Monday, December 22, 2008

Doin’ It Wrong, California Style


Funny how states and local governments prioritize when times get tough. They don’t have the capacity to “print money” (the old world way of saying “increase the money supply”) that sits with the Federal Reserve, or to incur deficits and automatically release tradable bonds like the Congress with Presidential support. Their ability to incur a deficit is limited by their access to the financial markets and the willingness of the federal government to lend or grant money.

So states have to “balance” their budgets but cutting programs or raising taxes. That’s bad enough, but when you have a requirement of a legislative super-majority (2/3 in California) to approve a state budget, things can get quite ugly. When former governor Gray Davis saddled his state with a sucker bet of paying way too much for energy futures, he was recalled and replaced by Arnold Schwarzenegger, who inherited a system that doesn’t work and mired in a fiscal mess that seemed insolvable. But California is decreasingly the “place to be” anymore.

Sure, most Californians don’t really want to leave the state – according to the December 17 Los Angeles Times, 69% of native-born Californians remain in the state as adults, a pretty solid vote of confidence, but things are changing and not for the better. With housing prices plummeting far faster than the rest of the country, living in California or running a business here is still a whole lot more expensive than the nation’s average. California hubris that “we’re worth it” seems to be becoming a narrow list of positives like good weather and lots of ocean frontage.

The Times noted that when looking at population movement between states, California has been a net loser since 2005 – this last fiscal year we 135,173 more people moved to other states than moved in. True, this is a drop in the bucket for a state with a population (38 million) bigger than all of Canada, but it is disturbing trend. Simply put, even with the real estate drop, between car insurance, rent or home prices, transportation costs and taxes, it just plain costs too much to live in this sunny state. Between international immigration and the birth rate, the state still grew at mild 1.16%, but reasons for interstate migration is troubling.

As the legislature debates even more taxes and massive layoffs and indefinite postponement if needed infrastructure repairs and upgrades, California is faced with the one of the highest unemployment rates in the country – 8.2% (and if you apply the same analysis that the federal government does in its “alternative measurement” – which adds part-timers looking for full time and people who want jobs but don’t have anywhere to look – the number tops 15%). When you look to the “subprime” Los Angeles bedroom counties of Riverside and San Bernardino Counties, the unemployment rate is a staggering 9.5% (almost 18% if you apply the alternative measurement ratio). Los Angeles itself is socked with a 7.7% unemployment rate (which tops out at over 14% using the alternative measurement fraction).

With bad traffic, long commute times, mostly terrible public schools and a high cost of living, the people hit hardest are those whose skills would, even in good times, only score only an average American job with wages that just don’t measure up to the quality of life that such a wage scale might buy elsewhere. We lost a lot of people in the mid-1990s when aerospace started moving elsewhere, and people followed the jobs, but population growth through interstate migration returned in 1998.

So the legislature (joined by lots of local governments) is talking about making the state more expensive when people can afford that cost least, laying off huge numbers of people and cutting construction (infrastructure jobs) which can only further erode the tax base because most of the state, particularly in the southern half, is badly managed with archaic rules and out-dated policies. The polarization of the mega-wealthy of Beverly Hills/Bel Air contrasted to people just out to make a decent wage only makes life that much less tolerable out here. But then I have to chuckle as New York, our “right coast nemesis,” is considering adding a tax on iPod downloads to NY residents.

Without the jobs and home-price stabilization, what our state legislators are creating is a downward economic spiral that will only make things worse in the long term. We’re killing our future. Go figure.

I’m Peter Dekom, and I approve this message.

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