California 2025: Taking on the Future
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California 2025: Taking on the Future ••• Editors: Ellen Hanak Mark Baldassare 2005 Library of Congress Cataloging-in-Publication Data California 2025: taking on the future / Ellen Hanak and Mark Baldassare, editors. p. cm. Includes bibliographical references. ISBN: 1-58213-110-4 1. California—Economic conditions. 2. Infrastructure (Economics) I. Hanak, Ellen. II. Baldassare, Mark. HC107.C23C33 2005 330.9794—dc22 2005004054 Copyright © 2005 by Public Policy Institute of California All rights reserved San Francisco, CA Short sections of text, not to exceed three paragraphs, may be quoted without written permission provided that full attribution is given to the source and the above copyright notice is included. PPIC does not take or support positions on any ballot measure or on any local, state, or federal legislation, nor does it endorse, support, or oppose any political parties or candidates for public office. Research publications reflect the views of the authors and do not necessarily reflect the views of the staff, officers, or Board of Directors of the Public Policy Institute of California. Foreword In the late 1990s, PPIC began a systematic assessment of growth, development, and infrastructure issues in California. The first report looked at metropolitan planning organizations and the implementation of federal transportation policy. The second focused on redevelopment as a form of subsidy to local governments. Subsequent reports covered topics as diverse as local growth controls; infrastructure planning, budgeting, and financing; housing supply; the regulation of electricity; and the future of water markets in California. It would be hazardous to identify a single, simple theme in all of these studies, but they all do conclude that building for the future of California will not be “business as usual.” In the past, California relied on increased spending to meet its needs. The future will increasingly require improved efficiency—making better use of existing facilities rather than the wholesale construction of new ones. Moreover, the state’s growth plans are, and will probably continue to be, heavily constrained by a combination of local and state policies that regulate everything from the environment to affordable housing. By 2003, PPIC had a much better understanding of infrastructure supply, including the options for putting new capacity in place and the process for implementing plans. We were less certain about future demands and what the future will bring in terms of population growth and composition. Is our current system of infrastructure planning and investment up to the job? We approached the William and Flora Hewlett Foundation with an ambitious plan—mobilize resources from both institutions to take a look out to the year 2025. PPIC was in the unique position of having a research team that had just completed ten years of research on the changing population, economy, and governance issues facing the state. We had also just completed five years of work on infrastructure. Our proposed project identified a wide range of relevant issues—population iii and economic forecasts, systems of governance, the financing and requirements for infrastructure, the equity of alternative solutions, and statewide public opinion about the need for new infrastructure investments. The Hewlett Foundation had a strong interest in bringing the state’s future requirements to public attention and highlighting the kinds of solutions necessary to bring demand in line with supply. With substantial support from the foundation, PPIC launched the project in the fall of 2003. California 2025: Taking on the Future is the result of that effort. This project draws some remarkable conclusions. The contributors see a future of slowing population growth and a shift in economic growth trends that will put less pressure on infrastructure. They also conclude that major strides have been made in the planning and financing of infrastructure and that many of the demand-management options once politically unattractive are entering into the process of balancing supply and demand. Rather than facing a crisis, California seems to be at a critical point—looking at a future that could be managed with a set of policy options that fall short of budget-breaking solutions. Ironically, the major concern raised in the report relates to the supply of high-skill labor. Providing sufficient human capital, rather than more physical capital, could well be California’s biggest challenge in the year 2025 and beyond. California has always drawn on a national and international labor market to help meet its needs for high-skill labor. However, those born in California who do not get a four-year college degree might well find themselves left out in future growth cycles. The relative supply of jobs for high school graduates will shrink while jobs for higher-skill workers expand. The authors conclude that this shift, coupled with some demographic trends, could create a state with increasing numbers of workers without the skills to make significant gains in lifetime earnings. Their conclusions point once again to the importance of education to the state’s economic growth and especially to the integration and well-being of individuals from second and third generation immigrant families. This report provides a unique profile of California’s future. From population and economic growth to the supply of infrastructure. From iv physical capital to human capital. From “hard” solutions to “soft” solutions to our infrastructure challenges. And from importing our future labor supply to growing our own. These are the challenges facing the state today. California 2025: Taking on the Future provides the facts and clarifies the options. David W. Lyon President and CEO Public Policy Institute of California v Contents Foreword....................................... iii Figures ........................................ xi Tables ......................................... xv Acknowledgments.................................xix Acronyms .....................................xxiii 1. INTRODUCTION AND SUMMARY by Ellen Hanak and Mark Baldassare .................1 California’s Population in 2025 .....................3 Trends and Patterns in California’s Economic Future ......5 Infrastructure Financing in California.................7 Infrastructure Needs and Tradeoffs...................9 Governing Institutions, Planning, and Public Investment ..12 Equitable Infrastructure Investment .................16 The Public’s Views on Growth, Governance, and Policy Options .................................18 2. CALIFORNIA’S POPULATION IN 2025 by Hans P. Johnson ............................23 Alternative Population Projections ..................27 Overall Population Growth: Lower Than Previously Expected, But Still Large .....................28 Population by Race and Ethnicity...................31 Nativity.....................................32 Age Structure .................................34 Regional Projections ............................38 Educational Attainment .........................44 Population Projections and Public Policy .............48 3. CALIFORNIA’S ECONOMIC FUTURE AND INFRASTRUCTURE CHALLENGES by David Neumark.............................51 Economic Forecasting ...........................52 Economic Forecasts for California ..................54 vii Threats to the Forecasts..........................59 Employment Versus Population Growth..............62 Industrial Composition and Infrastructure Use .........66 Industrial Composition and Skill Needs ..............69 Educational Attainment and Changing Educational Requirements .............................75 Conclusion ..................................80 4. INFRASTRUCTURE FINANCING IN CALIFORNIA by Kim Rueben and Shelley de Alth .................83 Local Infrastructure Financing .....................86 Spending Patterns in California ....................87 K–12 Education ...............................93 Higher Education..............................97 Water Supply and Quality.......................100 Transportation ...............................104 Conclusion .................................111 5. SIZING UP THE CHALLENGE: CALIFORNIA’S INFRASTRUCTURE NEEDS AND TRADEOFFS by Ellen Hanak and Elisa Barbour .................113 K–12 Education ..............................116 School Facilities Funding Needs and Gaps ..........116 Alternative Approaches to Meeting Needs ..........119 Higher Education.............................120 Higher Education Funding Needs and Gaps ........123 Alternative Approaches to Meeting Needs ..........127 Water Supply and Quality.......................130 Supply-Related Needs ........................132 Quality-Related Needs........................134 Is There a Funding Gap? ......................136 Transportation ...............................139 Transportation Funding Needs and Gaps...........146 Alternative Approaches to Meeting Transportation Needs .................................148 Integrated Strategies and Smart Growth .............151 Conclusion .................................153 viii 6. CALIFORNIA COMES OF AGE: GOVERNING INSTITUTIONS, PLANNING, AND PUBLIC INVESTMENT by Elisa Barbour and Paul G. Lewis ................157 California’s Golden Age ........................158 A Statewide Freeway System....................160 A State Water System ........................161 A Master Plan for Higher Education ..............163 Retreat and Transition .........................165 Growth Pressure Builds Again ....................168