In 2012, California’s economy was equal in size to that of Russia. The state is a leader in agriculture, energy and entertainment. But as a result of a series of issues that have metastasized over the past four decades, the state finds itself facing an economic abyss.
Blaze Books sat down for an in-depth interview in TheBlaze’s New York newsroom this past Tuesday with former Reagan appointee and California-based lawyer and political communications company executive Jim Lacy, author of “Taxifornia,” to discuss the major challenges facing California that threaten to turn the state into one big version of Detroit. Below are six reasons that California is on the verge of collapse, as gleaned from our interview with Mr. Lacy. All links are ours.
1. Union dominance and “doing it for the kids”
“What I think is more remarkable about the change in California is the incredible political spending by the public employee unions. Since 2000 public employee unions have spent a half billion dollars in California to influence legislation or political election campaigns. There’s no way that the private sector has been able to keep up with that. In the same period of time the Chamber of Commerce has spent $50 million. Chevron spent $90 million. And Chevron has a lot of reasons to be concerned about who is elected to office and what legislation is passed in the state. It’s just absolutely phenomenal the way that these unions have been able to organize, take their money, and be successful. And they’re basically hoodwinking the electoral process, basically because again and again and again Californians have responded to the argument that the reason for this tax is to “do it for the kids.” The reason for this political outcome is to “do it for the kids.” The reason to support this legislation for more regulation is to “do it for the kids.” And again and again the kids continue to fail, the test scores are in the lowest percentiles – they’re ranked 45th, 44th, 48th in reading, math, science – you name it California’s at the bottom of test scores.
[sharequote align=”center”]There’s no reason why the guy who runs the [public transit] maintenance yard…in Oakland, should get paid $271,000[/sharequote]
But these public employee unions continue to get in national terms relatively high pay – top level pay for teachers – and they continue to protect these very generous, overly generous defined pension plans that are causing localities to not only reduce services but to increase the taxes. I mean there’s no reason why the guy who runs the maintenance yard at the Bay Area Rapid Transit District in Oakland, should get paid $271,000 a year with overtime in the year 2012. There’s absolutely no reason and of course now that guy has gotten a raise under the new contract so he will make between 9 and 11% more. That’s more than members of the Supreme Court are paid. So there’s no reason for that other than the fact that the union that that guy represents has bought and paid for the members of the board of directors of the Bay Area Rapid Transit District who are elected officials. There’s absolutely no reason for it – it’s irrational. It defies reason that in Oakland there should be a $100,000 janitor and across the bay you know in the school system also a union member the janitor is getting paid $65,000, when the average pay in California is $52,000 for a family of four. So and this again goes to what you’re saying about the national implications – the national implications are there to observe because when citizens lose control of their government or lose sight of what’s important to be monitoring in government, this is what can happen, and it’s certainly playing itself out in California.”
2. As a result of union power, unsustainable pensions/mass municipal bankruptcies
“…before Detroit what was the largest municipal bankruptcy in the country? It was the city of Stockton, California. Yes again, California leads the nation – it leads the nation in municipal bankruptcies. USA Today says that there are probably ten more cities in California that are ready to go bankrupt. So we have to ask ourselves the question, “Well why?”
A big part of the reason that the municipalities are having these problems is because of public employee pension obligations. And as a result of those, they’re raising taxes. I’ll give you an example. San Jose is the third-largest city in California. It’s also the 10th largest city in the nation. So your question was “Why should the rest of the nation care?” And what I’m gonna tell you is that because of the way that the liberals and the public employees have controlled California politics, this is what’s coming in municipalities all across the nation. It’s just playing out in California first because the liberals have been in control for so long. The city of San Jose just put together its latest city budget, and they have a reform mayor. The budget’s a $1 billion budget. 30% of the budget is dedicated to paying for pension obligations for public employees that have already provided services. If 30% of the budget today is to service debt on past services by public employee union members, what’s it gonna be tomorrow, two years from now, or three years from now? Because people are living longer, and because of the salary obligations of two generous salaries that the politicians have given. And I’ll give you an example. In the county that I live in, the average pay for a firefighter is $234,000 a year. That firefighter can opt to retire at age 50 or age 55 and depending upon the calculation from anywhere from 50% to 75% or 90% of that salary over time. In the last 10 years San Jose’s obligations to pay for public employee pensions, which by the way are all underfunded (they aren’t paying enough) have quadrupled to $300 million. So if they’re going to go up exponentially, I would say that probably in the next 10 years it’s quite conceivable that San Jose’s public employee pension obligations will constitute the majority focus of government spending.
So what’s happening in California is that the purpose of government is shifting – government is no longer primarily organized to provide police, fire and public safety services. What it’s primarily organized for right now – the direction that it’s going in — is to provide pensions to past employees. And that’s a real problem. And it finds itself in too-high salaries, and too-generous pensions under defined benefit plans. And there’s a whole reason that we have that in the state, and part of what “Taxifornia” does is reveal that.”
3. First in the nation…in taxation
“…what the politicians do [as education flounders, pensions remain underfunded and potholes mark thousands of miles of California roads] is just tax and tax. California has the highest state income tax in the nation, the highest state sales tax in the nation, the highest gas tax at the pump – a consumption tax that really hurts poor people, and they’re talking about raising it another 15 cents a gallon so that they can do carbon reduction work. And even in raising all of those funds, the money doesn’t go to where the politicians pledge it’s going to go. Proposition 30 was supposed to go to the kids. It’s not going to the kids. It’s going for welfare, to build more prisons and to high public employee pensions.”
4. Arrested energy development
“I think the statistic is is that oil production has been reduced almost 50% in the last 20 years in a state that has in the Monterrey Shale one of the largest formations of shale for fracking in the country – it actually may be even bigger than the deposits in the Dakotas or Pennsylvania. California has always had immense natural gas and oil, not only in the state but offshore, but because of the unfortunate oil spill in 1969 – and I mean this is even recognized by political science professors with academic works written about California – after the 1969 spill the environmentalists just seized upon the troubled shores of Santa Barbara to really change the political thinking about offshore oil drilling and as a result of it there has been practically no new oil exploration off the coast, and because of the green movement over the last few years and efforts by environmentalists to make California the leader in carbon reduction for the globe, state policymakers have embraced something called AB32 [the Global Warming Solutions Act], is not a policy that’s carbon neutral but that is dedicated to stamping out carbon not only in the state of California but throughout the globe.
So the idea – the policy of the state is to not exploit our offshore reserves — to only exploit fracking under recently passed legislation which industry didn’t like, and to close down every single carbon burning power plant in the state — there’s only one nuclear plant open in the state. And to basically turn the energy resources, almost 95% over to natural gas. There’s some hydroelectric obviously but the natural gas can’t be California natural gas, because politicians and environmentalists won’t let us exploit that. It’s got to be imported natural gas, even though natural gas is clean — apparently California natural gas isn’t clean. So we have to import it, so what this does is it exports jobs to other states where there is natural gas that we can access, it increases the cost of utilities — utility bills are up anywhere between 30% and 50% — and that’s something by the way that’s happening not only in California but it’s happening in other parts of the nation as well. So California’s energy industry has really really gone down and the alternatives haven’t worked. You know it wasn’t that many years ago when Jerry Brown was running for governor and he would have this speech that he would give about wind and solar and waves and how that was all going to be able to create energy, but the biggest wind farm that has been built in the state has been closed because environmentalists objected to the deaths of some condors and eagles as a result of being hit by the windmills which was of course entirely predictable. And some of the solar, one of the biggest solar facilities has been closed down because of Indian artifacts being disturbed and some reptiles being disturbed that folks care about. So you know there’s a real misplaced judgment in the state about energy development that comes from this unfortunate oil spill in 1969 coupled with the high-minded notion of environmentalists that California should become the world’s green policemen, and it may have its place at some point, but at a time of economic distress where you have so much poverty, where you have so much unemployment in the state, it’s completely misplaced.”
5. Environmentalism on steroids
“California continues to uphold regulations that define the smell of baking bread as a pollutant. And a bakery was actually fined millions of dollars in the last few months in Lodi, California for not having proper cleansers on it’s emission of the smell of baking bread.
Many of the regulations don’t have appropriate cost-benefit analyses attached to them. So you’ll go to the extremes and have people who’ll say and will actually get to the elected officials with ideas like banning fireplaces in residential homes. Actually banning them. Trying to close down fireplaces in homes that exist. And then having discussion about “Well, we can’t do that so for new residential developments you actually can’t have a fireplace.” In Santa Barbara you can’t burn wood in fireplaces. What you can do according to local regulation is you can have a light switch put up a weak flame. California can be whacky and many of the environmental laws that we have are not really based on a rational cost-benefit analysis, and because right-thinking people have been so out of power for so long, it’s just gotten worse and worse and worse.”
6. The “Gubernator” terminated his own agenda
“Arnold Schwarzenegger became governor when the prior governor, a liberal Democrat was recalled, and one of the reasons he was recalled was because he had raised the car tax. There are also some issues involving energy companies and the rising cost of electric utilities which by the way are going through the roof right now in California because they won’t allow carbon, it’s all natural gas. You cut the source and the price goes up. But the idea was that Schwarzenegger would correct these issues, and I discuss in “Taxifornia” Schwarzenegger going up to the Republican convention and saying “I am a Republican. I support Republican values. And I like Milton Friedman, not Karl Marx.” But he didn’t implement any of it. And the reason he didn’t implement it is because he got stung several times by CTA in the process, and he lost courage. He lost heart because in order to bring the fight that the people elected him to do – that he told the people he was going to do – he had to confront the Left. And he was unwilling to confront the Left. That’s a big problem. When your best shot at reforming the state not only fails to reform the state but actually ends up increasing the budget, increasing taxes, it doesn’t help your credibility as a Republican Party. And I hear this frequently even – I have a Facebook page where we promote the book and it’s great – but many of the arguments that come back by the liberals say ‘What are you talking about? It’s Arnold Schwarzenegger that caused the deficit. Jerry Brown is fixing it.'”