The No-Growth Giveaway

Cosmo Garvin and the Sacramento News and Review have written the kind of deep analysis of the arena issue the city needs but hasn't received. He finds what anyone who has followed the sports extortion game would expect: Spending huge amounts of taxpayer dollars in giveaways to basketball arenas has little or no benefit to local economies. The outrageous claims of boosters "aren't real."

But the real news is that Kevin Johnson's team of hired liars have now essentially conceded that Garvin and the economic doubters are right.

They have released a new "study" making the usual bogus claims of the kind Garvin debunks. They say the arena will increase economic output in the region by $11.5 billion over 35 years.

Since this is the holiday season, let's be charitable and assume they are right. How big is $11.5 billion over 35 years?

The Sacramento metropolitan area had an output of $97.6 billion in 2012. If you assume economic growth at a nominal rate of 4 percent a year, the region will produce $8.2 trillion in total output over the next 35 years. Divide the claimed arena boost by total output and you find the claimed "incredible multiplier effect" from the arena would amount to only 0.0014 of the region's output over that 35 years.

How "incredible" is that? It is so tiny you need a microscope to see it. It is the economic equivalent of 11 hours in a year, or the length of two football fields on a drive from the State Capitol to Union Square in San Francisco. In other words, it is exactly what Cosmos Garvin's fine report shows: Arena subsidies bring little or no growth.

And now Kevin Johnson and his cronies have admitted it.

The Taxes That Didn't Bark

Was it a good thing for California that legislative Republicans stymied Gov. Jerry Brown on taxes in 2011? Robert Kleinhenz, the chief economist for the Los Angeles County Economic Development Corp., thinks so. According to the Los Angeles Times, Kleinhenz told the Sacramento Press Club that, “We were still reeling from the recession. [A tax increase] could have taken an already dire situation and made it worse.”

If Kleinhenz offered any evidence or argument to back up his opinion, the Times didn’t say. In fact, the Times didn’t even bother, for the benefit of readers, to clear up Kleinhenz’s apparent case of amnesia. The issue facing California when Jerry Brown became governor in January 2011 wasn’t whether to raise taxes. Higher taxes had already been in place in California for nearly two years: the temporary tax increases approved by the Legislature and Gov. Arnold Schwarzenegger in February 2009, at the very depth of the Great Recession. In his first budget Brown sought only to maintain the status quo by extending the level of taxes already in place.

We don’t have to speculate, then, about whether higher taxes “could have taken an already dire situation and made it worse.” California took the leap in 2009. If higher taxes were destructive, Kleinhenz might be expected to offer evidence of it in the economic performance of the state while they were in effect. That’s the kind of thing a skeptical journalist (as opposed to a stenographer) might want to check, either by looking directly at the data or interviewing an expert. The Times failed to do so.

So let’s try it here:

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Job Growth, California and nation

The graph compares the year-over-year percentage change in private nonfarm employment in California (blue line) against the nation as a whole (red line) for 2010 through 2012. California’s rate of recovery almost exactly tracks the national economy both on the left half of the graph, the period when the temporary taxes were in place, and on the right half, after they disappeared in July 2011. Raising taxes “in an already dire situation” apparently didn’t makes things worse, nor did lowering them two years into the recovery make things better. 

This is not surprising. Readers would understand this if the Times and other media would occasionally provide some numbers to give context to our political arguments. One of the great failings of public policy reporting is that journalists so rarely show readers what they mean by phrases like “higher taxes.” Brown’s initial budget proposal to extend the temporary taxes would have raised revenues by a combined $15.5 billion over the 2010-11 and 2011-12 fiscal years. What does $15.5 billion mean? Well, total personal income in the state for those two years was $3.4 trillion. The argument was about less than one-half of 1 percent of personal income. 

And the alternative to that small drag on the economy, Kleinhenz and the Times neglect to tell us, was not to avoid all drag. Unable to extend the Schwarzenegger temporary taxes, Brown and the Legislature were forced cut spending. Firing teachers and state workers created its own small drag. Some of the private-sector job gain of 632,000 in the graph above was offset by the loss of 83,000 public sector jobs. 

So was it a good thing that Jerry Brown didn’t get his way on taxes in 2011? Measured by the short-term movement of the economy, it didn’t matter much one way or the other to most Californians. But to all those young Californians who found themselves shut out of college or trying to learn math and science and English in schools with shortened years and overcrowded classrooms, it may matter a lot for the rest of their lives.

Faulty Sacramento Fault-Finding

My old newspaper, the Sacramento Bee, has once again gone into full panic mode over the rumors that a Seattle group may be trying to buy and relocate area’s National Basketball Association franchise, the Sacramento Kings. Dare I suggest that what the Bee’s readers need at the moment is less panic and more insight?

Marcus Breton assures readers that “whether the Kings ultimately move or stay, it's time that Sacramento embraces an undeniable truth: None of the turmoil surrounding the team is the fault of this community.” It’s all the fault, the ham-fisted local columnist tells us, of the team’s owners, the equally ham-fisted Maloof family. If that is so, why did the Kings fail to prosper, either on the court or as a business, during the tenure of the prior two owners?

Should the Kings leave, Phillip Reese reports, Sacramento would be the second largest metropolitan area in the nation without a major-league sports franchise, after only the Inland Empire area of San Bernardino and Riverside.

That’s a nice factoid but it raises the obvious question: Why? Pro sports teams are businesses. Leagues locate their franchises in the places where they are likely to yield the greatest revenue and profits. Is there something about Sacramento that explains why it has such a hard time supporting the Kings?

The Bee used to know and report the answer. NBA franchises draw a large share of their arena revenue from corporate sales. But Sacramento, its economy dominated by state government, is the weakest market when measured by the number of local firms able or willing to shell out for season tickets and luxury boxes. The area’s median household income is far below that of metropolitan areas on the coast, home to California’s other pro sports teams, or of Seattle, and its growth is hampered by its mediocre level of educational attainment. Those weaknesses, which have plagued the franchise since it moved to Sacramento in 1985, have been compounded by the effects of the Great Recession. The popping of the housing bubble and cuts in state government dealt a double blow to the region, which lags far behind most of the country in recovering lost jobs.

The uncomfortable truth that Breton and others at the Bee evade is that the Kings story is part of the larger story of Sacramento’s economic shortcomings and leadership failures. The area is a lousy market for delivering revenue to an NBA team, and its governments are in deep fiscal trouble and in no position to subsidize the franchise. A newspaper devoted to tough journalism would be telling that story, not whining and pointing fingers.

Yet Another Bad Day for California Haters

That terrible, no-good, rotten, doomed place called California just refuses play its appointed role of conservative whipping boy for all that is wrong with America. The Labor Department is out with a new jobs report and once again California leads the nation, with 25,200 new jobs last month. Over the last year California has added 365,100 jobs, more than the next two states, Texas and New Jersey, combined.

What will the California haters, including Mitt Romney and Sarah Palin make of the news? It will not ruffle them in the least. Once you commit to the politics of fantasy, you can never let facts get in the way.