California Dreaming: Missing America's Wake-Up Call
Larry Bell, 11.10.10, 11:25 AM EST
The state's reliance on central planning, tax-supported subsidies and social entitlement programs is making it fall behind.
What happened to the notion that "where California goes, so goes the nation"? The Nov. 2 midterm election results demonstrated something very different: The Golden State zagged, while most of the country zigged. That dynamic applied pretty much across the liberal vs. conservative issue spectrum, including energy policy. At a time when the national appetite for cap-and-tax legislation gas gone gastric, Proposition 23, offering an antidote to the previously enacted economic poison pill called AB 32, was rejected by 62% of the voters.
It began in December 2009 when Gov. Arnold Schwarzenegger released a report based on a California Energy Commission study predicting that global warming would cause San Francisco Bay waters to cover Fisherman's Wharf and Treasure Island by 2100. (Any possible correlation between the creative graphics used in the governor's dramatic $150,000 presentation package and earlier 1996 passage of California's medical marijuana legalization law should be regarded as entirely conjectural.) In any case, this intentionally alarming forecast adds to a current sea of rising debt that will significantly increase with AB 32's implementation.
As it now stands, AB 32, California's climate change law, mandates a 30% cut in carbon emissions from cars, trucks, utilities and other businesses by 2020. It is to be accomplished with a web of new taxes and regulations scheduled to take effect in 2012. This, of course, serves as a prospective bonanza for alternative energy investors and producers, (wind, solar and other so-called clean sources) that can't otherwise compete with fossil fuels. Proposition 23 would have suspended AB 32 until such time that the state unemployment rate declined to 5.5% or less for four consecutive quarters.
The well-funded battle to defeat Proposition 23 enjoyed the backing of a powerful green alliance comprised of big environmental groups, Silicon Valley tech giants and hedge fund managers. Their primary campaign targets were two Texas oil companies, Tesoro ( TSO - news - people ) and Valero Energy ( VLO - news - people ), a refiner that contributed $5 million of the nearly $11 million raised in support.
Those fighting the measure outspent the Proposition 23 proponents nearly three to one, raising about $32 million. Their biggest donor was Thomas Steyer, a San Francisco-based hedge fund manager and former Goldman Sachs ( GS - news - people ) employee who matched Valero's $5 million. The National Wildlife Federation provided $3 million, and Microsoft ( MSFT - news - people ) chairman (and richest person in America) Bill Gates gave $700,000.
The financial stakes were high for both sides, and also for the public. Failure to block AB 32 added much greater costs for refiner compliance to meet both the new emissions and low carbon fuel regulations which will be passed on to consumers in the form of increased gasoline and diesel prices. These added expenses will raise the costs of doing business in a state already hemorrhaging job losses. Steyer's Fallon Capital Management, a $33 billion hedge fund, can be expected to benefit greatly, particularly in areas that will become profitable as their website notes "due to a catalyzing event or change in circumstances, including regulatory or legislative change."
Another noted critic of the AB 32 suspension initiative is a small company called Serious Materials, a California building materials manufacturer and the only window producer to receive tax credits through the Obama-Biden administration's Cash for Clunkers stimulus package. Perhaps coincidentally, the company's director is married to Cathy Zoi, the administration's assistant secretary for energy efficiency and renewable energy who controlled $16.8 billion in stimulus funds.
Zoi (formerly the CEO of Al Gore's Alliance for Climate Protection) and her husband were reported to hold 120,000 shares in Serious Materials, along with stock options. According to a May 6 Investor's Business Daily article, the two are also reported to hold a substantial interest in the Swiss firm Landis+Gyr, which makes smart meters, a central component of the administration's smart grid plans.
Now, while California focuses on wind turbines, solar panels and electric cars, vast offshore oil resources remain undeveloped and nuclear power is ignored. Consequently, the energy-starved state's employment and economic future is bleak. A 2009 Milken Institute study showed a recent loss of nearly 400,000 manufacturing jobs.
A 2009 study undertaken by economists at California State University-Sacramento estimated that AB 32 implementation costs "could easily exceed $100 billion" and that the program would raise the cost of living by $7,857 per household annually by 2020. The California Small Business Roundtable commissioned the research.
The regulatory environment has turned dreams of good lives into nightmares for many who are leaving in hordes, taking much of the state's tax base with them. About 2.14 million people fled to other states between 2005 and 2007, while only 1.44 million moved in. Meanwhile, the state's debt rises at a rate of about $25 million per day. Some 2.3 million Californians (12.5%) are without employment, and factory jobs plummeted from 1.87 million to 1.23 million (34% of the industrial base) since 2001. California, with 12% of the U.S. population, has nearly a one-third of the nation's welfare recipients--15.3% of all Californians live in poverty. Its budget gap for 2009 to 2010 ($45 billion) equaled 53% of total state spending. This occurred despite having the nation's highest state sales tax and third-highest income tax.
Texas benefits from California's population and business migrations; the state has realized 70% of all new U.S. job growth since 2008. Texas also has the greatest proportion of the country's 500 largest companies headquartered there (65, compared with 56 in New York and 51 in California).
Much of this prosperity can be attributed to Texas' laissez-faire principles and its focus on individual prosperity, which contrasts with California's reliance upon central planning, tax-supported subsidies and social entitlement programs. At the same time Texas is also becoming a leader in wind power development, applying an "all of the above" energy policy, and has no personal state income tax.
California, the alarm clock is ringing. It's time to wake up and smell the grits.
Larry Bell is a proud Texan (all hat, no cattle), a professor at the University of Houston and the author of Climate of Corruption: Politics and Power Behind the Global Warming Hoax, which will be released on Jan. 1 and which can be previewed at climateofcorruption.com.