Is the California economy finally turning a corner?
In California, the deficit for the current fiscal year is projected to be $1.9 billion, down from $25 billion in recent years. The unemployment rate and some home sales are also improving.
There are several signs that California’s economic fortunes – after plummeting for half a decade – are on the rebound, buoyed by voter approval this month of tax-raising Proposition 30.Skip to next paragraph
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Here is the evidence:
• The independent California Legislative Analyst’s Office projects a relatively small $1.9 billion deficit for the current fiscal year – down from $25 billion in recent years. “There is a strong possibility of multibillion-dollar operating surpluses within a few years,” the Nov. 14 report concludes.
• The state’s unemployment rate has dropped 1.4 percentage points since October 2011 and is now at the lowest point since February 2009. The rate is still high, however: 10.1 percent.
• Home sales are increasing in some regions of the state, such as southern California, where they rose 25 percent in October compared with the previous year, according to the University of Southern California’s Lusk Center for Real Estate.
• A USC Dornsife/Los Angeles Times poll from Nov. 18 indicates that the percentage of Californians who say the state is headed in the right direction has doubled since October 2011 – although the current figure is only 38 percent.
• New income is expected from the passage of not only Prop. 30, but also Prop. 39, which repealed an existing law that gave out-of-state businesses favorable tax treatment.
“The California economy and the state’s fiscal health is improving. For the first time in years, the budget situation is stable and thus state and local governments have more certainty about what to expect in the next year,” says Mark Baldassare, president of the Public Policy Institute of California, in an e-mail.
With California being the most populous state and having the world’s seventh-largest economy, the recent developments bode well nationally.
“California is the whale in the bathtub of the American economy. Signs of economic improvement in California have important positive national implications,” says Steven Schier, a political scientist at Carleton College in Northfield, Minn. “Given that the state's economy has been even more depressed than that of the nation as a whole, signs of a California rebound are quite positive for the country as a whole.”
Bond-rating firms have also weighed in, noting the $6 billion in additional annual revenues that are projected through 2016-17 because of Prop. 30. “California credit quality looks to improve with passage of Proposition 30,” says a Nov. 7 analysis by Standard & Poor’s.
All this said, several economists hasten to add that California’s improvement is only short term and that longer-term problems have not been addressed. They also note that the unemployment rate is still high.