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.
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“Short term, these are all good signs, but long term a lot still needs to be done,” says Kevin Klowden, managing economist and director of the California Center at the Milken Institute in Santa Monica, Calif.Skip to next paragraph
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About 80 percent of the revenue generated by Prop. 30, which was pushed by Gov. Jerry Brown (D), will come from higher taxes on high-income earners. But the revenue is temporary, lasting only five years, Mr. Klowden and others point out. And so the state’s income generation is not permanently changed.
“We are by no means out of the woods, but the ship is slowly turning and gathering momentum to positive growth,” says David McCuan, a professor of political science at Sonoma State University in Rohnert Park, Calif.
He notes upticks in the high-tech sector and a record-breaking box office over Thanksgiving. “When you throw in the engine of Silicon Valley, the power of Hollywood, and an economic tailwind, the state will look a lot much closer to that thing called The American Dream and a lot less like Greece,” says Professor McCuan via e-mail.
Stumbling blocks ahead include pension reform, how cities handle bankruptcy threats, and how Washington deals with the “fiscal cliff.”
“Additional increases in taxes and regulations could slow business growth,” says Jack Pitney, professor of government at Claremont McKenna College in Claremont, Calif. “We should not plan on the recovery being quick or even. Our state is unusually vulnerable to fluctuations in the stock market and the world economy.”
The current Legislature, he says, seems unlikely to handle public-sector pensions seriously. And other cities could go the way of San Bernardino, which declared bankruptcy in August, and Mammoth Lakes, which declared bankruptcy in June.
“There is a serious risk that more cities will go bankrupt, which would be very bad for the overall economic climate,” Professor Pitney says in an e-mail.
Still, California now has a nice window of time to deal with longer-term problems without the pressure of a crisis, some analysts say. Yet the outcome will depend on Governor Brown’s political ability.
“The proof of this rebound will depend on whether or not Jerry Brown can remain the prudent adult in the room and hold together the coalition that helped him win Prop. 30,” says Barbara O’Connor, director emeritus of the Institute for the Study of Politics and Media at California State University, Sacramento.
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