Commentary: California’s Lessons for Vermont (October, 2019)

by John McClaughry

Of all the fifty states California has been blessed with every advantage. A mild climate. Fertile land. Tall timber. Mining riches. Strategic location for shipping, trade and finance. Great universities. Glorious scenery. And of course, Silicon Valley, the world-leading center for high technology.

This year’s state budget picture is a governor’s dream.  Gov. Gavin Newsom’s first budget (for FY 2020) projects a $21.5 billion surplus. That’s 10% of the projected budget. (It will of course be spent.)

California’s economic boom has been  driven by the Federal government: a combination of tax rate cutting, trillion dollar a year Federal deficit spending, and a near zero interest policy, all created by Congress, the President and the Federal Reserve to keep the good times rolling… until they end. Whether California’s spending levels and expectations can be maintained during the next recession is a question that its legislators aren’t keen on addressing.

Meanwhile California faces some intractable problems. The most apparent is homelessness, in which California leads the nation. The Governor says the homelessness epidemic is “a stain on the state of California”.

Edward Ring of the California Policy Center writes “Many of the homeless on the street, to indulge in rank heresy, are there by choice. When it is impermissible to arrest and hold vagrants for petty theft or possession of hard drugs; when it is impermissible to require vagrants to move out of public spaces unless you can provide them with free and ‘permanent supportive housing’; when it is virtually impossible to commit demonstrably insane people to asylum care; when public shelters offer food and urgent care without any preconditions whatsoever (sobriety, drug counseling, drug testing); when the weather on the coast of California rarely dips below freezing – you will have an aggressive, problematic homeless population. Forever.”

One of the main reasons for homelessness is the lack of affordable housing even for working families. Ring looks at the seaside town of Venice (the size of Burlington). There, “progressive” public officials are considering a 140-unit apartment  “homeless housing project” that will cost an estimated $205 million – nearly $1.5 million per homeless person. “You don’t spend over a half-million dollars per unit to provide “permanent supportive housing” to homeless people, taking years to build them, all the while leaving the vast majority of the homeless on the street.”

Both housing and businesses are constrained by AB32, California’s “Global Climate Solutions Act.” The state’s attorney general used AB32 to stop affordable single family homes in San Bernardino because they would cause more emissions than apartment blocks. He also stopped a job-producing bottled water plant in remote and depressed northern California because the plastic bottles came from natural gas, the bottling plant used electricity, and the trucks burned diesel fuel travelling back and forth to markets.

Alone among the 50 states, California legislators made the state’s electric utilities strictly liable for the consequences of wildfires. When a tree falls on a line and sparks ignite a wildfire, the utility is liable to all injured parties – no showing of negligence is required. But the utilities can’t fireproof their entire hundred thousand miles of lines without lots of money. That task would require already-bankrupt PG&E to increase power rates by 400%, which of course the PUC won’t allow.

Californians already pay electricity bills well above the national average and nearly double what customers pay in neighboring Oregon. That’s largely because the state mandates that the utilities purchase lots of renewable power at far above market prices. Result: even the high prices paid by ratepayers don’t produce enough revenue to protect the lines against natural disasters, and their ratepayers endure Third World rolling blackouts..

Looming over all the rest is the parlous state of the state and municipal employee and teachers retirement funds.  Ring explains that CALPERS, the public employee fund,  overestimated the rate of return of its funds, overpaid benefit payments to retirees, and underestimated the payments required to support the liabilities of the funds.

San Marino (the size of Bennington) is paying 31.9% of payroll to CALPERS now, and in a mere six years will be forced to pay 46.0%. The total unfunded liability of the two funds is now a quarter of a trillion dollars.

Vermont has these same problems, in miniature (fortunately not including strict utility liability). The lesson: We should not emulate California’s practices for dealing with homelessness and suppressing new housing, stop forcing our utilities to buy renewable energy at twice the market price, steer clear of sweeping, costly programs to promote “global climate solutions”, and get really serious about reducing the $4.5 billion unfunded liabilities of our own state employee and teachers retirement funds.

John McClaughry is vice president of the Ethan Allen Institute (www.ethanallen.org).

 

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