California Recovery Legend Ignores Debt of $340 Billion


Thursday June 5th, 2014   •   Posted by K. Lloyd Billingsley at 7:00am PST   •  

CA-Capitol_200For some months now the story has been going around that California is experiencing an economic turnaround. As Ben Boychuk noted in City Journal California, the story “describes a state emerging from a decade of fiscal darkness to reclaim its place as an innovative, diverse, entrepreneurial haven.” The tale may be compelling but remains incomplete.

For one thing, it ignores California’s unemployment rate of 7.8 percent, much higher in rural counties, and higher than the national average of 6.3 percent. The turnaround tale also ignores the exodus of business from California, such as Toyota’s recent move of 3,000 marketing and finance jobs from California to Texas. In similar style in 2006, Nissan moved its U.S. headquarters from southern California to a suburb of Nashville, Tennessee. And as Boychuk observes, federally subsidized Tesla “won’t be locating its new $5 billion lithium-ion battery factory in California. It’s considering Arizona, Nevada—and Texas.”

Other problems concern the state’s high income taxes, with a top rate of 13.3 percent, and the “wall of debt.” Governor Jerry Brown pegs that at $24.9 billion, but that’s only what the state pinched from special funds to balance the budget. Boychuk writes that the governor “ignores the much larger wall of debt: between $330 and $600 billion in unfunded public pensions, health care, and bonds.” Dan Walters of the Sacramento Bee recently weighed in on this theme.

“The state now owes about $340 billion, with unfunded liabilities for pensions and retiree health care by far the largest pieces,” Walters explains. The State Teachers Retirement System (STRS) has an unfunded liability of $70 billion, and Brown says it needs $5 billion a year to regain solvency. Likewise, the state increased unemployment benefits, and when the recession hit had to borrow $10 billion from the federal government. And so on.

For Boychuk, California remains a place of opportunity but “its promise is imperiled by legislators and elected officials, who give little thought to the consequences, intended or otherwise, of their policy choices.” A genuine resurgence is possible, “but the only renaissance underway right now is in the heads of certain politicians” and their friends in the media.




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