Home Economy California Is (Again) Teetering On The Edge Of Financial Ruin

California Is (Again) Teetering On The Edge Of Financial Ruin

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For years, it had been speculated that California’s state-wide model of heavy regulation, expensive education, high taxes and bloated spending would eventually drive the state into financial ruin, according to a new Bloomberg Opinion piece. Over the last 15 years, the state also has had to deal with widespread blackouts and an unemployment rate that ballooned to 12% after the financial crisis.

After deficits exploded under Governor Schwarzenegger, the state eventually got back on track. Under Governor Jerry Brown, the state raised taxes again (surprise) and bumped up its sales tax. These tax hikes, combined with a recovery in housing and in the stock market, helped swing the state’s budget back into the black.

But now, the symptoms of larger problems in California are bubbling to the surface yet again. For instance, the recent “planned blackouts” by power provider PG&E to try and prevent wildfires are indicative of a crumbling energy infrastructure across the state.

Losses from recent wildfires in California have been “staggering”, totaling upwards of $400 billion in 2018. This figure represents about 1/7th of the state’s total GDP and is comprised of health costs, lost property, lost jobs and asset prices falling. It also takes into account migration out of the state.

PG&E has said that the “safety” blackouts will continue, which means that the state isn’t going to have reliable year-round electricity. This will inevitably take its toll on property values and slow migration inflows into the state.

While wildfires rage across the state, another issue is plaguing California: homelessness. The state’s homeless population has increased by 5.3% from 2010 to 2018. California is already home to almost half of the country’s homeless. We have documented, at length, the homelessness issues in areas like San Francisco, where the epidemic is reaching a fever pitch.

At the same time, government pension costs are rising across the state; faster in California than in the rest of the nation. The cost saving measures being put in place to offset this problem are degrading the state’s education system.

And so, the inevitable has happened: people are leaving the state.

In fact, a recent paper by economists Joshua Rauh and Ryan Shyu found that out-migration of top-bracket taxpayers accelerated after the state’s 2012 income tax hike.

“Among top-bracket California taxpayers, outward migration and behavioral responses by stayers together eroded 45.2% of the windfall tax revenues from the reform,” the paper’s abstract says.

With Democrats back in the saddle, holding a supermajority in the state, California seems doomed to repeat its dysfunctional history from the early 2000’s. Making matters worse, an initiative called Proposition 13 is making it difficult for California to alleviate its burdens by raising property taxes, the op-ed notes:

But California’s political system is making it hard to respond to these pressures. Thanks to a 1978 ballot initiative called Proposition 13, California cities have stringent limits on raising revenue from local property taxes. That forces the state to provide many services, financing them with hefty income taxes. Those are inherently more unreliable than property taxes, since wealthy taxpayers can move away (while property can’t move), and since California’s income taxes fluctuate a lot because they depend so much on the profits residents earn on volatile stock prices.

“Proposition 13 must be repealed, and property taxes raised,” the piece continues, in order for the state to avoid what it calls another “dark path”. It also suggests that the state legislature pass bills to allow greater housing density and more construction throughout the state.

Only time will tell whether these proposed solutions, if implemented, would even work. But one thing is for sure: if California doesn’t do something soon, the state could become (further) living proof that creating a liberal utopia by hiking taxes and adding regulation is nothing more than a pipe dream, if not a full blown recipe for exactly how to drive an economy into the ground.

via zerohedge

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59 COMMENTS

  1. Hag hillary is showing incontrovertible proof that she is insane beyond a doubt. Why do we permit this lunatic to continue dissipating so much of our time and national resources by her attention-grabbing twisted schemes when she is no longer in politics? She is a total political irrelevancy. She is not in office or in any capacity whatever; she is simply a stage hog. Her twisted mind has her thinking that the American people are interested in her in any way.
    The only thing America wants is to be rid of her once and for all. hillary, be kind to yourself and disappear. At least you legacy won’t be a total freak show.
    MAGA!
    VOTE RED!!!

  3. I have lived in California for 52 years, moving here from Ohio in 1967. I lived in the San Francisco Bay area (Palo Alto and Woodside) for 30 years and the San Diego area (north County) for the past 20 years. I have done business in 20 states, lived in three (Ohio, New York and California), visited over 100 countries and lived in 4 of them, and there is no place on earth I would rather live than California. The people are smarter, better educated, more ambitious and more successful than those of other states. I have earned 3 times as much as would have in other states, and have become quite wealthy, because Californians know how to get things done, while also caring for other people. Eat your hearts out, you deplorables in the “fly-over states”; California will be here long after your miserable poor states are gone.

    • California caring for other people? What a joke. Take a closer look at the homeless in la and San Fran. Those people deserve more than the liberals are giving other than a fresh supply of needles.

    • Paul Williamson, lmao, your people are so smart and educated that your state is crumbling with the highest debt in the country. Meanwhile in Texas, a state that actually is doing very well, we are having to fight against your refugees trying to turn our state into the same kind of s**thole that they fled from. Right, really “smart” people you have there.

    • Have you thanked the hardworking American taxpayers? California sucks the taxpayers dry! That sucks one state alone receives more federal aid the the other 48 combined (new York not counted because they are a close 2nd) with out the taxpayers in all the states you claim are lazy, uneducated, and can’t get things done your earning potential would be “ZERO”. Don’t know what kind of taxpayer funded business you latched onto but truth be told states like California and the libturd loving leeches that live there are one of the biggest reasons America was struggling! And it’s that greater than thou attitude people like you scum bags have is one of the biggest reasons the rest of the United States can’t stand you pukes! Believe me just because you’ve led a nice life living off the taxpayers doesn’t make you smart or ambitious, it makes you a lazy piece of shit playing the scam card!

      • Your 100% correct.. Yet their people continue voting DemonRat…Go figure..Just returned from Az & they wish the California morons would stay on their side the border…

      • I too live in California and have since my husband shipped here in 1970. Being from Oklahoma I can say thank God we shipped out of there as it is one of the most corrupt states I’ve seen. We have a total idiot for a governor in Newsom and are working to get rid of him as between him and Brown the two have really messed up this state. It doesn’t help when we have more idiot fakes in Hollywood and city mayors who have no clue how to run a city except to run it in the ground. Am I going to leave California, no because I believe in fighting rather than running and am a firm believer we will eventually make people see it’s better to get rid of the ones hurting us than running away.

    • Paul. I have lived in CA for 43 years, not as long as you but for a reasonable time. I retired out of the military there, Worked for an aerospace company, and taught physics at a CSU. I am one of those leaving the state due to the Democrat corruption which included making ballot harvesting” legal, thumbing it’s nose at federal laws by becoming a “sanctuary” state, not helping the homeless appropriately, allowing the infrastructure including the schools to decay…. Those are the start of my list of why I am leaving. You are welcome to stay and let the state tax you out of existence. Good luck. The middle class is moving out and then who will pay the bills? You will pay the bills. California is becoming Venezuela 2.0.

      • So right the rich see only what the rich want to see all else is immaterial, but when the
        rich become less rich their sight becomes much better telling the brain what they failed
        To see! Williamson is in for a awakening in his future!

    • Amen!! They should be made to totally operate without Federal Funding!! Let these Socialist go broke & even die if they cannot conform to our form of government for our country then they should go it alone!! Become an independent country themselves.

    • Yeap you’re smart then everyone else because 1/4 of the population can’t speak or read English so easy to advantage of them! And those that can, you threaten with DEPORTATION! So you can afford to under pay them! As for the rest of us that are willing to stand up to you! I wouldn’t say having public Temper tantrum‘s counts as a
      Intellectual discussion! Nancy Pelosi and Governor Newsome do fine job EMBARRASSING THE REPUBLIC OF CALIFORNIA PERFECTLY AND BY YOUR COMMENT SO HAVE YOU

    • Your state is spiraling into a 3rd world country. Those of us in Fly-Over states are laughing daily at the sewer that California has become. You brag about your wealth … glad you are there and being taxed into poverty and leaving the rest of us alone.

    • Paul,
      I have serious doubts for the CA disaster now on the downhill slde one again.
      I havde two daughters living in Laand have little use for that part of gag land. The cost ofliving is attrocious. Getting around is horrid. Everywhere oone goes is jammed with people.No thanks for California. Puke!

    • The wealthy and the very poor are going to be the only ones left in Cali, the middle class is fleeing. Enjoy supporting all the welfare, non-English speaking folks in your third-world s***hole. I am a California refugee in Idaho, left 36 years ago and never regretted it.

    • Goody for you…Now stay there & start cleaning your own made mess… Ca will soon be raising your taxes, & begging
      Uncle Sam for Another hand-out..

    • Its a third world in losangeles sandiego San Fran nothing but Asians an mexicansheless all over the streetsIsuppse if you have enough money you can insulate yourself from the undesirables It’s only the weather tha keeps me here (Retired)

    • You are amazing!……… Now back to reality!…….. California shouldn’t need any assistance from the federal government or any of the other 49 states due to the influx of the hundreds of millions of dollars from the pot industries in California or just collect the money from the illegal (freeloading) immigrants crowding the sanctuary cities.
      The federal government should step in and arrest the entire California legislature as well as their supreme court judges and try them under RICO statutes and violation of existing federal laws.

    • I’ll laugh when the state takes your wealth to survive and BTW, I’ve covered more territory than you and you can have Mexifornia and they can have you as they go down the tubes. BEFORE they go I hope they suck the life out of Follywood too.

  5. It’s baffling that the liberal left, who claim to be so intelligent, refuse to see that everything they touch turns to rubbish. All the regulations they put into place do nothing but stifle the economy and the constant taxation offers little to no resolution. Personally, i wish Cali leadership would get the heads out of their backsides because i’m getting tired of residents leaving and taking their libtard agenda with them. Look at Texas, a good example of cali transplants who are trying to infect them with their liberal crud that does not work and that is proven.

  6. I have lived in CA for 65 years when my mother moved us here from Washington so she could attend San Jose State. She finished school and we moved to Palo Alto where I was able to attend the last 6 years of school (6-12…I was 10 when we moved). I loved growing up here and raising my kids here, but I have watched the state going down hill faster and faster and find that I cannot afford to stay here and live on my retirement, Social Security, and my savings that give me a very reasonable income if I didn’t live in CA. Yes the state is beautiful and yes those who have the right degree and knowledge can make lots of money, but the state cannot continue to raise taxes on gasoline, sales, income, business, etc. to keep its head above water. Adding all kinds of benefits like free healthcare, housing assistance, and other programs to illegals is not helping the budget and takes away assistance that could help solve the homeless epidemic. Big business has been moving to states that are more welcoming, don’t tax them to death, and have fewer drastic regulations. A building permit in CA can take months or years to obtain and costs a fortune, but states like NV give you the permit promptly and the cost is more than reasonable (just one example). While I love living in CA for the climate, the beauty, my friends and family, I am watching it go downhill rapidly and as a senior now have to think seriously about leaving my life here to go where I can afford to live. Many of the people I have worked with, went to school with, or have been associated with for one reason or another have moved out of state once they retire as they want to enjoy life and be able to do some traveling before they no longer can. All of this does not make those leaving the state or living in the midwest “deplorables” Paul Williamson. The people living in the “fly-over states” are the ones who provide much of the food you enjoy…that juicy steak, those baked potatoes, the grains that make your bread and other goodies, the milk you drink, and many other things while CA is paving over every square inch available, taking the water from the farmers, plowing up orchards and farmland, and causing the prices to keep rising on the fresh fruits and vegetables that were so plentiful and inexpensive here.

  7. Build the wall along coastal California and let it burn. They keep doing this to themselves, why the hell should the rest of us keep bailing them out?

  8. California is getting what they deserve especially when they are a sanctuary state and also probably the most expensive state to live in right now they think the solution is to raise everybody’s taxes and the people who have lived there are saying see u later we have had enough of the Democrats and are leaving in droves

  9. You really should do a reality check. If it was not the feds money. CALIFORNIA WOUND CLOSE DOWN. U ARE SPENDING MORE THEN U TAKE IN. DON.W

  11. Paul Williamson ;
    You have to be a left wing liberal Democrat !
    Nobody but could spout such diatribe about a state like California !
    I lived there long before you did (I grew up there) and I wouldn’t even consider visiting that Shit Hole!
    People like you deserve that state ,and all the joyful things that go with it !
    So do the rest of us the curtsey of remaining in the Sunshine state with the rest of your commi pinko leftist liberal deadbeats !
    Your kind of liberal bullshit is what got the ” The Late Great State of California ” in the situation that it’s in right now !
    Enjoy the Sunshine and please STAY THERE !!!!!

  13. We need to limit how much American taxpayers are sent to cali, based on the ratio sent to other states. They get way more than their share, and their laws and taxes should NOT affect any diminishing of other states to get their fair-share. Why don’t they just leave the U.S.A. and use their already socialist plan for their state/country? LOL*

  14. I have family living in California. Unfortunately some of them are DEEP SEATED LIBERAL/SOCIALIST/ANTI TRUMPERS. If they would just look at what has happened to their state with the LIBERAL control and the SANCTUARY STATE provisions, ok’ed by their leaders, and the problems it has caused ALL the people of California. I lived in California for a few years when I was in the Military but moved straight back to TEXAS AS SOON AS I COULD. I love my relatives that still live there but don’t understand why they live in DENIAL about California’s problems.

  15. California needs to suck it up, and leave the rest of us out so there Social experiment. Keep you problems to yourself. Quit moving out of California and infecting us with your way of life!!

  16. Very simple. Vote Congress out and deny any hardworking taxpayer money to them. Convention of Sates to ratify the US Constitution. The States gathered to approve the Constitution they can gather to stop this idiocracy by idiots that we hire as our employees. We are to blame for our situation. Fix it or STFU with the whining already.

  19. Governor Newsome is dragging California down the tube with his “sanctuary state” status, the dereliction of Los Angeles, San Francisco with all the homeless, illegals, druggies and just out and out corrupt city officials.

  20. You are crazy. No wete in my state do people defecate in public. No other states have people who hate as much as you and New York. Better educated not in a pigs eye. California will be long gone while the rest of us laugh at you.

  21. I say let the state continue on it’s current path all the way to the end of the line. It will create many teachable moments. It will show, unequivocally, that it not possible to tax your way to prosperity and it will provide an excellent counter-point to the states that are attempting to cut taxes, run more efficient governments and prioritize expenditures. It will also show the folly of attempting to spend massive amounts of money to control the climate (controlling the climate has forever been relegated to God). The one thing that must NOT happen is for the country to bail these clowns out when they hit bottom. The California Clowns have created a shit hole-let’s let them fix it.

  24. “But one thing is for sure: if California doesn’t do something soon, the state could become (further) living proof that creating a liberal utopia by hiking taxes and adding regulation is nothing more than a pipe dream, if not a full blown recipe for exactly how to drive an economy into the ground.”

    New Jersey is in the same position. North Jersey’s liberal utopia has been hiking taxes and adding regulations for years, chasing good people out of this State. And making slaves of those who can’t afford the “exit tax” to GET OUT of the State.

    See what happens when democrats control. Don’t care about their constituents, only their global liberal agenda. And we pay, and pay and pay and pay, as our State goes down the drain.

    • https://www.breitbart.com/clips/2019/10/20/booker-im-praying-for-peaceful-transfer-of-power-because-trump-is-trying-to-incite-people-with-incendiary-language/

      This moron is part of the problem in New Jersey, and he wants to be president?

      ”This president now is using the most incendiary language trying to incite people by using language like a coup, like treason,” he continued. “What this person is doing is trashing our ideals, our values, and our norms. And I know from private conversations with Republican colleagues, since the day he swore his oath, I know how this offends so many people in Congress that are Republicans.”

      Hey Booker, even T-Bone knows this is a coup and it’s TREASON. Trashing your ideals, your values, and your norms is GREAT as you live by “Globalist terms”, NOT the Constitution or the USA way. And your conversations with Republicans, let’s call them what they really are Rhinos, those who carry an “R”, but really are working with the Dems for a little piece of personal pie.

      YOU offend me Booker, and I can say that living in the State you are destroying for YOUR Globalist ways.

  25. Just another democratic socialist state going the way of Venezuela and now they’ll want the hard working conservatives to bail them out. Maybe Paul should spread some of his wealth and fortune with Pelosi’s nephew the Governor.

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