California plunged again last month in high wage manufacturing employment by 2,300 jobs.  The national media continues to single out California, using it as a narrative blueprint for how to overwhelm a once-thriving state economy, and almost dares anyone to bet on California’s recovery.

For these and many other reasons this legislative session could be the most important year of decisions in the state’s 160-year history.  Policymakers are no doubt giving lip service to ground zero — growing jobs and the economy —  but there is little precedent in California for climbing out of such a monumental hole.

The California Air Resources Board policy team released its draft greenhouse gas cap-and-trade proposal last week.  According to the agency’s draft, a cost of $60 per ton of Co2 between 2012 and 2020 would total $143 billion over the first 9 years of the program.  The estimates for costs per ton of reduction range widely depending on the design of the program.  Some estimates reach as high as $200 per ton!  It is unlikely that industry and high-wage employers will be able to compete in global markets with these overwhelming California-only costs.  A program this costly should come with a valid economic analysis to show that California can grow its economy and add jobs while subject to these costs. So far we have not seen that proof.

State policymakers are beginning to understand — or at least face the realities of — a fundamental reason for California’s job loss and now a 3-year $81 billion budget deficit.  Basically we pass laws and move on to new ones and call it success.  Texas on the other hand — a state that congregates its legislature in only odd years and requires a 2/3rds majority on every bill — created 70% of the new jobs in the United States in 2008 and has a $2 billion budget surplus this year. 

I offer the following 3-week timeline of completely independent events and tidbits — a syllogism if you will — as a picture of evolving realizations of California’s problem, as well as some minimal-cost concepts that are gaining traction. 

October 22

» Treasurer Bill Lockyer testifies that two thirds of California bills shouldn’t see the light of day and begs the Legislature to recognize the severe degree of dysfunction as it pertains to California’s dire situation.

Last week, German-based SMA Solar Technology announced it would open a manufacturing facility in Colorado, spend approximately $22 million on it’s first non-European site, and hire 300 to 700 Denver workers starting in 2010.  It should be noted that Colorado is listed among the top five states to do business according to Forbes magazine and CNBC.

It was rumored that many states were in the running for SMA — a company that makes components that integrate residential solar panels with electrical grids.  For a state with a “Million solar roofs” policy, I’d like to know what California did to court this company.   Why didn’t they receive the same treatment as Tesla motors with a sales tax exemption on capital equipment or something similar to attract their impressive operation?

Colorado has now landed at least 300 high paying manufacturing jobs that will contribute to its growth and emergence from the national recession, while California continues to pass environmental policies on the notion — not economic analysis or proof — that the environmental frontier exclusively creates jobs and helps the economy. 

The 2008-09 budget cycle will long be remembered as a tipping point in California’s economy.  But will we learn from it, or will the state repeat mistakes (or make new ones as the case may be) that will continue our long-standing hold on the precipice of economic collapse?

As California stumbled into 2009 having "solved" a budget crisis just three months earlier that proved to be no real solution, the Governor, teaming with the Democratic leadership, formed California’s Commission on the 21st Century Economy, a commission who’s purpose was to evaluate the state’s outdated and volatile tax system in hopes of bringing some measure of reforms, and with it stability to the state’s revenue stream.  After 9 months, the final product provides no more answers to the state’s ills than the current system, in fact, creates even more uncertainty and unpredictability.  What it does do however, is provide an opportunity for a classic battle between academic economic theory versus boardroom/dining room economic realities.

We applaud the commission for their efforts and contributions to this seemingly herculean task of reforming the state’s tax system. I believe that most everyone understands and agrees with the fundamental need for reform.  Unfortunately, that appears to be where the similarities of thought end.

Last week, we blogged about a report released by Governor Arnold Schwarzenegger and conducted by Sanjay Varshney that quantified the regulatory costs on California’s small businesses.  The study is now being scrutinized by the press and others to determine its validity and credibility. No matter the outcome of the debate, there is no question that California is an uncompetitive place to do business in large part because of the regulatory impediments and costs.  We know the regulatory environment is killing middle class jobs. It’s too bad we don’t have regular, consistent, and independent analysis of each state regulation so we know exactly what we are up against. Let’s face it though, even if California’s regulatory costs are half what the study finds, the Governor and legislature should take immediate action to reduce the cost of regulatory impediments.

California’s manufacturing jobs declined again in August.  This month there are 2,800 less high wage middle class jobs in California that could have played a role in our  economic recovery.  The total loss since January 2001 now totals 583,000 — 31 percent of the state’s original manufacturing base at the start of this century.

While we lose these jobs, California also suffers from too many missed opportunities for new growth.  An exponential amount of companies surveying the country for competitive places to manufacture have given up on California because of costs and unpredictability.  This must be turned around with laser focused policies for competitiveness and an articulated commitment to growing middle class jobs and the economy.

One week after the close of the state’s legislative session, we can start with some important vetoes and signatures for Gov. Arnold Schwarzenegger to help keep the state’s manufacturing base afloat.  Below are some of those important bills with CMTA’s veto and signature request letters.

The President of the Association of Washington Business, Don Brunell, wrote a piece this week asking Washington state policymakers to "polish up their investment strategies for Washington’s manufacturing base" or risk California’s fate.

Brunell uses recent reports and the Milken findings to explain how California has killed and continues to kill the proverbial golden egg that it needs for its recovery and new revenues.

Even the well-read British magazine, the Economist, supported Brunell’s findings.  "Indeed, high taxes, coupled with intrusive regulations on business and greenery taken to silly extremes, have gradually strangled what was once America’s most dynamic state economy," Brunell noted from the magazine.

A great read for any policymaker: Golden State’s manufacturing image tarnished

Governor Arnold Schwarzenegger could get a Renewable Portfolio Standard (RPS) bill on his desk after the state’s legislative session ends this week.  SB 14 by Sen. Joe Simitian would deny California utilities access to the most cost-effective energy and, according to the Public Utilities Commission, raise the state’s industrial electricity costs at least 7 percent.  The Energy Information Administration states that existing rates are already 45 percent more expensive than the nation and 80 percent higher than the western region.

California industry can barely compete with its neighboring states and energy costs play a major role in that imbalance.  The AB 32 greenhouse gas law that passed in 2006 already allows the California Air Resources Board to implement RPS in a cost-effective manner.   Gov. Schwarzenegger should veto this bill because it will impose huge new costs and threaten high wage manufacturing jobs in California.

Read Letter to Gov. Schwarzenegger

Unfortunately, the Toyota portion of NUMMI (New United Motor Manufacturing Inc.) will follow GM’s path and vacate their Fremont, California manufacturing facility, despite broad support from the Assembly Jobs Committee at a Tuesday hearing.

NUMMI’s decision shows what is certain to materialize for other companies and their suppliers if state policymakers don’t produce a competitive manufacturing environment:  California facilities will be the first to go when tough economic decisions are made.  Uncertainty, regulatory costs and taxes are simply too high in California.