Learning the Right Lessons From the Fight over Tesla’s “Gigafactory”

The announcement that Tesla has selected the state of Nevada over other western states for its new “Gigafactory” will undoubtedly reignite the debate about whether California is unfriendly to businesses. Critics will likely point to policymakers’ inability to secure a California location for the new manufacturing plant as another indicator that tax and regulatory policies drive businesses and jobs out of the state. However, it’s worth taking a step back to look at what lessons can really be learned from this experience, and what policymakers should consider moving forward.

First, site-location decisions are about more than just taxes or regulations. Where businesses locate depends on a multitude of factors, including the availability of skilled workers, shipping and transportation costs, and the quality of public services. This is further borne out by the fact that one region in Texas is reported to have offered Tesla almost $800 million in subsidies and tax breaks and still did not convince Tesla to locate there — and this reported offer far exceeded the $500 million that Tesla requested. While we will learn more specifics in the coming days about the reasons why Tesla chose Nevada, it is unclear that Nevada has the capacity to offer a similar upfront deal, considering that this would represent a substantial share of the state’s total $6.4 billion budget.

Second, California will still see some economic benefit from a Tesla factory located in Nevada. In our open letter to policymakers, signed with stakeholders from other western states, we emphasized that states have an interest in cooperating given that the automotive industry spans across states and cities. As the Sacramento Business Journal reports, a Tesla factory in Reno could help the Sacramento region because warehousing and supplier companies could locate along the Interstate 80 corridor. This speaks to the need for states to be more transparent and cooperative in their approaches to economic development, since Nevada taxpayers may end up paying for a decision that could benefit California anyway.

Finally, it’s worth pointing out that California’s job growth is outpacing the national average, and this includes jobs from companies expanding in or relocating to California. While we have written extensively about how California’s economy remains difficult for many of California’s workers, the state’s high unemployment rate is more about the historic losses incurred during the recession rather than California’s economic growth being comparatively weak. Companies like Mercedes have expanded operations in California, and the state is adding an average number of new jobs each month that is four times what the Tesla plant would have directly provided in total, if the new factory met expectations.

With these things in mind, what should policymakers do? It’s understandably frustrating to engage in a public fight over securing jobs that would benefit a community, only to “lose” that fight. However, policymakers should not learn the wrong lessons from this experience: that California needs lower taxes or needs to offer even costlier deals to individual companies. Research consistently shows that tax cuts at the expense of public investment are not the best means by which to spur job growth. Enhancing public services and investing in a skilled and educated workforce remain the preferred long-term strategies. For instance, with the amount of public subsidies California was considering for Tesla — estimated to be around $500 million – the state could have tripled this year’s increase in General Fund support for the California State University system. It’s this type of investment — and similar ones that create the foundation for future growth — that will promote broad-based economic prosperity in the future.

— Luke Reidenbach

 

 

New CBP Report: Making the State’s Economy Work Better for Low- and Mid-Wage Californians

Earlier this week, we released our annual Labor Day report, taking a look at the latest employment and wage trends, what they mean for workers and their families, and some key implications for public policy.

Beyond Recovery: Making the State’s Economy Work Better for Low- and Mid-Wage Californians shows that while our state has regained the number of jobs it lost during the Great Recession, the current economic expansion follows decades of wage stagnation that has meant diminished opportunities for many California workers. The report also shows that low-wage earners account for a growing share of the state’s workers overall.

In sum, Beyond Recovery underscores that simply recovering from the Great Recession will not be enough to ensure a mix of jobs that makes broad-based economic growth possible. The report highlights a number of ways that state policymakers could help broaden economic opportunity for California’s workers and their families. These include investing in services that help Californians find and keep stable employment, broadening access to high-wage careers by rebuilding support for California’s public higher education system, and ensuring that low-wage jobs pay adequate wages.

Our Labor Day report received media attention across the state. Midday Edition on KPBS in San Diego featured a segment on the report, during which CBP Policy Analyst Luke Reidenbach, the report’s author, discussed its key findings. The report also received coverage in the Los Angeles Times, San Francisco Chronicle, Sacramento Bee, Central Valley Business Times, Inland News Today, and others. (Read our full press release.)

In the coming weeks and months, look to this blog and our website for further commentary on California’s economy and labor market and how state budget and policy choices can lay the groundwork for greater economic opportunity across the wage spectrum.

— Steven Bliss

 

 

Stanford’s “Pathways” Magazine Echoes Our Report’s Key Findings on Poverty

The latest issue of Stanford University’s Pathways, a magazine featuring articles about poverty, inequality, and social policy, perfectly echoes a number of the key messages in our recent report, Five Facts Everyone Should Know About Poverty.

An article by Marianne Page, deputy director of the Center for Poverty Research at UC Davis, for example, calls into question the “common mantra [that] the only enduring solutions to poverty are economic growth and the jobs it delivers.” Page shows that economic expansions reduce poverty less than they did in the past partly because a growing share of the new jobs pay low wages. Similarly, our Five Facts report shows that poverty in California is more often due to low-wage work than to a lack of employment. Like Page, we argue that reducing poverty will take policies that boost workers’ earnings, such as continuing to increase the state’s minimum wage and establishing a state Earned Income Tax Credit (EITC).

Hilary Hoynes, professor of public policy and economics at UC Berkeley, demonstrates the resounding success of the federal EITC in another Pathways article, suggesting that it “may ultimately be judged one of the most successful labor market innovations in U.S. history.” Hoynes writes:

The effects of EITC extend well beyond simple income support and poverty reduction. … It leads to various improvements in the mental and physical health of mothers. It brings about a reduction in low birth weight among infants. And it improves the performance of children on cognitive tests. This burgeoning body of work suggests, then, that income support programs have benefits that extend well beyond an increase in cash flow for families in poverty.

With evidence like that, it’s no wonder that half of all states have created their own EITCs to further leverage the benefits of the federal credit. And it’s why California should do the same. Poverty is a problem state policymakers can address if they choose to prioritize investments in proven strategies.

— Alissa Anderson

Poverty Is a Problem We Can Address

California’s poverty rate is higher than that of all other states, based on the US Census Bureau’s Supplemental Poverty Measure. So it’s not surprising that Californians are increasingly concerned about poverty, and many see it as an intractable problem. More than two-thirds of state residents (68 percent) think that poverty is a big problem facing our society, up from 57 percent eight years ago — a rise that paralleled the increase in poverty during the Great Recession. In addition, fewer than half of Californians (46 percent) believe that policymakers can do much to address the problem.

But poverty is a problem we can address. That’s the key message of the newly released CBP report, Five Facts Everyone Should Know About Poverty. This report shows that we’ve made significant gains reducing poverty in the past, and it provides evidence that anti-poverty efforts continue to be effective today. Tax credits for working families, food assistance, and unemployment insurance, among other policies, lifted an average of nearly 4 million Californians a year — including 1 million children — out of poverty in the wake of the recent recession. This is a significant accomplishment, and it suggests that California can reduce poverty further by making greater investments in what’s already working.

What will it take to cut poverty further?

Reducing poverty will require a broad-based effort to address the various factors that contribute to families’ economic hardship. One of the most significant of these is low-wage jobs. The majority of families living in poverty are working families, which means that poverty is largely a problem of low pay. That’s not surprising given that California’s minimum wage remains a poverty-level wage, in spite of its recent increase to $9 per hour. A mother who works full-time, year-round at the minimum wage brings home just over $18,000 per year. That’s an income well below the federal poverty level for a family of three and just a quarter of what we estimate that a family needs to support a modest standard of living in California.

In our report, we recommend two ways policymakers can boost workers’ earnings in order to lift more families out of poverty. First, they can continue to gradually raise the state’s minimum wage — even beyond the increase to $10 per hour that is scheduled for 2016 — and then tie it to inflation so it keeps pace with increases in the cost of living. Second, they can create a refundable state Earned Income Tax Credit (EITC), which would help low-income working families keep more of their earnings and better meet their basic needs.

The federal EITC is one of the most effective tools for cutting poverty. In fact, it pulls more children out of poverty than any other federal policy. Half the states have created their own EITCs to further leverage the benefits of the federal credit, and establishing a refundable state EITC in California would be as easy as adding one line on state tax forms. This simple measure could bring nearly 170,000 Californians out of poverty each year, according to estimates from the Center on Budget and Policy Priorities.

As with any new policy, lawmakers are certain to ask whether California can afford to create a refundable state EITC. But a better question is whether California can afford not to invest in a policy that is proven to cut child poverty more than any other measure. Allowing poverty to persist is extremely costly, both in human and economic terms. Children who grow up in poverty don’t have a fair chance to reach their full potential. They face numerous obstacles that make it harder to do well in school and get good jobs as adults. That means poverty doesn’t just set children on a path toward future hardship, it also puts California’s future workforce at stake.

The good news, however, is that when low-income families’ incomes are boosted through public supports like tax credits, their children tend to attain higher levels of education and perform better academically. They may even earn more in the future. In other words, investing in proven anti-poverty strategies has a long-term payoff that makes the investment well worth its upfront cost.

Cutting poverty lays the groundwork for a stronger economy and a more prosperous future for all of us. That’s why policymakers should make reducing poverty a key state priority. And that’s also why we at the CBP have launched an initiative to greatly expand our work on poverty over the next couple of years. Watch for our additional reports on key poverty-related issues, including analysis and commentary that will help policymakers determine and prioritize policy options to expand economic opportunity and generate more broadly shared prosperity in our state.

— Alissa Anderson

For Local Labor Markets, the Public Sector Is Still a Drag

After more than four years of sustained job growth, California has nearly regained the number of jobs lost during the Great Recession. On top of this, the economic recovery is now also reaching a growing number of metropolitan areas and industries across California. However, while all major metropolitan areas have now experienced net job growth over the past four years, this growth has been uneven both across the broad regions of our state — with the Greater Bay Area generally faring better than the Los Angeles and San Diego regions — and within each region. Moreover, some weaker parts of the California economy — most notably the public sector — are continuing to act as a drag on overall job growth.

The below table highlights both the strengths and the weaknesses of California’s current recovery. It shows the percent change in the number of jobs between the first quarters of 2010 and 2014 for each major metropolitan area and select industries. Metropolitan areas are grouped by region, and within each region the metros are sorted by the level of overall job growth during the past four years.

One notable takeaway from this table is that public sector job losses weigh heavily on nearly all metro areas in California. Even as the private sector has expanded and added jobs across a variety of industries over the last four years, the number of public sector jobs — which includes jobs in public education as well as with cities and counties — still remains below the 2010 level in most metro areas.  Statewide, public sector jobs were down 2.5 percent in first quarter of 2014 compared to four years prior.

Click on the table image to see how your metro area is faring in the economic recovery.

— Luke Reidenbach