Has California finally hit the wall?

Has California finally hit the wall?

In a recent interview with Jason Clemens, Economist and Director of Research for the Pacific Research Institute, he explained that California’s budget problems are not really about taxes or the costs of illegal immigration. PRI is near completion of a large detailed study on California’s prosperity, or the lack thereof, and one of the main conclusions is that the state is broke because the economy is deteriorating and has been for some time.

In a state with tremendous economic diversity, excellent weather, a highly educated and well trained labor force along with the bonus of a lot of low paid immigrant labor, it is mystifying that California should be one of the most daIn a recent interview with Jason Clemens, Economist and Director of Research for the Pacific Research Institute, he explained that California’s budget problems are not really about taxes or the costs of illegal immigration. PRI is near completion of a large detailed study on California’s prosperity, or the lack thereof, and one of the main conclusions is that the state is broke because the economy is deteriorating and has been for some time.

In a state with tremendous economic diversity, excellent weather, a highly educated and well trained labor force along with the bonus of a lot of low paid immigrant labor, it is mystifying that California should be one of the most damaged states in the current downturn. But with unemployment near the top in the nation and budget deficits that are almost surreal in their depth, California finds itself in deep economic trouble. We are even on a par with lowly Michigan which is relying on a dying auto industry for its economy. How can this happen? This is just not the result of the current economic downturn, because this has been building for years and state deficits were happening even in good economic times.

For many years conservatives have complained that excessive regulation, especially environmental, was going to hurt the economy. They have also complained that high taxes would add to that and eventually tank us. For just as many years, the liberals who favor such policies said, no, we can afford it, and really, can we afford not to? And up until lately, the liberals have mostly been proven right, as California has been so strong economically that despite the high taxes and thick regulations, the economy has produced good results and given us a good lifestyle.
It looks like the wall has finally been hit, however. Even if the ballot propositions pass, the Legislative Analysts Office says we will have an astounding $26 billion budget deficit in 2013-14.

This is going to have huge impact on us locally. Most of the cities and counties in the state depend for a significant portion of their budgets on money from the state, money that is now in serious jeopardy. There is no doubt that funds are going to be cut, and for years. For example, most counties including Napa get most of their health and human services money from the state, and those are big dollars. Cities also get funds for police and other grants including road maintenance and improvements.
Over the next two years you are going to see Cities and Counties in California one by one running deficits, making big spending cuts, and some may go bankrupt.

On the economic front, unemployment continues to grow, the economy continues to shrink, and even if the optimistic predictions of the Obama administration and others come true and growth resumes at the end of this year, it is going to take years to get back to where we were a year ago.

And an even bigger problem with the upcoming economic scenario is that for many years now our economy has been fueled by debt, a level of debt that we may never be able to go back to. The implication of that is chilling, because tax collections and expectations of salaries and benefits have been based on an economy that essentially had debt sawdust in its engine, and that engine has now frozen up. What that means is that there will be a permanent loss in revenues for government compared to the debt fueled economy. That may eventually be made up by strong economic growth, but the likelihood is that it is going to take quite some time.

What are we going to do? We are going to have to fundamentally change the way we do business and government regulations in California, or we will never pull out of this. The sooner we recognize this the less harmful the long term results will be.

Regulations, especially environmental regulations, are killing the economy here. So much of what goes on that passes for helping the environment actually does little or nothing to help the environment.

One shining example of that is CEQA. Everyone who works on CEQA plans know that it is mostly a pile of paperwork that does little to help the environment. It has become a political football that left wing environmentalists can use to throw back and forth with developers in order to shut them down. The conservation department is huge in Napa County because of all that paperwork, it harms business and the cost is passed on to all of us.

Can you imagine the impact if every time the fire department wanted to buy a new fire engine, that any citizen could drum up objections and force them to answer each and every one and somehow mitigate every concern? And that there was a whole group of people that wanted to stop the purchase of a fire engine no matter how silly the reason? The cost of a fire engine would quadruple.

For instance, right here in Napa County, every project that comes up for development is immediately hamstrung by CEQA regulations. Activists work the system to stop any development projects using the CEQA law. Something as simple as planting 2 new acres in vineyard, something that is supposed to be easily allowable in Napa County, can involve literally books and books of descriptions of possible impacts and mitigations, when all that is pretty much known already before this game begins.

At one Supervisors meeting I attended, David Graves, co-owner of Saintsbury Winery, complained that in order to plant a new vineyard he spent seven years and hundreds of thousands of dollars on obtaining a permit, and what eventually got planted was almost identical to the original engineering drawings that they started with.

CEQA is just one of many, many examples of this, and in previous articles I have also suggested a number of spending cuts that are needed. The point is that California cannot afford to do business this way any more, and we have to start looking at making government more efficient and limit all this waste from our process.

This means many things, using more part time workers to save on expensive benefits, privatizing more services, eliminating the layers of bureaucrats overseeing everything, many of these things that I have discussed in previous articles and will again in the future.

We are in a crisis that is not going to go away any time soon and everything must be put on the table to be reexamined. I dare say that everything is going to be put on the table whether anyone likes it or not, because the money is just not going to be there. Government tax collections are going to shrink and we are no longer going to be able to borrow our way out of it.

We are in a position where we must do what is necessary for California’s long term economy to improve, and that means getting the weight of high taxes and absurd levels of regulations off our back. It doesn’t mean all regulations are bad, or that all taxes are bad, but it does mean that we have gone overboard and we have to examine everything to make our economy more efficient. What it really means is that we all have to step out of our partisan boxes and do what is best for the state and for our local governments overall.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.