Why California Is Quickly Dying
realclearmarkets.com
realclearmarkets.com
Federal spending per federal tax dollar paid (2005):
South Carolina: $1.35
California: $0.78
Who is subsidizing whom, Gov. Sanford?
The bulk of the difference between CA and SC in federal spending appears to come from matching funds for Medicaid, caused by a lower per-capita income in SC and a higher percentage of people below the poverty level.
Relative to other states, SC has a slightly below-average state payroll, and seems to be criticized more for not providing enough services than for being profligate.
The statistic that 95% of the people live in 5% of the land sounds bad, but I bet it isn't that much different than other states. Also, California looks big on a map, but you must remember that 45% of the land in California is owned by the federal government. That means that the land is generally off limits to housing people. Some people like park rangers and military personal might live on federal land, but very few do. http://strangemaps.wordpress.com/2008/06/17/291-federal-land...
I live in Santa Rosa and my biggest problems with California are prop 13 and the zoning laws that encourage sprawl. California planners don't seem to like multi-use zones, so strip malls and sprawling apartment complexes pop up all over. I want to live in an apartment in a livable, diverse community on the same street as stores and restaurants, but this is extremely rare outside of places like San Francisco.
Actually, it's Californians who generally dislike "diverse" communities.
That said, they're not that rare. They exist in all of the bigger cities, SF, Oakland, Berkeley, Sacramento, plus places in the LA basin. (I don't know about the inland empire.) Heck, it's even possible to find them in almost every "college town". Almost every small town is "diverse".
In short, your real complaint is with places like Santa Rosa. Move.
> my biggest problems with California are prop 13
Prop 13 is the only reason that CA cities and counties aren't having to choose between a 20% drop in revenues or a 25% increase in property tax rates this year.
About half of the homeowners and the vast majority of the commercial property owners are going to see a 2% increase in their property taxes this year. Meanwhile, folks who bought recently may see a modest decrease in their property taxes.
As a result, CA's property tax revenues are going to be fairly stable.
Prop 13 is a cap on property tax rates and a limit on the increase in "value for the purposes of taxation" wrt a given owner of a given property. When property changes hands, the value for taxation goes to the sales price, but as long as it doesn't, the rate of increase is capped, which is why many owners (especially commercial) will see a modest property tax increase even though their property lost value in 2008 - the property tax is catching up slowly.
Remember that "cap on property tax rates" that I mentioned above. Almost every CA city and county is at that cap. Do you really want to argue that they would have dropped the rates to keep revenues stable during the years when property values were exploding? (Prop 13 was enacted during a previous boom when they didn't drop rates....)
Before Prop 13, property taxes were assessed based on the current value of the land. So when a housing boom hit, people's property prices shot up, and their taxes followed suit. This was a somewhat flawed system, as land prices were skyrocketing, and people couldn't afford to hold their houses. As a result, prop 13, a piece of citizen legislation, was enacted in 1978 and basically stated that the property tax of a piece of land would be fixed at 1975 levels with a maximum of a 2% increase each year, regardless of change in property value. Though reform was essential, prop 13 was NOT what California needed, and was a classic example of the "Tragedy of the Commons."
By capping property tax, Californians did get more money in their pockets. But only 13% of savings actually went to the citizens. 87% of that tax money went to coroporations with large tracts of land (agriculture, warehouses, ...). Because these funds went directly to counties, the counties were pretty much rendered broke instantly. Most local services (police, education, firefighters) come at the county level, so their budgets were destroyed as a result.
To remedy this, counties began to lobby the state for more funds. Remember, the state still had income tax and sales tax. Unfortunately, income tax is a much harder amount of money to predict when compared to property tax. So now there's a central state government that needs to fund its counties with money it doesn't really know it has. On top of this, a state government is not as responsive to local needs as a county, so the ability for a government to recognize and respond to the needs of its constituents was crippled. Competition for state funds became fierce, and counties hired lobbyists to gain traction. Bigger, richer counties could afford better lawyers. Smaller counties were left in the dust.
Currently, prop 13 still weighs upon California industry. Older warehouses and smokestack industries are still paying 1975 property tax (with 2% increases every year), whereas industries that want to move in can't, simply because they would be paying so much in property tax compared to their longstanding competitors. It has created a monopoly on organizations that needs space.
The perfect model for a county to actually make money today comes from an unlikely source: Emeryville. They limited their population so there are less constituents to pay for. They are located next to a freeway that is payed for on the Federal dime. They kicked out smokestack industries for big-box retailers, and take in all the sales tax they can. Finally, their workforces commutes from the impoverished Oakland next door, so that can pay peanuts without affecting their own populace. It's clean, attractive, safe, and exploitative on so many levels.
[Sorry, I can't give you the specific references, as they come from lecture notes of Kerwin Klein's "History of California" course at Berkeley. An amazing course, I might add]
The last time I looked, biz were owned by people. More important, biz expenses, such as taxes, are paid by people too. As a result, that distinction between "biz" and "people" doesn't make sense. Prop 13 limited the tax increases paid by people due to property value changes.
> stated that the property tax of a piece of land would be fixed at 1975 levels with a maximum of a 2% increase each
As I pointed out, that's wrong. There is a reassessment on on sale. My "prop 13" basis was set when I bought my house, decades after 1975. (My parent's basis, on the other hand, was set in 1975.) That's why my property taxes went up last year even though my "if I sold" value went down. (They'll go up next year too.)
That's why CA's property tax revenues are roughly stable.
I note that CA's income tax collection is incredibly variable, in part because so much is paid by the folks at the top.
The business doesn't necessarily need to be based out of California, which means that money doesn't necessarily stay in California. Also, while that business can reinvest in the state, I just don't see how that can quickly reach the needs of citizens. A corporation saving millions might pay its employees more, who will pay income tax, which will eventually reach a state government only causing further centralization of state powers.
>There is a reassessment on sale.
Your right. That reassessment is exactly what drives away large new corporate jobs. Imagine company A has a warehouse since 1975. A pays taxes at (1975 level)*1.02^34. This increase is significantly less than actual property values have increased. So when its main competitor, company B, comes to town shopping for a huge tract of land, it's looking at paying reassessment taxes. If they both did the exact same job with the same income, company A stands at a huge advantage solely because it pays so little in property tax compared to B.
Warren Buffet nearly destroyed Arnold Schwarzenegger's campaign when he stated that prop 13 was terrible, specifically targeting the reassessment clause. http://www.wealthandwant.com/docs/Buffett_Prop13.html
Biz taxes are paid by customers. So yes, some of the savings will go to out of state customers. If you want to argue that CA should have fewer biz that serve out of state customers, feel free.
> Also, while that business can reinvest in the state, I just don't see how that can quickly reach the needs of citizens.
Huh?
> A corporation saving millions might pay its employees more, who will pay income tax, which will eventually reach a state government
Now I understand. You don't count money paid to employees as "reaching citizens". You think that the only money that "reaches citizens" comes from govt.
That's an interesting position.
> Warren Buffet nearly destroyed Arnold Schwarzenegger's campaign when he stated that prop 13 was terrible, specifically targeting the reassessment clause.
Yes, Warren Buffet. The guy who argues for the estate tax yet has arranged things so his wealth will never be taxed. Moreover, he sells insurance to folks whose estates can't be so arranged so they can pay the estate tax. (In other words, he profits from the estate tax.)
Buffet is a great stock picker, but if you're looking to him for advice on good and evil....
Maybe you want to elaborate on this point, because I don't get it. How does the fact that businesses are owned by people equate to the fact that they should be protected from taxation from their valuable property?
My impression of Prop 13 was that the intent was to prevent retired people and low-income people who happened to live in an area of rapidly increasing property values from being forced out of their home. This I agree with. To argue that this should necessarily mean that businesses should be protected from paying taxes on property values that go up does not follow for me. What is the greater good achieved by this?
I didn't say that biz should be treated differently. I said that taxes paid on biz owned property was actually paid by people, mostly by their customers.
Are you saying that not taking money from people or corps is the same as giving it to them? I didn't steal $1000 from the person next store, and therefore I gave him $1000?
Corporations are leaving CA by the droves. Neighboring states are advertising in the local papers to lure them away. Over 7,000 companies have left in the last few years.
Your post makes it sound like CA's problems are mostly just an accounting matter of how the money is routed around ("Many would actually argue that prop 13 destroyed California"). Is this what you're saying the main problem is?
The problem is that I live where I can get a hardware design job. I am actually trying to move, but the job market is pretty lousy right now. Also, places with more tech jobs like Silicon Valley are even worse than Santa Rosa for sprawl.
There's some hardware design in the foothills, where there are tons of small towns.
San Jose has a couple of "diverse" communities (one downtown) as does Palo Alto. Mountain View and Redwood City have at least one. I don't pay enough attention to Sunnyvale, Santa Clara or the southern east bay cities (Fremont, Milpitas, Union City) to know where theirs are (if they have one.), but I suspect that they do. (San Leandro and Oakland do.)
Yes, you'll need to drive to work but if you want to live in a "walk everywhere else" community, you can.
Meanwhile, the majority who either don't want that or don't care have other choices.
Be careful with 'majority' - it's probably not really even something most people are aware of being a possibility. You'd have to go to someplace that's older, and with less space, like Europe, to really see a large variety of walkable city centers - the US only has a few, and they tend to be places like SF (and even there is not really all that walkable compared to a European town) that are simply untenable in their cost for most people.
In other words, people aren't really choosing - they're born into it, just as Europeans are born into what they've got and can't easily go live somewhere with low-rise, car friendly, suburban style sprawl even if they wanted to.
Also, what's with the "diverse" scare quotes? If that's his preference, that's his preference. Nothing wrong with that. I don't really care one way or another about living in a diverse area myself, but would find an unwalkable place a very sad place to live indeed.
Actually, you don't. As I pointed out, almost every college town has one, and it's reasonably cheap. Small towns have/are them.
I pointed out that every largish US city has them. (Oakland and Berkeley's are better than SF's.)
Heck - almost every south (sf) bay city has one or two. I forgot to mention that Menlo Park has at least one and I only remembered two of PA and SJ's - both have at least three, and I'm almost certainly missing more in SJ than PA.
> In other words, people aren't really choosing
Except that they are. They are readily available, a huge fraction of people spend a couple of years in them, and yet most people don't choose them for the majority of their lives.
It's interesting that (some of) their advocates can't see them unless they're the only option.
> Also, what's with the "diverse" scare quotes?
They're not scare quotes. I'm pointing out idiosyncratic usage. "Diverse community" typically means that the residents are ethnic and/or culture mix. What he's referring to is typically called "mixed use".
> They're not scare quotes. I'm pointing out idiosyncratic usage. "Diverse community" typically means that the residents are ethnic and/or culture mix. What he's referring to is typically called "mixed use".
Ah, ok... actually that wasn't entirely clear to me either.
It depends on what standards we're using. If we're using "every store is in a mixed use area", then you're correct, but that's saying that you can't have any alternatives to mixed use. If we're saying that "mixed use" is "a walkable community that has at least one vendor for almost every need", then a lot of places qualify.
I note that mixed use advocates in the US argue that they should have the choice. If they extend that courtesy to others, they have to be satisfied with something short of universal mixed use.
"Ok, I'd looove to live in the Bay Area, but if I lived in Seattle where there's no income tax, I could have an extra X bucks per month."
Where X is 9.3% of your salary:
60K => $465/mo
80K => $620/mo
100K => $775/mo
120K => $930/mo
So the question becomes, is it worth the X bucks a month to live in Cali? Sometimes it is, sometimes it's not. I use Seattle as an arbitrary example of course - but it could be any of the no income tax states. Of course, many folks don't have the option at all - but more and more people will be able to choose in the future.
I don't know much about how state governments work - but it's interesting to see how some states can have no income tax and still be better off financially than high income tax states like Cali. Sometimes I hear the argument that it's because the no income tax states have much higher sales taxes. However, the sales tax in Cali vs Washington or Texas seems about the same (around 8%). Perhaps there's a big difference in property taxes - I'm not a homeowner so I don't know or really care about that. A lot of it does seem to come down to how well the state is run when you look at it as a business instead of a 'state'.
As an aside, if you live in a no income tax state and want to avoid sales taxes where possible - Amazon Prime is your friend ;)
One interesting question is why should state and local taxes be deductible at the federal level?
Yes, I know that folks are paying them, but presumably they're doing so for the benefits. Why should folks in low tax states pay more federal taxes to cover state tax benefits that they don't get?
California is a beautiful place (at least some of it is), but I wouldn't want to live there because of the state government.
There are some relevant points, but they're all contentious. California is in some dire straights, it's unfortunate. We'll get things sorted one way or another though, certainly.
"There is no housing boom (or bubble) about to inflate, as it did in 2004" - I don't know much about Mr. Malanga's finances, but I would presume he's a multi-millionaire, if his ability to see booms and bubbles is at all accurate.
He's a member of the Manhattan Institute, a heavily market-oriented "conservative" think-tank, and I can't help but wonder if a bit of ingrained bias played a part in this article.
What makes you think that mismanagement of CA has nothing to do with the cost of power in CA and the availability of "green hydro power"? (CA occasionally tries to tear down power damns and has stalled construction of one of a major one, somewhere around Folsom, for over 20 years.)
Anyway, this article is politics, though, as can be seen by the resulting discussion, so I went ahead and flagged it.
This is a state whose politicians, public sector unions and advocacy groups have been living in a fantasy world of overspending, investment-deadening taxation and job-killing regulation.
Now I know the article is just whining from someone who doesn't want to pay taxes.
Do you know anyone who does want to pay taxes? Also, when did ad hominem arguments become valid?
>> job-killing regulation
The US Chamber of Commerce rates California as the worst state in the nation for business. 50th out of 50. Intel, a CA-based corporation, just announced the creation of 7,000 new jobs. In Oregon, Nevada, Arizona, and New Mexico.
>> public sector unions... The interchange at I-880 and CA-237 in Silicon Valley took 6 years to complete (yes, you read that right). Just a bit further north, the interchange at 880 and Mission took at least 5 years. Can you say "union featherbedding"?
>> advocacy groups
Enviro impact fees add $7,000 to a house in Texas. In CA, they add over $75,000.
You can say any law is job-killing -- a legal prohibition on murder puts all the assassins out of business. Damn the government! As for the "enviro impact fees", that's life. We can't just keep raping the environment and expect our kids to fix the problem. We need to pay for it now.
Nobody wants to pay taxes, but if we want to keep our society around for more than a few more years, it's a necessary evil.
It works with the schools too. One of the reasons colleges tuitions have risen in recent years is because subsidies have increased. When there is more money being spent on a good or service, there nearly always an increase in price.
So, if the California government pays it's employees more money, and spends more on welfare than average, then the costs of living are necessarily going to increase. Of course, there is more to it than that. Highly paid technical workers can make things difficult for more poorly paid locals as well, but it's certainly part of it.
That's too bad. New management might be a nice change.
Why would new management be nice? What change would it bring?
Section 4. The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.
http://en.wikipedia.org/wiki/Fourteenth_Amendment_to_the_Uni...
Because of the commas, courts interpret that to say: Section 4. The validity of the public debt of the United States, authorized by law, shall not be questioned.
The only way for a city to ditch their debts would be to disincorporate and stop being a city. Jefferson County in Alabama is looking like the first county (as far as I know) to have to file Ch 9. And I don't belive that any state has filed Ch 9 either.
If it has to go the way of disincorporation, I suspect that CA would end up becoming a minimum of 2 new states.
There's a 10th amendment issue (limiting the power of the federal govt to order state/cities to do things), some federal bankruptcy law changes (after a company did what Vallejo wants to do to labor contracts, congress changed what companies could do, but not municipalities), and state law provisions (which may cover labor contracts by municipalities).
another point of comparison - we've already given way more than $41 billion to SINGLE corporations like AIG, not to mention bank of america, citi, fannie, freddie, etc. personally, i'd much rather bail out states than corporations. spending money on teachers - the horror!!
This is mixing apples and oranges. The $1,100 deficit is this year's deficit. The US's $35K/person is total accumulated.
>> i'd much rather bail out states than corporations.
Why bail out any of them? Whatever is subsidized you get more of. Bailouts will lead to even more fiscal irresponsibility.