California's Failed Policies Are Driving Away Businesses and Residents

The Golden State needs to mend its ways before it's too late.

Not long ago, I penned a case for staying in California, arguing that there's nothing wrong here that isn't fixable. California, blessed by magnificent and varied geography, mild weather, and an "anything's possible" culture, suffers mainly from a political process controlled by union advocates hell-bent on protecting their power and privilege, no matter what that means for the state's public finances and public services.

While still standing by this "we should stand our ground" point of view, I've found little to be hopeful about in the current political season, with polls showing Gov. Jerry Brown's tax-increase plan (Prop. 30) holding a solid lead, an initiative that would chip away at union power (Prop. 32) failing, and President Obama holding a 24-point lead in the presidential race. Polling results on all three above-mentioned matters are not surprising, but they do suggest how far we are from the paradigm shift needed to get California back on a better track.

The most troubling thing I've seen is the delusion embraced by the state's dominant Democrats, who really believe that California is only one massive tax increase away from being fixed.

"Maybe I know too much about this stuff, but we're in a recovery, a slow recovery, and it'll keep recovering with any luck," Gov. Jerry Brown said in early September. "And if the Republicans would get out of the way and let, you know, the stimulus and the investment go forward, such as the Democrats have proposed, we'll be better off."

The state's problems don't bother me nearly as much as knowing that voters and officials here are in denial about the problem and have no clue how to fix it. It's getting harder to blame Republicans for this any more, especially in California where they are an endangered species.

If voters approve Proposition 30, California's income-tax rates will be the highest in the nation—21 percent above the second-highest state of Hawaii and 34 percent above the third-highest state of Oregon, according to anti-tax activist Richard Rider of San Diego. California is high on the list of most other taxes and regulations, and its wasteful public services are not reform-able because of union power.

Business owners talk not just about the costs, but about harassment by myriad government tax and regulatory agencies that often treat them like criminals. Freedom is on the decline as government gains more authority to micromanage virtually everything. Just check out the kind of bills the governor is now signing into law. (I love Steve Breen's cartoon, which says, "If you're a Californian and want to start a small business, there are a number of different routes you could take." It then shows the various Interstate highways that lead to other states.)

Yet Brown insists that California is still "the land of dreams." And some academics say the talk about a California exodus to other states is not true. In May, University of Southern California Professor Dowell Myers argued that we shouldn't believe "the tales of gloom. Californians aren't fleeing." The main problem,he wrote, is Californians don't spend enough public money on schools.

This is where I want to bang my head against the wall. There have been some reductions in per-pupil public-school spending from 2008, given California's budget problems. But these reductions come after massive spending increases in previous years and Prop. 98 mandates 40 percent of the general fund goes to K-14 education. Schooling is so important, yet California's leaders have been resistant to imposing the real reforms that will improve schools through competition and teacher testing—ideas that run afoul of the powerful California Teachers Association.

Despite these delusions, productive people are leaving and they will do so more rapidly if this "just tax and spend more" advice is followed.

A new study from the Manhattan Institute called "The Great California Exodus: A Closer Look" offers a reality check. Yes, Californians are fleeing mostly for pro-growth states with a better tax and regulatory climate. California used to be a destination state, but has outsourced 3.4 million residents in the past 22 years.

"The data suggest that many cost drivers—taxes, regulations, the high price of housing and commercial real estate, costly electricity, union power, and high labor costs—are prompting businesses to locate outside California, thus helping to drive the exodus." As authors Tom Gray and Robert Scardamalia explain, Californians are fleeing "chronic economic adversity," congestion, and "constant fiscal instability" at the state and local governmental level, which "can be seen as tax hikes waiting to happen."

All these reasons, even congestion, have a strong public-policy component. Businesses and individuals get tired of being viewed mainly as an ATM machine for government. If the state's political leaders, most of whom come directly out of "public service" or the union movement, talked to business owners (and not just the crony capitalists they meet at the Capitol), they might learn about the trials of doing business here.

California is a highly urbanized state and coastal metropolises are understandably crowded, but draconian land-use restrictions and misguided transportation policies (roads are bad, rail is good) exacerbate the problem. These "New Urbanist" policies embraced statewide have created unnecessary sprawl and congestion by pushing development far from job centers and into the Inland Empire and the Central Valley.

Governmental instability is an understandable reason to flee. In cities that have overspent on lush pensions and wasteful redevelopment projects, traditional public services (infrastructure, public safety, parks, etc.) suffer—something that will get worse as more localities file for bankruptcy.

The Manhattan Institute authors argue that California can be fixed if Californians have the "political will." Unfortunately, protests in Spain and Greece, much further down the same path California is taking, suggest that politicians can go many more years without showing the necessary political will to make necessary but tough reforms. Let's hope California retains enough of its historic entrepreneurial spirit to muster the will to turn things around.