California Dreamin’

10/25/10 Laguna Beach, California – California’s Napa Valley gets the headlines, the wine-tasting awards and the black-tie charity dinners…California’s “Emerald Triangle” gets the cash.

That’s right, the Golden State’s marijuana crop generates about $14 billion in revenue each year, and most of that revenue flows into the three main cannabis-growing counties of Humboldt, Mendocino and Trinity — aka, the Emerald Triangle. $14 billion may not seem like much, as it is roughly the same sum as the bonus pool at Goldman Sachs. On the other hand, $14 billion is larger than the GDP of Iceland, double the GDP of Nicaragua…and seven times larger than the revenue of the California winegrape industry.

A few miles to the south of the Emerald Triangle in Napa and Sonoma counties, an array of deep-pocketed vintners and gentleman-farmers try to squeeze profits from grapevines. Very few succeed. California winegrape production generates only about $2 billion in gross revenue annually, and virtually no profit…on average. Thus, the California “weed” industry produces seven times more revenue than the state’s massive winegrape industry. This contrast may not mean anything in particular, but it may not mean nothing either.

Up in California’s verdant north, cannabis plants flourish as bountifully as liberal politics…and budget deficits. As a result — of the politics and the deficits — the Golden State has become a high-tax, quasi-socialist domicile that has become increasingly hostile to private enterprise. Once upon a time, the massive California economy featured shipyards, oil refineries, lumber mills, aerospace factories and many other forms of “heavy industry.” Not any more.

The modern California economy features a few legacy heavy industries — that continue to operate only because they had not yet been regulated out of existence — along with a quirky combination of light industries like tourism and marijuana cultivation. If, as a former Morgan Stanley analyst once observed, “Europe is a vast open-air museum,” California is quickly becoming a vast open-air love-in, where the marijuana and good vibes flow freely…as long as Mom and Dad don’t forget to send cash.

But Mom and Dad are having a hard time paying the bill these days. The longer the good vibrations in the public sector persist, the tougher it becomes to keep the love-in going.

Back in 1978, California chose a path that determined much of its ensuing future. The state voted itself a big tax cut. Proposition 13 — officially titled the “People’s Initiative to Limit Property Taxation — amended the California Consitution in 1978 to limit property taxes to a maximum of 1% per year. This feel-good amendment, which slashed property taxes by an average of 57% overnight – inspired a national “taxpayer revolt” throughout the country. Suddenly, Americans began to believe that they could, in fact, have something for nothing.

In 1978, California enjoyed a robust budget surplus. The economy was humming along and there seemed no reason not to believe that benefits could and should increase for everyone, especially for everyone who drew a paycheck from the state itself. Thus began the legendary tales of tenured university professors who work as hard as welfare recipients to receive six-figure paychecks, subsidized housing and a lifetime of generous retirement benefits. Likewise, the outlandish stories of municipal police officers who receive $150,000 in total compensation, or the state lifeguards who “tactically retire” on “disability” so that they may receive lavish lifetime pension and medical benefits, while also generating a second income working somewhere else. But these are stories for another day…

Today’s story relates to a different historical footnote from 1978. Republican candidate for governor, Evelle Younger, crafted an election platform that included constructing 30 new nuclear power plants along the California coast. Younger lost the election by a landslide to Jerry Brown, the ultimate feel-good candidate.

We did not need nuclear power, Brown countered, anymore than we needed those billions of dollars of property tax revenues that Prop.13 eliminated. This was California, the Golden State…the dreamiest portion of the American Dream.

As it turns out, California probably could have used a few extra property tax dollars…as well as a few extra nuclear power plants. Because the state lost half its property tax revenues, it became dangerously reliant upon other forms of taxation, like income and capital gains. Since these latter two forms are uneven and unpredictable — and tend to drop when they are most in need — the State’s income tax rate steadily increased…which placed an increasing burden on the private sector.

Meanwhile, over in the power-generation sector, nuclear energy’s share of California energy production has dwindled to a paltry 12%. Three decades of No Nuke sentiment in the state — epitomized by the Diablo Canyon protests in 1981 — completely thwarted every effort to increase nuclear power production. One ironic, unintended consequence of the 30-year anti-nuke campaign is that coal-fired power plants now generate more electricity in California than nuclear plants.

But political opinion tends to oscillate between extremes. The “bad” policies of one generation become the “good” policies of the next. Thus, “bad” nuclear energy will return to California one day…just like it is returning to the rest of the planet. In fact, nuclear energy is enjoying a global renaissance — once that will produce numerous profit opportunities for forward-looking investors.

OK, disagree on the tax revolt being harmful. CA made up for proposition 13 many times over, in other taxes. And what would Sacramento have done with the extra money, anyway that would be of lasting value.

As for nuclear power, I moved to CA in 1987 to participate in the re-start of the Ranch Seco nuclear power plant. Then, in 1989 the voters decided to shut it down, despite the fact that the plant recovered and was operating at 100% power.

So now they want electric cars without the electrons, and lavish pensions without a private sector to pay for them.

I moved to Colorado in 2008.

“$14 billion may not seem like much”

It would only leave their deficit at - $5 billion from - $19 billion. $14 billion sounds like a pretty good chunk to me.

Prop 13 was needed because it protected people who bought their homes based on monies of that generation.

Some before 70 bought their home for 28k on an 8k a year income. Today under those 1% taxes and uo to another .35% from voted self debt through bonds that home pays about 1k in taxes.
The same home today is sold for 325k and the taxes if bought today would be about 4.5k.

Without prop 13 about a third or more people would be out of their home.
Earlier generations had smaller incomes. If you take the older person's tax of 1k on the home and compared it to the modern day salary and the 4.5k tax, the 1k is paying the same or more compared to today IMO.

The problem is we had mad people in charge of the state treasury who were spending far more than they were taking in. Rather than live modestly on what they had, they spent more on their government unions and welfare in exchange for a vote to keep their party in control. Now we are hurting form that.

Also, LAWSUIT and LAWYER reform. They should be seeing a depression through major tort reform IMO.

>>...the Golden State’s marijuana crop generates about $14 billion in revenue each year...<<

And I hear Kentucky is second. Kinda weird.

“And I hear Kentucky is second. Kinda weird.”

I know Tennessee has to be in the running.

I’m getting a plaque made for the entrance to the 1/4 mile driveway to my farm in Kentucky.

Copperhead Road

http://www.youtube.com/watch?v=ttitN75ESvY&feature=related

My wife thinks I’m kidding. I’m not. ;)

“My wife thinks I’m kidding. I’m not. ;)”

I always liked that song. Reminds me of home.

What’s really interesting to me is that those color “road” pictures could all have been taken within a two mile radius of our farm. It’s pretty amazing. I may actually make my own still, but it will be for personal use and as a hobby. I’ve always wanted to try that.

The weed, not so much...

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