s water resources management. Concerns include the potential loosening of endangered species protections and changes to federal regulatory jurisdiction under the Clean Water Act. These questions are especially pronounced in California, where the United States is both an environmental regulator and operator of several of the state’s largest water projects.

While there are areas of uncertainty, California’s water rights and environmental laws are both robust and comprehensive, and thus will provide something of a firewall to changes in federal policy. Although many of these laws apply in tandem with their federal counterparts, California’s laws are also largely independent of federal environmental standards. Here are a few examples.

Reasonable use and the public trust: The California Constitution’s “reasonable use” requirement and the state’s public trust doctrine recognize a strong and continuing public interest in protecting the ecological integrity of the state’s waters. In 2009, the California Legislature declared that these principles “shall be the foundation of state water management policy.”

Water rights: The State Water Board has permitting authority over a majority of surface water rights, including those for the federal Central Valley Project (CVP) and California’s own State Water Project (SWP). These projects supply water to more than 25 million residents and businesses across the state and to almost four million acres of farmland in the Central Valley. Permit conditions require the projects to release water from reservoirs and to limit pumping from the Delta to protect water quality, fish and wildlife, and other instream uses throughout the Sacramento–San Joaquin Delta ecosystem.

Federal law directs the US Bureau of Reclamation to operate the CVP in compliance with all requirements of California law, including conditions in its water rights permits. This is an important mandate because CVP operations are coordinated with the SWP, and the two projects’ water supply and environmental stewardship functions must be synchronized.

The bureau also controls the distribution of water diverted from the Colorado River for agricultural and urban uses in Southern California. Although federal law generally governs, the State Water Board has significant authority over the use of this water through its constitutional authority to prevent waste and unreasonable use.

Water quality: The State Water Board and the nine Regional Water Quality Control Boards also set water quality standards and issue permits governing discharges of pollutants. California’s water quality laws implement the federal Clean Water Act, but they also function independently. California often sets stricter pollution limits than required under federal standards, and the state permitting system applies more broadly than its federal counterpart (covering discharges to groundwater, for example). Equally importantly, California’s water quality laws do not depend on the Clean Water Act for their existence and would continue even if significant changes are made in federal law.

California’s authority to protect its water resources will be largely insulated from changes in federal environmental policy.

Stream flows: In addition to the State Water Board’s power to protect stream flows through water quality standards and the reasonable use and public trust doctrines, the California Fish and Game Code compels all dam operators to release water to support fish. In litigation to restore flows and salmon to the San Joaquin River, the federal courts ruled that this law applies to the CVP.

Endangered species: The California Department of Fish and Wildlife has extensive authority to protect vulnerable species under the California Endangered Species Act. Although the state statute is more limited than its federal counterpart, it does prohibit the unauthorized “taking” of protected species. If federal endangered species policy were to change, the department could use this authority to place conditions on water project operations to prevent or minimize harm to state-listed species. The department also could expand the list of state-protected species to fill any gaps created by federal policy changes.

Wetlands: The federal government has extensive jurisdiction under the Clean Water Act to regulate activities that may alter wetlands, and the state and regional water boards often implement this federal law. But California also has independent authority to protect wetlands through discharge permits and land use regulations. This regulatory authority would continue even if, as expected, the new administration reduces the scope of the federal wetlands rules.

In light of these laws, California’s authority to protect its water resources will be largely insulated from changes in federal environmental policy. Of course, Congress could amend the statutes that require federal compliance with California law. But such a change would contradict a long history of federal deference to state water rights law and support for state administration of water quality protections.

These policies reflect Congress’ understanding of the benefits of comprehensive and integrated water resource management and its recognition that the states are best suited to decide how to allocate and manage water in light of local conditions and local needs. Indeed, in the recent federal legislation that changes endangered species management in the Sacramento–San Joaquin Delta, a large and bipartisan majority in both houses of Congress reconfirmed the United States’ continuing “obligation to act in conformance with applicable state law, including applicable state water law.”

Going forward, it would be extraordinary for Congress to depart from this foundational policy.

Learn more

Read California’s Water (PPIC briefing kit, October 2016) and Managing California’s Water: From Conflict to Reconciliation (PPIC 2011).
Visit the PPIC Water Policy Center’s water quality resource page.

The Turnout Turnaround

Voter turnout in California was dismal in 2014—record lows in the primary and general elections prompted serious concern about how to turn the problem around. The state has been aggressive in adopting reforms to promote turnout—including a system for registering online, “conditional” registration, which allows people to vote after registering as late as election day, and a system to register voters mostly by default via the DMV.

The Secretary of State recently certified the vote count for the November election, and the results suggest the state is heading in the right direction. Turnout was 58.7% among those eligible to vote, easily higher than the 30.9% showing in the midterm election two years ago, but also higher than the presidential election four years ago (55.5%) and almost as high as the notably high-turnout election in 2008 (59.2%).

In fact, while low turnout in the 2014 general election put California farther behind other states, this year’s turnout almost brought the state up to the national average. As the graph shows, turnout in presidential elections has been climbing in all states since about 2000. But this is the first time that the upward trend has been stronger in California than elsewhere.

Some of this upward surge may reflect higher registration rates: the share of eligible residents who are registered rose this election year to a 20-year high. The state’s recent reforms can’t explain this increase because most of them have not been implemented yet. The exception is online registration, which went live during the 2012 presidential election cycle and has proved popular. Early evidence suggested that the new system’s overall impact on registration was small, but this could have changed over time. In any case, the higher registration rate this year might lead to higher levels of participation in the future.

There are reasons to think that the higher turnout and registration were driven by a more mobilized Latino population. Certainly, Latino registration increased this year, perhaps in response to the tone and content of the presidential campaign. And Californians voted at even higher rates for Hillary Clinton than they did for Barack Obama, something many have also attributed to increased Latino engagement. However, there is little support for this story in the county-level results. The size of each county’s eligible Latino population explains almost none of the variation in turnout this year. In fact, the higher turnout this year was evenly distributed across the state.

Despite the signs of increased engagement, it is too early to say the state has come out of its turnout slump. As the figure makes clear, turnout in presidential elections is not the state’s biggest problem. The challenge is and has been midterm turnout. A growing share of the voters who participate in presidential elections do not vote in the gubernatorial election two years later. The last two election cycles—which have seen exceptionally high presidential turnout and exceptionally low midterm turnout—have not departed from this pattern but exemplified it.

The state should be proud of the progress made this election, and there are grounds for optimism as the state rolls out its election reforms over the next few years. But the positive signs from this election cycle should not make policymakers complacent about the challenges that lie ahead.

Video: Grading the Higher Education System

Californians give positive grades to the three branches of the state’s public higher education system—the community colleges, California State University, and the University of California. But the PPIC Statewide Survey on higher education shows that they have big concerns about affordability. Most California adults—regardless of political party, income, or age—see it as a big problem. And when Californians are asked to name the most important issue facing the state’s public colleges and universities, affordability leads the list.

“This is really the issue that’s at the forefront of people’s minds when you’re talking about higher education,” said PPIC researcher Lunna Lopes, who presented the findings at a Sacramento briefing last week.

Two out of three Californians say state funding of public colleges and universities is inadequate. While most would support a state construction bond to fund higher education projects, there is much less consensus on other ideas to increase revenue.

Learn more

Read the December PPIC Statewide Survey: Californians and Higher Education
Find out more about the PPIC Statewide Survey

Medi-Cal and the Fall Election

Lost in the sound and fury of the national election are the results of four statewide ballot initiatives that aimed to bolster financing of the Medi-Cal program. Medi-Cal is California’s version of Medicaid, which pays for the health care of low-income families, many elderly who live in nursing homes, and—with the passage of the Affordable Care Act—single low-income adults. The state spends nearly $19 billion annually from the General Fund (and $87 billion from all sources) to provide medical coverage for 13.5 million Californians through Medi-Cal.

Three of the four initiatives passed on November 8, providing up to $3 billion in additional funds for Medi-Cal each year. But it will take a while for Californians to see the concrete outcomes of their votes. And, as is often the case with initiatives, the impact of these measures will depend on questions that have yet to be answered. The three measures that passed include:

  • Proposition 52: This initiative permanently extends the fees hospitals pay to the state, which the state then uses to get federal matching funds to support Medi-Cal. This translates to about $1 billion in state General Fund savings annually – providing this system continues to be allowed under federal law. There wasn’t much doubt that the state would seek to extend these fees past the sunset date of January 1, 2018, since they reduce pressure on the General Fund. But the initiative makes it more difficult for the legislature to modify the hospital fee program.
  • Proposition 55: Extending the tax on high-income earners will generate between $4 billion and $9 billion each year to pay for K–12 education and community colleges, Medi-Cal, and other budget priorities. For Medi-Cal, this is expected to provide up to $2 billion annually starting in 2018. But the amount may vary significantly from year to year for several reasons. First, K–12 education gets first call on the new revenue. In addition, the amount of new revenue will be affected by the volatility in what high-income taxpayers earn. Thus, the governor and legislature will have to learn to cope with an undependable funding source for Medi-Cal.
  • Proposition 56: Higher tobacco taxes will generate up to $1 billion for Medi-Cal in 2017–18. Revenue from tobacco taxes has generally fallen each year as the number of smokers in California has declined, and the new tax may accelerate that trend. While building these funds into the Medi-Cal budget may strengthen the program now, the state’s General Fund could face increasing pressure in the future if this source of funding declines. The state legislature and governor will determine how to use these funds as part of budget discussions next spring.

The fourth initiative affecting the Medi-Cal program, Proposition 61, failed to garner a majority of votes. Perhaps not surprisingly, more questions were raised about the impact of this initiative than the other three. Proposition 61 prohibited the state from paying more for prescription drugs than the federal US Department of Veterans Affairs, which typically pays the lowest prices of any public or private entity. The measure’s intent was to reduce the cost of prescription drugs in California, but the fiscal analysis by the Legislative Analyst’s Office suggested that the savings were uncertain.

While the new funds for Medi-Cal will be welcome, it remains to be seen whether they will provide reliable support for the program. Plus, there are questions about how the new president and Congress will alter the Affordable Care Act and how that will affect the state’s program. For instance, the law allowed California to extend Medi-Cal coverage to single low-income adults. In the 2016–17 state budget, coverage for this group cost about $15 billion annually, with the federal government picking up 95% of the tab. If the federal government significantly reduces or eliminates this enhanced funding rate, the $3 billion in new revenues generated by the three initiatives will not be enough to operate California’s expanded Medi-Cal program without other fiscal support.

Funding Special Education

California’s special education system serves almost 12% of public school students with yearly allocations of more than $12 billion from local, state, and federal funding sources. Despite changes in the numbers of students served and the nature of their disabilities, its finance system has not been addressed in a comprehensive way for more than two decades.

PPIC recently released Special Education Finance in California, a report examining the system in light of the principles that underlie the Local Control Funding Formula. These principles—which determine how K–12 funds are allocated—are local control and accountability, transparency, and equity. The PPIC report also draws on the 2015 Statewide Special Education Task Force, which envisioned a seamless program of student services that is part of a unified system of general and special education. The PPIC authors recommend changes that can help achieve this vision.

At a well-attended Sacramento event held in conjunction with the release of the PPIC report, coauthor Paul Warren summarized the way the special education finance system works now and outlined PPIC’s recommendations to change it. A panel of education experts then took up the issue. They concurred that it is time for a change.

“The kids can’t wait,” said Kim Conner, whose experience includes being the parent of a child with special needs. “We’ve waited a long time. It’s easy for us to say from a fiscal standpoint, we don’t have money, we don’t know enough . . . But we know so much. We can do this.”

Michael Kirst, president of the California State Board of Education, said the PPIC report is helpful in understanding the current system, which “has some underlying rationales but no overall rationale. It is an accretion of different things.”

“It is very hard to understand, how the money flows, who makes decisions, he said. “It is not adjusted sufficiently for student needs . . . It is inequitable.” Calling the PPIC report “bold and provocative,” he said it “should certainly should kick off a really deep discussion on change.”

Mary Samples, assistant superintendent of the Special Education Local Plan Area in Ventura County, said a key topic in the discussion of change needs whether enough funding is allocated for special education. Samples, who served as chair of the finance subcommittee of the Statewide Special Education Task Force, said, “I don’t think that moving the money from one bucket to another solves the problem. The problem is adequacy of funding.”

What’s Next for Legalized Marijuana?

The morning after Election Day, California appeared to be on a very different path than much of the nation. But in voting to legalize recreational marijuana, Californians were very much in step with the rest of the country. In addition to California’s Proposition 64—which passed relatively easily, with 56% of the vote—measures were passed in Nevada and Massachusetts that legalized recreational marijuana. Measures that legalized or expanded medical marijuana passed in Florida, Arkansas, North Dakota, and Montana. So far, Arizona is the only state to have rejected a recreational marijuana measure. Maine also passed a measure legalizing recreational use, though the vote was close and is subject to a recount.

While marijuana remains illegal under federal law and continues to be classified as a Schedule I drug (meaning it has a high risk for abuse and has no accepted medical value), 63% of Americans now reside in states that have medical or full legalized use, including 21% with legalized recreational use.

Now comes the difficult part. Proposition 64 sets in motion a number of steps and procedures designed to create a regulated market for recreational marijuana. Many of these can be modeled on last year’s legislation regulating California’s medical marijuana market. And the states that have legalized marijuana so far have created a competitive but regulated market structure. But regulatory experience—in California and other states—is in short supply. As one state regulator opined at a recent PPIC event, “Right now, science is lagging policy.”

Marijuana regulation cuts across many areas. Earlier this year, we outlined several key regulatory areas, including cultivation, production, and processing; sales, consumption, and possession; taxes and finance; and public health and safety. The challenge facing California and other states is to implement regulations that can achieve multiple, sometimes conflicting policy goals: limiting the impact of the illegal market, preventing youth drug use, reducing harm to public health and safety, preventing diversion of legal marijuana into illegal markets, and raising revenue. This requires a comprehensive regulatory approach that would document and control the cultivation, production, processing, and sale of legal marijuana.

Our report recommended that California err on the side of caution and adopt a relatively restrictive regulatory model for both the recreational and medical markets. We still maintain that a tight, single market will make marijuana laws easier to enforce and reduce diversion to under-age Californians and to other states. To be sure, a highly regulated legal market will be accompanied by a robust illegal market. But it will be easier to loosen a tight market than to tighten a loose one.

Given the apparent national interest in legalizing marijuana—and the lack of knowledge about this new industry—California is positioned to be a leader in answering difficult questions about how best to regulate it. To play a leadership role, California regulators should collect data on marijuana sales, prices, revenue, and use. Basic market information would play a significant role in closing this knowledge gap and inform better future policy for both our state, and the rest of the country.

Finally, we should note that there is some uncertainty about the future of marijuana regulation across the country. As noted above, federal law still classifies marijuana as an illegal substance. The relatively benign approach that the federal government has taken to enforcing federal law regarding marijuana has been based on three memos written by second-tier cabinet members and some language in an annual appropriation bill. Though President-elect Trump has not explicitly stated his policy on marijuana, it would be relatively simple for the new administration to alter the current federal approach.

Learn more

Read the report Regulating Marijuana in California

The Top-Two System and Election 2016

This election marked the third outing for the state’s “top two” primary system. The system allows voters to choose any candidate they like in the primary, with the top two vote getters advancing to the fall. One of the reform’s major goals is to promote moderation by removing the partisan barriers that structure candidate and voter choices. What has this election suggested about the reform?

The two candidates who advance to the fall election can be—and often are—from the same party. The most visible example this year was the US Senate race between Democrats Kamala Harris and Loretta Sanchez. It was the first statewide same-party race, and many did not know what to expect. Of the two candidates, Kamala Harris was seen as a traditional liberal Democrat, while Loretta Sanchez made more efforts to appeal to Republicans. In the end, Kamala Harris won by a wide margin—mirroring the substantial margins in most public opinion polls. Polling had also suggested that between a third and half of Republicans were likely to opt out of casting a ballot in this race. At the time of this writing, about 1.1 million more ballots have been cast for president than for US Senate, a number roughly consistent with these polling estimates.

There were also 27 down-ballot same-party races in this cycle, in line with 25 in 2014 and 28 in 2012. These races continue to be a lot closer than cross-party contests: this year, an average of 32 points separated the candidates in cross-party races, compared to 25 points for candidates of the same party. About a quarter of this year’s same-party races were decided by less than 10 points, also similar to previous years.

At the same time, the share of cross-party races decided by narrow margins has been falling over time—from 18% in 2012 to 15% in 2014 to just 11% this year—and is rapidly approaching the average share during the previous redistricting cycle (7%). This most likely reflects the aging of the redistricting plan, which was drawn by an independent commission in 2011. At the beginning the plan was very disruptive to established patterns, but as candidates have come to understand which seats are likely to be competitive and which are a stretch, the level of cross-party competition overall has declined.

Establishment candidates did well this year, as they have on average under the top-two reform. Just 6 out of 123 incumbents lost, and the average margin of victory for incumbents was the same as before the reform. This is not to say that the top-two primary has not altered the playing field in some cases. In fact, three of the six losing incumbents ran in same-party races. But the broader field of play is similar to the past.

Same-party races were in part expected to promote contests between the moderate and liberal/conservative wings of each party. It is not clear that this has happened much on the Republican side, but there are typically several same-party contests that feature this dynamic on the Democratic side. In this election cycle, most of these contests were won by the more moderate, business-backed Democrat. Nonetheless, in at least two cases—Raul Bocanegra vs. Patty Lopez in Assembly District 39 (San Fernando Valley) and Eloise Reyes vs. Cheryl Brown in Assembly District 47 (San Bernardino County)—a less traditional Democratic incumbent lost to a more traditional Democratic challenger (Bocanegra was technically a challenger, but he was also a former incumbent).

In short, this year’s top-two outcomes mostly fit the post-reform pattern, but there were some interesting deviations. It is still early in this reform’s life, so it will be important to keep monitoring it to understand how it unfolds.

Next Steps for Proposition 57

The passage of Proposition 57 brings significant changes to California’s criminal justice system. At the same time, the initiative lacks specificity and there is great uncertainty about what its impact might be.

The measure increases the chances for parole of felons in state prison who are convicted of nonviolent crimes and expand inmates’ opportunities to earn credits for good behavior. This loosening of parole rules will ease prison overcrowding through the early release of thousands of inmates. Less controversially, it will also allow judges, rather than prosecutors, to decide if juvenile defendants over age 14 can be tried in adult court.

Proposition 57’s impact will depend on which inmates will be eligible for parole, how early they are released, and the effectiveness of the new credits—which will depend, in part, on whether the California Department of Corrections and Rehabilitation (CDCR) has the capacity to immediately provide effective rehabilitative programs.

The initiative is the latest of a number of reforms adopted since 2009, when a federal court issued a mandate to reduce overcrowding in the state’s prison system to improve inmate health care. Over the past several years, the total prison population has declined by about 41,000. At 113,700, the institutional population is now almost 2,200 below the court-mandated target of 137.5% of design capacity. Early in 2016, however, the prison population began to increase, and is now about 1,900 higher than it was at the end of January. If this average monthly increase of more than 200 inmates continues, the prison population could be above the mandated target within a year.

Proposition 57 gives CDCR two tools to address this population pressure. First, it makes prison inmates serving time for “non-violent” felonies eligible for parole consideration after serving the full sentence for their primary offenses, without having to serve time for additional crimes or enhancements, such as gang affiliation or prior felonies. But it is not clear which specific crimes will make inmates ineligible for early parole. The list of 23 violent felonies in the state penal code does not include crimes such as assault with a deadly weapon, certain rapes, and some gang crimes.

If eligibility is extended to those who have not been convicted of these 23 violent offenses, the Legislative Analyst Office (LAO) estimates that about 30,000 inmates currently in state prison would be eligible for early parole, as would an additional 7,500 inmates admitted in each year thereafter. However, the number of inmates who will be granted early release will almost certainly be lower than 30,000. The CDCR has the discretion to determine eligibility, and eligible inmates will be granted parole based on their assessed risk to public safety by the Board of Parole Hearings (BPH). There were 5,300 parole suitability hearings in 2015, and BPH granted parole to only 906 inmates, a rate of about 17%.

Second, and importantly, the initiative gives CDCR authority to award credits for good behavior and rehabilitative or educational achievements. In addition to reducing the prison population, the incentive of early release based on completion of programs aimed at reducing the likelihood of reoffending is also likely to increase inmate demand for approved rehabilitative or educational programming.

The proposition’s advocates hope that more effective programming combined with incentives to participate will better prepare inmates for reentry into the community. They also hope it will lower the state’s high recidivism rates—we recently reported that about two-thirds of inmates released from prison are rearrested within two years and about two-fifths are re-convicted of a new crime.

It will be up to the CDCR secretary to determine which programs are credit-eligible and the size of the credit inmates would receive for participating. It is unclear whether CDCR will have the capacity to meet new demand for these programs—this will be crucial to implementing Proposition 57.

A key question to be answered in the years to come is whether Proposition 57 will affect crime rates. To answer it, we need to know how many inmates are released early, who they are, and to what extent they complete effective programming.

For all of the unknowns, one aspect of Proposition 57 is clear: it does push the state to focus on evaluating, implementing, and meeting the demand for evidence-based programs that help inmates prepare for successful reentry into the community.

Video: Policy Priorities for California’s Water

Five years into this drought—with the possibility of a sixth on the way—what have we learned about addressing the diverse challenges of scarce water supplies? A PPIC Water Policy Center event in Sacramento last week brought together experts to discuss four of the state’s key policy challenges: strengthening urban drought resilience, managing groundwater in rural areas, addressing declining ecosystem health, and ensuring safe drinking water in disadvantaged communities.

The far-ranging conversations took the audience on a virtual tour of California’s drought hot spots. It included Central Valley towns subsisting on bottled water after local wells dried up, stressed rivers and streams with numerous fish species on the brink of extinction, and farmers anticipating big changes to rural economies as a law to maintain sustainable groundwater levels is implemented.

Ellen Hanak, director of the PPIC Water Policy Center, gave an overview of how California is managing the complex and interrelated challenges of this persistent drought. The experience can help us better prepare for future droughts and a warming climate, she said.

Cities have weathered the drought fairly well. But many urban water systems—which supply about 90 percent of California’s population—struggled to implement the statewide water conservation mandate issued by Governor Brown in April 2015, panelists noted. Now that the mandate is no longer in force, the focus is on encouraging long term water efficiency—especially for outdoor landscape water use.

A panel on the complex challenges of implementing the state’s Sustainable Groundwater Management Act raised the need for better data to inform decision making. Karen Ross, secretary of the California Department of Food and Agriculture, said a big challenge for the law is “how do we create trust so that everyone will be engaged,” especially given the many challenges facing farming communities right now.

Managing water for the environment during drought was the focus of the third panel. Jeff Mount, senior fellow at the PPIC Water Policy Center, noted that California’s aquatic ecosystems “are in perpetual drought … because of how we manage water.” He argued that we must focus on managing ecosystems rather than trying to save individual species on the brink.

Water shortages and poor water quality have also made life difficult in a number of disadvantaged rural communities—the focus of the last panel. Hundreds of communities have experienced drying wells, nitrate pollution, and other problems that threaten their water supplies.

Laurel Firestone, co-director of the Community Water Center, noted that while addressing this crisis has become a growing priority in California, more needs to be done locally and nationally to address inequities in access to safe drinking water. “Our lack of action is costing vastly more … than if we got ahead of the problem and solved it,” she said.

We invite you to watch the videos from this event, and hope you find the discussions illuminating and useful:

Learn more

Read California’s Water (PPIC Briefing Kit, October 2016)
Visit the Policy Priorities for California’s Water YouTube page
Visit the PPIC Water Policy Center

Video: John Chiang Looks to the Future

What are the top three issues that will make a difference to California’s future? That is the first question John Chiang—state treasurer and candidate for governor—was asked by PPIC’s president and CEO, Mark Baldassare.

Chiang’s response: education, economic security and opportunity, and the environment. He elaborated on these themes in the conversation before a San Francisco audience last week.

As treasurer, Chiang is the state’s banker, whose responsibilities include selling California’s bonds, investing its money, and managing its cash. He served two terms as state controller and was also on the Board of Equalization.

Baldassare said that he would sum up Governor Brown’s philosophy about taxes and spending as “fiscal restraint” and asked Chiang to sum up his own fiscal philosophy.

“Smart financial investment,” Chiang said.

“If you have the money, you invest it in education, you invest it in safety, you invest in infrastructure, make sure that you do the core issues correctly,” he elaborated.

PPIC invited Chiang as part of PPIC’s Speaker Series on the Future, which brings thought leaders from across the political and geographic spectrum to California audiences for conversations about the state’s pressing challenges. PPIC does not endorse, support, or oppose candidates for public office.