Number 81 February 3, 2004

As the California State Legislature and Gov. Arnold Schwarzenegger wrestle over a plan to fix the state’s budget crisis, Dr. Lawrence J. McQuillan, director of Business and Economic Studies at the San Francisco-based Pacific Research Institute, provides recommendations below in five areas that would help restore luster to the Golden State’s business climate.

Regulatory Uncertainty and Complexity

Impose one-year moratorium on new regulations.

Require that 20 percent of all regulatory programs be assessed each year to ensure that they are still needed and are structured efficiently. This would ensure that all regulations are assessed every five years.

Create a process in the governor’s office for people to submit ideas for streamlining regulatory procedures and reducing paperwork.

Regulatory Costs

Overhaul the state’s workers’ compensation system and California Environmental Quality Act (CEQA) regulations, which are needlessly costly and litigious.

Repeal SB 2, recent unemployment-benefit increases, mandatory paid family leave, and changes to overtime rules that reduce employment flexibility. End payroll deduction of union dues.

Government Support and Accessibility

Hold monthly “California is Back” events inside and outside the state featuring the governor and held in association with California business groups and trade associations. These would be huge media events where the governor explains that California has put new policies in place that will improve the future business climate, thereby changing people’s perception of the state.

Local governments should copy San Francisco’s new Small Business Commission, which gives policymaking and lobbying authority on legislation affecting businesses to a pro-business commission.

Litigation

Overhaul California’s Unfair Business Practices Act (17200), CEQA regulations, and workers’ compensation rules, which needlessly encourage litigation. Prevent civil courts from imposing punitive damages—this should be the exclusive domain of criminal courts. Enact a “loser pays rule” for the state’s civil courts. Finally, jurors should be paid their opportunity-cost wage to improve balance on juries.

Cost of Living and Quality of Life

Overall: Limit the future tax burden on individuals and businesses by enacting a true constitutional tax and expenditure limit that includes a minimum infrastructure-spending requirement.

Housing: Eliminate inclusionary zoning, prevailing-wage laws, and union-led CEQA delays that often lead to “greenmail” project labor agreements (PLAs). All of these increase the cost of building affordable housing and reduce the supply of housing.

Transportation: Build or convert more toll roads and toll lanes, and use more congestion pricing on tollways.

Education: Link teachers’ salaries to student performance and create an objective merit-pay system. Institute a school choice voucher option in the state’s school accountability system, which has worked well in Florida. Finally, state education funds should be allocated to local school districts through block grants. This would eliminate categorical grants and the red tape and strings imposed by Sacramento.

Lawrence J. McQuillan, Ph.D., is director of Business and Economic Studies at the California-based Pacific Research Institute. He can be reached at LMcQuillan@pacificresearch.org.