The Pacific Research Institute (PRI), a free-market think tank based in California, today unveiled its annual “California Top 10 Policy Blunders” of 2007.

“Governor Arnold Schwarzenegger has stated that he will begin 2008 by declaring “a state of fiscal emergency” – a far cry from saying there will be no operating deficit earlier this year,” said Joshua Treviño, vice president of public policy at PRI.

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

1. Continuing to Pursue Massive Tax Increases to Finance the Governor's Health Care Scheme. As part of the unending state health care debate, the governor has proposed a 6 percent payroll tax and a $1.50-a-pack cigarette tax increase to finance his proposed new California health care scheme. The governor wants voters to approve these tax increases next year at the ballot. At a time when the state economy is slowing down and the 2008-09 fiscal year deficit could be as high as $14 billion, the governor wants to spend an additional $14 billion for his new health care scheme financed with taxes on workers that will destroy jobs. Where is the logic or common sense? This proposal will cause severe hardship for California's economy for decades to come.

2. Assembly Considers Corporate Welfare for Tech Companies. In late February 2007, Assemblyman Mark Leno (D-San Francisco) introduced a bill mandating that California government and its employees use only the non-proprietary, open document format developed by IBM, Sun Microsystems, and Google. Not only would user-friendly, time-tested, and familiar applications be replaced with untested and unstable new software, but state agencies would be required to convert all existing documents to the new format. Without any significant justification, this bill threatens to destabilize the government’s critical information infrastructure, decrease worker productivity, and increase the budget deficit. While the legislation stalled in committee in 2007, Leno plans to reintroduce it in January 2008.

3. Another Year of the California Sick Tax. The Federal government and almost every state encourage Health Savings Accounts (HSAs) by allowing individuals and their employer to fund them with pre-tax income, similar to an IRA or 401(k). California taxes these contributions. Assemblymen Alan Nakanishi, Cameron Smyth, and Chuck DeVore, and Senators Abel Maldonado and George Runner have introduced bills to correct this flaw, but the bills died on the table. It survives, barely, in the governor’s health proposal, which contains the necessary tax reform. HSAs paired with high-deductible health plans will encourage Californians to save for health care rather than depending on employers or the government.

4. Increasing the Minimum Wage. At a time when the national economy could soon slip into recession and the state's economy is slowing down with massive looming state budget deficits, Sacramento lawmakers showed no common sense by increasing the cost of hiring California's low-skill workers. On January 1, 2007, the state's minimum wage went up more than 11 percent to $7.50 per hour, making it the fifth-highest minimum wage in the nation. On January 1, 2008, the minimum wage will increase to $8. This will lower employment of low-skill workers at a time when California should be encouraging job creation and stronger economic growth. Instead, job growth in California is now less than half of what was projected by state officials.

5. Ending an Era of Public-School Choice. Most California parents no longer have the right to choose their children’s public schools without permission from their resident school districts—a freedom they have had for nearly 15 years. In its reauthorization of the Districts of Choice Program (SB 80), the legislature prohibited new public school districts from participating and piled mountains of red tape onto current participants.

6. Municipal Wi-Fi is a No-Go in California. Plans to blanket California cities with free wireless Internet access continued to fail in 2007 amidst rising costs, poor planning, and chaotic bureaucracy. These projects are built on a flawed model, and their failure was predictable. In San Francisco, Earthlink abandoned its muni wi-fi project, declaring that the model “is simply unworkable.” In Sacramento, a coalition of high-tech firms has refused to fund its own proposal. After nine months of planning, a muni wi-fi project in Napa was scrapped when engineers realized that utility poles were too short. In Silicon Valley, the nation’s foremost innovation hub, an ambitious wireless project is floundering and project leaders have declared, “we don’t have a business model here.” Even in tiny Mountain View, home of tech giant Google, the company’s best and brightest engineers have failed to build a city-wide network which works indoors.

7. A $14 Billion Tax and Spending Hike Posing as “Health Reform”. Governor Schwarzenegger’s evolving health plan began as a $12 billion obligation. It would require all Californians to buy health insurance, tax doctors two percent and hospitals four percent of revenues, and tax employers with 10 or more employees four percent of payroll. Gov. Schwarzenegger also said he would “never close the door on anything,” including an additional tax hike on California residents. And so it came to pass. Nine months later, the California Legislature met in special session to consider a revised version of the governor’s plan. It would cost $2 billion more, and would rely on the lottery to fund health care. Similarly, all Californians would have to buy health insurance, insurers would not be allowed to rate risks, and hospitals would still have to pay 4 percent of revenues. The governor’s latest “compromise” with Assembly Speaker Nunez indorses a payroll tax of up to 6.5 percent on businesses. A tax hike is not health reform.

8. Producing Shaky Unrealistic Budgets. Before the ink was dry on the governor's current fiscal year budget it was clear that the economic assumptions and budgeting practices used by the governor and Sacramento lawmakers are flawed. When the budget was passed, the governor said that the current fiscal year budget would have no operating deficit. But now it is clear that this statement will not be true. According to current projections, the current fiscal year revenues (ending June 30, 2008) will be at least $2.5 billion lower than expected. And the projected deficit for the next fiscal year is now a staggering $10 billion to $14 billion. Gov. Schwarzenegger has stated that he will begin 2008 by declaring "a state of fiscal emergency" -- a far cry from saying there will be no operating deficit earlier this year. Reinstating dynamic revenue analysis, as PRI advocates, would help produce more realistic budget numbers. And comprehensive tax reform could end the "revenue rollercoaster."

9. Pushing Government-run Preschool…Again. U.S. House Speaker Nancy Pelosi (D-San Francisco) was stumping for more spending on government-run preschool last summer at a national children’s summit. “We know that these investments in our children today pay off many-fold in later years.” National research and California voters, however, know better. Studies have consistently shown that preschool does not have long-term benefits for students, and California voters overwhelmingly rejected a 2006 government-run universal preschool initiative.

10. Bowen ends e-Voting in California. In August, Secretary of State Debra Bowen decertified nearly all the touch screen electronic voting systems used in California. She made this decision without consulting local election officials, and despite the fact that there has never been a documented case of election fraud involving an electronic voting machine. The voting machines discarded by Bowen were purchased with a $200 million bond approved by voters in 2002. Not only has this investment been lost, but Bowen appears reluctant to embrace any new technologies in the future, declaring that “for government applications, you don’t want to be on the cutting edge.”

Dishonorable Mentions:

A $203-Million-a-Year Health Access Plan in San Francisco. San Francisco Mayor Gavin Newsom’s health plan for the city’s uninsured residents requires employer contributions of around $30 million annually – which could still 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. Moreover, the Golden Gate Restaurant Association (GGRA) filed suit against the San Francisco Employer Mandate for Healthcare, the restaurant group contends that provision conflicts with the federal Employee Retirement Income Security Act (ERISA) because the U.S. law is the exclusive regulator of employer health plans. GGRA currently awaits the court’s decision.

Attempting to Halt the Growth of Charter Schools. Slashing classroom funding for high-poverty charter schools by more than half wasn’t enough for the California State Assembly. Under the cover of night, Speaker Fabian Nuñez (D-Los Angeles) introduced “trailer bill” SB 92, which would have forced Gov. Schwarzenegger to choose between forfeiting existing classroom funding or letting fewer charter schools open. The gambit backfired when hundreds of Los Angeles charter school parents and teachers protested outside Speaker Nuñez’s Los Angeles district office.

California Warns Santa: You Owe Taxes on Those Toys! On the eve of “Black Friday,” the busiest shopping day of the year, State Board of Equalization Chairwoman Betty T. Yee released this helpful reminder: “As the holiday season approaches and gift buying begins, shoppers want to be aware of their tax obligations. If you buy something that is taxable from an out-of-state retailer who didn't charge tax, it's very likely you owe the use tax.” Not only does this message confuse, scare, and drive away consumers at the height of the holiday shopping season, but it also puts a knife in the back of California retailers. Yee has unwittingly reminded consumers that unlike businesses which set up shop in California, out-of-state Internet retailers such as Amazon.com do not collect sales tax. With Congress voting to protect Internet access from taxation, state legislators are looking to ramp up taxes on e-commerce. The BOE is working with other states on the “Streamlined Sales Tax Project” to facilitate the collection of taxes on out-of-state purchases. In the meantime, however, Yee reminds Santa: shop out-of-state and save!

Preventing Health Insurers From Acting Against Fraud. One of the benefits of the market for individual health insurance in California is that health plans can underwrite applicants’ risk. This means, for example, that smokers pay higher premiums than non-smokers. Some applicants misrepresent their health status when they apply for health insurance. Sometimes, the insurer identifies the fraud and rescinds the policy. The Department of Managed Health Care, the California Department of Insurance, and the courts are de facto forbidding these audits, by requiring insurers to prove that the applicant “willfully misrepresented” his health status; that is, mind-reading. Outlawing these rescissions forces the insurer to raise health premiums for everyone, because insurers will become gun-shy.

State-Mandated Sensitivity Training for Teachers to Stop Racism and Improve School Performance. In November, State Superintendent of Public Instruction Jack O’Connell convened a two-day summit on racial achievement gaps. Before the summit even began, he told the San Francisco Chronicle that racism is to blame and state-mandated sensitivity training for teachers is the solution. That explanation hardly passes the straight-face test since at more than one in 10 affluent, suburban school districts statewide where fewer than one-third of students are in poverty (nearly 300 in all), a majority of students in at least one grade are not proficient in English or math. A lack of rigor, not racism, is the real culprit behind California’s poor public school performance.

State Forbids Employers From Creating Cyborgs. In November, Governor Schwarzenegger signed a bill barring employers from forcefully implanting microchips under the skin of employees. These chips, known as “radio frequency identification” (RFID) tags can carry personal information, and could potentially be useful for keeping tabs on workers. This law is unnecessary for the same reason we don’t have specific laws forbidding employers from stapling bar codes to employees’ foreheads, or branding them like cattle: assault is already illegal.

Failing To Allow More Autonomy for Nurse Practitioners. The state should reform “scope of practice” laws affecting nurse practitioners, who are qualified to provide basic, affordable health care. This would allow Californians to take advantage of retail-based “convenient clinics,” a competitive answer to emergency rooms for basic services. More primary-care physicians are entering specialty fields, but nurse practitioners (NPs) provide quality care comparable to physicians and enjoy wide-ranging prescribing and billing ability, while costing less. Unfortunately, California regulations prevent more than four nurse practitioners working under one supervising physician at a time. Freeing this profession is necessary to allow “storefront” health clinics, which are expanding by the hundreds in other states, to grow in California. More such clinics will improve care for many patients who flood emergency rooms to the detriment of hospitals, taxpayers, and patients themselves.

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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. For more information please visit our web site at http://www.pacificreseach.org