California’s Spending Boom Masks a Spate of Problems

Politicians are rolling in tax revenue, but they can’t seem to solve basic issues like housing and energy.

By Steven Malanga of The Manhattan Institute. Excerpts:

"High costs have strapped local governments in the Golden State, housing is often unaffordable, and gasoline and electricity are more expensive than elsewhere."

"Mr. Newsom’s budget, enacted in June, is a record $215 billion. Fueled by growing tax collections on California’s wealthy, state spending has increased $59 billion since 2014. The state’s personal income tax alone is projected to yield $102.8 billion this year, a nearly $28 billion increase in five years. That sounds like plenty of money, but it disappears fast in the Golden State."

"Over four decades the state has produced housing at half the rate needed to meet its population demands. Lengthy environmental reviews and labor laws requiring union workers drive up the cost of building. A U.S. Government Accountability Office study found that a single unit of affordable housing in California costs $750,000, more than anywhere else in the country."

"In 2017 Sacramento imposed new fees on real-estate transactions to fund affordable housing, expecting to reduce the cost of housing by increasing the cost of building. In October Mr. Newsom signed statewide rent controls that limit the ability of landlords to increase rents, despite overwhelming evidence that rent control exacerbates housing shortages because developers curtail building."

"Some of the money is meant to house tens of thousands of homeless people who politicians say can’t find affordable shelter. But many live on the street because of addiction and mental-health problems."

"The state has decriminalized many low-level property crimes and drug offenses, closed some of its drug courts and allowed open-air drug markets. Cities and local advocacy groups distribute needles to the homeless and provide free meals. Some shelters welcome pets. California has become a magnet for unstable street people from around the country, and disorder is growing in many cities, including outbreaks of infectious diseases like typhus."

"The state’s budget also includes $1 billion to respond to disasters like the Camp Wildfire, which started from sparks from a power line, killed 85 people in 2018, and forced Pacific Gas & Electric Co. into bankruptcy. State officials blame the fires on climate change, but PG&E and other state utilities have fallen behind on power-grid maintenance while being forced to invest billions in renewable energy mandated by California’s plans to eliminate fossil fuels. A Credit Suisse report estimated that PG&E is locked into renewable energy contracts that are five times the going rate at a cost of $2 billion. Californians already pay 50% more for electricity than the U.S. average."

"From 2014 to 2018 the average cost of teacher pensions more than doubled—to $1,020 a student from $506."

"The Public Policy Institute of California estimates that the state could lose up to $100 billion in revenue over four years from a moderate recession and up to $185 billion in a severe slowdown."