Nov 21, 2014, 1:09 PM ETPanel

The High Cost of the California Dream

The panel, hosted by Matt Miller at the Milken Institute, addresses the "high cost of the California Dream" amidst stagnating wages and rising costs of living.
Key data points indicate that median household income in California has been flat for the last 20 years, while home prices, healthcare costs, and in-state tuition have risen 3x, 8x, and 8x respectively.
A 2020 report cited suggests nearly 40% of Angelenos are unemployed, living in poverty, or near poverty, a rate higher than other major U.S. cities.
A recently reported 5% annual tuition hike for the University of California system over the next five years will bring the all-in cost (tuition, room, and board) to over $30,000 per year.

Wage vs. Cost Gap: Wages for large segments of the workforce are stagnating or declining while the cost of key middle-class components (housing, health care, education, transportation) rises faster than incomes.
Affordability Crisis: The income required to qualify for a median home in California has reached $93,000, a figure that has effectively doubled affordability constraints compared to 2012 levels.
Homeownership Decline: California's homeownership rate is falling to approximately 54-55%, risking the state becoming a majority renter state, which threatens the aspirational "California Dream."
Competitiveness: The state is shifting from growing at twice the national average to lagging, with talent and businesses relocating to states like Texas due to cost structures.

Regulatory Barriers: Joel Singer and Antonio Villaraigosa identify "NIMBYism" (Not In My Backyard) and outdated zoning as primary obstacles, noting California's general plans have not been updated since the 1940s.
Permitting Costs: In coastal California, upfront fees for housing permits can equal the cost of a fully built, tracked home in Austin, Texas.
Density Requirements: Panelists agree that "elegant density" and smart planning are necessary solutions, specifically advocating for density bonuses (increased height, reduced parking) in exchange for affordable housing set-asides (e.g., 20%) near transit lines.
Rental Sector: The rental market is described as the "Achilles heel" of the California economy, with affordability issues significantly worse than the homeownership market.
Reform Proposal: Joel Singer argues that eliminating redevelopment agencies removed a critical tool for tax-increment financing, suggesting a reformed version is needed to fund affordable housing without draining general funds.

Minimum Wage Push: Roxana Tynan and Antonio Villaraigosa advocate for a citywide minimum wage increase, citing potential benefits of lifting 600,000 workers out of poverty and stimulating the local economy.
Union Support: There is noted support for higher minimums from business leaders like Rick Caruso and Eli Broad, with data from San Jose suggesting restaurant sectors can grow despite higher wage mandates.
Micro-Equity Funding: Rudy Espinoza (LEARN) proposes shifting from traditional micro-loans to micro-equity investments (providing $5,000–$10,000 for a minority stake) to support neighborhood entrepreneurs who cannot access bank loans.
Street Vending: The panel supports legalizing street vending via a permit system, noting Los Angeles is an outlier for its current ban, which mirrors conditions that sparked uprisings in the Middle East.
Service Sector Strategy: Roxana Tynan argues that in-person service jobs (hospitality, retail) should be elevated to middle-class jobs through a "grand bargain" involving higher wages, earned income tax credits, and adjusted consumer pricing.

Pension Reform: Antonio Villaraigosa highlights the unsustainable growth of pension costs, noting that the share of revenue spent on retiree benefits has risen from 10 cents to 24 cents per dollar of revenue.
Structural Changes: He proposes raising the retirement age from 55 to 65 and reducing defined benefit payouts (e.g., from 100% after 33 years to 75%) to free up capital for youth investment.
Court Ruling: A recent court ruling overturned city pension reforms, which Villaraigosa attributes to a change in the composition of the employee relations board to be purely pro-employee, creating a conflict of interest.
Fiscal Offsets: The panel suggests that progressive tax changes (e.g., higher income tax offsets) or property tax adjustments are necessary to fund investments in schools, infrastructure, and childcare without bankrupting the state.
School Reform: Villaraigosa emphasizes that the current 72% graduation rate is insufficient; the goal must be 100% graduation with a pathway to college or vocational skills.

Texas vs. California: Texas is presented as both a competitive threat and a cautionary tale; while it offers a favorable regulatory environment and lower costs, it lacks the educational infrastructure and density management of California.
Immigration Benefits: Rudy Espinoza and Antonio Villaraigosa argue that California benefits uniquely from immigration reform, citing historical precedents (Bracero program, Cuban refugees) and the economic potential of integrating undocumented workers into the formal economy.
Executive Action: The panel discusses anticipated presidential executive actions regarding immigration enforcement, predicting they will impact 3–5 million people, specifically parents of "Dreamers."
Talent Drain: Joel Singer notes that the inability to afford housing is a primary driver for immigrants and talent leaving California for Austin or other states.

Capital Democratization: Lou Feldman advocates for utilizing the JOBS Act to create online portals for microloans and equity investments, bypassing traditional middlemen and high barriers to entry for small businesses.
Risk Perception: A disconnect exists between public and private sector views on risk; public entities are constrained by fiduciary duties and risk aversion, requiring "gap financing" to leverage private capital.
Reentry Education: The panel suggests decriminalization and educational initiatives for marginalized populations, including former inmates, to facilitate reintegration and economic participation.