Schwarzenegger Announces : Running for CA Gov.

The history of the deregulation debacle

Background: For nearly a century, California's electricity has been provided by electric utility companies, each with their own local monopoly. For many technical and economic reasons, it has been cheaper for one electric utility to provide electricity than for several.

During the 1970's and 80's, the state's three largest electric utilities foolishly built expensive, dangerous nuclear power plants costing billions of dollars. The nuclear power plants caused their electric rates to skyrocket. (Other utilities that wisely avoided nuclear power were able to keep their electric rates lower).

Since they use tremendous amounts of electricity, large industrial corporations began complaining about the high cost of electricity from their local monopoly utility. They began to push for the right to avoid the local utility and shop for the cheapest power available. The utility companies were worried that if large industrial customers are allowed to shop for the cheapest power, they might be unable to pay off the debt owed on its power plants and other assets.

"Deregulation" Proposals: To solve their problem, the utility companies joined with big corporations in a legislative proposal to force residential ratepayers to pay off their power plants and assets, so that those utility companies could then "compete" against other companies which did not invest in non-economic power plants.

The deregulation bills enacted in California, Illinois, Texas, New Jersey, and other states include multi-billion dollar bailouts of the utilities for their bad investments in nuclear power. California utilities have already received about $17 billion, much of this sum coming from the backs of hardworking families to pay for their poor management. In Illinois, the utilities are receiving about $14 billion; in Texas, nearly $5 billion; in New Jersey, nearly $9 billion. Nationwide, the utility bailout could total over $200 billion, making it one of the largest bailouts in history. And this bailout money is coming straight out of ratepayers' pockets.

The energy industry promised that deregulation would bring competition and lower prices. But those promises have proved empty. Just the opposite has occurred in the first region in the nation to experience deregulation.

The California Law: In 1996, the California Legislature unanimously approved legislation backed by the utility industry to "deregulate" electricity. The Legislation promised competition and at least 20% lower electricity rates by 2002.

Under the 1996 plan, rates would be frozen at rates roughly 50% higher than the national average for up to four years (1998-2002), during which time residential and small business ratepayers were required to pay off the utilities' "stranded assets" -- debts from dirty, non-economic power plants, including nuclear. (So far, California ratepayers have paid an extra $17 billion under this tax). Money was borrowed to lock in these payments -- and to finance a "rate reduction" for ratepayers. This money will be repaid for a total of ten years (1998-2008). Because it must be repaid, the 10 percent rate cut will amount to less than a 3% reduction in electricity costs for residential and small business consumers over the course of the next several years.

Additionally, under the legislation, the Public Utilities Commission encouraged the utility companies to sell off their power generation facilities. However, some nuclear and hydropower facilities were retained by the utilities.

The California law became the model for similar efforts nationwide (more than twenty states have deregulated electricity) as well as preemptive federal legislation, a portion of which will be the subject of congressional hearings shortly.

Under the 1996 law, California was supposed to open its electricity markets to competition in April 1998. Because the California deregulation scheme provided billions of dollars to the in-state utility companies, competition never materialized. Less than 2 percent of all California customers, including large industrial customers, have switched suppliers. Almost no residential customers have switched. Thus, nearly everyone in California is now being served by a largely unregulated monopoly. (New Jersey opens its markets for all customers in November 1999; Illinois opens for all non-residential customers by January 2001 and all residential customers by May 2002; Texas opens for all customers in January 2002).

Flush with billions of dollars in ratepayer subsidies, the parent companies which control the three utility companies went on a spending spree, repurchasing their own stock and spending billions of dollars buying power plants throughout the United States and in other countries.

1998 -- Ratepayer Revolt Part I -- Proposition 9: The only challenge to the 1996 deregulation plan was the decision of the Foundation for Taxpayer and Consumer Rights, TURN and the Public Media Center, with the support of Consumers Union, to amend the law through a 1998 ballot measure that would have reduced the amount of the bailout of the utility companies, lowering rates by 26%, according to a California Energy Commission study. However, the utility companies spent $50 million on their campaign against Proposition 9, as well as millions more in donations to non-profit, community, environmental and low-income organizations which then opposed the measure. It was defeated in November 1998.

Summer, 2000 -- Revolt, Part II: The San Diego Crisis: San Diego Gas & Electric (SDG&E) ratepayers paid off that utility's debt early. Effective July, 1999, that companies' rates were unfrozen and subject to the free market. Between May and June, 2000, the price of energy rose 240%, and utility bills doubled. The cost to San Diego's economy has been estimated at $100 million per month. The region is in chaos, and San Diego's state Senator -- the architect of the deregulation law -- has been subject to so much public criticism that he has urged ratepayers not to pay their bills. In effect, San Diego has become the guinea pig for the deregulation experiment that has gone awry.

On July 20, former San Diego Mayor Maureen O'Connor and FTCR proposed the following actions:

1. Declaration of a local state of emergency.
2. An immediate rate rollback to electricity rates in effect prior to deregulation (July, 1999), and a freeze on those rates.
3. Repeal of the 1996 deregulation law and re-imposition of regulation at the state and federal levels.

On July 25, the San Diego City Council and County Board of Supervisors declared a State of Emergency and adopted resolutions addressing the crisis, including: (1) demanding that the Public Utilities Commission impose a rate rollback to July, 1999 rates; (2) calling for legislative hearings on whether to repeal deregulation; and (3) exploring the use of local utility franchise fees to provide ratepayer relief. When the state Public Utilities Commission refused to act, advocates turned their attention to the Legislature. In August, the Legislature approved a rate rollback and freeze until 2003 for San Diego ratepayers. However, at the behest of SDG&E, the legislation suggested that ratepayers would ultimately have to pay the utilities back for the higher cost of electricity they pay during the rate freeze. The Public Utilities Commission is required to decide how much ratepayers must pay.

December, 2000: The Statewide Christmas Power "Shortage"

A few weeks ago, the private utility corporations told the people of California not to turn on their holiday lights next month. Meanwhile, with winter only weeks away, the state-created but industry-controlled agencies that govern our power system have repeatedly issued power shortage warnings that we used to expect only in mid-summer, when air-conditioning use is high. On Thursday evening, December 8, a Stage 3 alert was declared. Under a Stage 3 alert, communities throughout the state can be subjected to systematic "rolling" blackouts, for period of an hour or more, with no notice.

Proposition 13: Twenty Five Years Later
by Bruce Bartlett (June 6, 2003)

Summary: This Friday, June 6, marks the 25th anniversary of one of the most important political/economic events in American history: Proposition 13. This initiative, which was approved by the voters of California on this date in 1978, sparked a "tax revolt" that spread throughout the country and continues to reverberate today.

[www.CapitalismMagazine.com] This Friday, June 6, marks the 25th anniversary of one of the most important political/economic events in American history: Proposition 13. This initiative, which was approved by the voters of California on this date in 1978, sparked a "tax revolt" that spread throughout the country and continues to reverberate today.

The impetus for Prop. 13 was the inflation-induced housing price boom of the 1970s. Investors seeking to preserve their capital poured their savings into tangible assets like real estate. With double-digit inflation also pushing up prices, many homeowners suddenly found themselves living in houses worth many times what they paid for them. But with property taxes based on assessed values, this meant that tax bills were also rising sharply. Since incomes were not rising as fast as prices or taxes, some California homeowners found that they couldn't pay the taxes and were forced to sell their homes.

Howard Jarvis and Paul Gann, leaders of two California taxpayer organizations, joined forces in 1978 to put an amendment to the state constitution on the ballot that would limit property taxes to 1 percent of assessed value in 1975. Valuations were frozen until the property was sold. And just to make sure that other taxes were not increased to compensate, a two-thirds majority in the legislature was required to raise taxes.

At first, California politicians ignored the Jarvis-Gann effort. But when polls showed that the measure would pass, they panicked. Dire effects were predicted if taxes were cut. Police, firefighters and teachers would all be laid off, voters were told. Unemployment would rise, and the state's economy would be decimated.

Lest you think I exaggerate, consider these quotes from an April 17, 1978, Washington Post story:

Former California Gov. Edmund G. (Pat) Brown: "If I were a communist, I would vote for Proposition 13."

Los Angeles Mayor Thomas Bradley: Proposition 13 will "hit the city like a neutron bomb, leaving some city facilities standing virtually empty and human services devastated."

Howard Allen, president of the Los Angeles Chamber of Commerce: Proposition 13 is "a fraud on the taxpayer that will cause fiscal chaos, massive unemployment and disruption of the economy."

Some economists at the University of California at Los Angeles predicted that the state's unemployment rate would rise by 4.5 percentage points, from a projected 6.7 percent rate in 1980 if Prop. 13 was defeated to 11.2 percent if it was enacted.

Despite a massive advertising campaign against Proposition 13, financed by the state's business community, which almost universally opposed the measure, voters held firm in their support. On June 6, 1978, they backed it by a two-to-one margin.

Almost immediately, it became clear that all the predictions of doom and gloom were so much hot air. Within months, the critics even admitted it. A New York Times report on Feb. 11, 1979, was headlined: "Little Impact Seen in Coast Tax Slash." On March 7, 1979, another Times report carried this headline: "Dire Predictions on Proposition 13 Have Not Materialized." The latter story had this to say:

"Fire and police protection have been virtually unaffected by the proposition. ... Schools are spending about as much money as they did last year. Some services, such as libraries and flood control, have been cut. But for the most part, the eliminated services appear to have gone unnoticed, according to interviews with many residents."

What about unemployment? According to the U.S. Bureau of Labor Statistics, California's unemployment rate was 7.1 percent in 1978 -- well above the national rate of 6 percent. By 1979, the gap had narrowed, with the state unemployment rate at 6.2 percent versus a national rate of 5.8 percent. Although the California unemployment rate rose in 1980, at 6.8 percent it was below the national rate of 7.1 percent for the first time in many years. There is no record that the UCLA economists ever apologized for their gross error.

Within months, 12 other states cut taxes, fueling the idea of a nationwide tax revolt. Congress, with overwhelming Democratic majorities in both houses, quickly abandoned a liberal tax reform plan it was working on and cut the capital gains tax instead -- over the strenuous objections of the Carter administration. President Carter signed it anyway.

Republican tax-cutting initiatives, such as the Kemp-Roth bill, suddenly became viable. GOP congressmen and senators who had withheld their support because it would increase the deficit now jumped on board.

Two years later, Ronald Reagan rode the tax revolt into the White House. The most lasting effect of Proposition 13 is that it taught Republicans the political power of tax-cutting and weaned them from their obsession with budget deficits. In that respect, its impact continues to be felt 25 years later. Passage of the 2003 tax bill is only the latest example.



About the Author: Bruce Bartlett is a Senior Fellow with the National Center for Policy Analysis (NCPA).

Coleman knows he's in over his head

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By Makeba Scott Hunter and Cheryl Johnston
Sun Staff
Originally published August 8, 2003



His campaign treasurer says he stands "head and shoulders above" the competition, but that's not the best joke you hear about diminutive new California gubernatorial candidate Gary Coleman (yes, that Gary Coleman, of "Whatchutalkin' bout, Willis?" fame).

A better one is this: Even as he announced his own candidacy to replace recall-threatened Gov. Gray Davis, candidate Coleman (for the record, an independent) endorsed someone else: fellow actor and Republican rival Arnold Schwarzenegger! Such is the state of celebrity politics in California these days.

Coleman, of course, is just one of a cast of seeming thousands throwing their hats into the ring to succeed the embattled Davis. So far, the list includes Schwarzenegger, porn king Larry Flynt, former Olympics czar Peter Ueberroth and billboard pinup Angelyne, and the filing deadline isn't until tomorrow.

But Coleman, who made his fame on the 1980s TV show Diff'rent Strokes, is at least in on the joke of his candidacy. At the behest of East Bay Express, an alternative weekly newspaper in the East Bay area of Northern California, he's running to make a political statement. The paper recruited him and paid the $3,500 fee to get his name on the ballot and also obtained more than the 65 required signatures to make his candidacy legal.

"The absolutely worst thing I have to lose [by running] is winning," Coleman said in an interview on his cell phone in California yesterday.

"We really thought this was the most effective way to make a political statement about the farcical nature of the recall," said Express editor Steve Buel. "I think what Gary's candidacy points out is that if Californians decide to pull the recall lever, they really won't have any idea who they're going to be electing in the second vote."

That's not to say Coleman isn't taking his crusade seriously. His 10-issue platform, touching on everything from gay marriage to free water, appeared this week in the Express. Not that taking things seriously means it all makes sense.


Despite being a card-carrying member of the Screen Actors Guild, he's anti-union: "Yeah, they keep me from having something heavy fall on my head at work, but when you prevent me from getting a job, yeah I have a problem with that."


He's anti-waste: "I'd kick the ass of every politician with more than two secretaries," he said. "Because that's a waste of public funds."


He's pro-medical marijuana: "Nobody gets hurt, so why not?" Coleman says. "People still smoke marijuana, and they still go to work."


But he's anti-smoking and drinking: "When you remove alcohol and cigarettes from society, you improve the health, safety and the cost of medical services. Then they don't have to charge as much, because they won't have to take care of people who really shouldn't be in the health system."


He likes the state lottery because it can boost school coffers but hates city buses because they're too slow: "They stop every other block, they always drive the speed limit."


He's pro-business and anti-tax - "The film industry should never be taxed, because that's the state's bread and butter" - but might go for a flat tax.

Coleman says he's never really had political aspirations. He hadn't thought about running for office before Buel approached him. "At the time, there were 67 people thought to be applying ... so I thought, why not?"

Despite his lack of political experience, Coleman feels strongly that Davis should be recalled. "There's definitely a problem when you sit in a room and you're head of the state and you let corporations take [billions] away from the state," he said. "I'm not saying that I'm the greatest thing since sliced bread, and I'm not saying I wouldn't make mistakes, but that mistake ... No!"

Should Davis be recalled, and should Coleman somehow win, he would add the title of governor to a resume that already includes child actor, mall security guard, online columnist, video game expert, bankruptcy survivor and convicted assailant (he threw a punch at a sassy fan).

In the two days since his announcement, he's been busy. He spent yesterday juggling 20 requests for interviews around a scheduled television appearance. He has no money to campaign, he says, so is serving as his own press secretary.

"It's just me and a cell phone and a piece of paper," he says.

Not that he really expects to win, anyway.

"Arnold Schwarzenegger will win. He will have the largest popular vote," Coleman said. "People from Austria will fly here just to vote for him," he laughs. "That would be highly illegal, of course."

But he says, "If my name gets people out to vote, then I've also served a public function. I got [people] up, out of the house, to go to the polls to vote."


Copyright © 2003, The Baltimore Sun

I refuse to allow you, Butrflynet, to make me feel guilty for my whatchootalkinbout fun!

(Rats. Feeling guilty...)

Aug 8, 5:14 PM EDT

Recall May Add to Calif. Economic Woes

By MICHAEL LIEDTKE
AP Business Writer





SAN FRANCISCO (AP) -- Just when California's wounded economy needs a little tender loving care, a rancorous recall election comes along that could inflict more pain. Experts say the political turmoil could scare off business, delay needed reforms and cause economic fallout nationwide.

The Oct. 7 election to recall Gov. Gray Davis is coming as a three-year slide in the high-tech industry has bottomed out, and the state's $1.36 trillion economy - the sixth-largest in the world - appears poised for a turnaround.

But economists say the recovery might not amount to much if, amid the political uncertainty, California fails to solve structural problems that can lead to recurring budget deficits and fix a workers' compensation system that discourages job growth.

"It makes a difficult situation much more difficult," said Tapan Munroe, chief economist for the Capital Corp. of the West. "A sound economy needs a sound political infrastructure. It's hard to imagine how we are going to have that now."

Efforts to recall Davis were sparked by the California's flagging economy, as well as state government's record $38 billion deficit and the decades-long debt to be paid for the 2000-2001 energy crisis.


More bad economic news came Friday - the state lost 21,800 jobs in July, the state Employment Development Department said.

But should Davis be recalled, those problems will be dumped into the lap of a neophyte governor who will have just 30 days to form a transition administration before taking office.

Wall Street bond rating agencies say voter-approved restrictions on state and local tax increases mean fixing the problems won't be easy, no matter who sits behind the governor's desk.

Davis signed a short-term fix into law last week - a $99 billion budget patched together with billions in borrowing and deferred expenses. One permanent change - the elimination of 16,000 state jobs - will bring its own turmoil as workers are laid off and services cut.

Prompted by the state's fiscal problems and the looming recall, Standard & Poor's dropped California's credit rating to near-junk status - a move expected to raise the state's future borrowing costs by roughly $1 billion.

To put the state on more stable financial footing, California needs to adopt reforms that generate more reliable sources of revenue, according to a wide range of politicians, economists and analysts.

The state's income tax system depends heavily on the prosperity of high-income households and businesses - a system that generates fat surpluses in good times like the dot-com boom of the 1990s and excruciating shortfalls in tougher times.

"California needs to bite the bullet and this (recall) is wasting precious time," said Sung Won Sohn, chief economist for San Francisco-based Wells Fargo Bank.

What happens to California's economy has implications for the entire country. The state's enormous economic engine provides the nation with crucial technology, a bounty of agricultural products and feeds the culture with movies and television shows.

Businesses are clamoring for reforms that would make the state more attractive for them, including changes that would lower the cost of mandatory workers' compensation insurance.

For clothing manufacturer Russ Berens in the Los Angeles suburb of Chatsworth, workers' comp costs once amounted to less than $2 per $100 of payroll. Now, it's $8.30 - a financial strain that caused him to lay off 35 of his roughly 200 workers. Without some relief, Berens, who has made clothes in California for 34 years, says he probably will have to shift more manufacturing to offshore contractors.

"This is really brutal," Berens said. "I'm trying to save jobs for my people and their families and it's like (the politicians) are just walking around in a fog."

Many companies also complain about the state's minimum wage of $6.75 per hour - 31 percent higher than the federal minimum of $5.15 per hour. And starting next year, another California law will entitle workers to continue getting part of their salary while on leave to tend to a baby or a sick family member.

The recall gives businesses yet another reason to avoid California, economists say.

"This sends a warning to businesses - Californians don't have their acts together and really can't govern themselves," said Stephen Levy, director for the Center for Continuing Study of the California Economy.

Of course, politics is just one of many factors that influence business decisions, and there are signs that California's economy will thrive no matter what happens in Sacramento. Business is booming in Southern California, where the economic base is more diversified than technology-dominated Northern California.

After the recall vote, things could get better - or much worse. If Davis is voted out, a replacement candidate in what promises to be a crowded field could win with a relatively low percentage of votes. That could leave a new governor without a mandate to take on entrenched interests in Sacramento.

In addition, Democrats and Republicans could be left with such hard feelings "that we will have total gridlock and nothing will get done," worries Jack Kyser, chief economist for the Los Angeles Economic Development Corp.

However, this is hardly the first time people have fretted about California's economy, which has seen one wild swing of fortune after another since the Gold Rush.

"It's a high-risk economy that always seems to bounce back," said Munroe, of Capital Corp. of the West.

Copyright 2003 Associated Press. All rights reserved.