Interpreting the California Dream’s Winners and Losers

Due in part to the recent soaring stock price performances of big tech public companies such as Apple, Facebook and Google, and flush with capital gains tax revenue from the initial public offerings (IPOs) of Uber, Lyft, and Airbnb, California Governor Gavin Newsom recently announced a state budget surplus of $76 billion (corrected by the non-partisan Legislative Analyst’s Office to $38 billion).

Facing an upcoming recall election, Mr. Newsom is quickly passing out money to various constituencies in the form of tax rebates, direct “stimulus” checks, grants to struggling small businesses, residential back rent and utility payment support, and funds for family college savings plans. He also announced plans to send every 4-year-old in California to kindergarten and to extend healthcare insurance to older adults living in the United States illegally. Though much of this revenue cycle “boom” of public spending is arguably unsustainable, the governor is setting a precedent of new entitlements likely to be slashed during any future economic “bust.”

The governor has also been touting the state’s $116 million vaccine incentives program, which has provided $50 prepaid grocery cards to two million newly vaccinated people. Newsom has appeared publicly to announce lottery drawings for floor seats to a Los Angeles Lakers game and tickets to Disneyland, Legoland and SeaWorld. California’s Vax for the Win program is enticing residents to get a Covid-19 vaccination by dangling “California Dream Vacations,” such as a stay at the Ritz-Carlton in Rancho Mirage, among other hotel packages, along with culinary expenses and other freebies. The state is throwing in $2,000 cash to cover the travel costs of winners. Other drawings will reward up to 30 people with $50,000 cash prizes, and another 10 people will win even larger cash prizes of an astonishing $1.5 million each.

What is going on here? Is California truly golden again, so soon after the governor, using “emergency powers,” issued executive orders for stay-at-home lockdowns and mask mandates that kept students away from public schools and congregations banned from religious services, as well as sharply restricted commerce resulting in massive small business failures and job losses?

A Bloomberg opinion piece argues that California has come out of the COVID-19 pandemic in excellent shape, marked by innovation, productivity gains, and rising economic growth as public companies have gained market share and hired new workers. The renewable energy sector has been particularly strong in recent years, and is slated to be boosted further by some 200 earmarks totaling almost $1 billion to California as part of the highway infrastructure spending bill pending before the U.S. House of Representatives. The recipients of all of this federal taxpayer largesse include electric vehicle charging stations and bike trails in Napa Valley’s wine country and in Menlo Park (favored by Facebook employees).

Though long discredited as a boondoggle featuring massive cost overruns and cronyism, the high-speed railway project in Central California (what critics deride as “the bullet train to nowhere”) has just received a further $1 billion grant from the Biden administration’s Department of Transportation.

Unfortunately, unless you are a vaccine lottery winner, a highly-paid employee of a publicly-traded technology company, or a lobbyist for or beneficiary of federal taxpayer earmarks for the green energy industry, you may not be fairing quite so well.

Average citizens in California are not benefitting from the skyrocketing state budget, long known as a target for waste, fraud and abuse. Instead, they have suffered in recent years from energy blackouts, raging fires, continuing drought, public health concerns arising from a growing homeless population, and public safety concerns over riots, rising crime rates, and the early release of violent criminals.

Average citizens in California are not benefitting from the skyrocketing state budget, long known as a target for waste, fraud and abuse.

It is the tens of millions of citizens working daily to afford the high cost of living, along with the now decades-long underperformance in state education, that has been the relentless focus of scholar Richard Rider, chairman of San Diego Tax Fighters, who catalogues and frequently updates the statistical studies that document the economic life of Californians.

Rather than the sunny rhetoric meant to boost a governor whom some two million registered voters have now petitioned to recall, it is these numbers that reveal a staggering story of struggle.

Rather than the sunny rhetoric meant to boost a governor whom some two million registered voters have now petitioned to recall, it is these numbers that reveal a staggering story of struggle.

Taxifornia

Californians are by far the most highly taxed in the nation (21% higher than 2nd place Hawaii). While seven states have zero state income tax, and two more tax only dividend and interest income (not capital gains), tax brackets for those earning under $50,000 annually start at 9.3% and rise to 13.3%. California has the highest state sales tax at 7.25%, not including local sales taxes, which also average in the top 10 nationwide. California’s corporate income tax rate of 8.84% is the highest in the continental west.

California ranks in the top five states for highest annual cost of owning a car. The state has the nation’s highest “gas pump” tax at 81.45 cents per gallon (plus a unique 10-12 cents per gallon “cap and trade” tax). The national average is 52.18 cents. Yet California has the 2nd worst highways in America. California’s driving tickets are confiscatory, with red-light camera tickets now costing $500 each. The next highest state fee is $250, but most are around $100.

The median California home costs 2.4 times more than the national median home price.

The average “impact” fees in California for building a median single-family residence ($758,990 as of 2021) varied from 6% ($32,880) to 18% ($98,640) per home, about double the fees charged by the next most expensive state and more than triple the norm among jurisdictions that levy such fees (many governments east of the Sierras charge little or no fees). The fee is part of the purchase price, so buyers even pay an annual property tax on the fee. California ranks 50^th worst for people’s debt-to-income ratio, and 49^th worst for percentage of home ownership.

The top CEOs surveyed ranked California “the worst state in which to do business” for the 17th consecutive year. In addition to high occupational licenses for hundreds of categories of small business operators, California has an expensive small business $800 minimum corporate income tax, even if no profit is earned, and even for many nonprofits.

According to the Tax Foundation, California’s 2020 “business tax climate” ranked second worst in the nation, behind New Jersey. In 2021, the American Tort Reform Foundation ranks California the “worst state judicial hellhole” in the U.S.California also has the second highest workers’ compensation rates (as of 2018), some 169% of the median state rate. Yet benefits are low and lawyer’s fees are high.

Poor Results

As of April 2021, California ranked almost dead last in employment rate (Hawaii is worse) at 8.3%. The California unemployment rate is 43% higher than the average of the other 49 states. Despite the applauding of California as the fifth largest economy in the world, when adjusted for population and cost of living, California’s median household income ranks 48th out of 50. Only Oregon and Hawaii rank lower.

California public school teachers are the third highest paid in the nation, averaging $85,892. (The national average is $65,090.) California teachers earn 38% more than the average in the other 49 states. Yet, California’s student tests scores have consistently ranked 48th out of 50 states for grades four and eight math and English. Though California community college tuition and fees are the lowest in the nation (and free for those who fill out a “can’t pay” form), the state drop-out rate is over 25%. California annually spends by far the most of any state on policing and corrections.

California’s (2019) poverty rate is the worst in the nation at 17.2%, 45% higher than the average for the other 49 states. California has 12% of the nation’s population, but over 43% of the entire country’s TANF (“Temporary” Assistance for Needy Families) and welfare recipients. That’s 5.6 times the percentage of recipients found in the other 49 states.

California’s residential, commercial and industrial electricity costs soar way above the national averages. As the state’s increasingly dangerous drought worsens into a true water crisis, expect the costs of hydro-power to escalate, with stresses on the state’s infrastructure driving up agricultural, business and residential costs of water and power.

California’s residential, commercial and industrial electricity costs soar way above the national averages.

With a very troubling long-term public pension crisis looming alongside the high annual cost of living in California, it is no wonder that after the recent U.S. Census the state is losing a U.S. Congressional seat for the very first time. In one recent twelve-month period, California ranked 50th of all states with the highest net departures over arrivals.

This includes the young, the educated, the entrepreneurial, the wealthy, and middle-class retirees desperately seeking a lower cost of living. California was recently ranked as the third worst state in which to retire by Kiplinger. Only New York and New Jersey ranked lower.

The rich got richer, increasing market share as “essential employees” and connected political players during the pandemic. But for the not so elite, the California dream has sadly become increasingly unattainable, and California’s temporary budget surplus is no panacea for obviously disastrous public policy results.

Larry Greenfield is a Fellow of The Claremont Institute for the Study of Statesmanship & Political Philosophy.