California’s Economy

This article pulls a bunch of statistics together to paint a most unflattering picture of our state’s economy.

With all of this, my California optimism (optimism being one of our state’s greatest assets) believes we will rebound sooner than later and much stronger.

An excerpt.

“A New York Times story about the budget deal that California legislators struck last week to close the state’s monstrous deficit noted that, “California is an example of what you will see across the country” as state budgets come under pressure from the declining economy.

“Hardly. While many states are grappling with budget problems, none are nearly as large as California’s relative to its size–$41 billion in a state of 37 million, or $1,108 per resident. Even New York, the next most fiscally pressed state, clocks in with a mere $13 billion for 19 million residents, or $685 per capita.

“There’s good reason why most states won’t fall down the fiscal black hole where California now dwells. This is a state whose politicians, public sector unions and advocacy groups have been living in a fantasy world of overspending, investment-deadening taxation and job-killing regulation. Looking out over the state’s prospects and examining the budget deal that legislators have put together (jerry-rigged as it is with revenue gimmicks and unrealistic projections), the only question is who will be begging Washington for more money sooner, the banks, the auto companies or the Terminator?

“The similarities between California and the auto companies are especially striking. Neither can afford their workforce. California schools pay their employees 35 percent more on average in wages and benefits than the national average (17 percent more when adjusted for the state’s higher standard of living), a significant bite because the state funds much of local education (to the tune of $42 billion last year). Benefits are a big part of these costs. A public employee in California with 30 years of service can already retire at 55 with more than half of his salary as pension, and public-safety workers can get 90 percent of their salary at age 50.

“Another budget buster is California’s spending on social services, clocking in at about 70 percent more per capita than the national average. Leading the way is state spending on cash assistance programs (that is, welfare), where the state expends nearly three times more per resident than other states. There’s a good reason for this rich budget. California’s legislature has only reluctantly embraced federal welfare reform, and for years the state has had one of the worst records in moving people from welfare to work because state law limits the ability of welfare administrators to sanction those who refuse to participate in work programs.

“The rich program of social service benefits is also burdensome because of the state’s large low-wage immigrant population. As Milton Friedman observed in the mid-1990s, you can’t have porous borders and a welfare state. The incentives are all wrong. California has become a case-study in that notion. A report by economists working for the National Academy of Sciences in the mid-1990s concluded that the average native-born California household paid about $1,100 in additional taxes because of government services used by immigrants whose own taxes don’t come close to covering their cost to society. It would be very interesting to see what the numbers are today.

“But California doesn’t just have a spending problem. Increasingly it also has economic and revenue problems. Even as I write this other neighboring states are running ads in local newspapers inviting California businesses to move their headquarters out of the state. That’s advertising money well spent. A poll of business executives conducted last year by Development Counsellors International, which advises companies on where to locate their facilities, tabbed California as the worst state to do business in.

“There are a host of reasons why California has become toxic to business, ranging from the highest personal income tax rate in the country (small business owners are especially hard hit by PITs), to an environmental regulatory regime that has made electricity so expensive businesses simply can’t compete in California. That is one reason why even California-based businesses are expanding elsewhere, from Google, which built a server farm in Oregon, to Intel, which opened a $3 billion factory for producing microprocessors outside of Phoenix.

“In the race for the exits, residents are accompanying businesses. In just one decade California made a remarkable turnabout, going from a state with one of the highest levels of net in-migration to the state with the second highest level of domestic net out-migration. Typically people either head for the exits because they are seeking more economic opportunity or because they are being driven out by high housing costs. You get a little bit of both in California because the state’s zoning regulatory schemes keep housing production artificially low and housing prices high even in a mediocre economy.”

About David H Lukenbill

I am a native of Sacramento, as are my wife and daughter. I am a consultant to nonprofit organizations, and have a Bachelor of Science degree in Organizational Behavior and a Master of Public Administration degree, both from the University of San Francisco. We live along the American River with two cats and all the wild critters we can feed. I am the founding president of the American River Parkway Preservation Society and currently serve as the CFO and Senior Policy Director. I also volunteer as the President of The Lampstand Foundation, a nonprofit organization I founded in 2003.
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