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Yet, Another Lesson We Should Learn from California

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By Lowell L. Kalapa
(Released on 1/31/10)

Over the past 30 years observers of state governments across the nation got accustomed to saying, “When California sneezes, the nation catches a cold.” It implies that when California trotted out some new program or some new strategy, the fad would sweep across the nation.

Other states watched California with envy in the post war era of the 1950’s and 1960’s when “Go west, young man,” meant going to the land of milk and honey called California. California was where the jobs were and represented an escape from the dreary urban blight of the big cities back East fraught with slums, crime and corruption. Fleeing to California meant leaving behind the conservative midwest and the eastern establishments. All through the 1960’s and 1970’s, California’s educational system was the paragon of excellence. To graduate from a California public high school was nearly on par with graduating from a select private institution.

California became the land of entrepreneurship, where one could brainstorm a new idea and turn it into a multi-billion dollar company, everything from the latest kiddie toy, like Mattel, to more recently the development of high technology gadgetry and software. However, somewhere along the line the land of opportunity became the land of entitlement.

The right to vocalize one’s opposition to the war in Viet Nam matured into demands for this and that service to be provided by government. After all, California was the land of milk and honey and its citizens came to believe that government that had benefited from the tremendous economic gains should be expected to spread the wealth throughout the population.

As residents saw others in their community increase in wealth, they came to expect those enterprising individuals to “share” more and more of their wealth with the community. And when the values of real estate started to soar in the mid-1970’s as more and more families migrated west to California, those who were long-time residents of the state put a halt to the rising valuation of real property because it threatened to boost their property taxes. Thus, Proposition 13 took hold and California voters chose this approach to hold down the costs to their pocketbooks. The problem with that was Californians had come to expect so much out of their government that they continued to demand more and more services and programs.

The problem with that is that while residents wanted more or the same level of services, they were not willing to pay for those services. As a result, Golden State lawmakers resorted to all sorts of fiscal contortions to raise the necessary revenues to fund the increasing litany of services. For example, California lawmakers earmarked 25 cents per pack of cigarettes to fund education. They came up with a scheme to fund infrastructure in new developments with a fee that is basically a real property tax in disguise as any additional impost of a real property tax would have violated the Proposition 13 ban on increased property tax burdens.

The tax and fee burden has become so intense that businesses are fleeing the state for better business climates in neighboring Nevada and Arizona. The personal income tax rates are so steeply progressive that highly paid executives no longer want to locate in California and as decision-makers these top executives make the decision as to where to locate their business. It is estimated that between 1990 and 2007, 3.4 million more Americans moved from California than those who moved in to California from another state. Thus, like Hawaii, California has experienced a net out-migration of residents.

What should be truly scary for Hawaii residents is that the 50th State is headed down the same slippery slope as California, with a rising tax burden, an increasing maze of government regulations, and plethora of new programs all of which need to be fed with taxpayer dollars. Like California, public policymakers have so muddled the public finance picture that no one truly knows how much public programs are costing taxpayers either at the state or the county level. Because of gimmicks like Proposition 13, those who enjoy the largesse of that initiative believe that they can have more and more services because their property tax bill is so little by comparison to their other expenses.

Here in Hawaii, lawmakers just keep on promising their constituents more because they are unwilling to say “no.” But the time has come to pay the piper. Will lawmakers be able to say “no” or will they resort to the tried and true habits of the past and just raise more taxes and fees? This is a “watershed” year that will determine whether or not Hawaii will sink into oblivion like its sister California.

Lowell L. Kalapa is the president of the Tax Foundation of Hawaii. Mr. Kalapa’s commentary is printed each week in the Maui News, West Hawaii Today, Garden Isle News, and the HawaiiReporter.com.


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