Budget’s impact on real people

Most Californians know that the governor and legislators decide the state’s annual budget.

Fewer know that a nonpartisan public entity called the Legislative Analyst’s Office was created more than 70 years ago to estimate revenues, analyze spending and offer economic projections to help lawmakers balance the books. The LAO workers directly for the Legislature.

And even fewer still are aware that a third, independent organization, the California Budget Project, a nonprofit separate from state government, has been in existence since 1995 to help with budget-writing by keeping the public better informed about what’s at stake. The CBP targets the budget’s impact on low- and middle-income Californians.

His dissertation examined California’s Proposition 13 and its implications for state and local public finance. His Claremont experience wasn’t entirely spent in intellectual pursuits as he met his wife there while she was also earning a doctorate.

And there’s a new kid in town to direct that effort: Christopher Hoene, who was appointed its executive director a year ago.

“Well one of the lenses that colors my outlook on life is that my parents were divorced when I was 14 and my mother had to be a single mom with three kids trying to make enough income to support us”, he says.  “I watched her do that.  So when we talk about lower and middle income folks here in California, I keep that in mind.  Money isn’t everything but it sure would have saved her from some sleepless nights.”

Chris Hoene, California Budget Project

That hardship didn’t keep mom from building a successful career as she went on to become a community college professor. One of Hoene’s sisters followed her example and also is a community college professor while another is a university communications director. “Our focus clearly has been on public service,” he observes, “and mom taught us that.”

Hoene’s undergraduate work at the College of Idaho was followed by a doctorate in political science at Claremont University, where his dissertation examined California’s Proposition 13 and its implications for state and local public finance.

“The California Budget Project is often labeled as “left leaning” by the media. The label is inaccurate and misleading. We have no formal political affiliation and we are passionate about maintaining our independence. ” — Chris Hoene

From Claremont, their journey took them to Washington D. C. where for the next 12 years his wife, Darrene Hackler, taught at George Mason University while he served briefly at the Center on Budget and Policy Priorities and then as director of the Center for Research and Innovation at the National League of Cities.

When the CBP post was offered, he jumped at the opportunity.  Delighted to be back in California, he and Hackler have quickly settled into the Sacramento scene.

Capitol Weekly recently sat down with Hoene to talk about him and the CBP.

CW: How did your organization begin, what is its purpose, and how does It differ from the LAO?

CH: The California Budget Project was incorporated in 1995 to provide Californians with a source of timely, objective, and accessible expertise on state fiscal and economic policy issues. We are a nonprofit policy shop that engages in independent, nonpartisan fiscal and policy analysis and public education with the goal of improving public policies affecting the economic and social well-being of low- and middle-income Californians. The LAO is an arm of the state government – providing independent fiscal policy analysis and recommendations to the state legislature. We share a commitment to independent fiscal policy analysis with the LAO, but we are entirely separate from the state government. As a nonprofit, all of our funding comes from foundations and individual donations.

Your organization has been described by some in the media as “left-leaning.” Accurate or not, it implies bias.  How do you counter such remarks? Are you ever directly accused of bias on specific issues?

I appreciate your asking this question. The California Budget Project is often labeled as “left leaning” by the media. The label is inaccurate and misleading. We have no formal political affiliation and we are passionate about maintaining our independence. We don’t join coalitions or seek to influence political campaigns. We set our own agenda based on our internal assessment of important issues that influence the lives of low- and middle-income Californians and we then seek to inject facts, information, and analysis into the debates about those issues.

This sort of label is often applied to the organization when the media covers our work. I have great respect for those in the media and the work they do, but I find this occasional framing of our work a bit lazy. In an era of the 24-hour news cycle, when traditional media are confronting non-stop competition from new/online media, it has become far too easy to simply label sources of information as “left” or “right.” The reality is that the world isn’t this black and white. The California Budget Project is fiercely independent when it comes to our analyses. Our methodologies and data analyses are respected and rigorous. Yes, we do have a perspective – we are trying to improve policy outcomes for low- and middle-income Californians. But, that need not be a “left” or “right” agenda and we willingly engage with policy makers from across the political spectrum. A couple of examples: One, we make 75-to-100 presentations around the state in any given year, to all walks of Californians and, two, we offer and provide technical assistance on state fiscal and economic policy issues, responding to 20-to-40 requests per month from a broad mix of individuals and organizations. Our goal is to operate with a “big tent” – to help as many people as possible access state budget and policy debates.

Earlier this year, Gov. Jerry Brown approved changes to the state’s enterprise zone program.  What was the rationale behind those changes and what is your assessment of the probability of their success?

The rationale for the reforms was that the state’s EZ program wasn’t producing its intended outcomes – economic development and job growth in distressed areas – and was increasing in costs to the state.

The EZ program was created nearly 30 years ago with admirable intentions — to provide tax breaks to promote job creation in economically distressed areas. However, independent studies, including our own, have questioned the effectiveness of EZ tax breaks in achieving their goals — even as program costs skyrocketed. Among the problems we have highlighted:

The annual cost of the EZ tax credits and deductions had grown to $700 million and — without program changes— were expected to reach $1 billion in 2016.

“Let me be clear about this. California is not a hostile place to do business. There’s a lot of mythology and political rhetoric – as well as some pretty sketchy numbers – offered up by those making these arguments.” — Chris Hoene

The EZ program’s tax breaks primarily benefited very large corporations, with two-thirds of the credits being claimed by corporations with assets of at least $1 billion; and,

The hiring tax credits, which comprised nearly 60 percent of the total cost of the EZ program, were poorly structured, allowing companies to claim the credits without actually creating new jobs.

The reforms enacted this year essentially phase out the old program and replace it with a new and revised package of incentives, including a more targeted focus on the areas of the state that rank in the top 25 percent in unemployment and poverty rate; requiring business to show that they’ve created new jobs; and creating a manufacturing equipment sales tax exemption that is statewide, which is important because it helps avoid unnecessary and harmful competition between cities.

What’s your assessment of California’s business climate and its overtures to new business ventures?

Let me be clear about this. California is not a hostile place to do business. There’s a lot of mythology and political rhetoric – as well as some pretty sketchy numbers – offered up by those making these arguments. Typically, critics of California’s “business climate” point to the state’s tax rates, and it’s progressive income tax structure (which imposes higher rates on wealthier individuals and businesses) in particular. While it is true that California does, in some cases, impose higher overall tax rates, you have to look at more than rates to get the whole story. You have to look at what we call “tax incidence,” or put more simply, who pays how much of an individual tax, or all taxes, in the system as a whole. For example, if you look at the corporate income tax, the share of corporate wealth being paid in taxes in California has been declining consistently for the past two decades. If you look across the system, at the share of people’s incomes paid in taxes in California, you’ll find that the bottom 20% of earners in the state are paying a higher share of their incomes in taxes than the top 20%.  So, those who choose to focus on tax rates are conveniently leaving out key pieces of the story.

In total, taxes have very little to do with business development in the state. Surveys of business leaders consistently show that the key factors in their location decisions are proximity to skilled workers, proximity to markets/similar industries (what economists call “agglomeration economies”), transportation hubs, high levels of public services – good schools and infrastructure, for example , and good weather (many studies show this has a larger effect than most people realize). Yes, they consider taxes, but it’s not the driving force in their decision making. And the reality is that California does very well when you look at factors like access to skilled workers, similar and complementary industries, infrastructure, and quality of life.

There is one part of California’s tax system, by the way, that is inherently unfair to new businesses in particular. The way that the state taxes commercial (business) property is biased against new businesses. The way that we tax this property is that we only allow the property to be assessed (valued) at current market rates when/if the property legally changes hands. If you’re a 20-year old business that has operated on the same property for those 20 years you are still paying a property tax bill similar to your first bill two decades ago. If you’re a new business, however, you have to pay property taxes on the current market value of the property. In other words, we are requiring new businesses to pay more in property taxes.

A July 28 Sacramento Bee article authored by you urges an approach to the state’s economy that crafts “an economic development strategy that is based on effective state/local partnerships and investment”.  Is that realistic? Can you offer an example or two?

Well, it is certainly an aspirational goal more than it is a political reality at current. Over the last several years, state and local leaders have seemed to stake out polarized views over programs that local leaders like (redevelopment agencies, enterprise zones) and that state leaders view as costing the state too much money. What seems to have been lost in the heat of the battle is that state and local leaders all want to encourage economic development and redevelopment in distressed communities…

You asked for examples of what might work and the reality is that most of the old structures we’ve used, that have been overly dependent on poorly structured tax credits, have kept state-local leaders from focusing investments that we know can work. The backbone of California’s economy, and its regional-local economies, has been high-quality education systems and investment in infrastructure. Good schools and university systems and investments in roads, water, transit, and technology are real and legitimate investments in the state’s nearer- and longer-term growth. Ironically, California has been underinvesting in those systems for a while now.

We can and have to do better…
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Jim Cameron is a regular contributor to Capitol Weekly.