Sunday, December 5, 2010

Economist Magazine: Repairing California

The tide begins to turn


For once, California’s prospects seem better in the long term than in the short

CALIFORNIA has changed direction this year. This is not because of a conservative backlash in the mid-term elections, for there wasn’t one—California bucked the national trend and elected Democrats to all eight of its statewide offices. The legislature remains solidly Democratic. Even the new governor who takes office next month is in fact an old one: Jerry Brown last had the job in 1975-83.

Instead, the change of direction is constitutional, and comes as the cumulative result of a number of decisions that voters made this year, through the state’s peculiar brand of “direct democracy”. In the three decades since Mr Brown’s last reign, voters had created, through the cumulative effect of ballot initiatives, a Byzantine system of governance, taxation and budgeting that left California helpless when the Great Recession hit. In the course of 2010 they have passed reforms that could make the system work again. It will, however, take time.

In the near term, things may get worse before they get better. Unemployment, at 12.4%, remains higher than in any state except Nevada (wrecked by a property crash) and Michigan (devastated by the downsizing of the car industry). A lot of houses are still in foreclosure. Tax revenues remain far below their pre-recession levels though October was a strong month. 

A state budget was finally signed in October after a record delay of 100 days, but it was based on silly projections and gimmicks. Mac Taylor, the legislature’s independent analyst, estimates that the budget remains $25.4 billion, or about 29% of spending, in deficit for this and the next fiscal year, with annual deficits of about $20 billion thereafter until 2016. State spending—on welfare, education and much else—has already been cut by about $16 billion in three years, and must be cut more.

This is the mess that Mr Brown is about to inherit. He takes office on January 3rd and must present a balanced budget to the legislature just one week later. And Mr Brown knows better than anybody else how hard that will be.

Posted by Steve Sinai

1 comment:

Anonymous said...

most of us will be dead before, and if, this state ever gets better.