California Is in Big Trouble Again, After Averting a Collapse in the 2000s(bloomberg.com)
bloomberg.com
California Is in Big Trouble Again, After Averting a Collapse in the 2000s
https://www.bloomberg.com/opinion/articles/2019-10-17/california-is-back-on-the-brink-of-being-a-failed-state
77 comments
Financially, the primary problem of California is that the state spends more than it has, no matter how much comes in. Raising taxes will just increase spending even more. There is no concern whatsoever that spending more than you have consistently causes a problem at some point.
This seems to be a universal property of governments. Or of budgets, really. Within major corporations departments tend to spend up to the limit of their budget (and then some, with debt) regardless of whether it's efficient, and then continue to do until the parent company goes bankrupt.
Eliminating Prop 13 would at least fix some of the misincentives in the housing market so that senior citizens living alone could afford to downsize to a 1BR condo and free up the empty 4BR house for a family with 3 kids.
Eliminating Prop 13 would at least fix some of the misincentives in the housing market so that senior citizens living alone could afford to downsize to a 1BR condo and free up the empty 4BR house for a family with 3 kids.
With the current limits on construction in CA eliminating Prop 13 would mean the fixed income senior citizens would have to sell their house to pay property taxes and then move out of state because they can't afford the rent on a 1BR.
Yep.
I think my Mom is typical: because of Prop 13, she can't move. Her property taxes on a new home would be 20X as much.
Due to this, she's kinda 'stuck.' She lives in a house that's larger than what she needs, but she can't justify moving. I think she'd love to "cash out" some of that equity, but she can't.
This is how we got reverse mortgages (which are horrible.)
I think my Mom is typical: because of Prop 13, she can't move. Her property taxes on a new home would be 20X as much.
Due to this, she's kinda 'stuck.' She lives in a house that's larger than what she needs, but she can't justify moving. I think she'd love to "cash out" some of that equity, but she can't.
This is how we got reverse mortgages (which are horrible.)
If your mom is over age 55, she can't use that excuse due to Propositions 60 and 90.
Not all companies -- we're seeing many companies that have been able to stockpile massive amounts of cash, e.g. Apple.
Nor is there any evidence whatsoever that deficit spending harms overall growth. In fact, deficit spending is utterly indispensable for optimizing growth.
The principle of deficit spending is to spend when in a recession and repay when in an expansion. California _always_ overspends, no matter how much comes in. This is not financially sustainable, and when you consider that much of that is the pension system and retirement savings, quite un-ethical. I've seen plenty of people rag on private pensions for investing the money back into the company to prop it up, and justly so; the same people tend to over-look the same behavior when it is a public entity in question. California is having to tax businesses further to pay for the pensions of current retirees; paying out via those currently paying in is referred to as a Ponzi Scheme when conducted by a private entity.
More importantly, most of California's spending is not to drive growth, but to keep its head above water. Investment is one thing, but never borrow to pay operating expenses if you can help it.
More importantly, most of California's spending is not to drive growth, but to keep its head above water. Investment is one thing, but never borrow to pay operating expenses if you can help it.
It's more that a lot of California's spending is redistribution "because it can". It's home to several major national (agriculture, defense, finance) and global (tech, entertainment) industries. This funnels a lot of wealth from elsewhere into the world into California, making the people involved in these industries pretty rich. The nearly-socialist politics is a way of maintaining social stability in the face of extreme income inequality introduced by these global industries.
The comparison with Venezuela isn't all that off the mark, structurally. Venezuela also spent dramatically on social programs and redistribution because it could, with an extremely lucrative source of foreign cash. When the gravy train dried up, the whole system collapsed, which is probably what'll happen to California when the tech & entertainment industries dry up (and did happen in 2001 in the wake of the dot-com bust). California probably has several decades before there's a reckoning though: networks of human capital like you have in Silicon Valley and Hollywood are difficult to move or replicate elsewhere.
The comparison with Venezuela isn't all that off the mark, structurally. Venezuela also spent dramatically on social programs and redistribution because it could, with an extremely lucrative source of foreign cash. When the gravy train dried up, the whole system collapsed, which is probably what'll happen to California when the tech & entertainment industries dry up (and did happen in 2001 in the wake of the dot-com bust). California probably has several decades before there's a reckoning though: networks of human capital like you have in Silicon Valley and Hollywood are difficult to move or replicate elsewhere.
... and now we are discussing statewide rent control, which is prop 13 for renters and has the same effect of grandfathering in existing residents and discouraging growth.
I often feel like the whole state and local governmental edifice in this state needs to be liquidated. All of it. Both parties. The incompetence especially in urban planning and infrastructure is just unbelievable.
I often feel like the whole state and local governmental edifice in this state needs to be liquidated. All of it. Both parties. The incompetence especially in urban planning and infrastructure is just unbelievable.
yes, economically, both prop 13 and rent control should go away, but they can only go away together, otherwise it’s unfair one way or the other.
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> I know that abolishing Prop-13 is an impossibility.
it can be replaced with some very slow tax increase, so market will return into normal pace in 5-10-20 years.
it can be replaced with some very slow tax increase, so market will return into normal pace in 5-10-20 years.
I hear this repeated a lot, and I'm not so sure I buy it. Yes, Prop 13 limits how much taxes can go up, but if that's the case, then why wouldn't you try to build more to capture more tax? I'm willing to bet that easing zoning restrictions would help with revenue generation.
You can, but more residents consume more services, which is a net cost in the long run if property taxes are locked in. As a result, cities in California prefer commercial development that generates sales and income taxes without the need to accommodate more residents. It's a vicious cycle of misaligned incentives.
Prop-13 limits the amount of building cities want to approve because the rate of taxation can't keep up with the revenue required to handle all the infrastructure costs associated with more buildings. I build an apartment building my tax rate increase is limited to 2%, but if new infrastructure required grows at greater than 2% due than that screws the city budget even more.
Many residents are opposing any new construction, fearing that this would lower their properties values (or even will just slow down growth). It's quite nice setup when you own very expensive property and don't have to pay much in taxes to own it (and that property gets more and more expensive without much hustle on your side)
In addition to what buerkle said, build more... what? The amount of property is fixed and already owned. The state isn't somehow making more land in places people want to live, so there's no real opportunity for the state to get more tax dollars that way.
Additionally, Prop 13 is kind of a disincentive to build higher-density buildings because if you tear down a building and build a new one, your tax base will go up to match the newly assessed property value rather than remain at the artificially low level it was at before.
Additionally, Prop 13 is kind of a disincentive to build higher-density buildings because if you tear down a building and build a new one, your tax base will go up to match the newly assessed property value rather than remain at the artificially low level it was at before.
But that building will be locked into current rates for a long time. So property taxes might hike from $500/yr to $50,000/yr, each rising by 3% pa, but revenues could spike from $40,000/yr to $400,000/yr rising at like 8-12% a year. In 30 years, a $100k/yr property tax bill will be peanuts compared to the $7,000,000 in rent revenues they'll be earning.
Developers understand this, they want to build, but they are having trouble getting the permits to replace low density SFH with medium- to high-density housing.
Developers understand this, they want to build, but they are having trouble getting the permits to replace low density SFH with medium- to high-density housing.
I agree, but at the same time there are also a lot of SFH owners who literally could not afford the property tax bill if they even significantly improved their homes, so you get ridiculous situations like entire neighborhoods in LA that are basically ghettos despite the tiny lots being worth close to half a mil each.
Any real solution needs to be a combination of changing zoning/permitting and fixing Prop 13.
Any real solution needs to be a combination of changing zoning/permitting and fixing Prop 13.
Fundamentally the problem is not with Prop-13, but with the whole ballot proposition structure itself. It's become nearly impossible to balance the state's budget when individual propositions can dictate both expenditures and limits on the tax structure.
you can vote ‘no’ on bond measures to have some measure of control over this. make legislators make considered choices during the budgeting process rather than giving them more borrowed money to play with. if a new program is as important as claimed, they’ll find a way to fund it with existing funds.
measures that include an alternative funding source (e.g., new revenue, new taxes, grants, etc) can be considered on their own merits (measure M in SoCal, for example).
measures that include an alternative funding source (e.g., new revenue, new taxes, grants, etc) can be considered on their own merits (measure M in SoCal, for example).
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It's too bad that property taxes are the only way that a government can get money.
"Thanks in large part to spiraling urban rents, the homeless population increased by 5.3% from 2010 to 2018, in a state that already has almost half of the nation’s homeless. In Los Angeles and San Francisco, the crisis is especially acute, with destitute people and pitiful tent encampments crowding the sidewalks."
This is ridiculous. California is filled with homeless people because:
1) there's a nationwide opioid crisis
2) if you're going to be homeless, might as well move to where the weather is nice
In a recent survey in Los Angeles, somewhere around 90% of the homeless reported a substance abuse problem.
This is impacting Seattle and Portland too; it's a lot easier to be homeless in Portland than Phoenix.
This is ridiculous. California is filled with homeless people because:
1) there's a nationwide opioid crisis
2) if you're going to be homeless, might as well move to where the weather is nice
In a recent survey in Los Angeles, somewhere around 90% of the homeless reported a substance abuse problem.
This is impacting Seattle and Portland too; it's a lot easier to be homeless in Portland than Phoenix.
While I agree the opioid crisis hasn't helped much, the main problem before the crisis was the gentrification of many of the urban areas in California. Skyrocketing rent and an influx of dot com companies pushed a lot of people in these communities right back onto the street.
> This is ridiculous.
Perhaps, but why let a perfectly useful argument for cheaper housing go to waste, just because it's nonsense?
Perhaps, but why let a perfectly useful argument for cheaper housing go to waste, just because it's nonsense?
I doubt opioids are 90% of the problem. Every day I read about a senior citizen who is living in their car, has some retirement money, and usually not a drug problem but they lost their housing because it's too expensive.
This is the situation in Seattle. There are tons of people with drug addictions, but there are also clearly lots of people economically pushed onto the street.
So we still need more cheaper housing.
This is the situation in Seattle. There are tons of people with drug addictions, but there are also clearly lots of people economically pushed onto the street.
So we still need more cheaper housing.
The article is full of excuses to argue California has simply experienced lots of bad luck, burying the lede. Really, its just that California’s spending has been and continues to be unsustainable and it’s primary efforts to raise revenue - raising taxes - has the side effect of encouraging those with mobility (citizens and businesses) to relocate elsewhere.
For states, California is actually middle of the pack when it comes to per capita budget. Given that, you're going to have a difficult time convincing me there's a spending problem.
It's not necessarily the spending that is a problem. Its the fact California relies on a very small percentage of high earners to carry the majority of the tax burden.
At some point people will decide its too much as the state continues to increase taxes to pay for its overzealous spending and leave, creating an even bigger problem.
At some point people will decide its too much as the state continues to increase taxes to pay for its overzealous spending and leave, creating an even bigger problem.
Your last argument is actually not true. It's kind of the opposite, actually - high-earning people move to California and less-wealthy people leave because they can't or don't want to pay the cost of living anymore. See [1].
[1] https://www.latimes.com/business/la-fi-california-census-mig...
[1] https://www.latimes.com/business/la-fi-california-census-mig...
> raising taxes - has the side effect of encouraging those with mobility (citizens and businesses) to relocate elsewhere.
This kind of argument always seems a little... short-sighted, to me. Sure, raising taxes has a chilling effect, but spending that money in the right-enough ways has an attractive effect.
AFAIK, LA wants to / has raised taxes in order to put in far more parks (addressing "green deserts") and to address food deserts. This makes more neighborhoods more desirable, which then has an overall attractive effect.
Looking at one part of a system and saying "well, this is bad because it doesn't achieve terminal values", well, look at the _entire_ system, and _then_ measure achievement of those values.
This kind of argument always seems a little... short-sighted, to me. Sure, raising taxes has a chilling effect, but spending that money in the right-enough ways has an attractive effect.
AFAIK, LA wants to / has raised taxes in order to put in far more parks (addressing "green deserts") and to address food deserts. This makes more neighborhoods more desirable, which then has an overall attractive effect.
Looking at one part of a system and saying "well, this is bad because it doesn't achieve terminal values", well, look at the _entire_ system, and _then_ measure achievement of those values.
Not raising taxes, and letting public services decay, or having to rely on a car-centric transportation system that made sense in 1960, but is exploding under its own weight in 2019 also has the side effect of encouraging those with mobility to relocate elsewhere - or better yet, not move to California at all.
I would never relocate to California if I had any other options, because of how wretched the transportation infrastructure is in all of its metro areas.
I would never relocate to California if I had any other options, because of how wretched the transportation infrastructure is in all of its metro areas.
The problem is that Prop 13 for so long restricted the legislature from modernizing the tax structure or directing funds appropriately that taxes on new residents are very high and basic services are not appropriately funded.
Pretty disingenuous to not mention the rainy day and surplus funds:
https://www.politifact.com/california/statements/2018/dec/18...
Include all facts if you are trying to make a point.
Yes we have issues when it comes to poverty and housing but we are not doomed.
Include all facts if you are trying to make a point.
Yes we have issues when it comes to poverty and housing but we are not doomed.
> The state legislature needs to pass bills to allow greater housing density and more construction throughout the state.
The Legislature did just that with the ADU bills that effectively abolish single-family zoning throughout the state. Additionally, SB 330 (the Housing Crisis Act) puts a stop to some of the more egregious forms of NIMBYism. Citizens can sue cities that refuse to follow the law under the Housing Accountability Act, which was recently strengthened; no such recourse is available to residents of most other states.
More must be done, but California is now leading the way in cracking down on NIMBYism. I predict that states like Texas are going to see the NIMBY pattern play out in time (if they aren't already—look at Austin), leading to skyrocketing housing costs. They will have to do the same thing in time. California is just ahead of the curve.
The Legislature did just that with the ADU bills that effectively abolish single-family zoning throughout the state. Additionally, SB 330 (the Housing Crisis Act) puts a stop to some of the more egregious forms of NIMBYism. Citizens can sue cities that refuse to follow the law under the Housing Accountability Act, which was recently strengthened; no such recourse is available to residents of most other states.
More must be done, but California is now leading the way in cracking down on NIMBYism. I predict that states like Texas are going to see the NIMBY pattern play out in time (if they aren't already—look at Austin), leading to skyrocketing housing costs. They will have to do the same thing in time. California is just ahead of the curve.
At the same time, they passed rent control, and the jurisdictions that have the worst housing crises have the strongest rent control.
Once a few people rent out their ADUs and then find that they can't evict their tenants as their needs change, very few people are going to be willing to invest the several hundred thousand necessary to permit and build one.
Once a few people rent out their ADUs and then find that they can't evict their tenants as their needs change, very few people are going to be willing to invest the several hundred thousand necessary to permit and build one.
The statewide rent cap is significantly above the amount rents have been rising on their own. It also expires after 10 years.
And the cities with the strongest rent control--San Francisco and Los Angeles--are also the cities that have been seeing a boom in ADU construction, even though the dysfunctional rent control policies of those cities apply to a lot of those ADUs. The statewide rent cap isn't likely to be a meaningful impediment to ADU construction. Much more problematic is the cost of constructing the ADU in the first place.
And the cities with the strongest rent control--San Francisco and Los Angeles--are also the cities that have been seeing a boom in ADU construction, even though the dysfunctional rent control policies of those cities apply to a lot of those ADUs. The statewide rent cap isn't likely to be a meaningful impediment to ADU construction. Much more problematic is the cost of constructing the ADU in the first place.
To add to the parade of horrible, California also has the highest poverty rate in the country once you account for cost of living: https://www.sandiegouniontribune.com/opinion/the-conversatio.... It’s also one of the poorest states overall—the median Californian has less purchasing power than the median Mississippian: https://www.advisorperspectives.com/dshort/updates/2018/11/1....
I have trouble seeing how the fifth largest economy by GDP in the world (11th per capita) can be fairly described as "poor". If that's "poor", then the word "poor" doesn't mean anything.
Edit: I'm not saying that the state doesn't have high inequality. It does, as does the US in general. I'm saying it's not poor. California is rich, but does not distribute that wealth equitably.
Edit: I'm not saying that the state doesn't have high inequality. It does, as does the US in general. I'm saying it's not poor. California is rich, but does not distribute that wealth equitably.
Averages in this case are meaningless. The distribution matters more than the average.
Never cross a river that is "on average 4 feet deep".
Never cross a river that is "on average 4 feet deep".
Both matter. California has a high Gini coefficient (as does the US in general). That's a problem, and one we need to fix. But it's counterbalanced to an extent by high GDP.
I didn't say it was "poor" I said it was "one of the poorest states." When we compare countries, we generally look at PPP-adjusted GDP per capita. For California it's about $48,000 (2009 dollars). That's poorer than the national average of $50,577. It's about the same as Lousiana at $47,869.
So when you take out the distributional concern by looking at the average instead of the median, California goes from being in the bottom 10 to merely being in the bottom half.
(The analysis above combines this list of GSP-per-capita, https://en.wikipedia.org/wiki/List_of_U.S._states_by_GDP_per..., with this list of price deflators, https://files.taxfoundation.org/legacy/docs/%24100%20Map-sta...).
So when you take out the distributional concern by looking at the average instead of the median, California goes from being in the bottom 10 to merely being in the bottom half.
(The analysis above combines this list of GSP-per-capita, https://en.wikipedia.org/wiki/List_of_U.S._states_by_GDP_per..., with this list of price deflators, https://files.taxfoundation.org/legacy/docs/%24100%20Map-sta...).
We're not going to solve the debate over whether to use nominal GDP or PPP-adjusted GDP here, but let's just say that it's hardly settled which is more reflective of a country being rich or poor.
I also don't know if I'd trust the conservative-leaning Tax Foundation to provide an unbiased estimate of state PPP. Doing a Google search for "GDP PPP of US states" and clicking through some citations brings up a very different set of rankings that WaPo cites [1]. It places California in the top 15 along with the other economic powerhouses, right between Switzerland and Norway, not exactly known for being poor countries. UBS [2] says that Los Angeles has the highest purchasing power of any major city in the world!
Who's right? Clearly it highly depends on one's methodology.
[1]: https://www.washingtonpost.com/blogs/govbeat/wp/2014/08/26/i...
[2]: https://www.ubs.com/microsites/prices-earnings/en/explore/?c...
I also don't know if I'd trust the conservative-leaning Tax Foundation to provide an unbiased estimate of state PPP. Doing a Google search for "GDP PPP of US states" and clicking through some citations brings up a very different set of rankings that WaPo cites [1]. It places California in the top 15 along with the other economic powerhouses, right between Switzerland and Norway, not exactly known for being poor countries. UBS [2] says that Los Angeles has the highest purchasing power of any major city in the world!
Who's right? Clearly it highly depends on one's methodology.
[1]: https://www.washingtonpost.com/blogs/govbeat/wp/2014/08/26/i...
[2]: https://www.ubs.com/microsites/prices-earnings/en/explore/?c...
The WaPo (actually The Spectator) methodology is clearly inapplicable, because they adjust for average US PPP, instead of within-state PPP, which doesn’t make sense if your goal is to compare different states to one another.
Just because the economy is big doesn't mean that everyone is getting a big share of it
Welcome to inequality. Not everyone will get some crazy rate in SV. The guy who serves your latte, or cares for elderly parents should be able to afford to live and eat somewhere.
Many will be stuck well below the poverty line.
Many will be stuck well below the poverty line.
What! That's communism. People should be able to have a decent life, working one job full time? Next you'll say a single accident shouldn't be able to destroy your life because of the cost of the medical care.
What? The poverty rate in California is high and California also has significant welfare population, for 10% of US population share, California has 20-30% share for Welfare (fact-check me here).
Outside of the elite coastal town, interior California has lot of poverty and the other aliments.
Outside of the elite coastal town, interior California has lot of poverty and the other aliments.
California is rich, but California has a huge % of and total # of people that are poor. Also, they don't look poor by national standards, but they are poor when the expenses of living in CA are taken into account.
Suggestion: Walk under a highway overpass, observe tent city, revise opinion.
I live in San Francisco and observe homelessness every day. What I see is a rich state that is failing to distribute its wealth equitably.
It's not just homelessness. How would you live in this state making 50k/yr? 40k? The state is completely dystopian outside of tech, especially once you get out of San Francisco (hell I was there yesterday - place seems pretty damn poor to me)
Just as an anecdote I live in a 650 sq ft 1 bedroom apartment. The previous tenants were a family of four. My good friend lives a block away - he's cycled through phases of 3-4 room mates in a run-down 2 bedroom apartment.
There are millions of people in this state packed together like sardines and paying 40-50% of their meager income for that privilege.
This state is riddled with economic inequality, we may not be a poor economy but we have an enormous number of poor people shouldering its weight.
Just as an anecdote I live in a 650 sq ft 1 bedroom apartment. The previous tenants were a family of four. My good friend lives a block away - he's cycled through phases of 3-4 room mates in a run-down 2 bedroom apartment.
There are millions of people in this state packed together like sardines and paying 40-50% of their meager income for that privilege.
This state is riddled with economic inequality, we may not be a poor economy but we have an enormous number of poor people shouldering its weight.
There are plenty of people I know happily employed in the entertainment industry in the largest city in the state. "Completely dystopian outside of tech" is a total exaggeration.
I'd be curious to know if they have kids.
I think California is far more tolerable if you don't have kids. Without kids, you don't need a big place. A couple could live comfortably in California in a home that's 1000'.
But once you have kids, you need to live in a zip code with good schools, and you need SPACE.
That gets expensive.
I think California is far more tolerable if you don't have kids. Without kids, you don't need a big place. A couple could live comfortably in California in a home that's 1000'.
But once you have kids, you need to live in a zip code with good schools, and you need SPACE.
That gets expensive.
It's a good point. They don't have kids.
How many of those people live in rent-controlled apartments, or bought their home a long time ago? There can be thousands of dollars monthly cost difference in identical houses from huge appreciation and very low tax growth.
None I know.
I'm in the entertainment industry in that city. It's the most dystopian place in the state in my opinion. It pays worse and burns people out faster than tech from what I've seen. Some people get lucky and have a stable job with decent income. There are far more scraping by on the odd PA gig trying to make something happen.
And the city itself is a dump outside a few outrageously priced neighborhoods.
And the city itself is a dump outside a few outrageously priced neighborhoods.
I mean, I was a grad student without much money in L.A. for over a year and quite enjoyed my time there. I don't see the "dystopia" at all, but to each their own.
Its not the distribution of the wealth that's the problem:
Myriad state and municipal benefit programs overlap with one another; in some cases, individuals with incomes 200 percent above the poverty line receive benefits, according to the California Policy Center. California state and local governments spent nearly $958 billion from 1992 through 2015 on public welfare programs, including cash-assistance payments, vendor payments, and “other public welfare,” according to the U.S. Census Bureau. Unfortunately, California, with 12 percent of the American population, is home today to roughly one in three of the nation’s welfare recipients. The generous spending, then, has not only failed to decrease poverty; it actually seems to have made it worse.
And you know who gets hit the worse when we enact punitive "climate change" policies? The poor:
Extensive environmental regulations aimed at reducing carbon-dioxide emissions make energy more expensive, also hurting the poor. On some estimates, California energy costs are as much as 50 percent higher than the national average. Jonathan A. Lesser of Continental Economics, author of a 2015 Manhattan Institute study, “Less Carbon, Higher Prices,” found that “in 2012, nearly 1 million California households faced ‘energy poverty’—defined as energy expenditures exceeding 10 percent of household income. In certain California counties, the rate of energy poverty was as high as 15 percent of all households.” A Pacific Research Institute study by Wayne Winegarden found that the rate could exceed 17 percent of median income in some areas. “The impacts on the poorest households are not only the largest,” states Winegarden. “They are clearly unaffordable.”
The fact California is a one-party state is also a huge cause:
California’s de facto status as a one-party state lies at the heart of its poverty problem. With a permanent majority in the state senate and the assembly, a prolonged dominance in the executive branch, and a weak opposition, California Democrats have long been free to indulge blue-state ideology while paying little or no political price. The state’s poverty problem is unlikely to improve while policymakers remain unwilling to unleash the engines of economic prosperity that drove California to its golden years.
https://www.city-journal.org/html/california-poverty-capital...
Myriad state and municipal benefit programs overlap with one another; in some cases, individuals with incomes 200 percent above the poverty line receive benefits, according to the California Policy Center. California state and local governments spent nearly $958 billion from 1992 through 2015 on public welfare programs, including cash-assistance payments, vendor payments, and “other public welfare,” according to the U.S. Census Bureau. Unfortunately, California, with 12 percent of the American population, is home today to roughly one in three of the nation’s welfare recipients. The generous spending, then, has not only failed to decrease poverty; it actually seems to have made it worse.
And you know who gets hit the worse when we enact punitive "climate change" policies? The poor:
Extensive environmental regulations aimed at reducing carbon-dioxide emissions make energy more expensive, also hurting the poor. On some estimates, California energy costs are as much as 50 percent higher than the national average. Jonathan A. Lesser of Continental Economics, author of a 2015 Manhattan Institute study, “Less Carbon, Higher Prices,” found that “in 2012, nearly 1 million California households faced ‘energy poverty’—defined as energy expenditures exceeding 10 percent of household income. In certain California counties, the rate of energy poverty was as high as 15 percent of all households.” A Pacific Research Institute study by Wayne Winegarden found that the rate could exceed 17 percent of median income in some areas. “The impacts on the poorest households are not only the largest,” states Winegarden. “They are clearly unaffordable.”
The fact California is a one-party state is also a huge cause:
California’s de facto status as a one-party state lies at the heart of its poverty problem. With a permanent majority in the state senate and the assembly, a prolonged dominance in the executive branch, and a weak opposition, California Democrats have long been free to indulge blue-state ideology while paying little or no political price. The state’s poverty problem is unlikely to improve while policymakers remain unwilling to unleash the engines of economic prosperity that drove California to its golden years.
https://www.city-journal.org/html/california-poverty-capital...
Note: this is an opinion piece, not a news piece.
I never feel like I can trust pessimistic opinion pieces on California's economy. Many pundits want California to fail for various reasons, and trying to dredge useful information out of them is difficult.
I never feel like I can trust pessimistic opinion pieces on California's economy. Many pundits want California to fail for various reasons, and trying to dredge useful information out of them is difficult.
Reading the comments on this piece makes it pretty clear who the target market for op-eds like this is. Someone suggests that living in California is like living in Venezuela.
I've had certain family members say they always thought California would return to Mexico. I managed to calmly explained why no president would EVER let that happen.
California returning to Mexico seems fairly unlikely to me as well (it brings in a lot federal income tax, for one thing), but I’m sort of curious what exactly you say to your family. After all, republicans might like to be rid of that electoral college base.
That California is 15% of the US GDP and it would be suicide to let that go. It has huge centers of tech, entertainment, and defense. That it could cause a cascade of other states to split. That it would take some very important ports with them. That strategically the US would never give up that much coastline. That California pays more to the fed than the fed puts into the state.
As a joke I also like to throw in that Ronald Reagan's presidential library is here. Heh.
As a joke I also like to throw in that Ronald Reagan's presidential library is here. Heh.
> But California’s political system is making it hard to respond to these pressures. Thanks to a 1978 ballot initiative called Proposition 13, California cities have stringent limits on raising revenue from local property taxes. That forces the state to provide many services, financing them with hefty income taxes. Those are inherently more unreliable than property taxes, since wealthy taxpayers can move away (while property can’t move), and since California’s income taxes fluctuate a lot because they depend so much on the profits residents earn on volatile stock prices.
Prop 13 is widely cited as one of California's biggest weaknesses. I suspect the state will be looking quite closely at other ways to tax property, given that property taxes are relatively easy to assess and enforce, and depending on your economic situation, have a built-in progressive quality to them.
What restrictions does the state have around imposing taxes on real estate sales?
For example, could the state impose a 1% tax on profits from the sale of a private residence under $50,000?
I know this would put the state at odds with the federal government, but could it be a way around Prop 13?
Prop 13 is widely cited as one of California's biggest weaknesses. I suspect the state will be looking quite closely at other ways to tax property, given that property taxes are relatively easy to assess and enforce, and depending on your economic situation, have a built-in progressive quality to them.
What restrictions does the state have around imposing taxes on real estate sales?
For example, could the state impose a 1% tax on profits from the sale of a private residence under $50,000?
I know this would put the state at odds with the federal government, but could it be a way around Prop 13?
The big push now is to exempt commercial property from prop 13
I mean we can fix it. Allow high density, tall buildings in urban centers, discourage centralized working environments and encourage satellite offices throughout the state, remove fees/expedite permit applications for new construction contingent on low/middle income rents, and get people out of fire areas.
The problem is the "services" the state is providing are economically unprofitable. Proposition 13 was passed to force the state to have controlled expenditures by not allowing the majority to extort the minority by using their property as extortion through property taxes.
The causes are actually bad laws which are put into place by an increasing majority of people living in want trying to force the "State" into providing it services they cannot pay for themselves.
The "state" can't afford to pay for their services either, and the net effect is to try and coerce people into a redistribution of money from people that have money to those that don't have as much to cover these expenditures.
Because the mechanism used (income taxes) to coerce people to do this now isn't efficient enough now to meet their ever increasing demands, and the voters force the government (who created the problem) to fund these "services" without really thinking about how they will fund their expenditures - making it the governments problem to figure out - which it can't without using coercion.
This thereby allows them to continue uncontrolled expenditure in an ever increasing downward spiral to catastrophe as in effect they are spending 'other peoples money' in the hopes that "eventually these invoices will be paid" through some sort of government sponsored coercion mechanism forcing socialized redistribution by holding peoples and companies properties or income hostage or some other such method with the same result.
Its really quite simple and clever and funny that it still works.
The causes are actually bad laws which are put into place by an increasing majority of people living in want trying to force the "State" into providing it services they cannot pay for themselves.
The "state" can't afford to pay for their services either, and the net effect is to try and coerce people into a redistribution of money from people that have money to those that don't have as much to cover these expenditures.
Because the mechanism used (income taxes) to coerce people to do this now isn't efficient enough now to meet their ever increasing demands, and the voters force the government (who created the problem) to fund these "services" without really thinking about how they will fund their expenditures - making it the governments problem to figure out - which it can't without using coercion.
This thereby allows them to continue uncontrolled expenditure in an ever increasing downward spiral to catastrophe as in effect they are spending 'other peoples money' in the hopes that "eventually these invoices will be paid" through some sort of government sponsored coercion mechanism forcing socialized redistribution by holding peoples and companies properties or income hostage or some other such method with the same result.
Its really quite simple and clever and funny that it still works.
I think you exceeded your "quota" of quotation marks.
On top of that, in many cases, as the property tax is so low, people who otherwise would not be able to afford such high value properties continue to hold them, leading to an artificial increase in the overall property values.
If Prop-13 is abolished, a lot of properties will enter the market, and overall revenue would increase resolving many of CA's and local government's woes, including that of the public education system.
OTOH, I know that abolishing Prop-13 is an impossibility. Our best hope is that the split tax roll is successful that that would require at least the commercial and industrial property to be regularly reassessed and taxed at their full value.