California’s Dire Housing Outlook

Robert Rivinius
Executive Director, Family Business Association

With California on track in 2008 to have the lowest number of housing permits (79,000) issued since statewide records have been kept (1954), and while California continues to grow by nearly a half-million new residents per year, the housing affordability crisis in California will continue to worsen.

Yes, we know that home prices are down as much as 20-30% in many parts of the state, but that will be short-lived. Why, you ask?

Well, there is an alignment of many unfortunate factors. Even though some land ready for development in the fastest growing parts of the state is virtually worthless today, there is not enough land identified for housing to really meet our growth needs, so in the not-too-distant future that land will again be producing $200,000 building lots.

Combine that with impact fees imposed by local governments that range from $50,000 to over $100,000 per new home, and you will have spent around $300,000 before a foundation has been poured.

That kind of expenditure demands a decent size home with nice amenities, so it won’t be long until we’re again looking at $500,000 for a basic new home. Probably about 20% of the households in the state can afford that.

Another factor is that we need at least 220,000 new housing units each year to meet our growing population’s needs. As mentioned above, we will be below 80,000 starts this year. While California’s housing inventory deficit has not been accurately quantified, it is believed to be between 500,000 and 1,000,000 units. That definitely is a shortage!

Add one other phenomenon – new home prices pull existing home prices up like a magnet, so as new home prices rise, especially in light of an inadequate supply, there will once again be upward pressure on the price of existing homes.

Even with all that, many legislators are trying to pass bills that will make the land development process more time consuming and costly and the building of a home more expensive.

Do they truly want the American Dream of a home of their own for their fellow Californians? It sure doesn’t look like it.

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Has the time come for Instant Runoff Voting?

Public Affairs Consultant specializing in Issue Advocacy and Strategic Communications

Here in Los Angeles, an effort is underway to place an "instant runoff initiative" on the city’s Nov. 4 ballot.

As in San Francisco, L.A.’s instant runoff election would allow voters to vote by ranking their choices in numerical order. If no candidate earns a majority of the first choices, the last-place candidate is eliminated and votes are re-tallied based on voters’ preferences. The process is repeated until a candidate has received a majority of the votes for candidates who have not been eliminated.

Sound confusing? Yes, but it’s a system worth considering.

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Prop 34: Did it reduce money’s influence on elections? The verdict is in.

Allan Hoffenblum
Publisher of the California Target Book and owner of Allan Hoffenblum & Associates

In the November 7, 2000 General Election, California voters, by a margin of 60 percent to 40 percent, passed Proposition 34, which placed limits on the amount an individual, corporation, labor union or political committee can contribute to a candidate for the state legislature … currently $3,600, or double that if the contribution comes from what is called a "small contributor committee."

Prior to the passage of Proposition 34, there were no limits on the amount that any individual or interest group could give to a candidate, and it was not uncommon for wealthy individuals and others who had an interest in who was elected to the state legislature to, in fact, give large sums of money directly to a political candidate they favored.

Passage of Proposition 34, supporters claimed, would put a stop to this and thus significantly reduce the influence that powerful special interest groups and wealthy donors have on state legislative races.

How has it worked?

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Common Sense CA: $125K Grant Program for Citizen Engagement

Pete Peterson is the Executive Director of Common Sense California

Over the last several years, there have been a growing number of civic engagement projects in California from the city through to the state level. Last August, Governor Schwarzenegger plus top legislative leaders participated with over 3,000 Californians in a day-long survey about health care, entitled, "CaliforniaSpeaks on Health Care Reform".  In San Mateo County currently there is a county-wide campaign to involve residents and commuters in a series of dialogues around the subject of affordable housing. The project, called, "Threshold 2008" was originated by a diverse group of county residents – from business people to open space advocates – who saw a possible crisis in the lack of affordable housing in the region.

And that’s not all, large cities from San Diego to San Francisco, and smaller ones like Chula Vista and Morgan Hill, have convened citizens in "community conversations" around policy decisions ranging from airport planning to budget prioritization.   In most of these instances, municipalities and school districts have been pushed to a crisis point, where a budget deficit or immensely expensive (and controversial) land use decision precipitates public involvement.

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Do a Tax Commission Right This Time

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

Assembly Speaker Karen Bass says California is a 21st Century economy laboring under a tax structure mostly built in the 1930s. She’s right. Improving the tax structure for the new era is the right thing to do.

Gold Rush era California economist Henry George had a saying about the tax structure that applies even today. "The mode of taxation is, in fact, quite as important as the amount. As a small burden badly placed may distress a horse that could carry with ease a much larger one properly adjusted, so a people may be impoverished and their power of producing wealth destroyed by taxation, which, if levied in any other way, could be borne with ease."

Speaker Bass said she will convene an independent commission to look at restructuring the tax system. Governor Schwarzenegger likes the idea and says he too will create a Tax Modernization Commission to make recommendations on better aligning the tax system to the modern economy.

I served in some capacity on four state commissions that dealt with California finances. From those experiences, my advice to those planning a new commission is to look at the big picture. That means consider spending formulas and government operations as well as tax structure. The tax system is not the only government function that needs to be modernized for the 21st Century.

Unfortunately, the work of the commissions I served on was never taken seriously by the Legislature or was scuttled by politics and poor timing. It’s not that I agreed with all the recommendations of these commissions. I even wrote a minority report on one commission. But, my sense was, to the legislators, the work of our commissions was no more than an academic exercise.

The Legislature ignored the recommendations of the Constitutional Revision Commission of 1996 the recommendations delivered in the heat of an election year.

Antonio Villaraigosa Speaker’s Commission on State and Local Finance was lost in the revolving door of the speakership. Current L.A. City Councilman Bill Rosendahl’s Commission on Tax Policy in the New Economy created by Governor Davis issued its recommendations on the day newly elected Governor Arnold Schwarzenegger was sworn in. Bad timing. The California Performance Review did not receive follow-though from the administration.

Politics played a role in undermining the efforts of many of these commissions. Of course, politics exists in all policy discussions. However, the Speaker and the Governor ought to get a commitment from Legislative leaders that work of the commission will have clear support and that the recommendations will get a fair hearing.

History tells us reports from commissions such as those now under consideration will end up on library shelves. Perhaps there is a new sensibility to the need for change and the endgame this time will be different, especially if both the tax and spend sides of the equation are considered. I wouldn’t bet on it, but that doesn’t mean we shouldn’t try.

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A few random thoughts over the long weekend…..

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

Issues of the week: Porn tax and gay marriage. This is not your father’s and mother’s California. What happened to infrastructure and water? I guess we solved those problems.

The Recall of Senator Denham has been recalled by the measure’s sponsor, Senator Don Perata. At least he says he called it off. However, it is still on the ballot. Voters can still vote Denham out and a replacement in. Doesn’t this remind you of any number of government programs? The reason behind it is over; the author has abandoned it; but it goes on and on like the Energizer bunny.

Speaking of the Energizer bunny and also thinking about the AFLAC duck, the animal kingdom seems to have a positive branding effect on certain products. So what happened to the GOP elephant? Stories about branding and re-branding the GOP are popping up everywhere, including on the pages of Fox and Hounds Daily

The question is, does the GOP elephant need a personality re-do or does he have to get back being his old self. Maybe a session on the couch will help. Calling Dr. Doolittle.  Or is that the problem for the GOP in a nutshell: Do little?

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The background noise at CalPERS

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)

When legislatures and governors make big mistakes, it’s often because they are focused on the wrong thing. The state’s budget shortfall of $15 billion is at the center of attention these days. But that problem would pale in size to the hidden troubles of unfunded pension liabilities in the state.

That brings me to CalPERS. I can barely balance my checkbook, so look for financial expertise elsewhere. But each day seems to bring unsettling news about the pension fund. A month ago, there were a string of resignations of top executives.  This week, we’re hearing more about a $1 billion land investment gone bad. The Wall Street Journal recently has turned up examples of conflicts of interest among actuaries in other states (though not California). In the face of all this news, CalPERS hums along, its officials saying that there’s nothing for taxpayers to worry about.

But we should worry. And so should the governor and state legislature. If CalPERS fails to perform, this state faces a fiscal disaster that would make us forget the current budget predicament. But the legislature is not being persistent enough in holding hearings and asking questions. When the pension fund gets attention, it’s usually during political debates over legislation requiring divestment from this country or that. One reason for the lack of scrutiny, unfortunately, is that CalPERS is an important source of power for the state’s labor movement, which dominates the politics of the state’s Democratic party.

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Distasteful timing of strike will disrupt exams at UC schools

Chandra Sharma
Political Communications, Redistricting and New Media Strategist

In a piece of news that has not been widely reported, the AFSCME union that represents workers on all University of California campuses has approved a strike in an effort to seek a 20% wage increase. The union last held a UC-wide strike in April of 2005.

The kicker — unlike their previous strikes, this one would coincide with final exams at the vast majority of UC schools. They have already demanded that both Students and Teachers not cross their picket line, without regard for what effect this might have on those individuals’ academic standing. Even without such a demand, the strike would nonetheless prove extremely detrimental to student life during final exams by shutting down on-campus services like dining halls and shuttles, as well as severely limiting public transit access to and from campuses.

Whether or not the union’s demands are justified, I can’t help but lose respect for anyone who feels that causing such a disruption would work to their benefit. Academia is the lifeblood of a college campus — the University, and the jobs it creates, would be all but nonexistant without the students. An action as distasteful as this attempt to disrupt their exams is a clear example of strongarm bargaining tactics being taken too far.

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Know When to Walk Away

Political Consultant specializing in issues management and strategic research

As Governor Schwarzenegger’s analysis notes, California ranks "dead last" in terms of per capita lottery sales.  Several east coast states, including Massachusetts, New York and Pennsylvania do far better.  Interestingly, the independent Legislative Analyst’s analysis reports that the average revenue of lotteries in states west of the Mississippi are significantly lower than those east of the Mississippi.

While a thorough analysis of the states’ games, demographics, and marketing could help explain this difference, a simple explanation occurred to me:  lotteries have just been around longer in many eastern states.

Maybe playing the lottery, like many other behaviors, is passed on from parents to their children, and there just aren’t as many age groups, and therefore as many people, playing the lottery in California – too many of today’s lottery players don’t have children old enough to play, never mind grandchildren.

I looked at brief histories of the states that the LAO highlighted…indeed, Massachusetts, with one of the most successful lotteries in the country (successful for the lottery itself, not its players) began in 1971, as did Pennsylvania’s very profitable one.  New York’s began in 1966.

Then the lottery spread west – to Arizona in 1981, California and Oregon in 1984, Colorado in 1989 and Texas in 1992.

If this longevity/heredity theory has any truth to it, and the age of the lottery is in fact a contributing factor, this is important because it means that promoting the lottery or changing its games won’t increase revenue to the degree that the Governor hopes.  Time and good breeding will do that.  Teach your children well…And feed them on their dreams….

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When Healthcare is Fixed for Small Business, It’s Fixed for America

John Kabateck
NFIB State Director in California

As our leaders look to revive the flat-lined 2007 "Year of Healthcare", it is important to remember that small business owners, employees, and family members make up 60 percent of the uninsured, so until healthcare is fixed for small business it is not "fixed".  But what does truly "fixed" health care look like for California’s job creators?

NFIB has put forth ten principles for small business healthcare reform which include:

  • Universal: All Americans should have access to quality care and protection against catastrophic costs.  A government safety net should enable the neediest to obtain coverage.
  • Private: To the greatest extent possible, Americans should receive their health insurance and healthcare through the private sector.  Care must be taken to minimize the extent to which government safety nets crowd out private insurance and care.
  • Affordable: Healthcare costs to individuals, providers, governments, and businesses must be reasonable, predictable and controllable.
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