Archive for category Colorado Politics
PERA’s Benchmarks
Posted by Joshua Sharf in PERA, PPC on June 1st, 2012
Along with all my other exciting duties, I’ve taken on the role as the manager of the PERA Project for the Independence Institute’s Fiscal Policy Center. It’s an astonishing amount of material to become acquainted with, but I’m starting with the most recent Comprehensive Annual Financial Report, from 2010 (the 2011 report won’t be ready until July, for some reason).
Most funds try to achieve some level of diversification within their target investments. This is true even for narrow, industry-specific funds, but is clearly true for larger, broad-based funds like a retirement fund, whose primary goal needs to be capital preservation and conservative growth.
In PERA’s case, they divide their investments into five asset classes: stocks, bonds, real estate, commodities, and alternative investments. While there’s some correlation among these, they are true asset classes, meaning that they really do respond to different economic conditions and stimuli. While a generalized, panicky flight for the exits would affect them all, for the most part, these investments don’t move in tandem.
However, the benchmarks against which PERA measures its performance are another matter, and may be setting the fund up for diminished returns.
The benchmarks themselves are not only highly correlated, in several cases, they’re just the same as each other:
| Global Benchmark | |
| DJ US Total Stock Market Index | |
| MSCI ACWI ex-US Index | |
| Fixed Income Custom Benchmark | |
| Barclays Capital Universal Bond Index | |
| Barclays Capital Long Gov’t Credit Index | |
| Alternative Custom Benchmark | |
| DJ US Total Stock Market Index + 3% | |
| Real Estate Custom Benchmark | |
| NCREIF Open-end Core Fund Index + 1% | |
| Opportunity Fund | |
| DJ US Total Stock Market Index | |
| MSCI ACWI ex-US Index | |
| Fixed Income Custom Benchmark | |
There are some questions here. First, the “Opportunity Fund” is currently invested in timber and raw materials. Surely there must be commodity indexes that would be more reflective of the fund’s style. A mixture of equities and fixed income indices doesn’t seem to bear any relationship to the fund’s investments.
Second, fund managers are judged in part by how well they track or beat these benchmarks, PERA is potentially setting up incentives to invest in assets that are reflected in those indices, throwing away the benefits of diversification. The Opportunity Fund, for instance, is being judged on what amounts to a combination of the Global and Fixed Income Benchmarks. It may be in commodities or timber now, but it could well end up migrating to investments that track those other two funds.
The Alternative Investment Fund is the most problematic; in essence, it’s just being held to the US stock market plus 3%. But look at its portfolio: private equity, venture capital, and distressed debt. Those investments don’t necessarily peak at the same point in the business cycle as vanilla equities. The difficulties and dangers of benchmarking alternative investments, which are often illiquid and lacking in direct peers, have been noted before. But there are any number of hedge fund indexes available for them to use. Surely some basket of those would be more reflective of the fund’s actual and intended holdings.
I’ve only just noticed this, and to be fair, I don’t have any evidence that it’s actually affecting investment decisions. Moreover, it’s a second-order effect. Obviously, this isn’t as bad as if the asset classes themselves were highly-correlated. But it’s possible that PERA is creating investing incentives that could come back to bite them in bad years, and cost them valuable basis points in normal years.
What I Saw At The Open Negotiations
Posted by Joshua Sharf in Colorado Politics, Education, PPC on May 25th, 2012
Last night I attended the Douglas County teachers union contract negotiations conducted under the county’s new Open Negotiations policy. This was the first meeting which teachers were able to attend, and the Douglas County Federation of Teachers – the local for the American Federation of Teachers – had called for teachers to show up in force. There was the hope that a large, unruly audience might prove more entertaining than a philosophically incoherent negotiating team.
In the event, I had to settle for the incoherence, but it was illuminating enough.
The crowd itself was large – eventually reaching about 350 people – but well-fed, and thus, well-behaved. Nobody tried to start a drum circle in the back of the room, for instance. After some early applause, one of the union negotiators reminded the group that they were there are spectators, not participants, and more like spectators at the Masters or Wimbledon than the Super Bowl, at that. The teachers resorted to mass waving a couple of times, but that’s the sort of thing that comes with hanging around grade-schoolers all day, I suppose, and the novelty quickly wore off. No Pinkertons were needed.
Aside from the 1% – no, not that 1% – the 1% pay raise that the Board had proposed, the two most contentious issues were the district’s desire to stop collecting union dues, and the desire to stop paying the salaries of union heads who aren’t in the classroom.
The union tried to turn the first issue into a 1st Amendment fight, essentially arguing four things: 1) the union speaks for the teachers, so stopping the collections amounts to trying to squelch free speech, 2) the union is being singled out for this treatment because 3) it opposed the election of the current Board members, even though 4) it didn’t contribute dues money to their opponents’ political campaigns.
It should be fairly easy to ridicule these arguments and dispose of them. A union, recognized by the district or not, is just an organization, and it should be responsible for contacting its own members and collecting its own dues. There’s no good reason to spend taxpayer resources doing that, and the fact that the dues money goes right back into political campaigns to determine the unions’ negotiating partners and (evidently) collections agents, is just all the more reason to put that burden on the union itself. It’s not a free speech issue, any more than Denver’s reluctance to come by and put a lein on my property against my shul dues is a free exercise issue.
Unfortunately, a federal judge in Wisconsin disagrees. Thus the reason for Jed Palmer’s claim that this issue had been “extensively litigated in Wisconsin,” and the specific line of questioning trying to establish the same facts in Douglas County. Unfortunately for the union, the Board showed that dues money had been used in campaigns, and also said that since each contract was negotiated separately, if they found evidence of similar activity on the part of, say, the bus drivers, they’d try to negotiate the same disengagement from them. (You can see some of the raw video of this exchange.)
Since this is a negotiation, and not legislation, the union was basically arguing that they didn’t have the power to bargain away their members’ 1st Amendment rights, and claimed that this was an issue of working conditions. There are, of course, all sorts of restrictions on teachers’ 1st Amendment rights when they’re working. They get fired all the time for pushing their political views in the classroom, for instance. They were trying to find legal backup for their position, claiming that not only was the district wrong, but that the negotiators couldn’t concede the point even if they wanted to. Whether this is setting the stage for a strike or a lawsuit remains to be seen.
More interesting, although probably a slightly lower priority for the teachers, was to stop having the union heads be district employees, as they are no longer in the classroom, but have as their sole job representing the teachers. The union has already offered to reimburse the district for all of the salary, and all of the PERA contribution costs, of those positions, which run to several hundred thousand dollars a year.
What’s the issue here, since the union has offered to reimburse all the expenses, and the salary will get paid whether or not the union leader is working for the union or for the district? It seems as though either side could give way without any loss.
Not so fast. The key here is the PERA benefits, which are calculated by a formula based on earnings, which are set by the union. Making a union head leave PERA for the duration of his service would certainly make union leadership a less desirable task. But it’s also unfair on the face of it to put taxpayers on the hook for benefits they can’t limit, for services not being rendered to them. (Somehow, and I’m really not sure how, this issue got tied up with the national AFT’s Education Research & Dissemination program, sort of a classroom best-practices training that they run. But it appears that that, too, is paid for by dues and not by the district.)
At one point, in the middle of the discussions, Jed Palmer decided to launch an all-out blitz on the American Legislative Exchange Council, a national organization of conservative state legislators, and its supposed marionette-like control over the board. While hypocrisy is always one of the easiest political charges to level, it’s worth pointing out that teachers unions – including the AFT – have a long history of collaborating with outside groups, as well.
Van Jones and other assorted fellow-travelers have attempted to make ALEC toxic, with a little success, mostly because it’s a very successful way for conservatives to coordinate legislative policy nationally, as the left has done for decades. I doubt that ALEC’s toxicity extends to the general public, though, and it seemed to be more of a way of both building on that campaign, and rallying the troops.
Therein lies one of the dangers of open negotiations, but also one of the opportunities. The crowd Thursday night was well-behaved. But it’s still early. If the union finds that it has over-stated its position on, say dues collection, it’s going to find it more difficult to walk back a public position than a private one. Even when teachers were well-informed of what was going on behind closed doors, while the public wasn’t, they weren’t a physical presence in the negotiating room. The presence of a large number of angry teachers – and if things drag out, they could get angry – could serve to intimidate their own negotiators as much as the school board.
On the other hand, assuming that the sessions don’t have to move behind shatter-proof glass, the open sessions will allow an interested public to see what positions are taken, what justifications are used, and may ultimately, over time, have the effect of forcing both parties to engage in more persuasion, less posturing.
UPDATE: I tweeted as much of the proceedings as I could stay for; once the negotiations moved into salaries and benefits, I just didn’t have the numbers or understanding of the issues to be able to comment intelligently. You can see the thread, my tweets, and the very illuminating tweets from @parentLEDreform.
UPDATE II: From someone more familiar with the FTE issue than I:
Here is the ironic thing. Earlier this year, the administration realized that although we were paying half the union leadership’s salary (actual compensation for particular individuals varies), they were not doing anything that we could see for the District. Dr. Fagen asked them to be accountable for the half we were paying, i.e. spend time with an assigned administrator completing special projects. Initially, the president agreed, but then she backed off the statement. She said she was not interested in such an arrangement. Dr. Fagen sent her an email documenting their conversation, reiterating their understanding that the union would now be paying 100% instead of participating in a collaborative relationship for partial pay. The union agreed… then backtracked again, calling in attorneys. Eventually the Board thought we might be better off divesting ourselves of this torturous relationship. We would not be talking about union salary reimbursement, PERA, etc. right now if they had simply agreed to accountability for the 50% of pay.
Bridge Over Troubled Financial Waters
Posted by Joshua Sharf in Budget, Colorado Politics, PPC, Taxes, Transportation on May 24th, 2012
Transportation funding in Colorado has been a problem for, like, ever. Typically, capital spending is funded by what’s left over after the general fund expenses have been taken care of, but in recent years, to quote Geoffrey Rush from Shakespeare In Love, “There’s never any profits.” Which means that highway maintenance has been suffering. In 2005, the voters adopted Referendum C, but rejected Referendum D, which would have put a substantial pot of money at the disposal of the government for unspecified road projects.
So in 2009, the legislature passed FASTER. FASTER did a number of things, but primarily is raised vehicle fees in order to pay for bridge repair. Much of the debate at the time centered around the claim that fees are not taxes, and that this was simply a re-interpretation to get around TABOR’s requirement that tax increases be subject to a vote of the people.
The reality is a little more subtle than that, and it shows that when the state is bound and determined to get its hands on your money, there are almost no lengths to which it will not go, no manipulations in which it will not engage. (Just consider Obamacare’s fluctuating claims that the money you’ll have to pay is either a tax or a penalty, depending on the legal theory it happens to be operating under at the time.)
In fact, what the state did was to create a TABOR Enterprise, the Colorado Bridge Enterprise, which is exempt from a number of TABOR restrictions. It can, for instance, issue revenue bonds. Enterprises can also raise their fees-for-service without TABOR limits, but they can’t collect generalized taxes. They also must get less than 10% of their annual revenue from the state. This is how, for instance, the University of Colorado can continue to raise tuition year after year. So while the argument rested on a fee not being a tax, that was mostly because Enterprises can only collect fees, not taxes, and it was essential that the bridges be transferred to the Enterprise.
That 10% revenue limitation was also a problem, since in the first year, the bridges themselves would be the bulk of the Enterprise’s income. So the state depreciated all the bridges to $0. No salvage value, no remaining years of useful life, nothing. A claim that’s risible on the face of it, one that would get a private company and its auditors clapped in irons, but a dodge that the state felt perfectly comfortable resorting to.
The other details are equally unsavory. While the assets are supposed to be owned by the state, there is supposed to be an arms-length relationship between the state and the Enterprise. The members of the Enterprise Board are the members of the Colorado Transportation Commission. The fee itself is collected not by the Colorado Bridge Enterprise, but by the state Department of Revenue, which charges no fee for this service. And the revenue bonds are the Stimulus’s Build America Bonds, whose interest is subsidized by you, the federal taxpayer.
The difficulty is that since the Enterprise owns only bridges, the only fee that it can reasonably assess is for the use of those bridges. But since it’s not a toll, out-of-staters, and most trucks don’t pay the fee. And the fee is assessed as part of the vehicle registration, whether or not your vehicle is road-worthy and anywhere near any of the bridges in question. Suddenly this fee begins to look an awful lot like a tax, or at least a fee that the Bridge Enterprise doesn’t have the power to collect, since it’s not on bridge use, but on auto use.
That’s the basis for the lawsuit against FASTER. The plaintiffs are rural farmers who have vehicles that don’t go far from home, or even off the farm, and yet are charged a usage “fee” for a bridge they can’t even see, never mind drive over.
“How many legs does Cobalt have, if you call the tail a leg?”
“Four. Doesn’t matter what you call the tail, it’s not a leg.”
There’s a legitimate discussion to be had – and a vast literature – about the best way to fund roads. They do constitute a “system” from which all of us benefit. They’re the paradigm of platforms that government ought to be building, rather than products that try to dictate end results. As Rep. McNulty pointed out in the debate, roads lower the cost of commerce for everyone, save lives, and enhance freedom. To that extent, general fund money, or a vehicle fee, a gas tax, a mileage fee, a usage fee, a toll, or peak usage tolling – in order of increasing specificity – are all reasonable means. The economic effects of each are different, and they each make sense for different kinds of roads.
If the legislature had gone to the people and asked them for $31 a year, hell, even index it for inflation, in order to repair bridges that could become homicidal, they might well have voted for it. (Although the 2004 incident resulted from workers’ error, not the age of the bridge).
What’s clearly unfair is to creatively interpret the rules in order not to have to ask.
Colorado’s Windy Senator
Posted by Joshua Sharf in Colorado Politics, Energy, PPC on May 18th, 2012
In our last post, we looked at Sen. Mark Udall’s claims that Colorado’s renewables mandate had been a “great success.” This time, let’s look at his claims that “…wind, now, competes with coal and some would argue is actually cheaper than coal.”
The only way that someone could make that claim is if they ignored the subsidies that wind gets in comparison with anything we get electricity from today (that CBO report was issued just a few weeks ago at the behest of the very committee in which Udall serves and made his remarks):
The jobs that Bennet brags about include those from Vestas, which the company admits only exist because of those subsidies.
The proof, of course, is in the markets. The energy that could successfully compete with a power source that has its capital expenditures almost completely amortized – most coal plants were built decades ago – would seem to be a natural for investors. Unfortunately, well…
Proponents of wind energy will point to the various externalities associated with coal. Of course, wind has a few externalities of its own, like bird kills, higher local temperatures, and downwind crop & building damage.
Sorry, Mr. Udall. Wind isn’t competitive with coal, and although the Obama administration seems hell-bent on driving up the cost of coal, they’ve got a way to go, notwithstanding all the damage they’ll do to your wallet in the process. It’s not even close, and they still try to cheat.
Colorado’s Diminished-Capacity Senator
Posted by Joshua Sharf in Colorado Politics, Economics, Energy, PPC on May 18th, 2012
Yesterday, the Senate Committee on Energy and Natural Resources took up the Clean Energy Standard Act of 2012, which would “require covered electricity retailers to supply a specified share of their electricity sales from qualifying clean energy resources.” The target would start at 24% in 2015, climbing to its final, and permanent level of 84% by 2035. Senator Mark Udall (D-CO) made the following comments:
“With that, let me just say that this bill would be a step in the right direction. I also want to emphasize that I still support, as I know do many of my colleagues, a renewable electricity standard nationally. We’ve had great success in the State of Colorado with the renewable electricity standard, and I would argue in fact, we felt less of the effect of this Great Recession because of our energy sector’s capacity to innovate, create jobs, and provide power that’s less and less expensive. We all know for example that wind, now, competes with coal and some would argue is actually cheaper than coal.”
There’s enough material to keep us occupied for a week – and it may – but we’ll start with the idea that Colorado’s Renewable Electricity Standard has been a “great success.”
It may have been a great success for Xcel and its shareholders, but for the ratepayers, it’s a slowly building vacuum, sucking more and more of their decidedly non-renewable dollars. In 2011, the RES was responsible for something like 4.5% of Coloradoans’ electricity bills, and number that is only going to grow over time, as the RES ramps up to its final 30% requirement in 2020:
According to the Public Service Company’s 2010 RES Compliance Plan, the ECA is projected to be $6.3 million this year, before it balloons to $141 million in 2012. It then increases exponentially to $738 million in 2020, or almost 23 percent of total retail electricity sales—none of which would count against the 2 percent retail rate impact.
Assuming 1.5 million ratepayers in Colorado (current figure is 1.3 million) in 2020, and the mandated 20 percent renewable standard, the ECA cost alone will average nearly $500 per year per ratepayer.
The ECA is the Electric Commodity Adjustment, and it’s the means by which Xcel gets around the 2% per year rate limit that is supposed to protect consumers from the fact that renewables are, contra, Sen. Udall, much more expensive than traditional sources of electricity. More about that in a succeeding post.
The Colorado plan, if extended to the country as a whole, will have the same deleterious effects on peoples businesses and homes. That link at the top of the page was to an Energy Information Agency study showing the effects of the proposed standard. Not only would the BCES cost dozens of gigawatts of capacity by 2035:
It would also raise the cost of electricity by about 18%:
If you look closely, you see that the EIA assumes that nuclear will take the place of coal’s baseline capacity, but in fact, the extremely large up-front capital expenditures may make that prohibitively expensive, in which case we’ll have no choice but to cover as much as we can with solar and wind. The result of that little dream scenario? We have more capacity, but the price is 20% higher, rather than 18%. The increase in supply still isn’t enough to make up for the extra cost of wind and solar as sources.
Coloradans have excellent reason to wonder why their senator thinks that paying more than neighboring states for their electricity constitutes a “great success,” and Americans should run like the wind from any effort to replicate the experiment nationally.
EPA “Doesn’t Live In The Energy World”
Posted by Joshua Sharf in Colorado Politics, Economics, Energy, PPC, Regulation on May 14th, 2012
In a recent hearing of the U.S. House of Representatives Energy and Commerce Committee, EPA administrator Gina McCarthy said under questioning by U.S. Rep. Cory Gardner, R-Colo., and Committee Chairman Ed Whitfield, R-Ky., that her agency – despite issuing regulations that will have a profound affect on electricity production in the United States – “doesn’t live in the energy world.”
“Tri-State is a wholesale electric power supplier in Colorado that is owned by the 44 cooperative, generating – transmitting electricity and has come to my office multiple times trying to talk about their compliance with EPA’s Utility Max standards and…their estimate is that it would likely cost them $1 million …I’m asking you to comment on the rural co-ops which are non-profits.
Ms. McCarthy confirmed that some ratepayers would see their rates increase by about 3%, which the EPA calculated to be about $3 a month for the average family, there was this exchange between the panel and her:
Rep. Gardner: “And so that – the only way they can do that is to pass those increased costs on to their ratepayers?”
McCarthy: “I have trouble answering that question because I don’t live in the energy world, but my understanding is that compliance can be achieved by lower demand, as well as increased generation, fuel switching, and a number of techniques.”
Whitfield: “I think that’s the point that we’re trying to drive home. You’re right, Ms. McCarthy, you do not live in the energy world. But then you make extrapolations on gigawatt issues that are a reliability concern based on the chart I saw. DOE rolls over in acceptance of your electricity generation, or lack thereof, analysis, and when you have the people in the field who are disputing that analysis on the gigawatt issue, we’re debating with an environmental agency, not our Department of Energy. And if the analysis was close to what industry, financial people, FERC (Federal Energy Regulatory Commission), EEI (Edison Electric Institute) say then, we would cut some leeway.
“But the administrations proposal – actually, the environmental rules – and the effect on the electric grid, of 10 gigawatts, is laughable. And so, you can do all the analysis on emittants you want, but we reject the premise that you are experts in electricity generation, the cost of building plants, and developing those.”
Rep. Whitfield’s point is that the opinions of actual experts – which seem to be in broad agreement that the EPA rules run the risk of reducing the US’s overall electricity output – are being subordinated to the judgments of the EPA, which, by its own administrator’s admission, doesn’t live “in the energy world.”
Is it true? Well, the EPA estimates a loss of 10 gigawatts (GW) of electrical generation nationwide as a result of its new rules. This estimate is indeed not only out of line, but well out of line, with a variety of other estimates from Credit Suisse (50 GW realistic, 60+ GW possible), Friedman Billings Ramsay (45 GW), the North American Electric Reliabiliy Corporation, or NERC (33-70 GW), the Midwest Independent Transmission System Operator, or MISO (13 GW immediate, up to 61 GW retrofitted), and the Institute for Energy Research (34 GW).
It’s one thing to be independent of the industries you’re supposed to be regulating. But even independent regulatory bodies shouldn’t be making rules based on assumptions and models whose results virtually nobody in the field takes seriously. Maybe the EPA should live a little more “in the energy world,” a world it so closely regulates.
“Local Control” – Absolute or Absolut?
Posted by Joshua Sharf in Colorado Politics, Education, PPC on May 14th, 2012
Recently, WhoSaidYouSaid showed Colorado state Rep. John Soper, D-Thornton, telling public school employees to “go someplace else” if they didn’t like being due-paying members of the Colorado Education Association. Soper was speaking in opposition to HB12-1333, a bill that would have permitted teachers to opt out of union membership any time, with a 30-day notice.
The Democrats’ opposition, as you can see from our distilled video above, was largely based on the idea of local control of schools, enshrined in the Colorado state constitution. The repetition of the phrase by Rep. Millie Hamner, D-Summit, and Rep. Judy Solano, D-Brighton, struck me as a drinking game.
The problem is that “local control,” while it does extend beyond curriculum, is not absolute. According to the Colorado Department of Education, “local control” encompasses:
“Both by citizen preference and law, Colorado is a ‘local control’ state. This means that many pre-kindergarten through 12th grade public education decisions – on issues such as curriculum, personnel, school calendars, graduation requirements, and classroom policy – are made by the 176 school district administrations and their school boards.”
Local control would, according to the categories listed above, include things that actually affect the relationship among teachers, schools, parents, and children, but doesn’t seem to include the internal relationship between the teachers and their union.
In practice, according to David Kopel, research director for the Independence Institute, Colorado case law limits exclusive local control more than this definition – and Reps. Solano’s and Hamner’s insistence – would presume.
The state legislature can set ground rules for teacher dismissals. (Blaine v. Moffat County School Dist. Re No. 1, 1988, 748 P.2d 1280.)
Therefore, sect. 15 does not grant school districts absolutely immunity from legislative regulation of employee relations.
“For purposes of state constitutional provision giving ‘control of instruction’ to local school boards, local board discretion can be restricted or limited, where specific local board decisions are likely to implicate important education policy, by statutory criteria, judicial review, or both.” (Board of Educ. of School Dist. No. 1 in City and County of Denver v. Booth, 1999, 984 P.2d 639.)
As for Rep. Solano’s somewhat snarky assertion that, “If you’re for local control for one thing, it’s very difficult to be against local control for something else,” historically, that’s been far from true for either party. Insistent on local control in this case, the Democrats have, in the past, overridden it to press for Race to the Top funds, establish an arts curriculum requirement, and set sex education standards.
However, what has been true is that the left has been all too willing to use the facade of “local control” as an excuse to stifle reforms both large – as in the statewide school choice program struck down by the courts – and small, as in this case of letting teachers escape unwanted union membership, when they see them as a threat to the entrenched power of the teachers’ union.
Bully for Romney
Posted by Joshua Sharf in PPC, President 2012 on May 10th, 2012
So now, we’re suppose to believe that Mitt Romney was a bully? Conveniently, the Washington Post chooses to report the blockbuster story of a 1965 highschooler named Mitt Romney giving a gay classmate a haircut as an act of teenage terror on the day after Barack Obama earns his bona fides by declaring his support for gay marriage. And within a couple of days of the death of Vidal Sassoon.
Only it turns out that the “classmate” reporting the story wasn’t there at the time – he heard it 2nd, 3rd, 5th-hand from the ghost of the posthumously-converted 5th wife of Romney great-grand uncle, or something.
So it turns out that they also didn’t know – or even suspect – that the practice head for this budding stylist was gay. Next, we’ll find out that it wasn’t a haircut, or even a trim, but that Romney loaned him his razor. Doesn’t that really sound more like the Romney that we know?
Remember, too, this was in an upper-class Michigan suburb. Do you really believe that Mitt was conducting involuntary inductions into the Baldies from The Wanderers? Personally, I had him pegged for a Ducky Boys sort of guy, but you never can tell about some people.
Then, hours later, we hear that Obama’s autobiography contains an account of his shoving a classmate named “Coretta” and making fun of a college classmate named Tim, for apparently being too much like Mitt. I’m obviously not the first to suggest that “Coretta” is not a real person, but a composite character. (I’m sure we won’t have to wait too long for someone to do a Life of Coretta, showing her being picked on by Barack at various stages of life, from having her block tower knocked over in kindergarten to the last one, featuring him mercilessly taunting her by withholding his signature for a life-saving, but uncovered, medical procedure.)
Coming on the heels of the dueling dog controversies, you would think that Axelrod is seriously beginning to regret Obama’s choice of autobiographer.
Fostering Bad Legal Analysis
Posted by Joshua Sharf in Colorado Politics, PPC on April 25th, 2012
Among the more ill-conceived pieces of legislation to be passed by the Colorado Senate this year is Sen. Joyce Foster’s “Buy American” bill (SB12-004), that would give contractors bidding on government work a credit for using American-made materials.
So let me go back to the discussion when the Governor’s office came in and testified against this bill. They were terribly misinformed. I shared that information with them. And it wasn’t the Governor’s office that’s misinformed, it was these two people who testified that were misinformed.
Yesterday we heard also about a letter than many of us received from Canada. This will do NOTHING. This is part of the trade agreement. We have the trade agreement with Canada. We are doing business with Canada. We are doing business with Qatar and the fields in Qatar. This does NOTHING. And they were misinformed. When I tell you, friends, that I worked with the International Trade Office in 2000-2001, and my goal is to support international trade, I do!
…
It has NOTHING, it will do NOTHING to ruin our relationship with any other country that is part of the World Trade Organization. NOTHING. Other states, this is, as I said, Illinois put this together back in the 90s.
And I want to make another thing perfectly clear. Most of us are asked by different departments or different organizations or different agencies to come and lobby for them on their legislation, to bring legislation. This is my own legislation. You need to know that. This is my own legislation. My constituents have been coming to me for the last four years. “Joyce, why can’t we do something, why can’t we do something about bringing manufacturing back to the United States?”
Well, at least it’s good to know that Sen. Foster is finally sponsoring legislation that isn’t for the benefit of one or another of her family members.
But her contention that the bill won’t affect trade with countries covered by the WTO or NAFTA is simply incorrect. It’s based on two assertions. First, the fact that NAFTA and the WTO’s General Procurement Agreement (GPA) treat purchases from member nations as though they were domestic. Second, this passage in the bill:
(6) Nothing in this section is intended to contravene any existing treaty, law, agreement, or rule of the United States. No preference shall be granted under this section if the preference would contravene any treaty, law, agreement, or rule of the United States.
Let’s leave aside what the Supreme Court would do to a state that presumed to act otherwise, and to try to abrogate a treaty, and take the sentence at its word.
In fact, it can be completely true, contravene nothing, and still place WTO and NAFTA trading partners at a disavantage with respect to US firms, in several ways.
First, it’s important to understand that both the WTO GPA and NAFTA specifically exclude state-level governments from their procurement restrictions:
NAFTA Chapter 10 Procurement Obligations
Products produced in Canada fall within US government procurement obligations under chapter 10 of the NAFTA and the WTO GPA. Mexico, which is not a GPA signatory, is entitled to NAFTA protection. The essence of the NAFTA and GPA obligations is the same, as are most of the issues discussed above with respect to the GPA. NAFTA coverage applies to:
Goods, services and construction services whose country of origin is determined to be Canada or Mexico;
Federal government procuring agencies and “government entities” identified in the US NAFTA procurement annex (but not state and provincial procuring agencies, which are not covered by NAFTA chapter 10);
Contract values exceeding $50,000 for goods and services and $6.5 million for construction services; and
Contracts not excepted from coverage on grounds of national security or necessary to protect public order, life and health and intellectual property rights.
In point of fact, states have all sorts of restrictions of this sort which disadvantage Canadian companies, and the Canadian government keeps a comprehensive list of them.
NAFTA Chapter 10 coverage on government procurement is limited to the federal level. NAFTA Chapter 10 encourages, but does not require state, provincial or local buyers to provide equal treatment for offerors from outside their jurisdictions. Therefore, U.S. states may apply these preferences, which might disadvantage Canadian firms in their state and local government purchasing.
For reassurance, the US Trade Compliance Center agrees:
State and provincial government entities are not subject to Chapter Ten. The U.S. government encourages states to adopt NAFTA procurement disciplines, but the final decision rests with individual states. The Mexican and Canadian governments are currently working with their state and provincial governments to seek their voluntary, reciprocal participation.
Colorado would be adding to its list of preferences for in-state or American companies, and would, in fact, be further working against Canadian companies. This may or may not be wise policy, but to pretend this isn’t what the state is doing, or that it wouldn’t be allowed to do so under federal law, is simply factually incorrect.
The WTO GPA provisions are a little more complex. Only national governments are expressly included in its general application, but each accessory to the agreement has to file an Appendix 1, Annex 2 of which describes what sub-national organizations will be subject to its provisions, and to what extent. Thirty-seven US states are covered, including Colorado, “Executive Branch Agencies.” (This has since been extended to other US trade obligations, and became an issue when determining the degree to which the US could enforce US preferences under the stimulus package.)
It turns out that the WTO GPA was initially concluded in the mid 1990s under the General Agreement on Tariffs and Trade, an agreement, not a treaty. This means that is does not automatically become “the supreme law of the land,” in accordance with the Constitution. According to a study done by the Washington State legislature:
Under the Foreign Commerce Clause of the U.S. Constitution, Congress shall have the power to “regulate Commerce with foreign Nations, and among the Several States and with the Indian Tribes.”39In adopting the Fast Track legislation, Congress has delegated some of its power, albeit with defined limitations, to the President. However, Congress did not articulate a clear intent to legislate in an area traditionally held by the states’ government procurement.40Indeed, the Congress specifically evidenced the intent to not preempt state law in the case of the Uruguay Round Agreements.41As mentioned above, the failure to articulate such intent can be fatal to a federal attempt to override state law.
40See Bipartisan Trade Promotion Authority Act of 2002, P.L. 107-210.
41 See 19 USCS §3512(b)(2) (1999).
The obvious question is: why only 37 states, and how was their participation decided upon?
According to the National Conference of State Legislatures:
The United States is party to the World Trade Organization’s Agreement on Government Procurement (GPA). When negotiating the GPA, USTR solicited the state governors for permission to include state procurement and to bind state procurement processes to the GPA. USTR asserts that 37 states were voluntarily bound through this process to the GPA. In September 2003, USTR requested state governors to make similar commitments to several free trade agreements (FTAs) being negotiated at the time. NCSL recognizes that consultation with a limited number of governors is simpler than communicating with 7,500 legislators and that USTR has increasingly made these letters available publicly on the Internet. Nonetheless, the federal government must work with state legislatures to ensure that decisions about state procurement practices are made with their consent.
While different states may differ about whether or not the legislature in some way delegated trade authority to the executive, there can’t be much doubt that it hasn’t done so on a permanent and irrevocable basis. That is, the legislature should always, with an affirmative act, be able to modify the terms of a state’s participation in the WTO GPA. In 2005, in fact, Maryland undertook to do exactly that, passing HB514:
This bill prohibits the Governor and any other State official, without explicit consent from the General Assembly, from: (1) binding the State to the government procurement rules of an international trade agreement; or (2) giving consent to the federal government to bind the State to the government procurement rules of an international trade agreement. The bill also declares invalid any consent previously given by the Governor or other State official to bind the State to the government procurement rules of an international trade agreement.
The bill was passed over the governor’s veto, and a fuller exploration of the legal issues involved can be found in a 2005 opinion of the State Attorney General.
When I spoke with Sen. Foster personally about her bill, she couldn’t provide an answer as to how many contracts would be affected, the sum total of contracts affected, or the total cost to the state. It’s now apparent that Sen. Foster was as lazy in researching the law as she was in researching the economics.
Maybe she should stick to lobbyist-drafted legislation, after all.
An Etch-a-Sketch, or a Clean Slate?
Posted by Joshua Sharf in PPC, President 2012 on April 11th, 2012
The Romney campaign came out today with its recommendations (called, a “Unity Slate”) for the CD-6 and CD-7 Assemblies. Naturally, there’s been some grumbling that this represents yet another attempt by the establishment RINOs to dictate party policy or votes, or something, but in fact, it just represents commonsense politics and smart strategy on the part of the campaign.
First, it was the campaign, on the advice of the campaign’s higher-level volunteers, who selected these folks. It doesn’t have anything to do with the party apparatus per se.
Consider the alternative. It’s entirely reasonable for the Romney people to believe that the Ron Paul folks have a slate, but are circulating it among themselves. If the campaign didn’t promote a slate, it’s entirely possible, even likely, that they could have a plurality of the pledged delegates, and walk away with a minority, or even very few, of the delegates to national. Selecting a slate is a perfectly sensible way for the campaign to concentrate its delegates’ votes on a set of reliable delegates whom the party faithful can have confidence in when it comes time to vote in Tampa, and it’s also a way to highlight leaders in the party who can rally support to the candidate.
I’m neither part of the apparatus, nor a high-level volunteer, nor even a candidate for the national convention, and I was hoping the campaign would pick a slate for its delegates to focus on. Any campaign should. My understanding that those with long service in the party would get the nod over relative newcomers like myself was the reason I didn’t run.
So I would assume that the campaign will also suggest slates for CD-1 and State Assembly this weekend.
Just because the balloting process is open and transparent doesn’t mean that campaigns shouldn’t have strategies, or that they should broadcast them to their opposition.
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