Golden sunset: California economy collapse continues unabated in 2014

california-economy-collapse-2014The California economy collapse continues unabated in 2014. Punish business, grow government; redistribute wealth. In California, as in the country as a whole, the trends are clear, the patterns set, the ending not promising; and unfortunately, a different solution remains elusive. The California downward trend continues unabated. In November I posted an article (“We’re number one…”) on the dubious achievements in which California leads the nation. As we enter 2014, I am updating this roster of failure with several additional indicators of California’s insanity.

California Economy Collapse Continues

California once again the nation’s top municipal bond issuer

The Sacramento Bee reported in December that California state government and its local government agencies, with a combined $443 Billion in debt (the most in the nation), has extended its lead by being the number one issuer of new municipal bonds. Bloomberg news reported that California government agencies issued $46.2 billion in new debt in 2013.

Many of the new bonds were issued to pay off previous bond issues; this is analogous to paying off credit card debt by charging the payments on a new credit card. Although this has been used frequently within the state by government entities using pension obligation bonds to fund pension debt, the largest bond issued in 2013 was by the Foothill/Eastern Transportation Authority in Orange County.

The $2.3 billion in bonds were issued “to shore up the finances of several highways that have failed to meet revenue and ridership projections,” noted the L.A. Times; “The bond issue will extend the time that motorists must pay tolls on the Foothill/Eastern’s highways by 13 years – from 2040 to 2053 – and add upward of $1.75 billion to the corridor’s total interest payments by the time the bonds mature in 2053”.
Here we see another initial failure of government, “fixed” by charging taxpayers more for their government’s failures.

Small Business and Entrepreneurship Council names California number 50 on its index ranking the States on Policy measures and costs impacting small business and Entrepreneurship.

If we are going to issue the most debt, why not kill small businesses so we can’t pay off the debt?
California ranked dead last, by a large margin, in this ranking by the Small Business and Entrepreneurship Council. This index uses tax, regulatory and government spending measures to rank states on their “friendliness” (or ease of doing business) to small businesses.

The Council summarized California’s ranking by saying “Small businesses in California face a formidable array of policy (and regulatory) costs, the highest personal income and individual capital gains taxes, high corporate income and capital gains taxes, the highest gas tax, high electricity and workers compensation costs”.

Or more simply, as I reported in “We’re number one”, California has the highest failure rate for small businesses in the country.

Legislature passes 23 new laws negatively affecting businesses in 2014.

In a race to the bottom of hostility toward business, the State, noted the California Chamber of Commerce, passed more than 23 new laws that businesses must comply with starting in 2014. These laws deal with the new, higher minimum wage, meals and rest periods, extension of prevailing wage laws, and penalties, a redefinition of sexual harassment, whistleblower protections, restrictions and penalties for reporting immigration status, more time off for family leave, and prohibitions against requiring potential employees to list criminal backgrounds. For context, read Small business ranking above and refer to ObamaCare regulations going into effect on January 1.

Why would you own a business in California?

Energy Costs

California has among the highest residential and business energy costs in the country and things are not going to get better. In 2013 the State turned the spigot on for its “Cap and Trade” program “successfully” selling (taxing businesses) $1.4 billion in carbon permits.

I was going to report on who bought and sold credits, but have been unable to determine this yet (transparency in government?). The program is the cornerstone of, AB32, the state’s climate change law and imposes carbon emission limits on approximately 400 of the State’s oil refiners, food processors, and other large industries. The law specifies, in general, where funds raised by this program are to be spent; however in 2013, the rules were suspended so allow the Governor to “borrow” $500 million” to balance the general fund. Perhaps carbon markets aren’t the rage bureaucrats hoped for.

In the future expect to see the bulk of these funds to pay for high speed rail and the expansion of new regional government entities specified in the pending SB-1. Other uses include unspecified uses in “low income” communities, closely tracking with the pending SB-1 goals. More on this in 2014.

Green energy is three to five times the cost of energy produced by oil, nuclear, coal, and natural gas.

However, the State is requiring that one-third of our energy must be produced by green energy sources by the end of this decade. The problem? These sources of energy are also highly unreliable. The solution? The California PUC has called for utilities and private companies to install approximately $5 billion worth of batteries and other forms of energy storage to help the State’s power grid cope with the erratic nature of green power.

The implication of both actions? Expect to see continuing prices increases for energy and the products produced, shipped, and sold within California with this energy into the foreseeable future.

But California’s economy is booming, Right?

Well, no. In December the nation saw a drop in jobless claims across the country, while California saw an increase of 4,250 jobless claims. The Employment Development Department attributed the increase in jobless claims to more layoffs in the service, retail, finance, insurance and real estate industries. With the expiration of long term unemployment benefits that came on January 1, approximately 220,000 Californians lost their long term unemployment benefits.

California Lutheran University economists see a state of declining opportunity. They report that job growth has been concentrated in the Bay area with the region currently down by fewer than 7,000 jobs from its pre-recession level. Southern California is, however, still down by 360,000 jobs and the Central valley is down by more than 120,000 jobs. Texas, on the other hand, has regained all lost jobs and added an additional 540,000.

Since the recession ended in 2009, food stamp usage has increased in California by 55%, with 4.1 million Californians using SNAP (food stamps). The Federal government, using a new index that takes cost of living into account, has named California the State with the highest poverty rate, 23%.

Enough is enough; let’s close with two examples of California‘s business and governmental “culture”

An energy example seems appropriate here.

Three years ago California received $146 million from the Obama stimulus package to improve energy conservation in 100,000 homes; the State and local governments added another $91 million to the Energy Upgrade California program. To date, reports the L.A. Times, the participating government entities have spent all the money and completed 12,200 homes.

Yep, that’s success by California government standards. These governmental agencies got 12% of the job done, but through pure grit and determination, managed to spend ALL the money. That’s determination in California.

Then, in mid-December, a San Jose superior court found that three companies, Sherwin-Williams, ConAgra and NL Industries must pay $1.1 billion to remove paint they manufactured from homes painted in the 1920s and 1930s, even though the paint was legal under Federal and State law at the time it was applied. In fact, its use was recommended by both Federal and State agencies for its ability to stand up to scrubbing, helping to eliminate germs and the threat of contagious disease.

Currently the EPA, the Centers for Disease Control, and the Department of Housing and Urban Development endorse a policy of maintaining lead paint in good condition, rather than removing it. And, according to several news reports, California’s policy of maintaining the paint has caused blood lead counts to fall to rates among the lowest in the nation.

The companies are appealing the judge’s ruling, but already the judge’s solution has created new liabilities for public playgrounds, hospitals and other public facilities and homeowners whose older homes will now tagged as a public nuisance requiring abatement.

Sad but inevitable conclusions

As I wrote in the beginning, the trends are clear, the patterns set, the ending is not promising, politically, socially, or financially as California continues its slow motion implosion. Among the questions that need to be answered are: is it (are we) too late to turn the State around?

What political and, perhaps more importantly, cultural efforts will it take? Who will rise to the occasion? What narrative do we, the citizens of California, need to create and unite behind to re-capture our State for ourselves, our children and our grandchildren?

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  1. Bruce R. Peterson, Lafayette says

    California ‘s collapse is just beginning. I can dig in my yard in January. The dirt is dry, not the usual January gooey mud.. Good for digging, incredibly bad for plants & animals. California’s natural cattle food is extremely sparse. Publicly owned & Public utility owned, urban wild lands, are choked with dead wood. A cleanup by fire is coming sooner or later.
    If I was in charge, desalination plants would be operating & a water pipeline from Oregon would be flowing… Convict or other cheap labor crews would be removing dead wood for compost, or to burn somewhere it won’t torch anything else. In all appearances, the current politicians want a big fire, or three, so than can ask for more money from the taxpayer’s for the firefighters.
    I consider prevention, to be the best policy.

  2. says

    Guest is correct to point out that broad generalizations can’t withstand the sharp pin of cherrypicked data and undocumented claims.. However, the Math Guest uses is more than a bit disingenuous. The analogy of a $100,000 mortgage is a good example. What is closer to reality in California is a person who may qualify for a $100,000 loan, but keeps refinancing it to pay for toys and finds himself with a $120,000 property market value after a year, but has added $300,000 to his debt. This has gone on now for decades.

    Guest makes it sound as if Bonds and other debt obligations do not cost anything, or never need to get paid. Well they do. Bonds costs range from 3X the actual money borrowed and growing interest on pension debt is taking up more and more resources every year despite boom or bust.

    Guest is correct to suggest that as of 2013 California’s $640B unfunded liability for Cal STRS PLUS promised retiree health benefits costs may not all have to be paid this year. However, every year that the State of California pays $3B for ill-advised bullet trains or $1.5B for new spending for kindergartens, or $2B on regulations that save $193M, INSTEAD of paying down unfunded liabilities increases debt service that is taken from the General Fund which harms those most in need of government assistance.

  3. Guest says

    Unfortunately you use logical fallacies such as debt and bond levels being an indication of decline. California has the most about of debt and issues the most bonds because we are the largest economy in the United States (9th largest in the whole world). Obviously we will issue more bonds and have more debt because we have more economic activity. Additionally a lot of debt on the books is unfunded liability which will never be needed to be paid in full at one time. It therefore is an unreasonable assumption that his total debt is a looming crisis. Under your logic a homeowner who took out a $100,000 loan on a house has an unfunded liability of $100,000. Therefore that homeowner needs to have $100,000 in cash on hand to be able to pay that debt off immediately? No, they have a 30 year mortgage and the bank is never going to make them pay all up from even if the total liability is $100,000.

    Your attempt to connect 23 new laws and clear engery to any decline is tenuous at best. A Rand study showed that “failing to meet federal and state standards for particulate matter and ozone affected private and public insurer spending on hospital admissions for respiratory and cardiovascular causes, and ER visits for asthma, throughout California from 2005-2007. The study team used a model to predict pollution levels throughout California if federal standards had been met, examined actual patterns of hospital care to estimate pollution-related care delivered at specific hospitals, and used actual spending patterns to quantify who paid for this care.

    The analysts identified substantial health and cost benefits from cleaner air. Nearly 30,000 hospital admissions and ER visits could have been avoided over the two-year period, with resulting savings of about $193 million. Because public insurers such as Medicare and Medi-Cal paid most of the pollution-related health care bill, they have a lot to gain from cleaner air. But employers and private insurers also have sizable financial interest in reducing air pollution.”

    Because of the uniformed generalizations and assumptions you make I still think the bleak picture you paint of California’s future is contrived.

    PS-Texas was included not to inflate the number but because that info is quoted directly from a USA Today article. I try not to make things up.

    • Hal Bray says

      first, thanks for continuing this discussion. Your argument that we have more debt and bonds because of our economic activity are funny to say the least. most of the bonds and debt are to grow the government, fund pensions, etc. and are the opposite of economic activity; they actually take money OUT of the economy and reduc economic activity.. I mentioned $443 Billion in debt. Lets look at that debt (California Taxpayers Association). State Retiree Health Benefits $80.5 billion; Local pensions $41.2 billion (there are 138 local government pension plans in California, most are underwater; the State Controller is required by law to publish a report annually on the viability of these pension funds, but quit in 2010. I wonder why?). Local Bonds, $58 billion, Other local unfunded liabilities $44.6 Billion; State Bonds $90 billion, State pensions $97 billion; Unemployment Insurance $9.2 billion (owed to the Federal government).

      Actually, these number are conservative numbers from last year. The teachers pension fund, CalSTRS, is now $70 billion underfunded by itself and growing $22 million per DAY. CalSTRS has demanded that the State or school districts up their annual contributions by $4.5 billion per year to keep it solvent. CalPERS (state and some local government employees) has announced they are raising their needed contributions by “under 50%”. My Fire department, East Contra Costa Fire Protection District, is raising its pension contributions next year by 47% and demanding we pass a parcel tax to keep fire stations open. ConFire (most of the County) is paying ore than $1 in pension and health benefits for every dollor in salary they pay and have closed fire stations to make the payments; Moraga-Orinda fire is bankrupt and cutting staffing. So, first, don’t have a fire or heart attack in the county; second the fiscal condition of these fire departments are, again, reducing economic activity.

      Every dollar in increased tax is a dollar not spent buying a car, shopping for food, paying a house payment. no, California’s business activity is being reduced (as are in many cases, government services) just to pay an expanding government obligation to employees..

  4. Guest says

    The state have a $2Billion surpluse this year and according to Moody’s Analytics, a global economic forecasting company: in 2014 “Nearly 572,000 of the new jobs will be added in just two states, Texas and California”

    “California, the world’s ninth-largest economy, missed making Moody’s list of the top 10 states for job growth, but at 15th it is expected to do relatively well. A recovering housing market and the high-tech industry in Silicon Valley are largely responsible for California’s bright outlook.

    California added jobs at a rate faster than the national average in 2013, including posting more new construction jobs than any other state in 2013, with more than 31,500 new jobs.”

    Your prediction for gloom and doom in California is just not supported by the facts.

    • says

      Yes, in spite of the Governor and the California legislature, we will see more jobs and the economy may improve, but more of it will go to pay the government more than ever before.

    • says

      Thanks, “guest”, for commenting on my post and giving me an opportunity to reply. First, have you read my earlier post “we’re number one…” I stand by my numbers in both posts and my position that California is in a steep decline. The fact that you felt compelled to include Texas in your argument (“Nearly 572,000 of the new jobs will be added in just two states, Texas and California”) somewhat weakens your position.

      Let me refer to the California Labor Market Review published monthly by EDD. Its latest report, November, shows that California’s unemployment rate of 8.5% was worse than the nation and its Labor Force Participation Rate was also worse 62.4% verses 63%. Both are the worst in more 50 years. that is quite some success. EDD also notes that the largest group of unemployed in California are those unemployed more than 52 weeks (479,000 people) and let’s not forget that as of January 1, 220,000 Californian lost their long term unemployment benefits.

      Working Californian’s are also suffering as there are, again according to EDD, 1,309,000 workers forced to work part-time. These are workers who want full time work, but are working in low paying jobs in retail, restaurants, etc. They will not be buying a house anytime soon. And, if you saw the jobs report today, the economic recovery has, once again, collapsed. A report earlier this week also reported the collapse of the housing market in California.

      So, yes, California has added jobs this year, but not like we did when the economy of California was good. And the State has more money but, please don’t believe the media. Or, at least, read whole articles and understand that the Guv is not addressing the largest debt the State has pensions, or the $10 Billion the State owes to the Federal government in its unemployment insurance fund.

      For our sake, and our children’s sake lets hope and pray for a better California.