
California Is in Big Trouble Again, After Averting a Collapse in the 2000s - siberianbear
https://www.bloomberg.com/opinion/articles/2019-10-17/california-is-back-on-the-brink-of-being-a-failed-state
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yumraj
I believe the fundamental problem of CA is Prop-13 which has a substantial
impact of its revenue as lots of very high value properties pay a
substantially low property tax.

On top of that, in many cases, as the property tax is so low, people who
otherwise would not be able to afford such high value properties continue to
hold them, leading to an artificial increase in the overall property values.

If Prop-13 is abolished, a lot of properties will enter the market, and
overall revenue would increase resolving many of CA's and local government's
woes, including that of the public education system.

OTOH, I know that abolishing Prop-13 is an impossibility. Our best hope is
that the split tax roll is successful that that would require at least the
commercial and industrial property to be regularly reassessed and taxed at
their full value.

~~~
jdhn
I hear this repeated a lot, and I'm not so sure I buy it. Yes, Prop 13 limits
how much taxes can go up, but if that's the case, then why wouldn't you try to
build more to capture more tax? I'm willing to bet that easing zoning
restrictions would help with revenue generation.

~~~
mdorazio
In addition to what buerkle said, build more... what? The amount of property
is fixed and already owned. The state isn't somehow making more land in places
people want to live, so there's no real opportunity for the state to get more
tax dollars that way.

Additionally, Prop 13 is kind of a disincentive to build higher-density
buildings because if you tear down a building and build a new one, your tax
base will go up to match the newly assessed property value rather than remain
at the artificially low level it was at before.

~~~
mywittyname
But that building will be locked into current rates for a long time. So
property taxes might hike from $500/yr to $50,000/yr, each rising by 3% pa,
but revenues could spike from $40,000/yr to $400,000/yr rising at like 8-12% a
year. In 30 years, a $100k/yr property tax bill will be peanuts compared to
the $7,000,000 in rent revenues they'll be earning.

Developers understand this, they want to build, but they are having trouble
getting the permits to replace low density SFH with medium- to high-density
housing.

~~~
mdorazio
I agree, but at the same time there are also _a lot_ of SFH owners who
literally could not afford the property tax bill if they even significantly
improved their homes, so you get ridiculous situations like entire
neighborhoods in LA that are basically ghettos despite the tiny lots being
worth close to half a mil each.

Any real solution needs to be a combination of changing zoning/permitting
_and_ fixing Prop 13.

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not_real_acct
_" Thanks in large part to spiraling urban rents, the homeless population
increased by 5.3% from 2010 to 2018, in a state that already has almost half
of the nation’s homeless. In Los Angeles and San Francisco, the crisis is
especially acute, with destitute people and pitiful tent encampments crowding
the sidewalks."_

This is ridiculous. California is filled with homeless people because:

1) there's a nationwide opioid crisis

2) if you're going to be homeless, might as well move to where the weather is
nice

In a recent survey in Los Angeles, somewhere around 90% of the homeless
reported a substance abuse problem.

This is impacting Seattle and Portland too; it's a lot easier to be homeless
in Portland than Phoenix.

~~~
gridlockd
> This is ridiculous.

Perhaps, but why let a perfectly useful argument for cheaper housing go to
waste, just because it's nonsense?

~~~
NotSammyHagar
I doubt opioids are 90% of the problem. Every day I read about a senior
citizen who is living in their car, has some retirement money, and usually not
a drug problem but they lost their housing because it's too expensive.

This is the situation in Seattle. There are tons of people with drug
addictions, but there are also clearly lots of people economically pushed onto
the street.

So we still need more cheaper housing.

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trentnix
The article is full of excuses to argue California has simply experienced lots
of _bad luck_ , burying the lede. Really, its just that California’s spending
has been and continues to be unsustainable and it’s primary efforts to raise
revenue - raising taxes - has the side effect of encouraging those with
mobility (citizens and businesses) to relocate elsewhere.

~~~
bcrosby95
For states, California is actually middle of the pack when it comes to per
capita budget. Given that, you're going to have a difficult time convincing me
there's a spending problem.

~~~
at-fates-hands
It's not necessarily the spending that is a problem. Its the fact California
relies on a very small percentage of high earners to carry the majority of the
tax burden.

At some point people will decide its too much as the state continues to
increase taxes to pay for its overzealous spending and leave, creating an even
bigger problem.

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iscrewyou
Pretty disingenuous to not mention the rainy day and surplus funds:
[https://www.politifact.com/california/statements/2018/dec/18...](https://www.politifact.com/california/statements/2018/dec/18/jerry-
brown/does-california-have-budget-surplus-nearly-30-bill/)

Include all facts if you are trying to make a point.

Yes we have issues when it comes to poverty and housing but we are not doomed.

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pcwalton
> The state legislature needs to pass bills to allow greater housing density
> and more construction throughout the state.

The Legislature did just that with the ADU bills that effectively abolish
single-family zoning throughout the state. Additionally, SB 330 (the Housing
Crisis Act) puts a stop to some of the more egregious forms of NIMBYism.
Citizens can sue cities that refuse to follow the law under the Housing
Accountability Act, which was recently strengthened; no such recourse is
available to residents of most other states.

More must be done, but California is now leading the way in cracking down on
NIMBYism. I predict that states like Texas are going to see the NIMBY pattern
play out in time (if they aren't already—look at Austin), leading to
skyrocketing housing costs. They will have to do the same thing in time.
California is just ahead of the curve.

~~~
gbronner
At the same time, they passed rent control, and the jurisdictions that have
the worst housing crises have the strongest rent control.

Once a few people rent out their ADUs and then find that they can't evict
their tenants as their needs change, very few people are going to be willing
to invest the several hundred thousand necessary to permit and build one.

~~~
pcwalton
The statewide rent cap is significantly above the amount rents have been
rising on their own. It also expires after 10 years.

And the cities with the strongest rent control--San Francisco and Los Angeles
--are also the cities that have been seeing a boom in ADU construction, even
though the dysfunctional rent control policies of those cities apply to a lot
of those ADUs. The statewide rent cap isn't likely to be a meaningful
impediment to ADU construction. Much more problematic is the cost of
constructing the ADU in the first place.

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rayiner
To add to the parade of horrible, California also has the highest poverty rate
in the country once you account for cost of living:
[https://www.sandiegouniontribune.com/opinion/the-
conversatio...](https://www.sandiegouniontribune.com/opinion/the-
conversation/sd-california-poverty-rate-20180913-htmlstory.html). It’s also
one of the poorest states overall—the median Californian has less purchasing
power than the median Mississippian:
[https://www.advisorperspectives.com/dshort/updates/2018/11/1...](https://www.advisorperspectives.com/dshort/updates/2018/11/15/median-
household-purchasing-power-for-the-50-states-and-dc).

~~~
pcwalton
I have trouble seeing how the fifth largest economy by GDP in the world (11th
per capita) can be fairly described as "poor". If that's "poor", then the word
"poor" doesn't mean anything.

Edit: I'm not saying that the state doesn't have high inequality. It does, as
does the US in general. I'm saying it's not _poor_. California is rich, but
does not distribute that wealth equitably.

~~~
davinic
Averages in this case are meaningless. The distribution matters more than the
average.

Never cross a river that is "on average 4 feet deep".

~~~
pcwalton
Both matter. California has a high Gini coefficient (as does the US in
general). That's a problem, and one we need to fix. But it's counterbalanced
to an extent by high GDP.

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rectang
Note: this is an opinion piece, not a news piece.

I never feel like I can trust pessimistic opinion pieces on California's
economy. Many pundits want California to fail for various reasons, and trying
to dredge useful information out of them is difficult.

~~~
amiantos
Reading the comments on this piece makes it pretty clear who the target market
for op-eds like this is. Someone suggests that living in California is like
living in Venezuela.

~~~
bcrosby95
I've had certain family members say they always thought California would
return to Mexico. I managed to calmly explained why no president would EVER
let that happen.

~~~
commandlinefan
California returning to Mexico seems fairly unlikely to me as well (it brings
in a lot federal income tax, for one thing), but I’m sort of curious what
exactly you say to your family. After all, republicans might like to be rid of
that electoral college base.

~~~
bcrosby95
That California is 15% of the US GDP and it would be suicide to let that go.
It has huge centers of tech, entertainment, and defense. That it could cause a
cascade of other states to split. That it would take some very important ports
with them. That strategically the US would never give up that much coastline.
That California pays more to the fed than the fed puts into the state.

As a joke I also like to throw in that Ronald Reagan's presidential library is
here. Heh.

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aazaa
> But California’s political system is making it hard to respond to these
> pressures. Thanks to a 1978 ballot initiative called Proposition 13,
> California cities have stringent limits on raising revenue from local
> property taxes. That forces the state to provide many services, financing
> them with hefty income taxes. Those are inherently more unreliable than
> property taxes, since wealthy taxpayers can move away (while property can’t
> move), and since California’s income taxes fluctuate a lot because they
> depend so much on the profits residents earn on volatile stock prices.

Prop 13 is widely cited as one of California's biggest weaknesses. I suspect
the state will be looking quite closely at other ways to tax property, given
that property taxes are relatively easy to assess and enforce, and depending
on your economic situation, have a built-in progressive quality to them.

What restrictions does the state have around imposing taxes on real estate
sales?

For example, could the state impose a 1% tax on profits from the sale of a
private residence under $50,000?

I know this would put the state at odds with the federal government, but could
it be a way around Prop 13?

~~~
Rebelgecko
The big push now is to exempt commercial property from prop 13

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unlinked_dll
I mean we can fix it. Allow high density, tall buildings in urban centers,
discourage centralized working environments and encourage satellite offices
throughout the state, remove fees/expedite permit applications for new
construction contingent on low/middle income rents, and get people out of fire
areas.

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zarro
The problem is the "services" the state is providing are economically
unprofitable. Proposition 13 was passed to force the state to have controlled
expenditures by not allowing the majority to extort the minority by using
their property as extortion through property taxes.

The causes are actually bad laws which are put into place by an increasing
majority of people living in want trying to force the "State" into providing
it services they cannot pay for themselves.

The "state" can't afford to pay for their services either, and the net effect
is to try and coerce people into a redistribution of money from people that
have money to those that don't have as much to cover these expenditures.

Because the mechanism used (income taxes) to coerce people to do this now
isn't efficient enough now to meet their ever increasing demands, and the
voters force the government (who created the problem) to fund these "services"
without really thinking about how they will fund their expenditures - making
it the governments problem to figure out - which it can't without using
coercion.

This thereby allows them to continue uncontrolled expenditure in an ever
increasing downward spiral to catastrophe as in effect they are spending
'other peoples money' in the hopes that "eventually these invoices will be
paid" through some sort of government sponsored coercion mechanism forcing
socialized redistribution by holding peoples and companies properties or
income hostage or some other such method with the same result.

Its really quite simple and clever and funny that it still works.

~~~
zippergz
I think you exceeded your "quota" of quotation marks.

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holler
California should abolish the income tax like WA/NV/FL and watch people move
back in droves.

