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Sacramento’s harmful policies drive the California exodus

June 18, 2023

As the exodus of Californians and their businesses continues apace, Gov. Gavin Newsom denies reality, downplaying the flow of people and companies from his state as inconsequential.

But the facts are well-documented — and grim: from January 2020 to July 2022, the state lost 600,000 people. That’s more than the population of Wyoming. The loss has been so severe that California lost a congressional seat for the first time in its history. Without a major change of direction, hundreds of thousands of individuals and scores of businesses will continue the flight from California.

Thanks, then, to the Los Angeles Area Chamber of Commerce for acknowledging a problem Newsom can’t see — and for assessing the ways in which bad governance is responsible for the outmigration. Reading the 68-page document leads one to a simple conclusion: Government must do less.

The report features a compilation of interviews the Chamber conducted with 23 California CEOs who aren’t named. That offer (or demand) of anonymity is evidence enough of business leaders’ anxiety about the state’s reputation for hostility to free enterprise; who wants to criticize regulators in a state with a reputation for seeking and destroying business? The 23 CEOs describe their difficulties in detail, with one summarizing the sense of others thusly: “I have dealt with governments around the country, but the most business unfriendly [and] adversarial government is California.”

The CEOs cite a long list of reasons businesses are leaving, including high tax rates, the burdensome regulatory environment, high energy costs, inadequate infrastructure, and the state’s out-of-control homeless crisis. Each of these problems can be traced back to state and local government policies, and that accounts for the Tax Foundation’s 2023 State Business Tax Climate Index (cited in the report) that ranks California as 48th in the nation for corporate, individual, property, and sales tax rates.

Overzealous environmental regulation, particularly the California Environmental Quality Act (CEQA), is described in the Chamber report as “extraordinarily cumbersome.” Gov. Newsom has recently recognized the need to reform CEQA, which is notorious for tying up construction projects for years. But, perhaps unsurprisingly, Newsom’s proposed reform would exempt only government infrastructure programs from the disastrous law. Everybody else can labor beneath the dead weight of CEQA — or, as many have, simply leave the state altogether.

Add to that California’s far-fetched climate experiments, like the war on gas stoves, the untenable shift to wind and solar energy, a ban on the sale of gas-powered vehicles by 2035 (further threatening California’s already stressed power grid), and energy regulations that hit Californians with highest-in-the-nation costs for gasoline, natural gas and electricity.

California hosts half of the nation’s homeless population despite exorbitant state spending on “solutions” — $20 billion in just the past four years. This is on top of wildly expensive local government programs, like Los Angeles’ failing Measure HHH bonds. That program spends $800,000 for each unit of homeless housing, well above market cost.

The CEOs told the Chamber that solutions to the homeless crisis “have not been forthcoming” from urban politicians. Meanwhile, businesses bear the cost when patrons avoid high-vagrancy areas.

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So what can California do to end the madness? Just do less. The Los Angeles Area Chamber of Commerce report recommends a lighter regulatory touch, one that recognizes the regional variations in industry. Silicon Valley has different economic needs than the Central Valley; Inland Empire logistics firms aren’t LA’s aerospace, video production, and apparel firms; San Diego’s biotech industry definitely ain’t Hollywood. Trying to engineer a one-size-fits-all regulatory regime managed in Sacramento will stifle these important, organic regional variations.

The report doesn’t explain every issue perfectly. It concludes that “modern urban work-life amenities,” such as recreation opportunities, are necessary to attract workers and businesses. To many, that will sound like a call for the state to do more to “improve quality of life.” Rather, it ought to be a reminder that leaders ought to execute only their legitimate responsibilities — like improving public safety, cutting taxes, and reducing regulation. Ultimately, politicians should step back – should do less – and let individuals manage their own lives. The quality of life will improve when California tries a little human liberty.

Even then, the reputational damage has been deep and broad. The results of a do-less campaign will take years before business leaders recover their faith in California.

Sheridan Swanson is a research manager at the California Policy Center.

Orange County Register

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Sacramento’s harmful policies drive the California exodus

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