Gov. Jerry Brown persistently cautions Californians that their pulsating economy cannot last forever.
When, for example, he unveiled a revised state budget last May, he included what has become boilerplate, warning that “by the time the budget is enacted in June, the economy will have finished its eighth year of expansion – only two years shorter than the longest recovery since World War II. A recession at some point is inevitable.”
Of course it is, but Brown probably hopes it occurs after he’s handed over the keys to the Capitol’s corner office to his successor 14 months hence. A downturn would probably result in a major budget crisis, given that under Brown, the state budget has become even more dependent on very volatile taxes from a relative handful of high-income taxpayers.
Meanwhile, however, the state’s $2.6 trillion economy continues to hum along, outpacing the nation as a whole and solidifying California’s high position in global economic rankings.
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Unemployment, around 5 percent of the labor force, is at an historic low level – so low, in fact, that the state is seeing serious labor shortages in some sectors. One leading economist, Christopher Thornberg of Beacon Economics, remarked in a recent report, “The modest growth in the state’s labor force indicates employers are finding it increasingly difficult to attract candidates to fill skilled positions and the lack of available housing in many parts of the state is making it difficult to fill lower-wage positions.”
One example of the latter is to be found in agriculture. During this harvest season, farmers are reporting severe shortages of field labor, thanks to competition for workers from other, higher-paying sectors such as construction, the inability of migrant workers to find affordable housing near the jobs, and President Donald Trump’s crackdown on illegal immigration.
As Thornberg implies, the state’s severe housing shortage – and therefore sky-high housing costs – are a potential threat to the state’s overall prosperity. The state is falling about 80,000 units short of its annual need for new housing.
Moreover, those same housing costs create another dislocation. Despite its strong overall economy, California also has the nation’s worst functional poverty, creating what Antonio Villaraigosa, one of the leading candidates to be Brown’s successor, calls “two Californias” – one enjoying the California lifestyle, the other mired in structural poverty.
Last month, the Census Bureau published its annual data on poverty, revealing that once again, by a “supplemental measure” that takes housing and other costs of living into account, California had the highest rate of any state, 20.4 percent, in 2016.
That translates into nearly 8 million Californians who lack enough income to meet their basic needs.
Using similar methodology, the Public Policy Institute of California says 19.5 percent of Californians fell below the income level needed “to meet basic needs," about $30,000 a year for a family of four in 2015 with Los Angeles County having the highest rate of 24.9 percent.
Even more alarming, PPIC calculates that the state’s functional poverty rate doubles to 38.7 percent when those in “near-poverty” are included.
While the strong economy of recent years has dropped those rates by a few points, they are still embarrassingly high and were the recession that Brown fears materialize, they would spike upwards again.
“The next governor will have to do a lot more about poverty,” Villaraigosa said during a recent forum with his fellow candidates.
Dan Walters is a columnist at CALmatters. Reach him at email@example.com.