Achieving Economic Growth and Upward Moblity

Loren Kaye
President of the California Foundation for Commerce and Education

2018 is a transition year in California politics and public policy.

Voters will elect a new Governor, replace at least seven constitutional officers and seat at least ten new members of the Legislature. Practicing direct democracy, voters will decide in November on as many as 20 ballot measures influencing the political and economic climate.

But no matter how the election battles play out, state officials face persistent economic development challenges in 2018 and beyond: how to encourage upward mobility for California residents and address differential economic success regionally and socioeconomically.

The economy is growing, the state budget is balanced and drought anxieties are on hold. Yet California voters worry that state leaders are not addressing the issues that truly concern them.

Parents are uneasy about their kids’ futures. According to the CalChamber poll, of the 28% of voters with children living at home, three out of five agree that their children will have a better future if they leave California. Reasons include the high cost of living here, high taxes and worry about landing a good job.

The economic prosperity in the Bay Area and coastal Southern California has not yet lifted rural and inland California. The great success experienced by well-educated Californians is less apparent to high school dropouts and low wage employees in service jobs.

Unemployment in coastal and metropolitan California is 3.6%, which if a separate state would rank a18th in the nation. But for the rest of California, unemployment is above 7%. If they were a separate state, inland and rural California would be the 21st most populous– with the second-highest unemployment rate in the nation.

Looking at upward mobility, children born to low-income parents in California have slightly higher lifetime earnings than children born to low-income parents in other states – but not because they live in California. In fact, these same children would have experienced even greater upward income mobility had they grown up outside of California.

Key factors that dampen upward income mobility for low income Californians include the quality of a child’s education, the strength of social networks, exposure to violent crime, and smaller share of two-parent and middle income households.

How can California leaders help spread our rising economic prosperity to those left behind?

First, do no more harm. California has among the nation’s highest taxes and most ambitious and stringent laws governing the workplace. Employers and employees alike pay a price to live and work in California. For those who have made the choice, we should not add to their burdens, and should look for opportunities to reduce them.

California’s litigation environment is daunting. The Private Attorney General Act allows an employee to file class action-like lawsuit over labor code violations, without needing to show any harm (like lost wages), nor show any intent by the employer. The Legislature should repeal this law and revisit other mandates that discourage employers from hiring new workers.

Second, allow private developers to build more market rate housing. Last year lawmakers enacted more housing subsidies, but this will affect only a sliver of the shortage. Most lower-middle income families obtain housing as it filters from occupants who buy or rent better or more expensive residences.

To meaningfully take on the housing shortage, the Legislature must tackle local NIMBYism, coupled with reforming CEQA to remove the cloud of litigation over housing projects large and small, stopping the death-by-a-thousand-fees attitude by state and local leaders, and rolling back anti-commuter policies that distort housing costs in more affordable regions of California.

Third, maintain and expand our economic development infrastructure. California practically invented the modern transportation system and the 20thcentury water delivery complex. Without these historic construction milestones, California would be Albania – a pretty coastline with an underperforming economy. The Governor and Legislature took an important step to add new revenues for long-term maintenance and operational shortfalls in our roads, bridges and highways. This should be only a first step; the next Legislature and Administration should consider whether and how to incorporate a user fee based on mileage to modernize California transportation finance.

Fourth, restore affordability in energy development. California energy policy is climate change policy. Energy costs are higher in California because the state has historically placed a high premium on reducing air pollutants and greenhouse gas (GHG) emissions that cause climate change.

While this will not change soon, leaders should remember that these policies drive up utility bills. The only way to moderate costs while reaching climate goals is to maintain the integrity of the cap-and-trade program while rejecting new command-and-control GHG regulations, like further mandates for renewable power generation, banning internal combustion autos, or limitations on driving. These regulatory mandates are far more expensive than cap-and-trade.

Finally, education is the most effective tool to improve economic mobility in California. 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 for all regions and demographic groups, and improve the chances for children to once again do better than their parents.

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