For Immediate Release: January 2, 2007

SAN FRANCISCO – The Pacific Research Institute, a free-market think tank based in California, today unveiled its annual “California Top 10 Policy Blunders” of 2006.

“Across the state this past year, government officials’ fiscal capriciousness has been demonstrated by such policies as an increase in the minimum wage, a global warming tax, even a ‘sick tax’ on Health Savings Accounts,” said Josh Treviño, vice president of public policy at PRI. “In order for California to provide opportunity for its residents, the government must be held accountable for its choices.”

California’s top 10 policy blunders include mistakes and missed opportunities in education, the economy, technology, the environment, and health care:

1. Increase in the State Minimum Wage: With Assembly Bill 1835 signed into law by Governor Arnold Schwarzenegger, business owners must pay their employees at least $8 an hour by January 2008. This indirect tax on labor will cause employers to reduce employment and hours for low-wage, low-skill workers and hike the price of goods and services made and sold in California.
   
   
2. Approval of a “Global Warming” Tax: Governor Schwarzenegger’s approval of Assembly Bill 32 saddles businesses with more regulations on gas emissions. It will encourage businesses to leave the state and discourage new businesses from locating in California.
   
   
3. University of California Officials Advocating Repeal of Prop. 209: UC officials blame Prop. 209, the 1996 initiative that banned government-sponsored racial preferences, for the drop in African-American and Hispanic enrollment at the UC’s flagship campuses. They have begun to push for its repeal. The real reason for reduced enrollment for these groups is poor high school preparation.
   
   
4. Low Transition Rate of California's EL Students to English Fluency: Despite an almost 50 percent pass rate on language exams, California schools promote only 10 percent of their English learner (EL) students into the English fluent category. School districts have disincentives to promote their EL students because they receive funding on a per-student basis and because English fluent students in EL programs test better and raise overall EL student scores. This hurts the chances of EL students to enroll in college preparatory classes and thus hinders their chances of attending college or university.
   
   
5. Failing to Repeal the California Sick Tax: The Federal government and almost every state encourage Health Savings Accounts (HSAs) by allowing individuals and their employers to fund them with pre-tax income, similar to an IRA or 401(k). HSAs are three years old, but California has still not made them deductible. The state needs to give health care dollars back to the patients who need it.
   
   
6. The California Prescription Drug Initiative: The plan puts Medi-Cal patients’ health at risk by using them as pawns in a power struggle between the state and drug makers. By threatening to stop Medi-Cal patients from taking medicines made by drug makers who do not submit to arbitrary price controls for uninsured people (up to 40 percent on brand-name drugs and 60 percent on generics) the governor may be breaking federal Medicaid law. Bizarrely, anti-trust laws prohibit private drug companies to collaborate to discount prices for poor people, which they have an incentive to do. Governor Schwarzenegger wants the government to do what is illegal for pharmaceutical companies to do—fix prices.
   
   
7. San Francisco’s Rising Price Tag for “Free Wi-Fi”: Government officials of San Francisco have persisted with their brash effort to install government-controlled Internet access, also known as “Muni Wi-Fi.” Shortly following his 2003 election, San Francisco Mayor Gavin Newsom had initially proposed building a city-run wireless broadband network on the backs of local taxpayers, prompting concerns about costs and the perils of government intervention. Despite changes from a socialist technology model to a private-public partnership, San Francisco is still engaging in a big government approach to broadband deployment, a risky scheme that has left even the private Wi-Fi network partners publicly crowing about the local bureaucratic morass.
   
   
8. California’s Hearty Diet of Phone Pork: California weighs in as the largest recipient of “phone pork” from the Universal Service Fund (USF), a federal technology subsidy that was supposed to ensure affordable telephone service for every American but has instead facilitated criminal exploitation of the public trust. Through the USF funding scheme, unaccountable bureaucrats have taxed telephone companies to give away billions of dollars in subsidies to mostly small rural phone carriers and classroom technology vendors who participate in the Fund’s “E-Rate” program. Lacking proper public oversight and accountability, USF has proven to be little more than an easy mark for companies to defraud, with the help of crooked and incompetent government officials, especially those in the Golden State, which rakes in more than $4.5 billion in USF disbursements each year.
   
   
9. High Remedial Instruction Rates at Cal State: More than half of incoming freshmen at California State University required remedial instruction in either English language arts or math. These students maintained an average GPA of a “B” in high school, revealing a huge discrepancy between high school preparation and college expectancy.
   
   
10. Failure to Restore Property Rights to Californians: In Kelo v. The City of New London, the U.S. Supreme Court ruled that cities can take an individual’s property and give it to another private entity. The California legislature failed to address the problem and the state’s voters rejected Prop. 90, which would have protected property owners from eminent domain abuse. Today, California’s home and business owners are still vulnerable to government takings abuse.

Dishonorable Mentions

Lowering Passing Benchmarks for the California High School Exit Exam: Although the exit exam is a positive step toward accountability, the state has set passing standards too low to really measure student learning. The passing benchmark for math was lowered to 55 percent and for English language arts to 60 percent.

Dangerous Phone Regulation: As the California Public Utilities Commission (CPUC) placed forth a modest initiative to raise consumer education in the cell phone marketplace, one commissioner sought to clasp new regulatory shackles on industry leaders. Commissioner Dian Grueneich put forth an alternate “Telecommunications Bill of Rights” at the CPUC in spring 2006, offering state residents another one of her trademark “bureaucrat knows best” solutions to policy problems that are overstated or simply don’t exist. Rather than attempt to wrap up popular competitive technologies like cellular telephony in new red tape, Commissioner Grueneich and her staff should focus their energies toward freeing consumers to decide for themselves what cellular service agreements work best.

Failure to Close California’s ADA Lawsuit Abuse Loopholes: Assembly Bill 20—killed in committee in January—would have helped stop extortionist attorneys from shaking down business owners for alleged Americans with Disability Act (ADA) infractions. AB 20 would have required notice of ADA infractions before a lawsuit could be filed—favoring repair of the infraction over making lawyers rich.

$203 Million-a-Year Health Access Plan in San Francisco: San Francisco Mayor Gavin Newsom unveiled a plan that will provide health care to the city's 82,000 uninsured residents through increasing business taxes, which will result in job losses. The program is not insurance, and does not fix government-caused insurance problems. Instead, it offers San Franciscans the incentive not to become insured at all because they will receive highly discounted or free care without it.

Huge Unfunded Benefit Liabilities for California’s Teachers: California school districts carry huge unfunded health-benefit liabilities with no thought for future implications of such obligations. The 2006-2007 state budget has allocated $10 million to assist local school districts in confronting this mess of their own creation.

Failing to Address Medicaid Reform: Rather than using their new freedom to innovate in Medicaid design and delivery, states invest most of their energy to ensure that they continue to draw federal matching funds for Medicaid. While California hardly has the worst Medicaid program in the nation, it is slow to take up new opportunities recently passed by Congress. For example, states can open Health Opportunity Accounts for Medicaid beneficiaries, giving them the resources to choose the health services that serve their needs best. This is a natural expansion of “cash & counseling”, which has improved the quality of life of disabled, shut-in patients, but California has no plan to embrace this innovation.

Berkeley Approves Break-Back Regulations on Breakthrough Nanotechnology. The city of Berkeley gave tech innovators a lump of coal in their Christmas stockings, as local officials approved a first-ever municipal ordinance on nanotechnology, a revolutionary field of scientific and high-tech research on the molecular level. By preemptively classifying nanotech products with hazardous materials, Berkeley politicians are setting a dangerous precedent, potentially eroding hundreds of millions of dollars of new state nanotech goods and services in the coming years. Rather than discourage innovation and investment, local government officials should engage in constructive dialogue with nanotech experts and researchers.

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About PRI
For 28 years, the Pacific Research Institute (PRI) has championed freedom, opportunity, and individual responsibility through free-market policy solutions. PRI is a non-profit, non-partisan organization. www.pacificresearch.org.