May 17 (Bloomberg) -- California is at the top of “most hated” states, according to a recent national poll. It’s easy to see why a lot of Californians themselves agree with this assessment, after Governor Jerry Brown’s latest scary description of the deepening hole the state is in.
The state’s budget deficit has grown to $15.7 billion from $9.2 billion since January, proof that a governor who promised to provide an honest budget ended up relying on the same overly optimistic economic forecasts and kick-the-can-down-the-road gimmicks used by his predecessors. Brown is back to his same-old ways -- threatening draconian cuts unless the public votes for massive tax increases next November.
California taxpayers rightly feel overtaxed by a government that spends more than other states on services that are increasingly shoddy. The unions run the state for their own benefit, and the Democratic Party, which controls every constitutional office and has iron-clad control of the Legislature, doesn’t feel the taxpayer’s pain. Their attitude seems to be that if people want to leave, well, good riddance to those stingy, greedy whiners who block tax increases.
Californians do leave. In the last two decades, nearly 4 million more people have left than have come in from other states. According to a new University of Southern California study, the state’s population growth is slowing significantly, with increases driven by native-born children of immigrants, or second-generation immigrants.
Government Can Change
But a case can be made for staying in California, even for those of us who aren’t independently wealthy, not employed by or retired from government, or not living on government assistance.
It’s not just for the obvious reasons: the beaches, the mountains, the culture. There are more practical considerations as well. For starters, the problems are the result of bad government, and I’m convinced that acts of government can change, especially now, as years of fiscal mismanagement hit the wall. Plenty of policy tools exist for those who would rather dig in than bug out.
Not that I blame those who leave. “No act of God could wreak such devastation upon our state,” said Tom McClintock, a conservative icon who represents a suburban Sacramento district in Congress. “Only acts of government could do that.” There’s no denying the hurdles, especially for business owners who must deal with a government that is hostile to their efforts. The state Chamber of Commerce sponsored a business-closing event near downtown Los Angeles, where companies explained why they were headed to Utah and elsewhere. That was in 2003. Did anyone listen?
A colleague who took a job in the Midwest a few months ago said that he was on a waiting list for moving vans, given the number of people fleeing eastward. Friends and neighbors talk incessantly about where they are planning to move in pursuit of a lower cost of living and better economic opportunities.
The chairman of San Diego Tax Fighters, Richard Rider, regularly updates his “breaking bad” list of California comparisons with other states. It details the many taxes that are higher here than in other states and the many economic indicators that are worse here than elsewhere. Whereas other blue bastions -- New York, Rhode Island and even Chicago -- are tackling pension reform and other problems, California’s leaders resort to their first-reach answer: raising taxes. They refuse to slow the ceaseless increase in regulations.
It’s not just the taxes and red tape. The state’s progressive Democrats seem to loathe the private sector, and such attitudes also figure into business decisions. Chief Executive magazine, in its annual survey of the best states to do business, ranked Texas as No. 1 and California as No. 50. That’s the eighth year in a row California took last place.
Democrats point to a booming Silicon Valley as evidence to the contrary, though the enterprises there seem to work as hard avoiding taxes in California as they do raising venture capital. Even Governor Brown seems to laugh off complaints from business. “There’s a lot of money sloshing around California,” he said in a recent forum, “and there are a lot of people who are getting their share of it.” He calls the state “yeasty and creative.”
But his attitude is myopic. He should talk to some business owners who deal with the constant efforts by tax agencies to shake a few more dollars out of the productive class. Those who say that not many major companies are leaving fail to note how many of them expand their operations elsewhere, while maintaining a headquarters in San Jose or another “yeasty” hub. Chief executives like to live here, but they prefer to expand their businesses elsewhere.
Rhode Island Treasurer Gina Raimondo, in referring to her state’s public pension liabilities, has said that the crisis is about math, not politics. The good news: California’s leaders face the same mathematical realities, although the budget revision shows California to have deeper long-term revenue problems than most other states, caused partly by the continuing exodus of taxpayers and business owners.
“The capitalist system is not coincident with your expectations of exactitude,” Brown said in his Monday talk about the shortfall of tax revenue. But the problem isn’t the private sector. It is a government that punishes investment. Someday soon Democratic leaders will emerge to tackle the mathematical reality, and who realize that growth-friendly policies are better than endless budget crises.
The Legislature is hopeless, but that doesn’t mean reform is dead. San Jose Mayor Chuck Reed is urging his overwhelmingly Democratic city to approve a June ballot initiative that would rein in public pension costs. San Diego voters will decide on a serious pension measure in June too. The reform movement -- and not just on pensions -- is alive, but it’s a local effort and driven by the initiative process.
Conservatives Must Stay
Because of the free-wheeling referendum and initiative process - a Progressive-era innovation now disliked by modern progressives and supported more by conservatives -- fed-up Californians could at any time revive the spirit of 1978’s property-tax-limiting Proposition 13. It’s only a matter of time.
As the state’s more conservative-minded voters flee, reform becomes tougher. Yet other states have the same problems, to varying degrees, and the federal government is pushing wrong-headed policies on everyone. Just as California progressives view their first-in-the-nation ideas such as cap-and-trade as a means to push the entire nation to the left, so too could conservatives and centrists use California as a model for a back-from-the-brink rescue.
Governor Brown said in his State of the State address: “Contrary to those declinists, who sing of Texas and bemoan our woes, California is still the land of dreams.” Those who point to government failures are hardly declinists. California can still be the land of dreams and opportunity, but we need to stay and fight for our home. There are plenty of weapons at our disposal.
(Steven Greenhut is vice president of journalism at the Franklin Center for Government and Public Integrity. He is based in Sacramento. The opinions expressed are his own.)
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