California: Too Big Not to Fail?
The state of the state? "A train wreck," says one official.
If the world’s eighth-largest economy were a member of the proper religious order, it’d be time to call in a priest to administer last rites.
Name almost any serious malady and the state of California has it: the nation’s highest marginal tax rate coupled with an abysmal public education system; the most home foreclosures; a free-falling commercial real estate sector; lame-duck governor with no legislative support and a disdain for an annual budget process that he refers to as kabuki theater; unemployment somewhere between the official number of 12% and the whisper number of 18%; a 20% drop in year-over-year revenue; municipalities that have either declared bankruptcy (Vallejo) or are on the verge (Los Angeles); and a black-box permitting process that scares away business investment even while every week, 3,000 more taxpayers migrate to greener pastures.
Californians may be a can-do lot, but faced with all that evidence and much more, the political and economic leaders who spoke at the Milken Institute’s annual “State of the State” conference held yesterday at the Beverly Hilton could hardly have been more dour. “It’s a train wreck, and it’s getting worse,” said Bill Lockyer, California State Treasurer. Added former Assembly speaker Bob Hertzberg, now co-chair of governance reform group California Forward, “A high-speed train wreck.”
What’s this got to do with technology? Nothing, unless you consider that California is home to the many of the biggest tech companies on the planet (and 51 members of the FORTUNE 500), the bulk of the venture capital industry, many leaders of green-tech, two of the most patent-producing universities in the world in Stanford and UC Berkeley, and top thinkers across all spectra.
“California represents 10% of the population of the United States,” said Eric McAfee, chairman of McAfee Capital and CEO of AE Biofuels. “but probably 50% of innovation.”
Tech into ploughshares?
Ironically, Silicon Valley has built the tools and infrastructure to allow talented people to work anywhere in the world they choose, and as the state circles the drain, the fear is that businesses, entrepreneurs, and students will no longer feel the pull of the Golden State.
From a political and budgetary perspective, California has myriad problems – from Proposition 13 to direct-democracy ballot initiatives to abysmal credit ratings. But the biggest problem may be girth. The state increasingly seems too big not to fail.
“States were never intended to be the size of the entire eastern seaboard,” said Hertzberg. “What is the commonality between the folks in Calexico and Crescent City? This manifests itself in a politboro style of government in Sacramaento.”
None of the speakers–including gubernatorial candidates Gavin Newsom and Steve Poizner–offered a magic bullet, but there was some consensus on where to start.
Many called for an adjustment to the mandate that 2/3 of the legislature must approve a budget or a repeal of term limits that seem to enslave legislatures to special interests.
Others craved less (or more, take your pick) taxes and a lessened (or at least consistent) regulatory structure. Chevron's (CVX) John Watson, who will assume the CEO role in January, said the permit process for an upgrade to the company's Richmond, California, refinery took four years while an Indian company built its own entire refinery in half the time.
Still others offered hope that things will somehow work themselves out–because California has been in the dumps before and that the state will continue to be a magnet for the brightest immigrants.
“The combination of great science and great local universities and venture capital money started not just Genentech in 1976, but an entire industry,” says former Genentech president and current UCSF chancellor Susan Desmond-Hellmann, showing a slide of California tech companies that were either founded by immigrants or where immigrants played key roles in the early days, including Yahoo (YHOO), Sun (JAVA) , eBay (EBAY), Intel (INTC), Google (GOOG), Viewsonic, SanDisk (SNDK), and Nvidia (NVDA). “There’s something special about California: the atmosphere, the diversity, a wish to be curious and ask questions. The secret sauce behind Genentech, the Googles, Yahoos, and Amgens is the combination of entrepreneurial spirit, great universities, and a willingess to marry business and science.”
Desmond-Hellman warned, however, that Genentech has remained a biotech powerhouse because it has never lost sight of where its power comes from. “We always believed that the company would be no better than the people we recruited and we keep," she said. "We never took for granted that people had to work at Genentech. They have choices.”
So do the 3,000 Californians leaving the state every week.
Out of control prison guard, police, and fire salaries and pensions are on e of the biggest problems in CA (as well as NY and other states). Vallejo went bankrupt becuase police continued to demand double digits annuals salaries and benefits increases. When the Mare Island Shipyard closed followed by the real estate crash, police con tinued to get huge raises from spineless politicians who craved the endorsements of public safety unions to stay in office.
Blame both the unions AND the politicians who co-opted them.
Also, California has far more political patronage jobs than any other state (except possibly NYS, another corrupt basket case–both the Governmor's office and the Sanate Assembly have thousands of them, so they can't call attention to the huge problem.
What's the solution?
-Streamline permitting so companies will build refineries, power plantsa and factories there.
-Start cutting down on patronage jobs and consultants who contribute little and drain the coffers.
-Cut the public safety salaries and pensions to levels that the rest of us have to live on.
Proposition 13 is NOT the problem! It came into being because property taxes were increasing so fast that retirees could not afford to keep them. Repeal Proposition 13 and the Legislatures will bail themselves out at the expense of homeowners and you'll see foreclosure rates hit the roof. It's time to rduce the rolls of government workers to a realistic levels and live within their means.
And yeah, that MAY mean increasing tuition at colleges along the way (and either cutting tuition or freezing it later when good times return…).My daughter is a sophomore at UC Davis and you know what? It is the same caliber as UC Berkeley,U VA, Michigan, SUNY Binghamton or any of the other top public schools in the country. It's a bargain at twice the price!
In 2 years my wife and I retire on two Calpers pensions totaling 200+K/year. We have purchased property outside of California and are looking forward to leaving the state we were born and raised in.
For those of you who disagree with 2/3 majority, look up the first proposal of this years budget presented by the democrats.We need both sides to work for us not union pensions,not for termed out politions,not for enviornmental radicals that do not take into consideration the ecnonical ramifications of their ideas. We are to blame for not giving the same attention to our local politics that we do for national politics.We need to elect people that see more of the side of the people paying the bill and less of the side who that fill their contribution baskets.This state is ungovernable. We need to take it back.The question is how.We don't seem to have a way to stop state worker unions.The fire chief who retires with 125 percent of his salary is not the bad guy. The bad guy is the politician who gave that benifit away to the unions.
I was born in LA and loved while I was there. Problem is that is 40 years ago when the real estate values, taxes, traffic, smog, gangs, illegal aliens, crime and corrupt politicians were far fewer than today.
My only question is, "Why did it take so long for folks to leave the state?"
CA is trying to feed the world, but employers can no longer pay the bills. Without good jobs, tax paying folks are leaving in droves, leaving more welfare recipients, illegal and McDonalds workers to feed off the public trough.
"So, 3000 citizens leaving California each week. Not to worry! Probably 3000 non-citizens moving in."
Sad but true. CA helped cut its own throat when it supported the Supreme
Ct decision that rewards illegal aliens with a free K12 education.
Welcome to "Mexafornia" !!
Its a shame that the answer to any sickness that any state or Our Country faces is to bleed it. And when things dont improve, they think bleeding even more is the answer. As we all know, once to much blood is taken the individual dies. This is the same thing that is happening to us Americans who pay taxes. The politicians think bleeding the tax payers of their hard earned money will cure all ills, yet they are so miopic that it actually speeds up the dying process and only makes things worse. Our government is so obtuse that it will never get out of our way, lower taxes on everyone and everything and just get out of our lives. The eletist in this country think thye know what is best for us even though they are not us since we are all individuals. Our politicians keep every segment of our population hostage., either through government handouts or over taxation. By lowering taxes it will help people get out of poverty since they will have more money in their pockets and the cost of living would be lowered. This is possible since everything we buy has basically a 33% tax included in the price of that item, its called the hidden tax. Thus lower taxes equals lower cost for an item thus more bang for your buck andmore money in your pocket at the end of the day. But as long as we continue down this path people will be enslved to our government. Either through dangling a carrot in front of us in the form of wefare and social services or making the other half of the population to provide the welfare and social services for others. I do believe in a safety net for people who hit hard times but I am totally against replacing that safety net with a hammock. Soon enough the dependent class will wake up and realize that they are where they are is because of the people they voted in office. These politicians want them to feel hopeless, dejected, angry, insecure and uneducated since that is the base of their voter block. They think the poor can not think for themselves, unable to ever take care of themselves and never be able to provide for themselves. Their whole idealogy is that they know whats best for you and we are too stupid to know what is bust for us. our government would rather catch the fish for someone when they are hungry, prepair it for them and serve it to them instead of showing them how to catch it themselves, prepair it themselves and serving it to themselves. Our governemnt would rather do all the fishing for all of us, and by that thinking our countryis turning into an absolute monarchy.
Lived in CA all my life. Biggest problems are big govt, free handouts and state employee unions that milk the state dry. Stimulus money: Compton just put up several new BIG dual facing bill-boards on both sides of the 91 fwy. This – instead of fixing pot holes and warped pavement on on-ramps and streets. Why? Cities looking for ways to spend stimulus that will keep the $$$ rolling in! Smart, eh?!
I am a young California High School history teacher (I am 27). When in college I had to take classes on California history. In those classes you begin to realize that the state has had problems for quite some time. The biggest seem to arise whenever the state attempts to fix something. It typically puts a Band-Aid over the problem and causes problems in another area.
California in modern times has so many problems it does not know where to start. From jobs, the economy, water, safety, etc. The Unions and interest groups do have significant control of the state (Though CTA doesn't seem to have much say anymore). The state Constitution is a mess. The cities are a mess.
The idea that the state is a "train weck" is accurate. There are people that think that California needs to be broken off into two states (Northern and Southern). I agree and disagree at the same time. The biggest problem with the idea is Southern California houses the majority of the population and holds Northern California hostage because of the South's reliance on the water of the North. The South would be highly unlikely to agree to break up.
That being said, in a picture perfect world the state needs to be blown up. The state needs to be divided into multiple states (as many as 4). Each state needs its own Constitution and representation that reflect the principles of THIER constituents (Most politicians care about representing their party leadership and not thier constituents). The state needs to start over. Consider previous propositions when forming your Constitution and have the people vote on it. It will hurt for a few years, but not for as long the current issues will.
The biggest cause of CA's trouble, according to most of those I associate with, is the 2/3 mandated legislative approval of budget. It gives the minority the power to hold the majority hostage so that either has to face the consequences of their actions.
It sounds like it is time to revive the State of Jefferson idea that was cut short by WWII. Jefferson was a state proposed to be formed from Northern California and Southern Oregon, both of which have nothing in common with their state capitols.
All the grass is brown
And the sky is red
I'm being stalked
On a winters day
I feel hate and scorn
As L.A. it burns
Californians screaming
Like every other day
CA must remain united, and diversified.
"Christians w/ no morals", and amoral people of people of all varieties, are equally to blame for the strive. Liberals and conservatives with morals can live peaceably in CA, and have more many years.
I was born and raised in CA and love to move back!
For now, I am stuck in AZ.
I have lived in CA the past 40 years. I also don't believe Proposition 13 is the problem. Proposition 13 is the tax payers fighting back at the run away legislature that doesn't know how to live within a budget. It's the public employees unions breaking municipal, county, and state budgets. I have seen the freeways and roads needing repairs and wonder where did all the money go ? We all know that it went to overly generous wellfare and social services payments. We also know that not only people are leaving CA but a number of comapnies are leaving CA as well. I wonder whether the only way for CA to come out of this mess is to declare bankruptcy.
THE VERY WORST PART OF U. S. A. TO LIVE, IS HUDSON COUNTY, N. J. IN WEST NEW YORK, N. J. 07093 THE TAXES WENT UP 50% IN ONE SHUT THIS YEAR, THE MAYOR SAL VEGA AND THE COMMISSIONERS ARE TAKING HOME "BIG FAT CHECKS" AND NONE IS LIVING HERE; THE HOME OWNERS ARE LOOSING THEIR PROPERTIES AND THE ABUSE OF POWER BY THESE POLITICIANS NO EVEN THE F.B.I. CAN STOP THIS ABUSE.SO PLEASE CALIFORNIANS DO NOT EVEN THINK ABOUT COMMING TO N. J.
I was born and raised in California. It was once a wonderful state to live. My education took me out of the state and when it was finished, the California I knew was gone. I knew I would never want to live there again and these days I am not even interested in visiting.
How can you take a state that chose the Terminator as their leader seriously?
CAL is not a unified state and has been adrift for a number of years controlled by "special" interests and corrupt politicians. It started several decades ago at the City level, moved to the County level and now whole regions of CAL have the appearance and lifestyle of a third world country. Despite restrictive business practices, a government can not continue liberal welfare policies without constituents breeding a society into a government based economy. The largest county in the nation, San Bernardino, had 25,000 welfare cases in 1980 now they are well over a 250,000. Take a look, would you want to live there?
As always, prop 13 gets the blame. Well a few weeks ago at dinner with friends prop 13 came up. So I did a poll, I ask the other 4 home owners at the table if their property taxes went up or down. They all said taxes went up. That's because they have owned their home 20+ years. They were so surprised to hear that my taxes WENT DOWN. You see I got my home in 2004 and it's worth less now. This is the best example on how prop 13 protects government. Can you imagine the lost tax income if everyone's home was taxed at the peak value in 2006.
“California represents 10% of the population of the United States,” said Eric McAfee, chairman of McAfee Capital and CEO of AE Biofuels. “but probably 50% of innovation.”
I was curious whether the statement was obviously true or not. Patents issued are a fair measure of creativity and innovation and Mr. McAfee is comparing the innovation per capita and patents are something easy to look up using the USPTO Patent index. On a per capita basis, for the summed timeframe of 1/1/1999 to today, MA had the lowest persons/patent ratio of any state I checked, and not all were compared. CA came in at #4, after MA, CT, DE, CA MN, in that order. At least one of the inventors listed had to reside in the state credited. This little exercise was interesting and made a list that was not completely what I would have expected.
I thin So Cal is a drag on No Cal. If they were separate states, No Cal would be in much superior state.
I welcome 3,000 people leaving the state. By all means, go!
That especially goes for "conservative Christians w/morals". You've at least got that right.
i was born in santa cruz. left when i was 12… you couldn't pay me to move back to california. of course, since i am a conservative christian w/morals, i assume they wouldn't want me there either!
Nice summary. And where does the Speaker of the House come from, California. Should we say Washington & America beware. She'll even throw in floor mats.
I have lived in the "Golden State" for the last 42 years and the downward spiral is continuing. The author is just parroting the standard line that "prop 13" is to blame for this mess. That is baloney. The problem is an out of control legislature dominated by Bay area liberals who have spent every dime they can get their hands on while killing the job creating aspects of our economy through excessive environmental and nanny-state regulations (global warming, toilet tanks, car colors, etc.). California has always been looked to as a "harbinger" of what's to come for the rest of the country (our progressive nature). If that is the case, then we are a glimpse of what the rest of the country will look like in the next 8 years under the Obama administration. Our only hope is to break our state in to 2 states, Coastal California(Los Angeles to Marin County) and the rest. The loonies can run Coastal California, while allowing some conservative sanity to be restored to the rest of our state government, bringing business and job creation with it. We can once again show how it can be done.
Things will not change until California breaks the backs of the employee unions that are controlling every aspect of the political processes.
look like its time to cut spending and get rid of the unions that control the gov't and their defined benefit plan, guess they will have to have a 401k like the rest of us.
Of course, only good words for the immigrants. Why is CNN reporting so biased?