Exploring a Prosperity Policy Agenda for California

The People of California want prosperity but most are not getting it. The California Policy Center has established this new website, the Prosperity Forum, to explore the reasons why Californians are not as prosperous as they once were. By making prosperity the primary focus, other objectives, which sometimes dominate our State’s politics, can be placed in perspective. Maybe it is possible for prosperity to coexist with them.

Californians have an urgent need to have prosperity considered from this perspective because politicians rarely do. It is no secret that Sacramento is run by special interests. Public sector unions and corporations outspend every other campaign donor type for the loyalty of our State Legislators, assuring that when they need to have a law enacted to further a specific item on their agendas, they will have the votes to make it happen. The same holds true for single-issue advocates. Because special interests and single issue advocates force politicians to focus narrowly on the benefits conferred by their specific proposals, laws are often enacted in California without any consideration given to the broader economic consequences of those laws. Who suffers most? Working families and the poor.

Most people are aware that California is not as prosperous as it once was. The elites in Hollywood and the Silicon Valley are doing fine in their coastal communities. But common families in the Central Valley and the inner cities of Los Angeles and San Francisco are far from prosperous. Unemployment persistently exceeds the national average as manufacturing jobs have moved elsewhere, and a once thriving middle class diminishes, leaving even the hope for prosperity an empty promise for the working class. To return the people to prosperity requires economic growth for the benefit of all. With prosperity comes hope for a brighter future and an equal opportunity to succeed.

Applying this People-first perspective, the Prosperity Forum proposes to explore issues that affect the prosperity of Californians with a bias towards economic growth. Following are some examples.

1. Energy and the Environment

Shale oil makes all Californians rich. This is because the oil sleeps beneath land owned by the State. Californians are like Saudi Princes who may collect fees from others for oil extracted from their land. The State, of course, is run by the politicians in Sacramento; though elected by the people, as long as they are in office, the politicians tell the people whether they get to prosper or not from this unique asset. But if the politicians decide to let the people’s oil flow, there is little doubt that the people would prosper in a big way.

A USC study reports that California has over two-thirds of the total shale-oil reserves in the United States. Shale-oil has become accessible because of recent developments in an old technology known as “fracking”. According to an article republished in September’s Prosperity Forum by respected author Chris Reed, “By 2020, fracking could create up to 2.8 million jobs, increase the state’s total economic output by up to 14.3 percent, boost state and local tax revenue by $24.6 billion annually, and increase aggregate state personal income by up to 10 percent. Even a relatively tentative foray into fracking could generate hundreds of thousands of middle-income jobs that don’t require college degrees.”

So why not go after it? North Dakota, with far smaller shale-oil reserves, began large scale fracking over 10 years ago, and its unemployment rate is down to 3.2%. Texas and Pennsylvania have also seen economic improvement after fracking was begun in those states.

The principal objection comes from environmentalists. So far, it has been these objections that have been delaying prosperity in California from energy development. The Prosperity Forum will conduct an ongoing analysis of these objections to determine whether prosperity and environmental interests can co-exist. The answer may turn on which environmental interests one is talking about—concern about local contamination or concern about possible worldwide impacts on climate change.

a. What Are The Risks Of Local Pollution Associated With Fracking?

In every state where shale-oil and shale gas has been accessed through fracking, concerns have been raised about the possibility that groundwater might become contaminated locally. Objections have also been raised about the potential for methane gas to be released at the surface as a result of fracking, which could lead to an explosion hazard. As explained by investigative reporter Chris Reed in his article “Fixing California: Will Fracking Bonanza Be Allowed?,” fracking has been carried out successfully for years in other states without significant harm to the local environment. There are some differences between California shale oil and other kinds, and objective study is, of course, required. But unless something surprising is uncovered, it seems likely that any risks of local contamination that might arise from fracking would be outweighed by the prosperity to be gained from it, especially the opportunity to be gained by working families who have been left out of California’s economic abundance for far too long.

b. What are the risks to climate change from fracking?

An official website of the Governor’s Office of Planning & Research, entitled “Just The Facts,” which is devoted to an objective discussion of climate change, recently reported on the September 2013 release of the first part of the report of the Intergovernmental Panel on Climate Change’s (IPCC) report updating the science of climate change. The California website reported that the IPCC found “that evidence of warming is ‘unequivocal’ and that it is ‘extremely likely’ that human influence has been the dominant cause of that warming.” Also, “changes . . . are already underway.” Explaining the climate science, the California website reports that the future “far-reaching consequences” of “greenhouse gas emissions, particularly carbon dioxide (CO2)” escaping into the atmosphere will be “increasing global temperatures and extreme events” such as “sea level rise, with related flooding and erosion of coastal areas,” “more frequent and hotter heat waves,” a “declining snow pack, with very significant implications for agriculture  and California’s water users,” and “more frequent and higher intensity wildfires.”

The majority of Californians agree with this assessment. Consequently, California is among the leaders in laws and regulations that limit greenhouse gas emissions from power plants, automobiles and other sources throughout the State. Indeed, Californians are proud to have met or exceeded nearly ever contaminant limit set by its regulatory agencies. In addition, California has adopted a cap and trade program administered by its Air Resources Board that is the envy of advocates for greenhouse gas restrictions throughout the United States.

Still, some say that California must do more when it comes to shale oil. Even if it is eventually determined that the risk of local pollution from fracking is acceptable, there are those who urge Sacramento to require working families to forego the opportunity for prosperity that shale oil affords because, they say, climate change science demands it. This solution is not, however, advocated on the Governor’s Planning and Research website, Just the Facts. Nor is it advocated in any of the U.N.’s IPCC reports.

Given the extensive set of laws already in place in response to the threat of climate change, there is reason to wonder whether the direct benefits of leaving shale oil in the ground outweigh the prosperity to be attained from taking it out of the ground and selling it. While California still allows cars to use oil-based fuel in the form of gasoline, under current law, shale-oil certainly could not be used to increase the amount of emissions coming from hydrocarbon-based fuels being used in California. Prosperity will come from selling shale-oil to people who use it outside of California. Californians might disapprove of those who buy their shale-oil, but history shows that they will purchase it from someone. So one question to be answered in the Prosperity Forum is whether a policy of leaving shale-oil in the ground would result in a material reduction in direct greenhouse emissions, and if not, why should working families be required to forego the prosperity that comes from allowing it to be extracted and sold?

Some argue that leaving shale-oil in the ground sends a message to the world that those who do not do their share to prevent climate change need to change their practices. Whether diplomacy of this nature will achieve a net benefit is open to debate. Californians should have that debate because 2.8 million jobs are at stake. Since the Governor’s website, Just The Facts, omits any discussion of these and other consequences of leaving shale-oil in the ground, Prosperity Forum is here to explore the issue in depth. California’s working families deserve no less.

Shale-oil belongs to everyone. Absent a compelling reason, it is time for Sacramento to start selling it so that all may prosper.

2. Education

Everyone deserves a fair start in life. Isn’t that, after all, the reason we have public schools? Yet, California’s public school system no longer provides a fair start for most students. Especially in the inner cities, drop-out rates are high, and many students never learn how to read properly. For California to prosper it must first need a workforce through an expanded economy, but then it needs to have a workforce that is at least moderately competent to make the economy work properly.

A few years ago, a blockbuster documentary, Waiting for Superman, was produced by Davis Guggenheim, the academy award winning director and producer of An Inconvenient Truth. It portrayed the plight of students who were trying to be accepted into charter schools, where only a few openings were available each year. The huge demand for these places compared to the public schools the students were trying to escape spoke volumes about the difficulties being faced by students trying to escape a difficult environment and get a fair start in life. The film provided insight into the role of the teachers’ unions in creating a system where education was no longer focused on teaching children as much as protecting teachers, many of whom were not good at their jobs.

In response to Waiting for Superman and a number of similar films and books exposing the corruption in our public schools, California politicians have done nothing. It is not a coincidence that the California Teachers’ Association is consistently the largest single donor to political political campaigns in California. When a teacher in El Monte was caught taking pornographic photos of his students with blindfolds so that they could not see that he was putting his bodily fluids onto objects, such as cookies, that they were holding, the school had to pay him to resign instead of firing him because of procedures negotiated by the CTA, and when a local legislator tried to enact a law to make it easier to fire teachers like him, the CTA made sure its favorite legislators did not allow the proposed law to get out of committee.

Things are bad in California education, but they can get better. Prosperity Forum intends to explore all of the ways that Californians can make it so.

3. Regulations

Last June, the CEO of CKE Restaurants, Andy Puzder, gave a mostly upbeat interview to the Wall Street Journal.  CKE is a California-based company, whose founder, Carl Karcher, began the predecessor to his Carls Jr. restaurant chain as a street vendor in 1941. Puzder’s company is expanding, he said. “It has 3,300 restaurants in 42 states and 28 foreign countries. There are 248 sites in the Middle East.” “Business-friendly places like Texas, where the company plans to open 300 new restaurants by the end of the decade” are the easiest states in which to grow, says Puzder, noting that restaurants in Houston and San Antonio hold records for highest first-week sales. “All those records used to be in California,” Puzder noted, but CKE no longer opens new restaurants in California.

What makes Texas “business-friendly” and California not? Puzder gave an example: “Consider how long it takes for one of his restaurants to get a building permit after signing a lease. It takes 60 days in Texas, 63 in Shanghai, and 125 in Novosibirsk, Russia. In Los Angeles, it’s 285.”

In that example, Puzder summed up the link between government regulations and prosperity: for California’s working families that translates into “no jobs at Carl’s Jr. in Los Angeles, but people like us are getting entry level jobs in Texas, Shanghai and Novosibirsk.” Why? Because time is money.

Imagine a working family of 6 in California who has worked hard and believes they have saved just about enough to start their own business. Because all of them have, at one time or another, worked in a fast food restaurant, they decide to start a fast food franchise, such as a Carl’s Jr. They are taking a sizable risk by investing all of their savings and giving up other work opportunities to open the business, but that’s what entrepreneur’s do, and if the risk pays off, as they hope it will, they will fulfill a dream of being their own boss.

The imaginary California working family spends much of its savings paying a franchise fee, a down payment on the mortgage to purchase the property, equipment for the restaurant, insurance, and expenses for lawyers, accountants and other professionals to make sure they are compliant with various regulations, including the new federal health care law. They have obtained a construction loan and can start construction as soon as the building permit is approved. So far, so good. Then they wait. And they wait. It takes 285 days, over nine months before their permit comes through—and that’s only if they are lucky enough to be treated like average citizens.

Our imaginary family likely has counted on a time when they will receive their building permit, build their restaurant, and, at last, the new restaurant will generate revenue. As a Carl’s Jr. franchisee, they look forward to the day when they will be able sell Six Dollar Burgers, Western Bacon Cheeseburgers, and some sweet potato fries and collect a small profit on each sale, and when those small profits add up, they plan to start paying off their debts so that one day, they will own their business or start another one just like it for their grandchildren. But while they wait for those revenues to start flowing in, they still must pay expenses whether the new restaurant opens or not. Waiting is expensive.

Texas gets it. We know their bureaucracy is friendly to business because they deliver the building permit in 60 days, shortening the time before building can begin and revenues can start coming in. But California, evidently, does not care a whit about our working family; its bureaucracy takes 225 days longer than Texas. During the 285 days our family waits for a permit, it must pay interest on its mortgage, fees for security, interest on a swing loan for supplies, not to mention lost wages for family members who quit their jobs to work on the new business project. Before they even start, the money runs out, the family has to default on its mortgage, and it gives up its dream of business ownership. People in their neighborhood who had hoped to work at the new restaurant look for work elsewhere. That’s why CKE Restaurants does not build new restaurants in California anymore. And that’s one of the reasons why California is no longer prosperous.

Reports and analysis posted on the Prosperity Forum will study such regulatory logjams. Politicians are responsible for the regulations that slow down the birth of businesses that provide jobs, and they are responsible for the performance of the bureaucracy that delivers such long wait times. Perhaps they have good reasons for causing these long delays. Prosperity Forum plans to ask them. California’s working families deserve to know, at least, why it is that their politicians are making decisions that place this economic burden on them. It might help them decide how to vote.

Bob Loewen is a member of the board of directors of the California Policy Center.

1 reply
  1. Chuck says:

    You write: “The People of California want prosperity but most are not getting it” I suggest that the way to prosper in California is to get a mind numbing job working for some governmental agency. Then accumulate one’s vacation and sick time over those uninspiring years. Finally, have your retirement benefits determined by all the vacation and sick pay you cash in during your last year and let all of the dumb taxpayers pay for your retirement. Life is good, until the taxpayers get smart and severely cut those unrealistic benefits.

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