Expanding opportunity for all Californians

Loren Kaye
President of the California Foundation for Commerce and Education

An abridged version of this article first ran in the Sacramento Bee.

For good or ill, the new administration in the nation’s capital has upended the national policy debate, requiring the consideration of California’s politicos, and diverting their attention from our own pressing needs.

From a distance it seems the California economy couldn’t do any better. Our gross domestic product is in the top six among nations. We lead states in economic output per capita and statewide employment growth is the envy of the nation. We’re creating wealth faster than any time since the Incan conquest.

But behind those marquee numbers lurks a complicated mix of prosperous and desperate. Even among huge wealth and employment gains, millions of families cannot reach the California dream.

One of three Californians receives subsidized health care through Medi-Cal. More than 3.3 million schoolchildren receive subsidized school lunches—about half of total public school enrollment.

Economic distress has a clear geographical dimension. Grab the 36 counties in rural, mountain and Northern California, and the aggregate unemployment rate is 6.6%. If rural California were a separate state, its unemployment rate would be the highest in the country.

On the other hand, unemployment in the 22 coastal and metropolitan California counties is just 4.8%, one of the lowest of all industrial states.

Rural California also suffers more widespread poverty than its coastal and metro neighbors. The official poverty rate is higher, as is enrollment in Medi-Cal.

Poverty is not limited to rural and inland California. Much of the poverty in coastal California is a function of housing costs that distort expenses of wage earners. Zillow reports that renters in the Los Angeles metropolis pay 48% of their monthly income for the median rent. Almost half of working-age adults in Los Angeles County double up with one another in housing units.

According to analysis by the Milken Institute, median rentals of one-bedroom apartments exceed 30% of median income in the San Francisco Bay Area, Los Angeles and San Diego.

Even when employees can find affordable housing away from the metropolis, the long and slow commute adds yet another financial burden and social stress.

The surest path to economic success is a good education. But here again the California fault lines divide educational attainment.

According to the Milken Institute, a region’s per capita economic output is closely tied to its educational attainment. And in what cannot be a surprise, the regions with the top educational attainment nationally are in the San Francisco Bay Area, and notably have among the top-ranked GDP per capita.

Just 80 miles inland, five regions in the San Joaquin Valley are in the bottom 10 of educational attainment and also scrape the bottom in per capita GDP.

Still, economic success breeds its own problems, even in Metro California. A high cost of living is driven in large part by housing shortages and long commutes, which in turn can be addressed only through an increased housing supply and more infrastructure investment.

Increasing opportunity and offering everyone a slice of the pie is within reach of the state leaders. Lawmakers should start with these five goals:

  1. Invest in transportation and water infrastructure. California’s road financing system cannot keep up with our needs. Our fuel-stingy auto fleet cleans our air but starves our roads. The result is a $59 billion shortfall in deferred road maintenance. Lawmakers must heed the Governor’s call to ramp up highway and transit funds and modernize fee-for-service road financing. State leaders must also maintain momentum on the Delta conveyance system, which is critical to satisfying our long-term urban and agricultural water needs.
  1. Increase housing supply. The only solution to the high cost and severe shortage of housing is to increase supply, but California’s environmental and land use laws undermine this imperative. Policymakers now favor more housing in dense, urban areas, but have not in turn reduced the inevitable permitting, zoning and litigation burdens, such as in the California Environmental Quality Act. Lawmakers should take every opportunity to expand our housing footprint or housing costs will continue to stifle economic growth for future generations.
  1. Make energy more affordable. Higher energy prices will continue to add to California’s cost of living and detract from our competitiveness unless climate change laws incorporate more cost-effective, market-based approaches to reduce greenhouse gas emissions. In order to show leadership that climate change regulations can be both effective and affordable, we must adopt a cap-and-trade mechanism to replace command-and-control regulations. A regionalized electric utility marketplace can partly mitigate the higher costs of renewable power.
  1. Update labor laws and reduce litigation. California’s employment laws and regulations have not kept pace with the evolution of the workplace, technology-based services, or workers’ needs. State leaders must update archaic regulations that hinder new workplace models that utilize independent contractors, discourage flexible, family-friendly work design, and put storefronts at a disadvantage vis-à-vis digital presence. Where there are legitimate disputes, we must protect the ability of employers and employees to resolve those disputes expeditiously and inexpensively through arbitration.
  1. Invest in education and a skilled workforce. Besides the weather, California’s greatest competitive advantage is our skilled workforce. The Legislature should continue improving state support for universities and colleges to restore our qualitative advantage, and continue investment in high school work-based learning initiatives, which allow students to apply their classroom learning in a professional setting to gain real-world experience and relevance.

California is a wealthy state with great natural and intellectual resources. It is within the power of state leaders to foster growth and increase opportunity, no matter the crosscurrents blowing in from Washington.

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