America’s Biggest Problems Are Intensified in California

(Bloomberg Businessweek) -- More nation-state than U.S. state, California is a land of superlatives: the most populous, the most prosperous, home to the most companies in the S&P 500, the fifth-largest economy in the world. Its scale also makes it one of the most powerful, much to the annoyance of Donald Trump’s Washington. Lately, however, the state is also the most incendiary in the union—not just because of its wildfires and accompanying blackouts, but also because they’ve sparked heated debate over whether its future remains golden or is inexorably in eclipse..Just past noon under the clear, blue sky of Halloween day, Kurt Mikell returned to survey what remained of his mulch and compost depot downhill of the Ronald Reagan Presidential Library in Simi Valley, Calif. The Easy Fire had torn through Mikell’s 5 acres, about an hour’s drive northwest of Los Angeles, leaving the green and brown hills splotched with black and striped in fire-retardant red. It was the second time in Mikell’s 20 years there that wildfire had destroyed what he’d worked hard to build. But he’s undeterred. “I see a dirty canvas that I’m going to clean up and repaint,” he says, “and it’ll look nicer than it did before.”.An hour later, on the other side of the hill from Mikell’s property, Mary Lou Schakouri pulled into the driveway of her four-bedroom tract home where she’s lived since 2013, after fleeing the prior morning with her two crying young daughters. It was the family’s first evacuation; they returned to find a lingering smell of smoke, but the property was otherwise unscathed. “I don’t feel safe here anymore,” she says. “I’m more scared of fires than earthquakes. I don’t want to stay.” She’s thinking of North Carolina..The fire season that provoked those conflicting reactions also inspired think pieces, Twitter threads, and TV talking-head commentary predicting widespread financial ruin, voter rebellion, environmental catastrophe, political upheaval, and mass emigration. “It’s the end of California as we know it,” self-proclaimed “California nationalist” Farhad Manjoo wrote in the New York Times. On Fox News, Tucker Carlson declared California a “disaster” and “not civilized.” There was pushback, of course. “California has a hell of a lot more going for it than you’ll ever hear from our jealous critics and gasbag pundits,” wrote Los Angeles Times columnist Steve Lopez. “The state has worked for over 40 years to successfully reduce emissions—but that never gets mentioned when hillsides burn,” wrote Alissa Walker, the urbanism editor of the blog network Curbed..The state has long lent itself to caricature despite its incredible diversity of geography, population, and culture. California amplifies America’s own anxieties about setbacks—and its hopes and resiliency. A lot of the country is conflicted about the positions California holds on many issues: the politics of Trump and resistance to Trump; income inequality; and, of course, climate change. Trump has stirred opposition, tweeting criticism of Governor Gavin Newsom’s handling of the fires and resurrecting a vague threat to withhold federal funding to help aid recovery. The chaos of wildfires and blackouts comes amid the backdrop of a housing affordability crisis fueling one of homelessness, with cities across the state seeing double-digit increases in the numbers of indigents sleeping in cars and on sidewalks, in parks and doorways, and under bridges and highway overpasses..William Deverell, a historian of the American West who teaches at the University of Southern California-Dornsife College of Letters, Arts and Sciences in Los Angeles, has watched many times as the national zeitgeist tests the health of the American Dream through an examination of the fortunes and misfortunes of the Golden State. This time feels different: the impact more personal, those affected more helpless. “I used to roll my eyes,” he says about criticism of the state. Now, “the sheer difficulty, if not intractability, of these challenges seem of a scale that frightens me.” Beyond natural disasters, Californians have endured one self-inflicted mess after another throughout the past two decades: the dot-com bust, an electricity crisis, a divisive gubernatorial recall election, a budget debacle amid the Great Recession. In the early 2000s, the state’s electricity industry almost collapsed amid shortages and rampant market manipulation that triggered widespread blackouts, tripled consumers’ energy bills, and forced power companies into bankruptcy. The crisis helped bring down then-Governor Gray Davis and led to a recall election featuring a porn star, a rock singer, a former child actor, and even smut peddler Larry Flynt on the ballot. In the end, a mega-celebrity-cum-political-neophyte named Arnold Schwarzenegger claimed victory. It was a time when California was not just a basket case but a political joke..More than most states, and even the federal government, California has built into its fiscal framework a progressive tax structure that relies heavily on those with the most money to help care for those with less. That leaves it overly dependent on its wealthy residents: The top 1% of taxpayers provide about half the personal income tax revenue. That means that recessions and bear markets can cause massive deficits. The state budget had barely recovered from the gaping holes left by the dot-com bust when the Great Recession and housing market collapse left it broke. California faced a $40 billion shortfall in 2009 alone, bigger than some states’ entire budgets. Some 30,000 teachers received pink slips during the recession. Lawmakers blew through budget deadlines while debating tax hikes vs. spending cuts, forcing the state comptroller to pay bills literally with IOUs. Pundits called California the next Greece..But it bounced back. A key figure in the recovery was Jerry Brown, a fiscally conservative Democrat, who was governor from 2011 until he was succeeded by Newsom in January. (Brown also served as governor from 1975 to 1983.) He was relentless in using excess money to pay down what he called a “wall of debt.” He resisted pent-up demand from Democrats who controlled (and still do) both chambers of the legislature to spend surplus funds on new or expanding programs. The state now has $19 billion socked away in reserve funds. Newsom’s first budget featured a record $21 billion surplus..California’s economy is booming, but the price of growth has been steep. The state is adding far more jobs and residents than housing units, squeezing supply and sending costs soaring. The median home price tops $600,000—more than twice the national average—and the poverty rate is the nation’s worst when factoring in the cost of living. California is home to 12% of the U.S. population and 25% of the country’s homeless, the majority of whom are unsheltered..And then there’s climate change. Environmental challenges are hardly unique to the state, says Peter Gleick, a water and climate expert who co-founded the Pacific Institute, a think tank in Oakland. But the question is, he says, “What does it mean for even a rich developed society to have to deal with? Part of it is a question of emergency response, and part of it is a question of what kind of energy and water systems do we have compared to what we need to have. And part of it is frankly psychological—how are we going to deal with one crisis after another?”.Wildfires in California have consumed many fewer acres so far this year than at this time in 2018. But that year and the one before were the worst for wildfires in the state’s history in terms of death and destruction, including the Camp Fire, which killed 85 people, and the Mendocino Complex Fire, which burned 410,000 acres, an area more than twice the size of New York City. People who’ve just finished rebuilding from the last fire are questioning whether they’ll have to do so again. Preemptive blackouts by utilities—such as Pacific Gas & Electric Co., whose power lines have been found liable for sparking blazes—left millions of people in the dark up and down the state. It could take a decade before such disruptions are “really ratcheted down significantly,” William Johnson, PG&E’s chief executive officer, recently told regulators. Who knows what form the more-than-a-century-old company will take 10 years from now: It’s facing calls for a state takeover and going through bankruptcy proceedings. It was also one of the power companies that declared bankruptcy during one of the state’s earlier crises in the 2000s..Scott Anderson, chief economist at Bank of the West, estimates the combined impact of this year’s fires and blackouts, at up to $11.5 billion, could shave off so much of California’s economic output that the state could underperform the U.S. economy for the first time since 2010. Anderson sees the state’s growth rate this year ranging from 2% to 2.2%, below the expected 2.3% rate for U.S. gross domestic product. The fires and power outages could wreak “long-term damage” on California’s cost of living and business climate, he says, particularly given the tech industry’s need for reliable power. “It’s hard to say you’re a high-tech state when you’ve got rolling blackouts going on,” he says. Coupled with the high taxes and costs, “it really does make California a less attractive place to do business and even to live.”.Part of what the state prides itself on—and makes it such a popular punching bag for critics—is its insistence, by political leaders and voters alike, that government can and should be proactive in addressing problems. For decades, California has set out to tackle climate change, leading the nation and often the world in a quest to reduce dependence on fossil fuels, curb emissions, and adopt renewable energy. As the nonprofit National Resources Defense Council Inc. wrote in a May report, “had the other 49 states reduced fossil fuel use relative to economic activity over the past four decades at the same pace as California, nationwide carbon emissions would now be lower by 24 percent.”.Newsom has continued to push that theme, traveling throughout the state in recent weeks to highlight steps taken to prepare for, preempt, and respond to environmental disaster. To address housing, he signed a package of bills in September aimed at giving local governments more tools to confront the crisis. To battle homelessness, residents in Los Angeles and San Francisco have voted to boost funding by taxing themselves and their employers, and voters statewide authorized billions more in state spending to build more indigent housing. It’s not just government: Facebook Inc. and Google each say they’re going to throw $1 billion at the housing crisis. Apple Inc. says it’s putting up $2.5 billion. The tech giants may have exacerbated California’s inequality, but few other states have such private-sector resources to deal with pressing public issues..“California is trying to tackle really hard stuff,” says Leah Stokes, a professor of political science at the University of California at Santa Barbara. She adds, “No one wrote, ‘Is Texas over?’ when Hurricane Harvey hit Houston. California is not an island apart from the rest of the world—if it’s happening in California, it’s happening everywhere else, too.”.Back in Simi Valley, Mikell examined a New Holland skip loader, now a useless pile of melted metal, plastic, and rubber. One building had busted windows and hole-ridden walls. A stream flowed out of a melted pipe and snaked around still-smoldering topsoil. The California native voted for Trump, didn’t vote for Newsom, and, though he believes the climate is shifting, doesn’t think it’s caused by humankind. But he believes in California—and has witnessed how its attempts, both official and private, at being proactive have helped. “I’m not interested in starting over,” he says. “I’m proud to be a Californian. People are resilient here. We bounce back and pull together.” Besides, starting anew in a different state would mean leaving family, friends, business reputation, and the rock band Seventh Freedom, in which he plays bass. As he spoke, the Santa Ana winds were spreading a new fire just a few miles away. —With Romy Varghese and Michael Marois Read more: How California Became America’s Housing Market Nightmare.To contact the editor responsible for this story: Howard Chua-Eoan at hchuaeoan@bloomberg.net.©2019 Bloomberg L.P.

America’s Biggest Problems Are Intensified in California

Beyond natural disasters, Californians have endured the dot-com bust, an electricity crisis and a divisive recall election.

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