A maximis ad minima. [Lat.] From the greatest to the least.

If you are a potential client organization and, after reading the previous section, require additional information regarding America’s economic plight, and the associated potential negative impact of those issues upon your organization, then please consider this section.

To understand how the macro trends explored in the previous section may eventually come to dominate America, one must only research the micro trends of arguably the most economically-dysfunctional state in the union: California. To that aim, since the post-war 1940s, it has been said that where California leads, America inevitably follows. And in the realms of entertainment, mass media, education, unionization, technology, popular culture, citizen rights et al, this axiom has certainly proven true. Thus, given the enthusiastically promoted economic, taxation and social engineering policies politically extant, we predict that we may soon see the “Californication” of America.

To wit, in September 2012, the prestigious Manhattan Institute released a report titled, “The Great California Exodus: A Closer Look,” that utilized Census and IRS data to examine the dramatic middle-class migration of Californians to other states. From 2000 to 2010, California lost almost 1.1 million citizens to this out-migration. The primary reasons identified were California’s poor business climate and unreasonably high taxes that caused many employers to leave the state, and has deterred many other employers from replacing them. The hard data behind those difficult decisions is obvious.

• California already had the highest state personal income and sales tax rates in America, yet in November 2012, California passed Proposition 30 which authorized an additional $50 billion in state income and sales taxes. Accordingly, 237 California localities sought voter approval of additional local taxes, property assessments, and rate hikes.

• California has a budget deficit of $16 billion, and its cumulative debt is the highest in America at $618 billion. Accordingly, California has the worst state credit rating in America, and has essentially become an American version of Greece. The storied city and county of Los Angeles itself is technically insolvent. In response, the State Treasurer recently commissioned a “default probability model” for city bonds to defer potential financial and legal exposure. Of note, the governor’s May, 2013 boasting of an unexpected $1.2 billion state budget surplus was quickly proven to be accounting smoke and mirrors due to the state’s “hidden” fiscal obligations, such as the $4.5 billion in tax revenues the California teachers union pension fund recently demanded to stay solvent. That’s $4.5 billion annually for the next 30 years. The state’s treasurer recently warned that the system will “implode.”
  

• To further the Greece analogy, California’s unemployment rate is the highest in the nation at 10%, as is its 23% poverty rate. A full one-third of Americans receiving public assistance live in California due to the state’s generous public assistance benefits.

• The Milken Institute has determined that businesses in California pay 23% more than the national average in operating costs. A primary example of such cost inflation are energy costs, as California electrical rates are 50% higher on average than in other states due to politically-driven environmental strictures, and are anticipated to increase dramatically with full implementation of the California Global Warming Solutions Act. In micro example, even the dairy industry is abandoning the state. According to a California Department of Food and Agriculture report, the state has lost 537 commercial dairies since 2003. The reasons quoted include government price controls, the rising cost of feed, and excessive environmental standards, such as a state regulation that required dairymen to have the same spillage safeguards for milk as are employed for crude oil.

• Due to California’s chronic combination of economically-crippling taxes and historic overspending, the Tax Foundation’s “2012 State Business Climate Index” rated California 47^th in America. California has also received the lowest grade possible by the Council on State Taxation: a D-. In a stunning bit of symbolism, the financial newspaper Investor’s Business Daily recently announced plans to relocate its production facilities from California to Texas.

• The Civil Justice Association ranks California 44^th in legal fairness in business cases, and in 2012, again named Los Angeles the most unreasonable and adversarial business litigation environment in America. Additionally, the Small Business & Entrepreneurship Council rates California 49^th in business-friendly environments, and CFO Magazine has rated California as the worst state in America in terms of fair treatment of business. In a now-famous quote, Chief Executive Magazine has called California the “Venezuela of North America.”

• The consultancy Development Counselors International reports that 72% of surveyed national-level executives listed California as the worst climate for business in America. And the consultancy Bain & Company found that 60% of California business executives are either actively restricting their corporate growth in the state, or are actually moving jobs to other states at average per-employee savings of 30 to 40 percent. In another stunning example of symbolism, the Southern California Better Business Bureau was recently expelled by the national Council of Better Business Bureaus after it was discovered that managing executives of the Southern California branch had been awarding higher grades to businesses in return for cash payoffs.

• California state politics are essentially controlled by the 1.8 million citizens who work for the state’s various government bureaucracies, and the 325,000-member California Teachers Association who, according to the Census Bureau, collect some of the highest sector paychecks and employment benefits in America. Of note, between 1996 and 2009, California spent an additional $20 billion on educational subsidies, including the hiring of 18,000 new unionized teachers, without noticeably impacting the state’s notoriously horrible public school student performance rate. The 2011 National Assessment of Educational Progress ranked California 46th in the nation in reading and math levels. This has negatively impacted the state’s burgeoning dropout rate and street crime levels, which in turn negatively impact quality of life surveys and corporate relocation decisions. The advocacy organization Children Now recently warned of over 200,000 unemployed school dropouts across California. Considering the state’s already abysmal poverty and unemployment rates, several leading urbanologists have warned of a hardened underclass looming as an imminent source of economic, social and political conflict. In yet more symbolism, the recent election for Mayor of Los Angeles was dominated by millions of dollars in donations from police, fire fighter and public utilities employees unions in preparation for new employment contract negotiations in 2014.

• The ill-named California Public Safety Realignment Act of 2011 saw 9,000 state prisoners released in 2012, with an almost immediately corresponding 4.5% increase in property crimes. Under the Act, another 27,000 prisoners are due to be released by 2014. In probable civic response, The Sacramento Bee reported a surge of 600,000 additional private gun sales statewide in 2012.
• In a June, 2013 story the L.A. Times revealed that California isn’t even a good state to die in. According to an analysis by the California HealthCare Foundation, dying patients often fail to receive the kind of palliative care they desire, and instead spend more time in hospitals and less time in hospice care than anywhere else in the country. California end-of-life patients spend 14 additional days in hospitals compared to 10 days nationwide, and 13 days in hospice care compared to 21 days nationwide. The reason is apparently due to pressure to fill available hospital beds, and thus reap the increased Medicare expenditures available from such a policy. According to a report by the Dartmouth Atlas Project, California healthcare spending in the last two years of life is approximately $112,000 per patient, or 60% higher than the national average.

• In February 2013, the Los Angeles Unified School District, the nation’s second largest with 33,000 teachers, was found to have misappropriated $158 million from its cafeteria fund. While the misappropriation was ongoing, the district warned that if meal subsidies were not increased, students might go hungry, and/or the district might have to cut fresh fruit and vegetables from the students’ menus. Meanwhile, according to a 2010 investigative report by LA Weekly, over the past decade, the district spent over $1.187 billion dollars on three grand new “education complexes,” while spending another $3.5 million simply trying to fire seven under-performing teachers. Four teachers were ultimately fired, two were paid large cash settlements, one was reinstated…and 32 more that had been recommended for termination were secretly paid on average $50,000 each to quietly resign without complaint.

• In 2012, the California cities of Stockton, Vallejo and Mammoth Lakes, and the county of San Bernardino, filed for bankruptcy protection, while San Jose and San Diego drastically reformed their employee pension plans to narrowly avoid a similar fate. According to The Economist, the California Public Employees’ Retirement System, the world’s sixth-largest pension fund with assets of $245 billion, immediately filed suit to force reimbursement of missed municipal payments, and to block further restrictions on its claimed position as a favored creditor ahead of other municipal bond holders. The case is anticipated to eventually go before the U.S. Supreme Court, and could lead to credit downgrades and a large-scale market withdrawal by many lenders that may have a crippling impact on the national market for municipal debt. Alarmingly, Moody’s recently warned of up to 30 more California municipalities potentially facing bankruptcy, with corresponding cuts in public service budgets, particularly the police and the courts…and looming fights with the state’s public employees’ pension fund.

In summary, to quote the influential The Weekly Standard, we are seeing “...the culmination of a two-decade-long process in which the nation’s most populous state, once a prosperous industrial and high-tech powerhouse and magnet for immigrants from elsewhere in the country, has transformed itself into something else: a high-tax, high-spending, highly regulated, and chronically broke welfare state that is fast losing to out-migration both its middle class and the businesses and industries that create jobs.”

In conclusion, perhaps the most troubling data yet are numerous focus group polls, conducted by both major political parties, which demonstrate that the average American voter simply does not understand, or simply does not care, about the factors driving the nation’s structural economic deficits. In California, these numerous “low-information” and/or “single-issue” voters (i.e. reproduction, racial, or gender equality “rights”), have largely been found to have no idea that it was their recently re-elected governor who, during his first tenure in office decades ago, first unionized state employees, halted important infrastructure projects, and enacted many of the state’s radical anti-business and draconian environmental regulations that have now brought California to the fiscal precipice - his answer to which was the aforementioned Proposition 30, the $50 billion state income and sales tax hike. The massive tax hike was sold to the public, with energetic assistance from the state teacher’s union, as a crucial benefit “For The Children!”  Unfortunately, the state’s school children, through direct program funding, are projected to realize approximately five cents on the dollar of all monies raised. The balance is already earmarked for numerous other state employee programs. In a post-election interview some viewed as cynical, the governor happily stated that with the successful “For The Children!” marketing strategy, Proposition 30 “sold itself.” And with $50 billion more taxpayer monies to spend, less a measly few million to actually go to the children in question, unionized state employees couldn’t be happier.

While Credent Star, Inc. is not predicting that this kind of economic irresponsibility will ultimately sweep across the United States – indeed, many states such as Texas, Arizona and Wisconsin are already taking firm action to avoid it - the socioeconomic writing may already be on the wall. By way of example, the Credent Star, Inc. home state of Colorado, until recently a shining example of common sense conservative fiscal probity, recently drank the California Kool-Aide and joined the ranks of politically blue states seemingly intent on committing economic suicide on the installment plan. These plans include new income redistribution and social engineering schemes worthy of Washington D.C. itself, such as a Democratic-sponsored “Jobs Bill” that in reality was concerned only with creating comprehensive sex education standards for grade school children. Yet another stunning bit of symbolism was a recent pro-pot rally near the state capitol in Denver, the largest rally of its kind in the nation, where three people were gunned down in the street while toking. National media commentators first thought the billowing clouds of smoke which obscured the victims was teargas. However, the haze, clearly visible from over a mile away, was later confirmed to be marijuana smoke.

To quote The Economist again, the larger question in mind is, over the next few years, will America become a nation of “government employees or empowered citizens? Of taxpayers or tax-eaters? Of the early 21st century, or the early 20th?” While that crucial political and cultural debate rages, Credent Star, Inc., by fostering 15% to 40% annual savings in operational budgets, and corresponding $150,000 to $500,000 in annual saving,s even if a standard GPO analysis was conducted only six months prior, helps fortify our clients, no matter where they may operate, against the hard Californication to come.

 “For a time is coming when people will no longer listen to right teaching. They will follow their own desires and will look for teachers who will tell them whatever they want to hear. They will reject the truth and follow strange myths.” 2 Timothy 4:3 -4.