California’s Collapse
By William F. Jasper The New American, October 6, 2003
California’s woes — high taxes, costly energy, burdensome regulations, and more — are all symptoms of government run amok.
Buck Knives celebrated its century mark in 2002. Its legendary blades have devoted fans worldwide and have been favorites of generations of outdoorsmen. In January 2003, CEO and president C.J. Buck regretfully announced that the company would be moving from its longtime California home in El Cajon, near San Diego, to Post Falls, Idaho. Mr. Buck said he loved the El Cajon-East County area where he grew up, “so it’s very sad to have to make this decision.” However, high taxes, energy costs, workers’ compensation costs, and regulations have made continued manufacturing in California unfeasable. The move to Idaho will save the company millions of dollars annually. The loss to California: 250 jobs and millions of dollars in tax revenue.
In a January 15th Associated Press interview, East County Supervisor Diane Jacob noted that the problems confronting Buck Knives are typical of the government-imposed burdens “breaking the backs of businesses in this state.” “I think this is just the beginning of the exodus of businesses in the state unless there are sweeping reforms in the way we treat businesses,” Supervisor Jacob said.
Exodus of Business and Population
Unfortunately, the exodus has been underway for some time, and it appears to be accelerating. Fidelity National Financial, the country’s largest title insurer, is moving its headquarters from Irvine, California, to Jacksonville, Florida. Many of Fidelity’s 26,000 employees will also be leaving the Golden State. Solectron, a major Silicon Valley assembler of hi-tech hardware, is in the process of laying off 10,000 of its 75,000 workers and is shifting more of its operations to Asia.
However, some businesses are not able to flee; they are simply driven into the ground. That is the case, for instance, with the family-owned Wetsel-Oviatt Lumber Company near Sacramento. Once employing 1,000 workers, the company announced in August that it would be closing its doors, due largely to skyrocketing costs of workers’ compensation and environmental regulation. A third-generation enterprise providing employment and much-needed lumber since 1939, the sawmill grossed $30 million in 2002. The cost of California’s draconian environmental regulations have been escalating for years. It can cost $75,000 to get state approval of a timber harvest plan even before a tree is cut. But the final straw for Wetsel-Oviatt was the recent stunning news that the state-imposed workers’ compensation premiums would more than double, from $760,000 to $1.6 million annually. The premiums were already exorbitant. James Salfen, the sawmill’s chief financial officer, points out that the money actually paid out to cover the company’s injured workers in 2002 amounted to $112,000 — far below the $760,000 they were charged in premiums.
California’s workers’ compensation system, the most expensive in the nation, is infamous for fraud and corruption. Unscrupulous employees, lawyers, doctors, chiropractors, bureaucrats, and politicians have been milking it for billions of dollars. The National Federation of Independent Business and other business groups have long cited California’s workers’ comp as a top killer of the state’s businesses and jobs. Wetsel-Oviatt’s 120 employees are some of its latest victims.
“With California accounting for an estimated 13% of the country’s overall economic activity, the state’s problems threaten to slow the national recovery,” BusinessWeek Online reported on July 2nd. “California has lost 54,000 jobs this year, one-fifth of all pink slips in the country,” the BusinessWeek story continued. “In May, the country as a whole would have gained 4,500 jobs if not for the state’s 21,500 layoffs.”
Despite its mounting negatives, as recently as one year ago, California dominated Forbes’ annual “Best Cities for Business” list, claiming 10 of the top 25 and six of the top 10 slots, including first and second place (San Diego and Santa Rosa). But California has fallen from grace. On the 2003 Forbes list, San Diego has plummeted from first to 27th; Santa Rosa dropped from 2nd to 23rd; and Ventura fell from 4th to 67th. In fact, 23rd-place Santa Rosa is now higher on the list than any other California city. The Tax Foundation ranks California 49th in terms of business climate; only Mississippi achieved a worse rating.
The California crisis that now commands daily headlines has been building for many years. On October 7th,* the Golden State’s voters will cast ballots in a special election to remove second-term Governor Gray Davis, who bears heavy responsibility for many of the state’s current woes. However, many Californians have already voted with their feet. According to a Census Bureau study released in August, from 1995 to 2000, an astonishing 2,204,500 California residents pulled up stakes and fled to other states. Included in this exodus were many of the state’s most productive citizens. A demographer quoted by the Los Angeles Times calls this flight “unprecedented.” The factors responsible for this unparalleled evacuation are the same that have fueled the recall revolution among those who have stayed: big, oppressive, corrupt, costly government run amok.
The “pocketbook issues” — jobs, taxes, regulation — have dominated much of the reform talk surrounding the recall election. But these issues, important as they are, touch on only part of the problem. Perhaps equally important in terms of causing people and businesses to flee California are the radical social policies aimed at refashioning families and society according to the dystopian vision of militant feminists, environmentalists, homosexuals, and multiculturalists who have taken control of state politics. The governor and state legislature are soft on robbers and rapists but tough on law-abiding gun owners, soft on violent felons but tough on unborn babies, soft on sexual deviants but tough on the Boy Scouts, soft on pornography but tough on prayer, soft on illegal aliens but tough on citizens. These issues have largely been left out of the public debate; it is politically incorrect to bring them up. Recalcitrants who violate the PC taboo are likely to be subjected to a media keelhauling and accused of intolerance, racism, bigotry, and insensitivity. But silencing debate by bullying and name calling doesn’t make the problems go away.
Certainly one of the top problems confronting California is the unrestrained legal and illegal immigration from Mexico as well as Latin America, Asia, Russia, and the Middle East. The sheer size of this immigration invasion has already Balkanized large parts of the state and transformed many areas into Third World enclaves that are unlikely to assimilate any time soon. These huge and expanding foreign populations present serious challenges relative to national security and the threat of terrorism. Yet, while American citizens are being subjected to ever more intrusive controls and restrictions, Governor Gray Davis and the California legislature have passed legislation to provide driver’s licenses to illegal aliens.
Voters Awaken
California’s and America’s political elites — Democrat and Republican — laughed when the movement to recall Governor Gray Davis, a Democrat, was launched a few months ago. The effort would never get enough signatures to qualify for the ballot, said the political Insiders and their pundit pals. It had never been done. First, the recall advocates would have to gather qualified signatures from 897,159 California voters, 12 percent of the total number of votes cast in the most recent statewide general election. Wouldn’t happen, the naysayers proclaimed. They were wrong. California voters — Democrat, Republican, and Independent — were fed up. And they lined up at malls, supermarkets, and doughnut shops to sign the recall petition. In record time, the recall organizers collected 1.3 million signatures.
Once the recall was certified, the politicos and pundits continued to scoff. The movement to unseat Davis was a farce, not to be taken seriously, they claimed. To be sure, the flood of loony candidates that rushed to get on the recall ballot to replace Governor Davis more than sufficed to lend a comical air to the whole enterprise. The 135 gubernatorial aspirants provided an embarrassing assortment of narcissistic misfits and political fringies tailor-made for a media spectacle: an infamous smut peddler, porn queens, actors, comedians, socialists, Communists, environmental wackos, and a host of unknown political wannabes championing every conceivable cause. (See “Recall Revolution,” page 17.)
Beneath the circus atmosphere, however, lurks a reality as serious as a heart attack and as momentous as an earthquake. A sizable body of California’s voters are awakening and sending a message. But it remains to be seen whether they will use the historic opportunity available to them via the recall to begin reversing the policies killing America’s wealthiest, most productive, most populous state.
Track Record of Poor Performance
Governor Gray Davis began his climb up the political ladder as Governor Jerry “Moonbeam” Brown’s chief of staff from 1975-1981. He served in the state assembly from 1983-1987, then moved up to state controller for eight years before winning election as lieutenant governor in 1994. Davis won his first election as governor in 1998.
The catalyzing issue that has led to the Davis recall election centers on California’s energy crisis and rolling blackouts during the winter of 2000-2001. First, he had failed to deal with and correct the fatal flaws of the state’s 1996 utility deregulation law. That misbegotten legislation, cobbled together by the Democrat-controlled legislature and signed by Republican Governor Pete Wilson, allowed only wholesale electricity prices to rise or fall with the market. Consumer retail prices, on the other hand, were frozen. This, in addition to preventing construction of any new generating plants and prohibiting utilities from entering into long-term contracts with energy providers, resulted, predictably, in massive power shortages.
As the energy crisis built in 2000, Davis ignored it until the blackouts started rolling in. When energy prices reached historic highs, Davis used a former executive of the utility companies to negotiate illegal long-term contracts that locked the state into paying $43 billion for vastly overpriced energy. The governor’s negotiator, Vikram Budhraja, a former senior vice president with Southern California Edison, violated state law prohibiting public officials from having any financial interest in any contract made in their official capacities. Budhraja later revealed that he had been paid over $100,000 by Edison while negotiating with his former company for the state. He also made a 44 percent profit on the sale of an unspecified amount of Edison stock days after he signed the contract for the state. Those contracts are now being challenged in a lawsuit in California Superior Court. State Senator Tom McClintock, a leading challenger to replace Davis in the recall election, has pledged that, if elected governor, he will immediately sign a stipulation for the court case seeking to void those contracts and save California’s residential and commercial ratepayers a fortune in energy bills.
The scandal over the energy fiasco should have ended Gray Davis’ political career when he ran for reelection in 2002. But, thanks to strategic media cover, a massive war chest, a willingness brazenly to lie about the dire state of California’s budget, and a badly botched Republican challenge, Davis managed a razor-thin victory. He was reelected 47 percent to 42 percent over a weak challenger (William Simon), who was outspent two to one and sabotaged by Republican in-fighting.
During the campaign, Davis vigorously attacked challenger William Simon for suggesting that his proposed budget would result in a deficit. He assured voters that his budget was the model of austerity and would involve only a very small deficit. He produced figures to prove that state finances were in rosy condition. Shortly after his re-election, however, Davis produced a much different budget, one with a $34 billion budget deficit that would require massive new taxes and a huge bond debt. It was apparent even to many of his fans in the liberal media that the budget figures he had produced earlier were not mistakes but blatant lies.
But Davis proceeded unabashed, adopting the strategy of President Franklin Delano Roosevelt’s top adviser, Harry Hopkins. “We shall continue,” Hopkins cold-bloodedly told FDR, “to tax and tax, spend and spend, and elect and elect — for the American people are just too damn dumb to know what is happening to them!”
But the people may have had enough of this cynical exploitation. As the enormity of the Davis budget fraud and the extent of the proposed tax pain began to sink in, Californians revolted. In April of this year, the nonpartisan Field Poll found Davis to have the lowest approval rating of any California governor in the 55 years since the poll began, with only 24 percent approving and 65 percent disapproving of his job performance. Not only the numbers but the extraordinary passion of those dissatisfied with his performance indicated that this could be a paradigm-shift moment. The 1911 California law providing for the recall of elected officials had rarely been used, and never to unseat a statewide officeholder. But once dusted off and put to use, voters nearly stampeded to sign it.
Here are some of the particulars that Davis’ critics cite to indict his performance:
Davis illegally tripled the annual automobile license fee by executive order. This one action, which would add $460 to the average family tax bill, may be the single move that has triggered the most virulent voter response.
According to Davis projections, his car tax should pay for about half of the $8 billion he needs in new revenues. An increase in the sales tax, already one of the highest in the nation, should bring in another $2.8 billion. The rest he hopes to obtain by increasing the cigarette tax and boosting the state income tax on the state’s wealthiest 10 percent.
During Governor Davis’s first term, population and inflation combined increased 22 percent. During the same period, tax revenues increased 28 percent and state government spending increased a shocking 36 percent.
When Davis came into office, he benefitted from a $12 billion budget surplus. He spent that and began his second term by announcing a $34.6 billion deficit.
The Davis budget falsely claims to be making spending cuts by accounting tricks such as shifting health programs to county and local governments.
Davis vowed to create 500,000 new jobs during his second term, but the Pacific Research Institute estimates the Davis tax increases will destroy 590,000 more California jobs over three years.
California spends more than any other state on education, and 44 percent of the Davis budget goes to K-12 education. Yet California ranks 35th nationally on academic achievement.
When Gray Davis took office in 1999, California ranked 41st in the Small Business Survival Index. But under his stewardship it has sunk to 46th.
Under Davis, California’s bond rating has plummeted to the lowest of any state, rating just above junk bonds.
Davis has signed proclamations supporting the Gay, Lesbian, Straight Education Network’s (GLSEN) annual “Day of Silence” in California’s schools and signed legislation giving legal status to homosexual partnerships, paving the way for homosexual “marriage.” He has also signed legislation outlawing discrimination against homosexuals by employers, rental property owners, business owners, and others.
Davis has approved the expenditure of Medi-Cal funds to pay for over 100,000 abortions per year. He has appointed abortion activist Susan Kennedy, who had served for six years as the executive director of the California Abortions Rights Action League (CARAL), as a top Cabinet adviser.
The latest available figures show that during the first six months of 2002 violent crime was up in California’s major population centers: Homicides increased by 16 percent; robberies, 9.2 percent; rapes, 3.8 percent; auto theft, 12.7 percent.
Davis changed the definition of overtime from weekly hours (more than 40) to daily hours (more than eight), which has effectively destroyed flexible work schedules, comp time, and four-day workweeks. He also forced businesses to provide paid family leave. Many businesses have cited these measures as major reasons for plans to leave the state.
Davis signed bills raising the state minimum wage to $6.25 in 2001 and $6.75 in 2002, pushing more jobs and businesses out of the state.
Lessons To Be Learned
For generations, the “California Dream” has meant opportunity, innovation, inventiveness, freedom, and prosperity. Blessed with sunshine, seaports, bountiful natural resources, fertile soil, scenic beauty, and advantageous access to the Pacific Rim, the Golden State developed into an economic powerhouse whose gross productivity surpasses that of all but a few nations. But the golden glow has been tarnished by the corrosive effects of socialism, government interventionism, illegal immigration, and social engineering.
Americans residing outside the confines of what is frequently derided as the “Granola State” — land of the fruits, nuts, and flakes — may be tempted to take smug satisfaction in the current travails being visited upon the Left Coast’s unhappy inhabitants. They should resist the temptation; the same fate may soon stare them in the face. Virtually every state government is facing the specter of budget deficits, massive loss of jobs and businesses to overseas competitors, economic hardship, and social engineering legislation similar to that now afflicting California. Surpluses that accrued during the giddy prosperity of the 1990s and the dot com run-up encouraged state politicians everywhere to embark on spending binges. The American Dream is everywhere under assault by the same destructive forces that have very nearly destroyed the California Dream. States now benefiting from the hemorrhage of businesses from California will see many of those same companies move on to cheaper foreign venues, unless they restrain the heavy, grasping hands of state and local governments.
As the most populous state in the union, California controls an enormous bloc of votes in the U.S. House of Representatives: 53, substantially more than the next highest state, Texas, which has 32.* If California falls to the complete control of the Radical Left, it will become an enormous engine for the total destruction of our country and civilization. That alone should be reason to hope and pray and work against that eventuality. The lesson to be learned from California’s dilemma should be that government at all levels must be vigilantly watched and kept within its proper, constitutional bounds. (*Corrected from original, which stated, ". . . close to double the next highest state, New York, which has 29.")
