Friday, March 21, 2014

Success Metrics In South Carolina And California

I attended the San Francisco Republican Party's annual Lincoln / Reagan Dinner last night.  Governor Nikki Haley of South Carolina spoke about her efforts to improve conditions in her state.  It's appropriate to compare that state to California so we can figure out what we're doing wrong.

The Tax Foundation's 2014 State Business Tax Climate Index shows that South Carolina is #37 and California is #48.  That's a notable difference and it's embarrassing to see California near the bottom.  The top states are those that do without one of several major taxes.  That means even California's Proposition 13 limits on property taxes can't make up for high taxes in other areas.  Tax burden isn't everything in measuring a state's economic health.  Governing's 2013 analysis revealed that the above tax index had little relation to levels of wages or employment.

If taxes don't tell the whole story on a state's competitiveness then we need broader measures.  The Mercatus Center's "Freedom In The 50 States" index ranks South Carolina 15th and California 49th.  Gee, that's a huge difference in personal and economic freedom.  The Cost of Government Center's assessment of each state's contribution to an individual's regulatory burden shows that Californians have to work 20 days longer than South Carolinians each year to be free of regulations.  The invisible tax of regulation matters as much as the formal tax burden.

The US Chamber of Commerce Foundation's Enterprising States project ranks states across a number of economic measures.  California beats South Carolina in Performance and Talent Pipeline, but loses to that smaller state in the other four broad categories.  My state's ranking in the Talent Pipeline sub-categories reveal that we're eating our seed corn.  The state does well in high school AP but poorly in college affordability and degree output.  I expect our most talented high school students to exit California for cheaper colleges elsewhere.  Blame our state's teachers' unions for this likelihood.

One very important measure of a state's ability to manage its affairs is its credit rating for general obligation bonds.  Pew Charitable Trusts tracks the US states' S&P credit ratings in a handy infographic.  South Carolina has been consistently high at AAA or AA+ for over a decade.  California is at the absolute bottom of all of the states.  It is shameful to see developing nations with higher sovereign credit ratings than the US's most populous state.  Compare our state's debt burden to the poor results we obtain in the rankings above to see the extent of our dysfunction.  If our tax burden according to the Tax Foundation is so high, we should have no difficulty repaying our state's debt and earning a higher credit rating.  The persistently high tax burden and low credit rating indicate uncontrolled state spending that is not moving the needle up in the other indexes' very important success metrics.

In fairness to alternative views, Good Jobs First's "Grading Places" 2013 report objects to the findings of the Tax Foundation and other business climate indexes.  I don't think any single index will ever perfectly describe a state's KPIs but we have to start somewhere.  Some states have unique natural resources that confer windfall advantages, like North Dakota's shale boom.  California has abundant natural resources, so we should be experiencing perennial financial windfalls instead of persistent budget deficits.  Our state's problems stem from its people.  California has become home to too many dingbats, bums, and morons.  We elect leaders in Sacramento who reflect those degraded tendencies.  The US federal system of government allows the states to be laboratories for policy innovations.  California's lab experiments need a reset at the ballot box.