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California. Open for business?

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California has long been seen as America’s entrepreneurial epicenter and progressive trend setter, where you pick your perfect lifestyle, outdoor sport and environment. But beyond the gilded California commercials is a broken system plagued by over-regulation, mindless bureaucracies, high taxes and pernicious lawsuits. Six months after the state raised its top income tax rate to the highest in the land, Chief Executive magazine named California America’s worst for doing business -- for the ninth year in a row. Four months later Gov. Jerry Brown signed a bill raising the minimum wage from 2016 to $10 an hour, also the highest of all the states. Today, California has a stubbornly-high unemployment rate above the national average – only six states have worse unemployment.

A chronic business impediment is the California Environmental Quality Act (CEQA). CEQA, a 1975 law to curb the damaging environmental impacts of development, has mutated into a monster. Almost anyone can file a CEQA lawsuit against any development they dislike; plaintiffs win half of the cases they file, and when they lose they do not pay the defendants’ legal fees (the reverse does not apply). And by the way California taxpayers, defendants are mostly California state and local governments that enforce CEQA. Developers are forced to hire expensive unionized labor to ward off union bosses’ threats of spurious CEQA suits. For example, shops and gas stations file CEQA lawsuits to prevent competitors from opening up across the street. CEQA has been amended hundreds of times, mostly by partisan “green” special interests. Passing objective, more rational CEQA reforms have not succeeded. In the state legislature’s most recent session, the stars seemed aligned for an overhaul of CEQA; even some environmentalists conceded that this was necessary. But the state senator sponsoring the bill suddenly quit, progressive unions and eco-groups took charge and the needed reform was killed. Time after time in California, progressives stand in the way of progress in California.

It seems unlikely that California will ever challenge the likes of Texas or North Dakota at the top of business-friendly ratings. California is a chronically progressive, high-tax, high-regulation place, and most voters are disinterested. Prudent reformers don’t speak of scrapping CEQA, but of making it harder to file frivolous environmental lawsuits. They also urge not a relaxation of workplace rules but an end to their capricious implementation. To ensure that California’s recovery lasts, Gov. Brown should back these reforms, if only as his legacy. He must also resist pressure from some Democratic allies for a renewed spending splurge, which eventually mean even higher business taxes. Above all, Brown should apply himself to making the daily lives of all California’s businesses a little easier and more predictable. Only then might the rush of businesses out of the Golden State be slowed. (The Economist, Jan. 25, 2014)

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