The State Worker

Chronicling civil-service life for California state workers

January 15, 2010
Is California's budget crisis overblown?

The Wall Street Journal's Bret Arends wrote a counterintuitive piece this week that puts California's financial struggles in a bit of a different context.

After acknowledging the state's budget trouble, job losses and housing market collapse, Arends argues that California bonds remain a solid investment, despite doomsday predictions in some quarters that the Golden State is on the verge of becoming a failed state:

I think fears about California's fiscal stability are greatly overdone. A lot of this commentary is really political rather than economic. When someone warns you that "California, a laboratory of liberalism, is spiraling downwards, driven by a huge budget deficit," you have to figure it's more about "San Francisco values" than Sacramento economics.

California's latest budget shortfall, $20 billion over the next 18 months, looks a lot less intimidating when compared to the $1.9 trillion state economy. So too does the size of the state's general obligation debts: Standard & Poor's says there are $64 billion in Californian general obligation bonds -- those backed by the state's tax power -- outstanding.

A bit later, Arends says,

Ultimately, of course, the health of a state government will hinge on the performance of the state economy. There, too, talk of California as a "failed state" is misleading. Yes, California has been hit hard by the latest crisis and its economic performance last year was dismal, probably worse than in many other states. But the longer-term picture is one of the success, not failure. Between 1998 and 2008, according to the U.S. Department of Commerce, California's economy grew by 25% per person in real, inflation-adjusted terms. The U.S. average: 16%.

California, in fact, did better than all but a handful of states. It did far better than the Rocky Mountain states, the Southwest, the Great Plains states, and the South. California did far better than Texas or Alaska -- during an oil boom. And California achieved this faster growth even though it started from a higher level. It has, and maintains, one of the highest standards of living in America.

After noting that "hundreds of billions of dollars" of Californians' federal taxes have subsidized less-wealthy states for decades, Arends says,

That would be enough to pay the entire Sacramento state budget for years. Failed state? They should declare independence.

Click here to read the entire WSJ piece.

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About The State Worker

Jon Ortiz The Author

Jon Ortiz launched The State Worker blog and a companion column in 2008 to cover state government from the perspective of California government employees. Every day he filters the news through a single question: "What does this mean for state workers?" Join Ortiz for updates and debate on state pay, benefits, pensions, contracts and jobs. Contact him at (916) 321-1043 and at jortiz@sacbee.com.

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