A tale of two states: California and Wisconsin

Governor Scott Walker took office in Wisconsin on January 2, 2011. He declared Wisconsin “open for business” and initiated numerous business friendly reforms. He was immediately labeled Public Enemy #1. TV screens showed massive labor protests and the Capitol was occupied. Posters of Walker with a Hitler mustache popped up and frightening headlines were everywhere. A Huffington post article by Steven Cohen, Executive Director, Columbia University’s Earth Institute stated, “Governor Scott Walker is attempting to destroy public sector unions in Wisconsin”.

Fast-forward to August 3, 2011 –seven months into Walker’s term. The protesters and signs have disappeared. The headlines have changed. “Wisconsin has added 39,300 private-sector jobs since Governor Walker declared Wisconsin open for business,” said Scott Baumbach, Department of Workforce Development Secretary. Wisconsin has 7.6% unemployment, far below the national average. Wisconsin’s total private sector job growth of 1.7% has been almost twice the national rate.

Compare that to California. Governor Jerry Brown also took office on January 3, 2011. In January, there were 2,246,073 Californians out of work (12.4%). According to the Economic Development Department, 2,183,100 Californians remain out of work (12.1%). Underemployment and those who have given up make the figures much worse. There are no pictures of Brown with Hitler’s mustache. There are no scary headlines of Brown destroying the public sector, nor protestors occupying his Capitol. That is because Brown is seen as an agent of the public employee unions that dominate California politics.

Business is less enthusiastic about Governor Brown. Chief Executive Magazine ranks California as the worst place to do business for seven years. “California, once a business friendly state, continues to conduct a war on its own economy,” the magazine reported. Companies are “disinvesting” in California at a rate five times greater than just two years ago, said Joseph Vranich, a business relocation expert based in Irvine.

In response to announcements that PAYPAL and CARL’S JR. would take their businesses and employees elsewhere, Lt, Governor Gavin Newsome has set out to alter the “perception” that California is anti-business. Lorraine Yapps Cohen, a San Diego Conservative Examiner, responded, “Oh, this is priceless! In hopes that he would get the message that the state of California overtaxes, overburdens, over-

regulates, and overwhelms business, we discover that it is the “perception” of those maladies that need to be changed.  Not the maladies themselves!”

Will California awaken from its slumber and recognize what other states like Wisconsin have learned, or will the Golden State continue its inexorable slide to a future of never ending financial crisis like Greece and Portugal?

 

Robert J Cristiano PhD is the Real Estate Professional in Residence at Chapman University in Orange, CA, Senior Fellow at The Pacific Research Institute and President of the international investment firm, L88 Investments LLC. He has been a successful real estate developer in Newport Beach California for thirty years.

The Great Deconstruction of big government and public unions

The economic downturn of 2008 – 2009 has been labeled “The Great Recession” for good reason. Eight million Americans lost their jobs compared to six million in the last four recessions combined dating back to 1980. The jobless recovery may trigger a double dip recession in 2011. The Federal Reserve Bank of New York estimates that homeowners’ equity has fallen by over 50 percent, or about six trillion dollars, during this period. Some 22 percent of all mortgages are now under water. And, economists predict that between eight and 13 million homes will have been foreclosed before the crisis ends.

The eight million jobs lost during the Great Recession were primarily in the private sector.  While the private sector was ravaged, the public sector was protected and bolstered by the $800 billion Stimulus Bill (3) in 2008 that sent more than $200 billion to the states to keep public sector employees employed. The Stimulus money that California received allowed California to avoid the job cuts demanded by a state budget more that $20 billion out of whack.

Ironically, it will be the actions of the Tea Party, a movement that had no significant affect on California’s 2010 election, that will impact California’s future. While the Tea Party swept more than 60 Democrats out of the Congress in 2010 and replaced them with freshman conservative Republicans, there was no such sweep in California. Democrat Governor Brown easily won his election as did Barbara Boxer and literally every Democrat running for state-wide office.

The vote in the House of Representatives, led by the freshman Republicans, will reduce Federal spending by $2.1 trillion over ten years. The framework would immediately cap domestic and defense spending. These changes will find their way to California and signal the end to Sacramento’s budgetary fiction that the Federal government will bail out the wasteful spending of state politicians.  California will be forced to solve its budgetary shortfalls the same way as their federal counterparts – with less money than before.

The period following The Great Recession will be known as “The Great Deconstruction” and will usher in draconian cuts in public sector jobs and a reduction in size of California’ s government. Deconstruction is defined as the wholesale elimination of entire programs, their permanent funding and the jobs involved.

 

Robert J Cristiano PhD is the Real Estate Professional in Residence at Chapman University in Orange, CA, Senior Fellow at The Pacific Research Institute and President of the international investment firm, L88 Investments LLC. He has been a successful real estate developer in Newport Beach California for thirty years.

When elephants fly – the end of the dreaded RDAs

By Shawn Steel

California National Committeeman

Republican National Committee

Something strange happened in the first six months of the Jerry Brown administration. He killed the invidious Redevelopment Agencies [RDA] which many California cities used to confiscate private property against unwilling land owners, in the name of abolishing “blighted” neighborhoods. Through Assembly bill 26X, the legislature voted to disband redevelopment agencies unless they are willing to share property tax revenue in the future to help finance public schools.

[Read more…]

Mend, don’t end, redevelopment

By Richard Lyon, Senior Vice President, California Building Industry Association

California’s Economic Development Department recently reported that our state shed more than 29,000 jobs in the month of May – giving rise to fears that the California economy could be headed for a double dip recession.  In light of this reality, you’d think that policymakers in Sacramento would be doing everything they could to increase job opportunities and stimulate economic growth in our state.

Unfortunately, you’d be wrong.

Rather than work to create jobs, the Legislature last week passed legislation to effectively abolish local redevelopment agencies in California. In doing so, the Legislature has turned its back on one of the few economic development tools available to local governments’ to create jobs and economic opportunity.

Eliminating redevelopment is bad economic policy and will kill jobs and economic expansion at the worst possible time.  Statewide:

  • Redevelopment activities support an average of 304,000 full- and part-time private sector jobs in a typical year, including 170,600 construction jobs;
  • Redevelopment contributes over $40 billion annually to California’s economy in the generation of goods and services; and
  • Redevelopment construction activities generate $2 billion in state and local taxes in a typical year.

Abolishing redevelopment is extremely shortsighted. California’s construction sectors are experiencing historically high levels of unemployment. More so now than ever before, California needs to embrace policies of opportunity and economic growth.

Redevelopment offers that hope of opportunity and growth. It works to kick-start construction in urban areas that the business community largely cannot undertake on its own. By remediating environmental waste, building basic infrastructure, and making other improvements, redevelopment lures private investment in housing, jobs and businesses that otherwise would not occur. These investments mean jobs and opportunity in our most downtrodden communities.

Fortunately, by vetoing the main budget bills, the Governor has temporarily postponed the implementation of the redevelopment elimination legislation. The Legislature should take this time to pull back the legislation.

Instead of abolishing redevelopment, the legislature should instead adopt the compromise reforms being supported by a broad coalition of local governments, organized labor, housing advocates and business leaders that would reform redevelopment to strengthen what works and eliminate what doesn’t.

SB 286 (Wright) and AB 276 (Alejo) significantly enhance transparency and accountability, reduce the footprint of redevelopment, provide funding to schools, and ensure more targeted uses of redevelopment dollars.

Eliminating redevelopment will thrust our state economy into further recession, by reducing jobs and stalling economic growth. We should mend rather than end redevelopment. It is an essential tool to improve our economy and stimulate job-creation.

Governor axes redevelopment—Finally the bleeding stops

By Chris Norby, Assemblyman, 72nd District

Yesterday, Governor Brown formally signed AB26x, a long-overdue bill that ends redevelopment agencies in California as we have known them for over 50 years.

Redevelopment was originally created by the legislature to address urban blight and to revitalize decaying residential and commercial districts. Cities were empowered to create local redevelopment agencies with enhanced powers to divert property taxes, sell bonds, expand eminent domain and subsidize private development.

By the 1980s, a tool once used by a few large older cities had spread statewide. Newer suburbs were declaring raw land to be blighted to build new malls, auto plazas and big box retail centers—all subsidized at taxpayer expense. By 2000, over 30% of all urbanized land statewide had been declared blighted and included in redevelopment areas.

Tax increment financing diverted ever more property tax revenues into redevelopment agencies—at the expense of public safety and education. By 2010, over 12% of tax revenues had been hijacked by redevelopment agencies—over $6 billion statewide.

Eminent domain became the tool of choice to assemble the huge new parcels needed for redevelopment projects—all motivated by promised economic benefits. Homeowners, small merchants and even churches were targeted for taking on behalf of politically connected developers.

Repeated studies showed that redevelopment subsidies produced no net economic benefits. Savvy retailers, auto dealers and NFL team owners played one city against another for greater subsidies and land write-downs, but for the state as a whole it was a zero-sum game. California became littered with half empty malls, auto plazas and strip centers all over-built with huge public subsidies.

Meanwhile, bonded indebtedness soared to $90 billion, as agencies could encumber future property taxes without a vote of their constituents.

With the state facing a $25 billion shortfall, the losses to redevelopment agencies became unsustainable. The state could no longer backfill the fiscal bleeding to local schools and services. The signing of AB 26x saves the state budget an immediate $1.7 billion. Once the debts are paid off the full $6 billion annually will be restored to fund public services and education.

Redevelopment was never indented to be a permanent drain on the public treasury, never intended to be a permanent cash cow to subsidize development that the market alone could not support.  Credit Governor Brown for ending a program that had long outlived its usefulness.

Opposing View: Eliminating Redevelopment Agencies threatens local cities, services

by Lacy Kelly, CEO

Association of California Cities – Orange County


The Association of California Cities – Orange County (ACC-OC) believes that redevelopment agencies need reform, not elimination.

In fact, the vast majority of redevelopment agencies and the projects they oversee are proven economic generators for California’s cities and provide exceptional returns on investment for the taxpayer.

Balancing these benefits with meaningful change is precisely why the ACC-OC developed a comprehensive set of redevelopment reform best practices. These ideals are meant to protect the new jobs, tax revenue and beneficial projects produced by the redevelopment process, while simultaneously addressing the isolated problems.

For example, we believe in greater transparency in the redevelopment process through robust online disclosures. In fact, our principles require that agencies post the past five years of redevelopment expenditures as well as all future funding obligations. Additionally, taxpayer oversight committees should be mandated for all redevelopment agencies in order to ensure that the original intent of redevelopment is protected and government abuse eliminated.

In Orange County, for example, the Orange County Transportation Authority has had great success with its Measure M-mandated Taxpayer Oversight Committee. This panel scrutinizes projects and expenditures against the original intent of the voter-approved half-cent sales tax. This can serve as a model for all redevelopment agencies.

We strongly recommend that redevelopment agencies also follow consistent, statewide benchmarks to curb abuse, including:

  • Cap administrative costs at 20 percent
  • Prohibit land banking for speculative purposes
  • Promote and develop affordable housing within redevelopment projects

All of the ACC-OC’s Redevelopment Best Practices can be found online at www.ACCOC.org/publications.

The ACC-OC agrees that redevelopment reform is needed.  But we must not throw the baby out with the bathwater. The wholesale elimination of a tool that creates jobs, increases revenues and removes blight during a time when cities are struggling to keep police on the streets and parks maintained is highly misguided and threatens economic viability in many California communities.

The ACC-OC will continue its vocal support for redevelopment agencies and champion the reforms necessary to ensure that they remain healthy, sustainable tools for California cities.

Eliminating Redevelopment Agencies: A Good Idea Implemented For the Wrong Reasons

By Allan Mansoor – Assemblyman, 68th District

Last week I voted to end redevelopment agencies (RDAs). While RDAs have been the source of wasteful spending at the local level, the biggest problem with RDAs is that they are a conduit used to initiate eminent domain actions against private property owners. In doing so, cities pick winners and losers by interfering with the free market.

The proposal to end RDAs was introduced by Democrats. Democrats generally oppose eminent domain reform measures and regularly use RDAs to support earmarked spending in their districts. With this in mind, their proposal deserved skepticism. What was their motive?

At a time of major budget deficits, the Democrat budget proposal included cuts to education along with increases to welfare and social services and new benefits to public employees. Their motivation in ending RDAs wasn’t an altruistic vision that RDAs are wrong. They wanted RDA money to pay off their public employee union supporters.

Redevelopment agencies are funded from the $45 billion Californians pay in property taxes. The RDA money in question is about $1 billion in savings that will be recognized after RDAs are eliminated. These are property tax revenues that I think should remain with local government. I am aware that there is abuse at the local level, but that abuse pales in comparison to what can happen at the state level where the abuse is more severe and more difficult to correct.

Raiding local treasuries is particularly troublesome in the current economic environment. I served on the Costa Mesa City Council and am aware of the fiscal crises facing many cities. For many cities, the unexpected taking of RDA funds is going to make tough times even worse.

The measure to end RDAs was actually two measures. One ended RDAs and the other took their money. My Republican colleagues who called the proposal a “money grab” were right when they focused only on the end result. But taken by itself, the bill to end RDAs was one of the most important pieces of legislation affecting private property rights in recent memory. I supported it even though I opposed the other. Unfortunately, the money-grab-measure passed.

In California, even the slightest victory in the fight for protecting property rights is cause for celebration, but victories public employee unions give us on a silver platter are hollow victories. As long as public employee unions control Sacramento, they can recreate RDAs anytime RDAs will serve their interests.

Is Texas the new California?

Originally published in the Orange County Register on June 24, 2011

Chart courtesy Esmael Adibi, Chapman University

Written by Brian Calle

Is Texas the new California? A bustling economy, housing at affordable levels and some of the most aggressive examples of business-friendly public policies in the country make Texas desirable not only for entrepreneurs and retirees but also right-leaning voters desperately searching for some hope for a fiscally responsible public-policy renaissance and a new face for a Republican Party that needs one.

California, once a Republican stronghold (believe it or not), helped steer national political discourse and boasted its viability as an economic leader among states. But with a mass exodus of both business and job seekers, a confining regulatory infrastructure and a high cost of living, California appears to be riding off into the sunset, economically speaking.

Today, Texas is the big state leading the pack and, based on its public policy approaches, it should. The parallels though between today’s Lone Star State and the Golden State of the 1960s, 1970s and 1980s are apparent. So much so, in fact, Texas seemingly has become the new California – that is, the economic engine of the country, the innovation capital and perhaps, its political powerhouse, too.

Comparisons of the politics, economics and public policy of California and Texas have become en vogue, and rightly so. Both states are big, iconic and yes, eccentric. California is the largest state by population in the United States; Texas is second. By area, Texas is the second largest state and California is third. (Alaska is first.) Both states have significant (and growing) Latino populations. And both states share a border with Mexico.

In some ways, both states represent the broader future, and possible directions, of the nation – demographically, politically and economically. One a blue state. One a red state. One liberal in public policy, the other conservative in political approaches. One faltering, the other thriving. While the Gold Rush has seemingly ended for California, Texas is in high growth mode. In fact, since the start of the nation’s economic recovery, more than one-third of new jobs came from Texas, according to the Federal Reserve Bank in Dallas.

Texas governor Rick Perry put it this way in a email to me: “Here in Texas, we’ve worked hard to create an economic environment that allows people to risk their capital and get a good return on their investment by focusing on keeping taxes low, maintaining a reasonable and predictable regulatory climate and fair legal system – which was further strengthened with the passage of loser pays legislation this session – and developing a skilled workforce. These principles, combined with competitive investments from the Texas Enterprise Fund and Texas Emerging Technology Fund have helped attract investment dollars and thousands of jobs to our state, and top researchers to our universities.”

As Chapman University economist Esmael Adibi recently noted, since California’s 2007 employment peak, the state has lost nearly 1.4 million payroll jobs. Meanwhile, Texas is boasting a job boom of more than 200,000 new jobs the past two years. From 2000-10, California has seen a net employment loss of 100,000 jobs whereas Texas saw a net gain of 1.4 million payroll jobs. Moreover, from 2005-09, California saw a net loss of 870,000 residents. People are leaving the state for three reasons, according to Adibi: jobs, housing prices and taxes, both state and local – all factors that play to the advantage of Texas.

California is a notoriously high-tax state, 49th in the United States in overall taxation (New York is 50th). California inflicts a flurry of taxes on residents including a state sales tax that is the second-highest in the nation and the third-highest state income tax, according to an analysis by the Tax Foundation. By comparison, Texas ranks ninth overall; it has no state income tax; and ranks 14th of 50 states for sales tax. To be fair, California scores better than Texas on property taxes because of Proposition 13, which became law in 1978, when the state was at least somewhat fiscally sane.

Even though property taxes are less-high in the Golden State, housing is not nearly as affordable as in the Lone Star State. During Chapman University’s recent economic forecast update, Adibi said that housing in Texas costs a fraction of what it does in California. The median 2009 home price in Austin was $187,400, compared with Orange County’s 2009 median home price of $477,200. “In other words, the median home price in Austin is about 60 percent cheaper than what it is in Orange County,” Adibi said in an email.

Unemployment in Texas is at 8 percent, below the national of 9 percent – while California has the second-highest rate of joblessness, 11.7 percent in May, according to the U.S. Bureau of Labor Statistics.

Regulation also plays a major role in whether a state declines or surges. California’s onerous labor standards, especially for overtime pay, are a disincentive for businesses to come to the state, or to stay and grow. For instance, California requires overtime pay after eight hours in a day; the federal law allows more flexibility, starting the overtime clock after 40 hours in a work week. Texas’ overtime laws are in line with federal standards. Texas is also a right-to-work state, meaning workers cannot be required to join a union or pay dues or fees to a union; California is not.

The cherry on top for Texas, though, is the recent passage of loser-pays legislation, which tends to curb frivolous lawsuits and will likely attract new businesses, especially in the medical field.

Even politically, California has lost ground and influence to Texas, especially within the Republican Party. In the 1960s, ’70s and ’80s California Republicans helped set the tone for national policy and political discourse. Two Republican presidents were elected (two times each) in that time frame from the Golden State – Richard Nixon and Ronald Reagan. The most recent Republican president, though, is from Texas and given recent events, perhaps the next one will be as well.

The Nixon and Reagan eras of the presidency parallel political realities today. The Watergate scandal’s impact on the Republican Party, including Nixon’s resignation, led to Jimmy Carter winning the presidency in 1976. Carter won Texas that year while Republican President Gerald Ford won California. (How times have changed.) Four years later, Reagan ousted Carter and became the 40th president, perhaps a testament to the ideological and public policy leadership from California politicos at the time.

Fast forward to more recent presidential politics: President George W. Bush’s time in the White House ended with a public seemingly fed up with the leadership of the former Texas chief executive and the broader Republican Party, perhaps not to the extent it was with Nixon, but still enough to help usher in the presidency of Barack Obama – a president, some would argue, who is in the same mold as Jimmy Carter.

Current Texas Gov. Perry appears to be weighing a presidential run. If he does decide to announce his candidacy, some, including me, believe he would become the instant front-runner. Not only because the rest of the presidential field is, well, bland, but because Texas, which Perry has governed 10 years, enacted sane economic policy and conservative approaches to government – and is thriving.

While California legislators of the past few decades should serve as examples of how not to govern, Texas is perhaps one of the best examples of how more free-market, fiscally conservative approaches to public policy work to propel economies. It is a message that needs exposure, especially now, and perhaps the best endorsement for a Perry presidential campaign.

Of course, Texas is not without its challenges nor is Perry without his questionable policy choices, but when comparing the failed policies of California, those akin to the type of big government philosophy President Obama has brought to Washington, to the taxpayer-friendly approaches deployed in Texas, the choice is clear: Texas, Texas, yeehaw!

Brian Calle is an Opinion Columnist and Editorial Writer for the Orange County Register, a Senior Fellow at the Pacific Research Institute, an Unruh Fellow at the Jesse Unruh Institute atthe University of Southern California and editor of the California Political Review. He can be contacted at bcalle@ocregister.com.