The California economy collapse continues unabated in 2014. Punish business, grow government; redistribute wealth. In California, as in the country as a whole, the trends are clear, the patterns set, the ending not promising; and unfortunately, a different solution remains elusive. The California downward trend continues unabated. In November I posted an article (“We’re number one…”) on the dubious achievements in which California leads the nation. As we enter 2014, I am updating this roster of failure with several additional indicators of California’s insanity.
California Economy Collapse Continues
California once again the nation’s top municipal bond issuer
The Sacramento Bee reported in December that California state government and its local government agencies, with a combined $443 Billion in debt (the most in the nation), has extended its lead by being the number one issuer of new municipal bonds. Bloomberg news reported that California government agencies issued $46.2 billion in new debt in 2013.
Many of the new bonds were issued to pay off previous bond issues; this is analogous to paying off credit card debt by charging the payments on a new credit card. Although this has been used frequently within the state by government entities using pension obligation bonds to fund pension debt, the largest bond issued in 2013 was by the Foothill/Eastern Transportation Authority in Orange County.
The $2.3 billion in bonds were issued “to shore up the finances of several highways that have failed to meet revenue and ridership projections,” noted the L.A. Times; “The bond issue will extend the time that motorists must pay tolls on the Foothill/Eastern’s highways by 13 years – from 2040 to 2053 – and add upward of $1.75 billion to the corridor’s total interest payments by the time the bonds mature in 2053”.
Here we see another initial failure of government, “fixed” by charging taxpayers more for their government’s failures.
Small Business and Entrepreneurship Council names California number 50 on its index ranking the States on Policy measures and costs impacting small business and Entrepreneurship.
If we are going to issue the most debt, why not kill small businesses so we can’t pay off the debt?
California ranked dead last, by a large margin, in this ranking by the Small Business and Entrepreneurship Council. This index uses tax, regulatory and government spending measures to rank states on their “friendliness” (or ease of doing business) to small businesses.
The Council summarized California’s ranking by saying “Small businesses in California face a formidable array of policy (and regulatory) costs, the highest personal income and individual capital gains taxes, high corporate income and capital gains taxes, the highest gas tax, high electricity and workers compensation costs”.
Or more simply, as I reported in “We’re number one”, California has the highest failure rate for small businesses in the country.
Legislature passes 23 new laws negatively affecting businesses in 2014.
In a race to the bottom of hostility toward business, the State, noted the California Chamber of Commerce, passed more than 23 new laws that businesses must comply with starting in 2014. These laws deal with the new, higher minimum wage, meals and rest periods, extension of prevailing wage laws, and penalties, a redefinition of sexual harassment, whistleblower protections, restrictions and penalties for reporting immigration status, more time off for family leave, and prohibitions against requiring potential employees to list criminal backgrounds. For context, read Small business ranking above and refer to ObamaCare regulations going into effect on January 1.
Why would you own a business in California?
California has among the highest residential and business energy costs in the country and things are not going to get better. In 2013 the State turned the spigot on for its “Cap and Trade” program “successfully” selling (taxing businesses) $1.4 billion in carbon permits.
I was going to report on who bought and sold credits, but have been unable to determine this yet (transparency in government?). The program is the cornerstone of, AB32, the state’s climate change law and imposes carbon emission limits on approximately 400 of the State’s oil refiners, food processors, and other large industries. The law specifies, in general, where funds raised by this program are to be spent; however in 2013, the rules were suspended so allow the Governor to “borrow” $500 million” to balance the general fund. Perhaps carbon markets aren’t the rage bureaucrats hoped for.
In the future expect to see the bulk of these funds to pay for high speed rail and the expansion of new regional government entities specified in the pending SB-1. Other uses include unspecified uses in “low income” communities, closely tracking with the pending SB-1 goals. More on this in 2014.
Green energy is three to five times the cost of energy produced by oil, nuclear, coal, and natural gas.
However, the State is requiring that one-third of our energy must be produced by green energy sources by the end of this decade. The problem? These sources of energy are also highly unreliable. The solution? The California PUC has called for utilities and private companies to install approximately $5 billion worth of batteries and other forms of energy storage to help the State’s power grid cope with the erratic nature of green power.
The implication of both actions? Expect to see continuing prices increases for energy and the products produced, shipped, and sold within California with this energy into the foreseeable future.
But California’s economy is booming, Right?
Well, no. In December the nation saw a drop in jobless claims across the country, while California saw an increase of 4,250 jobless claims. The Employment Development Department attributed the increase in jobless claims to more layoffs in the service, retail, finance, insurance and real estate industries. With the expiration of long term unemployment benefits that came on January 1, approximately 220,000 Californians lost their long term unemployment benefits.
California Lutheran University economists see a state of declining opportunity. They report that job growth has been concentrated in the Bay area with the region currently down by fewer than 7,000 jobs from its pre-recession level. Southern California is, however, still down by 360,000 jobs and the Central valley is down by more than 120,000 jobs. Texas, on the other hand, has regained all lost jobs and added an additional 540,000.
Since the recession ended in 2009, food stamp usage has increased in California by 55%, with 4.1 million Californians using SNAP (food stamps). The Federal government, using a new index that takes cost of living into account, has named California the State with the highest poverty rate, 23%.
Enough is enough; let’s close with two examples of California‘s business and governmental “culture”
An energy example seems appropriate here.
Three years ago California received $146 million from the Obama stimulus package to improve energy conservation in 100,000 homes; the State and local governments added another $91 million to the Energy Upgrade California program. To date, reports the L.A. Times, the participating government entities have spent all the money and completed 12,200 homes.
Yep, that’s success by California government standards. These governmental agencies got 12% of the job done, but through pure grit and determination, managed to spend ALL the money. That’s determination in California.
Then, in mid-December, a San Jose superior court found that three companies, Sherwin-Williams, ConAgra and NL Industries must pay $1.1 billion to remove paint they manufactured from homes painted in the 1920s and 1930s, even though the paint was legal under Federal and State law at the time it was applied. In fact, its use was recommended by both Federal and State agencies for its ability to stand up to scrubbing, helping to eliminate germs and the threat of contagious disease.
Currently the EPA, the Centers for Disease Control, and the Department of Housing and Urban Development endorse a policy of maintaining lead paint in good condition, rather than removing it. And, according to several news reports, California’s policy of maintaining the paint has caused blood lead counts to fall to rates among the lowest in the nation.
The companies are appealing the judge’s ruling, but already the judge’s solution has created new liabilities for public playgrounds, hospitals and other public facilities and homeowners whose older homes will now tagged as a public nuisance requiring abatement.
Sad but inevitable conclusions
As I wrote in the beginning, the trends are clear, the patterns set, the ending is not promising, politically, socially, or financially as California continues its slow motion implosion. Among the questions that need to be answered are: is it (are we) too late to turn the State around?
What political and, perhaps more importantly, cultural efforts will it take? Who will rise to the occasion? What narrative do we, the citizens of California, need to create and unite behind to re-capture our State for ourselves, our children and our grandchildren?