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California EconoTalk: Hey Honey, Should We Take That Job in California?

New America Media, Column, Stephen Levy Posted: Jan 13, 2010

California gets criticized regularly for having a bad business climate. The storyline goes roughly like this: States compete fiercely for new businesses. California has high income tax rates and excessive regulations. We are not friendly to business and companies are fleeing California for these reasons.

I have a different perspective based on studying the California economy for the past 40 years.

The bottom line goes like this: Companies compete for workers and their families as well as for entrepreneurs; and companies care about much more than tax rates and regulatory policies when deciding where to locate. As a side note, the Public Policy Institute of California has shown in several studies that neither companies nor high-income individuals are fleeing California in any large numbers.

I developed a short Hey honey story to illustrate that competition includes being a state that is attractive to families:

Hey honey, the recruiter from Apple called and you got the job --$200,000 to start.

Wow, honey thats great news. But where will our kids go to school? Do we have to buy a $1 million house in Palo Alto to find a good public school? And I hear that California universities are turning away students and raising fees.

Hey honey, do you know if California ever solved their water problem? And what about transportation and energy? Isnt California where they fight over everything and cant pass a balanced budget?

Honey, I have a great idea. Lets call the recruiter and see if Apple wants to start a branch here in Omaha.

The narrative that California has a bad business climate assumes that workers and families will come if only we can get companies to locate here. Families today have many choices of where to live and have a good job. So California must compete with good schools, great infrastructure and communities that are attractive and affordable to the workers and families we are trying to attract.

But the argument that California competes by being a great place to live and work applies to businesses as well. Look at where Californias good jobs of the future will come from. We are leaders in technology, in the expanding use of the Internet, in being creative designers of cars, energy-efficient buildings, clothes and entertainment products that captivate the world. And we hope to lead the world in developing goods and services that address energy efficiency and climate changethe green revolution.

These businesses also want to locate in communities (and states) that are great places to live and work. Good schools, world-class infrastructure and attractive communities are as important to businesses as tax rates and regulations. They may even be more important.

Californians need to engage in conversations about which vision of competing for business is the best guide to public policy or how the two visions can be melded.

If we decide that competing by having great places to live and work is the best strategy, then we need to figure out how to fund the long-term investments in people, places and infrastructure that will make this happen.

This will all happen in a context of projected state budget shortfalls so it will be even more difficult to develop a consensus. Yet, what is true for companies is also true for states. If you stop investing in the future, you have stopped competing.

I end with two ideas to consider in these larger conversations about our economic future. I will write more about these ideas in the coming weeks.

The first idea is to make changes in the way we fund infrastructure investments. I think state General Obligation bonds should be funded with a tax just like we do when we pass local school or library bonds. This will make the costs real to voters and lower the cost to the General Fund of paying for bonds. The second change is to make it easier for local residents to pass infrastructure bonds by going to a 50 or 55 percent voting approval like we have for school bonds.

The second idea is to engage residents in talking about how the future of Californias generations (old and young) is connected. The idea of inter-generational connection about our shared future is suggested in many recent articles by Dowell Myers of U.S.C.

In November 2008, at the darkest moment in recent economic times, older voters in Los Angeles approved by more than a two-thirds vote $10 billion in school bonds financed by taxes. That money would go overwhelmingly to fund the children and grandchildren of immigrants who lived in a different part of the city from most of the voters.

How were they able to see that their futures were tied together, when it is so hard to see this at the state level?

Stephen Levy is director and senior economist of the Center for Continuing Study of the California Economy (CCSCE) in Palo Alto. California EconoTalk features Levys insights and analysis on Californias economic landscape. This commentary originally appeared as Levys blog on the CCSCE Web site: www.ccsce.com.

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