California should stop funding its progressive values on the backs of the poor

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OPINION — Republican gubernatorial candidate Steve Hilton is using California’s affordability crisis as justification for a broad regulation-slashing agenda. He’s right about one thing: Regulations often do drive up costs, especially if they’re poorly designed. 

Democrats should defend the need for regulations that protect the environment and promote public health, among other goals. But they should also reform regulations to ensure effectiveness and reduce burdens on lower-income Californians. 

California’s economy is extremely top-heavy. Alongside its high top-end incomes and great wealth, California has the highest cost-of-living-adjusted poverty rate in the country. My research demonstrates how regressive regulations, coupled with the state’s longstanding regime of growth restrictions, help drive unaffordability and poverty. State lawmakers have made real progress on loosening growth restrictions to remedy the housing shortage, but have paid much less attention to the effects of other regressive regulations on unaffordability. This needs to change. 

Across critical sectors like energy, housing and child care, California has a slew of regulations intended to promote progressive values like sustainability, safety and quality. Alongside their benefits, many of these policies generate increased costs. And because lower-income Californians spend a greater portion of their income on essentials like energy and housing, the overall economic effect is regressive. This amounts to “regressively funded progressivism.” 

Take electricity, for instance. Rates have risen from around a third higher than the national average in 2015 to over 80% higher. The main culprit is billions of dollars of utility spending on wildfire hardening, authorized by the state and passed through to ratepayers. When wildfire hardening is funded via electricity rates, it hits lower-income Californians — who spend a greater share of earnings on energy — the hardest. It’s also bad for the climate, since high electricity rates discourage the adoption of electric cars and appliances. 

But there’s an even more frustrating aspect of wildfire spending in California: The funds are often not used cost-effectively. Utilities have spent heavily on undergrounding power lines, even while alternative methods can reduce risk at much lower cost. 

Unfortunately, many other policy areas outside of electricity demonstrate similar patterns of regressivity and inefficiency. California has a Low Carbon Fuel Standard, for instance, that increases gas prices and primarily subsidizes biofuels. High gas prices hit the poor the hardest. And research shows that, once land use impacts are considered, burning biofuels can be just as bad for the climate as burning fossil fuels.

California’s fragmented and bloated building code makes it more difficult to build desperately needed housing — a cost ultimately borne by residents struggling with housing unaffordability. Many of the costliest requirements like mandating two stairwells in small apartment buildings have been shown to lack strong safety benefits. 

California also has some of the strictest occupational licensing rules in the country, which drive up the costs of services and restrict opportunities for young workers — again mostly without demonstrated benefits. 

To address regressively funded progressivism, policymakers must first ensure that regulations are producing strong benefits relative to their costs. The clearest first step is revamping the state’s regulatory review process to bring more rigorous cost-benefit analysis to agency rulemaking. 

Policymakers should also work to shift regulatory costs up the income distribution. This is bound to be tricky. Ideally, investments in things like wildfire hardening would come from the General Fund, which is funded mainly via highly progressive income taxes. But the state is already facing structural deficits, and voters have passed a number of propositions that hamstring General Fund spending.

This is just one reason why regressively funded progressivism is hard to undo. Regressive regulations also often have a clear rationale and emotional appeal. The costs they impose are generally hidden and diffuse. What’s more, regulations can confer benefits on powerful actors, who often lobby to resist pragmatic reforms. 

Change will be hard, but making sure that rules work well and aren’t more burdensome than needed, especially to those already struggling economically, shouldn’t be controversial in California. 

Sam Trachtman is a senior researcher at the Berkeley Economy and Society Initiative, where he runs the California program.