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

by siberianbear • 7 years ago

34 72 7 years ago

rayiner2• 7 years ago

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....

pcwalton10• 7 years ago

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.

davinic• 7 years ago

Averages in this case are meaningless. The distribution matters more than the average.

Never cross a river that is "on average 4 feet deep".

cobbzilla• 7 years ago

Suggestion: Walk under a highway overpass, observe tent city, revise opinion.

Rebelgecko2• 7 years ago

Just because the economy is big doesn't mean that everyone is getting a big share of it

NeedMoreTea• 7 years ago

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.

sremani• 7 years ago

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.

pchristensen2• 7 years ago

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.

rayiner2• 7 years ago

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...).

trentnix• 7 years ago

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.

lern_too_spel2• 7 years ago

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.

bcrosby953• 7 years ago

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.

at-fates-hands3• 7 years ago

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.

RangerScience• 7 years ago

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.

vkou• 7 years ago

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.

mdorazio3• 7 years ago

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...

iscrewyou• 7 years ago

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.

yumraj• 7 years ago

I believe the fundamental problem of CA is Prop-13 which has a substantial impact of its revenue as lots of very high value properties pay a substantially low property tax.

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.

riku_iki• 7 years ago

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.

jdhn• 7 years ago

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.

buerkle• 7 years ago

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.

ItsDeathball• 7 years ago

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.

mdorazio3• 7 years ago

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.

pound• 7 years ago

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)

api• 7 years ago

... 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.

clairity2• 7 years ago

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.

gibsonf1• 7 years ago

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.

hector_vasquez• 7 years ago

Nor is there any evidence whatsoever that deficit spending harms overall growth. In fact, deficit spending is utterly indispensable for optimizing growth.

nostrademons2• 7 years ago

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.

musicale• 7 years ago

It's too bad that property taxes are the only way that a government can get money.

nanomonkey• 7 years ago

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.

clairity2• 7 years ago

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).

aazaa• 7 years ago

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?

Rebelgecko2• 7 years ago

The big push now is to exempt commercial property from prop 13

pcwalton10• 7 years ago

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.

gbronner• 7 years ago

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.

pcwalton10• 7 years ago

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.

not_real_acct3• 7 years ago

"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.

gridlockd• 7 years ago

This is ridiculous.

Perhaps, but why let a perfectly useful argument for cheaper housing go to waste, just because it's nonsense?

NotSammyHagar2• 7 years ago

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.

at-fates-hands3• 7 years ago

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.

rectang• 7 years ago

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.

amiantos• 7 years ago

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.

bcrosby953• 7 years ago

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.

unlinked_dll3• 7 years ago

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.

zarro• 7 years ago

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.

zippergz• 7 years ago

I think you exceeded your "quota" of quotation marks.

holler• 7 years ago

California should abolish the income tax like WA/NV/FL and watch people move back in droves.

California Is in Big Trouble Again, After Averting a Collapse in the 2000s

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