California Wake Up Call William Osborne 6/7/13 The California Dream is slumbering into nightmare. California, the ninth-largest economy in the world, is a profoundly troubled state. It remains badly broken in many fundamental ways even as the national economy slowly but steadily emerges from the Great Recession and as cash from November’s voter-approved tax hikes pours into the state treasury. The tax increases have, to be sure, provided short-term budgetary relief, even a multibillion-dollar surplus, after years of multibillion-dollar deficits that were papered over with phony economic assumptions, accounting gimmicks, massive borrowing and raids on the treasuries of school districts and other local governments. Indeed, state Controller John Chiang says that April was the first month in six years in which the state was able to pay its bills without raiding internal funds. This flood of new cash has cast a glow over Sacramento — a giddiness that all is well again in the Golden State. But compelling arguments can be made that the tax hikes were the worst thing that could have happened. First, they did nothing to provide the broader structural economic reform needed to prevent severe long-term financial distress and the degradation of basic public services that would go along with it. Second, the income tax hikes, which targeted the wealthy, only worsened California’s vulnerability to destructive boom-and-bust budgeting should an economic downturn strike again. And third, the false sense of financial security that they spawned is leading the Legislature to continue to blithely ignore the reality and the severity of many core problems. Consider: Shockingly, California now has the highest rate of poverty in the nation, measured at 23.5 percent, significantly higher than any of the states of the Deep South. The state government is awash in debt, hundreds of billions of dollars, much of it stemming from the Cadillac salaries, pensions and retiree health-care benefits paid to state employees. The pension reform proposed by Gov. Jerry Brown and enacted last year was helpful, but it was a small solution to a giant problem. The state that historically was among the last to fall into recession and among the first to pull out it, has flipped. In the previous three national economic recessions, the California job market has fallen farther and taken longer to recover than the U.S. market. Unemployment in California today, though thankfully falling, remains among the highest in the nation. Of California’s 58 counties, 27 are burdened by unemployment at or above 10 percent; four of them have a jobless rate higher than 15 percent. In Imperial County, the jobless rate in April was 24 percent. It was 19.9 percent in the Central Valley’s Colusa County. The educational performance of California students now ranks near the very bottom as measured by the National Assessment of Educational Progress, known as “the nation’s report card.” On the state test for 2011-2012, only 56 percent of students scored at the proficient level or above in English. Even fewer, 51 percent, were proficient in math. The state lost 33 percent of its industrial base from 2001-2012, declining 11 percent more than in the United States as a whole. The state is now increasing manufacturing jobs at an anemic rate that lags far behind that of the nation. Once the national leader in export growth, California has been losing ground for more than a decade and is now a distant second to Texas in total exports. State and local government regulatory agencies are strangling the efforts of small and large businesses to expand. Evidence is abundant that many companies are leaving the state or, more commonly, deciding to expand elsewhere rather than here at home in a state that consistently ranks at or near the bottom of surveys of the business climate. Even San Diego, which likes to promote itself as “business friendly,” was given an “F” for friendliness to small businesses for the second year in a row in one survey this spring. Environmental regulation, more restrictive than anywhere in the country, only adds to the burdens on business. Under AB 32, the state’s landmark legislation to combat global warming, energy costs for California manufacturers are projected to be 50 percent higher than any other state. The simplest of permits can take weeks or months. Environmental “greenmail” lawsuits against development projects are common. Beyond the metastasizing cancers afflicting state government, many local governments also are in financial peril. Stockton and San Bernardino are bankrupt and Vallejo recently emerged from bankruptcy. Of the three, only San Bernardino has attempted to address its pension debt. Many other local governments struggle to stay out of what municipal finance experts bureaucratically refer to as “service delivery insolvency” — the point at which a government is considered essentially unable to effectively deliver services to its people. Ironically, some national pundits argue that California is not only on the mend but is a model that other states and the national government should follow. They argue that elimination of the budget deficit is evidence that the only real problem here has been conservative anti-tax ideologues who have repeatedly stopped the state from implementing what the pundits view as necessary tax increases.
Posted on: Sat, 08 Jun 2013 01:07:10 +0000
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