Tag Archives: San Francisco Chronicle

More Evidence of Real World Tiebout Competition

The past year, California experienced its lowest population growth rate in over a decade. Furthermore, the state’s positive growth was maintained by foreign, rather than domestic migration. The San Francisco Chronicle reports:

Since [2005], more than half a million more people have left California than have moved to the state. They mainly have moved to neighboring Western states, said Mary Heim, chief of the demographic research unit at the Department of Finance. In past years, more of those people moved to Nevada, but last year saw an increase in people moving to Oregon and Washington, she said. Texas also attracts a large number of Californians.

The article quotes state policy analysts who suggest that the Golden State’s regulatory climate is driving jobs and residents to other states. Contrarily, a Newsweek article from earlier this year explained that California’s CO2 regulations, the strictest in the country, could help the state’s businesses:

California has led the way in demonstrating how market-savvy regulation, instead of stifling growth, can jump-start innovation. For instance, the state has revolutionized the way utilities are regulated: instead of making profits by building more power plants, the California Public Utilities Commission links utility profits to efficiency gains—and leaves it up to the utilities to decide how to do it most cost-effectively.

However, potential Republican gubernatorial nominee Meg Whitman sees the situation differently. She said of Governor Schwarzenegger’s energy regulation:

I applaud the goals of AB 32 and our Governor for forcefully advocating for a clean environment.  However, three years ago when the bill was signed, the unemployment rate was 4.9 percent with 883,000 Californians unemployed.  Today, we have 12.2 percent unemployment, with 2.2 million Californians out of work.  Simply, jobs must come first.

Whitman’s views are in line with the ALEC-Laffer analysis of the states’ business environments, which suggests that Americans are moving from states with higher regulatory burdens to those with more economic freedom.

Budget Gimmickry Goes from Bad to Worse

Earlier this week, Moody’s downgraded New Jersey’s credit outlook from “stable” to “negative” in light of, as the rating agency put it, “the persistent and growing structural imbalance exacerbated by nonrecurring and temporary budgetary solutions.”

Moody’s writes, “The depletion of the state’s rainy day fund, enactment of temporary tax increases and significant reliance on nonrecurring expenditure reductions including minimal pension contributions contribute to both short-term and longer term budgetary pressures resulting in the state’s negative outlook.”

In other words, Wall Street sees right through the budget gimmickry that, while especially prevalent this year, has been a feature of New Jersey’s budget process for two decades. Budget tricks may fool voters, but they’re less likely to fool creditors. And many of the stopgap measures used to balance this year’s budget will not be available next year.

But New Jersey looks positively restrained compared with this new scheme from California, which arguably leads the nation in creative intergovernmental lending:

The cash-strapped University of California plans to loan $200 million to the even more cash-strapped State of California so that—get this—the state can give the money back to UC.

Here’s how we got to this crazy place: First, California’s enormous budget deficit sent the state’s credit rating into a death spiral and prompted massive cuts to a vast array of state-funded enterprises, including UC. The state cut UC’s budget by $813 million, prompting the university to raise student fees, furlough faculty and enact a range of other painful cost-cutting measures. But as bad as things are for UC, the university has managed to maintain a better credit rating than the state. Which means it can borrow money at a low interest rate and loan it to the state at a somewhat higher rate.

Here’s the story from the San Francisco Chronicle.