The Heat is OnI grew up in California. During the 28 years I lived there (before I moved to New York), I vividly recall four natural catastrophes:

  1. The Great Drought (1976) — an epic drought beset California and suddenly “wasting water” was a high crime. We were all taught in school only to flush the toilet only for a big one. This drought also gave rise to modern skateboarding, and how could anyone who grew up in California forget that. Here is how the drought invented the half-pipe: in 1971 a Virginia Tech student named Frank Nasworthy spent a summer in California and he came up with the idea of replacing steel wheels on skateboards with polyurethane ones. Three years later, in 1974, Road Rider introduced precision bearings to polyurethane wheels. Two years later, by state law due to the drought, watering lawns and the filling swimming pools was outlawed … and suddenly the novelty activity of “sidewalk surfing” turned into something to do — i.e. skating the verticals on those empty swimming pools.
  2. El Niño (1982) — I went to the beach to check out the waves at the onset of the storm… and the surf was breaking above the pier and had destroyed a large section of it. Even the hardcore surfers stood on the shore afraid to paddle out. When I got home, the trickling little creek behind our house that I used to jump across to get to school every day had swelled up all the to our fence line, and had washed out the road overpass, and was flowing at about width of the Mississippi River. El Niño (1982) seemed like a natural disaster, because it was one.
  3. Las Pilitas Fire (1985) — this no longer qualifies as one of the biggest fires in the state’s history but back in 1985 it was one. I will never forget that it burned right up to our High School, which is at the city line, before thankfully firemen stopped it. My freshman high school yearbook (1986) was all about the fire…
  4. Loma Prieta Earthquake (1989) — this is the one that stopped Game 3 of the World Series at Candlestick Park. It shook my Freshman dorm at University of California, Davis.

After college I moved to New York; but those are the four natural events from the first half of my life, growing up in California, that I will never forget.


Live to TellNo one growing up in California now will remember any particular fire as well as I recall Las Pilitas and that’s because wildfires now are just way too common to make a big deal about. A friend of mine who works in Downtown LA snapped this photo on his commute to work. The fact that he was driving towards the fire to go to work says something about the prevalence of major fires. Wildfires are now just a fact of life in California… they happen too often to stop everything, so life just goes on.

Back in 1985 the start of our High School year was suspended by a week just to digest the close call that our town had with the fire. Now the state’s population just drives around the flames to work. Said another way, in California fires are so common that if a huge one had almost wiped out my little town, now it would probably barely even make the local news, and it certainly wouldn’t be the theme of the High School yearbook. In 2019, a close call with a major wildfire warrants a couple snapshots for Instagram and that’s it.

Good morning commuters: expect heavy traffic and major wildfires on the 405 freeway this morning …

Here are the numbers: half of the twenty biggest wildfires in California history have happened since 2008. The most costly one (the disastrous Camp Fire) happened last year causing 85 deaths, destroying more than 18,000 structures, and doing $16.5 billion of damages — it was the world’s costliest natural disaster in 2018 and it bankrupted PG&E.

Source.

Don’t You Forget About Me • I am going to take a stab at this. The worsening of California’s fire problem is a function of two things:

  1. Population Growth: California’s population has grown 14% in 20 years. The state now has 5 million more people who consume energy (more power lines) and who might make a mistake (like throwing the proverbial cigarette out the car window);
  2. Climate Change: the warmer spring and summer temperatures has lengthened the 2019 fire season by 75 days.

But not only is the fire season longer, it’s also drier. Just as the prevalence of major wildfires in California has made any one of them less memorable… the same goes for drought conditions in the state. The 2007–2009 drought was worse than the Great Drought of 1976. The summer of 2007 also saw some of the worst wildfires in Southern California history (to that point in time).

Folsom Lake (2008)

And the drought in the period between late 2011 and 2017 was worse than 2007. It was the driest in California history since record-keeping began. Below is a drought map of California.

Source.

Everytime You Go AwaySince when I grew up in California (the early 70’s) wildfires in the state have increased in size by eight times and the annual burned area has grown by nearly 500%. Said another way, after the disastrous Camp Fire last year, California currently has thirteen fires blazing as I write this and is enduring endless cycles of precautionary power outages. A day will come when my friends will send me photos from the 405 because it is not rimmed with burning wildfires.


Separate LivesIn the next Presidential election our choices will be: either a Democrat or a Democrat. And by that I mean, Donald Trump has been spending like a Democrat. And although I really cannot imagine how it would be possible for a real Democrat to outdo Trump’s spending, if one is indeed elected, I have no doubt he/she is going to try.

To this point in time the incredible amount of Federal spending has been funded by budget deficits (see below). But at some point this must be transferred to tax burden (maybe sooner rather than later depending on who wins the election). And, again, looking at the below, Federal taxes are going to have to go up.

Source: Bloomberg.

Increasing the Federal tax burden could spell trouble for California’s financial position. Taxes are already out of control (see below). But now add to that mess an endless cycle of super-fires burdening the government and power outages disrupting the economy. If the top Federal tax rate was hiked from 36% to 45%, California won’t be affordable with its 12% personal income tax rate, 8% sales tax, and 18% corporate tax.


Don’t Let the Sun Go Down on Me • New York, where I live now, stands out to have a different sort of solvency risk. If wildfires are a threat to California, especially if the Federal tax rate increases (as I think it must), then wealthy flight is a risk to New York. In September President Trump, a lifelong New Yorker, filed a “declaration of domicile” changing his residency to Palm Beach. The Donald might not be New York’s most popular resident but he’s definitely not “moving” to Florida for that reason. Florida, of course, has no income tax. Many of of NYC’s most affluent already have homes in Florida, and if the Federal tax burden was to increase, I would expect a few more of them to follow President Trump in spending more time there for tax residency purposes.

I have been wondering lately, what might be the financial hotspots caused by the aging of Baby Boomers. My hunch is the state budgets of California and New York could be the first places to see trouble. Maybe I should move to Floria — no taxes and no wildfires. As we used to write in our friends’ High School year books: “see ya at the beach”… Miami beach, that is.

Christian Alexander

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Businessman, Bicyclist, Blusterer

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