NCPA - National Center for Policy Analysis

California: Can Oil Revive Its Economy?

May 22, 2013

California is known in the majority of the business world as a regulatory disaster. They have unbalanced labor and employment laws, a high minimum wage, stringent zoning regulations, loose worker compensation requirements, and burdensome licensing requirements across professions and trades. These problems have led to a disturbing increase in emigration from California to other states, but a recent discovery of up to 15 billion barrels of oil in the Monterey Shale formation could cause the economic growth needed to help California get back on its feet, says Michael M. Rosen in The American.

William Ruger and Jason Sorens of the Mercatus Center at George Mason University conducted a study of freedom in all 50 states and found that in California:

  • 1.5 million people departed for other states between 2000 and 2010.
  • This amounted to roughly 4 percent of the state's population.
  • Ruger and Sorens rated California 49th in terms of overall freedom.

Citizens fleeing from California to other states are causing more fiscal problems for California's government.

  • In March, the state auditor found California's net worth to be negative $127.2 billion.
  • The Hoover Institution calculates that only 144,000 Golden State households "accounted for about 50 percent of the aggregate state-income-tax revenue -- and personal income taxes usually account for about 50 to 60 percent of all state revenues."
  • Even if only a small fraction of those 144,000 depart for a warmer business climate, California's already-shaky finances will fall even further out of order.

Although California's future looks dim, there is a spark of hope. As many as 15 billion barrels of oil were found in the Monterey Shale, which constitutes 64 percent of all shale oil reserves in the United States, and four times as much as North Dakota's Bakken formation.

The University of Southern California conducted a study that concludes:

  • These oil reserves could generate 500,000 jobs.
  • They could generate up to $4.5 billion in tax revenue for the state by 2015.
  • They could add another 2.3 million jobs and another $20-plus billion by 2020.

There is skepticism about the benefit of the oil to California, because of the alleged effects fracking has on the environment -- California is known as an environmentally friendly state. Even so, Governor Edmund G. Brown, Jr., has come out and praised the amount of oil as incredible and claimed that the oil creates massive potential for the California economy.

Source: Michael M. Rosen, "Could California Make a Comeback?" The American, May 15, 2013.


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