5 Ways Gavin Newsom Can Fix California

Gavin Newsom, the swashbuckling governor of California, cruised to victory in a weird recall election this week. On the ballot was a simple question: “Shall GAVIN NEWSOM be recalled (removed) from the office of Governor?” If you voted yes, you were then asked to choose a successor from a field of 46 that included Caitlyn Jenner, a porn star, several people who publicly supported QAnon theories, and a man who campaigned with a 1,000-pound brown bear at his side. (For the record, Caitlyn got less than 1 percent of the vote, the QAnon candidates gathered less than 11,000 votes combined and Tag the brown bear went back to his day job at Steve Martin’s Working Wildlife, an animals-for-hire outfit).

Despite some last-minute anxiety on the part of Democrats, the outcome of the recall was never really in question. If the leading contender to replace the governor is a conservative talk-radio personality better known for hawking diet supplements on TV, you could see where this was going. Plus, overall, Newsom is doing a pretty good job governing a state that many think is ungovernable. California has more crises per capita than any other state (except maybe New York), but it’s still holding together. And after a very enjoyable road trip this summer, from San Francisco to Del Mar and back, I can tell you that the state is more beautiful than ever.

This is not to say that everything’s groovy in the Golden State. The crises it faces — lack of housing, drought, income inequality, deteriorating education, a near-constant wildfire season, regulatory overload — are existential in scope. So if Gavin is smart (which he is), he will not view the election results as a mandate, but as a warning. To some extent, the recall was a referendum on “Trumpism,” so Republicans should take note. But a significant number of “no” votes came from people who simply didn’t want to change horses in midstream, especially considering the alternatives. The fact that the recall election happened at all is a sign that not everybody is happy with the way things are going in California.

To be sure, some of California’s challenges, like the drought and earthquakes, are what contract lawyers like to call force majeure, so-called acts of God that are beyond the control of mere mortals. But even with force majeure there are workarounds. And for some of California’s other problems, there are solutions that are readily available under the right leadership. Here are five suggested solutions for the reconfirmed governor.

Regulatory Reform. California is the most regulated state in the country and the Hulk Hogan of the state’s regulatory matrix is CEQA, the California Environmental Quality Act. Talk about good intentions gone bad. CEQA was adopted in the early years of the environmental movement. It’s since metastasized into a regulatory vortex that is like a DMV for developers: once you walk inside those doors who knows when you’ll get out (oh, by the way, might as well privatize the DMV in California too, the current one is a hellhole).

Overall, California is due for a top-to-bottom review of its regulatory complex. Gavin should appoint a blue-ribbon commission to do so, with a primary mission of creating runways for the construction of new housing stock. (Pssst . . . Gavin, I have the perfect candidate to lead the effort, a rabble-rousing attorney in Mill Valley, just IM me for the name).

Fix the Tax System So It Doesn’t Implode. California taxes are among the highest in the nation, but the deeper threat to the state is the tax structure itself. California used to derive most of its funding through property taxes, but that all changed with Prop. 13 (also in need of reform, but that’s for another post; it’s complicated). Now the majority of tax revenues come from income taxes (California’s rate is the highest in the country). But here’s the problem: just 1 percent of California taxpayers generate half of personal income tax receipts. In nominal terms, that means just 300,000 taxpayers generate half of all income taxes in a state of almost 35 million people. Better hope they don’t leave.

Another imbalance in the tax structure is the fact that California also taxes investment gains, things like capital gains, partnership income and dividends. These revenues are sensitive to the stock market and the business cycle; as a result California’s income taxes are five times more volatile than personal income. It’s a boom-bust cycle. During the Great Recession, investment income cratered and as a result, California had to issue IOUs and lay off 30,000 teachers, among other responses. Worse, income tax revenue is disproportionately generated by one sector: tech. The San Francisco Bay Area, which has only 20 percent of the state’s population, generates 40 percent of its income taxes because of Silicon Valley. If tech leaves, California could become a failed state. The state’s tax system needs to be restructured to make it more equitable and sustainable.

Desal Cal Now! Here’s the workaround on force majeure that I mentioned earlier. California is enduring a biblical-level drought. Half of the state is a desert and agriculture is one of its leading industries (for now). Oil used to be one of the California’s more valuable resources, but now it’s water. Since Mother Nature won’t cooperate, California needs to intervene through a massive capital investment in desalination plants off the coast, which will generate an inexhaustible supply of water. I know, I know, if we address climate change, California might not have droughts and heat waves, but that’s a long way off. Desalination plants can be up and running in the next 7-10 years and create a lot of jobs in the process. For more detail on the topic see this earlier guest post by a colleague, Richard Rubin.

Resurrect the Central Valley. Stabilizing the water supply will help revive the Central Valley’s agriculture industry, which is in crisis right now. But California should do more by declaring portions of the Central Valley enterprise zones for new manufacturing. It can do so by streamlining regulations, investing in infrastructure and providing tax incentives to attract manufacturing businesses, from chips to solar panels, batteries and cars. In other words, a concerted, collaborative effort to stimulate industrial growth, much like the Singapore economic model. The return of manufacturing to California would revive the middle-class economy and stabilize tax revenues. The Central Valley can lead the way.

Finally, do not, under any circumstances, go out to eat at French Laundry with a bunch of lobbyists during a pandemic without wearing a mask.