By now, everyone has read the reports of California’s demise. Hewlett Packard, Oracle and even Tesla are moving their headquarters out of state. Our population is shrinking for the first time in 100 years. We have high taxes, homelessness, wildfires and drought. Will locusts be next?
While California has its share of problems, it’s still the world’s fifth largest economy and the technology leader of the world. Germany is the world’s fourth largest economy with a GDP of $3.8 trillion, but California, with a GDP of $3.1 trillion, will likely pass Germany in the next decade. And we’re doing it with less than half Germany’s population. That means the average California worker is roughly twice as productive as the most efficient European nations.
We certainly have high taxes, but we’ve generally invested those wisely. The World Economic Forum ranks three California schools among the world’s top 10 universities. And we have the nation’s finest community college system, with 116 campuses providing essential access for a leg up for our immigrant and working-class population. Our entertainment and agricultural sectors also lead the world in production. On top of that, we have four of the 10 largest market cap companies in the world: Google, Apple, Facebook and NVIDIA. Texas, Florida and New York have a combined total of one with Tesla, which of course was founded in California where most of its 80,000 employees remain.
But the California Legislature needs to pay attention. Three critical problems are preventing California from reaching its potential:
• The average California home price is $818,260 (twice the national average). High housing costs exacerbate homelessness and make it hard for teachers, firefighters and young people to realize the dream of homeownership. It also triggers the nation’s highest rental rates. The solution will require a combination of CEQA reform and a carveout of prevailing wage requirements for workforce housing to bring costs down. The state also needs to provide incentives for developers to build urban housing near transportation corridors and penalties for cities that don’t build sufficient workforce housing. None of these solutions is easy, but without major housing reforms, companies will relocate and homelessness will get worse.
• California has world-class universities, but our K-12 program lags. California’s fourth grade students rank 39th in English and 44th in math. The state needs to develop a 21st-century curriculum to make sure we’re teaching coding and quantitative analysis starting in elementary school to ensure our students will be job-ready. And we need basic teacher-performance standards, beyond years of service, for teacher accountability. We also need to find equitable ways to link higher teacher pay to better student performance while increasing school funding.
• California has the highest income tax in the country at 13.3%. This is why some of our best-known companies and entrepreneurs — from Oracle to Elon Musk — are leaving. The answer is less about cutting taxes than it is about spreading the cost of California’s $262 billion budget across a broader set of high-income earners (the top 5-10% rather than just the top 1%) and setting aside more money for our rainy-day fund. The biggest problem we have is not the size of our current tax rate but the continuing rate of tax increases and the “roller coaster” budgeting process that result in booming budget increases followed by sharp layoffs of essential public employees such as teachers, firefighters and police.
California’s long-term competition is not Texas or Florida; it’s Germany, Japan and China. Our economy will continue to grow faster than any of these countries because our universities have made us a magnet for the smartest people in the world to come and settle in a state that values diversity. We just need to make sure that we continue to make our economy work for everyone. As former president of the UC system, Richard Atkinson said, the future tends to arrive first in California.
Steve Westly is the former California State Controller and ran for governor in 2006.
