Ways Out of California's Forest of Problems (Part 2 of 2)

New Awakenings 

Given the demographic realities, a successful drive for reform cannot be driven by a marginalized GOP. Instead, what’s needed is a movement that can stitch together a coalition of conservatives, independents (now the state’s second-largest political grouping), and most critically, moderate Democrats. 

Over the past two years, tech entrepreneurs and professionals concerned about homelessness and crime worked to get rid of progressive prosecutor Chesa Boudin. Last year, they helped elect Dan Lurie, scion of the Levi Strauss fortune, as mayor, as well as some more moderate members to the Board of Supervisors. Lurie, of course, faces a major challenge to restore San Francisco’s luster against entrenched progressives and their allies in the media, academia, and the state’s bureaucracy. 

Similar pushbacks are evident elsewhere. Californians, by large majorities, recently passed bills to strengthen law enforcement, ditching liberalized sentencing laws passed by Democratic lawmakers and defended by Gov. Gavin Newsom. Progressive Democrats have been recalled not only in San Francisco but also in Oakland (Alameda County) and Los Angeles, with voters blaming ideological-driven law enforcement for increasing rates of crime and disorder. 

Critically, the liberal elites are not the only ones breaking ranks. Pressure for change is also coming from increasingly conservative Asian voters and Jews (who number more than 1 million in the state and largely are revolted by the antisemitism rife among some on the progressive left). Protecting property and economic growth is particularly critical to Latino and Asian immigrants – California is home to five of the 10 American counties with the most immigrants –  who are more likely to start businesses than native-born Americans. 

These minority entrepreneurs and those working for them are unlikely to share the view of progressive intellectuals, who see crime as an expression of injustice and who often excused or even celebrated looting during the summer of 2020. After all, it was largely people from “communities of color” who have borne the brunt of violent crime in cities such as Los Angeles, Oakland, and San Francisco. Minorities also face special challenges doing business here due to regulations that are especially burdensome on smaller, less capitalized businesses. According to the Small Business Regulation Index, California has the worst business climate for small firms in the nation.

The shift among minority voters could prove a critical game-changer, both within the Democratic Party and the still-weak GOP. In Oakland, for example, many minorities backed the removal of Mayor Sheng Thao, a progressive committed to lenient policing in what is now California’s most troubled, if not failed, major city. 

Latinos, already the state’s largest ethnic group, constituting about 37.7% of the workforce, with expectations of further growth by 2030, seem to be heading toward the right. In the last presidential election, Trump did well in the heavily Latino inland counties and won the “Inland Empire” – the metropolitan area bordering Los Angeles and Orange counties – the first time a GOP presidential candidate has achieved this in two decades.

A Return to Basics

After a generation of relentless virtue-signaling, California’s government needs to focus on the basic needs of its citizens: education, energy, housing, water supply, and public safety. As a widely distributed editorial by a small business owner noted, Californians, especially after highly publicized fire response failures in Los Angeles earlier this year, are increasingly willing to demand competent “basic governance” backed by a “ruthless examination of results” to ensure that their government supports “modest aspirations” for a better life. 

All of this starkly contrasts with the poor planning, execution, and catastrophist science evoked to justify the state’s climate agenda. Even Pat Brown’s son, former Gov. Jerry Brown, recognized that California has little effect on climate. Given the global nature of the challenge, reducing one state’s emissions by cutting back on industrial activities accomplishes little if those activities move elsewhere, often to locations with fewer restrictions such as China and India.

Rather than focusing on “climate leadership,” Sacramento needs to tackle the immediate causes for record outmigration, including sluggish economic growth and the nation’s highest levels of poverty and homelessness. The great challenges are not combating global temperature rises but the housing crisis and the need to diversify the economy and improve the failing education system. As these problems have often been worsened by climate policies, there seems little reason for other states and countries to adopt California’s approach as a model.

Fixing Housing

California now has the nation’s second lowest homeownership rate at 55.9%, slightly above New York (55.4%). High interest rates that have helped push home sales to the lowest level in three decades across the country are particularly burdensome in coastal California metros, where prices have risen to nearly 400% above the national average. The government almost owned up to its role in creating the state’s housing crisis – especially through excessive housing regulations and lawfare on developers – earlier this year when Newsom moved to cut red tape so homes could be rebuilt after the LA fires.

Current state policy – embraced by YIMBY (Yes In My Backyard) activists, the greens, and unions – focuses on dense urban development. Projects are held up, for example, for creating too many vehicle miles traveled, even though barely 3.1% of Californians in 2023 took public transit to work, according to the American Community Survey. As a result, much “affordable” development is being steered to densely built areas that have the highest land prices. This is made worse with mandates associated with new projects, such as green building codes and union labor, that raise the price per unit to a million dollars or more.

A far more enlightened approach would allow new growth to take place primarily outside of city centers, in interior areas where land costs are lower and where lower-cost, moderate-density new developments could flourish. These include areas like Riverside-San Bernardino, Yolo County (adjacent to Sacramento), and Solano County, east of San Francisco Bay. This approach would align with the behavior of residents who are already flocking to these areas because they provide lower-income households, often younger black and Latino, with the most favorable homeownership opportunities in the state. Over 71% of all housing units in the Inland Empire are single-family homes, and the aggregate ownership rate is over 63%, far above the state’s dismal 45.8% level. 

More than anything, California needs a housing policy that syncs with the needs and preferences of its people, particularly young families. Rather than being consigned to apartments, 70% of Californians prefer single-family residences. The vast majority oppose legislation written by YIMBY hero Democratic Sen. Scott Wiener banning single-family zoning in much of the state. 

Investment in the interior is critical for recreating the old California dream for millions of aspiring households, particularly among minorities who are being driven out of the homeownership market in the coastal metropolitan areas. The only California metropolitan area ranked by the National Association of Realtors as a top 10 pick for millennials was not hip San Francisco or glamorous Los Angeles, but the more affordable historically “redneck” valley community of Bakersfield.

The numerous housing bills passed by Sacramento have not improved the situation. From 2010 to 2023, permits for single-family homes in California fell to a monthly average of 3,957 units from 8,529 during 1993-2006. California’s housing stock rose by just 7.9% between 2010 and 2023, lower than the national increase (10.3%), and well below housing growth in Arizona (13.8%), Nevada (14.7%), Texas (24%), and Florida (16.2%).

A more successful model can be seen in Texas, which generally advances market-oriented policies that have generated prodigious growth in both single-family and multi-family housing. This has helped the Lone Star state meet the housing needs of its far faster-growing population. A building boom has slowed, and there’s been some healthy decrease in prices in hot markets like Austin. Opening up leased grazing land in state and federal parks – roughly half the state land is owned by governments – could also relieve pressure on land prices. Until California allows for housing that people prefer, high prices and outmigration will continue into the foreseeable future. 

Ultimately, California has room to grow, despite the suggestions by some academics that the state is largely “built out.” In reality, California is not “land short,” either in its cities or across its vast interior. Urbanization covers only 5.3% of the state, according to U.S. Census Bureau data, while parks, agricultural land, deserts, and forests make up the bulk of the area.

Diversifying the Economy 

Even Jerry Brown has remarked that the “Johnny one note” tech economy the state’s tax base depends on could stumble. This would reduce the huge returns on capital gains from the top 1% of filers, who now account for roughly half of all state income tax revenues. This overreliance may be particularly troublesome in the era of AI, where tech companies may continue to expand but have less need for people. Indeed, San Francisco County, which boasts many tech jobs, experienced the nation’s largest drop in average weekly wages, 22.6%, between 2021 and 2022. 

To expand opportunity and, hence, its tax base, California has to make more of the state attractive to employers. The best prospects, again, will be in inland areas. Today, when firms want to build spaceships, a clear growth industry where California retains significant leadership, as well as battery plants and high-tech and food processing facilities, they often opt to go to Nevada, Arizona, Tennessee, and Texas. Given lower land and housing costs, San Bernardino and Riverside Counties, as well as spots on the Central Coast, should be ideally situated to compete for those jobs.

The current economic pattern creates a situation where AI developers, elite engineers, and venture capitalists may enjoy unprecedented profits, but relatively little trickles down to the mass of Californians. Not all Californians have wealthy parents to subsidize their lifestyle, and few are likely to thrive as AI engineers. To address the dilemmas facing the next generation of Californians, the state needs to focus not just on ephemera, software, and entertainment but on bringing back some of the basic industries that once forged the California dream. In this way, President Trump’s policies could actually help the state, particularly in fields like high-tech defense and space. 

In the 1940s, California played a key role in the American “arsenal of democracy”; today, it could do the same, not so much by producing planes and Liberty ships, but drones, rockets, and space-based defense systems. Indeed, there are now discussions of reviving the state’s once-vaunted ship-building industry that buoyed the economy of Solano County – something sure to inspire the ire of the Bay Area’s rich and powerful environmental lobby. 

Improving Education

Climate and environmentalism are not the only barriers to California’s revival. No problem is more pressing and consequential than the state’s failure to educate California’s 5.9 million public school children. In fiscal year 2023-2024, California will spend about $128 billion on K-12 public education, an amount exceeding the entire budget of every other state except New York. Despite this level of spending, about 75% of California students lack proficiency in core subject areas based on federal education standards. 

Two out of three California students do not meet math standards, and more than half do not meet English standards on state assessments. Overall, less than half of California public school students performed at or above grade level for English Language Arts (reading, writing, etc.), while only 34.62% met or exceeded the math standard on the Smarter Balanced 2023 tests. The failures are particularly clear among minority students. According to the latest California testing results, only 36.08% of Latino students met or exceeded proficiency standards for English Language/Arts. Only 22.69% met or exceeded proficiency standards in math. Latino students, for example, in Florida and Texas do somewhat better in both math and English, even though both states spend less per capita on education than California. 

Not surprisingly, many parents object to a system where half of the state’s high school students barely read at grade level. One illustration of discontent has been the growth of the charter school movement. Today, one in nine Californian schoolchildren attends charter schools (including my younger daughter). The state’s largest school district, the heavily union-dominated Los Angeles Unified School District, has lost roughly 40% of its enrollment over two decades, while the number of students in charters grew from 140,000 in 2010 to 207,000 in 2022. 

In addition to removing obstacles to charters, homeschoolers are part of the solution. California homeschool enrollment jumped by 78% in the five-year period before the pandemic and in the Los Angeles Unified School District by 89%. Equally important, some public districts and associated community colleges, as in Long Beach, have already shifted toward a more skills-based approach. Public officials understand that to keep a competitive edge, they need to supply industrial employers with skilled workers. This is all the more crucial as the aerospace workforce is aging – as much as 50% of Boeing’s workforce will be eligible for retirement in five years. In its quest for relevance, Long Beach’s educational partnership addresses the needs of the city’s industrial and trade sectors.

This approach contrasts with the state’s big push to make students take an ethnic studies course designed to promote a progressive and somewhat anti-capitalist, multi-cultural agenda. They will also be required to embrace the ideology of manmade climate change even if their grasp of basic science is minimal. A “woke” consciousness or deeper ethnic affiliations will not lead to student success later in life. What will count for the students and for California’s economy is gaining the skills that are in demand. You cannot run a high-tech lathe, manage logistics, or design programs for space vehicles with ideology. 

More to Come

Conventional wisdom on the right considers California on the road to inexorable decline. Progressives, not surprisingly, embrace the Golden State as a model while ignoring the regressive, ineffective policies that have driven the state toward a feudal future. 

Yet both sides are wrong. California’s current progressive policies have failed, but if the state were governed correctly, it could resurge in ways that would astound the rest of the country and the world. Change is not impossible. As recent elections showed, Californians do not reflexively vote for progressives if they feel their safety or economic interests are on the line, as we have seen in recent elections.

If change is to come in California, it may not be primarily driven by libertarian or conservative ideologies but by stark realities. Over two-thirds of California cities do not have any funds set aside for retiree healthcare and other expenses. Twelve of the state’s 15 large cities are in the red, and for many, it is only getting worse. The state overall suffers a trillion dollars in pension debt, notes former Democratic state senator Joe Nation. US News places California, despite the tech boom, 42^nd in fiscal health among the states. This pension shortfall makes paying for infrastructure, or even teacher salaries, extraordinarily difficult at the state and local levels.

Without change, the state is socially, fiscally, and economically unsustainable, even if a handful of people get very rich and the older homeowners, public employees, and high-end professionals thrive. California needs to return to attracting the young, talented, and ambitious, not just a magnet for the wealthy or super-educated few. 

This can only happen if the state unleashes the animal spirits that long drove its ascendancy. The other alternative may be a more racial, class-based radicalism promoted by the Democratic Socialists of America and their allies. They have their own “cure” for California’s ills. We see this in debates over rebuilding Los Angeles, with progressives pushing for heavily subsidized housing, as with the case of the redevelopment of the Jordan Downs public housing complex, while seeking to densify and expand subsidized housing to once solidly affluent areas like the Palisades.

California has survived past crises – earthquakes and the defense and dotcom busts – and always has managed to reinvent itself. The key elements for success, its astounding physical environment, mild climate, and a tradition for relentless innovation, remain in place, ready to be released once the political constraints are loosened.

Fifty years ago, in her song “California,” Canada-reared Joni Mitchell captured the universal appeal of our remarkable state, not just its sunshine, mountains, and beaches but also how it gave its residents an unprecedented chance to meet their fondest aspirations. Contrasting her adopted home with the sheer greyness of life elsewhere, she wrote: “My heart cried out for you, California/ Oh California, I’m coming home.”