Green energy boondoggle raises costs while killing jobs and birds

August 9, 2011 By Jon Coupal 1 Comment

You have to wonder if most California politicians simply can’t stand the notion of a thriving economy.  In a move that will have a devastating effect on jobs and on the pocketbooks of regular citizens, Jerry Brown recently signed legislation that will dramatically increase the amount of costly “green” energy California’s citizens will be forced to purchase.

In this time of record high unemployment, the political class should focus on stimulating the economy to create jobs.  Instead, the politicians have imposed a new mandate called “renewable portfolio standard” or RPS which decrees that 33% of our energy needs to be green by 2020 – as of right now, we have not even met the 20% target that was set for 2010.

Statistics from the Department of Energy show that renewable energy, as defined by the RPS mandate, can cost three or four times as much as traditional energy on a per-megawatt basis.  Higher electricity bills will further strain taxpayers’ budgets and lead to even more job losses.  The US Bureau of Statistics just released a report saying California lost 572,400 manufacturing jobs over the last decade, and our unemployment is now a full two percentage points worse than Michigan, a state famous for Detroit and its poorly performing economy.

In fact, California’s environmental regulations are so extreme that the majority of the renewable power we will be forced to buy will not even be produced in this state but imported from Mexico, Canada and other states.  While the political class likes the idea of green energy, getting any type of power plant built in California is difficult in a state as tangled in government red tape as ours.

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Don’t Let Rural Jobs in CA become Extinct

August 8, 2011 By Harold Johnson 1 Comment

If a tree can’t be cut down on rural property because of unjustified federal rules, and no one’s around to hear the owner’s frustrated grumbles, do they make a sound?

The question occurred when I read the headline on a magazine item about the regulatory manacles imposed on landowners by the U.S. Endangered Species Act: “Boring but important”

It’s true that the minutiae of environmental restrictions on farms, forests and undeveloped land is not the sexiest of subjects, even for many conservative/libertarian activists who are passionate about opposing the advance of big government.

But attention needs to be paid. If we want California to become a land of promise again, we need to liberate not just the over-encumbered entrepreneur, the overburdened employer, and the overtaxed working men and women in our cities and suburbs, but also the enterprises rooted in the soil — the forestry, agriculture, timber and land-development industries that were the foundation of the state’s prosperity from the beginning.

– Item: Record snowfalls blanketed the Sierras this year — but farmers in the agricultural Central Valley were still squeezed on water supplies for much of the winter.

The reason: federal “fish before people” policies under the Endangered Species Act. Over the past two years, a misguided scheme to revive a declining three-inch fish, the Delta smelt, caused draconian cutbacks in pumping from the Sacramento-San Joaquin Delta into the San Joaquin Valley and Southern California. Hundreds of thousands of farm acres were fallowed and thousands of jobs went down the drain.

Although the media now tell us “the water crisis is over,” that’s only half right. If the drought of snow and rain has ended (for now), the regulatory crisis continues. In explaining why water users still aren’t getting their full allocations, the California Department of Water Resources fingers the feds: a May 2 DWR press release said that a 100% allocation is “difficult to achieve even in wet years due to pumping restrictions” for ESA-protected fish.

Those regulations flow from “sloppy science,” Fresno-based Federal Judge Oliver Wanger found. No wonder that the smelt population has continued to evaporate. All that was achieved was to turn green fields brown in one of the most fertile agricultural regions in the world and a historic backbone of California’s economy. Look for more of the same in future dry years, if the feds’ don’t flush their scorched-earth formula for fish protection.

Item: In 2006, a federally commissioned study concluded that the valley elderberry longhorn beetle no longer needed ESA coverage, and land-use limits could be lifted on private property up and down Central California, from Redding to Bakersfield. Five years later, the feds still haven’t acted; the beetle remains designated as “threatened” – flouting their own scientific findings.

The victims include businessman and environmentalist Bob Slobe, who wants to put up a small, environmentally sensitive office park in Sacramento County. His land has been labeled “critical habitat” for the beetle, so he can’t disturb a bush or tree without paying a massive sum for “mitigation.”

Slobe spends his time and resources shooing away and cleaning up after transients who camp on the land that he’s forbidden from putting to productive use.

The beetle regulations also bug flood-control agencies. They can’t easily fix or build levees where elderberry bushes are present. Levee improvements in Yuba County were delayed for months last year, and the current cost to mitigate for one bush along a Sacramento levy exceeds $160,000.

Says Rep. Dan Lungren: “There is no failure to thrive on the part of the beetle, only a failure to act on the part of [federal officials]. We could not afford it five years ago, and we certainly cannot afford it now.”

Item: Federal officials insist on keeping the California gnatcatcher on the ESA protected status – even though the small, insect-eating bird can be shown to be part of a species that flourishes in Mexico.

The listing ropes off nearly 200,000 acres in San Diego, Orange, Riverside, San Bernardino, Los Angeles, and Ventura Counties. The Fish and Wildlife Service admits that the economic hit from these restrictions is nearly $1 billion – quite a price to safeguard a species that isn’t in peril.

All these useless regulations offer a reminder: The recovery route for the Golden State has to run through Washington, D.C. Unless the federal government adopts a more balanced, people-friendly – and scientifically defensible – approach to environmental protection, California’s rural economy – and probably the state’s larger economy as a result – will linger on the endangered list.

Harold Johnson is an attorney for the Pacific Legal Foundation

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Why California is Losing the Competitiveness Race in Education

August 8, 2011 By Lance Izumi Leave a Comment

California’s education establishment dislikes competition but the most recent research shows that, in the education marketplace, competition works.  A March 2011 study by the Foundation for Educational Choice (FEC) analyzed the results of all empirical studies that used the best scientific methods to measure how school-choice vouchers affect the academic outcomes of participating students.  The results should serve as a beacon as California policymakers debate ways to improve the state’s poorly performing government-run school system.

Under voucher programs, a state attaches funding to a student, which he or she can take to the public or private school of his or her choice. The study concluded, “Contrary to the widespread claim that vouchers do not benefit participants and hurt public schools, the empirical evidence consistently shows that vouchers improve outcomes for both participants and public schools.”

According to the FEC study, nine out of the 10 studies found that vouchers improved student outcome measurements such as test scores in the core subjects and graduation rates.  In addition, by increasing competition between public and private schools, voucher programs forced public school systems to improve.

Eighteen of the 19 empirical studies that looked at how vouchers affect public schools found that public schools improved their performance in the face of the increased competition fostered by vouchers.  In fact, every empirical study conducted in states with voucher programs, such as Wisconsin, Ohio and Florida, has found that “voucher programs in those places improved public schools.”  The FEC study said that while there are a variety of reasons why vouchers might improve public school performance, “The most important is that competition from vouchers introduces healthy incentives for public schools to improve.”  Yet, California has erected barriers to widespread competition in education.

Over the last few years, voucher and other pro-school-choice legislation have died in the state Legislature.  Now, with Democrats controlling the Assembly, Senate and the governor’s office, liberal legislators have unleashed a flood of anti-choice bills.  For example, AB 401 by Assemblyman Tom Ammiano (D-San Francisco) caps the number of charter schools, deregulated public schools started by parents, teachers and community organizations.  Ammiano’s bill targets charters despite the reality that they are four times more likely than regular public schools to be among the top 5 percent of schools statewide in student achievement.  Current California regulations also block students from choosing online and virtual education alternatives.

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Jerry Brown hating on small businesses

August 3, 2011 By Michael Levin Leave a Comment

Jerry Brown hates me.

Hates me.

We’ve never met.  It’s not like I ever caused him any personal harm or grief.  It’s not like I hit on Linda Ronstadt or anything.

But the guy just hates my guts.  I think he wants to destroy me.

I’m not paranoid.

I’m just a California business owner.

On some level, Jerry Brown must hate all of us.

I call it payroll envy.  It’s the feeling that people who have spent most if not all of their lives in government have about people who actually start a business, work really hard, hire people, and meet a payroll every two months.

People in government feel as though they’re missing out on that experience, which I consider one of the most important life experiences an individual can have.

It’s not just that we business owners get to create our own destiny, make all the money we can, and bring about wonderful lives for ourselves, those we love, our employees and their families, our communities, and the charitable organizations we support.

It’s the sense of building something.

It’s the sense of creating something that actually serves people and makes money at the same time.

This isn’t to say that government has never done anything for the people.  If it weren’t for our government, we wouldn’t have a military, although why we are busily defending borders thousands of miles from our nation instead of eighty miles from my home in Orange County is a mystery to me.

If it weren’t for government, we wouldn’t have freeways, although when you look at the state they’re in, you start to wonder whether government is the best guarantor of our nation’s infrastructure.

If it weren’t for state government, we wouldn’t have the UC system, perhaps the finest public education system ever created in the history of man.

What’s wrong with a little California-style hyperbole?  Anyway, it’s probably true.  The problem is that when government exceeds its responsibilities to protect us, help us get from point A to point B in our cars, and educate our kids effectively, it gets into trouble.

Pretty much every single time.

It rewards people who do not deserve to be rewarded, like teachers who are not dedicated to teaching, unions that are more interested in protecting pensions than serving the state, and all of the other shenanigans that we know all too well.  When government lacks sufficient resources to take care of its own citizens and yet opens its borders, its schools, its hospitals, and other expensive and vital resources to anyone old enough to break into the country, something’s wrong.

That’s why I think Jerry Brown must hate me.  All I’m doing is running a business, meeting a payroll, and wondering what obstacle government will throw up in my path next.

Governor Brown has lived in a state where Hollywood is located, so maybe he’s been influenced too much by what he sees on TV and at the movies.  The number one villain, year in year out, on the small screen and the big screen, isn’t terrorists, or foreign agents, or any other murderous bad guys.

It’s business people.

Hollywood loves, loves, loves to make movies and TV shows about larcenous business owners, thieving corporate executives, and greedy Wall Street types.

Of course there is excess and chicanery in the business world.  We live in the real world, and in the real world, sometimes people do bad things.

But business can’t be all bad.  The governor, and the legislators in Sacramento, like the cars they drive (or are driven in), the five-star hotels where they stay, the expensive restaurants where they dine, the movies they view, the basketball games they attend from luxury of their business-related donors all these goods and services are the products of businesses, and most all of this happens on our dime as taxpayers.

The point is that you can take all the potshots you want at business, but at the end of the day, Governor, you need us.  You need us to create things.  You need us to create jobs.  You need us to create tax revenue.

And we’re not stupid.  We can read balance sheets—both ours and yours.  Don’t tell us that the California budget is so complicated that only a few people can understand it and that we taxpayers are too dumb to figure it out.  We know when you are spending more than you’re taking in.  We know when you’re pandering to the unions, to illegals, and to other shortsighted special interest groups that are more interested in the question of “Where is mine?” than the question of “What’s right?”

Governor Brown, stop hating me just because I own a business and I make a payroll.

And if you’re going to tell me that you don’t hate me, that’s terrific.  But let your actions demonstrate that you’re not trying to choke business owners like me.

Without us, there won’t be any tax revenues for you to distribute to your friends and supporters.

And unlike your friend in Washington, you can’t just print more money to solve your problem.

Governor Brown, you don’t have to love me.  All I ask is that you leave me alone.

(New York Times bestselling author Michael Levin runs BusinessGhost.com, which provides books for business owners to distinguish themselves in their crowded marketplaces.)

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Restoring California Competitiveness

July 20, 2011 By Lucy Dunn 1 Comment

California was a place originally known for its opportunities, beauty, wilderness, open roads, Gold Rush mentality, freedom, and innovation. Eureka, the state’s motto, means “I have found it!”  But this place of dreams is now the land of wishful thinking: a consummate nanny-state of over-regulation, command and control.  From the profoundly and absurdly huge ideas (saving the planet from climate change while China and India march to a different tune) to the silly (mandating fitted sheets in hotel rooms).  And we’re so over-regulated, that I guarantee, right now, you are breaking some California law this very minute.  (Did you install your CO2 monitor required in every home July 1? No? $200 fine is on its way.)

Where unemployment at over 12% is one of the highest in the nation–two million people out of work–the state’s bond ratings flirt with junk status, and private investors are wary of a constantly changing and uncertain regulatory environment.  Where governors from other states proactively seek and invite the relocation of our best businesses.  And what’s to stop business from leaving? California has ranked 49th or 50th on numerous national lists as the worse place to do business for the last several years.  According to Dun & Bradstreet, 2,565 businesses with three or more employees have relocated to other states since January 2007 and 109,000 jobs left with those employers.

How can we restore California’s competitiveness?

With less.

Less government, less regulation, less mandate, less taxes.  We need to “let my people go!” as Moses would say.

One of the most difficult challenges posed by legislators to the weary regulated community is to name which offending regulations to change.  There are so many—each individually and independently approved with such good intentions—but piled one on top of the other, have produced a morass of laws and prohibitions that stifle investment, strike fear into the hearts of small business start-ups, and ultimately kill jobs before they’re even offered.

How many folks lost the opportunity for employment because—instead of hiring–thousands of hotels must now buy replacement fitted sheets for flat sheets?  Yes, that’s the law now proposed.

Let my people go.  Let my people work.  Simply, until businesses can predict with relative certainty what regulations they will be subjected to, (and litigated) and what their tax burden will be, at all government levels, they will not invest or grow or hire.  If business isn’t investing, growing or hiring, the state isn’t receiving tax revenues.  If business isn’t investing, growing or hiring, public employee pensions like CalPERS aren’t earning fair returns on their portfolio, entirely invested in stocks, bonds, mutual funds, real estate:  in BUSINESS!  The more elected leaders forget these time-honored facts, propose more taxes to fund government, or favor the flavor of the day in eco-thought without regard to economic benefit, the more this state will sink into a black hole of red ink.

To return California to economic competitiveness, every regulator at every level must do one thing now:  any proposed regulation must be subjected to an independent economic impact analysis.  What laws will it affect?  What jobs will it create/destroy/impact?  What other departments or agencies have competing or conflicting regulations?  What is the true cost/benefit analysis?  How does this relate to competing/complicit federal regulations?  You get the picture.

The independent economic impact analysis must be paid for by the agency or lawmaker proposing the law.  Don’t have funding to do this?  Don’t propose the regulation.  The economic impact analysis must be done by an outside, independent company—not by the lawmaker or agency in-house.  This analysis must be on the same level of sophistication as a CEQA environmental impact report for a proposed real estate development project, including formal public review, peer review and comment processes.

Southern California Association of Governments (SCAG)—the metropolitan planning organization for two-thirds of the state’s population—recognized this year that planning for future growth meant nothing without a strong economy.  Earlier this year, under the work of seven economists, developed its first ever Southern California Economic Recovery and Job Creation Strategy (www.scag.ca.gov) concentrating specific recommendations to expand the region’s economic base and increase the flow of funds driving the regional economy.  Fundamental to the strategy is the maxim that “stronger economic growth will help every community.”

To their members’ credit, SCAG approved this strategy unanimously.  190 cities and counties–with the strong support of the business community–threw down the gauntlet with job-creating action strategies that include:

(1) Oppose new legislation that negatively impacts jobs in the private sector;

 

(2) Support legislation that allows agencies…the flexibility to finance early delivery of project and at the same time create jobs;

 

(3) Eliminate or reduce regulations that inhibit expedited project delivery; and

 

(4) Require new state regulations be accompanied by an independent economic impact analysis…Any legislation considered to significantly impact jobs would be opposed;

 

This is outstanding work that recognizes California’s return to competitiveness begins with jobs that result from less government.  The State has both the need and wherewithal to develop a comparable strategy to create jobs, stimulate the economy, reduce regulations, and ultimately increase California’s competitiveness. Let my people go.

 

(Lucy Dunn is President and CEO, Orange County Business Council)

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Amazon Tax backfires

July 19, 2011 By Patrick McFawn Leave a Comment

 

As is now the expected norm in California, the State Legislature and Governor do not want to leave money on the table.  And a budget shortfall of $28 billion is giving them plenty of incentives to stick taxes into every corner of the state economy that they can.

Democratic lawmakers passed ABX1 28, the “Amazon Tax”, which was signed by Jerry Brown on June 29th in an effort to raise $200 million from online retailers who sell products through Amazon.com.

But as is the case with “revenue generation” in Sacramento, it never takes into consideration that businesses, people, capital, and incentives are fluid.  Businesses can leave.  Employment can and will rise and fall as a direct result of spending decisions decreed by Sacramento.  The weather is great, but nobody is forced to stay in California and fight for decreasing job opportunities.  In fact, lawmakers should know this, as they met in Texas to find out why California companies relocate there mere months ago.

Amazon.com has a network of retailers who use the well-recognized company to sell products.  For example, if you were a small business owner who wanted to sell apparel online, you could set up an account with Amazon.com to allow online users to find your apparel and purchase it online.  The payment is facilitated by Amazon.com, you earn a profit, and the buyer is shipped the good.  This is great for California.  With such a high cost of living, it affords entrepreneurial citizens and taxpayers the ability to earn an above national average standard of living in California and while having access to literally a world of consumers.

Under ABX1 28, Amazon.com and other online retailers like Overstock.com (who has even spent money to have their name on the Overstock.com Coliseum in Oakland) have to collect the 7.25% from anyone purchasing a good from California because Amazon.com’s affiliates are located in California (not Amazon.com, located in Seattle).  So in an effort to not pay taxes, Amazon.com has severed it’s ties with over 10,000 smaller business in the state to be free of the economically disastrous laws of California.

Lawmakers state that they want an even playing field for both online retailers and brick-and-mortar retailers like Wal-Mart.  Of course, as Charles Dudley Warner said, politics makes strange bedfellows.  The only way Sacramento would defend Wal-Mart is to justify a supposedly $200 million revenue stream to the capitol.  It’s an excuse that is intended to sound fair.

And here’s where outcomes become less than stellar.  With Amazon.com severing ties, the state will collect significantly less than anticipated because the online transactions that drive sales revenue will not take place.  The products from those retailers will not be available to the online world of consumers.  Individual firms will lay off staff, which, on top of less than anticipated online sales tax revenue, equates to less state income taxes collected.  And with continual job destruction in a state with an unemployment rate of 11.7% (as of May 2011), further income uncertainty will lead to less discretionary spending and, thus, less sales revenue, on brick-and-mortar retailers in the state.  And property values, both commercial and residential, fall as a result of falling aggregate incomes.  Consider this on top of California ranking as the worst state to do business and the 47th most expensive state to do business.

Every municipal, state, and federal government needs to realize that job creation is the root of economic problems.  Creating jobs leads to increased revenues to the state.  While balancing budgets are a noble and right goal, squandering future economic opportunity to pay for a budget shortfall today and keep public employee unions happy only kicks the ball down the road when economic growth looks grim.

Amazon.com and online retailers can fight the law in court, stating that having affiliates does not constitute a physical presence of the company and fight the interpretation of a “long-arm statute” by the State Board of Equalization.  But in an effort to hedge against a legal system run by the same California political class, Amazon.com is now collecting signatures to qualify a measure on the February 7th ballot to overturn the law.

When issues like these are no longer considered politics as usual, California will be making progress.

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Texas vs. California

July 14, 2011 By Arthur B. Laffer and Mary Katherine Stout Leave a Comment


Every now and then, we come across something that is simple and says it all. When comparing California with Texas, U-Haul says it all. To rent a 26-foot truck one-way from San Francisco to Austin is $1,840, and yet the one-way charge for that same truck from Austin to San Francisco is just $676. When more people want to move from San Francisco to Austin than vice versa, U-Haul must recoup the cost of getting empty trucks back from Texas and ready for the next person in the exodus.

The great thing about this example is that it’s a market price set in the real world—you don’t need to rely on a fancy economic model to see the point. People and businesses are voting with their feet, choosing Texas over California.

These population shifts do not reflect some arbitrary change in geographical preferences. People respond to incentives, and people are drawn to Texas by opportunity. Texas’ overall economic growth and income growth have exceeded California’s for the last decade, and since 2009, Texas has been responsible for 45% of the net new jobs created in the United States. In turn, Texas’ impressive economic performance is no accident; rather, it is the result of a strongly pro-growth economic policy atmosphere, reflected in low taxation, restrained government spending, and a less burdensome regulation.

Taxation

Let’s first consider the burden of taxation in Texas and California, beginning in particular with the tax burden on labor. People do not work to pay taxes. People work to earn the highest wages, after taxes. High or rising taxes on labor reduce workers’ after-tax wage, reducing the incentive to work. As a result, people have an incentive to leave a state with high taxes on labor income and relocate to a state where the taxes on labor income are lower, demonstrating George Gilder’s famous maxim: “High tax rates do not redistribute income, they redistribute people.” As people respond to these incentives, income growth, employment growth, and overall economic growth suffer in the state with high or rising taxes

California levies a progressive income tax system—as people’s income increases, the tax rate on the higher income increases. California imposes one of the highest top marginal state income tax rates in the country at 10.3 percent, and the marginal tax rate on the median household is 9.3 percent.

In contrast, Texas does not impose a state income tax. By definition, the marginal income tax rate for both the highest income earners and the average worker are zero percent. The practical result of this is that the median worker in California can achieve an after-tax raise simply by finding a job at the same wage in Texas. Texas derives a clear competitive advantage from its lack of an income tax.

In addition to the negative incentives to work, California’s progressive income tax code largely explains why hard times seem to hit California harder than other states. Tax progressivity exaggerates the normal ups-and-downs of the overall economy: when times are good, California citizens earn more and move into higher tax brackets, thereby giving the state a larger fraction of a bigger pie. But then an opposite effect holds true during recession: People earn less income in general, thereby shrinking the tax base even as many fall into lower tax brackets and pay a smaller fraction of smaller paychecks. If the state committed to a higher than efficient spending path when times were good, budget crises are likely to emerge when times are bad.

Next, consider the variety of taxes that constitute the tax burden on capital. California has an advantage over Texas in that it has a lower property tax rate as a result of Proposition 13. But Texas overwhelms this advantage with lower taxes on corporate income, interest income, and capital gains income. The after-tax interest and capital gains income for a $1,000 investment is 11.5 percent higher in Texas than in California for the exact same investment. As a result, Texas gains a significant competitive edge vis-à-vis California in attracting businesses and investors.

The final significant tax area, the tax on consumption, is essentially a wash between the two states. While Texas has a lower sales tax rate, California has a marginally lower sales tax burden. (Found by dividing sales tax revenue by total state income.)

With every other tax category in Texas’ favor, the Lone Star State clearly maintains a more competitive economic atmosphere with regard to overall taxation than California. Just as important as the current statistics on taxation are the ongoing trends, and again the signs are not encouraging for California. Where Texas’ tax burden, smaller than California’s to begin with, has been falling in recent years, California’s tax burden continues to rise.

Regulation

Texas also gains a significant competitive advantage through limited regulation when compared with California. Just like excessive taxes, excessive regulation raises the costs of doing business, thereby stunting economic growth. For example, high levels of worker’s compensation increase the costs from employing additional workers, increasing unemployment and decreasing a state’s potential economic growth. Texas’ average workers compensation costs are 11% less than California’s, making it significantly more appealing to add workers to a payroll in Texas.

Minimum wage is another significant regulatory policy. Where Texas requires businesses to meet only the federal minimum wage of $7.25 an hour, California mandates that businesses pay a minimum wage of $8 per hour. Minimum wage laws can have only one of two effects. Either the minimum wage is below the wage that would be paid to any employee, so it is irrelevant; or, the minimum wage law raises the wage costs for employers, leading to greater unemployment. By imposing a minimum wage in excess of the federal minimum wage, California is unnecessarily increasing employer costs, thereby reducing business flexibility and overall employment in the state. These effects do not exist in Texas, providing Texas’ regulatory environment with another comparative advantage.

A final regulatory aspect to consider is a state’s treatment of unions. States are divided into two distinct categories with respect to their union organizing laws. They are either right-to-work, which means workers have the right not to join a union, or non-right-to-work, which means that workers are forced to join a union and pay dues if they work in a unionized industry. The evidence points overwhelmingly to the fact that right-to-work states have much greater growth of employment than non-right-to-work states. Texas is a “right-to-work” state; California is not.

Spending

The final policy area, spending, impacts the state economy for two reasons. First, before the government can spend revenues it must first take money away from the private sector. As governments get larger and larger, the value of the dollar taken away from the private sector is greater if it were spent in the private sector than the value of the money if the government spent it. As a consequence, government spending lowers the total potential output in the state. Second, larger government spending today oftentimes begets even greater government spending and activity tomorrow. In other words, the threat of higher tax and regulatory burdens grows as the size of the government grows.

California’s spending record is dismal in comparison with Texas. Texas’ current expenditures per capita are 44 percent smaller than California’s per capita expenditures. Furthermore, California’s expenditures have grown at a higher rate than Texas’ in recent years. Therefore, the gap in expenditure between Texas and California will only grow in the years to come. Higher future taxes, increased fiscal crises, and slower economic growth will all follow as a result of the rising government expenditures in California. In the area of spending, Texas’ prudence and restraint again give it a significant competitive advantage over California.

Conclusion

Both Texas and California have large populations, plentiful natural resources, and the allure of geography. Moreover, the economies of both states have outperformed national trends. But current policies matter for future economic performance. Texas’ superior policies over the past several years are making the Lone Star State more resilient to economic downturns and will provide powerful tailwinds for the Texas economy going forward. The opposite is true for California. The relative success of Texas gives California policy-makers a realistic goal to shoot for. If they can do it in Texas, they can do it in California, too.

Arthur B. Laffer is Chairman of Laffer Associates, Co-Author of “Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index” now in its 4th Edition, and the Laffer Center’s Distinguished Chair in Supply-Side Economics.

Mary Katherine Stout is the Executive Director of the Laffer Center for Supply-Side Economics at the Texas Public Policy Foundation.

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The Golden State No More

July 14, 2011 By Andrew F. Puzder 2 Comments

 

 

When our company recently expanded the number of its restaurants in Texas, I was startled to receive a call from Governor Rick Perry thanking me for our decision.

In the 10 years I’ve been CEO of CKE Restaurants, owner of the Carl’s Jr. and Hardee’s brands, no governor had ever made such a gesture. Perry went further during our conversation and asked what it would take to move our headquarters from California to Texas.

This is a question weighing on many California CEOs right now. Do we grow our businesses here where the tax and regulatory hurdles remain high, or do we relocate to a more business-friendly state like Texas?

CKE’s history in California stretches back to 1941 when Orange County entrepreneur Carl Karcher and his wife Margaret bought a hotdog cart for $311. Today, we have over 72,000 employees, approximately 18,500 of them in California.

We at CKE love California, but the hard truth is this:  California is the most business-unfriendly state in which we operate. While we have kept our corporate headquarters in California so far, our company’s real job-creating engine has already moved.  Our current plans for domestic development are principally centered in Texas where it is easier to build and operate restaurants, unemployment is lower, and consumers can spend more of the money they earn because there is no state income tax.   While we will continue to operate our existing California restaurants, we will be building 300 new restaurants in Texas this decade.

When we open a new restaurant we invest over $1.2 million in the community and create about 25 permanent jobs within the restaurant itself, not to mention the numerous outside jobs supported by our constructing, maintaining, advertising and supplying food and paper products to the restaurant.  Texas’ business-friendly environment is one of the reasons its unemployment rate remains below the national average while California faces one of the nation’s highest unemployment rates, fleeing businesses and a severe erosion of its tax base.  Our 300 new restaurants will create about 8,000 new jobs in the restaurants in Texas and at least 16,000 additional jobs for our suppliers and service providers.  These are jobs we would love to create in California.

What it would take to bring our business development back to California? I would offer the following suggestions:

Reduce out of control permit costs and construction regulation. Excessive fees, oppressive environmental regulations, exorbitant street maintenance costs and unreasonable construction permitting requirements unique to California add up to $200,000 in additional costs for each restaurant and can take up to two years to process through state and local bureaucracies.  On average, the permitting process in California takes about 8 months.  In Texas, it takes six weeks.  That time difference alone materially increases our costs to open a new restaurant.

Allow managers to be paid as managers. California considers General Managers subject to overtime salary requirements if they work 50% of their time in non-managerial tasks.  This is not the case in most states or under federal law.  Our General Managers receive substantial salaries, bonuses and benefits to run their restaurants as entrepreneurs, like they own them.  In the great majority of states, our General Managers can do their jobs as they see fit whether the tasks they choose to perform are strictly managerial or as simple as speaking with guests and busing tables in the dining room.  If you are managing a restaurant and a cook fails to show up, you had better know how to cook and be prepared to do so.  While that is a non-managerial task, it is exactly what you would do if you owned the restaurant.  To avoid costly class action lawsuits on overtime claims in California, many retail businesses, including ours, have had to convert their salaried General Managers to hourly employees so they can do their jobs.   Our General Managers consider this a demotion but we have little choice.  It is simply common sense that General Managers should be classified as managers able run their restaurants as they choose.

Eliminate the overtime work day, pay overtime on a weekly basis. California requires overtime for employees working more than eight hours a day, not just those working over 40 hours a week as in most states. This deprives employees of the flexibility to work six hours one day and make up the time on another. Because managers are also hourly employees, this limits their ability to work more hours on busy days and fewer hours on others without again incurring overtime costs.  We have actually had to terminate General Managers for working overtime; in other words running their businesses as if they owned them, and failing to claim the overtime. A failure to do so would result in the very class action lawsuits we made them hourly employees to avoid.  The reality is that California law is requiring us to fire general Mangers for doing their jobs.  This law also impacts our crew employees who can ill afford to lose working hours in this economic environment.  Such employees may want to work 6 hours on one day, for family or personal reasons or to attend school events, and 10 hours on another day so we can compensate them for a full forty hours.  In California, that is not an option.

Simplify the confusing meal and rest break laws. These laws are so complex that it is difficult for employers or employees to understand the requirements, let alone comply with them.  Opportunistic lawyers often sue companies for minor and often unintentional violations. Employees, including our General Managers, are forced to take breaks during the busiest times of the day, to their frustration as well as that of their co-workers and customers.  You may have seen restaurant employees sitting in the dining room while you wait in a long line for “fast food.”  They are taking their mandatory rest breaks.

Tame the lawyers. With some 200,000 lawyers, California needs to put some limit on their ability to file class action lawsuits against some perceived threat as though each one were his or her own private attorney general. Like many California businesses, our company has wasted $20 million defending such cases in the last eight years, a majority of that money going to the attorneys’ pockets rather than to the creation of economic prosperity.  This is a major impediment to businesses deciding to grow in California as opposed to other states.

Reduce oppressive state taxes. California has some of the highest tax rates in the nation for businesses and personal incomes. The state must lower taxes to retain the businesses it has and to encourage others to locate or expand here.

California is one of the most beautiful locations in the country and California’s labor pool remains, for now, the most creative and knowledgeable in the world. We want to stay and we would like nothing better than re-energizing our job creating restaurant development here in California. But the laws and regulations I have discussed add substantial additional costs to doing business here and create the impression that our State government fails to understand or value the contributions private enterprise makes to the State’s prosperity.  In essence, it is very difficult and expensive to build a restaurant in California.  If you manage to build it, California law makes it onerously difficult to operate.  If you manage to build it and operate it at a profit, you are hit with a big tax.  The decision whether to grow in California or another more business friendly state is really quite simple.

Over the last two years, whenever I tried to discuss these issues with state political leaders, I was either brushed off or told there was a lack of political will for change.  That changed in February when Governor Brown, the Governor’s Office of Economic Development, the Lieutenant Governor and legislators from both sides of the aisle contacted me concerning these issues.  Whether these discussions will result in any progress is yet to be seen, but at least we are talking.

Republican or Democrat, liberal or conservative, any legitimate political agenda requires prosperity for the people of California.  Absent another unsustainable economic surge such as the dot-com boom or the housing bubble, to again experience economic prosperity California must strengthen the fundamentals of its business community by reducing both regulations and taxes.

Andrew Puzder is the CEO, CKE Restaurants and author of Job Creation, How it really Works and Why the Government Doesn’t Understand it

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Teachers unions continue their assault on school choice in California by Larry Sand

July 13, 2011 By James V. Lacy 1 Comment


The California Federation of Teachers is sponsoring AB 401 – which if passed would limit charter school growth in California.

In April, Rasmussen Reports released the results of a poll which addresses American voters’ sentiments about our public schools. Some of the more interesting findings are:

• 72% say taxpayers are not getting their money’s worth from our schools, while only 11% think we are.
• By a margin of 41-34 (25% were unsure), those polled said that spending more money on education would not improve student performance.
• 61% believe that public educat ion has become worse over the last ten years. [Read more…]

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When elephants fly – the end of the dreaded RDAs

July 12, 2011 By Shawn Steel Leave a Comment

By Shawn Steel

California National Committeeman

Republican National Committee

Something strange happened in the first six months of the Jerry Brown administration. He killed the invidious Redevelopment Agencies [RDA] which many California cities used to confiscate private property against unwilling land owners, in the name of abolishing “blighted” neighborhoods. Through Assembly bill 26X, the legislature voted to disband redevelopment agencies unless they are willing to share property tax revenue in the future to help finance public schools.

[Read more…]

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