California’s economic outlook in ‘deep trouble.’ Will we reach a point of no return?
California has become deeply complacent in taking care of its economy and willfully negligent in taking for granted our incredible economic success.
“The California dream is in deep trouble,” Leon Panetta said recently about the growing flight of jobs and investment from the state to places like Texas, Florida and Arizona.
Whether or not what’s happening is a mass exodus is beside the point — waiting for California to reach a point of economic no return is unacceptable.
The warning signs are everywhere. Recent state data showed California’s population declining for the first time in recorded history, an ominous sign of economic decline. Our jobs recovery is lagging most other states and the nation, unlike past downturns. Near-daily news stories tell of companies, jobs and investors decamping to other states. Since 2018, U.S. Postal Service out-of-state address changes have more than doubled to 211,000. In a recent ranking by the Milken Institute of the nation’s best-performing cities, California cities that perennially topped the list plummeted.
The causes won’t surprise anyone: astronomical housing costs brought on by a self-inflicted housing shortage, rampant homelessness, nation-leading poverty and staggering economic and social inequities. The growing threats from wildfires, drought and extreme weather; exorbitant taxes and energy costs, grinding traffic and a dense regulatory thicket round out the hit parade.
Making matters worse, the COVID-19 pandemic has spawned a dramatic shift to remote work that means geography is far less important in deciding where to grow jobs and invest. The implications of this reach beyond the jobs eligible for remote work, to the thousands of small businesses and workers whose livelihoods depend on healthy economic activity. Sensing California’s growing vulnerabilities, other states are intensifying their efforts to attract our jobs and investment.
Despite this bleak picture, California remains a global economic and innovation powerhouse. The encouraging news is that we can fix what ails California, but we must act. Dismissing, denying and ignoring these early warning signs will only set us further behind in correcting course. That’s why the Bay Area Council has formed a coalition of more than 50 business, industry and trade organizations from across the state to raise awareness about the economic peril facing California and call for immediate action.
We must stop digging the hole deeper. Imposing new taxes and regulations that stifle job creation and discourage investment is pure folly. Yet legislation like AB 71 would raise taxes on businesses to address a homeless problem that has only worsened even as spending has soared. Other such levies are lurking, and we applaud Gov. Gavin Newsom for signaling that new taxes are not what’s needed when California already has some of the highest personal income and corporate tax rates in the country, particularly when compared to states considered our leading competitors.
Underpinning much of this is a long-souring relationship between business and government. Enacting misguided and over-reaching regulations and suing the very companies that have created thousands of jobs and helped establish California as a global innovation leader is counterproductive and wasteful. We must step back from the toxic rhetoric of blame and instead work together.
We all want California to succeed and thrive. We’ve worked too hard and invested too much to build one of the world’s largest economies to let it slip through our fingers. We must summon the intestinal fortitude to confront and overcome the many political and other obstacles that have allowed our problems to fester.
The solutions are well known: reform and simplify our tax system, meet the unquenched demand for housing; invest in transportation, schools and universities and reduce and simplify regulation. The list is long, but waiting until California reaches an economic point of no return is not an option.