What's missing in the budget discussions
Original post made by Tim Hunt, Castlewood, on May 17, 2012
No. 1: Revenues are up and up by a significant $4.6 billion. The financial staff’s response was that expenses grew faster than the additional revenues—who is managing the outfit?
No. 2: The expectation of most politicians that time will improve the revenues as the economy recovers.
In some areas, that’s true. There are signs of improvement in the housing market as the inventory created by foreclosures and short sales has been gradually reduced.
The inventory in Pleasanton has dropped sharply to levels lower than typically seen around the holidays when nobody wants to move.
Notably, talking to a client in Turlock who reported that was what a 3-year inventory three years ago has fallen to about 30 days there—resulting in multiple offers on desirable properties. A Southern California contact reported the same trend and predicted that new home builders would see their activity triple or more by the end of next year.
A rebound in the housing market—the area of the economy that typically has led the state out of economic downturns—would be good news indeed. It’s been moribund for about five years in many areas.
What’s still missing from the discussion is how negative the business climate is in California, That’s magnified by the massive uncertainty on taxes, health care and regulation stemming from the White House and Washington D.C.
Underlying it is the lack of understanding by many elected reps in Sacramento about what it takes to run a business. Many have no background in the private sector and are focused on social equity issues and similar distractions.
For instance, the climate change legislation (AB 32) signed by former Gov. Schwarzenegger includes onerous requirements for reducing carbon emissions that include a cap-and-trade scheme that is supposed to launch this fall.
The law is driving major subsidies for solar panels that would not pencil without them plus the requirement that one-third of the electrical power be generated by “renewable” sources. Amazingly, the bill precluded hydro-generated power as renewable.
Solar and wind costs significantly more than natural gas-fired power plants, particularly now that huge reserves of natural gas have been discovered in America. Natural gas is so plentiful that prices have cratered so much that some firms are halting exploration because it will not pencil until prices rebound.
Yes, it is a fossil fuel, but it’s also produced domestically and relatively clean and cheap.
Californians already pay among the highest electrical rates thanks to former Gov. Gray Davis and his handling of the power crisis during his term.
Driving rates down by reducing the renewable requirements is a policy that would quickly enhance the business climate.
Another tangible change, given the state’s budget deficit and the so-called business plan for the high-speed rail would be for the governor to suspend any further expenditures without another vote by the public.
At best, the bullet train is a “nice to have.” There’s nothing necessary about it. If the governor wants voters to approve increased sales and income taxes in November, he needs to spike that absurd program.
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