Then-Gov. Gray Davis and the Legislature had quietly, virtually without notice, decreed a massive, retroactive increase in state employee pension benefits, which was quickly emulated by hundreds of local governments.
At the time, CalPERS was ringing up big earnings from the 1990s’ bullish stock market — so big that it had reduced contributions from member governments to near zero. Public employee unions hankered for a share of the bounty and pressed for a benefit increase.
The CalPERS board, dominated by public employees and union-friendly politicians, sponsored the increase, Senate Bill 400, with assurances that it would cost taxpayers nothing. A state Senate analysis of the bill said CalPERS “believes they will be able to mitigate this cost increase through continued excess returns of the CalPERS trust.”
Years later, it emerged that the assurances reflected the most optimistic of several scenarios developed by the CalPERS staff. More pessimistic scenarios were kept secret — but they were the ones that came true. By the time Seeling delivered his dark appraisal in 2009, the state was being hammered by an ultra-severe recession, and the CalPERS trust fund was losing what turned out to be nearly $100 billion in value.
Seven years later, CalPERS and other pension funds still haven’t fully recovered, and they’re sharply raising mandatory “contributions” from state and local governments to cover the gaps left by meager investment earnings.
California is deluding itself if it thinks it’s “turned to corner” and is on the path for sustainable growth:
Between 2000 and 2015, Austin has increased its jobs by 50 percent, while Raleigh, Houston, San Antonio, Dallas, Nashville, Orlando, Charlotte, Phoenix and Salt Lake City – all in lower-tax, regulation-light states – have seen job growth of 24 percent or above. In contrast, since 2000, Los Angeles and San Francisco expanded jobs by barely 10 percent. San Jose, the home of Silicon Valley, has seen only a 6 percent expansion over that period.
Obviously this runs counter to the notion of California being business friendly, since the ratio of jobs to workers is lower here than in Texas and the rest of the United States, and sometimes a lot lower.
Snip.
Gov. Brown has achieved bragging rights by suggestions of a vaunted return to fiscal health. True, California’s short-term budgetary issues have been somewhat relieved, largely due to soaring capital gains from the tech and high-end real estate booms. But the state inevitably will face a soaring deficit as those booms slow down. Brown is already forecasting budget deficits as high as $4 billion by the time he leaves office in 2019. As a recent Mercatus Center study notes, California is among the states most deeply dependent on debt.
The state’s current budget surplus is entirely due to a temporary tax and booming asset markets. The top 1 percent of earners generates almost half of California’s income tax revenue, and accounts for 41 percent of the state’s general fund budget. These affluent people have incomes that are much more closely correlated to asset prices than economic activity, and asset prices are more volatile than economic activity generally. Brown’s own Department of Finance predicts that a recession of “average magnitude” would cut revenue by $55 billion.
More critically, the state continues to increase spending, particularly on pensions. Outlays have grown dramatically since the 2011-2012 fiscal year, averaging 7.8 percent growth per year through FY 2015-2016. Seeing the writing on the wall, the state’s labor leaders now want to extend the “temporary” income tax, imposed in 2012, until 2030. This might not do much to spark growth, particularly in a weaker economy.
During this recovery, California has made minimal effort to eliminate the state’s budget fragility. To use a recently popular term, this is gross negligence. It is, thus, no surprise that credit ratings agency Moody’s Investors Service ranked California second from the bottom in being able to withstand the next recession. Someday the bills will come due.
Note that across the entire decade the unemployment rate in California was consistently greater than that in the United States, averaging 1.5 percentage points greater overall and maxing out at 2.9 percentage points in January and February of 2011. Except for the first six months of 2006, the same story holds true for California and Texas, although the differences here are more pronounced: an average of 2.5 percentage points greater and a maximum difference of 4.2 percentage points at various points in 2009 and 2010. Also note how long double-digit unemployment persisted in California (43 months) during this decade compared to the United States (1 month) and Texas (0 months).
Also: “Texas outperformed California in 9 of the 10 years. And Texas had a CAGR of 3.1 percent, meaning its economy grew at more than twice the pace of California’s each year.” (Hat tip: Pension Tsunami.)
This is what Krugman and others really get wrong about the Texas miracle.
The state had its last major recession from 1986 to 1987, after oil prices collapsed and the real estate and financial sectors crashed. Back then, the mining sector, dominated by oil and gas activity, was directly related to about 21 percent of the real private economy and roughly 5 percent of the labor force. Today, mining is 15 percent of the real private economy and less than half of the labor force share. As a result, the combination of more economic diversification and pro-growth policies has produced a much more resilient economy. Texas in 2016 looks a lot different than Texas in 1987.
“A major impediment to economic growth and a factor chasing people and businesses away from California is the state’s high tax rates and poorly structured tax code. California levies the highest top marginal income tax rate in the nation at 13.3% and has the country’s 6th highest overall tax burden. Such a hostile tax climate has consequences. During the last decade, from 2000 to 2010, California had a net outmigration of over 1.2 million residents move to other states. Those former Californians took over $29 billion in income with them.”
Residents of San Diego, Newport Beach, Los Angeles, San Francisco, and many other cities and towns across California enjoy beautiful scenery and enviably pleasant weather year round; while folks in Dallas, San Antonio, Austin, and Houston ride out their hot and humid summers by staying indoors as much as possible. Yet Texas has been the number one recipient of California refugees. While the physical climates found in states that are the top recipients of California refugees don’t hold a candle to the Golden State’s, the business tax climates are far more hospitable.
California imposes the nation’s highest income tax, while Texas is one of nine states with no income tax. While Texas has the 10th best business tax climate in the nation, according to the non-partisan Tax Foundation, California has the country’s third worst. During the last decade, over 225,000 people moved from California to Texas, bringing over $4.4 billion in income with them to the Lone Star State. After Texas, Nevada is the number two recipient of ex-Californians. Like Texas, Nevada can’t compete with California’s natural beauty and climate, but the Silver State makes up for it by having no state income tax and the nation’s 5th best business tax climate.
California’s Democrat-dominated local governments are riddled with nepotism in their hiring practices. In San Diego, “Investigators uncovered an employee vetting process they allege was ‘abused’ — so that in a third of the cases reviewed, ‘friends and family members’ of city staff were hired ‘to the detriment of public job applicants.’” (Hat tip: Pension Tsunami.)
Liberal complains about how San Francisco’s progressive policies killed affordable housing. “Instead of forming a pro-growth coalition with business and labor, most of the San Francisco Left made an enduring alliance with home-owning NIMBYs. It became one of the peculiar features of San Francisco that exclusionary housing politics got labeled “progressive.” Do note this piece is from a year ago. (Hat tip: Instapundit.)
Speaking of San Francisco, three of the city’s supervisors have decided that he would like to take the goose that laid the golden egg (i.e., the city’s high tech employers), smother it with locally source rosemary, thyme and organic butter, and broil it at 450° in the form of a payroll tax for those companies that earn $1 million or more in gross receipts.
“In 2014 there were 142,417 housing starts in the city of Tokyo (population 13.3m, no empty land), more than the 83,657 housing permits issued in the state of California (population 38.7m).” (Hat tip: Instapundit.)
“Relocation of Highway 99 in Fresno, a key part of the bullet train project, is over budget, behind schedule and will cost millions of dollars more to complete.” (Hat tip: Cal Watchdog.)
“DAE Systems is relocating its headquarters to Catawba County and intends to create 46 new jobs and invest $6.8 million during the next three years, Gov. Pat McCrory’s office announced Monday. The California-based company, which is moving to Claremont, will receive a grant of up to $110,000 from the One North Carolina Fund that is dependent on the company meeting job-creation goals.”
Nothing says “adult oversight” quite like playing strip poker with teenage camp counselors. Take a bow, Stockton Mayor Anthony Silva! (Hat tip: Dwight, who also notes that Silva is a member of the criminal-ridden “Mayors Against illegal Guns.”)
Noted for the record: Mayor Silva comes up twice at the very top of Stockton real estate developer Dan Cort’s Facebook page. (Previously.)
“California’s skyrocketing housing costs, taxes prompt exodus of residents.” “During the 12 months ending June 30, the number of people leaving California for another state exceeded by 61,100 the number who moved here from elsewhere in the U.S.” Plus this: “The majority of the people we are seeing are moving to states that don’t have state income taxes.” And this “My husband’s salary would be in the six figures, but six figures is not enough to cover the rent, day care (and) food prices.” (Hat tip: Pension Tsunami.)
“A survey of 45 cities in Riverside and San Bernardino counties shows the average full-time city worker received $127,730 in pay and benefits last year.” (Hat tip: Pension Tsunami.)
“Jacobs Engineering Group, one of the world’s largest engineering companies, is preparing to move employees from its Pasadena [CA] headquarters to Dallas, becoming the latest major corporation to relocate significant operations from California to Texas.”
“A California-based orthopedic goods manufacturer and distributor has decided to move its Ohio-based distribution hub to Dallas/Fort Worth International Airport, which will give the company a place to significantly expand operations and possibly relocate its West Coast headquarters. The company, Santa Paula, California-based Hely & Weber, has signed a lease totaling nearly 40,000 square feet of space at 755 Regent Blvd. in Dallas/Fort Worth International Airport.”
Marin County pension reformer launches GoFundMe campaign to sue the county over pension increases. Though his $198,000 request strikes me as excessively optimistic…
Once again, California leads the nation…in car thefts.
Which lead to this: “More than 71 percent of all recovered stolen cars in 2005 in Texas, New Mexico, Arizona, Nevada, and California were stolen by illegal aliens or by ‘transport coyotes,’ those who bring in illegals across the Mexican border.”
“Paul Tanaka, once one of the most powerful law enforcement officials in Los Angeles County, was sentenced Monday to five years in federal prison for interfering with an FBI investigation into jail abuses by sheriff’s deputies.” (Hat tip: Dwight.)
And the guy Oakland found to replace him? He lasted…five days.
Bay Area law enforcement agencies have lost 944 guns since 2010. Maybe that’s the “gun control” Democrats should be focusing on… (Hat tip: Stephen Green at Instapundit.)
You could count this Silicon Valley robot pizza technology startup as a win for California, but the subtext here as that many human California pizza workers will never work a day under that new $15 minimum wage…
Who is really behind the minimum wage hike? The SEIU:
California’s drive to hike the minimum wage has little to do with average workers and everything to do with the Golden State’s all-powerful government employee unions.
Nationally, the Service Employees International Union (SEIU) is known for representing lower skilled workers. But, of the SEIU’s 2.1 million dues-paying members, half work for the government. In California, that translates to clout with much of the $50 million SEIU spent in the U.S. on political activities and lobbying spent in California. In fact, out of the 12 “yes” votes for the minimum wage bill in the Assembly Committee on Appropriations on March 30, the SEIU had contributed almost $100,000 out of the three-quarters of a million contributed by public employee unions—yielding a far higher return on investment than anything Wall Street could produce.
Unions represent about 59 percent of all government workers in California. Many union contracts are tied to the minimum wage — boost the minimum wage and government union workers reap a huge windfall, courtesy of the overworked California taxpayer.
“California’s taxes and regulations are crushing businesses, and there are more opportunities in Texas for people to start new companies, get good jobs, and create better lives for their families,” said Nathan Nascimento, the director of state initiatives at Freedom Partners. “When tax and regulatory climates are bad, people will move to better economic environments—this phenomenon isn’t a mystery, it’s how marketplaces work. Not only should other state governments take note of this, but so should the federal government.”
According to Tom Gray of the Manhattan Institute, people may be leaving California for the employment opportunities, tax breaks, or less crowded living arrangements that other states offer.
“States with low unemployment rates, such as Texas, are drawing people from California, whose rate is above the national average,” Gray wrote. “Taxation also appears to be a factor, especially as it contributes to the business climate and, in turn, jobs.”
“Most of the destination states favored by Californians have lower taxes,” Gray wrote. “States that have gained the most at California’s expense are rated as having better business climates. The data suggest that may cost drivers—taxes, regulations, the high price of housing and commercial real estate, costly electricity, union power, and high labor costs—are prompting businesses to locate outside California, thus helping to drive the exodus.”
It’s not just pensions: “The state paid $458 million in 2001 (0.6 percent of the general fund) for state worker retiree health care and is expected to pay $2 billion (1.7 percent of the general fund) next fiscal year — up 80 percent in just the last decade.” (Hat tip: Pension Tsunami.)
How to fix San Francisco’s dysfunctional housing market. “Failed public policy and political leadership has resulted in a massive imbalance between how much the city’s population has grown this century versus how much housing has been built. The last thirteen years worth of new housing units built is approximately equal to the population growth of the last two years.” Also: “The city is forcing people out. Only the rich can live here because of the policies created by so-called progressives and so-called housing advocates.” (Hat tip: Ed Driscoll at Instapundit.)
Calls for UC Davis Chancellor Linda P.B. Katehi to resign, she of the supergenius “pay $175,000 to scrub the Internet of negative postings about the pepper-spraying of students in 2011” plan.
75% of current Toyota employees are willing to move to Texas to work at Toyota’s new U.S. headquarters.
California isn’t the only place delusional politicians are pushing a “railroad to nowhere.” The Lone Star Rail District wants to keep getting and spending money despite the fact that Union Pacific said they couldn’t use their freight lines for a commuter train between Austin and San Antonio. The tiny little problem being that the Union Pacific line was the only one under consideration…
California’s underfunded pension debts put it $175.1 billion in the red. “More than 51 percent ($89.9 billion) of the negative $175.1 billion consists of unfunded, employee-related, long-term liabilities.” (Hat tip: Pension Tsunami.)
A initiative to hike California’s minimum wage to $15 an hour has made the ballot. Also known as the “Send as much business as possible to Texas” act.
Speaking of which, Texas’ unemployment rate fell to 4.5% in January.
Big Government advocates in California are fighting to renew a “temporary tax” on all those millionaires earning $250,000 or more a year. “The extension measure is again supported by the California Teachers Association and Service Employees International Union.”
California traffic fines have turned into a huge tax on the poor. “California is filled with people who are one traffic ticket away from losing their means of independent transportation. They get a ticket for a busted taillight or a small-change moving violation. On paper, the fine is $100, but with surcharges, it adds up to a lot more.” Which is why they’re having an amnesty to pay a reduced rate on outstanding tickets. But there’s a catch: “The practice of throwing in extra sources of revenue is so ingrained in Sacramento that there is a $50 amnesty program fee.” (Hat tip: Instapundit.)
Fresno’s pension system “is the only public pension program in California – and one of only a few in the United States – that has a surplus instead of unfunded pension liabilities.” (Hat tip: Pension Tsunami.)
“When unfunded pension, medical and other liabilities are formally included on its balance sheet, the [Orange County] Fire Authority’s debts exceeded its assets by $169 million for the fiscal year that ended in June,” the Register’s OC Watchdog wrote. “That’s a plunge of more than 680 percent in its ‘net position,’ or more than $420 million, over a single year.” (Hat tip: Pension Tsunami.)
California’s already long-delayed and already over-budget high speed rail fantasy is planning to put much of the initial segment underground due to community and environmental concerns. Problem: Digging those tunnels will probably cost $1 billion a mile.
California short-hauler Total Transportation Services Inc. files for bankruptcy.
On the other hand, Sports Authority is closing slightly more stores in Texas (24) than California (19). Meh. I liked the stores more when they were Oshman’s…
California’s Quantum Fuel Systems Technologies Worldwide Inc., which manufactures and sells fuel systems and storage tanks for vehicles fitted for compressed natural gas, filed for bankruptcy. The fact the company has already gone through two reverse splits suggests long-running troubles…
Likewise, Houston’s credit rating been downgraded by both Moody’s and Standard & Poor’s due to “the city’s large unfunded pension liability.” Maybe former Houston Mayor Annise Parker should have spent more time on trimming expenses and fixing crummy surface streets than suing churches and tranny bathrooms…
Winning in a district long held by Democrats, Republican John Lujan outpolled Tomás Uresti in Tuesday’s special runoff in Texas House District 118.
Filling a seat vacated last year by former state Rep. Joe Farias, D-San Antonio, the GOP candidate will serve out the remainder of Farias’ unexpired term, through the end of the year.
Another election is set for March 1 to fill the seat for a two-year term starting in 2017. Lujan and Uresti are seeking their parties’ nominations in that race, and each has a primary opponent, so the winner won’t be decided until Nov. 8.
“The district with about 87,000 voters handed Lujan the win by a 171-vote margin.”
State District 118 is three-quarters Hispanic and largely suburban/exurban, and in the 2012 election it went 60/40 for Democrat Joe Farias, who resigned in August. Why he resigned, triggering a special election, is a good question, as he had already announced he would not run for reelection this year, and the House is not scheduled to convene until 2017.
Despite the fact that the district is going to be hard to hold in November, it’s still an impressive feat for Republicans to have captured it at all. Proving that Republicans can win in clear majority Hispanic districts, and forcing Democrats to devote the time and resources necessary to effectively contest the seat, counts as a big win.
Welcome to the final week of traditional summer. Of course, it used to be that everything (school, football, the new TV year, etc.) started after Labor Day Weekend, but that’s not the case any more…
Oh, and he wants to give the Falkland Islands to Argentina. Why, it’s almost as if the hard left yearns for nothing so much as undoing every conservative foreign policy triumph out of spite…
And he also called Osama Bin Laden’s death “a tragedy.”
During the second quarter, Texas employers added 148,200 net nonfarm jobs—an average of 49,400 per month. This amounts to an 18 percent share of all jobs created nationwide over this period in a state with only 8 percent of the country’s population and about 10 percent of total economic output. Over the last year, the addition of 382,200 net jobs in Texas was more new jobs than any other state. These employment gains increased the annual job growth rate to 3.4 percent, which is higher than those of the national average and other highly populated states.
The city of Los Angeles is at an impasse over police raises: the police union (naturally) wants raises, while the city says they can’t afford them. So what happens next? The issue goes before the Employee Relations Board, which just happens to be packed with union-approved appointees. In one-party Democratic cities and states, it’s always government together with unions against taxpayers. (Hat tip: Pension Tsunami.)
A FAQ on Costa Mesa’s pension situation. Including answers to such questions as “How could the $228 million in unfunded pension liabilities affect the city budget?”
Firefly Space Systems is relocating from California to Burnet County, Texas. “King said Firefly was attracted to Texas partly because of its business and regulatory climate.” It doesn’t take a rocket scientist to figure out California offers a lousy climate for business. Or to put it another way: My days of underestimating California’s ability to improve its business climate are certainly coming to a middle…
Alarm bells have been ringing loudly in the heads of municipal bond investors…If you’re the chief of municipal bond investing for a big bank, whether on Wall Street or in San Francisco, Los Angeles or Chicago, this gets your attention. You might hesitate to lend hundreds of millions of dollars to other cities and counties if you fear they might go the Stockton route. Even if you proceed, you might insist on higher interest rates to compensate for what now appears to be added risk. That can translate to higher local taxes.
Current California pension reform proposals are only a start.
Sacramento proposes to spend $447 million on an arena for a losing, mismanaged basketball team. “It’s 60 to 75 percent public subsidies.”
Problem: California’s politicians spend money like drunken sailors with a stolen credit card. Solution: Eliminate Proposition 13 so they can spend even more.
Indeed, that was just one of the many pro-economic suicide measures passed at the California Democratic convention.
As previously reported, the Texas 23rd Congressional District is one of the most closely watched races in the country. As such, it’s no surprise that the Democratic Congressional Campaign Committee is rolling out attack ads against incumbent Republican Rep. Francisco “Quico” Canseco on behalf of Democratic challenger Pete Gallego.
And, much like the national Democratic attack ads, it’s filled with lies.
But don’t take my word for it. WOAI in San Antonio has done the heavy lifting in debunking team Gallego’s claims:
