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California’s regulatory labyrinth makes it hard for Californians to get things done

April 30, 2023

California was once the powerhouse of American growth and innovation, a place that let people pursue their dreams without inhibition. Its latitudinarian attitude toward builders and entrepreneurs made the state a magnet for migrants from around the world. It grew to become the world’s fifth-largest economy, and its population exploded from 1.5 million in 1900 to about 18 million in 1964, when it became the largest state in the nation, to almost 40 million today.

Yet that expansive, optimistic era is now over. In 2020 and 2021, for the first time in its history, California’s population shrank. Early indications are that it shrank again in 2022. The main reason: the state makes it increasingly hard for people to do a great many things. Indeed, few places in the Western world today make it tougher to construct a new house or launch a new business. When Mercatus Center researchers ranked the states on the number of separate demands in their regulations, California had by far the most, with almost 400,000 rules. California is dead last on the Cato Institute’s and the Pacific Research Institute’s state rankings on regulatory burdens.

Regulations are choking California, transforming a dynamic center of innovation and job creation into a place where pettifogging bureaucrats besiege citizens and entrepreneurs with demands covering even the minutest actions. It’s no surprise that people are leaving.

California has become notorious for its stratospheric housing prices, and nothing has done more to sap the state’s entrepreneurial energy and drain its citizens’ pocketbooks than restrictions on new building, which drive up those prices. In many places developers need to pay for extensive archeological, paleontological, and biologic reports on their property, written at great cost by academic experts. Even when a development meets all the planners’ reporting and zoning demands, bureaucrats and politicians in many cities have “discretionary review” of proposals, enabling them to reject projects based on vague criteria or no criteria at all.

The state’s building standards account for more than 75,000 of its 400,000 regulatory demands. Many of these attempt to make every home an environmental mecca. For instance, most new homes must have solar panels and those with garages must have a 208- or 240-volt electric-vehicle charging space. State and local codes mandate that housing developers add costly water-saving features, such as using only “climate adapted plants,” and provide the government with a “Landscape Documentation Package” describing all the ways the building limits water use.

If someone wants to build in lots up to five miles from the ocean, he can be subject to the tender mercies of the California Coastal Commission. A developer will need to obtain a Coastal Development Permit from it, filling out a 24-page application and paying up to $10,000 per house for the privilege. All these impositions increase the cost of new buildings—and reduce the likelihood of their getting built in the first place.

California’s high housing costs drive away many skilled workers, but even if such workers could afford to live in the state, it is often illegal for them to practice their craft. According to the Institute for Justice, California is the second-worst state in the nation in terms of occupational license regulations. The state has found myriad other ways to make it hard for businesses to find and employ good workers. Measure AB 5, passed in 2019, forbids companies from using independent contractors unless they meet numerous state rules.

California was once a shining example of how to attract good manufacturing workers and businesses, once boasting some of the most advanced silicon chip “fabs” and aerospace engineering facilities on earth—but government overreach ended that. From 1992 to 2002, the state passed an average of 15 labor-law changes yearly, four times the national average, with technical and heavy industries feeling the harshest impact. Since the early 1990s, the state has gone from having almost 16 percent of its workforce in manufacturing to less than half that and is now far below the national average.

For almost every national regulator and attached code, California has its own stricter regulators and codes. The California Environmental Protection Agency and the California Department of Industrial Relations compete not just to enforce but to layer more requirements on top of federal environmental and labor rules. The California Office of Administrative Law supervises more than 200 state agencies and commissions with the power to issue regulations, including the Bureau of Household Goods and Services, the Naturopathic Medicine Committee, and the Department of Pesticide Regulation.

California often pronounces onerous new regulations, and then allows almost anyone to sue if businesses don’t abide by them. Residents of the state are familiar with signs on products and in businesses about chemicals “known to the State of California to cause cancer and birth defects or other reproductive harm.” Proposition 65, passed in 1986, established this labeling rule. The current state list contains more than 900 chemicals, used to make every imaginable product, from shoes to cars to computer parts. Just to ensure your safety, some trees for sale in the Golden State feature Prop. 65 warnings.

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If firms ignore the labeling rule, they better watch out. Since 2000, businesses have paid more than $300 million in legal settlements for failure to post warnings, with attorneys garnering nearly three-fourths of the total. The combination of Prop. 65 and litigation means that many companies, such as BJ’s Wholesale Club, now refuse to ship products to California, worried that they might send an improperly labeled item. California also uses lawsuits to enforce federal rules against businesses. For instance, the Americans with Disabilities Act lets people sue businesses to make them accessible to the disabled, but in California a plaintiff can get special monetary rewards for suing successfully. One plaintiff filed more than 100 lawsuits in a year.

In our federal system, if businesses and people don’t like your rules and your demands, they can move. A recent Hoover Institution analysis showed that 352 company headquarters left the state from 2018 to 2021, including 11 Fortune 1000 companies. Hundreds of thousands of people, including this writer, have departed, too. If California’s politicians and bureaucrats think that businesses and people will abide by ever more rules and pay ever more for housing and services, even as other states roll back regulations and mandates, they’re dreaming.

Judge Glock is the director of research and a senior fellow at the Manhattan Institute, as well as a contributing editor of City Journal. This piece is adapted from City Journal’s special issue “Can California Be Golden Again?”

Orange County Register

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California’s regulatory labyrinth makes it hard for Californians to get things done

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