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IN THIS ISSUE – “What’s Happening in California is a Warning Shot to the Rest of the Country”
LEGISLATORS ARE BACK & BUSY:
- Assembly Speaker Rendon – Longest-Serving Leader Since Willie Brown – On 2020 Legislature & “Bumps in the Road” with the Governor
- Legislators Open New Year With “Wheat / Chaff” Problem
- California Green New Deal Lacks Specifics
- Carbon Reduction Mystery…So Legislators Propose Delaying Renewable Targets
- Lawmakers Debate $4.2-Billion Climate Bond
CALIFORNIA AT A CROSSROADS:
- Is Golden State Too High-Priced? Are “Needles & Poop” Permanent Urban Landscape?
- State Fiscal Health Indicator Finds 2020 Slowdown Risk Increasing
NOTE: Gov. Newsom later today unveils his proposed $240-billion spending plan for 2020-21. CN&N will provide details, reactions and perspectives next week.
FOR THE WEEK ENDING JAN. 10, 2020
Capital News & Notes (CN&N) harvests California legislative and regulatory insights from dozens of media and official sources for the past week, tailored to your business and advocacy interests. Please feel free to forward.
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Anthony Rendon arrived feeling a little punchy. At 51, the speaker of the California Assembly is adjusting to life as a new dad, and his 3-month-old baby hadn’t slept well the night before.
“She was up at 1:30, 3, 4:30. And then once she woke up at 4:30, she didn’t fall asleep until 6,” Rendon said. “So that’s my life.”
The Los Angeles politician — sporting a black hoodie and Converse high tops as he sat for an interview in his district office — assumed one of California’s most powerful roles in the spring of 2016.
As the Assembly’s Democratic leader, he’s negotiated $200 billion state budgets with two Senate leaders and two governors. He’s overseen a political operation that resulted in Democrats winning a historically huge majority of more than 75%.
And yet around the Capitol, he’s probably best known for his low profile, rarely calling press conferences and opting not to author any bills so his members can share the spotlight. His style — at turns cerebral and self-deprecating — is unusual in a statehouse that attracts its share of showboats.
So it was with a certain understatement, as well as exhaustion, that Rendon, clutching a cup of coffee, shared his expectations for 2020 — in the Capitol, at the ballot and for his family. Here are condensed highlights from our interview.
Q: You’ll become the longest-serving speaker since Willie Brown in 4 months. So, any fears of restless colleagues who might mount a challenge?
A: It’s not something that’s on my mind right now. I haven’t heard any rumblings.
Q: How are you feeling about your Assembly races in 2020? Do you think you can hold your 61-seat mega-majority?
A: I have mixed feelings about it. The weather forecast is complicated. On the one hand, there’s a lot of very anti-Republican sentiment… With Donald Trump on the ballot, you have to think that we’re going to do very well. That being said, we also know that there is very much an anti-incumbent tendency out there, and we just have more incumbents than they do. People are very angry around the issue of housing affordability and homelessness. We see that polling everywhere, in every district throughout the state. So I don’t think we can say, Democrat X is running against Donald Trump or running against a Republican. We have to tell a story about what we’ve done…. Just railing against Donald Trump, I don’t think that’s fair to Californians to do that.
A: Because… I’m really impressed with the work that we’ve done… And also because… we have candidates who have incredible qualifications and have had incredible life experiences. You take someone like Thu-Ha Nguyen (challenging GOP Assemblyman Tyler Diep) in Orange County, who’s a cancer researcher, and a mom, and a council member. And I think to reduce all of that to just, “She’s battling Donald Trump,” I think is overly simplistic. And it’s also very — it’s a short horizon. I mean, Donald Trump will be gone someday and the party needs to stand for something. And we will.
Q: So how do you feel about Gavin Newsom’s approach? He’s been very much framing himself as the leader of the resistance and fighting Trump all the time. How do you feel about that?
A: That works for him. A lot of what he does is about the resources from the federal government, and that’s a different dynamic. It’s not what I do. It’s not what I’m interested in. But I get why he does it… Whether it’s high speed rail funds or water — that’s very real for (him).
Q: Anything you hope will go differently this year in working with Governor Newsom?
A: There were some bumps in the road with Gavin early on. At the time, it was hard to contextualize. It was just irritating. But when you think about it, yeah, it makes sense. It’s a whole new whole new team, whole new relationships. So I think things will get better. And I don’t know that we necessarily need to tweak any individual thing. I think it’s just learning people’s tendencies and learning how people like to communicate.
Q: Looking ahead, what are your priorities for 2020?
A: No surprise to you or anybody, wildfires and housing affordability-slash-homelessness issues are on everyone’s mind. This sort of unresolved, you know, enigma, that is PG&E and where that goes moving forward.
Q: So on wildfire, what can you do?
A: It’s a very good question. People (in Northern California) are constantly talking about insurance issues.
Q: What about on homelessness?
A: A lot of what we want to do is relating to oversight of the money and the opportunities that we’ve given to local governments… It’s incumbent upon cities to do something and it’s incumbent upon us to provide oversight.
Q: Do you anticipate the Legislature responding to pressure from initiatives that are in the process of qualifying for the ballot? Like the challenge from Uber and Lyft on AB 5, the new California law that treats more contract workers as employees — would you pass a law to keep that off the ballot?
A: I don’t believe we would. I felt as though we were doing a tremendous favor to a lot of people by even addressing that. We could have easily just let it go and let the court ruling stand. I have no interest in getting involved in that. I think we’ve been quite good to those people.
Q: A lot of the policies the Democratic candidates are proposing are things that California is already doing to some degree — like $15 minimum wage, marijuana legalization, carbon pricing, paid family leave. Do you think that the nation wants to be more like California?
A: The California label is probably not a good thing in a lot of parts of the country for whatever reason. But I think in terms of policy, the state certainly has a story to tell. So I’m not surprised that some of our ideas are being put up there as models to follow… We’re proud of our economy and we’re proud of the $15 minimum wage, and all the stuff we’ve done on the environment. And at the same time, how many tens of thousands of people go to sleep every night in this state without a home? And we have long lasting water problems, quality and supply. We have too many people in prison. So I think it’s important for us as Democrats to be honest. And it is very difficult to do that in election years.
Q: Your caucus grew a lot in 2018 because of the seats you successfully flipped. Then it got even bigger when GOP Assemblyman Brian Maienschein switched parties. What was that like to have a Republican in your caucus? Is it as easy as just switching jerseys and joining your team, or is there any awkwardness in having a former opponent as a colleague?
A: It probably sounds ludicrous… but I was amazed how seamless it was. When Brian announced that he was switching I had a meeting with the caucus and said, “Hey, this is what he wants to do, and how do you guys feel about it?” And I almost felt like I was overpreparing them because they were all like, “Cool.” (Even as a Republican) Brian voted with us so often.
Q: More recently, Assemblyman Chad Mayes left the Republican Party as well. He’s now registered with no party preference. But if he wanted to caucus with the Democrats, would you allow it?
A: I don’t know. I’d probably have to ask the caucus how they felt about it. He doesn’t seem to want to. I saw him (a few days ago). He feels pretty liberated to not be a member of a party… I don’t think he wants to become a Democrat and I don’t think he wants to caucus with us. I don’t think he wants to caucus with Republicans (either).
Winnowing weighty grains of policy wheat from lightweight legislative chaff is not always easy, since the authors of both always profess serious intent.
Eventually, however, their true nature emerges. A few years ago, for example, the state Senate, amidst much oratory, passed a bill that professed to create a state-managed “single-payer” medical care system to cover every Californian.
The legislation, however, lacked an element to make it a serious proposal: a way to pay for it. Supposedly, all current public and private health care spending would be absorbed by the state, but it also would require at least $100 billion a year in new taxes.
The speaker of the Assembly, Anthony Rendon, quickly and correctly put the bill on the legislative shelf, citing its lack of a financing method.
Three new — or at least semi-new — proposals also illustrate the need for winnowing.
Sen. Scott Wiener, a San Francisco Democrat, is trying for the third straight year to enact legislation to ease California’s chronic lack of housing.
Wiener wants to overcome the not-in-my-backyard sentiment that blocks local high-density housing projects and in his newly amended version, Senate Bill 50 has softened what had been a tough mandate by giving local governments more leeway to comply with state housing quotas.
Whether one likes or dislikes Wiener’s bill, it’s certainly a serious approach to a very serious problem.
SB 50 stands in contrast with a bit of chaff being offered by Assemblywoman Autumn Burke, a Los Angeles Democrat. Her amendments to Assembly Bill 22 “declare that it is the policy of the state that every child and family has the right to housing, which includes homelessness prevention, emergency accommodations, and permanent housing …”
“It is $81,000 a year to incarcerate a person (but) for a two-bedroom apartment, it’s $25,000 a year,” she told Politico. “It is not just morally incumbent on us to provide a right to housing but financially it is the responsible thing to do.”
That is, at best, sophomoric reasoning. Declaring a “right to housing” is one thing but generating tens of billions of dollars to build it is quite another. If Burke is serious about creating such a right, then she should tell us how she’d finance it. Otherwise, it’s just symbolism.
Speaking of which, Rob Bonta, a Democratic Assemblyman from Oakland, has introduced Assembly Bill 1839, which he describes as a “California Green New Deal” aimed at rapidly eliminating fossil fuels from the state’s economy.
“California,” he says, “has been recognized as a world leader in implementing strong and innovative environmental policies. The California Green New Deal will build on that leadership to further protect the planet and ensure that disadvantaged communities that have been harmed by the fossil fuel economy are first in line to benefit from our state’s green advances.”
So how would he do that? Who would pay for the conversion and how would it affect the economy and those now employed in fossil fuel-related industries? He doesn’t say. Rather, AB 1839 would just create an advisory organization that would tell us something two years hence.
It’s just more symbolic chaff.
Under the banner of a so-called California Green New Deal, liberal state lawmakers on Monday unveiled sweeping new goals to reduce homelessness, cut greenhouse gas emissions and improve living standards in poor communities within 10 years.
Their bill does not yet include any specifics about how they want the state to reach those goals or how they’d pay for the mandate.
Among other things, the plan aims to hasten the state’s compliance with targets that are already in place under California law to wean the state off of fossil fuels.
Assemblyman Rob Bonta, D-Alameda, said his legislation will grow to become more meaningful as it moves through the Legislature. He expects it to include concrete goals that would require Gov. Gavin Newsom’s signature.
Bonta called his proposed California Green New Deal “a big, ambitious bill” that would “establish a framework of firm principles and goals.”
The name of the plan is modeled after a national Green New Deal bill proposed by Rep. Alexandria Ocasio-Cortez, D-New York.
Cortez’s plan includes a federal jobs guarantee, universal access to clean water and net-zero greenhouse gas emissions by 2050. Bonta said his proposal adopts a more California-centered focus.
“Same name, same pillars addressing climate change as we promote equity, but this is California’s Green New Deal, so it’s different,” Bonta said.
A 2018 United Nations report warned of “irreversible changes” if the world doesn’t cut carbon pollution by 45 percent by 2030 from 2010 levels.
Nine Assembly Democrats, including Kevin McCarty of Sacramento, joined Bonta at a news conference Monday to promote the plan. Details surrounding the cost and revenue source are still being ironed out, though Bonta acknowledged the plan will be “expensive but necessary.”
“We can’t afford not to pay for it,” Bonta said. “There’s no bigger threat to our planet, people, existence, state, all the residents of California than climate change. It is existential. When the federal government decides to go to war, sometimes endless war, we don’t ask how it’s being paid for. There’s many things we do we don’t ask how it’s going to be paid for. The money shows up. It turns up. When we’re trying to save our planet, you would think there would be a political will to make the investment.”
Marie Waldron, R-Escondido, leader of the Assembly Republican caucus, chastised Democrats for not providing more information.
“It’s telling that Democrats refuse to say how much this plan will cost or where they’ll get the money,” Waldron said. “If their plan is to reduce emissions by making California so unaffordable that only Tesla drivers are able to stay here, they’re certainly on the right track.”
In September 2018, former Gov. Jerry Brown signed a law to phase out fossil fuels and require all retail electricity to be carbon-free by 2045.
The law, Senate Bill 100, requires 60 percent of California’s electricity portfolio to come from renewable energy sources by 2030. Bonta wants to expedite the process and transition the state off of fossil fuels entirely by 2030.
“SB 100 has a 2045 deadline, and we think that’s not fast enough,” Bonta said. “That’s one of the things we’re discussing. That’s not in the bill yet, but that’s the type of thing that we’re discussing that you might see.”
He and his colleagues did not have specifics on how the state would support communities of color, build more housing and cut homelessness. Assemblyman Ash Kalra, D-San Jose, who leads his chamber’s labor committee, said the group’s key objective is to make climate change the state’s top priority in 2020.
“If we don’t get this right, everything else we’re working on falls by the wayside,” Kalra said.
CA Green New Deal Bill:
CalMatters & Legislative Analyst
California’s ambitious renewable energy targets helped drive a substantial drop in greenhouse gas pollution that propelled the state past its 2020 climate change goals early, according to a non-partisan analysis released this week. Yet one California lawmaker wants to put a stop to the mandate, for now.
Most of the carbon pollution that California scrubbed from its economy over the past ten years disappeared from the state’s electricity sector. That’s largely because of a shift toward renewable electricity sources like wind and solar and a departure from coal. The question is to what extent the state’s climate efforts are driving that shift.
The report, published this week, comes from the Legislative Analyst’s Office, which assesses state policy and advises California’s Legislature. Ross Brown, primary analyst on the report, dug through academic studies and government data to lead an investigation into just how effective state policies are at greening the grid.
It’s important to find out: California cut greenhouse gases to 1990 levels four years ahead of its 2020 goal. But the state has to dramatically pick up the pace to cut emissions another 40 percent by a fast-approaching deadline in 2030. Knowing what’s working, and how well, will be key — particularly as California continues to position itself as a climate leader for the rest of the world.
“Understanding why emissions fell — as well as what we don’t know — is critically important to the task of informing California’s pursuit of future climate targets,” Danny Cullenward, policy director at the climate change think-tank Near Zero, said in an email to CalMatters. He called this week’s report “the gold standard.”
Chief among the report’s conclusions is this: California’s requirement that a large portion of the state’s electricity must come from renewable sources likely played a substantial role in cutting emissions from the electricity sector. Rooftop solar incentives probably cut greenhouse gas emissions to a lesser extent, and are pricier. Importantly, the researchers reported major gaps in what we know about the effectiveness of the state’s climate efforts.
The gaps include emissions reductions from a 2006 law that barred electricity providers from signing new long-term contracts with coal plants; while coal power now makes up about three percent of California’s electricity supply — a 60 percent drop since 2009 — no long-term studies have sussed out how much of that is because of California’s law.
Also mysterious are the greenhouse gas cuts from cap and trade, California’s cornerstone climate policy that requires the state’s major greenhouse gas polluters to cut their emissions or acquire permits to continue polluting.
While the costs of cap and trade — about $17 per permit — are clear, it is “more difficult to estimate” how much electricity emissions have been cut, the report said. For now, according to the report, cap-and-trade’s effects are “thought to have been relatively modest compared to other policies.”
The report leaves Assemblymember Cristina Garcia, a Democrat from Bell Gardens and chair of the Joint Legislative Committee on Climate Change Policies, questioning the policy’s goals. “Is the goal of cap and trade to reduce the cost, or is the goal of cap and trade to reduce emissions, or is the goal to do both?” Garcia said.
Garcia noted a consumer cost benefit of cap and trade that was highlighted in the report: the state gives utilities some permits to pollute for free, which the utilities must use to benefit their ratepayers — often in the form of a bill rebate. But, she added, it’s important to look at costs beyond electricity bills, such as the health costs of failing to curb pollution.
The impact of California’s solar incentives was clearer. Overall, installing rooftop solar panels helped cut annual greenhouse gas pollution by about 6 million metric tons of carbon dioxide in 2018 from 2009 levels — equivalent to taking about 1.3 million cars off the road.
The legislative analyst’s report credits, in part, a state program that provided billions of dollars in incentives to install rooftop solar for the drop in greenhouse gases, even as it concedes some rebates went to Californians who would have installed solar anyway.
The report’s winner, however, was California’s Renewables Portfolio Standard. The Legislature made the mandate tougher over time — setting a statewide renewable electricity target that’s increased from 20 percent by 2010 to 60 percent by 2030. After that, other carbon-free electricity sources including existing large-scale hydropower can count toward an even more ambitious goal of 100 percent carbon-free electricity by 2045.
In general, electricity providers already are meeting the 2020 goal, the report said. And the standard is working to slash climate-warming pollution, too. The analyst’s office estimates the shift toward large-scale renewable electricity sources slashed annual greenhouse gas emissions in 2018 by 24 million metric tons compared to 2009. That’s roughly equivalent to taking 5.2 million cars off the road.
The report suggests California cannot take all the credit for improving emissions. The boom of renewable electricity generation outside California suggests federal tax credits and drops in the cost of renewables like wind power likely contributed. Drops in natural gas prices also likely drove a shift away from coal.
“It’s clear that the policies in the power sector are working,” said Michael Wara, director of the Climate and Energy Policy Program at Stanford University. Still, while emissions from electricity have dropped, emissions are ticking up in other parts of the economy — like transportation. “It’s also clear that we can’t achieve our overall climate goals just by doing more of the same in the power sector,” he said. “And so that’s a big warning sign for policy-makers over the next decade.”
Rather than expanding the electricity sector’s emissions cuts, Republican lawmakers — Assemblymember James Gallagher from Yuba City and Senator Jim Nielsen from Tehama— want to instead pause California’s renewable energy mandate for an as-yet unspecified time. The deadly 2018 Camp Fire burned through the districts of both legislators, and they say California needs to free up utility funds to harden the electrical infrastructure that sparked the blaze.
Gallagher points out that greenhouse gas emissions from wildfires have outstripped the state’s carbon dioxide cuts across the economy. The California Air Resources Board has contended, however, that it’s a mistake to compare the two sources: wildfire emissions are part of the natural carbon cycle — whereas without humans, fossil fuels would otherwise stay in the ground.
Gallagher sees the Renewables Portfolio Standard’s success as a sign that it’s time to scale back. “I agree we need to reduce greenhouse emissions,” Gallagher said. “But let’s do it in a smart way, and let’s not do it where we’re blowing smoke out the back end.”
The lawmakers announced their proposal in October — citing a California Public Utilities Commission Report that calculated $2.4 billion in PG&E expenditures for renewable power in 2018. That number, however, is misleading. It represents PG&E’s total expenses for renewable power, not how much more it paid for renewables mandated by the Standard.
That number is much smaller, according to what the analyst’s office calls an “imperfect” estimate based on data from the California Public Utilities Commission. Complying with the Renewables Portfolio Standard costs the three major investor-owned utilities — PG&E, Southern California Edison, and San Diego Gas & Electric — an extra $1.1 billion per year, total, compared to buying natural gas, the report said. That’s roughly 5 percent of total costs.
Costs could drop in the future, as well; today’s prices include contracts signed when renewables were more expensive than they are now. That means providing electricity from renewable sources is likely to get cheaper for utilities.
Ethan Elkind, director of the climate program at UC Berkeley’s Center for Law, Energy, and the Environment, thinks stopping the renewable energy mandate conflates two unrelated issues: how PG&E has decided to spend its money, with the cost of complying with California’s renewable energy mandate. “It’s this false choice,” said Elkind, who called Gallagher and Nielsen’s proposal “a really bad idea.”
Plus, the proposal to pause the renewable energy mandate for an unspecified period of time doesn’t take into account the pollution benefits of phasing out fossil fuels, Elkind said. “Nobody wants to live next to a natural gas power plant.”
Assemblywoman Garcia agreed — arguing against sacrificing a policy that’s working. “I think both issues need to be addressed,” she said. “We need to have that discussion about hardening the grid, but finding other ways to do it.”
In a state burdened by billions of dollars in wildfire damage, California lawmakers are hoping for an advance loan before the next climate-fueled catastrophe hits.
Lawmakers’ 2020 to-do list includes a $4.2 billion climate bond, an ambitious proposal to borrow money before they need it to prepare for the types of natural disasters that have plagued the state. The disasters are so destructive they forced the nation’s largest utility, Pacific Gas & Electric, to file for bankruptcy last year.
The borrowing proposal is one of dozens of holdover bills from last year that are still alive in 2020 but must pass at least one legislative chamber by the end of January to have a chance at becoming law. The logjam is complicated by an accelerated election cycle that puts many lawmakers on primary election ballots in March instead of June, making it less likely for politically risky proposals to advance.
“We have kind of a perfect storm,” said veteran Democratic political consultant Andrew Acosta.
Catastrophic wildfires have destroyed thousands of homes, generating billions of dollars in insurance claims and costing taxpayers billions more in cleanup costs. The bulk of the borrowing proposal, detailed in similar efforts authored by Democrat Ben Allen in the Senate and Democrat Eduardo Garcia in the Assembly, would go toward reducing wildfire risk throughout the state. It also includes money to protect farmland from climate change, bolster the state’s scarce water sources and help coastal communities plan for sea level rise.
The $4.2 billion price tag could grow as lawmakers discuss adding more projects for things like buying solar batteries and fuel cells to keep the lights on at nursing homes and other vulnerable sites when utility companies preemptively shut off electricity to prevent wildfires during windy conditions.
“We’ve been really good about investing in suppression — in other words, firefighters and helicopters,” said Democratic Sen. Henry Stern. “We haven’t done that good of a job in prevention.”
Passing the Legislature would be the just first step for the climate bond because California can’t borrow the funds unless voters approve it. Voters could be weary of more bonds because the state has borrowed so much money in recent years that officials are having trouble spending it all. Of the $150 billion in borrowing authorized by voters in recent years, more than $34 billion has yet to be spent.
Christine Johnson, a public-finance consultant with an engineering degree, was running for a seat on the San Francisco Board of Supervisors.
She crisscrossed her downtown district talking about her plans to stimulate housing construction, improve public transit and deal with the litter of “needles and poop” that have become a common sight on the city’s sidewalks.
Today, a year after losing the race, Ms. Johnson, who had been in the Bay Area since 2004, lives in Denver with her husband and 4-year-old son. In a recent interview, she spoke for millions of Californians past and present when she described the cloud that high rent and child-care costs had cast over her family’s savings and future.
“I fully intended San Francisco to be my home and wanted to make the neighborhoods better,” she said. “But after the election we started tallying up what life could look like elsewhere, and we didn’t see friends in other parts of the country experiencing challenges the same way.”
California is at a crossroads. The state has a thriving $3 trillion economy with record low unemployment, a surplus of well-paying jobs, and several of the world’s most valuable corporations, including Apple, Google and Facebook. Its median household income has grown about 17 percent since 2011, compared with about 10 percent nationally, adjusted for inflation.
But California also has a pernicious housing and homeless problem and an increasingly destructive fire season that is merely a preview of climate change’s potential effects. Corporations like Charles Schwab are moving their headquarters elsewhere, while Oracle announced that it would no longer stage its annual software conference in San Francisco, in part because of the city’s dirty streets. “Shining example or third-world state?” a recent headline on a local news website asked.
“You get depressed if you listen to everything going on, but you can’t find a contractor and the state continues to create jobs,” said Ed Del Beccaro, an executive vice president with TRI Commercial Real Estate Services, a brokerage and property management company in the Bay Area.
Whether it’s by taming bays and mountains with roads, bridges and power lines or grappling with a lack of water and crippling earthquakes, California is perennially testing the limits of growth. Its population has swelled to 40 million and the state’s economy has grown more than previous generations had thought possible, cramming more cars and more people into cities that were supposed to be tapped out, while seeding new companies and new industries as old ones died or moved elsewhere.
But today it has a new problem. For all its forward-thinking companies and liberal social and environmental policies, the state has mostly put higher-value jobs and industries in expensive coastal enclaves, while pushing lower-paid workers and lower-cost housing to inland areas like the Central Valley.
This has made California the most expensive state — with a median home value of $550,000, about double that of the nation — and created a growing supply of three-hour “super commuters.” And while it has some of the highest wages in the country, it also has the highest poverty rate based on its cost of living, an average of 18.1 percent from 2016 to 2018.
That helps explain why the state has lost more than a million residents to other states since 2006, and why the population growth rate for the year that ended July 1 was the lowest since 1900.
“What’s happening in California right now is a warning shot to the rest of the country,” said Jim Newton, a journalist, historian and lecturer on public policy at the University of California, Los Angeles. “It’s a warning about income inequality and suburban sprawl, and how those intersect with quality of life and climate change.”
You can see this in California economic forecasts for 2020, which play down the threat of a global trade war and play up the challenge of continuing to add jobs without affordable places for middle- and lower-income workers to live. You can see it in the Legislature, which has raised the minimum wage, and next year is poised to debate a bill that could reshape the state by essentially forcing cities to allow multistory buildings near transit stops. You also can see it in the stories of people like Ms. Johnson and other highly educated workers who have gone elsewhere.
For Bryan Diffenderfer, leaving was about acquiring financial breathing room. Mr. Diffenderfer is a 36-year-old native Californian who until recently worked in sales and lived in a 1,200-square-foot townhouse in a Bay Area suburb with his wife and 2-year-old daughter. They had the means to buy a bigger home, but the mortgage payment would have been overwhelming. They bought a five-bedroom house outside Indianapolis for about $500,000, and Mr. Diffenderfer quit his job to work for his wife, who runs an ad-supported fashion blog and social media business.
“I love California, but you hear about people who are cash-poor because they have to invest so much in their house,” he said. “Moving gave me the flexibility to leave my job and go into our family’s business.”
A decade ago, California was mired in the Great Recession along with the rest of the nation. Unemployment was 12 percent, the state had a yawning budget gap and foreclosures were bad enough that skateboarders were rejoicing at the surplus of empty swimming pools. Far from lamenting the influence of tech companies, San Francisco extended tax breaks to get them to stay.
When growth picked up, driven by a once-in-a-generation tech boom that accompanied the proliferation of social media and the widespread adoption of smartphones, California became the foremost example of an innovation economy. Start-ups pitched themselves as the Uber of X, while cities promoted themselves as the Silicon Valley of Y.
But the underlying fault lines were still there. Rents and home prices stayed high, especially in the coastal areas where job and income growth was strongest. As the economy picked up and housing costs resumed their rise, lower-paid service and professional workers moved to distant exurbs, while homelessness spiraled to the point that local political leaders are all but declaring they are out of solutions.
Elected officials in Los Angeles have urged the governor, Gavin Newsom, to declare a state of emergency over homelessness, while the governor is in turn telling the federal government that a state with a $215 billion annual budget cannot solve this on its own. But President Trump has belittled California’s homelessness problemand repeatedly sought to punish the state, whose 55 electoral votes went to Hillary Clinton in 2016. With their traffic and trash, California’s biggest cities have gone from the places other regions tried to emulate to the places they’re terrified of becoming.
There are increasing complaints in Oregon, Nevada and Idaho that rents and home prices there are being pushed up by new arrivals fleeing California. A recent election in Boise, Idaho, was seen as a referendum on California-style growth. And Oregon’s decision to essentially ban single-family house neighborhoods has been billed by lawmakers as a bold intervention to pull the state away from a California-like trajectory.
People have short memories, of course, and as soon as there is another recession, the focus of Californians and their leaders is bound to turn from the strains of growth to creating jobs. From 2009 to 2011, in the aftermath of the last recession, the poverty rate reached 23.5 percent.
“A decade ago they were cutting school funding and social services,” said Stephen Levy, director of the Center for Continuing Study of the California Economy. “There are people injured by prosperity, but obviously a recession is more damaging to most people.”
For now, voters and businesses are less concerned about where growth will come from and more concerned with figuring out how to address its discontents. In a recent poll, by the Public Policy Institute of California, homelessness was tied with the economy as voters’ top concern, the first time it has been a top issue in the 20-year life of the survey. Another survey by the institute showed that almost half of Californians have considered leaving because of high housing costs.
Restaurants and other businesses are hiring fewer workers than they might because they can’t find enough people who can afford local housing costs. It’s also an issue for giant technology companies like Apple, Google and Facebook, which have pledged a total of $4.5 billion to build subsidized housing.
Greg Biggs is adding more machines and moving jobs to cheaper locations. Mr. Biggs is the chief executive of Vander-Bend Manufacturing, a company in San Jose that makes metal products including surgical components and racks where data centers store computer servers. Vander-Bend has doubled its head count over the past five years, to about 900 employees, and pays $17 to $40 an hour for skilled technicians who need training but not a college degree.
The problem is he can’t find enough workers. The unemployment rate in San Jose is around 2 percent, and many of Vander-Bend’s employees already commute two or more hours to work. To compensate, Mr. Biggs has bought several van-size robot arms that pull metal panels from a pile then stamp them flush, bend their edges and assemble them into racks. He has opened a second location 75 miles away in Stockton, where labor and housing costs are a lot lower.
This is in most ways a success story. Vander-Bend is raising wages and training workers. The machines aren’t replacing jobs but instead make them more efficient, and the company is bringing higher-wage positions to a region that needs more of them. But for workers, even substantial income gains are being offset by rising costs.
A decade ago Manuel Curiel made $22 an hour as a production worker at Vander-Bend. Today he is 37 and, after several promotions, makes a six-figure salary. Almost anywhere else, that would be a shining example of how the longest economic expansion on record is reaching more workers, including those, like Mr. Curiel, who dropped out of high school.
But this good-news story comes with a catch. In the decade that Mr. Curiel’s salary tripled, the rent on his family’s small two-bedroom apartment in Santa Clara more than tripled, from a little over $600 to more than $2,200, including a 35 percent increase one year. He has since joined Vander-Bend in moving about 80 miles east to Manteca, near the factory in Stockton, where he lives in a house offering more space for about the same rent.
Bottom Line: Data provides a mixed message about the condition of the state’s economy. Some signs point to a weakening economy, while others continue to signal growth.
Overall, while not imminent, the risk of a slowdown in the coming year appears higher than it has been for some time.
Knowing when the state’s next budget slowdown will happen is impossible. Many economic factors outside the state’s control influence state revenues. Despite this, certain data points can help us understand whether shifting economic conditions are likely to lead to growth or declines in state revenues in the coming months.
We created the State Fiscal Health Index to track the strength of economic conditions relevant to the state’s fiscal health. The index ranges from 0 (representing the lowest level in the last 25 years) to 100 (representing the highest level in the last 25 years). Both the level of the index and changes in the index from month to month offer information about the state’s fiscal health. When the index is high, revenues tend to be high compared to historical norms. Similarly, when the index is increasing, state revenues are likely to increase over the next six to twelve months. On the flipside, a consistent decline in the index over a few months has typically signaled that the state is entering an extended period of revenue weakness.