November 23, 2009
National Review
WHEN traveling far from California, I, like many residents of the state, still have a bad habit of marking off the days until I can return home. Even in its current mess, the weather, the optimism of the people, and the natural beauty are addictive.
Some of the attraction is based on nostalgia. Forty years ago I used to sit on my grandfather’s porch after the end of the raisin harvest and hear the septuagenarian go on about the wonders of the state. He was of the third successive generation to be born in the farmhouse south of Fresno (where my son, of the sixth, now lives). My grandfather used to smile in the warm October breeze and, as he gazed over the fall irrigation in the verdant vineyard, with Mt. Whitney looming far beyond, say: “Just look out there! My God, we are the luckiest people in the world to live here.”
Indeed we were. He went on to explain in detail how a temperate climate, fertile soils, and hard-working Californians had combined to turn a rich landscape into an even richer agricultural bounty. I heard next how his grandmother’s can-do generation had dug ditches to bring down the Sierra Nevada water, leveled the land with mules and tiny cast-iron scrapers, and developed productive new varieties of trees and vines.
Along with its natural and human riches, California has always enjoyed an amazing diversity of climate and terrain. In February I often leave a cabin in the Sierra near Henry Huntington’s eponymous man-made lake, amid ten feet of snow, and, after a few hours of driving, walk in 70-degree weather to my office on the Stanford campus.
California is the nation’s most populous state, at nearly 37 million, and if it were a country, it would have the world’s eighth-largest economy. Yet there is still room for growth: Two-thirds of the area north of San Francisco remains sparsely inhabited and rich in minerals, farmland, and timber, and billions of barrels of untapped oil lie off the coast and in the southern interior. Meanwhile, the harbors at San Diego and San Francisco Bay are among the world’s finest and busiest. California is the nation’s richest and most diverse agricultural producer. Tourists flock to Disneyland, the Napa Valley vineyards, and Yosemite, Kings Canyon, Sequoia, and Death Valley national parks. Despite the inroads of globalization, Silicon Valley still leads the world in computer innovation, and Hollywood still reigns as the moviemaking capital. Universities such as Stanford, Berkeley, USC, and UCLA continue to rank among the nation’s finest.
How, then, has everything gone so wrong so fast? The state is in a mess far worse than its 1992-93 and 2002-03 financial crises, or the periodic natural calamities of earthquake, drought, mudslide, and wildfire. Odder still, most residents well understand the current symptoms, the underlying disease that accounts for them, and why the state is so susceptible to this self-induced malady in the first place; yet no cure is in sight.
Just three months after California raised taxes and cut services in an attempt to bridge a $24 billion budget shortfall, it is already broke. Once again it is begging and borrowing, issuing billions of dollars in bonds to raise cash–most of them rated barely above junk status.
We Californians pay among the highest income and sales taxes in the nation–the former exceeding 10 percent in the top brackets, and the latter 9 percent when local sales taxes are included. But the more taxes rise, the more budget revenues fall short of outlays, despite recent spending cuts to stave off bankruptcy.
In parts of California, housing prices are half of what they were in 2006. New-home construction in the Central Valley is almost nonexistent. Unemployment statewide has hit 12.2 percent, well over the national average. Doubt has spread that California’s economy can offer its workers the large houses and easy lifestyles they previously took for their birthright. State politics has devolved into loud disputes over how to carve up a shrinking pie rather than how to expand it. And hundreds of thousands of acres of rich farmland lie idle, owing to ongoing fights over state and federal water deliveries.
Anywhere from 3 to 6 million illegal aliens burden the state’s health, welfare, and criminal-justice systems. (No one knows the exact size of the undocumented population–either in California or in the nation at large–since vastly different measures are employed by supporters and opponents to either emphasize or downplay the problem.) In performance reviews of the nation’s public schools, California ranks between 47th and 49th. California also runs the largest, most expensive, and most recidivism-prone state prison system in the country: Half of all parolees will end up back in prison within two years. Locking up 173,000 inmates–over 20 percent of them illegal aliens–costs taxpayers more than $8 billion a year. Though the system was recently expanded at great cost, it still is designed to hold only half of its present population.
This litany of ongoing crises could be expanded, but one gets the dismal picture well enough.
What caused all this?
DISSECTING the California mess has become a national obsession. While the 2008 financial panic and the present recession have made things worse everywhere, California is a special case, its endemic problems going beyond those of the nation at large.
Most critics start with the gerrymandered legislature, which has increased state spending by 40 percent in the six-year tenure of would-be conservative governor Arnold Schwarzenegger. The Governator once talked grandly of vetoing lavish spending bills and stopping girly-man liberals, but very shortly into his tenure, he caved before a union-subsidized negative-ad campaign. Term limits have not ensured more independent-minded legislators, but instead guaranteed endless generations of rookie lawmakers, all eager to grab quick headlines by spending more money on more special interests.
Yet if the expenditures of the last two decades had merely risen commensurate with population growth–factoring in rises in the cost of living–then even in these tough times, Californians would enjoy a $15 billion surplus. After adjustments for inflation, the state currently spends almost 20 percent more per capita than it did just eight years ago. In less than two decades, California’s tax revenues have increased by 167 percent, but its voracious public spending has increased by 189 percent.
More than half of all public employees–from teachers and professors to nurses and secretaries–are unionized. The state’s workers are among the highest-paid in the nation. During San Francisco’s recent financial meltdown, it was reported that one city nurse made $350,000 per year. A municipal park ranger earned, with overtime, $188,000. With overtime, prison guards can make $100,000 a year. Sweetheart pension deals allow some California law-enforcement officers and firefighters to retire in their early fifties with 90 percent compensation. Generous health-care expenditures for retired public employees are increasing at an average annual rate of 12 percent, while last year the state’s two largest pension funds each lost a third of their value.
Public-employee unions are among the largest contributors to state politicians. Despite California’s bankruptcy, unions fight, in often melodramatic fashion, any concession proposed by the governor to bridge the budget shortfall. In reaction to recent efforts to eliminate the Columbus Day state holiday, Angela Morales, job steward for Service Employees International Union (SEIU) Local 1000, boasted that the holiday “has become the hill that our union is willing to die on.”
To circumvent the dysfunctional legislative process, California’s referendum system allows dozens of proposals to be placed on the ballot every two years for instant enactment by a 51 percent majority. This lets voters vent their frustrations of the moment–”three strikes and you’re out,” mandatory criminal sentencing, reduced public-school class size–without thinking about how to pay for their new mandates.
Idealistic federal and state judges, among the nation’s most liberal, reflect the culture in which they live. Often they rule that the state must expand regulation, increase entitlements, or offer restitution, without any guidance on how to pay for the associated expenses. Teachers’ unions have lobbied for higher pay, less accountability, and a curriculum stressing self-esteem–at precisely the time when massive immigration, both legal and illegal, has brought in millions of students without English fluency and in dire need of traditional education, causing white flight from failing metropolitan school districts in Fresno, Los Angeles, San Diego, San Francisco, and San Jose.
Environmentalists have curtailed public use of thousands of acres of state land and restricted private land-use options–even as the population has skyrocketed. The result is millions of acres of untouched coast and mountains, a pristine north, and congested, high-priced living around Los Angeles and San Francisco. To drive along the Bay Area’s northern corridor, around Interstate 280, is to see thousands of acres of open spaces and aging upscale communities of tiny but now million-dollar-plus homes. A sort of “I got mine” attitude leads entrenched coastal communities to shun the very conditions that once allowed their residents a chance at affordable housing.
Conservatives elsewhere point to California, with all its failures, as the proverbial canary in the coal mine–a warning about Obama’s vision of an America of higher taxes, increased regulation, greater redistribution of property, more unionized employees, lax borders, environmental radicalism, and politicized education.
Revenue-hungry liberals counter that thanks to Proposition 13’s limitations on property-tax rates, the state cannot get enough money out of wealthy home and business owners. They lament that a two-thirds vote of the legislature is needed to increase taxes or even set a budget. The easiest solution, according to public-employee unions and liberal lawmakers, is to raise corporate taxes, go after low-taxed residential properties, and put new surcharges on the wealthiest income brackets.
While partisans point their fingers, an odd pattern of mass migration during the last decade offers a better indicator of what went wrong. Millions of poor, uneducated newcomers from Latin America have moved north in the last three decades, while wealthier, better-educated California residents are heading east to low-tax states like Nevada, Utah, Arizona, and Florida. The Census Bureau records that between 2000 and 2007 the state experienced a net loss in population, owing to the departure of more than 3,000 residents a week. But the larger problem is a radical demographic readjustment, as higher-income earners leave and those in need of public assistance arrive, both citizens and illegal aliens.
Until recently, California hosted about 40 percent of the nation’s illegal aliens, at a cost of anywhere from $10 billion to $20 billion in state entitlements. Most illegal residents do not pay state income taxes, and many receive cash wages that do not include federal or state deductions–while they draw on entitlements and burden the criminal-justice system at rates greater than their percentage of the population. Admittedly, the state benefits from single, healthy, young, and minimum-wage immigrants, but this soon changes–as illegal aliens age, have larger-than-average families, suffer illness, and create social problems, costing more than they contributed in earlier years.
Few analysts talk about remittances, but of the estimated $50 billion per annum that until recently was sent from the United States to Latin America by illegal aliens and green-card holders, perhaps a third came out of the California economy. Remittances are a double whammy. Not only does the economy lose billions of dollars, but its lower-paid workers are left with vastly reduced spendable incomes. As a result, they cannot afford private health insurance, adequate housing, or higher education–so these things must be paid for by the state. In effect, the California taxpayer subsidizes the poor of Mexico.
Again, the problem of population loss does not hinge on the relatively small number of yearly departures from a state of nearly 37 million, or even the net loss in population of well over 150,000 per year, but on the income levels of those who left. Many of them balked at paying the higher taxes, or were tired of unaffordable housing, or chafed at government regulation and poor schools. Not all of those leaving the state were well off, but enough of them were to cripple the state’s tax base. Currently 144,000 of California’s wealthiest residents–less than half of 1 percent of the population–pay almost half of the state’s income taxes. Each time even one such resident leaves, the state loses the resources to provide services to many recipients of state entitlement.
Yet what drives much of the anger over the present mess is not just high taxes, but frustration that the taxpayers do not receive sufficient value for their forced contributions. Highly paid teachers and mandated small class sizes somehow have not improved California’s schools. The nation’s highest state gasoline taxes (47.4 cents per gallon) do not translate into safe, well-maintained roads. U.S. Route 101–California’s longest highway, and one of its oldest, dating to 1926–is still not a continuous freeway, and in some places it remains a potholed, 1950s-style road. Portions of the overcrowded and dangerous State Route 99 are still just four lanes, usually in disrepair. A morning at a local Department of Motor Vehicles office can turn into an hours-long ordeal of glacially creeping lines. During my last such visit, there were twice as many closed counter windows as open ones. The few employees in the office actually serving the public wore purple SEIU T-shirts, emblazoned with slogans like “Organize” and “Solidarity,” rather than something like “Service with a Smile.”
WHAT makes California so susceptible to these afflictions? Again, the standard explanations do not quite suffice. True, the state’s lotus-eating popular culture and idyllic weather attract hedonists, transients, impractical dreamers, and the parasitical. Yet from the 1950s through the 1970s California was a leader in transportation, education, and financial sobriety, under both Democratic governor Pat Brown and conservative Republican Ronald Reagan.
What went wrong is not just gerrymandered legislative districts, activist judges, ballot propositions, and constitutional requirements for two-thirds majorities. Those are manifestations of a deeper malady, the residue of past efforts, both conservative and liberal, to shake up the state. Conservative Californians-sick of crime and high taxes–passed ballot propositions to restrict the options of liberal public officials, who during budget crises often had cut essential services to shock voters into approving questionable pet entitlements. Liberal environmentalists used the same referendum process to institutionalize much of their no-growth agenda. Neither side worried about the resulting costs–or the underlying reasons for which the state had so much criminal activity to begin with, or for which those who had homes in nice places did not want others to have the same opportunity.
In short, the problem is us–the mercurial public of California. Acertain therapeutic mindset of wanting things without regard for what they’ll cost has set in. While this is a common trend in contemporary America, it has become gospel here in California.
Upscale northern Californian environmentalists fret that small marine life in San Francisco Bay needs more fresh water. They lobby the legislature, enlist their congressional representatives, and sue in federal courts to curtail both state and federally contracted irrigation deliveries to California’s farms. Three-inch delta smelt may be saved by such water diversions, and perhaps a few fresh-water rivers will now support salmon as they flow untapped to the sea. But tens of thousands of farm laborers are put out of work, excellent land goes unfarmed, and millions of dollars in agricultural sales are lost to the state economy.
The well-intentioned environmentalist sees California’s dilemmas in Manichean terms of good vs. bad choices–never bad vs. worse–and dreams that 37 million residents can maintain their present lifestyle within a pristine 19th-century landscape. Most green activists are well-off enough to avoid directly suffering the economic consequences of their utopian activism. For example, at least some of the Bay’s water problems also result from too much ammonium, a byproduct of northern California’s treated sewage and land runoff. But when the delta smelt suffocate, it is easier to criticize a corporate farmer far to the south for being a water hog than to blame nearby municipal wastewater plants, septic tanks, and local creek runoff for adding too much dirty water to the Bay and delta.
Pro-immigration groups have lobbied liberal cities not to cooperate with federal Border Patrol authorities. But many who support such “sanctuary” laws live in neighborhoods distant from barrios and send their children to charter or private schools. How moral is it for California’s affluent, in their tony neighborhoods, to hire landscapers, nannies, and housekeepers, but not to live near, or send their children to school with, such low-wage-earning families–or care much about those who do?
Legal groups, to the delight of the media, have sued the state repeatedly in behalf of prisoners’ rights. The result is that California’s penal system has the most regulations and the highest costs per inmate of any in the country–$46,000 per prisoner per year. But most of these activists, again, can afford to pay higher taxes, and they insist on housing and schools that are far from the high-crime areas where the prisoners they have helped to achieve parole tend to congregate.
No-growth zoning statutes in the San Francisco Bay area favor older and wealthier homeowners who treasure greenbelts and untouched coastal hills near their backyards. A 50-year-old three-bedroom tract house in no-growth San Jose can still cost more than a palatial residence in the Midwest.
California, once a net oil exporter, now imports 60 percent of its oil. That shortfall is a result of steadily rising consumption, declining production, and new restrictions on exploration and exploitation. Yet despite the reduced output–214 million barrels last year, down from 394 million at the 1985 peak–experts guess that there may be at least another 4 billion barrels to be recovered in fields that are already being exploited. This summer Occidental Petroleum announced a new oil and gas find in Kern County with up to 250 million recoverable barrels. Some estimates put the available oil off California’s shores at 10 billion barrels–enough to supply all the state’s needs for nearly two decades.
Yet while California chooses to put off-limits much of its oil potential, and prefers to subsidize more costly biofuels and wind and solar energy, the irony is that this would-be green state remains the world’s third-largest guzzler of petroleum after the United States and China.
Its energy ideals are at odds with its daily reality. One of the most inflammatory things I have ever said in a lecture was to innocently joke to an upscale Santa Barbara audience about the number of Volvo and Mercedes SUVs in the parking lot of the country club where I was speaking–and the disappointing absence of oil derricks off in the marine horizon. Outrage followed.
Finally, California has become Ground Zero of class, race, and gender tribalism, which hampers honest discussion of the state’s ongoing crises. After publishing a book on illegal immigration, Mexifornia, I used to encounter hostile audiences who shouted that my use of the term “illegal alien” was blatantly racist. Yet the politically correct “undocumented worker” is an inexact term, since hundreds of thousands of them are not currently working, and most never had legal visas or documents to begin with. If we cannot talk precisely of the problem, how can we address it?
In November 2008 a ballot proposition banning gay marriage was passed. The results seem to have reflected higher-than-usual election participation of blacks, who turned out to vote for Barack Obama but traditionally have been unsympathetic to gay activism. Yet instead of citing that politically incorrect fact, the state’s angry post-election gay demonstrations began targeting Mormons, as if they had been responsible.
University of California officials talk grandly of the need for more diversity on their campuses, mostly in lamentation that blacks and Hispanics are “underrepresented” at the flagship, but not racially diverse, campus at Berkeley. Rarely do they mention that whites are underrepresented there as well. To set policy in accordance with their utopian world of proportional admissions, they would have to deny entrance to thousands of Asian students–”remedying” the discrepancy between a roughly 10 percent Asian presence in the general population and a nearly 50 percent Asian enrollment at Berkeley.
In a recent survey of the California mess in Britain’s Observer, the journalist Paul Harris dutifully traversed the state, interviewed dozens of people, both the prominent and hoi polloi, and analyzed the symptoms of decline–IOUs instead of state paychecks, massive unemployment in agricultural areas, crippling cuts to state education, foreclosures, and crashing housing prices.
But when it came to exploring causation, Harris never discussed in detail the soaring state spending, large increases in the size and compensation of the public workforce, crippling taxes on an entrepreneurial few, environmental restrictions on development, or reasons for cutoffs of irrigation deliveries. Instead, Harris was convinced that the state would be saved by slow-food trends, coupled with solar and wind power–to be ushered in by Alice Waters, the guru of Michelle Obama’s victory garden, and Van Jones, the Obama administration’s recently resigned “green jobs” czar.
The truth is that there are now three Californias, with two of them in alliance against the third. The dependent class–those who pass through the criminal-justice system, those who are residing in the state illegally, and those who are poor or on public assistance–can count on the big-government coalition of affluent journalists, politicians, academics, lawyers, jurists, and state employees to lobby for more entitlements and more public services.
Set against this alliance for greater state spending and higher taxes is the non-public productive class: the shrinking band of business owners, farmers, the self-employed, and workers in private industry. Not only are they asked to pay for the state’s growing costs, they are the most likely to suffer economically from greater regulation, poorer schools, more crime, and endemic illegal immigration. And when budget crises hit, those who pay the highest income taxes are blamed for not paying even more.
IS there hope for California? Yes, in the sense that not even California can perpetually borrow what it will not be able to pay back. It can call the current 10 percent cuts in state employees’ pay “furloughs,” but for the employees, they are still cuts. It can deny that thousands are leaving the state, but it cannot ignore that Nevada is currently running ads on California television reminding residents why so many have voted with their feet. It can talk of a tolerable 10 percent top income-tax rate, but not on top of soaring federal income- and payroll-tax increases. As California hits bottom, there will be a growing realization, given its most unusual natural riches, that we don’t need to do everything right, just to stop doing everything wrong.
There are already a few hopeful signs. The governor and the legislature have promised to reexamine the tax code. Illegal immigration is way down, as word gets out that jobs are scarce and once-easy state money is getting harder to collect. A growing, tax-paying Hispanic middle class, increasingly integrated, is beginning to turn fiscally conservative, tuning out the old La Raza tribalism and resenting subsidies for illegal immigrants who did not play by the rules but do raise everyone’s taxes. The governor, and many in the Democratic legislature, are trying to expand the state water system’s antiquated 1960s network of canals and dams–and to redefine farms and farm workers as more important than smelt.
Will any of this work? Only if the state’s residents dare to speak candidly, without worry about being slurred as illiberal. Voters must not burden future generations or advocate short-term palliatives whose costs they will not bear. And pragmatic Californians should remember that if they do not produce their own oil and food, someone abroad will do it for them–in far less environmentally correct fashion.
It will ultimately be up to my son’s cohort to reject the model of his father’s generation–and instead to rediscover how his great-grandfather’s breed gave us the California that we took for granted for far too long.
Mr. Hanson is a senior fellow at the Hoover Institution and a recipient of the 2007 National Humanities Medal.
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