Tarnish on the Golden State

Weather and lifestyle once drew folks by droves to California, and technology and cutting-edge industries supplied the jobs. Today, California’s population has pretty much stopped growing. Taxes and the cost of living remain high, but job prospects and public services are teetering on awful, particularly education. Infrastructure has crumbled in many communities, and rather large urban areas – like Stockton – are facing real bankruptcy. What makes this particularly sad is that as corporations relocate (like Lockheed which vacated for Chicago) because of an excessive tax base, the state and municipal government have to seek their revenues from everyone who remains, causing the tax burden to increase, which in turn forces more companies to leave, etc.

The fact remains that California is one terrific place to live. It’s beautiful, multi-cultural in the best sense of the word, totally built for those who adore the outdoor world, from skiing to surfing, with some of the best universities in the land (Stanford, Berkeley, UCLA, USC, Cal Tech, etc.). We have Hollywood and the Silicon Valley. We also have biggest welfare obligation in America; it seems that the unemployed and homeless would rather spend their time in a sunny climate where winter is tolerable and freezing to death or getting soaked to the bone is not a big risk. They don’t drive so much, so the unrepaired potholes are not a big deal. Oh, and our number of near-bankrupt municipalities, our unemployment rate, the quality of public education at every level… bad on bad.

The Wall Street Journal (March 13^th) provides the horrid facts and terrible numbers: “California's rising standards of living and outstanding public schools and universities once attracted millions seeking upward economic mobility. But then something went radically wrong as California legislatures and governors built a welfare state on high tax rates, liberal entitlement benefits, and excessive regulation. The results, though predictable, are nonetheless striking. From the mid-1980s to 2005, California's population grew by 10 million, while Medicaid recipients soared by seven million; tax filers paying income taxes rose by just 150,000; and the prison population swelled by 115,000.

“California's economy, which used to outperform the rest of the country, now substantially underperforms. The unemployment rate, at 10.9%, is higher than every other state except Nevada and Rhode Island. With 12% of America's population, California has one third of the nation's welfare recipients.

“Partly due to generous union wages and benefits, inflexible work rules and lobbying for more spending, many state programs and institutions spend too much and achieve too little. For example, annual spending on each California prison inmate is equal to an entire middle-income family's after-tax income. Many of California's K-12 public schools rank poorly on standardized tests. The unfunded pension and retiree health-care liabilities of workers in the state-run Calpers system, which includes teachers and university personnel, totals around $250 billion.”

There are no easy solutions to these issues, and at almost every turn, the cost of incumbent programs and past commitments so devastate the ability to build and design for the future that it’s difficult to envision a way out of this mess. One thing for sure, cutting the education budget is cutting the heart out of the earning power of the next generations; the above chart says it all.

But there is a path that starts with addressing the unfunded pension and fringe benefit packages, increasing the retirement age, reducing the benefit packages, stopping workers from piling on compensation in their last years to increase their defined benefit retirement levels… and perhaps we cannot even afford defined benefit plans at all anymore. Defined contribution plans are how most of the private sector lives these days. If the workers don’t like it, there is always filing for bankruptcy under Chapter 9 of the federal law. As for migration patterns of welfare recipients to warmer climates, some of that responsibility lies at the feet of the federal government, and mandating state support without providing the commensurate funding has to be a non-starter. California, for example, should not have to provide more than 12% of the federally-mandated cost of welfare/Medicaid (based on its overall population), and of course homeless people are going to pick warmer states to move to!

We need to shorten sentences, decriminalize a whole pile of drug-related crimes and generally reduce the number of crimes for which incarceration is the inevitable result… unless there really is a threat to society. We can no longer tolerate the high school dropout rate (hitting 50% in some major city high schools in California), because those $10-12K-per-student-per-year-cost-to-educate kids will morph into $40K-per-year-per-prisoner-to-incarcerate (not to mention the damage they inflict in the crimes they commit) or $20K/year welfare recipient. If miscreant students would otherwise be expelled (a really bad idea giving a delinquent extra free time), instead put ‘em in boot camps until they pass the GED exam and teach them some discipline and skills.

And start seducing job-creating businesses into the state by upgrading the colleges that feed these sectors (the Silicon Valley was born from the excellence of neighboring Stanford and Berkeley) and providing tax incentives that make sense. These are no longer options. We are out of time and money!

I’m Peter Dekom, and it’s time for California and the rest of the United States to begin to undo many of its mistaken excesses in the past.