California Update: “Lee Was Wrong”, Jerry Is Right?

>> Jonathan Mavroidis: It's Wednesday, September 20th, 2023, and you are listening to matters of policy and politics at Hoover Institution podcast, devoted to governance and balance of power here in America and around the free world. I'm Jonathan Mavroidis, Senior Product Manager at the Hoover Institution, and I'm sitting in the chair of Bill Whelan, the Virginia Hobbs Carpenter distinguished Policy fellow in journalism.

So that he can answer questions and provide commentary about California policy and politics in which he is well versed. Bill Whelan, in addition to being a Washington Post columnist, writes weekly for Hoover's California on Your Mind web channel. Whelan is joined today by Lee Ohanian, Hoover Institution senior fellow and professor of economics and director of the Ettinger Family Program in macroeconomic research at the University of California, Los Angeles.

Ohanian also writes weekly about the policy environment in the Golden State for California on Your Mind. Good day, gentlemen, let's talk about the latest development in policy and politics in the Golden State. Bill, let's start talking about your column this week for California on Your Mind, in which you describe the state's upcoming bill signing season.

Under California state law, Governor Newsom has 30 days after a bill is passed by the legislature to sign it or said bill becomes law, this year he has until October 14th to act. You explained that there are four types of bills that Governor Newsom must consider. Number 1, those that are the first ever to be enacted in the country.

2, bills that would put Newsom in a rough spot. And number 3, a gag reel, that is, those that add to California's outrageous reputation in the rest of the country. I mentioned three bills, but there's also a fourth category that I mentioned, and that's for Lee to clarify in a moment.

And that is, legislation that would head off political trouble. Bill, can you start off by describing what the governor Newsom must do to navigate this legislative session?

>> Bill Whalen: Yeah, so as you mentioned, Jonathan and Lee, Newsom has until October 14th to act on just hundreds and hundreds of bills sent by the legislature.

Under California law, if he doesn't sign or veto a bill or doesn't act on, it automatically becomes a law. This is a problem on here, when I worked for Pete Wilson back when he was governor, because one of our legislative aides managed to lose. This is back in the print of a day, when everything was on paper, and you get all these folders of bills.

Our alleged aide managed to lose one of the files and we couldn't find it, thought, my God, this bill's gonna become law. So what do we do? So, it literally just, we had to uproot the place to find it. So he asked until October 14th to act, so let's kinda quickly breeze through these categories.

I don't want to get to Lee's thoughts on what I thought was kind of particularly odious backroom deal on one bill. The first of the nation laws, California governors, they just love to flex, as we say in sports. They just love to show off California's pioneering first in the nation status.

There are two bills that I think Newsom is going to sign. One is the, what used to be called the Skittles law, because what it does is it goes after food additives, and candy products dies. And this is a very interesting policy to look at because what California is doing, it's banning additives that have already been approved by the Food and Drug Administration.

So there's a very interesting federal and state issue going on here, and I suspect at some point there'll be a lawsuit in that direction. The second one which he's most certainly going to sign because he's already said he will, and that is a new climate change mandate for businesses.

Businesses in California will now have to report how much carbon they're putting into the sky. And so, Newsom, who just loves to talk climate change will have a victory lap on that. Category number two is what I called bills that put Newsome in kind of a tough spot in which he's trying to weigh the policy merits versus the political implications.

And I looked at two. One is an excise tax on guns and ammos, you would think that Newsom would automatically do this because he does not care for guns. He wants to do a constitutional amendment on gun restrictions. But he also is pretty strong about no new taxes.

And so, if he signs off on this, he's kind of breaking the tax thing. The second one, I'll get Lee's thoughts on this. This would be granting unemployment benefits to striking workers in California. After being out on the picket line for two weeks, they would get unemployment benefits.

And Lee, what would this do to California, in particular, its unemployment insurance fund, which I believe the last time we looked at it, is about $18 billion in the red.

>> Lee Ohanian: Yeah, Bill, we owe the federal government 18 billion, the reason we owe the federal government 18 billion is because we paid out about 32 billion in fraudulent unemployment claims in 2020 under COVID.

When the unemployment department, which runs their business on a 40-year-old mainframe computer that operates with a 70-year-old software called COBOL. Some of our listeners may be old enough to remember what that is. So because of this enormous fraud, we had to take out a loan from the federal government.

We were supposed to repay that but lo and behold, once we started having some budget difficulties this year, Governor Newsom decided he was going to welch on that debt. And when a state welches on a loan from the federal government to cover a shortfall on their unemployment insurance, the state's businesses have to pick up the tab.

So our state businesses now have to pay higher, substantially higher unemployment insurance rates because of the state government's mess up. And they're gonna have to pay those higher unemployment rates for several years until that $18 billion debt is retired, probably it won't be retired for another decade. Now, state lawmakers have decided that those on strike, if the strike lasts for more than two weeks, and I'm gonna pretty much guarantee you strikes are gonna last for more than two weeks.

Going out in California from here to some of the governor signs that law that they get unemployment insurance. And the simple economics is that this is just a terrible public policy. Unemployment insurance is supposed to be exactly that, supposed to be insurance for a person who through no fault of their own, loses their job, recessions happen, people lose their jobs.

Businesses decide to change their business plan, people lose their jobs because that. People might lose their jobs for all sorts of reasons other than performance issues. And when a person loses their job for anything other than a performance issue, then they're typically eligible for unemployment insurance. It's a safety net program, it wasn't intended for people who thought, you know what, I think I should be getting paid more or I should get another day off per week, or whatever.

I'm unhappy with my unemployment situation, I think I'll go on strike. Unemployment insurance is not intended for that. This is a safety net program, this is not safety net, and it's really, it's very silly. And it's gonna raise costs even more to California businesses, making us even less competitive as state.

 

>> Bill Whalen: Right, now, the reason why I said this is a tough spot, is twofold. 1, as Lee alluded to, this is fiscal insanity, plain and simple, if you're going to do this to the unemployment insurance fund. But secondly, Newsom has done his best, I mean, Newsom at all points wants to make labor happy in California.

It's an underpinning of the democratic existence. But at the same time, California's governor is doing his best not to take sides in the Hollywood strike right now. He does not wanna come down as too pro writers and actors, ie, pro labor. Because if he does so, then he alienates a lot of studio executives on the west side of Los Angeles, who happen to give a lot of money to Democrats.

So he's trying to have it both ways. And if he signs this bill, this is a pretty strong signal that he sympathizes. In fact, he gave an interview with Politico the other day, and I don't have the exact quote in front of me. It is just the most dizzying word salad you've ever read in terms of him trying to say he's not taking sides, but he understands what the writers are going through.

And he spends about five minutes kinda sympathizing with what they're doing. At the end of the day, he says, but I don't have an official position, so that's why it's a tough spot. And then, Jonathan, the third category here, gag reel. And what I'm looking at in particular is a bill that would legalize magic mushrooms, psilocybins, in California.

Now, this is a serious issue, with some people, in particular, veterans who claim that they use psilocybins. Mushrooms to help ease their stress, their PTSD. And it's kind of reminiscent, Lee and Jonathan, of how the marijuana legalization argument took shape. And that for years, one of the strongest proponents of legalizing was the elderly population who said that marijuana helped with glaucoma.

So we have veterans who are influencing law enforcement, obviously, does not care for this because this is just one more form of people in California getting intoxicated, which can only lead to bad things behind the wheel. But I put this in the gag real category, plain and simple.

If the rider strike ever ends and we go back to late night television and monologues by comedians, just imagine the jokes about California shrooming. So it writes itself and then that takes us into the fourth category and I'm going to hand this over to Lee. And this is the question of backroom deals and head kind of passing bills to head off political trouble at the pass.

And Lee, that takes us to this year's assembly, Bill 1228 which was a deal between restaurants and unions over the issue of what to do about fast food in California. Lee, explain to me what happened here.

>> Lee Ohanian: Well, so let's go back in time, a year or two and a bill was passed that would enormously regulate fast food restaurants in California.

This included a politically appointed fast food restaurant management board that would have, say, over virtually all aspects of labor relations within the fast food industry. It would set wages, it would set working conditions. It basically would have the power to define all aspects of the connection and characteristics, the relationship between a fast food owner and his or her workers.

And this was I think such an egregious power grab and it was all in the name of trying to get fast food restaurants to get unionized. Because Kelsa Pries, if you engaged in collective bargaining, then that fast food, that fast food political board would no longer have any say.

It would all be about collective bargaining. Fast food restaurants got together, they put together enough money to get a referendum. The referendum was passed, and the bill was put on hold. What happened now is that a new bill comes along, 1228, that gets passed the assembly and the Senate, purely along party line votes.

And this was about fast food restaurants essentially caving to a deal that would raise the minimum wage in fast food restaurants to $20 per hour, it would maintain this politically appointed board. Although the composition of that board would be a little bit different, it would be a little bit friendlier to those in the fast running fast food restaurants, but it would no longer give the board the ability to regulate all those other aspects of how a business relates to its workers.

So Bill, you're absolutely right, it was a backroom deal. It was meant to, I think fast food restaurants see the writing on the wall. This is simply not a friendly state for businesses. It was going to be a very expensive fight for them. I think they knew that wages would be going up.

So I think they saw this as not as a win-win, but as an avoidance of a potentially very big loss. So what's gonna happen is minimum wages and fast food restaurants go up to $20 an hour unless you're Panera Bread. Bill, Panera Bread does not qualify under this law.

And other fast food restaurants that have a, quote, significant, unquote, bakery operation are also exempt from this law. Just like AB 5 which was passed a few years ago that I thought was a terrible, terrible law which essentially makes it illegal for a person who works as an independent contractor unless you're an exempt category.

Architects weren't an exempt category, landscape architects weren't. And again, if a restaurant agrees to get into a collective bargaining arrangement and lets their workers agrees to have their workers unionized, then AB 1228 no longer applies to you. And Bill, what really gets me is that when 257, when the original overarching big brother, we're gonna run your business for you when it comes to all your labor relations.

When that original bill came out, I think it was Scott Wiener and I can't recall the other Democrats who authored the bill. They said, this is all about work. Yes, it's about, we want to make sure they get paid a living wage, but we're hearing terrible stories about working conditions and worker safety.

Well, California is up to the hilt in worker safety legislation. It was never about worker safety. And the new bill, AB 1228, that new bill takes out all that language about worker safety and work conditions. State legislatures were happy to ditch that in a New York second, it was never about any of that.

This was all about a payoff to unions.

>> Jonathan Mavroidis: Right, so they got their $20 minimum wage. But Lee, I see a trend here. So you mentioned AB 5. AB 5, simplest explanation. AB 5 would require rideshare companies in California to treat independent contractors drivers as employees. So Lyft, Uber got together and they pulled enormous resources and fought that thing at the ballot.

Here you have now the fast food industry. I think, Lee, they raised something like $100 million lickety split. Lee's threatened to spend $100 million and they collected a million signatures, it seemed like overnight. So they came to play, but this seems to be problematic in this regard. Lee, how many special interests in California have $100 million to toss around an initiative battle?

How many can go out and get a million signatures really fast? In other words, for all the things that go through the legislature, there are only a handful of industries in California they can push back. So congratulations, fast food industry. You got a compromise. Congratulations, rideshares, you fought 85 at the ballot, but there are a lot of interest in California.

Lee, they're not gonna be able to play this game.

>> Lee Ohanian: Yeah, it's really an insidious death blow to small businesses. Because if you're not big enough to play ball, then you're just gonna get steamrolled by California state government, potentially by local government. And most businesses simply don't have that kind of money, as you point out, Bill.

Yeah, they were able to put together $100 million war chest. Who can do that? Not many industries can do that, much less small businesses. And Bill, what's ironic here is that this is a victory for some politicians, particularly those who get enormous support from unions. But Bill, in the fast food industry, employment is not close to being back to what it was before the pandemic.

We are about 20,000 jobs shy of pandemic level employment in that industry. So we're to those 20,000 jobs go, this is an industry, this automating like nobody's business. Exactly, artificial intelligence robots are taking over jobs. And the more expensive one makes workers either through minimum wages or by tacking on implicit taxes of compliance, dealing with unions, dealing with a politically appointed board.

It makes workers more expensive. And as AI and technology and robots get less and less expensive and get better and better and better, those jobs are simply going to go away. And again, ironically, Bill, when you look at fast food, the fast food industry turnover is incredibly high.

I mean, the big problem that fast food restaurants have is keeping their workers. They wanna keep their workers. 78% of fast food restaurant operators in a survey said that recruiting and retaining workers is a top priority because for the average restaurant in the fast food industry, they have 143% turnover within a year.

They do not need another nanny tax that makes it even more expensive to deal with workers. So we're just gonna see fewer and fewer people working in those restaurants and more and more machines.

>> Jonathan Mavroidis: Bill, let's talk about your upcoming column, which will be released next week on September 27th, the same day when GOP presidential hopefuls will take the stage at the Ronald Reagan Presidential Library in Simi Valley.

As you write in the column, the location of the debate can prompt you to ponder, how did California, once a bastion of Reagan conservatism, depart from the Republican Party? Bill, what exactly created this drift over the past few decades? And can you also describe what issues the candidate should address regarding California?

Although it is not a state, any of them will win against a Democratic opponent, still, in many ways, as California goes, so does the rest of the country.

>> Bill Whalen: Yeah, it'll be an interesting debate. So it's June 27th, excuse me, September 27th at the Reagan Library. So there'll be Ronald Reagan as a backdrop.

President Trump is not expected to participate. He has some harsh feelings towards some people who run the Reagan Library. Plus also, this is being run, I think, by the Fox Business Network, and he has his feud with Fox going on as well. He will, ironically, actually be in Anaheim two days later at the state party convention, which we should discuss as well, plain and simple.

What my column went into was looking at Reagan as a California governor. To those who aren't familiar with Ronald Reagan's life story, he was a two term governor from 1967 to 1975, and then 1980 gets elected president. And if you look at his record as governor, he does a few things that would not fly in today's Republican Party in this age of litmus test.

Reagan raised taxes as governor because he walked into a messy budget. He faced a big deficit. He raised taxes to fix the deficit. So in today's Republican parlance, would he not be sufficiently conservative for raising taxes? Ronald Reagan signed the bill legalizing abortion or expanding abortion services in California.

So would he be dead on arrival with conservatives for doing that? But abortion is a complicated topic, we should talk about that as well. But the question really that, and then also the question about will Republicans go along with the Reagan 11th command line, if you will. But this is all against the backdrop of how California has just become no man's land for Republicans.

George HW Bush, the last Republican to carry California presidential election, he did it by rather scant 3%. So it was hardly a mandate. Since then, it's become blue territory. So the problem here for Republicans, the question is, where do Republicans go adrift? And some people will say, well, California's a pro choice state, so it's abortion.

Some people will say, well, wait a second. It was the immigration issue started by my former boss, Pete Wilson, that alienated Latin and that caused the problem. I think it's a compendium of issues. Yes, there has been a problem with Latino voters, and yes, there's been a problem with women voters, not just on abortion, but just kind of general Demeter Trump being the explainer of that.

But I think the bigger problem here, Lee and Jonathan, I'd like to get Lee's thoughts on this as well. It's what I call the avatar problem with Republicans. If you walk into a local Democratic office in California, up on that wall is gonna be a picture of Gavin Newsom.

There's gonna be a picture of Joe Biden. There might be a picture of Kamala Harris. It might be a picture of Barack Obama. There might be a picture of the two Kennedy brothers, for all you know, maybe even Cesar Chavez. You go into a Republican office in California unless you're lucky enough to have a Republican local official who's elected, whose portrait goes up on the wall.

George, Donald Trump had a problematic relationship with California, and that's being generous. He had the worst performances in California since Alf Landon back in the 1930s. George W Bush did not really play to win in California as well. So no connection there. You're going back to Ronald Reagan, probably.

And the problem is Ronald Reagan was last on the ballot in California, 1984. So you're talking about people who are at least 18 years of age, so now they are fast approaching senior citizen status. So it's the avatar problem, plain and simple. If you're a Californian and you're kind of looking to relate to the national Republican Party, to whom do you connect?

You connect to Kevin McCarthy. Well, Kevin McCarthy is a product of Bakersfield, California, as Lee can attest. Bakersfield ate Santa Barbara, necessarily. So it's how do the Republicans turn things around in California? And I think it begins playing as simple, Lee and Jonathan, with finding a national candidate to whom they can relate to.

And so watch that debate on the 27th and see if any of those people on the stage you think would play in California. Lee, what do you think?

>> Lee Ohanian: Well, it's interesting. Republicans still like to channel Ronald Reagan, but I think that's gonna become rarer and rarer over time.

As you noted, Reagan raised taxes. He raised them twice. I think he had a very strong set of core principles. But he made decisions and signed bills that he didn't necessarily agree with, but he did it because he thought it was the right thing for the country. And it's interesting, we talked before how he would do deals with Tip O'Neill.

And Tip O'Neill's son wrote a book, it might be about ten years ago now, about the relationship between Reagan and Thomas O'Neill's dad, Tip O'Neill. And it was called frenemies the love story. And what he described in that book is that they deplored each other's political philosophies and they all, but what they deplored even more was political polarization and partisan politics that wouldn't let the country move forward.

And so they forged a commitment to make deals and get things done, even though there was compromise involved. And now compromise has become a dirty word in politics. In the first Republican debate, Mike Pence chastised. It was the issue about what's incredibly difficult for many reasons, topic of abortion.

Pence chastised Nikki Haley, who as Republican candidates were falling all over themselves to say who was more pro life than the other. Pence chastised Haley for saying, this is an issue where we have to have some reasonable compromise. And Pence said, well, compromise is not leadership. Tell that to Ronald Reagan.

Reagan was one of the most popular presidents in American history. I believe in the 84 election, I believe he won something like 500 plus electoral votes. I mean, it was just complete. I think you have to go back to Alf Landon to get a landslide like that.

>> Bill Whalen: 49 to 50.

It's him and Nixon, FDR on 36, that's kind of the gold standard of landslides.

>> Lee Ohanian: Yeah, and in this book that Tip O'Neill sun wrote, O'Neill was his dad. Tip O'Neil los quote is saying, I've never known any American who is nearly as popular as you and Reagan mentioned.

I connect with people, I try to form consensus, I have a set of core principles. I explain those. But I always try to do what I think is right for the country. And we know, in my opinion, we no longer have that on either side. And just personally speaking, I was somewhat disappointed in that first debate.

I've spoken a bit through Hoover with Asa Hutchinson. I think he's a terrific old school politician. He's polling, what, one half, 1%, one quarter of 1%. I met Tim Scott once when I was testifying to the Senate. He's an impressive individual. But we're not, those two men are not moving the needle.

And we've talked many times about the concerns we have about California politics and the need for political competition. And I think everybody in the state, no matter where you are politically should be desiring political competition. We don't have it now. We're not gonna get it tomorrow and I really worry we're not gonna get it anytime soon.

 

>> Bill Whalen: Let's stick with abortion for a second. Pete Wilson was reelected governor of California in 1994. He won by about 15 points, a landslide. He actually captured a majority of the women's vote in that election. He defeated Kathleen Brown, who was the state treasurer at the time. Jerry Brown's sister, Dan Lodgen comes along four years later.

He is a very devout Catholic, went to Notre Dame and he says upfront that abortion is a central part of his campaign. He loses that race by about 20 points to Gray Davis gets crushed among women and I went and looked at the exit polls and did the math, about a million women changed sides in that election.

They went from voting from Republican to a Democrat. And with the exception of Arnold Schwarzenegger running for reelection in 2006, Arnold, by the way, pro-choice like Pete Wilson, Washington women have walked away. So how to get them back in California is the question, and here's why. Abortion is germane to what's going on with Republicans right now.

Donald Trump did something really interesting the other day. He is so confident where he stands in the primaries right now that he's already in general election mode and he's triangulating and he's triangulating in particular on the topic of abortion. And he went after Ron DeSantis, very hard on DeSantis doing the six week restriction in Florida, and said that he's more open to something like a 15 week restriction zone.

And then a very Trumpian fashion said, I'll sit everybody down and we'll have a beautiful compromise, blah, blah, blah. Just like he said, he fixed the Ukraine war in one day. It's classic Trump wishful thinking. But the point is that Donald Trump is doing something that was considered heresy and that he's willing to be much more flexible on abortion than Republicans have been the past.

Now the backdrop for this, the reason why I'm droning on about this is because at this Republican convention at Anaheim which is two days after the presidential debate at the Reagan Library, there's going to be a conversation. We'll probably turn to an argument over the republican platform in California.

I particular, there is a sentiment that they need to change the abortion language and basically takeaway their blanket opposition to abortion. This is a big move for California Republicans. Wouldn't it be interesting if Trump came to Anaheim? He scheduled to speech speak at Anaheim and he talked to the party in very real politic terms about takes to win a national election in California and talked about being a little more open on this topic or not, but here's the problem.

You know that Trump is gonna be Trump at that convention and he's gonna go off about him being persecuted. He's gonna go off about Joe Biden and then the conversation is probably gonna descend in a lot of issues that are problematic for California Republicans. Talk about Biden impeachment, talk about government shut downs and so forth.

This gets back, Jonathan, your ritual question about the Republican struggle in California. There are 18 congressional districts in 2020 that voted for Joe Biden, but also elected a republican member of Congress. Five of them happen to be in southern parts of California and issues like impeachment, issues like the government shutdown.

Maybe even Hunter Biden to a lesser extent though, I haven't seen polling on that lately. This is just not germane to what people wanna see their member of Congress doing. People have pocketbook concerns right now. They don't wanna get off on things like impeachment. So for the Republicans, either in Anaheim and moving forward into the election cycle, what's gonna be the message?

Are they gonna be much more practical on the economic front or are they going to be much more interested in the red meat issues, which makes it very easy for Democrats in California to betray them as wild eyed out of control? Lee, we'll see if it's a teachable moment or not.

 

>> Lee Ohanian: Yeah, Bill, if Trump is there as he would often does, he'll suck the oxygen out of the room and it's going to all be about him. But on the other hand, Republicans at the national level can choose to be relevant. And if they back off just the hard line, the line in the sand issue about abortion, I suspect they could probably pick up five or six points.

Because when you look at voter demographics between men and women and those who are married and not married, Republicans are either leading as they are with married men or are competitive with Democrats as they are with married women and unmarried men. But Bill, they are just overwhelmed in the unmarried woman demographic.

If there's a litmus test, then people aren't going to even listen to you about issues, such as the economy and the deficit and expanding job creation and all the other issues that politicians need to be so worried about because issues need to be so worried about. It's really up to Republicans at the national level whether they wanna be relevant or not.

And in California, I think the first step to relevance is moving back from that line to sand about abortion and this isn't about all the cultural and social and religious issues going to that. It's just about do you wanna be relevant? Do you wanna have a chance to win or not?

I see it just as simple as that.

>> Bill Whalen: Yeah, final thought that we'll move on to the next topic. For as much as California is not germane to the presidential election, because look, a Democrat could probably die two weeks before the election still carry California, plain and simple.

It is the epicenter for the next congressional battle. Because as I mentioned, those five seats that voted for Biden in 2020, I think it takes what only four or five seats for the Democrats to flip the House. So a lot of money is gonna be funneled into California.

Lee and Jonathan, Nancy Pelosi saying that she's running for yet another term at age 83, why? Because she wants to raise money to help flip the house. I found that kind of sad, personally. But that's another story, I guess for another day. Anyway, it's gonna be good to be a local TV station in those districts in California come 2024 because there'll be a lot of advertising against the incumbents.

So we'll see. But again, I think the convention is kind of a good litmus test as to how California is gonna prepare for 2024.

>> Jonathan Mavroidis: Bill, in your show notes for today, you utter words that are very rarely said and that is Lee was wrong. You're referring to his September 1st California on your mind column in which he said, every major policy error I have observed has become worse in the last five years including budget waste.

The failure of politicians to prioritize what Californians want, the lack of oversight and accountability within state and local government and a deepening of the costly symbiosis between state politicians and the political interest groups who lie at the center of nearly all of California's policy failures. And this nexus will preserve California's deeply flawed policy status quo until voters decide that they have had enough.

Bill, how could Lee be possibly wrong about any of this?

>> Bill Whalen: I want the author to tell us this. I mean, was the author having a bad day? Would he add? Did he have a toothache? Was he grumpy? What was going on here? Lee, really, every major policy error observed has become worse in the last five years.

Say it ain't so, Joe.

>> Lee Ohanian: No, I'm afraid the fix was in with Shoeless Joe Jackson. Yeah, so Bill, we started right in this column five years ago last month and when you and I discussed how we could contribute to hopefully elevating the policy discussion within the state.

As an economist, I pay a lot of attention to economic policies, national and state. I simply had no idea just how bad it was in California despite being an economist and despite and despite living in this state, the amount of government waste, the amount of political mismatch. Management that I found out about over the last five years is simply mind-boggling.

And when I wrote, every major policy I've observed became worse. Yes, I wish that wasn't true, but it has. So to begin with, we have a state budget that now exceeds $300 billion. That's over $24,000 per household. That should be delivering an awful lot of state government goods and services to people.

 

>> Bill Whalen: See Lee, I came into California government in 1994. The state budget that year, it was in the 40, maybe $50 billion now. I know inflation, blah, blah, blah, but still 50 billion then, that's 300 billion now.

>> Lee Ohanian: Yeah, so Bill, was that 94?

>> Bill Whalen: 94, right?

>> Lee Ohanian: Okay, so in roughly 30 years, the budget has expanded by a factor of nearly eight within the state.

How much economic growth has there been? So to deal with the issue of inflation, maybe a factor of three, we have a factor of eight versus a factor three. And bill, the largest increases have been just in the last couple of years. The budget was 200 billion just five years ago.

So we've expanded the budget by 50% in just five years. And I often ask people, and if any of you out there have a, have an example of how anything has gotten better, please send me an email. I'd love to have it. It will make me less depressed about the state than I am now.

And I don't think I could be even more depressed, but I need to be less depressed. I've looked into that budget and what you see is just amazing mismanagement. So we can begin with state worker compensation. The numbers haven't reported, been reported for a couple of years, but in 2019, so before COVID average state worker compensation, which includes benefits, was $143,000 per worker.

In 2019, among state government workers, that's more than twice as high as private sector workers. And that 100% pay gap, compensation gap is too low because public sector pension contributions are understated, pre-funding of retirement health benefits are included. There's other issues that go into making that calculation that would suggest indicate is even higher than 100% GAAP.

As I mentioned, the numbers haven't been done in a couple of years, but that compensation today is probably close to 160,000. And so when you ask yourself, well, what is it? What is it about public workers that they're getting paid over twice as much as private sector workers?

Simply the fact unions, over half of state government workers are unionized. Take the California highway Patrol, for example. Average compensation in the CHP which bill requires the requirements is a low bar, no felony convictions, valid driver's license, and you graduated from high school or you have GED. And those are the qualifications.

Average compensation is $209,000 per year. Now, bill, to provide a little context for that, I looked at the national level. Among average compensation in all industries, the highest compensating industry in the country is public utilities. They have an awful lot of highly skilled people, including engineers, $128,000. So the highest paying private sector industry is still only 60% of that in the public sector.

It's not just overpaying public workers, and that's not to say that public workers shouldn't be treated fairly. But there's no benchmarking of compensation within the public sector to the private sector, no meaningful benchmarking. And then you say, we got all this high priced help here. Are we giving them the tools to do their job correctly?

Well, we spoke a few minutes ago about the employment development department who runs a 40 year old mainframe computer with 70 year old software, and they just burned up over $30 billion in fraudulent unemployment claims.

>> Bill Whalen: Lee, let me add one little nugget here, which may actually turn into a Leo Haney and Colin, but will probably further convince you that how bad things are.

Among the bills sitting on Governor NeWsom desk right now, we don't get to this in the first segment is assembly bill one. So one is an important number. It is the first one out of the shoot, and it expresses what is the urgency, what is the priority for the assembly?

AB one would propose the following. Ab one, Jonathan, would allow legislative staff in the state capitol to form a government employee union. That means that the state employees who write and edit thousands of pieces of legislation every year and provide advice to elected leaders about those bills would become a special interest with businesses before the state.

And there is a very ugly political side to this too. The only reason really for AB1 is to turn legislative staff into a political force that could work to defeat legislators, even a legislative staffer's own boss, who could then turn around and then advance the hundreds of bills sponsored every year by labor unions.

So, Lee, if you ask how we make matters worse, plain and simple, sign that bill, you're now unionizing. You're now unionizing legislative aids.

>> Lee Ohanian: Yeah, unionizing legislative aids. So again, let's go back to the theme of has anything gotten better in California in the last five years? I keep looking.

I keep saying no. We now spend $128 billion on public K through 12, that exceeds the entire state budgets of every state except New York and Texas. If you put together Ohio, Tennessee and Pennsylvania, you come up with about 35 million people, which is close to California's population, 39 million.

Our state budget still exceeds the combined budgets of those states that have nearly our population. You would think we should have world class education for spending that, spending that much money. Only 25% of our kids are proficient at national education standards, just 25%. And if again, if you look at, if you look minorities such as African American kids, only about 12%, 12% are proficient national standards.

And I concluded the column talking about, well, why don't things get better? Is because there's simply not enough pressure on state politicians. Republican Party has dug themselves in a hole where they're relevant in the state, there's no competition. Relatively few Democrats face any threat from the Republicans. And when I talk about sort of the political cozy nexus between politicians and their supporters, you mentioned Nancy Pelosi.

A lot of the people who are supporting Nancy Pelosi, extremely wealthy people, they send their kids to private schools. They don't have to worry about underperforming, safe schools, they don't worry about $6.50 gasoline. I was driving to my office at UCLA the other day and I go past the Chevron station and the 89 octane is at 6.56.99 and premium is at 669.

They can afford that level of gas, but they're probably driving an ev. These issues just don't resonate at all with the supporters of state politicians. And then you have teachers unions and other self interest groups that simply will fight any reform tooth and nail. Even if it means modestly giving up some of the protections, they have for horribly performing teachers.

Most teachers are good. Most teachers are very effective, but there are some he bottom 10% are not doing a good job. They tend to be in schools that are heavily Hispanic or heavily black, and those kids are suffering mildly. So until voters decide differently, we're just gonna continue down that road and I tried to close with a bit of optimism on this column.

I said, I hope when we do our next five-year retrospective that all right. Voters did just that. I didn't say I don't see a path from here to there, but that doesn't mean one can't emerge.

>> Bill Whalen: So the light at the end of the tunnel question, I'm glad you raised that.

So I had a pretty interesting Friday. My Friday included going up to San Francisco and having lunch at Balboa Cafe, which is part of the Gavin Newsom restaurant empire in the San Francisco Bay Area. So I had kind of a little bit of a Newsom encounter. He wasn't there, but just I was in Newsome land.

And then I came back to the Hoover institution that afternoon for a conference on federalism that was arranged by the very esteemed doctor Michael Boskin. And I made a point to go to that conference that afternoon, Lee and Jonathan, because one of the participants was none other than Jerry Brown.

Former governor Jerry Brown. The Cincinnatus of California politics is seen as kind of virtue of public service, like Cincinnati, comes out of retirement to go back into public service, and runs for governor in 2010, serves for two terms. A friend of mine actually calls him Geraldus Maximus, because he is just kind of very large figure in California politics.

I was a little disappointed, to be honest, because I thought he's gonna be there in person. I wanted to see him in person. A very funny aside is that we had him on a hookup and the hookup went down. Governor Brown lives up in Calusa county, which is a remote part of northern California.

And I don't know if this is a testament to wi fi quality or the need to further advance economic development, those parts, but he could not get a connection to get to us for about ten minutes. It was rather, here we are in California, storing the technology. But the point of this is that Jerry Brown spoke for about 30 minutes on what was going on in the state, and he spoke about some state federal balances.

But at the end of it, he was asked about what it's gonna take to fix California. And Lee and Jonathan, let me give you three things, three notes that I took down here. First thing Jerry said was, things won't change in Sacramento until they're more middle of the road legislators.

Correct, the so called mod squad of Democrats who kind of reign in the party when it comes especially to economic matters in California. His second point was that California needs less emotion and more beliefs when it comes to policymaking. In his estimation, just too many conversations, too many arguments in the state Capitol or just about raw emotion.

People just aren't thinking through the merits of what it is they're talking about. And then he was actually optimistic, and he said that one day, and here's his exact quote, reasonable people will rise to the occasion. Lee and Jonathan, this caught my interest in this regard. He didn't elaborate who the reasonable people are.

So I'd be curious as to who these reasonable people are. Would it mean a different breed of legislation coming in? Would it mean more recall elections, the public holding voters more accountable? Would it mean another prop 13, grassroots like revolt against the status quo? The one thing that he didn't talk about, and if I had the nerve, I might have asked him this, he left the governor out of the conversation.

And this is one of the problems, plain and simple. And yes, I know we've dogpile on Gavin Newsom a lot in this podcast, but I'm going take one more shot at him here in this regard. Jerry Brown famously said, lee and Jonathan, that his philosophy to governing was what, paddle left, paddle right.

The canoe theory of politics. You paddled one direction, you paddle in the other direction ultimately, you stay in the mainstream. This is not the case right now in California. You have a governor who's very behold to his party's special interest. And in terms of moderation, in terms of kind of a more accessible policy approach, Lee, it ain't going to happen until we return to the days of paddle left to paddle right.

 

>> Lee Ohanian: Yeah, Bill, it's interesting about Bran, so I joined that conference remotely, and I really enjoyed hearing former governor's remarks. He's prickly. He changes his mind often and sometimes substantially, but he's realistic. He's an old school politician. I suspect he would do deals with Ronald Reagan if that was the environment.

I suspect he would do deals with Republicans because he understood that the point of being a politician is to get things done. And he understand that things either don't get done now in California, or if they get done, they're making matters worse for almost everyone. Bill, I never thought I would say, my God, I really wish Jerry Brown was back in office.

But Bill, my God, I really wish Jerry Brown was back in office. And as you mentioned, the 800 pound gorilla in that conversation he had with that conference was the failure to talk about Gavin Newsom. And I think the omission of that discussion was about as big as anything he might be able to say.

Newsom is part of the problem when Brown talks about, we don't need emotion. We need to have sensible policy options, and we'll try to find one that works best. That's not Gavin Newsom right now. Newsom is all about bluster. He's all about emotion. He's more likely to rant about Abbott or DeSantis than he is to go to his democratic colleagues and say, what are we gonna do about homelessness?

That makes some sense because we spent over $20 billion in the last five years and homeless has gone up by 50,000 people. Let's sit down and figure this out, but that's not Gammon. Gammon owns a lot of this political success to two Browns, Jerry Brown and Willie Brown.

I can't imagine that either one of those Browns is looking on Newsom's performance right now with all that much favor. So I think Brown was absolutely right and, Bill, when you say, where are those, what did he call them? Reasonable people. Yeah, the reasonable vacation.

>> Bill Whalen: Yeah. But he didn't say who the reasonable people are.

I assume he was mentioning lawmakers. But you could also say that's voters.

>> Lee Ohanian: Yeah, but I don't think he knew, I don't think he had thought that through. And so those reasonable people are gonna have to be voters. And what reasonable people means is that more voters are going to have to get better connected with why the failures in California are 99.9% policy related.

They don't have to do with Trump. They don't have to do with Republican visions about abortion or immigration. They have to do with common sense issues. And until we can get 40% of those voting to connect with that, it's gonna be business as usual in California and not business as usual.

Former governor Brown would like to see it.

>> Bill Whalen: Now, lest anyone think that we're beatifying Jerry Brown, he too had his shortcomings as a California governor. He supported a so called temporary increase in taxes in California that was supposed to go away after four years. And then guess what?

He purposely Stayed out of it when lawmakers decided they really liked the higher taxes and wanted to stick with them. They did another ballot measure to continue it. The governor stayed out of the ballot fight whatsoever when he could have easily stood up and said, I said four years ago this was temporary and by God, I mean it.

No, he went along with it. Secondly is, under Jerry Brown's watch, the California loosened up its parole standards. And so that's partially responsible for the crime wave we've seen, the nickel and dime property thefts and so forth where people get out early. So he wears that as well.

Final note on Jerry Brown, though. If we're going to go along with superannuated politicians and keep reelecting people in their 80s and 90s, Jerry Brown will be a tender 88 come 2026. So why not do it again? Although I think you'd have to change the term limits law to do it, but hey.

Desperate times call for desperate actions, right?

>> Lee Ohanian: Jerry 3.0?

>> Bill Whalen: There you go.

>> Lee Ohanian: 76 2012 and 2026. Yeah. Yeah, and Bill, yes, he made some good decisions regarding pension reform. He wanted to do more, he couldn't get the state legislature to go along with it. He couldn't get the legislature to go along with CEQA reforms.

I don't know, if he had pushed a lot harder, maybe he could have gotten more done there. Regarding the extension of the 13.3% income tax, that was egregious. At one time, I recall him saying this was meant to be a surtax, this was not meant to be permanent.

But when push came to shove as we got closer to November, yes, he was very, very much silent on that. So that definitely, in my opinion, goes in the negative box for him.

>> Bill Whalen: So, Jonathan, I don't know if your friends at the Nixon Library have the copyright on the market on the Nixon tan, rested, and ready t-shirts, but maybe we need to print up a few for Jerry Brown.

 

>> Jonathan Mavroidis: Actually, I think they, I think they have that in the museum store gift shop, if I recall. I think they have a bumper sticker as well and a few other items.

>> Bill Whalen: There you go.

>> Jonathan Mavroidis: Gentlemen, this has been a very interesting and timely analysis, thank you for your time.

 

>> Bill Whalen: Thank you, Lee and Jonathan.

>> Lee Ohanian: Thanks, guys, always good to see you fellows.

>> Jonathan Mavroidis: You've been listening to Matters of Policy and Politics, the Hoover Institute podcast devoted to governance and balance of power here in America and around the free world. Please don't forget to rate, review, and subscribe to this podcast wherever you might hear it.

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Please visit the Hoover website@hoover.org and sign up for the Hoover Daily Report where you can access the latest scholarship and analysis from our fellows. Also, check out California on Your Mind, where Bill Whalen and Lee Ohanian write every week. Again, this is Jonathan Movroydis, sitting in Bill Whalen's chair this week.

He'll be back for another episode of matters of policy and politics. Thank you for listening.

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