Assistant Dean Carson Bruno on What Lies Ahead for the CA State Legislature | Real Clear Markets
California's Problems Will Continue to Compound
By Carson Bruno | December 15, 2016 | Real Clear Markets
On December 5, the California's State Assembly and Senate held their swearing-in ceremony for the 2017-2018 session. The Senate welcomed nine new members (although, only two haven't had Sacramento experience prior to their election), while the Assembly saw twenty fresh faces (seventeen of which are brand new to Sacramento). A total of 16 percent of the State Legislature is brand new after the 2016 elections; this - combined with the new term limits law - could have far reaching consequences on policy coming out of Sacramento this session and beyond.
As we close out the year and look toward January, it's a good time to reflect on what problems Sacramento should attempt to address in the coming legislative session (but probably won't).
Note: These are, by no means, the only problems plaguing California. However, addressing these issues could have significant ripple effects in either minimizing other problems - like poverty and slagging economic mobility - or neutralizing future problems - such as, when California experiences another recession.
Tax Volatility: It's no secret that California has a tax revenue volatility problem. State Controller Betty Yee, Governor Jerry Brown, and many other state leaders have all acknowledged that California's tax system generates a roller-coaster effect on revenue collections. Good times see massive upward swings, but even the slightest of downturns create massive dips in tax revenue. This makes budgeting a nightmare. And unfortunately, Sacramento plays politics when revenues drop holding social services and education funding hostage for political gains. According to Moody's state financial stress test, California fails "due to its revenue volatility, weak financial flexibility, and lower reserve levels." The Golden State isn't prepared for the next recession. And it's a matter of when, not if, the next downturn will happen.
College Preparation: A good education is the single most effective and long-lasting way to improve your own and your children's economic and social well-being. California used to be among the best educators in the country; now, not so much, and it's having serious implications up and down the state, particularly for the state's growing Latino population. In both 2015 and 2016, less than half of California's students met or exceeded English literacy standards, while in mathematics, just 1/3rd of students met or exceed standards. Simply, California's K-12 schools are not preparing students to succeed in college. Simply throwing more money at the districts isn't sufficient. As renowned education economist Eric Hanushek has shown, teacher quality is the number one driver of student success. California needs to be making sure its education policy is producing, rewarding, and retaining good teachers.
Housing Supply & Affordability: A new Gallup report shows that restrictive local land use rules have had a significant effect in holding back economic growth. With California becoming ground zero for the housing unaffordability crisis in the country, it doesn't take much of a leap to recognize the economic impact the state's housing and rental prices are having. Californians are spending more of their income on housing. For instance, the 2016 average price-to-income ratio for California's metro regions was 6.2. This is almost twice the national level and represents a 58 percent increase from the historical (1985 to 1999) average - the U.S.'s ratio has increased just 18% from its historical average. Meanwhile, 27 percent of monthly median income is going toward the median mortgage in California (13 points higher than the national average) and 36 percent of monthly income is going toward rent (versus 29 percent nationally). As long as California's housing policy continues to reward and protect existing homeowners and tenants at the expense of future homeowners and tenants, the state's unaffordability crisis will continue.
To effectively and efficiently address these three issues, Sacramento must honestly address their root causes - not just focus on providing relief for the symptoms. This requires hard work and removing the ideological lenses. But based on rhetoric (both from the election and since), it doesn't appear Sacramento is ready to solve these problems. It's more likely California's one-party rule will try to undo Proposition 13's tax protections, push for various transportation-related tax increases to fund a growing maintenance deficit, double-down on command-and-control environmental regulations (which have only been successful in making California more expensive, not more green), and advance symbolic fights against the Trump Administration. Small wins will be portrayed as massive victories; meanwhile, California's serious problems will continue to compound, requiring more drastic (and less politically palatable) reforms.