In an environment where wealth inequality is a political issue, this piece makes the case that the best approach is not more government redistribution programs but rather having companies extending share ownership far more broadly. Author Mundell discuses an original way to encourage more widespread employee stock ownership.

In his last published work, John Steinbeck, that great chronicler of the working class, mused that Americans never embraced socialism because the poor didn't expect to stay poor; they instead viewed themselves as "temporarily embarrassed millionaires."

Today, the mood is more somber. A working paper from the National Bureau of Economic Research suggests that intergenerational mobility in the U.S. is on average no higher than in Europe. A recent Gallup poll found that Gen Z respondents were almost equally split on whether they view capitalism or socialism more favorably.

Decades ago, Congress made an earnest effort to head this off. With America’s wealth increasingly concentrated in companies, it forged a bipartisan consensus to incentivize companies to extend share ownership more broadly. By rewarding nonexecutive employee performance with company stock—in addition to wages—employees get a pro rata claim on all the future profits the firm earns. Wealth creation through equity ownership is profit sharing both now and in the future.

Imagine, for a moment, that instead of today’s gig workers and their companies being locked into a never-ending transactional dance over their status, that top-rated Uber drivers had the opportunity to earn stock in their company.

Yet despite research demonstrating mutual benefits for corporations, shareholders and employees, and elaborate government incentives (especially with ESOPs), broad-based employee ownership has barely migrated outside of Silicon Valley. Conventional wisdom points to the complexity of the ESOP program, but tinkering with it over time hasn’t helped, and meanwhile the need grows more urgent.

Before reaching for yet another government fix, shouldn’t we first see if a fully informed market can produce a solution on its own? Outside of ESOPs, there isn’t enough public reporting of employee ownership data, even for publicly traded companies. And that means there is no transparent scorecard, no easy way to compare one company to the next and, of critical importance, no way for companies to compete with each other on employee-ownership adoption.

To create that scorecard, we must make currently invisible employee-ownership data visible to all Americans. The tool required is a public-facing Employee Ownership (EO) Index, in effect, a “company Gini coefficient” that measures employee stock ownership within and between companies. The power of such an index shouldn’t be underestimated. In addition to potentially impacting market value, it’s a way for companies to signal their good intentions.

The ESG (which asks stockholders to consider a company's commitment to environment, social and governance issues when making investment decisions) taught us just how sensitive corporations are about their reputations, even with regard to societal problems they aren’t fully equipped to solve. In contrast, broad-based employee ownership is completely within their control and totally consistent with profit maximization. The EO Index offers both companies and the public a flashlight to reveal which companies are leading, which are following and which are impeding change on this defining issue for the future of democratic capitalism in the U.S.

Our nonprofit organization, Work to Own, along with a team from Harvard Business School and other leading institutions, is releasing a first-ever Employee Ownership Index for the S&P 500. Though it will require further refinement because of the data limitations, we believe it will create a new market standard for measuring broad-based ownership that will encourage a race to the top.

The SEC could greatly improve the robustness of the rankings by mandating that companies disclose employee stock compensation by income cohort, but until then, Work to Own will be supplementing our existing measure with surveys of the leading companies to produce a more definitive ranking of the S&P 500.

The more robust the tool, the more empowered companies will be as change agents, and the less demand there will be on government to expand redistributive programs. For while progressively larger rounds of redistribution have improved the living standards of the poorest Americans and strengthened the safety net, they haven’t solved the economic mobility problem and, arguably, have imposed huge costs on the efficient functioning of the market economy.

Rather than continue this course, we must find solutions that expand wealth from the bottom up. Then, and only then can the founding vision of America be restored, and, as Steinbeck described in another essay, can the working class once again be “temporarily embarrassed capitalists.”

—William A. Mundell, Founder and Chairman of Work to Own, and Chairman of Neurosphere Entertainment.

Making Corporations The Change Agents To Jumpstart Economic Mobility

Forbes.com

C16_Making Corporations The Change_Forbes.com

In the Oliver Stone film “Wall Street,” protagonist Gordon Gekko delivered what became the defining battle cry of 1980’s America capitalism, “Greed — for lack of a better word — is good.” Excess was a natural outgrowth of unbridled capitalism. It was something to celebrate rather than shame because, to quote Gekko, it worked. Entrepreneurial energy created the most robust economy in modern history.

Today, the children of Gordon Gekko are not so sure. Young Americans are disillusioned by the lack of a clear pathway to wealth creation. According to 

, more than half of Americans aged 18-29 view socialism more positively than capitalism. No doubt the “greed is good” ideology needs rethinking, but what if doubling down and broadening capitalism is the best way to reimagine it?

With American wealth increasingly concentrated in company equity, companies themselves are uniquely positioned to create new capitalists. Appealing to the self-interest and fiduciary obligations of the titans of industry may be the simplest and most effective way to accomplish that. By more broadly rewarding employee performance with stock in addition to wages, companies will jumpstart their employees’ economic mobility.

Why would a company voluntarily do this? After all, it dilutes not only the shares of the C-suite where this decision would likely be made, but also of all outside shareholders whom they are bound to protect. The reason is quite simple, and it has not been lost on Silicon Valley and some of the largest private equity sponsors in the world. 

 is conducting research to determine whether firms with relatively high employee ownership have superior financial performance.

Private equity buying in to employee ownership

This endeavor is aligned with the attitudes of private equity firms toward employee ownership. Private equity groups such as KKR, Apollo Capital Management, 

, Silver Lake, and TPG are all implementing programs to empower the employees of their portfolio companies with ownership. Most recently, Blackstone kicked off a program to grant equity to all 18,000 employees of Copeland, a climate technology firm it recently acquired.

There is evidence that American employees have an appetite for risk. This is illustrated by a survey conducted by 

 of 192 entry- and mid-level managers which concluded that over 40% of managers assign value to employee stock options that are greater than their fair value. This is based on the Black Scholes option pricing model which indicates that these equity grants are viewed as high probability lottery tickets. In the context of private equity, this view is rational because most portfolio firms are sold within 10 years of their acquisition, often at significant premiums to fair value.

If the modern-day Gordon Gekkos of the private equity world think increasing employee ownership yields more wealth for them and their investors, then arguably CEOs of public firms should rethink how incentivizing employees across the pay scale with equity also generates a higher return for their investors.

Employee ownership vs. firm value in public companies

With support from the nation’s leading employee ownership scholars, Work to Own is focused on developing measurement tools to assist public companies to more fully understand the impact of employee ownership on financial performance. We began this research journey by assembling publicly available data and creating an estimate of the number of shares held by employees. Our calculation is based on the most comprehensive set of integrated employee ownership data we are aware of for the largest 1,500 publicly traded companies in the United States, representing over 75% of the U.S. stock market. Our findings to-date, while preliminary, are tantalizing in that firms with the highest levels of our estimate of employee ownership also have significantly higher stock returns than their peers.

We ranked all 1,500 firms based on an estimate of the percentage of outstanding shares each provides to its employees, relative to the median ownership percentage of the whole sample. We then split the sample into three equal sized portfolios of firms (high, medium and low employee ownership). The implications of our research are promising. We found that the systematic risk for all three portfolios suggests that $100 invested today will grow to $130 in three years. This equates to roughly 10% per year, which is the long-term average return of the S&P 500. However, our findings reveal that the high employee ownership portfolio generates a 25% premium, i.e., $100 invested today grows to $163 ($130 x 1.25) in three years. By contrast, $100 invested in the low portfolio grows to only $124 in three years, a figure 24% less than the high portfolio. While these results are encouraging, the preliminary analysis should be viewed with caution, because results could change with the release of more detailed data from companies. To date, they are not required to report.

More work needs to be done, and the current disclosure landscape poses a significant challenge. Firms disclose little information on employee compensation, including who gets what across the pay scale. Even public companies do not yet disclose this data.

We have started to engage with companies to collect more granular data. Corporations can play a much bigger role as change agents in creating a more economically mobile society. They are poised to do so in a big way and without violating their fiduciary oaths. Greed — for lack of a better word — can still be used as a force for good.

William A. Mundell is the founder of Work to Own and chairman of Neurosphere Entertainment. David Dreier is a distinguished fellow at the Brookings Institution, a former member of Congress (from 1981-2013), and former chairman of Tribune Publishing. They are both based in Los Angeles. This content represents the views of the authors. It was submitted and edited under Pensions & Investments guidelines but is not a product of P&I’s editorial team.

Commentary: Corporations as change agents can jump-start economic mobility for employees

Pionline.com

C18_Commentary: Corporations as change agents 

The wealth gap in the United States has been a growing and elusive problem. Experts argue it is a primary driver behind the country's growing political polarization and hopes for government intervention are slim. Enter the private sector.

New, preliminary research suggests that companies that provide their employees with share ownership as a significant part of their compensation not only put their workers on a path towards greater personal wealth but also reward their shareholders — an outcome that may surprise many.

 that suggests that if you provide employees with greater share ownership you will get 

, less turnover and a stronger commitment to the firms they work for. The logic is straightforward: incentivize your employees to become part owners, and they might begin to act like ones.

Some of the strongest evidence can be found from examining companies that are formed as 

 (ESOPs), established by Congress in 1974. ESOPs provide companies tax incentives to finance the purchase of shares through loans to an employee benefit trust where employees do not have to pay for shares. For companies that have operated as ESOPs for many years, the benefits are clear.

"The shared values, the shared accountability that we all have to share in the success that we create for our clients but also for each other is the critical element that makes the employee ownership model such an important thing to be a part of," Michael Williams, chief financial officer for Black & Veatch, told a recent 

, a company that started providing infrastructure services more than 100 years ago became employee-owned in 1999, with operations across numerous countries.

The multiple benefits of employee ownership have seemed to attract the interest of certain investment companies. Some of the largest U.S. private equity firms are buying into the employee ownership model. KKR, Apollo Capital Management, Ares Management, Silver Lake, and TPG are all implementing programs to empower the employees of their portfolio companies with ownership.

 to grant equity to all 18,000 employees of Copeland, a climate technology firm it recently acquired. At KKR, Pete Stavros, co-head of global private equity, has founded "

" a non-profit focused on broadening corporate ownership and enhancing the financial resiliency of the workforce.

While the model used by private equity firms is different from the traditional ESOP structure, the recognition by Wall Street that employee ownership has numerous benefits is seen as an important milestone.

What has been less discussed and examined is the potential for employee ownership in large, publicly traded U.S. companies to lead not only to greater wealth for employees but also for the firm's shareholders. "

" is a non-profit focused on creating an index of ownership inequality by a company and using that benchmark to motivate more broad-based ownership.

, the organization's chairman and founder, told Regulatory Intelligence that he and his team are studying whether they "can demonstrate something disarmingly simple: that higher employee ownership is associated with abnormal stock returns, an objective measure that all public company CEOs are bound to strive for."

As a starting point, they assembled publicly available data and created an estimate of the number of shares held by employees. Their calculation is based on a comprehensive set of integrated employee ownership data for the largest 1,500 publicly traded companies in the United States, representing over 75% of the U.S. stock market.

"Our initial findings are promising," Mundell said. "We found a significantly higher return over three years in high employee ownership companies versus low employee ownership companies for the largest 1,500 public companies. Our abnormal return results thus far are very suggestive that employee ownership contributes to value creation."

According to Ethan Rouen, professor at the Harvard Business School, and a lead researcher for Mundell's team, "the next big step is really getting a better understanding of who employees are as shareholders."

Flying in the face of long-established finance and investment principles, the data they found show that once employees are granted company shares, they tend to become long-term investors.

"We're learning that when employees get shares, they don't do what economic theory would predict, which is to sell them quickly, to diversify their risk," Rouen said. "They tend to hold onto these shares for a really long time."

The group is now trying to further refine their results and get a more accurate sense of how many shares are held by employees through share-based compensation.

"Once we do that, we'll be able to go on to rank companies more accurately and create a list of the hundred companies that are doing this best," Rouen said.

Worktoownproject.org

C18_Regulatory Intelligence

The esoteric subject of who draws California’s political districts has morphed into a high-drama affair this fall, a multimillion-dollar struggle with political intrigue stretching from Sacramento to Washington and even, some suggest, to Israel.

It’s a battle about power, Nancy Pelosi and control of Congress, pitting a Los Angeles billionaire against the son of Warren Buffett’s business partner. There’s racial strife and even a full-length documentary in the mix.

All this over two competing ballot measures, Propositions 20 and 27, which would overhaul the arcane, once-a-decade redrawing of political districts in the nation’s most populous state.

“It’s really frankly very dull to most people — and yet so important,” said Bill Mundell, executive producer of Gerrymandering, a documentary released this month about how political districts can be contorted. Backers of Proposition 20 have sent 660,000 DVDs of the movie to California voters.

Every 10 years, after the U.S. Census, lines must be redrawn to ensure that legislative and congressional districts have equal populations. For years, in nearly every state, state legislators drew those lines. Critics say the process has allowed lawmakers to choose their voters, rather than the other way around. The last set of California maps, drafted in 2001, protected incumbents so thoroughly that no seats switched party control in more than 300 elections in the state in 2002 and 2004.

Two years ago, Californians approved a ballot measure, Proposition 11, stripping legislators of power to draw their own districts’ boundaries and handing that authority to an independent citizens’ commission.

Now, two competing Nov. 2 ballot measures offer voters divergent paths going forward: Proposition 20 would double-down on the still-forming citizens’ panel, allowing it to draw maps for Congress too. Proposition 27 would scrap it entirely. If both measures pass, the one with more votes would be enacted.

The initiatives have lured roughly $20 million in campaign money — and both were placed on the ballot by big donors who, their opponents hint, have mixed motivations.

Charles T. Munger Jr., the son of Buffett’s business partner and a big GOP donor, and his wife have injected more than $12.5 million of their fortune to pass Proposition 20. He casts the campaign as completing the job voters began when they passed Proposition 11 in 2008.

“Districts are drawn like fortresses for incumbents of both parties,” said Munger, a physicist.

The billionaire on the other side is Haim Saban, a Los Angeles Democrat and entertainment mogul who provided a $2-million loan this spring that paid for signature gatherers to get Proposition 27 on the ballot. Saban is the unlikeliest of bankrollers; in 2008, he contributed $200,000 to the campaign to create the citizens commission that Proposition 27 would unravel.

Saban may have provided the answer back in 2004. “I’m a one-issue guy and my issue is Israel,” he said in an interview with the New York Times that year. Mundell and other opponents of Proposition 27 have connected his change of heart to his desire to protect the congressional seat of Rep. Howard Berman (D-Valley Village), the chairman of the House Foreign Affairs Committee and a staunch supporter of Israel.

Berman, his brother Michael Berman, a redistricting expert, and Pelosi (D- San Francisco) have been the leading political organizers behind Proposition 27, said Daniel Lowenstein, the measure’s author and an emeritus professor at UCLA’s law school.

Saban declined to be interviewed. His spokeswoman, Cassandra Bujarski, said in a statement that Saban believes the redistricting commission, which has yet to be fully formed, “hasn’t worked out as intended because the state’s diverse population has not been adequately represented in the process of selecting members.” Records show his loan has been repaid.

Whatever Saban’s motivation, Berman’s district provides an interesting case study in how gerrymandering is used in California.

The issue is often cast in terms of partisan balance — Democrats versus Republicans. And in some parts of California, strategic drawing of boundaries can tilt a district one way or the other.

But in many parts of the state — much of Los Angeles County, for example — the population is so one-sidedly partisan that almost no amount of line-drawing could elect a representative from the other party. Instead, lines are drawn with an eye more toward the primary election than the general.

In Berman’s case, lawmakers in the last round of redistricting, nearly 10 years ago, redrew the boundaries of his 28th congressional district to leave out some heavily Latino neighborhoods, insulating the congressman from the threat of a Latino challenger.

Racial and ethnic tensions have often played a role in redistricting battles and have also dogged the citizen commission. The selection process for the panel drew criticism early in 2010 for under-representing minorities. The crop of 60 finalists has proved more diverse, with 17 Latinos, 10 Asians, eight African Americans and four Native Americans among those still in the running to be on the 14-member panel.

Both sides have tried to use the issue of race in the current campaign.

In the official voter guide mailed to 11 million California homes, former national NAACP Chairman Julian Bond called Proposition 20 “insulting to all Californians.”

“Jim Crow districts are a thing of the past,” Bond said, adding that Proposition 20 “sets back the clock on redistricting law.”

The Yes on 20 campaign had California NAACP President Alice Huffman sign the rebuttal to those remarks. Huffman has been paid nearly $100,000 by the Yes on 20 effort for her strategic advice and outreach to black voters. She has been criticized in recent years for being paid hundreds of thousands of dollars by ballot campaigns that the state NAACP has endorsed while she has been president.

Some Democrats suggest that Proposition 20 is a tool to dilute their power. Democrats firmly control the state Legislature and thus the current map-drawing system. Pelosi could try to bolster the number of Democrats elected to the House in 2012 by influencing the way congressional district lines are drawn next year.

Pelosi and 17 California House Democrats each contributed at least $10,000 to promote Proposition 27 to abolish the citizens’ commission.

Munger dismissed the notion that he wants to influence elections for GOP gain, arguing that he could lavish funds on GOP candidates — or run for office himself. “If this is a Republican plot, it’s an awfully stupid one,” he said.

Competing propositions take aim at California redistricting

Latimes.com

C20_Competing propositions take aim at California redistricting

California entrepreneur Bill Mundell--founder and CEO of Vidyah, a leading private educational organization--is spearheading a citizens' effort to attack one of the major corrupters of American politics today: gerrymandering. Thanks to high tech, politicians can now establish district lines that effectively make elections for state legislatures and for the House of Representatives uncompetitive.

In California last November not one incumbent was defeated in elections for the state legislature or Congress. Not one of the 153 seats up for grabs--53 congressional seats and 100 in the state legislature--changed party hands. As has often been observed, the U.S. is becoming a democracy in which the politicians choose the voters rather than the other way around. Aside from a handful of notable exceptions such as Iowa, states more or less follow California's Soviet-style approach to drawing voting district lines.

Mundell chairs Californians for Fair Redistricting, which is pushing for passage this November of Proposition 77, the Voter Empowerment Act. The initiative would establish a nonpartisan panel of judges to draw competitive and compact district lines. No longer would boundaries resemble a Jackson Pollock painting. Competition would be restored--and with it infinitely greater accountability.

You'd think that with more and more pols ensconced in safe districts, they'd act more responsibly. Quite the opposite--special interests have gained more influence, and spending has reached irresponsible proportions. Gerrymandering is one reason California politics has become so dysfunctional. Needed reforms are dead-on-arrival in the state legislature.

It's no wonder that Proposition 77 is despised by most Golden State politicos. California State Attorney General Bill Lockyer tried throwing Proposition 77 off the ballot on minor technicalities. Fortunately the state Supreme Court blocked Lockyer's insidiously cynical maneuver, and Proposition 77 is back on the ballot.

If successful, this initiative will set an inspiring precedent for similar redistricting reform efforts in the rest of the country. And Mundell will rightly become a political force to be reckoned with.

Bridgeclimb, an Australian company at the base of the Sydney Harbour Bridge, does a brisk business selling so-called bridge climbs (

,). New York City should set up a similar operation at the Brooklyn Bridge. Enterprising souls are willing to do it, including those who currently run the Sydney concern. Former New York City Mayor Rudolph Giuliani wanted the city to do just that several years ago, but Big Apple government lawyers howled that the city would lose money from the liability suits brought not by the bereaved families of those who accidentally spill into the river below (as Rich Karlgaard points out, the Aussies do everything they can to make the jaunt safe, including cabling climbers to the bridge itself) but by people who stub their toes and bang their knees, etc.

Still, the idea is a great one. I climbed the Sydney Harbour Bridge, and it's a captivating thrill. Mayor Bloomberg should make a Brooklyn Bridge climb part of his reelection platform. It would win votes, and the inauguration of such a climb would be a great way to kick off his second term. New Yorkers would probably take to the bridge experience even more than Sydney-siders have.

What about those possible liability suits? Would-be Brooklyn Bridge climbers should have to sit through a safety lecture and sign multiple pieces of paper acknowledging that this trek is no cakewalk. Of course, a plethora of lawsuits could, in a perverse way, do some good: Such suits might push the normally nonsensical City Council or the New York State legislature to enact a wee bit of tort reform.

forbes.com

C01_Fact and Comment_Forbes.com

In recent days, the reality of the state’s budget cutting extravaganza is sinking in for Californians of every situation and location.

State workers are looking at their personal bills and figuring what they can live without to make up for their 15 percent pay

cuts and seeing if they can find part-time jobs for those three days a month they will be on furlough.

School officials are trying to figure out how they will continue to provide adequate education to their students when they must cut teachers and increase class sizes. College students must determine how they will graduate in time when classes have been cut and fees hiked.

People who provide human services to the state’s poorest and most at-risk residents – poor kids, seniors, victims of abuse – are wondering how they will continue to help these folks with millions less in their budgets. Cities are preparing lawsuits to see if they can force the state to give back their redevelopment money, while figuring out which core services they should cut first.

Even Californians whose wallets aren’t directly reduced by the cuts will begin to feel the cuts when they try to go to the courthouse on Wednesdays or renew their driver’s license on Fridays and find those state offices closed. Or they may notice it when their favorite state park is chained off because the state can no longer afford to maintain it.

And as many complaints as there have been in recent months, there have been an equal number of ideas – some sensible, others far-fetched – for saving money and raising new revenue: legalizing and taxing marijuana, raising taxes on the rich, demolishing regulatory boards, turning the state lottery into a private entity, just to name a few.

And now, thanks to the hard work of Bill Mundell, chairman of Intekea, a Los Angeles-based economic development firm, and of ZBB Energy Corp., an alternative-energy storage company, there’s one more: The California Enterprise Fund.

The label might be a tad clunky, but the idea behind it is not. And it could potentially bring $100 billion in revenue to the cash-starved state without having to raise taxes, cut essential services or sell off any public land, simply by capitalizing on what California already has.

Here’s the basic concept: The state rents or leases out some of its least used or seriously unprofitable assets to private investors. The private investor can add an amenity that will increase its revenue, say add a restaurant to a state park or operate a concession in courthouses. The deal brings money to both the state and private entity, to maintain and even improve the land or facility.

California has about 33,000 separate assets, from parks to prisons to parking structures. They are worth as much as $200 billion, but cost money to operate.

In normal times, the idea of letting private companies get their greedy hands on California’s public land and facilities would be unpalatable in a state proud of its assets. But when the state is considering selling off many of its properties, including Los Angeles’ Memorial Coliseum, for one-time cash infusions and shuttering many more to the public, what’s the harm in making money off them instead?

Surely commercialization of a state park for a few years is better than shutting it down and leaving it to the forces of Mother Nature, vandals or poachers.

This will surely strike some as an uncomfortable commoditization of California, but if it allows the state to keep what it has in trust for all of us instead of auctioning off the Bay Bridge or a beach or two, maybe an arrangement like Mundell’s private-public partnership is worth considering.

The proposal, which Mundell said he has pitched to Gov. Arnold Schwarzenegger and could be initiated through executive order, should get some serious consideration of both Democrat and Republican lawmakers. It can help them reach their individual political goals of not raising taxes or cutting services.

Besides, state parks officials – who are bracing for the closure of as many as 100 state parks after losing $6.2 million in the recent budget agreement – are already considering their own enterprise fund. They are asking for anyone, including corporations and businesses, to sponsor a park to help to keep it open.

Under Mundell’s proposal, a bipartisan commission would do three things: First, the commissioners would identify and value the state’s assets. No one knows for sure exactly how much land and facilities the state owns, and what they might be worth on the open market.

Next, the commission would identify a package of assets – say a bunch of parking lots or the Department of Motor Vehicles or the lottery – that either aren’t making the state any money or might be attractive to a private investor.

Finally, the commission would seek investors and broker the deals.

Any agreements would have to be approved by the Legislature and the state would retain regulatory control of the land and, most importantly, the ownership.

The enterprise fund might be a model that seems far out when it comes to traditional government financing, but it isn’t pie in the sky. Mundell has modeled his enterprise fund on a similar undertaking by the nation of Australia, which was able to pay off $100 billion in debt and bank another $100 billion for the future. And other cities, like Chicago, have crafted public-private partnerships that do the same but on a smaller scale.

Is it the best way to operate the state’s assets? No. Ideally, California would have the resources to manage its own properties without the involvement of any profit-making company. But we’re in extraordinarily bad financial times with no plausible way to sustain the financial formula crafted by Sacramento. We need bold new ideas to keep the Golden State golden. This is one of them.

Calfornia should consider renting out the state’s assets

Dailynews.com

C21_Calfornia should consider renting out the state’s assets

Arizona voters want an independent commission to handle redistricting. Irate state legislators sued.

More than 200 years ago, at the Massachusetts convention to debate ratifying the U.S. Constitution, state representative Theophilus Parsons emphasized the need for a remedy if “a state legislature” were to “make an unequal and partial division of the state into districts for the election of representatives.” But although the Framers responded by providing for federal regulation of elections in the new Constitution, the problem of gerrymandering persists.

Courts and legislatures struggled to address gerrymandering for decades, but it was not until 2011 that one state, Arizona, successfully used a ballot initiative to create an independent commission to draw district lines for Congress. Now the Arizona state legislature is suing to invalidate the lines drawn that year, arguing that the U.S. Constitution requires that the state legislature draw those lines. On March 2, the U.S. Supreme Court will hear arguments in this lawsuit.

We in California have a strong interest in this court case. That’s because California used the ballot to go even further than Arizona and barred the legislature from directly selecting the members of the commission. We, together with three former governors of California and the Chamber of Commerce, filed an amicus brief that among other things demonstrates that the dangers inherent in this lawsuit extend well beyond Arizona and California.

A broad decision from the high court eliminating any regulation of the “manner” of federal elections not made by state legislators could not only invalidate fair redistricting in other states that use independent commissions but also threaten important existing reforms that were first accomplished by ballot measure, such as permanent voter registration and all-mail balloting.

The principal issue before the court is: What does the Elections Clause of the Constitution mean? It says, “The Times, Places and Manner of holding Elections for Senators and Representatives, shall be prescribed in each State by the Legislature thereof; but the Congress may at any time by Law make or alter such Regulations . . .”

The Arizona legislature argues that “Legislature” may only mean the specific group of elected members sitting in the state capitol. But the dictionary known to the Framers, by Dr. Samuel Johnson, defined legislature as “the power that makes laws.” So did Noah Webster, when he wrote his 1806 dictionary.

For the past century, some states have used the initiative and referendum as “the power that makes laws” on a broad range of subjects. In spite of the fact that state legislatures have historically misused their power to redistrict, the Arizona legislature insists that the citizens of Arizona should not be allowed to use the initiative to create a commission to draw new lines.

We will never be certain of how the Framers would have defined “Legislature,” because the initiative was unknown in 1787. But we do know their views on federalism and fair elections.

The authors of the Federalist Papers contemplated that Congress would serve as a backstop in case the state legislatures abused their power to regulate elections to cripple the nascent federal legislature. Hence that second line in the Elections Clause, giving Congress the power to pass its own laws that would override state rules. Had Congress been displeased with the use of new alternative political structures to carry out redistricting, it could have mandated that redistricting be done solely by the legislators.

But Congress never did so. In fact, a later Congress acted to further clarify the vision of the Framers by considering the changed landscape and explicitly giving the states freedom to act in accordance with their own laws. In 1911 Congress changed the relevant law, which had referred to redistricting by “the legislature of such State” to provide that the redistricting should be done by a state “in the manner provided by the laws thereof.”

This was done after a floor discussion of the then-new phenomenon of the statewide initiative, first adopted in 1898 in South Dakota, and some mention of nonpartisan commissions. It would now be up to the states to choose the means to accomplish their duties.

And yet today we have the remarkable irony of state legislators arguing that the clause intended to give Congress the power to prevent gerrymandering instead forbids a state from preventing it.

The commissions recently used in California and Arizona may have their flaws. But those could be fixed before meeting again in six years time. Already, they have proven to be far more open, transparent and responsive to diverse groups than the alternative—legislators meeting in a backroom and producing new maps. And like it or not, commissions produced many more competitive seats in 2012 and 2014 than had been seen in the past.

There should never again be a situation like that in California in the decade of the 2000s where, in a state with 53 House seats, there was a change of party exactly once in 265 House races. “We the people” deserve better.

Trying to Pry the Gerrymander Out of Politics

wsj.com

C02_Trying to Pry the Gerrymander_WSJ.com

Several months of quiet whispers have quickly turned into a resounding buzz -- and a nervous buzz, no less -- about a case pending before the U.S. Supreme Court that questions whether it's constitutional for independent state commissions to have the sole power to draw political district maps.

The case is centered on Arizona, but the buzz being heard on this side of the Colorado River arises from the fear that if a lower court's ruling is thrown out, California may very well be next in the return to partisan congressional gerrymandering.

It explains why everyone from legal scholars to three former California governors is asking to be heard before the nation's highest court.

Arizona State Legislature v. Arizona Independent Redistricting Commission

, now scheduled to be heard by the U.S. Supreme Court in March. And the argument being made by Arizona's legislative leaders in their quest to outlaw the state's redistricting commission is pretty simple: The U.S. Constitution, they say, vests all power over congressional elections in state legislatures -- and no one else.

The legal fight has been brewing for a long time. Arizona voters approved 

 in 2000 that created an independent redistricting commission. A decade later,California voters 

assigned the drawing of congressional districts

 to a similar panel (after giving the panel 

Now, a swarm of Californians are filing 

Arizona Independent Redistricting Commission

California Citizens Redistricting Commission

 depends on what happens in Washington, D.C., before the end of 2015.

While California's commissioners have filed their own 

 in support of the Arizona panel, their fight was joined on Friday by 

 from three former California governors -- George Deukmejian, Pete Wilson and Arnold Schwarzenegger. Of those, Schwarzenegger has the most to lose in terms of his legacy, as he was a driving force behind 

the two initiatives that wrestled control of political map drawing away from the Legislature

The governors were joined in their filing by the California Chamber of Commerce as well as wealthy activists 

 -- two big money backers of the redistricting initiatives.

It's fascinating that the California cavalry is rushing in to defend its Arizona compatriots now, given that this effort to kill Arizona's redistricting commission is pretty much down to its last swing of the bat. A U.S. District Court ruled against Arizona's legislative leaders last February, and it's not exactly clear that the Supreme Court justices will even consider all of the arguments made by legislators seeking to regain their redistricting power. Perhaps, but everyone still sees the stakes as high.

"The Arizona litigation," said California Chamber of Commerce President Allan Zaremberg, "jeopardizes the will of the California electorate and its embrace of fair redistricting and competitive elections."

For the average observer, the crux of the case may be this: Is the power of Arizona voters to write legislation -- legislation written through the ballot initiative process -- equivalent to the legislative power over elections in Article I, Section IV of the Constitution:

The times, places and manner of holding elections for Senators and Representatives, shall be prescribed in each state by the legislature thereof; but the Congress may at any time by law make or alter such regulations, except as to the places of choosing Senators.

Arizona's legislative leaders say, quite simply: no way. In 

their December filing with the U.S. Supreme Court

, they argue the above passage is crystal clear:

"The term 'the Legislature' is clear and explicit and has an unambiguous meaning repeatedly recognized by the Framers and this Court: the representative lawmaking body of a State. In the Constitution, the Framers carefully assigned particular obligations to particular State-level entities, whether the 'people,' the 'legislature,' the 'executive,' or the 'State' generally. That precise division of labor leaves no doubt that they intended that 'the Legislature' -- meaning the representative lawmaking body -- be the entity that 'prescribe[s]...Regulations governing redistricting."

Arizona's independent redistricting commission

 is selected by a different process than the one in California, though Golden State activists and lawmakers may have used parts of the Arizona process to help shape the final details that were drafted in 2007.

In Arizona, the independent commission has five members. Four of them are chosen by the state's legislative leaders from a pool vetted by a judicial commission; the chairperson of the commission is then selected (out of the remaining applicants) by the four commissioners.

In California, the panel is 14 members. Eight commissioners are chosen at random, from a pool of applicants vetted by the state auditor but from which each of the four legislative leaders is able to reject six names. Those eight commissioners then choose six colleagues from the remaining applicants.

From a layman's perspective, if Arizona legislators are successful in convincing the Supreme Court that they been stripped of their right to have a role in crafting congressional maps -- 

even though the Arizona system allows top lawmakers to pick four-fifths of the commission

 -- then it would seem much easier for California's legislators, who have a much smaller role, to argue they, too, have been wronged. Remember, the entire political campaign was about stripping politicians of their power to draw congressional districts.

(And in case you're confused, the pending Supreme Court case is only about drawing 

 districts, not those for Arizona's Legislature.)

Most states across the nation continue to have their political maps drawn by legislators -- a power that's led to countless charges of districts skewed by gerrymandering for partisan gain. And that's what supporters of independent redistricting say will happen again if the high court strips the Arizona commission of its power to craft the state's nine congressional districts.

"The Arizona Legislature's lawsuit is just an effort to get the foxes back in the henhouse," said Kathay Feng, executive director of California Common Cause and one of the authors of the California redistricting laws.

In California, a redistricting process dominated by majority Democrats in the Legislature would undoubtedly produce more Democrats and fewer Republicans in the state's congressional delegation, though leaders of both parties in the state Capitol opted for a map that protected incumbents in 2001, the final once-in-a-decade redrawing before the independent commission took over.

Even some members of Congress don't want to go back.

“Districts drawn by incumbents to protect their jobs makes politicians less accountable to their constituents," says Rep. Julia Brownley, a Ventura County Democrat. She and 19 other incumbents filed their own amicus brief in hopes of blocking the rollback effort by legislators in Arizona.

A Gerrymandering Comeback in California … via Arizona?

kqed.org

C04_Comback in California_kqed.org

Three former California governors are wading in to an Arizona elections case before the Supreme Court that could have major implications on how California draws its congressional and legislative districts.

Former Govs. George Deukmejian, Pete Wilson and Arnold Schwarzenegger, along with the California Chamber of Commerce, GOP mega-donor Charles T. Munger Jr. and entrepreneur Bill Mundell, submitted a brief late Friday stating their support for an independent commission that crafts a state’s districts, rather than restricting the task to state legislatures.

Arizona, like California, has an independent panel that draws the state’s districts. But Arizona’s legislature wants to take the job back and has challenged the constitutionality of allowing such a committee to determine district boundaries. They argue that legislators alone have that power.

The case is set to go before the Supreme Court in March.

California’s redistricting panel was created by a 2008 ballot initiative to draw state legislative districts; in 2010, voters approved extending its authority to draw congressional districts as well.

, the governors and their allies said that “for decades, the California Legislature abused its power to adopt congressional districts, at times adopting highly partisan gerrymandered districts ... and at other times adopting bipartisan ‘sweetheart’ gerrymanders designed to insulate incumbents of both major parties from electoral competition.”

The brief asserts that the Constitution allows voters to use the initiative process -- as they did in California and Arizona -- to delegate the redistricting power to an independent panel.

“The lines drawn by California’s Citizens Redistricting Commission have resulted in the fairest and most competitive elections in California history,” said CalChamber President and CEO Allan Zaremberg in a statement.

He added that the “Arizona litigation jeopardizes the will of the California electorate and its embrace of fair redistricting and competitive elections.”

Zaremberg said, in a follow-up interview, that the brief’s signatories were those who had “taken a leadership role in fair redistricting.”

The group has a noticeably GOP tilt -- the three governors are all Republican and Munger is a major party donor. Rick Hasen, a law professor at UC Irvine, said such an assemblage could be helpful in convincing Justice Anthony Kennedy, a likely swing vote on the issue.

California and the Right of Initiative