California

Who Stands The Most To Win – And Lose – From A Second Obama Term

Joel Kotkin — Thu, 02 Feb 2012 12:45:45 -0500

As the probability of President Barack Obama’s reelection grows, state and local officials across the country are tallying up the potential ramifications of a second term. For the most part, the biggest concerns lie with energy-producing states, which fear stricter environmental regulations, and those places most dependent on military or space spending, which are both likely to decrease under a second Obama administration.

On the other hand, several states, and particularly the District of Columbia, have reasons to look forward to another four years. Under Obama the federal workforce has expanded — even as state and localities have cut their government jobs. The growing concentration of power has also swelled the ranks of Washington‘s parasitical enablers, from high-end lobbyists to expense-account restaurants. While much of urban America is struggling, currently Washington is experiencing something of a golden age.

So what states have the most to lose from a second Obama term? The most obvious is Texas, the fastest-growing of the nation’s big states. Used to owning the inside track in Washington during the long years of Bush family rule, the Lone Star state now has less clout in Congress and the White House than in recent memory. Texans are particularly worried about restrictions on fossil fuel energy development, which is largely responsible for robust growth throughout the state.

“Obama now wants to take credit for the increased production that has happened, but [increased production] has been opposed in every corner by the administration,” says John Hofmeister, founder of the Houston-based Citizens for Affordable Energy and former CEO of Shell USA. Hofmeister fears that in a second term, with no concern for reelection, Obama could exert even greater controls on fossil fuel development. This would have dramatic, negative implications not only for Texas but for the entire national energy grid, which includes North Dakota, Wyoming, Montana, West Virginia, Oklahoma, Alaska and Louisiana. These states fear that the nation’s recent energy boom, which has generated some of the nation’s strongest job and income growth, could implode in Obama’s second term.

Take Louisiana, which is still recovering from Hurricane Katrina in 2005 and the BP oil spill in 2010. The administration’s moratorium on offshore drilling, sparked by the spill, has had a deleterious effect on the state’s energy economy, according to a recent study, with half offshore oil and service companies shifting their operations to other regions and laying off employees.

Once the moratorium was lifted in 2010, companies have faced long delays for new wells, growing from 60-day delays in 2008 to more than 109 last year . “The energy states feel they are being persecuted for their good deeds,” says Eric Smith, director of the Tulane Energy Institute in New Orleans. “There is a sense there are people in the administration who would like this whole industry to go away.”

Many of these same states also worry about the administration’s proposed downsizing of the military. Obama’s move to cut roughly towards $500 billion in defense spending may make sense, but it threatens places with large military presences such as Texas, Florida, Oklahoma, Virginia, Georgia, South Carolina and New Mexico.

The D.C. metro area might also be hit by defense cuts, but overall the it has many reasons to genuflect toward the Obama Administration. Federal wages, salaries and procurement account for 40% of the district’s economic activity, roughly four times the percentage of any state. Expanding regulation on energy, health care and financial services has sparked a steady job boom in lobbying, think tanks and other facets of the persuasion industry — including among Republicans –at a time when employment growth has been sluggish elsewhere.

D.C. partisans hail their city as the leader of a national urban boom. The district clearly benefits from diminished job opportunities in more market-based economies, particularly for educated 20-somethings.

No place has flourished as much as the capital, but a second term would be favorable to states such as Maryland, which depend heavily on research spending directed from Washington and where federal spending accounts for fifteen percent of the local economy, over seven times the national average. Maryland agencies such as the National Institutes for Health will likely expand under an increasingly federalized health care system — particularly if Democrats gain more seats in Congress with an Obama win.

Other big states that may benefit from a second term include New York, California and Illinois. New York benefits largely from the administration’s Wall Street leanings, despite the president’s recent attacks on financial elite. Even for the non-conspiracy theorists, the administration’s ties to Goldman Sachs appear unusually intimate. Powerful allies like Democratic Sen. Charles Schumer, D.C.’s greatest Wall Street booster, suggest big money has little to fear from a second term.

Overall the administration’s basic policy approach has favored the financial giants. Support for bailouts, seemingly permanent low interest rates, few prosecutions for miscreant investment bankers, the institutionalization of “too big to fail” and easy loans for renewable fuel firms all have benefited the big Wall Street players.

Of course, a Republican victory would not be a disaster for these worthies. Companies like Goldman Sachs are hedging their bets by sending loads of cash to the likely Republican choice, former Massachusetts Gov. Mitt Romney.

But other New York interests, such as mass transit funding, would benefit from the current administration’s generally pro-urban, green sensibilities. Tight regulations on carbon emissions — increasing the price of fossil fuels — may help the competitive position of New York City, which has little industry left and relatively low carbon emissions per capita, in part due to a greater reliance on hydroelectric and nuclear power.

California also has reasons to root for an Obama victory. Although among the richest states in fossil fuels, particularly oil, the Golden State has become a bastion of both climate change alarmism and renewable energy subsidization. It adamantly won’t develop traditional its energy resources — which would help boost the state’s still weak economy — and Silicon Valley venture firms have eagerly grabbed subsidies and loans for start-ups from Energy Secretary Steven Chu’s seemingly bottomless cornucopia.

Furthermore, more powerful EPA would make California’s current “go it alone” energy and environmental problems less disadvantageous compared to more fossil-fuel-friendly states, leveling what is now a tortuous economic playing field.

Similarly, attempts to push the state’s troubled high-speed rail line — recently described in Mother Jones as “jaw-droppingly shameless” – will succeed only with strong backing by the federal government. Under a Republican administration and Congress, Brown’s beloved high-speed line would depend entirely on state and private funding, likely terminating the project.

But no state needs an Obama victory more than his adopted home state of Illinois. To be sure, having a native son in the White House has not prevented the Land of Lincoln from suffering one of the weakest economies in the nation. The state has one of the highest rates of out-migration in the country, according to recent United Van Lines data and Census results.

Even worse, the Land of Lincoln faces a fiscal crisis so great that it makes California look well-managed. Without a good friend in the White House, and allies in Congress, Illinois could end up replacing long-struggling, now-improving Michigan as the Great Lakes’ new leading basket case. Count Illinois 20 electoral votes in the Obama column.

This piece originally appeared in Forbes.com.

Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and contributing editor to the City Journal in New York. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

Photo from BigStockPhoto.com.

Mistaking an Aberration for the End of Home Ownership

Wendell Cox — Thu, 19 Jan 2012 00:38:31 -0500

It is well known that home ownership has declined in the United States from the peak of the housing bubble. According to Current Population Survey data, the national home ownership rate fell 2.9 percentage points from the peak of the bubble (4th quarter 2004) to the third quarter of 2011.

It is less well understood, however, that the spurt in home ownership was, like the housing bubble, an aberration. Looking over the data from the 2010 census, it seems clear that since 2000 the actual decline was a much smaller: 0.8 percentage points from the 2000 census. In fact the current home ownership rate tracks fairly well with that of the post 1960 and the entire pre-bubble period.

The End of Home Ownership? Analysts such as Richard Florida suggest an end to the preference for home ownership, citing the losses from the bubble, which were, in fact, an aberration. Most recently, Xavier University's Michael F. Ford wrote in the Washington Postabout home ownership having been driven to 69% by "guarantees" and "tax breaks," such as the mortgage interest deduction. He notes that this "spending spree" led to a loss of $6 trillion in US real estate value.

Ford does not mention the fact that home ownership had hovered between 60% and 65% for more than three decades before the bubble, without suffering any such losses. Nor does he mention the roles played by Fannie, Freddie and Frank (D-Massachusetts), along with others in Washington, or the related "drunken sailor" mortgage policies concocted by lenders and Wall Street that anyone familiar with credit should have known could only lead to disaster. This was obvious to many observers, although shockingly not to the Federal Reserve Board, as recent reports indicate .

There is no doubt that the "spending spree" led to the housing bust and triggered the Great Financial Crisis. However it was not the long-standing ownership support programs of the federal government that were primarily to blame. As late as the beginning of the decade, there was no bubble and the median multiple in major metropolitan areas averaged 2.9, within the maximum affordability rating of 3.0. The "spending spree" itself was a rational response to policies that turned housing into the equivalent of a speculative commodities market, with destructive results, in certain large markets. Critically the bubble did not appear in many others.

Speculation and the "Bubble States:" The extent to which speculation fueled house price increases is the subject of a recent Federal Reserve Bank of New York paper by Andrew Haughwout, Donghoon Lee, Joseph Tracy and Wilbert van der Klaauw. The researchers examine investment, or speculation in real estate markets, during the housing bubble. Investors buy houses that they do not intend to live in for the purpose of making money. In normal times, this investment is principally for rental income or long term capital gains. However, in the highly charged housing markets that developed in some metropolitan areas, prices rose so rapidly, that "flipping" (short term ownership) became very profitable, at least for some.

Pointing out that "The recent financial crisis—the worst in eighty years—had its origins in the enormous increase and subsequent collapse in housing prices during the 2000s," the New York Fed researchers show that speculative activity was much greater in California, Florida, Arizona and Nevada (which they label the "bubble states") than elsewhere. My analysis indicates that two-thirds of the house value drop in the nation before the Lehman Brothers collapse (September 15, 2008) occurred in the four "bubble states." According to the researchers, this greater speculative activity in these markets made the market more instable because unlike owner-occupiers, investors are far more likely to default on mortgage loans.

Missing the Geography of Speculation (the Geography of "Smart Growth"): The New York Fed research, however, ignores the geography of speculation. Why was speculation was so much more rampant in the bubble states? There is no reason to believe that residents of California, Florida, Arizona or Nevada are any less interested in making money or, in general, any more greedy. Yet speculators largely stayed out of markets in high demand areas, such as Dallas-Fort Worth, Houston and Indianapolis. In fact, in large parts of the nation, there was little speculative activity. In these markets prices were not rising inordinately so speculators did not bother with them. Instead they focused on more volatile markets where prices were already rising strongly, further swelling local price increases.

The geography of speculation corresponds largely to the geography of excessive land use restrictions, which created the shortage of land for housing that drove the prices up in the four bubble states (Note). It is a fundamental principle of economics that prices tend to rise where desired goods are in short supply.

In California and Florida, restrictive land use policies (smart growth or growth management) created a shortage of land for new housing relative to demand. The largest metropolitan areas of Nevada (Las Vegas) and Arizona (Phoenix) are surrounded by government owned land that was auctioned for development at such a slow rate that prices rose by more than five times during the bubble.

Astonishingly, having missed the geography of speculation, the New York Fed researchers suggest that a solution is to regulate speculation. There is a much simpler answer, which Florida has already implemented which is to repeal the restrictive land use regulations, without which inordinately speculative profits cannot occur.

Meanwhile, as the speculators have been driven out of the market, and despite federal government efforts to prop-up the artificially high house prices, values have fallen to below 2000 levels for the first time (Figure 1). Based upon Federal Reserve Board and Census Bureau data, it is estimated that the average owner-occupied house value in 2011 (three quarters) has fallen to $211,000, which is down from a peak of approximately $345,000 in 2006 and $222,000 in 2000 (adjusted for inflation).

So is Ownership now doomed? Yet the home ownership naysayers have little to cheer. Yes, home ownership dropped in the last decade. However, all of the loss was in mobile homes and boats. Even so, the number of mobile home owners remained greater than home owners living in apartments, including condominiums (Figure 2). In fact there was a slight increase in the share of households owning their own homes, if mobile homes and boats are excluded (Figure 3), with a rise from 60.6% in 2000 to 60.9% in 2010.

There were 5,057,000 more home owners in 2010 than in 2000, and perhaps more surprisingly, 5,119,000 more home owners occupying detached housing. Detached, attached (town house) and apartment ownership each increased over the past decade (Figure 4). Contrary to new urbanist theoreticians, detached housing – not urban condos – overall accounted for the most housing growth, both owner-occupied and rentals.

Xavier's Ford calls the American Dream of home ownership a myth and even goes so far as to suggest that home ownership is "more important to special interests than it is to most Americans." In fact, Ford's interpretation is delusional. That home ownership continued its advance, however modestly, in the face of the worst economic downturn in 80 years, reveals the durability and, indeed the reality of home ownership as an American Dream.

Photo: Preventing speculation (New Development, Dallas-Fort Worth suburbs)

Note: Overall, the bubble states and other restrictively regulated metropolitan areas accounted for more than 90% of the pre-Lehman Brothers loss.

Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris and the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life”

Fresh Winds Blowing on California High Speed Rail

Ken Orski — Tue, 17 Jan 2012 00:38:33 -0500

For California’s beleaguered high-speed rail project, last week brought plenty of surprises and challenges. Dominating the headlines were the resignations of several top officials of the High-Speed Rail Authority (CHSRA). Among them were board chairman Tom Umberg, CEO Roelof van Ark, board member Matthew Toledo, Deputy Director (Environment) Dan Leavitt and press secretary Rachel Wall. Dan Richard, a respected and trusted advisor of Gov. Jerry Brown, appointed to the Board last year, is expected to assume chairmanship of the Board (Umberg remains as a member of the board).

The past week also saw the release of a fresh critique of CHSRA’s business plan and an avalanche of criticism by influential commentators and analysts. The critique, entitled Twelve Misleading Statements on Finance and Economic Issue in the CHSRA’s Draft 2012 Business Plan, received wide distribution among state legislators and senior officials in Gov. Brown’s administration. It was authored by a group of independent experts who have closely followed the project over the past two years — Alain C. Enthoven, William C. Grindley, William H. Warren, Michael G. Brownrigg and Alan H. Bushell. The report challenges methodically one by one the credibility of the business plan’s key assumptions concerning the project’s construction costs and financing; revenues, ridership and operational costs; and societal benefits. (http://www.cc-hsr.org)

Last week's press commentaries added to the climate of skepticism that is increasingly engulfing the project. In close succession, there appeared a January 8 column by the well known Sacramento Bee columnist, Dan Walters (It’s Time to Kill California’s Bullet Train Boondoggle); a January 9 op-ed in The Washington Post by the newspaper’s editorial writer Charles Lane (California’s High-Speed Rail to Nowhere); and a January 10 piece in The Wall Street Journal by Wendell Cox and Joseph Vranich (California’s High-Speed Rail Fibs).

An Orange County Register editorial on January 12 further underscored the widespread opposition to the project by the state’s newspapers. The editorial sounded alarm about legislative attempts to fast-track the HSR project by exempting it from environmental review (Rep. Feuer’s Assembly Bill 1444) Waiving environmental regulations can speed project approval and undermine legal challenges, pointed the editorial. The HSR project already faces multiple court challenges on environmental grounds, with more suits likely.

Even the Sierra Club has turned critical."The draft business plan does not leave us feeling optimistic about the viability of the current high-speed rail program," wrote Kathryn Phillips, Director of Sierra Club California in a January 13 letter to the Authority. "We urge the HSRA to reconsider its business plan."

Departure of key personnel could mark a new beginning

The unexpected departure of the Authority’s top officials has added to a series of reversals experienced by the project in recent days. Most damaging has been a scathing report by the independent Peer Review Group that pronounced the Authority’s plan "not financially feasible" and warned of "immense financial risk." Adding to it has been a growing chorus of skeptical lawmakers and further news of declining public support (a SurveyUSA news poll showing only 33% of voters in favor of the bond sale).

The abrupt mass resignations of senior management are seen as a bid by Governor Brown to assert a tighter control over a project that is facing a critical first test later this spring when the legislature will be asked to vote the first $2.7 billion in bonds to start the initial 130-mile stretch of the line in the Central Valley. Last week, Brown also announced that he intends to fold the Authority into a new state transportation agency, thus placing the project under more direct supervision of the Governor.

So far, Gov. Brown has maintained steadfast support of the project, but his recent actions suggest that he is sensitive to public opinion and to the political winds blowing from the state capitol. Many lawmakers, some from the Governor’s own party, counsel against rushing ahead with construction and suggest taking the time to thoroughly rethink the business plan. They include Sen. Alan Lowenthal (D), chairman of the select committee on high-speed rail; Sen. Mark DeSaulnier (D), chairman of the transportation committee; and Sen. Joe Simitian (D), chairman of the budget subcommittee overseeing transportation. The dim prospects for any further federal funds or for private money to support the project beyond the "Initial Construction Section" must also weigh heavily in the Governor's assessment of the project's long-term viability.

In the meantime, changes may be expected in the Rail Authority’s management style. Those who know the incoming chairman well look forward to an agency that will be less confrontational, more respectful of its critics and more attentive to the legislators. They hope the Authority will be more willing to reach out and build bridges to citizen groups and will assert more control over its contractors.

Only time will tell whether last week’s events represent a true turning point for this divisive initiative. However, multiple signs coming out of Sacramento give people reasons to hope that real changes in direction are indeed underway.

Ken Orski has worked professionally in the field of transportation for over 30 years.

CA route map by Wikipedia user CountZ.

Urban Development: Playing Twister With The California Environmental Quality Act

Rick Cole — Wed, 11 Jan 2012 00:38:38 -0500

When it comes to environmental issues, emotions often trump reasoned argument or sensible reform, especially in California. In Sacramento at our state capitol, real world impacts are abstracted into barbed soundbites. It’s the dialogue of the deaf as environmental advocates rally around our landmark California Environmental Quality Act (CEQA) -- and economic interests decry it as “a job killer.” Perhaps the polarization can be put aside to ask about a specific example in the real world. Why does an old K-Mart sit vacant on Ventura’s busiest boulevard despite initial City approval for a Walmart store? All the thunder and lightning surrounding whether a Walmart belongs in Ventura is behind us. A vigorous and contentious debate (and a failed citizen initiative) have rendered the verdict that filling an empty discount retail space with a different discount retailer is a function of the market, not government regulation.

Nor can we directly blame the stalemate directly on the California Environmental Quality Act (CEQA). What keeps the store empty is not the controversial law itself, but the way it has been twisted like a pretzel into a tool to stop urban developments opposed by well-funded interests. Recently, the Los Angeles Times exposed the ironic way it has even been adapted by developers and big corporations to fend off their competition.

The California Environmental Quality Act is the toughest state environmental protection statute in the nation. Passed more than 40 years ago in the wake of the first Earth Day (and signed by Governor Ronald Reagan), CEQA has spawned an industry of specialist consultants, attorneys and planners. Its original laudable goals for managing natural resources have been obscured by the hard ball tactics of litigators in our state.

The vast majority of Californians support sensible environmental protections and are suspicious when business interests lobby to weaken them. They remember oil spills and toxic dumps and slash and burn hillside developments. Yet the case law that has grown up around CEQA is so burdensome that virtually any public or private project can be slowed or killed on bogus grounds that really have nothing whatever to do with protecting our natural environment.

Yes, the law has protected stands of redwood trees from clear-cutting and sensitive habitat from suburban sprawl. And there are David and Goliath stories: a little band of neighbors stop a mega-developer from flooding their neighborhood with traffic (although this is a long stretch from protecting “natural resources”.) But it is now routine for special interests to hire high-powered law firms to exploit the law for their own economic interests.

Here in Ventura, lawyers for construction unions combed over the Environmental Impact Report done for the new Community Memorial Hospital project with the goal of seizing on any technical errors or ambiguities. They fired off a thirty page “comment letter” which lays the groundwork for a lawsuit. The goal was certainly not “protecting the environment” — it was to pressure the hospital to use union labor for the construction. They were successful.

The proposed Walmart at the old K-Mart site is stalled after initial city approval because the company knows that even something as simple as changing the facade on the building could trigger a lawsuit alleging inadequate “environmental review.” So the project sits in limbo while Walmart analyzes its legal options. What Walmart fears is exactly what happened to WinnCo grocery, which did see its proposed new signage and facade challenged by a CEQA lawsuit.

There are lots of things not to like about development in a city. But that’s why we have planning commissions, public hearings and appeals to elected City Councils, along with detailed rules that must meet stringent legal guidelines for adoption and enforcement. But why have an elaborate land use entitlement and permit review process if it can be superseded by anyone with the resources to file a CEQA lawsuit? Democratic due process goes out the window, replaced by months or years of costly legal maneuvering.

No sensible person advocates repealing CEQA. But after forty years, it is past time to return to its original, laudable purpose and intent: to protect our natural environment and sustainably manage our natural resources.

Understandably, environmental advocates are skittish about tinkering with the law. There is precedent, however, for consensus reform. When the League of Conservation Voters pushed a bill to curb greenhouse gas emissions and promote sustainable regional planning, they won the support of both the League of California Cities and the Building Industry Association by incorporating a modest relaxation of onerous CEQA burdens on “infill development.” There’s lots more room for common sense consensus to separate environmental protection from a racket for special interest litigation.

One of the worst ways to proceed is to pick out individual projects for favorable CEQA treatment. That’s what’s happened on a couple of controversial stadium projects that won legislative relief from the typical CEQA procedural hurdles. Having to lobby Sacramento to pass a special law is a brutally stark example of special interest litigation. Football stadiums are not the only or even the most important projects held hostage by CEQA abuse. Comprehensive reform is long overdue.

In these economic times, the jobs lost to CEQA abuse aren’t offset by the ones created for CEQA experts and CEQA attorneys. California led the nation in protecting our state’s environment. If we can look past the symbolism that CEQA has assumed to both advocates and detractors, we’ll see that it’s urgent to restore the law’s original purpose and keep it from being hijacked for other agendas. That may be unlikely in today’s polarized political climate. That’s why it is crucial to bypass the soundbites and the symbolic posturing, and remember the real world fallout of failing to reform the way CEQA is administered in the Golden State.

Rick Cole is city manager of Ventura, California, and recipient of the Municipal Management Association of Southern California's Excellence in Government Award. He can be reached at RCole@ci.ventura.ca.us

Photo: The vacant K-Mart in Ventura, California

California's Deficit: The Jerry Brown and 'Think Long' Debate

Bill Watkins — Fri, 06 Jan 2012 00:38:41 -0500

California has three major problems: persistent high unemployment, persistent deficits, and persistently volatile state revenues. Unfortunately, the only one of these that gets any attention is the persistent deficit. It is even more unfortunate that many of the proposals to reduce the deficits are likely to make all three of the problems worse over the long run.

Two major proposals to deal with the deficit will shape the coming debate. One is from the newly formed Think Long for California Committee; the other from the governor.

Governor Jerry Brown’s plan would increase sales taxes, and would increase the tax rate on the portion of anyone’s income that is over $250,000 (the marginal rate). It is a general rule of tax analysis that if you want there to be less of something, tax it. Indeed, this proposal would result in some wealthier people leaving California, and it would accelerate the trend of substituting internet retail purchases for local retail purchases.

It would also increase California's tax receipt volatility. California's tax base is dependent on the income of a relatively small group of wealthy people. It turns out that this income is more volatile than the economy. Increasing top marginal tax rates would only increase the volatility of the state’s revenue.

So, why would the governor make such a silly proposal? I've heard a few reasons.

• The government is starving and it needs the income now.

This is nonsense. Combined national, state, and local government spending is now over 35 percent of gross product. This is highest it has ever been, including the peak spending years of World War II.

We can disagree on the optimal size of government, but to argue that this is a time of scarce government spending is absurd.

• The wealthy have too much money. We must increase the progressivity of California's tax code.

The governor's proposal will do that. If implemented, the plan will give California the highest marginal tax rates in the United States. The problem is that people with high incomes often have more choices than most of us. They can move. They can reallocate earnings to other states or into less-taxed activities. They can just forego earnings if the return is too low.

Most analysts agree that California's tax structure should be broader based. The only way to do that is to make the system less progressive, not more progressive. Increasing taxes on the wealthy may feel good when the law is implemented, but it will eventually lead to lower tax revenues, increased revenue volatility, and slower economic growth.

• There is nothing else we can do. The political situation does not allow a better fix.

It never will be easy to implement comprehensive tax reform in California. There are too many groups with too much at stake. However, it is senseless to argue that we should therefore increase the distortions in an already distorted tax code. California has been doing this for years, and it just keeps making things worse. California's governance is a mess precisely because it is the result of hundreds of ad-hoc decisions.

California desperately needs comprehensive tax reform, "if not now, when?"

Which brings us to the proposal by the Think Long for California Committee . The Think Long committee is a subset of California's political elite. You will recognize many of the names; for a start: Nicolas Berggruen, Eli Broad, Willie Brown, Gray Davis, Condoleeza Rice, Bob Hertzberg, Eric Schmidt, Terry Semel, Laura Tyson, and George Schultz. The proposal has three components:

Empowering Local Governments and Regions: Here's what it says about decentralizing decision-making: "While the committee embraces the principles of de-centralization, devolution and realignment of revenues and responsibilities, we have not endeavored to propose precisely how that should be accomplished."

That's a bit like endorsing Mom and apple pie, isn't it? The committee has not earned itself any honor or credibility by failing to have a proposal for one of the three major components of its plan, the first that it enunciates.

Improving Accountability: "The Citizens Council For Government Accountability – an independent, impartial and non-partisan body – would be established to develop a vision encompassing long-term goals for California’s future."

Only, it is not a citizens group at all. It would be funded by the state, and it would have access to state agencies for support. Nine of the committee's thirteen members would be appointed by the governor, two of whom could not be registered in either party. The Senate Rules Committee and the Speaker of the Assembly would each appoint two members, one from each major party. The committee would have four non-voting ex-officio members: the director of finance, the state treasurer, the state controller, and the attorney general.

That sounds to me a lot like just another government agency. Not exactly; this would be a super-committee with broad powers. It would soon be involved in almost every aspect of California's government. The committee would have subpoena power, and the ability to publish on the election ballot its comments and positions on proposed ballot initiatives and referendums, as well as to place initiatives directly on the ballot.

Giving the committee the ability to place initiatives directly on the ballot is a nice touch in a document that elsewhere tries to make it more difficult for others to place initiatives on the ballot.

Restructuring the Tax Code: California's tax code needs restructuring, no doubt about that. This proposal doesn't get us to where we need to be, though. It reduces sales tax rates, top marginal income and business tax rates, and deductions from personal income taxes, except for education and health care, and for taxing services.

In general, these are steps in the right direction. However, exempting education and healthcare is a serious, perhaps fatal, flaw. It amounts to a huge subsidy for those industries, and places an extraordinary burden on the remaining service providers. The exempted industries are big, and exempting them means higher taxes on other service providers.

Who would actually bear the tax burden? That depends on the elasticities of supply and demand. In general, when demand is less elastic than supply (when the consumer is relatively indifferent to price changes), the consumer bears the tax burden, which is what is desired. However, for many services, it would appear that demand is not that inelastic.

Consumers can easily reduce the frequency of services such as haircuts, lawn maintenance, and the like. This would shift the burden of the tax from the consumer to the provider, that is, the hairdresser or landscape worker. In many cases, these are very low-income workers, making the tax extraordinarily regressive. California's tax code needs to be less progressive, but this could be a huge regressive swing, one that would create extreme hardships for some of our least advantaged citizens.

Economic theory is clear that there are fewer distortions in consumption taxes than in income and capital taxes. However, these models assume that the tax burden is squarely placed on the consumer. It appears that for many services this may be impossible. Perhaps that is why we don't observe many service taxes.

It is also the case that, in many services, taxes are avoided by the use of cash transactions. Estimates of the size of the "underground economy" vary, but most economists believe it is significant. A tax on services would likely increase its size dramatically.

The Think Long proposal is not the solution to California's challenges. It does, however, represent far more thought than went into the governor's proposal. It provides a service, in that it provides a starting point for a conversation that California desperately needs.

Photo by Randy Bayne; California Governor Jerry Brown

Bill Watkins is a professor at California Lutheran University and runs the Center for Economic Research and Forecasting, which can be found at clucerf.org

Public Pensions: Reform, Repair, Reboot

Rick Cole — Sun, 25 Dec 2011 00:38:02 -0500

Ill-informed chatter continues to dominate the airwaves when it comes to California public pensions. It’s a big, complex and critical issue for government at all levels in the Golden State. What makes debate so distorted is that public pensions actually differ from agency to agency — and advocates on the issue often talk past each other. Pension critics often point to outrageous abuses as if they were typical. On the other hand, pension defenders often cite current averages that understate long-term costs. All this fuels the typical partisan gridlock that Californians lament yet seem powerless to change in our state.

Credit Governor Jerry Brown for trying to overcome the polarization. That’s what most California voters want him to do, according to a new Field Poll, one of the leading opinion research firms in California. His 12-point pension package (unveiled in October) is successfully framing the debate — and enjoys encouraging support from voters. I agree with them. While Brown’s plan is far from perfect (as he acknowledged in presenting it as a way to build consensus) it sensibly tackles some of the most challenging areas where reform is needed. Among the key reforms he’s proposed:

Increasing the retirement age from 55 to 67 (with a lower age to be spelled out for public safety workers).
Replacing the current “defined benefit” pensions with a hybrid program that includes a defined benefit component, but also a 401(k)-like defined contribution component
Prohibiting retroactive pension increases.
Requiring all employees to contribute at least 50 percent of the cost of their pensions

These generally follow the surprisingly strong stand taken by the League of California Cities, which was based on recommendations from a committee of City Managers that I served on. Our work was grounded in four core principles:

Public retirement systems are useful in attracting and retaining high-performing public employees to design and deliver vital public services to local communities;
Sustainable and dependable employer-provided defined benefits plans for career employees, supplemented with other retirement options including personal savings, have proven successful over many decades in California;
Public pension costs should be shared by employees and employers (taxpayers) alike; and
Such programs should be portable across all public agencies to sustain a competent cadre of California public servants.

Our goal was to ensure the public pension system is reformed, instead of destroyed. Our reform package mirrors Brown’s calls for a hybrid system, raising retirement ages and increasing the portion of pension costs borne by employees. We also backed his bid to base retirements on the top three highest years of pay, curbing the abuses that often artificially raise final year salaries to “spike” pension pay-outs.

Typical of California’s other challenges, the issue faces long odds in the Legislature and uncertain fate at the ballot box. Partisan Democrats are leery of crossing unions by embracing Brown’s package. Partisan Republicans are demanding more far-reaching changes. Brown hopes to bridge the differences to win majority support by drawing on moderates in both parties. “He hasn’t riled up one side or the other,” noted Field Poll director Mark DiCamillo. “He’s managed to strike the middle ground on a very polarizing issue.” Unfortunately, moderates are hard to find in Sacramento.

That leaves the roll of the dice that comes with ballot initiatives. Since it takes millions to bankroll a successful ballot measure, few sensible measures get far without support from well-heeled interests.

In the eternal game of chicken that goes on in Sacramento, the Legislature keeps one eye on those special interests. About the only hope for reform is if a majority is worried that failure to act might spur an expensive ballot box war and an even worse outcome.

This issue might be the exception, however. Public outrage is real. So is the need for reform. In Ventura, we took an early lead on this issue, first with our Compensation Policies Task Force, then union contracts that established a lower benefit and later retirement age for new hires and increased contributions from all employees of at least 4.5% of their pay. But real reform to level the playing field can only come at the State level.

Before this issue devolves into another ballot box catastrophe that radically oversimplifies the issues to a “yes” or “no” choice on an initiative bankrolled by special interests, legislators in both parties need to come together on sensible reform. The Governor has put such a program on their desks. Reasonable people can differ on the details. But only unreasonable people want all-or-nothing victories. This is an issue that both sides should be willing to compromise on. The only way that will happen is if voters push both parties toward sensible compromise in the year ahead!

Photo by Randy Bayne

California in 2011: Suburbs Up, Exurbs Down?

Howard Ahmanson — Sat, 24 Dec 2011 04:38:39 -0500

I had the fortune recently to stumble on the California Department of Finance’s estimates of population change in California during the period July 1, 2010 – July 1- 2011. This is distinct from the Federal census, which tried to establish the number of people in all localities as of April 1, 2010. These California statistics are for a short period of only one year; they are not as reliable, of course, as a real census.

Percentagewise, the county that grew fastest was a Sacramento suburban county called Placer, which grew by 1.45 per cent (or, I suppose, what financial people would call 145 basis points) during that one year. It was also only one of two California counties where more people moved to from within the United States than from outside the United States (the other being Riverside County). It was also one of three where the number of people moving in over that moving out was greater than the excess of births over deaths, the other two being Napa County, which is suburban in its southern reaches before the grapes begin, and San Francisco County, which is known for, well, for not being big on baby-making. (Nevertheless San Francisco County did have a natural increase of 3,138 persons, whereas, as we shall see later, some rural counties had more deaths than births.)

But what came as a surprise was that Placer’s sister county, El Dorado, also a Sacramento suburban county running up into the mountains, gained a mere 26 basis points; and the other foothill counties of the Gold Country actually lost population during the year! This came as a surprise to me, for I have a house in Calaveras County and in the past I had spent time there; the Gold Country seemed to be a haven for the semi-retired and the part-time worker and even the long distance commuter; and Grass Valley had the beginnings of a high tech industry spilling over from Silicon Valley.

I don’t know what the terms “suburb” and “exurb” mean to New Geography readers, but I have my own definition which seems handy enough to me. A “suburb” has subdivisions and planned communities; developers buy land, subdivide, and build homes or sell lots often with covenants of various kinds. People still prefer suburbs – even ones quite distant from the urban cores – over the city, in part due to factors like cheaper housing, better schools, and newer amenities.

Exurbs are different. In an exurb, people split parcels into smaller lots, sell the lots, and then people build custom houses on them with no covenants (except maybe a few easements) and any architectural style the government will allow and perhaps a few they don’t. A good place to see the contrast is in the area just north of Cajon Pass. Victorville, Adelanto, and parts of Hesperia and Apple Valley abound with subdivisions, like the Orange County of my youth. But if you go a little bit to the southwest, around Pinnon Hills and Phelan, there is not a “subdivision” to be seen, and yet houses and, on the road, commercial establishments get thicker and thicker every year. (I have, on occasion for the past 25 years, taken the road to the monastery at Valyermo from Orange County, and I have seen these changes.)

Overall, it looks like the “suburbs” are growing – far more than the cities – while the “exurbs” are not. Placer County is an explosion of subdivided suburbs and “planned communities” as far as Newcastle and Lincoln.

In contrast, El Dorado has some of these in its west end, but they are not expanding much. And the other Gold Country Counties, Nevada, Amador, Calaveras, Tuolumne, and Mariposa, all of which shrank slightly in population, fit my definition of “exurban” – they have exurbs, and they are not very agricultural unless you count backyard wine and marijuana patches. These areas had been much sought out since the inflationary “survivalist” days of the 1970s. Now, it seems, the economy and gasoline prices are not affecting the prosperity and desirability of organized suburbia, but they are making the areas beyond organized suburbia less desirable than they used to be. I wonder if this is a nationwide trend.

Another discovery may point to the age of residents in various counties. Of the counties that actually lost population over the year the three on the Redwood Coast – Del Norte, Humboldt, and Mendocino – did so in spite of having an excess of births over deaths. So did the two in the far northeast, Modoc and Lassen. To read that a county in California lost population is in the “this I have lived to see” category.

Oddly, did one county in the Central Valley also declined. Kings, which is metropolitan Hanford, declined despite the fact that next door Tulare County was a big gainer; and Inyo County – home of Bishop, Lone Pine, and Death Valley – had an identical number of births and deaths. On the other hand, the Gold Country counties I mentioned – plus Sierra, Plumas, Siskiyou, Trinity, and Lake, outside the Sacramento Valley – had an excess of deaths over births. Perhaps these particular counties, more than the others, had been settled by retirees or empty nesters, who were no longer having children.

For its part, the rain-drenched Redwood Coast and the far northeast were less attractive, apparently, to retirees. In the counties not attractive to retirees, natural increase exceeded even immigration from outside the United States, which was positive in every county except Alpine, where it was exactly zero. Also, only in the aforementioned Placer and Napa Counties, and the City of San Francisco, did inward migration of any kind – from the U.S. or outside – exceed the “natural increase.”

The “native Californian,” once a slightly exotic phenomenon, seems to be becoming the norm. The days of what Carey McWilliams called, in his book title of 70 years ago, California: The Great Exception, seem to be at an end. We have entered a world we never knew before. California may become, at long less, less exceptional, still sprawling but in a more organized fashion.

Howard Ahmanson of Fieldstead and Company, a private management firm, has been interested in these issues for many years.

Photo courtesy of Bigstockphoto.com

New Census Data Reaffirms Dominance of the South

Wendell Cox — Wed, 21 Dec 2011 14:03:49 -0500

The 2011 state population estimates released earlier today by the Census Bureau show that the South has retained its dominant position in both population and growth over the last year. Southern states accounted for more than one half of the nation's population growth between 2011 and 2000, despite having little more than one third of the population. Moreover, the South was the recipient of 95% of the inter-regional net domestic migration (people moving from one state to another), with the West accounting for the other 5%, with the losses split between the Northeast and the Midwest.

Overall, a net 533,000 people moved from one state to another, somewhat above the low of 503,000 in 2008 and below the 573,000 at the beginning of the previous decade (2001). The figure, however, remained less than one-half that of the mid 2000s peak.

The state data confirmed the "return to normalcy," that had been indicated by the 2010 American Community Survey data.

The South Rises Again

In 2011 (July 2010 to June 2011), seven of the top domestic migration gaining states were in the South. This is a restoration of the same dominance the South achieved in 2001 to 2006. Some of the states have changed, but the overall impact is little different.

Texas:Texas again led the nation in net domestic migration, adding 145,000 people from other states to its population. This was a slight increase from the 143,000 net domestic migrants in 2009 (Note 1) and was the highest for Texas since the artificially intense exodus from Louisiana in the year (2006) following hurricanes Katrina and Rita. Texas has led the nation in net domestic migration for six years and ranked second in the nation over the 2001 to 2009.

Florida: Most spectacularly, however, has been the performance of Florida. Florida had been a net domestic migration leader for years, and had been number one from 2001 through 2005. However, when its highly inflated house prices collapsed (New York Federal Reserve Bank research refers to Florida as one of the "four bubble" states, along with California, Arizona and Nevada), Florida lost domestic migrants for the first time in at least six decades, in both 2008 and 2009. That has been radically turned around. In 2011, Florida added 119,000 net domestic migrants, housing prices dropped to normal levels (Note 2). While this is less than one half the gains in 2004 and 2005, it exceeds the annual Texas increase in the previous decade by 20%.

North Carolina and South Carolina: North Carolina ranked third, adding 41,000 net domestic migrants. This is an improvement from a fourth-place ranking in the previous decade. Neighboring South Carolina added 22,000 net domestic migrants and ranked sixth. This is an improvement from the previous decade's ranking of seventh. The domestic migrants to North Carolina and South Carolina have been called "halfbacks," as some have suggested that many who had moved to Florida from the Northeast have subsequently moved to North Carolina and South Carolina, essentially one half of the way back to where they moved from originally.

Tennessee, Georgia and Virginia: Tennessee (7th), Georgia (8th) and Virginia (9th) rounded out the South's seven of the top 10 states. Tennessee improved from having been 8th in 2001 to 2009, while Georgia dropped from 5th and Virginia was a new entrant, having previously ranked 12th.

Western Runners-Up

While the West continued to show net domestic migration gains, this formerly fastest-growing area of the nation has fallen well behind.

Washington: Washington ranked fourth in 2011, an improvement from ninth between 2001 and 2009. Washington added 35,000 net domestic migrants.

Colorado: Colorado also improved its position, adding a net 31,000 domestic migrants and ranking fifth in 2011, which is up from its 10th ranking in 2001 through 2009.

Oregon:Oregon ranked 10th, adding 14,000 net domestic migrants and was a new entrant to the top 10, having placed 11th between 2001 and 2009.

Things Never Change: The Bottom 10

A similar restoration of normalcy is evident in the bottom 10 states. From 2001 to 2009, all of the bottom 10 net domestic migration states were in the Northeast or the Midwest, joined by California. This changed somewhat in 2011, with formerly fast-growing Nevada, edging out one of the former bottom 10. There was some movement at the very bottom of the list.

New York: New York recovered its last place position (51st), which it held overall between 2001 and 2009, but had yielded to California later in the decade. New York lost 114,000 net domestic migrants in 2011, which compares to the 1,650,000 loss between 2000 and 2009.

Illinois:Illinois had the second-highest net domestic migration loss, sending 79,000 of its residents to other states. Illinois had ranked 49th in net domestic migration in the previous decade, with a 615,000 loss. Unlike the other biggest losers, New York and California, the Illinois rate in the single year of 2011 exceeded its annual rate of net domestic migration loss between 2000 and 2009.

California:The bad news is that California continues to be among the most hemorrhaging states in net domestic migration. The 2000 to 2009 net domestic migration loss of 1,500,000 was more than the population of the cities (municipalities) of San Francisco and Sacramento combined. Perhaps it is good news that the net domestic migration loss dropped to 66,000 in 2011, less than half the annual rate in the previous decade. California ranked 49th in net domestic migration in 2011, an improvement from its 50th place position in 2001 through 2009.

Michigan: Michigan continued its heavy losses, losing a net 57,000 domestic migrants in 2011 and ranking 48th. In the previous decade, Michigan had also ranked 48th and had a net loss of more than 535,000 domestic migrants.

New Jersey, Ohio and Connecticut: New Jersey, Ohio and Connecticut occupied the next three higher positions in the bottom ten. The New Jersey and Ohio ranks of 47th and 46th were the same as in the previous decade. Connecticut ranked 45th in 2011 and had ranked 42nd, at the top of the bottom 10, in the previous decade. Each of these states experienced an acceleration of net domestic outmigration relative to their annual loss in the previous decade. In the previous decade, the New Jersey and Connecticut losses had been driven by the New York metropolitan area, which suffered the preponderance of the net domestic migration losses in the Northeast.

Missouri and Indiana: The Midwestern states of Missouri and Indiana were new entrants to the bottom 10. Missouri ranked 44th in net domestic migration in 2011, losing 12,000, a substantial deterioration from its 20th ranking in the previous decade when the state added 41,000 residents from other states. Indiana ranked 43rd compared to its 32nd place ranking in the previous decade.

Nevada: Nevada, which had ranked sixth in net domestic migration in the previous decade, occupied the top position in the bottom 10, at 42nd. Nevada lost 11,000 domestic migrants, compared to a gain of more than 360,000 in the previous decade. Like Florida, house prices had escalated sharply during the housing bubble and prices have since fallen back to normal levels. However, much of Nevada's economy is tied to that of California, which could be a hindrance to the restoration of its previous growth.

Other Notes

The other "bubble state," Arizona ranked 11th in net domestic migration, adding 13,000 new residents from other states. As in Florida, house prices had escalated sharply but have since fallen back to normal levels. However, despite its healthy domestic migration, Arizona's gain is far less than its annual rate in the previous decade.

There are nothing but surprises in the balance of the top 15. Oklahoma, which has long exported people, especially to the West, ranked 12th in net domestic migration, an improvement from 19 in the previous decade. The District of Columbia ranked 13th, which is a strong improvement from its previous ranking of 37th. Louisiana continued its recovery, ranking 14th, which is an improvement from 45th in the previous decade. North Dakota, whose 2000 population was less than that of 1920, ranked 15th, which is an improvement from 31th in the previous decade.

No Matter How Much Things Change They Stay the Same

Both over the last decade and in 2011, the South accounted for 53% of the nation's growth, the West 32%, with the Midwest rising from 8% to 9% and the Northeast falling from 7% to 6%. And, as indicated above, net domestic migration results were similar. The conclusion from the new census estimates is consistent with the old adage that "no matter how much things change, they stay the same."

Net Domestic Migration by State:
2001-2009 and 2011
By 2011 Rank
State	2011	2011 Rank	2001-2009	2001-2009 Rank
Texas	145,315	1	838,126	2
Florida	118,756	2	1,154,213	1
North Carolina	41,033	3	663,892	4
Washington	35,166	4	239,037	9
Colorado	31,195	5	202,735	10
South Carolina	22,013	6	306,045	7
Tennessee	20,328	7	259,711	8
Georgia	17,726	8	550,369	5
Virginia	15,538	9	164,930	12
Oregon	13,636	10	177,375	11
Arizona	13,150	11	696,793	3
Oklahoma	8,933	12	42,284	19
District of Columbia	8,334	13	(39,814)	37
Louisiana	7,085	14	(311,368)	45
North Dakota	6,368	15	(18,071)	31
Kentucky	5,761	16	81,711	15
Arkansas	5,724	17	75,163	16
Montana	3,888	18	39,853	21
West Virginia	2,814	19	17,727	26
South Dakota	2,610	20	7,182	27
Delaware	2,347	21	45,424	18
New Mexico	2,202	22	26,383	24
Alabama	1,974	23	87,199	14
Alaska	740	24	(7,360)	29
Wyoming	(149)	25	22,883	25
Idaho	(256)	26	110,279	13
Utah	(826)	27	53,390	17
Vermont	(841)	28	(1,505)	28
Nebraska	(977)	29	(39,275)	36
Maine	(1,000)	30	29,260	23
Pennsylvania	(1,121)	31	(33,119)	34
Iowa	(1,361)	32	(49,589)	40
Hawaii	(2,320)	33	(29,022)	33
Maryland	(2,994)	34	(95,775)	43
New Hampshire	(3,645)	35	32,588	22
Rhode Island	(6,273)	36	(45,159)	38
Mississippi	(6,672)	37	(36,061)	35
Kansas	(7,928)	38	(67,762)	41
Minnesota	(8,073)	39	(46,635)	39
Massachusetts	(10,886)	40	(274,722)	44
Wisconsin	(10,990)	41	(11,981)	30
Nevada	(11,113)	42	361,512	6
Indiana	(11,412)	43	(21,467)	32
Missouri	(11,831)	44	41,278	20
Connecticut	(16,848)	45	(94,376)	42
Ohio	(44,868)	46	(361,038)	46
New Jersey	(54,098)	47	(451,407)	47
Michigan	(57,234)	48	(537,471)	48
California	(65,705)	49	(1,490,105)	50
Illinois	(79,458)	50	(614,616)	49
New York	(113,757)	51	(1,649,644)	51

Data from US Bureau of the Census

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Note 1: The Census Bureau did not produce domestic migration data for 2010 (2009-2010). Any reference to 2010 in this article is based upon an interpolation of the 2010 estimate from 2009 and 2011 Census Bureau estimates.

Note 2: By 2010, housing affordability in all of Florida's four major metropolitan areas with the exception of Miami had been returned to a Median Multiple (median house price divided by median household income) of approximately 3.0 or less, which is the historical norm (See: 7th Annual Demographia International Housing Affordability Survey). During the housing bubble of the early to middle 2000s, the Median Multiple had risen to above 5.0 in all of the major metropolitan areas except Jacksonville.

Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris and the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life”

California: Codes, Corruption And Consensus

Bill Watkins — Tue, 20 Dec 2011 00:38:21 -0500

We Californians like collaboration. Before we do things here, we consult all of the “stakeholders.” We have hearings, studies, reviews, conferences, charrettes, neighborhood meetings, town halls, and who knows what else. Development in some California cities has become such a maze that some people make a fine living guiding developers through the process, helping them through the minefields and identifying the rings that need kissing.

Here’s an example. This is a (partial?) list of the groups who will have a say on any proposed project in my city, Ventura:

City agencies (Planning, Engineering, Flood Control, Traffic, Building & Safety, Utilities, Police, Fire)
Historic Preservation Committee
Parks and Recreation Committee
Design Review Committee
Planning Commission
City Council
School District
Neighborhood and Community Councils
No-Growth Citizen Groups
Chamber of Commerce
Ventura Citizens for Hillside Preservation
California Department of Fish and Game
United States Department of Fish and Wildlife
Ventura County Local Agency Formation Committee (discretionary authority regarding annexations)
Los Angeles Regional Water Quality Control Board (new MS4 Stormwater Permit issues)
Ventura County Environmental Health
California Coastal Commission (for some projects within the Coastal Zone)
California Native American Heritage Commission and Designated Most Likely Descendant of local tribe
United States Army Corps of Engineers
Natural Resources Defense Council, Surfrider Foundation, Heal the Bay, other environmental groups
And all parties who have requested to be on notice, as well as the general public and other agencies, will be informed of any California Environmental Quality Act (CEQA) document.

I didn’t pick Ventura because it is the most difficult. It’s not. I think Ventura is pretty typical for a coastal California city, actually.

The result of having all these stakeholders is that, in many California communities, particularly those in coastal and upscale locations, everyone has a veto on everything. At the beginning of a project the developer faces a huge amount of uncertainty about what the project will look like once it gets past the gauntlet and about the cost of the development process. Add to that uncertainty about who will demand what, how long the approval process will take, market conditions and the regulatory environment when the project is completed, if it is completed.

This is where the corruption connection comes in.

In economics, we teach that there are two types of corruption, centralized and decentralized. Decentralized corruption is the more pernicious of the two.

Think of a city where organized crime has a successful protection racket. This would be centralized corruption. The mob is going to collect from everyone, but it has an incentive not to collect too much. It doesn’t want to draw too much attention to itself or chase the business out of town.

By contrast, decentralized corruption consists of a bunch of independent gangs, each trying to collect all they can before the next group of thugs comes along. Each gang of thugs will demand and collect too much, and chase the business out of town.

Of course, if you want to develop a property in California no one will hold a gun to your head and demand money, and everyone is way too polite to call it extortion. Certainly, no group thinks of itself as a mob of corrupt gangsters. Instead, the members think of themselves as stakeholders, and they hold delays, lawsuits, or project denial to your head. The results are the same.

First, you have to meet everyone, and everyone wants something in return for support, or for refraining from opposition. Groups will demand “mitigation fees,” delays, studies and more studies, and changes in the project. You will meet their demands, or you will be sued, or the project will be denied.

Time spent on meetings, studies, and negotiations is expensive. The cost of the local “guide,” necessary to get through the local maze, is expensive. The “mitigation fees” are expensive. Delays are expensive. Studies are expensive. Changes in the project are expensive. Lawsuits are expensive. And risk is expensive.

Eventually, the project is no longer profitable. No wonder California’s unemployment rate is 30 percent above the United States unemployment rate.

The current climate provides California’s local governments with their best economic development opportunity: Eliminate the legal extortion by guaranteeing a project’s prompt approval if it meets existing general plans, specific plans, zoning, building codes, and adopted design criteria. Any community that did this would see immediate increased economic activity. To steal a phrase from a famous economist, it is the closest thing to a free lunch.

A city does outreach before it develops its zoning and community design plans. It only adds to the cost of development to require builders to go through the entire process again, fighting the same battles, every time a project is proposed.

The best thing about this idea is that it has been tried, and it works. The City of San Diego has seen an amazing-for-California energy since its redevelopment agency implemented such a plan several years ago. In the worst economy in 50 years, San Diego has been building and providing commercial and housing projects for all economic levels in its downtown area. It is time for the rest of California to get on with it.

Bill Watkins is a professor at California Lutheran University and runs the Center for Economic Research and Forecasting, which can be found at clucerf.org

Photo: Two Tree Hill, Ventura California by Joseph Liao (Chowee).

The Best Cities For Technology Jobs

Joel Kotkin — Fri, 18 Nov 2011 13:59:06 -0500

During tough economic times, technology is often seen as the one bright spot. In the U.S. this past year technology jobs outpaced the overall rate of new employment nearly four times. But if you’re looking for a tech job, you may want to consider searching outside of Silicon Valley. Though the Valley may still be the big enchilada in terms of venture capital and innovation, it hasn’t consistently generated new tech employment.

Take, for example, Seattle. Out of the 51 largest metro areas in the U.S., the Valley’s longtime tech rival has emerged as our No. 1 region for high-tech growth, based on long- and short-term job numbers. Built on a base of such tech powerhouses as Microsoft, Amazon and Boeing, Seattle has enjoyed the steadiest and most sustained tech growth over the past decade. It is followed by Baltimore (No. 2), Columbus, Ohio (No. 3), Raleigh, N.C. (No. 4) and Salt Lake City, Utah (No. 5).

To determine the best cities for high-tech jobs, we looked at the latest high-tech employment data collected by EMSI, an economic modeling firm. The Praxis Strategy Group‘s Mark Schill charted those areas that have gained the most high-tech manufacturing, software and services jobs over the past 10 years, equally weighting the last five years and the last two. We also included measures of concentration of tech employment in order to make sure we were not giving too much credence to relatively insignificant tech regions. Our definition of high tech industries is based on the one used by TechAmerica, the industry’s largest trade association.

Despite the Valley’s remarkable concentration of tech jobs — roughly six times the national average — it ranked a modest No. 17 in our survey. This relatively low ranking reflects the little known fact that, even with the recent last dot-com craze sparking over 5% growth over the past two years, the Valley remains the “biggest loser” among the nation’s tech regions, surrendering roughly one quarter of its high -tech jobs — about 80,000 — in the past decade. Only New York City (No. 44) lost more tech jobs during that time.

In contrast to this pattern of volatility, our top performers have managed to gain jobs steadily in the past decade — and have continued to add new ones in the last two years. In addition to our top five, the only other regions to claim overall tech gains in the last 10 years are Jacksonville, Fla. (No. 6), Washington, D.C. (No. 7), San Bernardino-Riverside, Calif. (No. 9), San Diego, Calif. (No. 9), Indianapolis (No. 11) and Orlando, Fla. (No. 24).

So what accounts for high-tech success, and where will jobs most likely grow in the next decade? Certainly being home to a major research university makes a big difference. Seattle, Columbus, Raleigh and Salt Lake City all boast major educational and research assets.

But it’s one thing to produce scientists and engineers; it’s another to generate employment for them over the long term. Clearly for the San Jose metropolitan region (which is home to Stanford) and the much-hyped No. 29 San Francisco area (home to the University of California Medical Center) academic excellence has not translated into steady growth in tech jobs. Over the past decade the Bay Area has given up 40,000 jobs, or 19% of its tech workforce, including a loss of nearly 6,000 in software publishing.

Or look at the Boston region (ranked No. 22), which arguably boasts the most impressive concentration of research universities in the country. The region did add jobs in research and computer programming, but these were not enough to counter huge losses in telecommunications and electronic component manufacturing. Over the past decade, greater Beantown has given up 18% of its tech jobs, or more than 45,000 positions.

One possible explanation may lie in costs, including very high housing prices, onerous taxes and a draconian regulatory environment. In tech, company headquarters may remain in the Valley, close to other headquarters and venture firms, but new jobs are often sent either out of the country or to more business friendly regions.

Just look at the flow of jobs from Bay Area-based companies to places like the Salt Lake area. In the past two years Valley companies such as Twitter, Adobe, eBay, Electronic Arts and Oracle have all expanded into Utah. This region has many appealing assets for Bay Area companies and workers. Salt Lake City is easily accessible by air from California, possesses a well- educated workforce, has reasonable housing costs and offers world-class skiing and other outdoor activities.

Another huge advantage appears to be closeness to the federal government, which expends hundreds of billions on tech products both hardware and software. This explains why Baltimore, primarily its suburbs, and the D.C. metro area have enjoyed steady tech growth and, under most foreseeable scenarios, likely will continue to do so in the coming years. Both regions have seen large gains in technology services industries, particularly programming, systems design, research, and engineering.

Yet even business climate, while important, may not be enough to drive tech job growth. Texas ranks highly in most business surveys, including our own, but it did not fare so well in this one. Indeed No. 32 Austin, often thought as the most likely candidate for the next Silicon Valley, lost over 19% of its high-tech jobs over the past decade, including more than 17,000 jobs in semiconductor, computer and circuit board manufacturing. No. 18 Houston did far better, although it has also lost 6% of its tech jobs over the same period due to the cutbacks in the engineering service, a big sector there. Even more shocking: No. 46 Dallas, generally a job-creating dynamo, has seen roughly a quarter of its high-tech jobs go away, due primarily to losses in telecommunications carriers and in manufacturing of communications equipment and electronics.

How about other potential up and comers for the coming decade? Two potentially big and somewhat surprising winners. The first: Detroit. Though the Motor City area lost 20% of its tech jobs in the past decade (ranking 40th on our list), it still boasts one of the nation’s largest concentrations of tech workers, nearly 50% above the national average. In the past two years, the region has experienced a solid 7.7% increase in technology jobs, the second highest rate of any metro area.

The Motor City region seems to have some real high-tech mojo. According to the website Dice.com, Detroit has led the nation with the fastest growth in technology job offerings since February — at 101%. This can be traced to the rejuvenated auto industry, which is increasingly dependent on high-tech skills. Manufacturing is increasingly prodigious driver of tech jobs; games and dot-coms are not the only path to technical employment growth. This could mean good news for other Rust Belt cities, such as No. 28 Cincinatti or No. 38 Cleveland, as well as our Midwest standout, Columbus, which could benefit from growth sparked by the local natural gas boom.

Another potential standout is No. 8 New Orleans, whose tech base remains relatively small but has expanded its tech workforce nearly 10% since 2009 — the highest rate of any of the regions studied. With low costs, a friendly business climate and world-class urban amenities, the Crescent City could emerge as a real player, aided by the growing prominence of research and development around Tulane University. There has also been a recent growing presence of the video game industry in the city.

Looking forward, however, it makes sense to be cautious about where tech is heading. By its nature, this is a protean industry; the mix of jobs and favored locales tend to change. If the current boom in social media continues, for example, the Bay Area could recover more of its lost jobs and further extend its primacy. Similarly a surge in manufacturing and energy-related technology could be a boon to tech in Houston, Dallas as well as New Orleans. But based on both historic and recent trends, the surest best for future growth still stands with our top five winners, led by the rain-drenched, but prospering Seattle region.

Best Places for High Tech Growth
Ranking of 2, 5, and 10 year growth, industry concentration, and 5 and 10 year growth momentum
Rank	Metropolitan Area	Rank Score
1	Seattle	82.2
2	Baltimore	75.7
3	Columbus	67.9
4	Raleigh	63.2
5	Salt Lake City	60.0
6	Jacksonville	59.2
7	Washington, DC	58.9
8	New Orleans	58.8
9	Riverside-San Bernardino	58.2
10	San Diego	56.1
11	Indianapolis	55.9
12	Buffalo	55.8
13	San Antonio	54.0
14	Charlotte	53.5
15	St. Louis	51.6
16	Pittsburgh	50.8
17	San Jose	50.5
18	Houston	50.2
19	Hartford	50.0
20	Nashville	49.6
21	Providence	49.2
22	Boston	48.3
23	Minneapolis-St. Paul	48.3
24	Orlando	48.1
25	Portland	48.1
26	Philadelphia	47.4
27	Louisville	47.2
28	Cincinnati	46.6
29	San Francisco	46.6
30	Denver	46.4
31	Richmond	45.6
32	Austin	45.1
33	Atlanta	44.6
34	Virginia Beach-Norfolk-Newport News	42.4
35	Memphis	42.2
36	Milwaukee	41.5
37	Rochester	41.2
38	Cleveland	40.9
39	Phoenix	38.5
40	Detroit	37.7
41	Tampa	37.5
42	Miami	33.2
43	Sacramento	32.1
44	New York	31.4
45	Las Vegas	31.2
46	Dallas-Fort Worth	31.0
47	Chicago	30.2
48	Los Angeles	29.5
49	Oklahoma City	26.7
50	Birmingham	23.5
51	Kansas City	21.6
Rankings measure employment in 45 high technology manufacturing, services, and software industry sectors.

This piece first appeared at Forbes.com.

Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and an adjunct fellow of the Legatum Institute in London. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

Mark Schill of Praxis Strategy Group perfomed the economic analysis for this piece.

Seattle photo courtesy of BigStockPhoto.com.