Monday, January 26, 2009
Below is a recent Reuters article on the state of the state of California. As usual they blame Prop 13 for the economic woes of the 8th largest economy in the world.
California's "train wreck" a golden opportunity?
By Dan Whitcomb
LOS ANGELES (Reuters) - With California facing a $42 billion deficit in the current economic downturn, a glum Gov. Arnold Schwarzenegger has warned that the Golden State is on the brink of insolvency.
More people have left California than any other U.S. state over the past year, some disenchanted with snarled traffic, scarce jobs and some of the highest taxes in the nation. Add the prospect of still higher taxes and fewer public services, and normally sunny Californians have little to celebrate.
Still, experts say the most populous U.S. state and the world's eighth-largest economy is well placed to rise again and that this crisis could spur major changes in the economy that will pay dividends in the long term.
Abundant natural resources, big ports, access to the Pacific Rim, a large, relatively young work force, entrepreneurial draw and tech-oriented industries augur well for the future, economists and historians say.
"The prophets of doom and gloom are just not looking at the reality of California," said Jerry Nickelsburg, senior economist at the UCLA Anderson Forecast.
"The government has created kind of a mess and that's a problem to be solved, but the negatives are actually fairly small. I think you can expect a lot of good out of California," he said.
The typically upbeat Schwarzenegger made international headlines this month when, instead of delivering his usual cheery "state of the state" speech, he issued a short, bleak message about California's roughly $1.5 trillion economy.
"A ROCK UPON OUR CHEST"
"California is in a state of emergency," said the former actor and bodybuilder, whose second term ends next year. "Addressing this emergency is the first and greatest thing we must do for the people. The $42 billion deficit is a rock upon our chest and we cannot breathe until we get it off."
Controller John Chiang then told Californians he would delay sending out $3.7 billion in tax refunds and other payments because the state was running out of money.
The dismal state of the state would have been hard to imagine in California's post-World War Two golden years, when incomes were rising, land was plentiful, homes were affordable and wide-open freeways stretched in all directions.
The good times came to a screeching halt with the 1973 OPEC recession, said Dowell Myers, a professor of urban planning and demography at the University of Southern California, and in some ways they have never really returned.
At the heart of California's problems, economists say, is the government's heavy reliance on personal income taxes, which produces wild swings in revenue as its coffers overflow in good years and dry up in leaner times.
California is a pioneer state famous for its entrepreneurial spirit. But an entrepreneur who might make $2 million in boom times could go bust in a recession.
A big reason for the state's reliance on income taxes is Proposition 13, a voter-approved change to the state Constitution that limits property tax increases and requires any plan to boost taxes to receive the approval of at least two-thirds of the legislature. read the whole article here.