California is gripped by economic problems, with no easy fix

https://www.economist.com/united-states/2024/03/31/california-is-gripped-by-interlocking-economic-problems-with-no-easy-solution

by jseliger • 2 years ago

19 125 2 years ago

economist.com

jseliger• 2 years ago

Repealing Prop 13 and removing local control of zoning decisions can be done via votes in the legislature, no new technologies required, so I beg to differ with the "no easy fix" tag.

NtochkaNzvanova4• 2 years ago

Then why do you think the tax-happy Democrats who control the legislature haven't repealed Prop 13 yet? After all, it is a relic of an era when anti-tax Republicans still had influence in California politics.

My theory is that if it were repealed, and people had to pay property tax on something approaching the actual current market value of their homes, home values would tank. Homeowners would then "lose" a significant fraction of their net worth, get pissed off, and immediately vote out anyone who had voted for the repeal.

seiferteric• 2 years ago

Propositions can’t be repealed, it would have to be put on the ballot, but doubt it will happen.

guyzero• 2 years ago

Every rational repeal proposal is a phase out with a few exceptions for seniors.

And the reason it hans't been phased out is that the state has significant issues with legislative process as well as economic management. i.e. passing constitutional amendments by popular vote instead of just regular laws which makes them borderline irreversible.

acchow2• 2 years ago

Homeowner ownership rate in California is 43.5%. Change is possible.

hnav4• 2 years ago

They definitely cannot just repeal it outright, but they could give the housing marking a "soft landing" by just changing the max increase %. Let's say that we want to deal with the case of properties' real values being 5x the assessed tax value, assuming 0 future appreciation here's how long it would take for property taxes to catch up at 2%:

  log(5)/log(1.02) = 81 years

and at 8%:

  log(5)/log(1.08) = 21 years

Justin_K• 2 years ago

How would ruining the financial plans for millions of homeowners solve the problem? It's so easy to say "just increase taxes" but the reality is our spending is insane.

rapsin4• 2 years ago

sunset it over 10-15 years...

fasthands92• 2 years ago

Even a sane prop 13 could be neutral on property taxes, just not give such a bonus for never moving. There is a lot of value society loses when people have an incentive to never upgrade/downgrade their property because the transaction costs, essentially, would be astronomical.

California does have high overall taxes, but not the highest. Part of the reason income taxes are so high is because property taxes have a very low effective rate.

jvanderbot• 2 years ago

As long as people continue to think in dichotomous terms, nothing will happen.

Por que no los dos? Put fiscally conservatives on the task of cutting, and put a progressive in charge of reform.

NtochkaNzvanova4• 2 years ago

Agree that spending needs to be cut. But my understanding is that before Prop 13, California's tax revenue was more balanced between property, sales, and income taxes, and thus less subject to the boom and bust cycles that we see now (https://calmatters.org/explainers/california-budget-whiplash...).

AbrahamParangi2• 2 years ago

California has the lowest rates of home ownership in the country at 18%. More people are subsidizing the current system than are benefiting from it.

mistrial92• 2 years ago

a secret about Prop 13 is that .. the media spin at the time was "saving aging homeowners from terrible tax increases" mainly by the Howard Jarvis Tax group; however, Corporate entities that own land in California also benefited from this measure, and continue to do so. I have never seen this in the media at any time -- only known by talking to a retired attorney recently

bobthepanda5• 2 years ago

There was actually an initiative to repeal Prop 13 for commercial land which failed. https://ballotpedia.org/California_Proposition_15,_Tax_on_Co...

cscurmudgeon2• 2 years ago

California should mandate no new taxes till corruption and wastage of tax funds are measured and a goal is set for reducing that?

https://www.sfchronicle.com/bayarea/article/embattled-nonpro...

https://www.cbsnews.com/sanfrancisco/news/san-francisco-city...

margalabargala• 2 years ago

Maybe all states should do that. California is not the most corrupt state.

This analysis puts it at 24/50 in fact.

https://bestlifeonline.com/most-corrupt-state-america/

bobthepanda5• 2 years ago

Prop 13 is a constitutional amendment, so requires a two thirds threshold in both chambers of the legislature and then also an additional majority ballot vote. https://ballotpedia.org/California_Constitution

scoofy2• 2 years ago

Or we could amend the way we amend the constitution.

The idea that Prop 13 is set in stone is just not the case anymore. I was changed in 2020 and nearly removed completely for corporations.

WalterBright2• 2 years ago

The problem is California isn't taxing people enough?

xvedejas• 2 years ago

The problem is the kind of taxation, not the amount. Beyond the fact that property tax is less of a burden on economic activity than income tax, it's also the case that property tax is less likely to bankrupt the state because of reduced revenue during economic downturns.

sobellian• 2 years ago

The problem is that it creates a distortionary tax. Appreciation has given people multi-million dollar homes that they pay a pittance in tax on. So they hold that property as long as possible to enjoy the low tax rates - if they move their tax bill soars since that event triggers an assessment on their new home. This takes homes off the market and drives prices even higher.

The proposition was intended to prevent appreciation from pricing people out of their homes - in other words, to decrease the volume of transactions on the real estate market. This is government interference in the market - on top of the government interfering in the construction of new homes in the first place...

If they regularly re-assessed property values while lowering the applied rate, they could collect the same amount of money overall without distorting the market.

HDThoreaun2• 2 years ago

The problem is that its tax scheme sucks

AnotherGoodName• 2 years ago

Could it be repealed via a legal case? I suspect any law that effectively says "established residents have next to no property tax while new residents have the tax recalculated" would definitely affect some protected groups negatively compared to others. In which case this law cannot exist right? You can't make a law that has a negative effect on a protected group specifically, even if unintentionally.

We had a proposition in Palo Alto that only local residents could use some of the parks. That was challenged and now doesn't exist as you can guess how police identified non-locals. Can we do the same for prop 13?

johnea• 2 years ago

Something only the rich could love.

Repealing prop 13 would cause the single biggest increase in homelessness in the states history.

A huge percentage of California homeowners would be evicted as a consequence of their next 10x higher property tax bill...

HDThoreaun2• 2 years ago

And then theyd move somewhere cheaper with their newfound wealth. For me kicking people out of their home is frankly the point. If you cant afford you taxes you cant afford your home. Let someone who can afford it live there

zbrozek• 2 years ago

Deleting zoning would be be an incredible boost for the economy, but I don't think it's politically possible. Prop 13 is a constitutional amendment that the legislature can't repeal.

Folks are addicted to spending money, and the results don't really matter. It took national outrage to get us to value-engineer a $1.6M toilet down to $1.0M.

diogenescynic24• 2 years ago

They're mostly self-inflicted. Prop 47 caused a great amount of problems for the state by decriminalizing all drugs and theft up to $1000/per incident. We are just attracting junkies/criminals from other states where they actually enforce the law... Most of the homeless are not even from California when you talk to them. They come here for the lack of drug laws and ability to steal to fund their habit--and many cities even give debit cards to them. We're actively subsidizing the worst of the worst people and encouraging them to move here. Now we have organized shoplifting rings and junkies on fentanyl and meth living under every bridge and overpass. The state is in an epic free fall of quality of life since 2014 when prop 47 passed. There's no common sense anymore and our politicians are all crooks trying to personally enrich themselves or friends/family at the expense of everyone else. The only reason the bottom hasn't fallen out is big tech, Hollywood, agriculture/wine, beaches/Tahoe/tourism, and all the taxes they pay. I don't understand how people aren't more sick of putting up with this. I know I'm sick of seeing open drug use, prostitution, filthy streets, and not feeling like any public spaces are actually safe anymore.

Beyond that... it's nearly impossible to build an affordable market rate house, starting a small business is more difficult than anywhere else due to regulation, our public schools are terrible.... but yeah there are some really well run tech companies that pay absurd amounts of money so a lot of people are still willing to put up with it all. I think there will be a breaking point though...

Every time some liberal/progressive voter has to clean up feces/needles off their front stoop, is robbed in their driveway, takes their kids to a public park but a homeless person is there doing drugs in the bathroom (or much much worse), or the cops tell them they can't remove the homeless camp on their block, I suspect they become ever-so-slightly more conservative. Eventually this will turn even the bluest state red. Democrats are digging their own grave by pandering to nonsense and ignoring the reality of what it's actually like living here.

When I grew up here in the 90s, the homeless were more like 1-5 per 100,000--not it feels like it's 50x to 200x that. They also weren't allowed to just camp in public spaces and leave ecological disasters everywhere they went... Whatever policies we've enacted need to urgently be repealed. Ideology now trumps objective reality.

cdelsolar• 2 years ago

Is this just conservative propaganda? Source?

diogenescynic24• 2 years ago

I'm just reporting what I've seen living here. And I've voted democrat my entire life, but I won't this next election. After having kids and seeing how cops respond to 911 calls, I can't keep giving my vote to pathetic democrats.

Shoplifting incident yesterday: https://www.cbsnews.com/sanfrancisco/video/watch-group-of-th...

Stuff like this happens constantly, most isn't even reported. I used to work by the Salesforce tower and saw this happen a few times in 2018-2019.

If you make enough money and have a $2M house, you can insulate yourself from a lot of this. I unfortunately am not as insulated from it as I'd like to be. I live in a 'nice' neighborhood, but even I've had homeless people camp in front of my house, a hit and run on my car that 911 wouldn't respond to, etc etc. Like I said, people only have to have a few of these eye opening incidents before they start questioning the direction this state is heading in and who is steering the ship.

analognoise2• 2 years ago

True though - a bunch of places that would kill to have any California problem and nobody wants to move to try to put a “diss track” out on California.

It’s pretty funny.

readams• 2 years ago

Worth noting that most of the homeless population in California is from California: https://www.theatlantic.com/ideas/archive/2023/07/california... (https://archive.is/gm1wq)

It seems our problems with homelessness stem mostly from high housing costs and our dysfunctional homeless industrial complex.

hot_gril19• 2 years ago

I find it hard to believe that people who could no longer afford a home in CA became homeless instead of moving to a cheaper state. Or at the city level, I really doubt the homeless people in SF are from SF.

diogenescynic24• 2 years ago

I don't believe that study at all--it's published by people with an agenda who want to slant reality so they keep getting funding. When I see homeless people and talk to them, they openly admin they're from out of state and came here for the drugs and weather. There are people like this guy I've met who are very open about it: https://www.youtube.com/watch?v=RGaWD2GMh8Y

packetlost• 2 years ago

Take this with a grain of salt, but back when I was last in SF in 2018, it was easily one of the most disgusting cities I have ever been in. I live and grew up in the Midwest and have been to most of the Midwestern cities (sorry St. Louis, some day I'll visit you) and a handful of other cities. Garbage lined the highways like I've never seen anywhere else, it was truly surprising and something that sticks with me years later. I spent most of my time downtown, but did venture to other parts. The nice parts of SF were really nice, but you'd go one block away and there would literally be people shooting up drugs on the sidewalk. I've spent a lot of time in Seattle as well, I really love Seattle, but it's quickly becoming very similar in parts. It makes me sad, both because of the suffering but also because it makes me not want to be in either of those cities. I don't think y'all really understand how abnormal that stuff is, and it's blatantly the fault a greedy and incompetent political body hiding behind the masquerade of performative politics.

romafirst34• 2 years ago

I live in LA and I'm not sure this article is about California. Seems like a grab bag of regurgitated nonsense.

I run a business and let me tell you there is no unemployment here, it's hard to retain employees.

There is no outflow of migration as far as I can see, housing is extremely scarce.

In fact one of the only reasons I would leave is because housing is cheaper elsewhere.

California is doing so well, that me and many other people are paying a huge premium to live here.

Also SF isn't California, it's a small part of the state.

hot_gril19• 2 years ago

Whenever I see hit pieces written about my home state CA, that further confirms to me that it's prospering. Otherwise they wouldn't be talking about us.

diogenescynic24• 2 years ago

Prospering for who though? Landlords? Certainly not the average Californian making $50-$60k who can barely afford rent and groceries. Cost of living and quality of life are moving in opposite directions. Yep, big tech, Hollywood, beaches/Tahoe, and a lot of other things are great--but why can't people admit that the state has been getting shittier for the last 30 years? It obviously has. Housing prices going up isn't exactly 'prospering' for most... what other signs can you point to? Our failing schools? Or lack of any consequences for any crime? I would struggle to point to how the state is doing well--other than income potential.

ilaksh• 2 years ago

Supposedly there are 40,000-70,000+ homeless in LA, depending on city or county level. Are you sure that none of them should be counted as unemployed?

romafirst34• 2 years ago

That’s actually a really common misconception. A lot of unhoused people in LA have one or more jobs. One survey I saw put that number over 65%.

Shawnj2• 2 years ago

In large part because other states will give homeless people a free bus ticket to California and they take it so they don’t freeze to death in the winter

nradov4• 2 years ago

California has net migration outflows with a number of states such as Arizona, Texas, and Florida. Regardless of what you see this data is all readily available from the Census Bureau.

https://www.census.gov/data/tables/time-series/demo/geograph...

But there is still a housing shortage in California due to inadequate construction and foreign immigration.

romafirst34• 2 years ago

My feeling about the outflows to other warm southern states is that old retirees on fixed incomes tend to move to places where they can get value for the equity in their Californian homes. Often they buy multi family homes in these new states and can house their (now adult) kids who move with them. I don’t see it as a source of economic malaise more a way for them to cash out of the property market in California.

mariodiana• 2 years ago

Wayback Machine archive:

https://web.archive.org/web/20240401233215/https://www.econo...

roenxi2• 2 years ago

This headline is ridiculous, California has a GDP comparable to India, fabulous wealth and a history as one of the most innovative and pleasant places to live globally. They also have the lion's share of influence in the most powerful body on the planet, the US Congress. This is the most capable self-determining polity on the planet.

Any economic problems they are having are (1) self inflicted, (2) policy driven and (2) could be fixed very quickly if the locals would admit that it is a problem worth fixing. Presumably the locals aren't worried.

diogenescynic24• 2 years ago

Would you rather be an average Californian or an average Danish person? Who has better quality of life? Who has longer life expectancy? Who gets to retire earlier? Who gets more time off per year or parental leave? Who is happier/less stressed? California is great for the ruling elite and people working in big tech, but not that great for everyone else. The only way California is best is if the only thing you care about is income potential.

roenxi2• 2 years ago

... California? I'm in tech, migrating to California is always a literal and practical consideration for me. I might actually put my money where my mouth is on that one. No way I'm moving to Denmark. Californians have a higher median wage than the Denmark average, which is a big deal [0]. Reputation for being more accepting of foreigners. The weather is better from what I've heard, and there is a land war involving nuclear powers happening in Europe. And in California, statistically I;'d be fairly average. Not after getting a tech job on US wages though, maybe.

If you want to move to Denmark that is cool with me, but if I'm moving anywhere it is probably California.

[0] In hindsight I might have been wrong about this - I was comparing household income in California - https://en.wikipedia.org/wiki/List_of_U.S._states_and_territ... - to average income in Denmark - https://en.wikipedia.org/wiki/List_of_countries_by_average_w... . Median household vs. average per capita isn't a reasonable comparison. Regardless, I wouldn't move to Denmark.

RestlessMind• 2 years ago

Strictly my personal opinion - if you own a home in California, your life is probably better than the average Danish person due to access to better weather and better economy. Homeownership rate for CA is 55.8% - https://fred.stlouisfed.org/series/CAHOWN

Also add people on rent controlled housing, who are in a similar boat, and that number would be even higher.

Ultimately, you just have to look at the immigration numbers of "the best and the brightest", who can go anywhere in the world including CA and Denmark. I was one of them and decided to come to CA over any European country. So were many of my friends and many of my European colleagues from countries with all the benefits you mentioned.

j7ake2• 2 years ago

Have you actually lived in both California and Denmark?

Denmark is a great place… if you’re Danish. A terrible place if you are immigrating from outside of Europe.

Compared to California, Danish is more xenophobic, live in smaller homes, have worse restaurants, have fewer prestigious institutes, lower income, and have worse weather.

RhysU2• 2 years ago

California has a GDP comparable to India...

California's a big economy. But it's not (at least superficially) outsized relative to other parts of the United States that contain similar populations.

Data: https://github.com/RhysU/states

leereeves3• 2 years ago

In 2023, California ranked 5th in GDP per capita, just ahead of North Dakota.

https://en.wikipedia.org/wiki/List_of_U.S._states_and_territ...

ur-whale• 2 years ago

https://archive.is/5NQOa

ajross3• 2 years ago

In the lede "Rising Unemployment". But in fact broader federal numbers show unemployment near historic lows, surely CA can't be that far off, right? Let's google for some data:

https://ycharts.com/indicators/california_unemployment_rate#....

Yeah, article is making signal out of noise. Unemployment was ~4.1% before the pandemic, spiked, recovered, and indeed has inched up to near 5% since. The graph shape indeed looks basically identical to federal data at FRED: https://fred.stlouisfed.org/series/UNRATE

So... are we supposed to trust the rest of the article? Not sure I'd bet on it. People love articles that confirm priors, and those are the most dangerous kind.

leereeves3• 2 years ago

Of course the spike during the pandemic and the decrease afterwards are similar, as they would be anywhere. But the pattern during the last year is different.

The 1 year federal unemployment rate looks like noise: a mix of up and down. Down, down, up, down, down, up, flat, flat, down, flat, flat, up. And the total change over the last year was only 0.3%.

There are no months in the last year when the UE rate fell in California. That would be very unusual for noise over a flat trend. Also, it's now 1.4% higher than the federal rate, and the total increase over the past year was 0.8%.

ajross3• 2 years ago

Yeah, but it's not "rising" in the sense of a worrisome trend. It's low, and bouncing around its low value. Sure, the last years trend is mildly upwards where the federal trend is flat, but... so what? There are 50 states. Pull numbers form all of them and realistically half of them will show whatever nonsense trend you want to see. It's just a silly argument. Employment in California is simply not a problem. There are plenty of jobs, both historically and in comparison with the rest of the country.

WalterBright2• 2 years ago

The solution is easy. Repeal all the tax increases, regulations, spending programs, and policies enacted over the last 10 years.

freitzkriesler2• 2 years ago

California is great if you are apart of its landed gentry or a business owner.

If you're anything else, then it's not worth it.

California is gripped by economic problems, with no easy fix

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