Sunday Reading – 02/03/19

The following links are just news items and opinions that pass my desk throughout the week. I don’t necessarily support or advocate any of the items, they are just interesting reads.

Beware, the IRS is looking for these red flags when it decides who to audit this tax season –  Filing taxes can be complicated, but a simple mistake or a slight exaggeration could warrant an audit from the Internal Revenue Service.

Here’s how someone is chosen for an audit: An IRS software program may randomly select the taxpayer and compare the return to other similar returns to detect any anomalies, or the taxpayer in question may be linked to a family member or business partner who is being audited.

The IRS can audit returns up to three years old. Inaccuracies could lead to penalty charges: 20% of the disallowed amount for filing an “erroneous claim for a refund or credit,” the IRS stated, or $5,000 if the tax return was deemed “frivolous,” where there isn’t enough information to assess correct or incorrect information.

In more serious cases, taxpayers could also be brought to trial and face criminal charges of tax evasion or fraud.

And now for the good news: The IRS audited less than 1% of returns in 2017, and that number was expected to be lower last year, said Joy Taylor, a tax expert at personal-finance site Kiplinger. (The most recent IRS data is from 2017). Does that mean you should be carefree about filing? Absolutely not. Here are red flags tax experts say you should avoid:

One of the most common reasons for an audit is when the taxpayer is taking higher-than-average deductions in relation to his income. This can come from various types of deductions: Charitable contributions, real estate interest or student loans interest. Read More > at Market Watch

What PG&E Bankruptcy Filing Means – As promised two weeks ago, PG&E Corp. (NYSE: PCG) on Tuesday morning filed for bankruptcy protection in the federal District Court for Northern California. The company listed debts totaling $51.7 billion and assets valued at $71.4 billion. PG&E’s estimated liability for wildfires in 2017 and 2018 now exceeds $30 billion, and its estimated number of creditors ranges between 50,001 and 100,000.

While PG&E’s assets exceed its liabilities, the total liabilities listed in the filing do not include the $30 billion or more that may result from the past two years’ wildfires. Last week the California fire agency (Cal Fire) issued a statement exonerating the company from liability in the 2017 Tubbs Fire that killed 22 people.

Cal Fire’s decision may save the company as much as $11 billion in liability payments, but PG&E’s liability for other 2017 fires and the massive Camp Fire remain to be determined. The utility’s liability for those fires could rise to as much as $27 billion.

…Now that PG&E’s board has chosen the bankruptcy route, the process could take years to come to a conclusion. If, as seems likely, the company’s equipment is found to be at least partially to blame for November’s Camp Fire, and if PG&E is found criminally liable as it was in a 2008 natural gas explosion in San Bruno that killed eight and wiped out an entire neighborhood, the end of this current chapter may be a decade away. Read More > at 24/7 Wall St

There’s a shortage of high school referees. Some feel parents are to blame. – Eighty percent of officials call it quits after two years, according to the National Association of Sports Officials.

Why? Seventy-five percent of officials said “adult behavior” is the primary reason.

“The CIF does a really good job of getting their message to their schools,” Avila said.

However, it often does not translate to the fans, namely parents.

That message became evident this month when the California Interscholastic Federation, the governing body of high school sports in California, posted on its website a column titled “Dear Mom and Dad: Cool it.” The column was sent to news organizations by Rebecca Brutlag, media relations officer for the CIF, hoping editors would publish it.

It was co-authored by Karissa Niehoff, executive director of the National Federation of State High School Associations, and Roger Blake, executive director of the California Interscholastic Federation

Their message? The abuse from the fans needs to stop or else there won’t be enough officials for games.

“Yelling, screaming and berating the officials humiliates your child, annoys those sitting around you, embarrasses your child’s school and is the primary reason California has an alarming shortage of high school officials,” Niehoff wrote. Read More > in The Modesto Bee

Strike Back Against Every Cyberattack – Another week, another data breach. The latest is 773 million online accounts for sale, many with passwords included, known as Collection #1. More are likely to come—go ahead and check your status at All this the same month Marriott admitted that five million unencrypted passport numbers were snatched from its system, probably by the Chinese. Oh, and the Russians might have hacked the Democratic National Committee again after the 2018 midterms. How do we stop this?

The foreign hacks are the most disturbing. Last month members of a Chinese espionage ring known as Advanced Persistent Threat Group 10 (a k a “Godkiller” and “Stone Panda”) were charged by the Justice Department with hacking NASA, the Jet Propulsion Laboratory and even IBM . Earlier last year the Chinese were caught stealing submarine data from a U.S. Navy contractor. And horror of horrors, in 2017 an Iranian national hacked HBO and threatened to release unaired episodes and plot summaries from “Game of Thrones.”

The U.S. has done close to nothing in response. Sure, special counsel Robert Mueller indicted 12 Russian intelligence officers last summer. I’m sure they’re quaking in their boots. Maybe those “Game of Thrones” episodes could have taught our leaders something about retaliation and revenge.

So what is America’s policy? That’s unclear. But a good start would be to heed the words of Israeli Prime Minister Benjamin Netanyahu, who told the press last week that his state has a permanent policy of hurting “everyone who is trying to hurt us.” The U.S. needs a similar stance to halt cyberattacks.

John Yoo, a Berkeley law professor and former Justice Department official, sees a parallel between deterrence in cyber and nuclear warfare. “Offensive nuclear weapons are relatively cheap,” he explains to me: “It’s defensive systems that are expensive.” Think about it. Each mission to drop one nuclear bomb would cost the U.S. about a quarter-billion dollars. But we’ve spent trillions on our defense and deterrent system. The nuclear triad of intercontinental ballistic missiles, bombers and subs ain’t cheap.

Mr. Yoo continues: “Similarly, offensive cyber weapons are cheap. It’s defensive cybersecurity tools that are expensive.” The cybersecurity market is estimated at $125 billion, and it gets bigger with each successive hack. Government and private firms have ramped up spending on encryption, firewalls, malware and virus protectors, intrusion detectors—it’s an arms race. Yet we’re still vulnerable.

We need a shift in strategic thinking. So where is our Herman Kahn? Kahn was the author of “On Thermonuclear War” and the father of the massive-retaliation plan for nuclear deterrence. If the Soviets knew the U.S. had a second-strike capability, Kahn argued, there would be no first strike. Mutual assured destruction—peculiarly, a term that was coined by the father of computer architecture, John von Neumann—works as a deterrent. Or it has so far anyway.

Washington should commit to use its weapons against all aggressors. Read More > in The Wall Street Journal

Governor Sues Huntington Beach Over Housing – In a move that may signal more to come, Governor Newsom is backing up his get-tough language with California communities by announcing that he is taking the City of Huntington Beach to court for failure to meet its housing need. The unprecedented action startled some at the Capitol while pleasing many who remarked that the lawsuit could represent “a turning point” in the state’s struggle to overcome its housing crisis.

Newsom said Huntington Beach has continually refused to meet a state mandate to provide new housing for low-income people – typically the high-density, lower-cost kind. New housing approvals in the Orange County beachside community, dubbed “Surf City”, has typically come in the form of low-density, high-cost homes, the lawsuit says.

The lawsuit is the first to be filed under a new state law which authorizes California housing officials to refer communities to the attorney general for legal action if they do not adequately plan for new housing. Cities and counties in the state are required by law to adopt a housing plan that meets their housing needs.

The state Department of Housing and Community Development (HCD) administers the law. HCD judges the communities’ compliance by examining the extent to which an adequate number of “sites for housing” have been zoned. Read More > at Fox and Hounds

Can Public Pensions Survive the Next Recession? – A decade of consistent economic growth lifted the major stock market indices to all-time highs in 2018. But even before the recent dip, many state pension plans were struggling to get back to where they were before the last recession. Unfunded pension debt across the 50 states totals a staggering $1.6 trillion, even by the plans’ own (often overly rosy) accounting.

If a decade of positive investment returns can’t fix what’s wrong with America’s public pension systems, how much worse could things get in the event of another downturn? That’s what Greg Mennis, Susan Banta, and David Draine, three researchers at the Harvard Kennedy School, set out to determine. They subjected state pension plans to a series of stress tests meant to simulate the consequences of a variety of adverse economic climates over the next two decades, including everything from another major recession to merely lower-than-expected investment growth.

What they found isn’t pretty.

“Public pension systems may be more vulnerable to an economic downturn than they have ever been,” the trio of researchers concluded in a paper published by the Pew Charitable Trusts in 2018. Deeply indebted pension plans in places such as Kentucky and New Jersey face insolvency if annual returns average 5 percent for the foreseeable future rather than the higher (usually around 7 percent) rates the plans assume. In other words, it won’t take much to tip those systems into bankruptcy.

If a major downturn does come, states such as Colorado, Ohio, and Pennsylvania—which are closer to the national average in terms of how well-funded their pensions are—could require “contributions that may be unaffordable” to avoid insolvency. Read More > at Reason

Facebook willingly let kids spend their parents’ money and didn’t stop it – Facebook employees recognized that children were running up massive tabs spending money on games but opted not to give refunds, according to Reveal News. The revelation was made as a result of court documents from a 2012 class-action lawsuit filed against Facebook that a federal judge recently ruled to make public.

The court documents, which Reveal requested be unsealed, show the lead plaintiff in the lawsuit had to pay thousands of dollars in charges racked up by their child for virtual currency in Facebook games. The child was apparently unaware that they were buying the currency, which was being charged to the mother’s credit card linked to the account. The fees added up for weeks until the mother noticed and requested a refund from Facebook. The company declined to provide one.

Internal documents from Facebook, including chat logs, show employees of the company raising concerns about the problem. One document shows the social networking company knew the average age of Angry Birds players was just five years old. Employees were also apparently aware that there were no authorization steps in place that would prevent kids from running up charges on their parents’ credit cards — the games on the site did not require any digits or other verification that would prove the children had access to the credit cards. Read More > at Engadget 

New Police Records Law Sparks Legal Challenges – A new state law that has opened up years of police misconduct records to public disclosure is pitting law enforcement unions, local jurisdictions, and transparency advocates against one another in courtrooms across the state.

SB 1421 was authored by Sen. Nancy Skinner (D-Berkeley) and took effect on Jan. 1. It mandates public disclosure of police shooting records, records regarding sexual assault and lying by officers, as well as other forms of excessive use of force or misconduct. In response, police unions have pounced.

Legal battles over SB 1421 are currently being waged in Los Angeles, San Bernardino, Ventura, and Orange Counties. In most of the cases, police unions are attempting to bar the release of documents for any incidents that took place prior to Jan. 1.

The plaintiffs have had some preliminary wins. On Thursday, an Orange County judge issued a temporary restraining order blocking the sheriff’s department from releasing any records dating prior to Jan. 1. Similar orders were handed down in San Bernardino and Los Angeles, where the union that represents the LAPD has fought retroactive record disclosure. Read More > at California County News

$500M Pledge from Zuckerberg-Led Group Boosts Bay Area Housing Initiative – The Partnership for the Bay’s Future, a philanthropic organization started by Facebook Inc.’s Mark Zuckerberg and his wife Priscilla Chan, is pledging $500 million towards solving the San Francisco Bay area’s housing shortage. The investment fund has already secured initial funding of more than $260 million for an intended $500 million investment fund.

California Governor Gavin Newsom says, “The scope of the housing crisis requires bold action. And it also requires that all sectors come to the table to drive new solutions — the government, the private sector, philanthropies, advocates, and faith leaders. This multi-sector public-private approach reflects just that — and will help move our state forward on one of the biggest issues we face.”

The initiative is being launched with the support of the San Francisco Foundation, the Chan Zuckerberg Initiative, the Ford Foundation, Local Initiatives Support Corporation (LISC), Facebook, Genentech, Kaiser Permanente, the William and Flora Hewlett Foundation, the David and Lucile Packard Foundation, and Silicon Valley Community Foundation.

Supporters want to expand and protect the homes of up to 175,000 households over the next five years, and preserve and produce more than 8,000 homes over the next five to 10 years in San Francisco, San Mateo, Santa Clara, Alameda, and Contra Costa counties. Read More > at Connect California

PG&E’s Financial Woes Will Decimate California’s “Green” Industries – While it might seem as if the ramifications from PG&E’s financial woes are confined to it, its shareholders, and the unfortunate residents affected by these fires over the past two years, I can assure you there are almost certainly going to be other “casualties.” In particular, Northern California’s “green” industries could be nothing short of decimated as a result of PG&E’s problems.

For starters, renewable-energy companies would be expected to take it on the chin. Aside from simply affording itself some liability leniency with a bankruptcy filing, PG&E should be able to break and then renegotiate its contracts with electricity suppliers. The result would be significantly lower electricity costs for PG&E.

The problem is that solar and wind producers benefit from the gap in costs that utilities such as PG&E pay versus the notably lower expenses solar and wind producers contend with. If PG&E is able to renegotiate its contracts, it would almost certainly mean less money for renewable-energy providers. These solar and wind providers often carry quite a bit of debt to get their renewable projects off the ground, meaning lower rates could doom their business model.

But it also would mean serious problems for California’s other green industry: marijuana.

The Emerald Triangle, consisting of Humboldt, Mendocino, and Trinity counties, is the top cannabis-producing region in the entire country. That’s meaningful for one reason: Cannabis plants require a lot of electricity to grow. These are plants that yield optimally in climate- and light-controlled environments, and that means growers often turn to the predictable yields of high-pressure sodium (HPS) bulbs, which are relatively inexpensive to buy but create a lot of heat and devour plenty of electricity. The heat created from these bulbs often requires the use of a cooling system, which further adds to electricity costs.

When PG&E’s electric utility filed for bankruptcy protection in 2001 — not to be confused with PG&E the holding company, which can you can buy stock in — it worked out an agreement to charge its customers an above-average market rate for electricity to help repay its creditors. Now, facing a considerably larger liability, PG&E has suggested that electric rates could move substantially higher for its 16 million customers. For marijuana growers that could be a game-changer, or a game-ender. Read More > at The Motley Fool

Los Angeles Unified digs a deeper hole – The union that represents teachers in the state’s largest school district, Los Angeles Unified, is claiming that its six-day strike produced a victory, and local media are echoing that line.

It may be, however, a pyrrhic victory because it could drive LA Unified, which is already in a deep financial hole, mostly of its own making, even closer to insolvency.

United Teachers of Los Angeles settled for the same 6 percent salary rise over two years that the district had offered before the strike. Its victory claim rests mostly on the district’s agreeing to place more nurses and librarians in junior and senior high schools and reduce class sizes.

However, the district says the concessions will cost an additional $403 million over three years – money the district clearly does not have.

LA Unified Supt. Austin Beutner had previously declared that the district was already on track to spend $24 billion over the next three years while receiving just $22 billion in projected revenue.

…Over the last eight years, since Jerry Brown’s election as governor in 2010, state and local spending on schools has increased from $49.7 billion to $77.9 billion, and with enrollment stagnant or even dropping, per-pupil spending has jumped by more than 50 percent to nearly $12,000 a year, not counting federal funds. Read More > at CALmatters

Gavin Newsom just declared war on NIMBYs – Gov. Gavin Newsom isn’t playing around on housing.

The governor already shocked the status quo when — during his first week in office — he threatened to withhold transportation dollars from communities that fail to build enough homes to meet their needs.

On Friday, he ramped up the pressure with an announcement that the state would sue the city of Huntington Beach for “standing in the way of affordable housing production and refusing to meet regional housing needs.”

It’s rare for the state to sue local governments over housing laws. In fact, until recently, the state took a mostly hands-off approach to housing, allowing cities and counties to control land use and make development decisions. That didn’t work, as Liam Dillon’s investigation in 2017 found. Far too many local elected officials gave in to NIMBYism for far too long. Now California is deep into a housing shortage that is fueling homelessness, poverty and inequality.

State lawmakers have begun clawing back some local control over land-use decisions and adding teeth to existing housing laws. And now Newsom, who ran for governor on what seemed to be outrageously ambitious housing goals, is cracking down on local obstinance as well. Read More > in the Los Angeles Times

About Kevin

Councilmember - City of Oakley, Manager of Mainframe Operations and Optimization – USS-POSCO INDUSTRIES, Co-Founder and Board Member - Friends of Oakley A Community Foundation, Commissioner - Contra Costa Transportation Authority, Board Member - Tri Delta Transit, Transplan, San Joaquin Joint Powers Authority and RD 2137, Advisory Board – Opportunity Junction
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