Study: California Recession More Severe than Rest of U.S.

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

California will suffer a more severe recession than the rest of the U.S. economy according to a report issued by the Milken Institute. The report, The Economic Outlook for the United States and California, Slow Growth or Recession?, by Ross DeVol, director of regional economics at the Milken Institute with assistance from Armen Bedroussian, summed up its analysis this way: "If the U.S economy has the sniffles, California’s economy has a full-blown cold-with all the associated aches and pains."

However, DeVol points out the recession will be mild by historical standards.

The report says California’s economy will be hit harder by the housing market correction, depressed consumer spending, and slowing imports. Also, California’s economy, especially in the L.A. area still feels the effects of the Hollywood writers’ strike. The report claims that California will face a net job loss in 2008 with the unemployment rating hitting 6.6 percent in the fourth quarter.

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Exclusive: LA Mayor Villaraigosa Talks to F&HD About the State Budget; LA’s Bad Business Rep

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

Los Angeles
Mayor Antonio Villaraigosa spoke at a meeting of the Valley Vote organization last
night in the San Fernando Valley. He’s not the
governor and I didn’t ask him if he was running for the job, but as we walked
out of the meeting I did ask him how he would handle the current state budget mess.

Villaraigosa responded: "I’ve said
for some time the state budget deficit is a spending problem but it’s also a
revenue problem. There are very real structural elements to it. The only way to
resolve this budget deficit is to cut some spending and also to raise revenues
and that’s what we’re doing here with the city budget. We’re saying for every $1.50
in cuts we are going to raise a dollar in revenue."

My thoughts: Using that formula on a
$20 billion state budget deficit problem would mean a combination of $12
billion in cuts and $8 billion in tax increases. Scary numbers. Yes, I know
that is a static calculation and that’s not what the final numbers would be, but
a one-and-a-half to one ratio still means a large tax increase in a tough
economy. I don’t think the voters buy it and we know the Republicans in the
legislature won’t. The economic ripples from a large tax increase would not be
good for the state economy.

I also asked the mayor about Los Angeles’ reputation
for being bad for business.

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The State Infrastructure Shortfall

David Crane
Lecturer and Research Scholar at Stanford University and President of Govern for California

California is the richest state in the richest country in the world and we lead the world in entrepreneurship and innovation.

But when it comes to infrastructure, we are neither rich, entrepreneurial nor innovative.  States and countries with a fraction of our wealth provide their citizens with far superior infrastructure services. People elsewhere travel on more convenient and comfortable transportation systems, study in better school facilities, live behind more secure levees, drink from more secure water systems, and more. California’s environment, quality of life, workers, students and innovators all suffer as a result of our infrastructure deficit.  

California’s failure has been well documented.  According to the Keston Institute at the University of Southern California, our state faces "precarious earthen levees … steady disintegration of schools, hospitals, and prisons … limits to our water supplies, and waste treatment and water reclamation systems that fall far short of their potential …and increasing congestion and air pollution symptomatic of outdated transportation systems based on technologies and plans developed more than two generations ago."  

And a recent study by the Bay Area Economic Institute reported that California devotes only 1 percent of Gross State Product to infrastructure.  The historical norm, and the level believed to be necessary to maintain our standard of living, is closer to 2.5 percent.  

What accounts for this serious shortfall in infrastructure investment? There are three principal factors:

First, until the Schwarzenegger Administration, the state had not seriously invested in infrastructure since the Pat Brown era.  As a result, we have been living off the investments of the past without making the re-investments necessary to  preserve living standards for future generations.  

Second, the federal government, the single largest source of infrastructure financing, has reduced its contribution by half over the past two decades when measured as a percentage of Gross Domestic Product.

And third, the state has not allowed private sector participation.  There are over $1 trillion in infrastructure funds that provide capital, services and innovation to governments around the world, but because of limitations imposed by California, these funds are largely unavailable to help meet our needs.

To renew California’s infrastructure, the Governor believes we need the robust participation of all three of these components, plus ongoing investment by local governments.

That is why in 2006 he asked the voters to emulate the Pat Brown era and approve more than $40 billion of bonds to improve transportation, housing and other infrastructure.  They did so, and those funds are quickly being put to work.  More recently he has asked the Legislature to approve another $48 billion of infrastructure bonds for the ballot.

And, in January of this year, the Governor joined New York Mayor Michael Bloomberg and Pennsylvania Governor Ed Rendell in forming the Building America’s Future Coalition, whose aim is to boost federal financing and to pressure the presidential candidates to close America’s infrastructure gap.  Already 15 more governors have joined and more are expected in the coming months.  

Also in January, the Governor used his State of the State address to call for more private participation in infrastructure services by proposing the adoption of his Performance-Based Infrastructure (PBI) plan. This powerful technique was pioneered by Great Britain and has also been used by Canada, Australia, Spain, France and other states and countries to deliver nearly 1000 infrastructure projects. PBI combines the dynamism and innovation of the private sector, the financing of public pension funds and other investors, and the regulatory concerns of the public sector in order to deliver and maintain infrastructure projects faster, better and cheaper.

Unfortunately, because of government employee union opposition to competition, California remains significantly off-limits to PBI.  As a result, California is missing out on billions of dollars of high quality infrastructure services being provided to others around the world.  

The good news is that local governments appear to be increasingly willing to step up for infrastructure expenditures but obviously they cannot carry all these costs themselves.  That’s why we need all of these sources: federal, state, local and private.  

It’s time for California to lead the world in infrastructure.  Our citizens and environment deserve no less.

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Some new ideas for ‘Nanny Bills’

Public Affairs Consultant specializing in Issue Advocacy and Strategic Communications

While there have always been "nanny bills" to address the multitude of cultural wrongs in our society, the number appears to have increased in recent years.

The California Legislature has considered several such bills since last year that address some important issues, but should probably have been amended, including:

  • Smoking (both legal and illegal cigarettes I assume) in vehicles with children and is now the law. I’d actually vote for this bill even though I doubt it will inspire anyone thoughtless enough to smoke in front of children in a car to comply with this law.
  • 17-18 year olds using electronic devices while driving, and is also a new law. Why just kids? In my experience, younger folks are able to multi-task better than adults!
  • Spanking children under 5 years old. From my experience as a parent and a recipient of spanking, it doesn’t really work as a behavioral tool. But it might work on parents who insist on taking their obnoxious kids to places and then ignore them while the rest of our outings to restaurants and movies are ruined.
  • Banning trans fats in school cafeterias and restaurants. As long as lard is still legal, what good will it do to ban trans fats?
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The Fight for Eminent Domain Reform in California Continues

John Kabateck
NFIB State Director in California

As we make the transition from one year to another, one cannot but hope the future holds great promise for both personal and professional endeavors.  One also reflects on the past.  Families mark the doorjamb with a notch to track the growth of children.  Small business owners look over the books to measure the product of their blood, sweat, and tears.

It is hard to imagine losing all that to a natural disaster, but even more so to the government elected by voters to protect our rights.  But many California homeowners and small business owners find themselves facing that reality.

In 2007, the California Legislature responded with ACA 8 that did not protect small businesses or homes, leaving them at the whim of local government.  The National Federation of Independent Business (NFIB), and a coalition, including Howard Jarvis Taxpayers’ Association, lobbied successfully for the defeat of fake reform and it never made it off the Assembly floor.  

NFIB, along with the California Hispanic Chambers of Commerce and California Black Chambers of Commerce, support true eminent domain reform as proposed in the California Property Owners & Farmland Protection Act.  Statewide surveys show more than 67 percent of people support an eminent domain reform ballot initiative – Republicans, Democrats, Independents, business owners and homeowners, seniors and baby boomers all support this initiative.  

Key provisions in the initiative:

  • Private property may not be taken by eminent domain for private use under any circumstances (i.e. to build a shopping center, auto mall or industrial park).
  • Property may be taken by eminent domain only for public use (i.e. freeways, parks, schools, water projects).
  • Family farms and open space are protected from seizures by government for the purpose of selling the natural resources.
  • If a public agency takes property under false pretenses, or abandons its plans, the property must be offered back to the original owner at the original price and the property tax would be assessed at the value when it was originally taken.
  • If farmers or business owners are evicted by eminent domain, this initiative would entitle them to compensation for temporary business losses, relocation expenses, business reestablishment costs and other reasonable expenses.

 

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California’s Leadership Role on the Environment

Joel Kurtzman, Energy Policy Specialist with the Milken Institute
Douglas A. Wilson, Vice-Chair of the New Majority Energy Task Force

If California were an independent country, it would be the world’s ninth largest economy. That’s the good news. The bad news? California’s the world’s ninth largest emitter of greenhouse gases. And, while California has taken action — energy usage on a per capita basis has remained flat for a decade — it still has a long way to go. The state is growing in population and every new person coming to California adds to the state’s carbon footprint.

When it comes to climate change, the only metric that matters is tons of CO2 emitted into the atmosphere, and California still emits too much. One of the objectives of AB32, the energy bill which Governor Schwarzenegger endorsed and the assembly passed early last year, has been to reduce California’s greenhouse gas emissions to 1990 levels. It’s a bold plan that aims to bring California up to global standards, even though the rest of the country lags behind.

Because the country is concerned about climate change, California is viewed as the national leader. Since AB32 was passed, fourteen states and three Canadian provinces have agreed to abide by its goals. Standards set in Sacramento have become the de facto standards for the rest of the country. And, when Gov. Schwarzenegger announced he was suing the Environmental Protection Agency because it set the emissions bar too low, other states joined in. Without strong voices in Washington advocating for the environment, the country looks to Sacramento to do that job.

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Welcome to Fox&Hounds Daily

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

Welcome to Fox&Hounds Daily! This is not another blog simply about California politics – although, with our large state and so many voices to be heard, the more comments and participation in the process, the better off we will be. Nor is this site purely a discussion of business issues which are also well represented on the web. This non-partisan site will discuss the mix of politics and business — How the world of politics affects business and how the world of business affects, and is affected by, politics, and what those connections mean to the people in this state that both worlds serve.

The website, delivered free daily to subscribers, business people, opinion leaders, elected officials, and journalists, will educate readers on public policy and political issues. It will help businesses make decisions based on political trends, while at the same time helping policy makers and journalists to understand the issues facing the business community.

We will offer a full roster of regular bloggers and occasional commentators; leading political and business insiders, providing original content on important issues. We will profile business leaders and get their take on the political affairs in the state. We’ll provide links to headlines in other media sources carrying important business and political news, and perhaps we will break some news ourselves from time to time. And, we’ll have a little fun using satire to capture the human foibles and strange logic that comes with trying to steer a ship of state the size of California—with so many would-be captains on deck.

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A Modest Proposal: Sales Tax, Lobbyists

Joe Mathews
Connecting California Columnist and Editor, Zócalo Public Square, Fellow at the Center for Social Cohesion at Arizona State University and co-author of California Crackup: How Reform Broke the Golden State and How We Can Fix It (UC Press, 2010)

I was talking this week with a gentleman, who is registered to lobby our elected leaders in Sacramento. He was decrying the possibility that the sales tax could be applied to services, including perhaps the lobbying services he provides.

"That sounds like a fantastic idea," I said, goading him.

"We’d just pass that cost along to our clients," he said, desperately.

The light bulb went on in my little head. The governor wants budget reform. The governor needs more tax revenue. While his people deny it, they are clearly looking at the sales tax. Why not combine all three policies into one?

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Learning from Michigan

Political Consultant specializing in issues management and strategic research

Pass the Service Tax, Don’t Pass the Service Tax: Just Keep Talking About It

California’s leaders are presently conspiring on how to fill the budget deficit by raising taxes while also clinging to a tenuous argument that they aren’t really raising taxes, but just changing the formula, shifting the tax burden.

California can learn from Michigan’s experience of passing – and then repealing  – a service tax just hours after it took effect.  The legislation would have put a 6% tax on a vast range of services including legal services, landscaping, janitorial services, manicures, warehousing and storage, investment services, and document preparation services. The legislature replaced it with a new Michigan Business Tax (MBT), a business income tax and a modified gross receipts tax.

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Green Building Craze

Rex Hime
President and CEO of the California Business Properties Association

In a craze that has swept the nation like nothing we have seen since the "Achy-Breaky Heart" line-dance, those who have joined what has become known to some as the Cult of Global Warming are impacting every area of public policy.  Unfortunately, unlike the funny yet harmless mullet atop Billy Ray’s skull, the policies being promulgated to deal with this "emergency" may negatively impact your business and our state’s economic progress for decades to come.

While some have provided a reasonable and common-sense approach, it seems that for many not reason, common sense, nor even contradictory facts have any impact on the Svengali-like grip the issue has on many of our policymakers and their confederates in the media.

California legislators are in the lead — take for instance the numerous "green building" bills that are zipping through the process known as the "zero net energy" mandates (AB 1065 [Lieber], AB 2030 [Lieu], and AB 2112 [Saldana]).  AB 1065 says that, beginning in 2020, all new buildings should use 50% less energy than they do today.  AB 2030 requires that all new commercial buildings generate 50% of their own power onsite by – you guessed it, 2030 – and AB 2112 actually requires that all new homes generate that much power by 2020.  Great ideas, if they weren’t technically impossible for most building types.

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