Matters Of Policy & Politics: How ‘Bout Them Cowboys? | Lee Ohanian, Bill Whalen, And Jonathan Movroydis | Hoover Institution

>> Jonathan Movroydis: It's Friday, January 20th, and you are listening to Matters of Policy and Politics at Hoover Institution podcast devoted to governance and balance of power here in America around the free world. I'm Jonathan Movroydis, senior writer at the Hoover Institution, and I'm sitting in the chair of Bill Whalen, the Virginia Hobbs Carpenter distinguished policy fellow in journalism, so that he can answer questions, provide commentary about California policy and politics in which he is well versed.

Bill Whalen, in addition to being a Washington Post columnist, writes weekly for Hoover's California on Your Mind web channel and publishes Eureka, a quarterly forum featuring analysis and commentary from Hoover scholars and California's top thinkers. Whalen is joined today by Leo Ohanian, Hoover Institution senior fellow and professor of economics and director of the Ettinger Family Program in macroeconomic research at the University of California, Los Angeles.

Ohanian also writes twice per week at the policy environment of the Golden State for California on Your Mind. Good day, gentlemen, and happy New Year. Let's talk about the latest developments in policy and politics in the Golden State. Let's start off by talking about California's unusual rainy season.

In the past months, an estimated 32 million gallons of water were dumped in the state over the past month. The storms have wrought destruction across the state, including in Santa Cruz where President Biden toured the wrecked capital appear yesterday. Bill, your California In Your Mind web column this week focuses on how much water from these rains are being stored.

Not so much you explained. For example, 94% of the water passed through the Sacramento San Joaquin delta has made it to the sea rather than being captured in a reservoir. There is a proposed sites reservoir on the west side of the Sacramento Valley which is scheduled to be completed in 2030.

This is projected to reserve the needs of 5 million homes or half a million acres of farmland. But in sum, Bill, what are the short and long term prospects of California improving in the area of water capture?

>> Bill Whalen: Well, Jonathan, the good news is to the extent that California is still in a drought condition.

And keep in mind, California is in this very odd situation right now where there's both a drought declaration in place and also a flood declaration in place. So talk about gassing and breaking at the same time. But you look around the state right now and you see that the drought conditions, we're still in droughts, but the drought's gone from severe to mild, so we're still behind.

But our reservoirs have done a lot of catching up here. Many of them are about halfway full now. But the challenge is, as you alluded to, is simply this. This water comes tumbling down, literally a gift from heaven. And you see the visuals of creeks flowing and rivers running wild and out to the sea.

And there lies the problem. It's all running out the sea and it's not being captured. And we could spend multiple podcasts talking about why this happens, but the problem is simply this. California historically has not created enough water storage. And this goes back, my goodness, 10, 20, 30 years back when dinosaurs like me were working in California state government.

To create capacity you run afoul of the environmental lobby, plain and simple, if you want to build a dam, and if you want to create a reservoir, if you want to expand existing structure. And what I noted in my column was the case study of this is a water bomb that California passed in 2014, $7.5, in total about $2.7 billion of which goes into water construction.

And what has that done for California? Well, here we are early in 2023 in the sites reservoir. As you mentioned, they may break ground on that next year and it may open, if all goes according to schedule, by about the year 2030. So, Lee, you're talking about 15 years from inception, from voters approving a water bond to actually getting water filled into a reservoir.

And if we look in the vast history of California, we look at the Golden Gate Bridge, the Oakland Bay Bridge built in a matter of few years. Why leaders take 15 years to get a reservoir built?

>> Leo Ohanian: Bill, I would love to know the answer to that question.

I look back in time a bit, and so here's a thumbnail sketch of history. In the last 25 years, so I'm gonna go back even further, back to 1996 Proposition 204. For those who might remember it, was the Safe, Clean, Reliable Water Supply Act of 1996. It was $1 billion.

And if we go forward in time, there's a total of eight voter approved water bonds in the last 25 years, which is a grand total of nearly $28 billion in spending. And after researching this, I came to the conclusion that I hope voters never approve another state bond because the money never is spent.

So nearly $28 billion in voter approved bonds, which is future taxes to pay, and 90% of that money over 25 years has not been spent. There's been no increase in state water conveyance or water storage in a significant way, really since the 1970s. Really since the 1970s. And this was an issue that Dianne Feinstein, Senator Dianne Feinstein brought up a number of years ago.

So the weather situation has become ludicrous in the sense that California is subject to drought. It has been forever. That's not an issue of climate change. We live in a semi arid climate, and California is subject to sometimes torrential rains. So it's either floods or it becomes a desert and nothing is being done about it.

And Bill, the short answer to your question is that this money really gets caught up in silly environmental debates and nothing gets done. It's one study after another. And I wish voters knew that 25 years after they voted for the Safe, Clean, Reliable Water Supply Act that they're not getting safe, clean, reliable water supply.

It's as simple as that. It's a shame. It really boils down to a lack of governance and a lack of responsibility. And at the end of the day, we have about $34 billion in storm damage. That's the latest estimate I've seen, $34 billion. In putting that perspective, Bill, the state budget of North Carolina, which I believe is the 9th largest state in the country, is roughly 25 billion.

So California sustained damage from floods that exceeds the entire annual state budget of the country's 9th largest state. So there you have it.

>> Bill Whalen: I think, Lee, about $30 billion was about the price tag of the Northridge earthquake back in 1994, which happened actually on this week in 1994, 29 years ago but that was 1994 dollars, Lee.

So adjust that for 2023. What's interesting about this situation, maybe we should segue into the president's visit now, is, yes, $30 billion worth of damage. But when you compare or contrast that to an earthquake, and I don't want to minimize or take blithely the suffering people have gone through, but if you go back and look at that earthquake in 1994, this crippled Los Angeles.

And Lee, I don't know if you were in LA at the time when it happened, but you had damage to freeways around the city and just traffic came to a halt and commerce came to a halt and the government had to figure out what to do, the state government in particular.

I was working for Governor Wilson at the time, and what the governor did was he looked at the situation and said, okay, we have to figure out a way, we have to get these roads up as quick as we can. So he got very creative. He thought outside the box.

He streamlined and suspended contracting regulations, offered construction incendiaries, which became Lee and Jonathan, hugely controversial because one contractor in particular, CC Myers, just worked night and day to get stuff open. They made a lot of money off it. And so there was a lot of blowback saying, well, wait a second, he profited but I would say, well, he profited but so the People because they got the roads early.

But the point is the state got very creative in the recovery. And this is what I'm curious about at this point. Lee and Jonathan, the president came out yesterday to, as Jonathan mentioned, to the Santa Cruz area, Monterey County, the Capitol up here in particular. Very curious visit, by the way, for a president.

Historically, presidents come out to California and they just don't do kind of a drop in and drop out like Biden did. He landed at Moffett Airfield in Mountain View, not far from here in Palo Alto. He choppered over to the site, did the event, got back in the helicopter, went back to the plane and went home.

And I thought, well, this is odd because usually, Lee and Jonathan, a president will go up to San Francisco and hobnob, raise some money, sue some ruffled feathers with donors, maybe do a policy event elsewhere in California, cover his political bases. But they got Biden in and out of the state pretty fast.

I'm thinking this. A friend of mine who's a doctor gave me an interesting theory. She said, well, you're dealing with an 80 year old president, and maybe if you get him up early in the morning, put him on a plane to California, do the event, get him back on the plane and get him home at night and tucked in bed.

That really kinda gets rid of the jet lag. So maybe that's part of dealing with a 80 year old president. But anyway, sorry to ramble here, but, you know, the president didn't say much in the event other than we've got your backjack and we will help out California any way we can.

So that's the good news. That means there'll be money coming in from Washington. But the bad news, again, Lee and Jonathan, Lee, I wanna get your thoughts on this, is how are you going to do this cleanup, this rebuild in a swift, efficient way like you did in 1994?

Especially when we know that one thing, Sacramento politicians, the people who be controlling these purse strings, they got a lot of friends in labor.

>> Leo Ohanian: Yeah, they have a lot of friends in labor. And that's the $64,000 question. So with a lot of friends in labor, there's gonna be an enormous payoff to labor.

So it's going to be expensive, Bill. It's gonna be very expensive. But what's even worse is I suspect that it will take an awful long time to get this done. So, Bill, you mentioned work with Pete Wilson and how quickly that really a state emergency that devastated Southern California, how quickly that was resolved, how quickly the freeways were rebuilt and the overpasses and bridges were rebuilt.

Bill, wasn't that done in just a matter of months?

>> Bill Whalen: Couple of months, it was said would take over a year or two and done in about 66 days, I think. And in fact, we got into a big PR fight with the Clinton administration over who'd show up and take credit for reopening the freeways.

And we actually slipped in and opened them the night before they came in. But yeah, it only took a couple of months. But this shows that actually you can take government and put it to a creative use. Lee, but the other thing coming out of this, which maybe you'd like to reflect on, we're back into this issue that we see with fires and fire parlance.

It's called WUI, which is wilderness urban interface. But what's interesting about the floods is whereas fires start in remote areas of California, floodwater is everywhere in California. And it just hits all regions and it hits the coast and it hits inland and it hits the Central Valley and it hits the northern part of the state.

But it does get into, Lee and Jonathan, this question of California's living arrangement. If you see the pictures from where the president went, or maybe, Lee, you go close to your home in Montecito where people, you know, got, you know, had to evacuate because of mudslides, which happened a few years ago, too.

It's a chance for California to start looking at its living arrangement. And here, Lee, I'm not sure exactly how government proceeds, because part of the game in California is you spend a lot of money to get a fabulous house with a wonderful view of the ocean. But what do we do when that cliff is gonna start to recede?

And what we're gonna do if your $17 million home in Montecito, if you're Harry and Meghan and you have to evacuate because every five to six years, mud comes your way. So do you think, Lee, maybe there's an opportunity here for California state and local government to look at the bigger picture of livability?

Or am I just. Or my cold meds kinda kicking me too hard this morning?

>> Leo Ohanian: Bill, it's interesting. The California faces just so many fundamental issues now that are the result of just decades of just complete neglect. And so, Bill, to put this in perspective, people live on the coast because they want to live on the coast.

The weather's mild, it's beautiful. And if you look back 100 years ago, Los Angeles had the most advanced and sophisticated water capture and flood control system, according to experts in the world. That was 100 years ago. So 100 years ago, LA wasn't suffering from flood problems because they captured the water.

They channeled it away from living areas. What LA had 100 years ago is probably better than what we have now in a lot of areas, such as Santa Cruz, where President Biden touched down, which I think wasn't really more than really for a photo op. Were I live just south of Santa Barbara in Montecito, I live in what I call the slums of Montecito, not where my neighbors Harry and Megan live.

But Governor Newsom came down here for photo ops along with 80 of the National Guard to clear out debris basins that filled up. And Bill, interestingly enough, during the worst of the storm, my youngest son, school called up and said, because the storm, we're going to end school early.

So I drove out to pick them up. And I'm driving from my home and I'm thinking, this looks exactly like it did. And literally it was five years ago to the day, Bill, that there was mudslides in my community that ended up killing 23 of my neighbors. And that was largely because of government policy mistakes.

Debris basins had not been cleaned out for probably 20 years. The LA Times did an investigative series of articles about this. They have drone footage that shows about a 19 foot oak tree growing in one of the debris basins. Oak trees don't grow all that fast, right? And Newsom came out and Bill, I just have to tell you, it was almost surreal.

It was, not surprisingly, a bunch of photo ops with other Democratic politicians who were cozing up to him and saying, Governor, thank you for coming to aid us in our hour of need. Well, that's what government is for. The government is to protect people, which it doesn't do a very good job of anymore.

And Bill, what was the most surreal about this is that 23 of my neighbors were killed five years ago. And you know what the governor talked about? He talked about food insecurity. His speech was about food insecurity. And he was standing at a location where roughly 23 people died five years ago.

And he just seemed completely tone deaf as to what was going on and as to what government should be doing to protect its residents.

>> Bill Whalen: That tells me, Lee, that his body was in California. His mind was in Davos at the World Economic Forum, cuz that's where you talk about food insecurity and climate change.

And I don't know if you saw Al Gore's rant at Davos the other day about climate apocalypse and tying it to rain here and so forth. But one mission of government, though, Lee, is to get out of these sort of Einstein situations. Einstein's definition of insanity is what, doing the same failed thing over and over again expecting different results.

And again, the question getting back to Montecito and other parts of California is Newsom will not be governor of California five years now cuz term limits. So will the next California governor be going to Montecito and doing another event then or can the state find ways to change this?

But now we're getting into the question, leave government controlling where people live and how they live. And it's a very difficult thing. But I do look at the rain thing and I see two things here. The first thing is the issue of insurance. This always comes up when you have huge disasters in California.

After the earthquakes in 94, it became a question of having earthquake insurance if you own a house. And here Here in California, we're gonna have a conversation about flood insurance. I did a little homework. Here is what I discovered, that very few Californians actually have flood insurance itself.

I don't know, Lee, if you have it your house or not. The California households can apply for standalone policies through the federal National Flood Insurance program. Exactly 1.33% of California households have this. Here's where it gets tricky. You get this insurance because you live in what is called a special flood hazard area.

These are, Lee and Jonathan, based on FEMA, the Federal Emergency Management Administration, looking at so-called 100 year floodplains. So here's the problem, plain and simple. You are asking people to get flood insurance based on living in a 100 year floodplain, which means by definition, there's a 1% chance each year you're gonna get a flood.

FEMA needs to redo its maps and revisit flooding in California. I think because we're seeing the flooding is much more vast in 100 year floodplain. So that's problem number one. Problem number two, Lee and Jonathan, is now government getting to work at working efficiently. And this takes us to the issue of potholes.

Lee, I don't know what the roads look like where you are right now, but I could just tell you, driving around here in Palo Alto and getting out on highways, you have to be very vigilant right now. Because there can just be a pothole in any corner of the road that you're on right now.

The good news, most Californians probably don't know this. If you wanna call it good news, you hit a pothole on a freeway or a highway and you can apply to Caltrans for reimbursement up to $10,000. But Lee and Jonathan, here's the question. This government's notorious for not working very efficiently.

You're talking to somebody who is still waiting for his $200 gas rebate. I don't think that's ever going to show up. We know all the problems that came with unemployment claims during COVID, so Lee, your thoughts on the confidence of people applying for pothole relief in California and actually the government delivering.

 

>> Leo Ohanian: I'm gonna go out and buy a beater and I'm gonna start making a laser line for those potholes to get my $10,000. You know, Bill, interestingly enough, the state by far has the highest gasoline taxes, state gas taxes in the country. That's supposed to be for repairing and maintaining roads.

California has, despite having the highest estate gas taxes in the country, we have either the 49th or the 50th. We're the 49th or 50th in road conditions. So, Bill, it was bad, and it's just gotten a lot worse. About three miles from my house, up closer towards the mountains, I mean, there's a complete sinkhole.

So there's a road closed. I don't know how long that road is going to be closed, because five years ago, when the mudslides occurred and they took out some bridges, those roads were closed for roughly three years. Three years to rebuild. Bridges that were about 20 feet wide and about 40 feet long.

Three years to rebuild. So, Bill, when you talk about efficiency of government, the only solution I see is for voters to just throw up their hands and say, this is unacceptable. We have a state budget that's over $20,000 per household. Where is it going? What is it being used for?

Why aren't we getting our money's worth? We need not just better politicians, we need infinitely better politicians who have some common sense, who can prioritize, who can see past their own personal, social culture and political agendas and figure out what do people need and what do they really want out of government.

And it's not what we're seeing right now. It's not waiting years to have a road rebuilt. It's what Pete Wilson did 30 years ago, 25, 30 years ago, to essentially rebuild much of the freeway system in southern California in two months. That's what people want. And it's just remarkably sad how California government has devolved in that time.

 

>> Bill Whalen: It also shows you, Lee, the downside to living in the moment and doing stunt politics, which was what the legislature and the governor did last year with their gasoline rebates to California taxpayers. Gasoline prices are down about $2, I think, from their peak of last year. So the crisis is not quite what it was.

And I imagine most more Californians in 2023 would like to have $400 or $500 or $200 to address pothole repairs than they would maybe money back from gasoline. So there we go. Yeah, so California goes to the rain. The final thing I note about the rain is, and again, it ties into our conversation here, and it's just this cycle that California lives in.

It's to those who've overreacted and said, my God, this rain is just unbelievable. It has rained in California before. I could take you back to when I worked in Sacramento and had two state of the state speeches explode on me because we had to change them overnight, because we were dealing with floods and crises and so forth.

I remember going into Governor Wilson's office and an aide came in and brought him a denim jacket which he wore when he went out to look at disaster. We called it the disaster jacket. And he said, governor, we're going on the road today. And the governor looked at the aide and said, let me guess, Guerneville.

And sure enough, he was right. Guernville is a small town, about 4000 people. And on the Russian River in Sonoma, it's very scenic. But here's the problem. The russian river floods like a mother. When it rains like this, it gets up to 30, 35 feet and Guerneville gets drowned.

And so you go in there and you see the visuals of people getting rescued by boats and so forth, but nothing changes. The river recedes, the people go back into their homes and years later it floods again. And so it's a cycle you go into and you can say, well, why not dam the Russian River and do something about that?

But now you get into the economics of doing water preservation in California. Storage, I should say. It's an economic calculation, Lee and Jonathan, you calculate how much it would cost to build a dam or build a reservoir versus the number of people impacted. And to save 4000 people in Guerneville, you can't justify a billion dollar project.

So in some regards, California is stuck. But again, it's a cycle California cannot escape in terms of damage. And not to be too morbid here, but God forbid we get a big earthquake like 1990, 419, 89. And I say this, living about five miles from the San Andreas fault here, you're gonna see very much the same visuals as you saw in 1994, Lee and Jonathan, with freeways coming down and people inconvenienced and so forth.

But the question is, does California learn these experiences and come back? And as the president said, build back better? What are we just build back and just brace ourselves for the next hit.

>> Leo Ohanian: Well, Bill, it reminds me, fingers crossed big earthquake doesn't come. But if it does, Bill, what are the chances that some politicians going to blame it on climate change?

Bill, do you remember the, I mean, this is going back a long time, but I think it was the 92 election when Perot was running. There is a Saturday Night Live skit and I think it was Dana Carvey, in my humble opinion, fabulous comedian who was impersonating Perot.

In my opinion, Dana Carvey did a great Ross Perot. And there was a campaign speech Dana Carvey was giving as Ross Perot and he said something like, you know what? If I get you 3% growth, you give me a billion dollars. If I get you 4% growth, you give me $2 billion.

Heck, a monkey could get you 2% growth. I almost feel like when it comes to politicians, start giving them incentive pay. If you can build a new dam, here's how much we're gonna pay you collectively in the legislature. I sometimes think that's the That's the only way we're going to get anything reasonable done in California, given the current state of the political sensibilities of legislators.

They just don't get it.

>> Bill Whalen: Yeah.

>> Jonathan Movroydis: Lee, let's talk about your California on your mind column this week. It's about San Francisco's rapid population decline. The city has lost 6.3% of its residents between 2019 and 2021, quote, a rate of decline larger than any two year period in Detroit's history and unprecedented among any major us city.

Detroit has had its own precipitous decline since 1950. We have discussed this exodus from California in previous episodes, Lee, but can you describe why this drop has been so dramatic relative to the rest of California?

>> Leo Ohanian: Jonathan it's enormous. So I compare San Francisco's 6.3% population loss according to census data between 2019 and 21, bigger than any city within the country.

And then to put it in perspective, I compared it to Detroit, which had nearly 2 million people in 1950, down to about 650,000 people today. Detroit never lost, never had population losses anything close to San Francisco, 6.3%. And the reason it's so important now is because of who is leaving.

So, people who are leaving are not middle income households or low income households who have just thrown up their hands and said, I can't afford to live here. That's not the major group of people who left in these last two years. It is high income households with median incomes, probably around $250,000.

And as they left San Francisco, the city of San Francisco lost $7 billion in net income. So that's a $7 billion loss even after taking into account those who moved into San Francisco over that same period of time. So San Francisco lost about 60,000 tax returns, and with those people went $7 billion in income on that.

And where did they go? Well, the richest went to and perhaps it's not surprising Jackson Hole Wyoming. A very expensive, very beautiful location, famous ski resort. The median income of those moving from San Francisco to Jackson Hole, somewhere close to $600,000 annual income. And then other highly very productive, high income taxpayers from California moved to Lake Tahoe, another ski destination.

Many others moved to Palm Beach Florida, Cal Suprisono, state income tax. So it really is who is leaving, and the people who are leaving are very high income people. And Jonathan interestingly enough, when we lose those people, and some of those are tech workers, this is having repercussions because San Francisco's downtown is emptying out.

So back in the day, before the pandemic in 2019, San Francisco's downtown was incredibly vibrant economic powerhouse. The office vacancy rate was only 4% in 2019, which might have been the lowest in the country among major cities, that office vacancy rate is now seven times higher, at 27%.

And the column appeared today on the Hoover website, and it includes a link to a newspaper article that includes photos of downtown taken by one of San Francisco's tech entrepreneurs. So he spent a week, Monday through Friday, walking around downtown, the city taking photos and these were posted in a newspaper article.

And if you look at those photos, this does not look like the downtown of a major city on a work day. It looks like the downtown major city on a national holiday or a Sunday. That is just how empty San Francisco has become and those who are remaining in San Francisco, these private businesses have become extremely concerned about this.

They've looked to the local, they've looked to city government for a solution. Given the state of affairs within the city's board of supervisors, nothing is coming. So what they did was they got together and they put it together some money, and they hired some consultants to come up with a plan to revitalize downtown.

And within this 143 page plan, the consultants had some ideas for trying to figure out what to do with downtown San Francisco now that so many people have left. But you know, Jonathan, at the end of the day, this is really San Francisco centric, and it really boils down to a grossly failed governance on the part of the city supervisors.

San Francisco has been taken over by illegal drugs, by drug gangs, crime, particularly break in type of crimes is off the charts. And without addressing those problems, there's no bringing back San Francisco. And Jonathan, we need to bring bill here in a second. But what I just found just incredibly depressing, is that despite what's going on in San Francisco, and this is a city that spends about $20,000 per household in city spending, the city supervisors don't seem to understand the severity of what's going on.

They seem to think that the loss of economic activity in downtown is not substantial. And to give you an idea of just how bad the decision making is at the state, at the city level, there is a Whole Foods. Now by Amazon wanted to go into the Polk street neighborhood, relatively lower income area, open a Whole Foods.

And the city supervisors said no. They initially said, we, well, if you're gonna build a grocery store, then you better include affordable housing. Now, Whole Foods doesn't do affordable housing, they do grocery stores. But Whole Foods agreed, okay, we'll build a Whole Foods and then we'll build another, we'll build another story.

And we can squeeze in eight units of housing, given the footprint of what the store was gonna be. City supervisors said no. So Whole Foods and Amazon packed up and left. That opportunity is now gone. And Jonathan, guess what has happened to that location? Well, that was five years ago.

The location is still empty, is still in disrepair, it is frequently broken into most likely for drug use or prostitution. And this is really emblematic of who, of the people within the San Francisco Board of Supervisors. They simply just don't get it.

>> Jonathan Movroydis: I understand that there are some plans to try to revitalize the downtown.

What have those entailed?

>> Leo Ohanian: Well, there's one and the article has a link to this plan, which is 143 pages. They have an awful lot of ideas, including things like having public performance. Performances and events, including outdoor plays and creating new public open spaces and walking areas with art.

And these are all great ideas, but none of these things will ever make a difference if San Francisco doesn't choose to clean itself up. And given the. Given the ease of use of today's search engines and adobe, I did a search through that 143 page document, and I looked for the words crime, homeless, homelessness, drugs, and opioids.

I typed in those words. Not one of those words ever came up on that plan interestingly enough. There are a couple of euphemisms, such as cleanliness and safety. But sadly, a private business group had to go and take the first step to try to figure out, Rome is burning, we gotta put out the fire.

And yet the board of supervisors are twiddling their thumbs and worrying about their own personal, social, and cultural agendas that are just so far off the charts of most people, at least most people that I know of. So will San Francisco go the way of Detroit? I see nothing that's going to stop it from declining in the near term.

And the decline won't be stopped until voters make a change in terms of who they elect to the city supervisors.

>> Bill Whalen: Yes, that was my thought, Lee, just what the city can do to try to bring back office space, to bring back businesses. You mentioned people moving to Jackson Hole, Palm beach, and so forth.

Let's assume they stay there because that's, you know, financially they can make it work. It's a lifestyle thing for them. Maybe they like the open space, the non California existence, and maybe because they're doing very well, it means they're remote workers and so they don't have to be back in San Francisco.

So I think the question, though, Lee, is if you're the city, and if you're at the state and you want to actually bring investment back into the city, how do you go about it? And we can talk about cleaning up the city. But I'm curious, Lee, on an economic standpoint, what, if anything, the state and the city can be doing because you're a business coming in.

Yes, you're looking at quality of life. You're looking at the housing situation. Maybe the city can get creative. For example, I was looking at Chicago not too long ago. And if you go through downtown Chicago right now, you see a transformation. A lot of skyscrapers that used to be just purely office, like the old Sears Tower is now, I think, called the Willis Tower, and it makes use its business and retail and so forth.

So perhaps the city can look at kind of converting that you know, mixed use, if you will. But the question really leaves if. If I want to be a business and come into San Francisco, yeah, I can find plenty of places to hang my shingle, but the city and the state have to sell me on it being worth my while to come to San Francisco.

So from an economist standpoint, just in terms of tax and regulation, what can the state and city be doing right now?

>> Leo Ohanian: The city really shot itself on the foot from the perspective that they had this remarkable tech powerhouse. And what the city did was nothing completely get in the way of people who wanted to create high tech startups.

And that's what San Francisco is doing was creating high tech startups. So that's what San Francisco was really, really good at. There's no reason why they can't make that happen again with the right policies. But Bill, they seem to have kind of given up on that. The mayor, London Breed, was talking about bringing in bioengineering and biotech firms.

Okay, but if they were to do that, the office buildings would have to be completely retrofitted. It's not as if they have high technology labs and equipment in those buildings. So San Francisco is a location that people have always loved for a variety of reasons. I don't see any reason why it can't return.

But then the first order business is really the fundamentals, which are cleaning itself up, making it a place where businesses are not going to feel like they're going to get shaken down from more and more taxes every other year. It remains, it can still be a very popular tourist destination, and travel destination, can still be a financial destination, but they've got to stop bleeding.

And there's really only one way to do that, and that's to really reverse course on essentially not just accepting, but promoting illegal drug use, not pursuing criminal activity. Bill, just today, I noticed that Meta, the company formerly known as Facebook, has just announced they're gonna be subletting I think it might be half a million square feet of office space.

Their decision is really enough just to move that 27% vacancy rate. I think the vacancy rate goes up to 28% with Meta's decision to sublet nearly half a million square feet of office space. So I think the first order of business, they've just got to stop the bleeding and figure out how to do it.

It's not hard to figure out how to. Figuring out how to do this is not really the issue. They've got to figure out how to get it done. And unfortunately, they have a board of supervisors, who are more interested in talking about defunding the police and abolishing rent and abolishing prisons and abolishing private enterprise, rather than figuring out, hey, the city is collapsing, hop off your high horse and get something done.

 

>> Bill Whalen: Yeah, there's one other challenge, Lee, that's if you want to bring it to business from some other state, Texas, Florida, let's say just for the sake of argument, you're gonna have to sell them on the fact that you're in San Francisco, California, and you're now as a business at the mercy of the local electorate.

Give you an example of this, back in 2018, Proposition C, which was meant to address homelessness, a tax on businesses, Marc Benioff, the CEO of Salesforce, was the driver behind this, got 60% support. It went through. Businesses got hit with a tax.. Tech community hated it. Jack Dorsey from Twitter and others did not like the idea.

But your business in San Francisco, you're kind of a sitting duck in that regard. So I'm not saying that you exempt businesses from taxes, but part of the trick of getting people to come and invest is the climate in which they're gonna live. And if I'm a businessman and thinking, my gosh, they're going to slam a tax on me every two years when people go to the ballot here, I don't want to do business here.

 

>> Leo Ohanian: No, absolutely. I mean, businesses have to feel like they're not gonna get shaken down every other day for more taxes. And this can only happen if you have a functional board of supervisors with some sense of fiscal responsibility and a plan. So they're going to have to do an awful lot to reverse course here.

And the problem I see is that the board of supervisors simply won't accept the failure that they've created within the city. The mayor, London Breed is liberal. But compared to the median person on the board of supervisors, she looks incredibly to the right politically. Right now, her approval ratings are very, very low because of what's going on within the city.

I think she has a much better understanding of what needs to be done compared to the board of supervisors. As someone who, I grew up just loving San Francisco. I'd love to visit there. As an adult, I love to take vacations there, remarkable culture, remarkable history, remarkable restaurant, sightseeing.

It's an amazing place. So it pains me to see what's happened within the city. It is what it is. It can be safe, but common sense has to prevail. And San Francisco finds itself in this situation because common sense. Was it Voltaire who said, common sense is not so common?

Voltaire would have a field day if he were to look at San Francisco politicians and the policies that they implemented.

>> Bill Whalen: That's well said. And maybe leaders just have to sit down and genuflect and think, what has become of our city? And I think a good example of this, Lee and Jonathan, is the video which most of America has seen in the past couple weeks, and that is the gentleman who runs an art gallery in San Francisco.

And the video is of him standing outside his gallery, and he has a water hose, and he is hosing down a homeless woman who has camped outside his art gallery. This is jarring footage. It is subhuman. And in no way am I excusing what he did. But what's very curious, as I'm in the San Francisco media market, I watch cover of the coverage of this, talking to local activists.

How many local activists just are not outraged by what he did? And I think part of the outrage ties into a comment made by a city supervisor who was asked about this incident. And he said, this is sad. She's a member of our community. Everybody knows her. They love her.

They know where she hangs out. And I think therein, Lee and Jonathan, lies the problem. You're this fella running this art gallery, and this woman is camped out outside of your gallery, and she's a hot mess, and she has a hot mess around her. And this gentleman feels he has no recourse but to hose her down because the city is not dealing with the problem.

And so, you know, this is homelessness in California. And God forbid this escalates. I just. I saw this incident. I thought to myself, it's kind of a minor miracle in the past five years that nobody has done anything vigilante like to homeless people in California out of frustration.

But Lee, as we talk about trying to turn that lovely city around, I think this is part of the problem. Just, you know, on display when, you know, the average citizen just can't get help from the government. The government just allows the status quo. It's homelessness and it's drugs and it's petty crime, and the list goes on of things.

But, you know, at some point, city leaders have to say, enough is enough and realize that they are as much a part of the problem as anything else.

>> Leo Ohanian: Yeah, absolutely. That footage, the video footage, Bill, you referred to is really shocking. And city supervisors have essentially created a dysfunctional society.

Functional societies are ones in which rules are obeyed. Private property is protected, crime is prosecuted. People have a sense of responsibility. And you look at people living in San Francisco, and business rents, they have come down an awful lot because the vacancy statistics we just cited. But rents remain very high.

Business costs are through the roof. And they're trying to make a buck. And most of them are not making the kind of profits that Jack Dorsey. Jack Dorsey's organizations make or Mark Zuckerberg's organizations make. They're just trying to stay afloat. And they're incredibly frustrated because rules aren't being followed.

The society has become dysfunctional. And sadly, Bill, this is the result of city supervisors not doing their jobs. And watching this video brought back to me thoughts about the wild, wild west where everything goes. Lawlessness, people take things into their own hands. And this is. Yeah, this video has gone viral.

And you've got a city supervised saying, well, this is one of our community members. Okay, great. One of the community members. But that person doesn't get to camp out on the sidewalk. That's not how a functional society operates.

>> Bill Whalen: It's the idea that a normal living situation is a woman camped out in squalor outside of my art gallery.

And that's, no, that's not how society operates.

>> Leo Ohanian: That's not how society operates. San Francisco has, in my opinion, the worst homelessness problem in the country, not just because of the numbers, but because so many have just awful emotional and mental issues and so much drug addiction. And these are people that either they become a member of society with the tenant responsibilities that go with that, or they've gotta be part of a treatment program.

It's as simple as that. And just letting this continue and persist is something that the city supervisors continue to do. And, Bill, what we've seen in San Francisco over the last couple of years is some, I think, some change in the tide of politics. You saw the. You saw, was it three school board members, I believe, last year, who were voted out of office, who just had totally off the wall, bizarre political views-

 

>> Bill Whalen: And the DA got tossed and chased.

>> Leo Ohanian: Yeah, so maybe we'll start seeing more sensible choices when voters go to vote.

>> Bill Whalen: But Lee, also more sensible choices in government. We'll close out with this. The issue of reparations is both a statewide topic. In California, there is the nine member reparations task force, which is supposed to report the legislature at some point in 2023 recommending state level reparations, quote, unquote, enduring economic effects of slavery and racism.

So if you're a descendant of slaves and living in California, in theory you're going to get paid. But Lee and Jonathan, they're also debating this in San Francisco as well. The city has an african american reparations committee, and it's not looking at slavery, but it's looking at the war on drugs.

And here's what the reparations committee wants to do. It wants to give $5 million for eligible residents. And if you're eligible as follows, you have to be at least 18 years old when the committee's proposal is enacted. You have to identify as either black or african american on public documents for at least a decade.

You also have to prove you were born in San Francisco between 1940 and 1996, have lived in the city for at least 13 years, and have either been incarcerated or descended from someone incarcerated during the war on drugs. So, Lee and Jonathan, this may play in San Francisco.

I think if a reparations matter were put on the statewide ballot, I think it would get crushed. But this gets back to my thoughts about people wanting to move to San Francisco and set up shop outside of San Francisco, outside of California. You look at this and you think, my goodness, what are these people doing?

 

>> Leo Ohanian: They just don't get it. I mean, they, they just don't get it. So, Bill, I did a couple of quick calculations so that $5 million per person to African Americans within San Francisco. Now, I didn't take into account incarceration because I just, I don't have that data.

But if you do the calculations for every black person in San Francisco, Bill, that works out to about a quarter of a million dollars per household, for San Franciscan households, about a quarter million dollars. So if San Francisco wants to become Detroit, there's no better way than to adopt this policy.

And I wonder how all of those Asian descended households in San Francisco would feel about being taxed to pay for this.

>> Bill Whalen: Well, this is the question with reparations in general. So let's say that the state wants to offer reparations to descendants of slavery, fine, they'll get money, but let's look at victimization.

Victimization within California, who else might be entitled to reparations? Asians, for both Lee and Jonathan, their treatment during the gold rush and savagery in the 19th century. Asians with their treatment of the Japanese during World War II, who else? Latinos, historically victims of all kinds of discrimination. Housing, for example, Armenians might wanna make a claim.

Gays, lesbians, the list goes on to people who could all claim victimization. So, the state could just go bankrupt doing reparations on people. But again, it's the message to the rest of the world, is California really serious or is California just gonna engage in all this kind of frivolity or not?

 

>> Leo Ohanian: Yeah, yeah, Bill, San Francisco is the poster child for killing the goose that lays the golden eggs. The goose is very ill right now, let's hope the goose comes back.

>> Jonathan Movroydis: Right, gentlemen, let's talk a little football this Sunday, the Dallas Cowboys will be traveling up to Santa Clara to Levi Stadium this Sunday for the NFC divisional playoff matchup.

San Francisco is a four point favorite to win the game, which is somewhat nostalgic because the two teams dominated football in the 1990s. San Francisco last won a Super Bowl in 1995, and Dallas last won a Super Bowl in 1996, so it's been almost 30 years. The Cowboys are also an interesting story because despite the great migration out of California to places like Texas, they still maintain their practice facilities near you Lee in Oxnard, or just south of you.

Given temperature controlled enclosures in today's sports age, why are the Cowboys even still in California, Bill?

>> Bill Whalen: Well, because you tend to practice outside during the summer, a lot of players like to be outside doing drills and all that. And I don't know how much time you guys have logged in Texas in August, you don't want to be outside in Texas in August doing football drills.

And I think the Cowboys have been coming out to California for over 40 years now. Lee and John have been in Southern California 40 years ago, they discovered that, guess what? Temperatures are about 20 degrees cooler in California, take that climate, activists. So, we are gonna go easy on our fellows by training out in California.

And yeah, this caught my attention because first of all Lee, it's just the irony of the situation here is a Texas business, the Cowboys coming out to California to do business. And unlike other Texas operations, they maintain a foothold in California as well. There's just a lot of nostalgia here as well, because again, I came to California in the 1990s, and the 49ers and Cowboys really were, I guess the Steelers would have been as well, but really were two of the glamour franchises back then.

And it's funny, neither one has been to the promised land, as Jonathan mentioned, since the mid 1990s. This came to a head, people love to bash Dallas Cowboys because they're America's team and I guess because of Texas are an inviting target. But after the actress Jennifer Lopez got engaged to Ben Affleck, somebody put out this very clever meme on the internet.

And it, regarding Super Bowl rings and championships, and the title was number of rings since 1997 J Lo 6, Dallas 0. So, but anyway, it's gonna be a really entertaining game, I think on Sunday the sun might be out here, goodness, no rain. And it just might be a reminder of just something pleasant in California, despite the weather, despite all the complaints about California, this could just be good old fashioned fun.

 

>> Leo Ohanian: Yeah, and Bill, if I was a betting man, I think I would take the Niners and the points. Dak Prescott, the Cowboys quarterback, I think he's thrown interceptions in the last, maybe the last eight straight games, home field advantage. So, I think the Niners are looking pretty good there, but Bill, it's interesting, the NFL is really the poster child of socialism within the United States.

About two thirds of the revenue generated within the NFL is shared equally across teams. So, you have polarizing owners such as Jerry Jones, who's the owner of the Cowboys, very bombastic in the media all the time. And I think he's somewhat of a lightning rod for the distaste that a lot of people have for the Cowboys.

He's always complaining about how his franchise creates so much wealth of the NFL. And then you've got franchises such as Jacksonville, for example, or Carolina who typically have losing teams, who don't have the fan base, who are small market enterprises. So, the Cowboys, yeah so Bill, you think one of these teams is gonna have a chance at getting that ring?

 

>> Bill Whalen: Yeah, I think the winner of this game may very well end up in the Super Bowl. I'm not sure if it's Kansas City, I'm not sure they can beat Kansas City, but I think this is maybe the Super Bowl game, watch from the NSC side. By the way, those people listening to this, familiar the Hoover institution, to answer the first question you'll have about all this.

No, Condoleezza Rice does not want to be the next NFL commissioner. I give talks across California and Conde, questions always come up. Lee and Jonathan, they come up in one or two forums either, why doesn't she run for office? Why does she run for president number two? Does she really want to be the NFL commissioner?

And I've asked her this a couple of times, just jokingly, and she just kind of shakes her head and just says, no, no, thank you. And she has a stake in the Denver Broncos anyway, so I guess she'd have to give that up, she did, but no, our director is very wise, and I think wise enough to stay away.

Being a commissioner of sports right now is not fun, if you haven't noticed.

>> Leo Ohanian: No, no, it's not, I think she'd do a great job. The Broncos equity position would have to go into a blind trust at a minimum, I do think she'd do a fabulous job, I hope she doesn't take it cuz we need her at Hoover.

 

>> Bill Whalen: Yes, agreed.

>> Jonathan Movroydis: Thank you very much, gentlemen, this has been very interesting and timely analysis.

>> Leo Ohanian: Thanks fellows.

>> Bill Whalen: Thanks, guys.

>> Jonathan Movroydis: You've been listening to Matters of Policy and Politics, the Hoover Institution podcast devoted to governance and balance of power here in America and around the free world.

Please don't forget to rate, review and subscribe to this podcast wherever you might hear it, if you don't mind, please spread the word, get your friends to have a listen. The Hoover Institution has Facebook, Instagram and Twitter feeds, our Twitter handle is @hooverinst, that's @hoover-i-n-s-t. Bill Whalen is on Twitter, his handle is @billwhalenca, and Lee Ohanian is also on Twitter, his handle is @lee_ohanian.

Please visit the Hoover website @hoover.org and sign up for the Hoover Daily Report, where you can access the latest scholarship and analysis from our fellows. Also, check out California on Your Mind, where Bill Whelan and Lee Ohanian and write every week. Again, this is Jonathan Movroydis sitting in Bill Whalen's chair this week, he'll be back for another episode of Matters of Policy and Politics, thank you for listening.

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