With its massive $25.4 billion budget shortfall, loss of government jobs, and the lingering impact of the housing bust, California has been something of the poster state for the economic meltdown. Last week, the CalWatchDog website reported further devastating news that the state faces another underfunded debt of nearly $60 billion to pay for retiree health and dental benefits over the next 30 years. Comptroller John Chiang said that this unfunded liability grew by just over $8 billion during the 2010 fiscal year, an amount equal to almost 25% of this year’s entire California K-12 education budget.
But California is really a tale of two economies, says Stephen Levy, the director and senior economist for the Palo-Alto-based Center for Continuing Study of the California Economy (CCSCE), a private organization established in 1969. On the one hand, he said, the state was “at the epicenter of the housing disaster,” while government budgets are being slashed.
But despite the worst recession in 60 years and an estimated one out of every eight workers out of a job, California, at $1.9 trillion, is the world’s eighth-largest economy, Levy said. “We have very high value-added industries such as Apple, Google, and the motion picture industry that have very high levels of output,” he said. “So the value of the economy per job is higher even though our job growth is average. We’ve been doing okay.”
How “okay?” “Every state,” Levy told MillionaireCorner.com, “has to be the best state it can be for what it is, and California is a center for innovation and creativity. Think Hollywood, think Silicon Valley, think the people who make and design toys and furniture, think of all the art institutes.”
California added 82,600 nonfarm jobs between December 2009 and December 2010 for a gain of 0.6%, trailing the nation’s 0.7% job gain. But Levy pointed out that the job picture improves dramatically once losses in construction (26,300) and government (51,500) jobs are removed from the data. In these data, California job growth more than doubles for 2010 and outpaces the nation 1.5% versus 1.3%. “Exports are good and tech is growing well in Silicon Valley, which has led the state in job growth,” he said.
California’s biggest challenge, Levy said, is “passing a budget that doesn’t devastate the state.” In his February State of the State address, Gov. Jerry Brown, urged legislators to put his tax extension plan on the ballot for a special election in June. It calls for $12 billion in taxes to help make up the shortfall. This would be in addition to the $12.5 billion cuts to, among others, the state’s Medicaid program, welfare-to-work initiative, and the state’s college systems. Two-thirds of the legislators would have to act by March to agree to put the tax measure on the ballot. Then, it will be up to the voters to approve it. Brown has said that cuts will be even more severe if they do not.
“Talking about the budget in March is revolutionary (for the state),” Levy said.”We’ve never started this far ahead. “Our challenge is showing that we’re the state that can agree on something rather than being the state that would rather fight than agree on anything, which is kind of like the U.S. Congress is looking like.”