Is California Doomed? Unfortunately The Answer Is "Yes"

Every story we hear coming out of the once Golden State gives us more insight into the coming collapse of California. What's worse is the state government, including the legislature and the governor, is doing everything it can to hasten the process. How is it that it can't see the very actions it's been taking are only making things worse while those it chooses to ignore are the ones needed to set things back on the path to prosperity?

As more than one pundit has stated, California does not have a revenue problem but a spending problem. Even the once-and-again governor Jerry Brown knows the state is in a deep fiscal crisis, but his solution is raise taxes again. This after the last tax increase failed to raise the projected revenues, leaving the state with a $16 billion budget deficit. Whether he and the rest of the tax-and-spend Democrats realize it or not, they're on the wrong side of the Laffer Curve, meaning even if they continue to raise taxes, revenues will be well below projections. At this point the taxes have become punitive and outright confiscatory, punishing financial success. Once you start doing that people either stop trying or they leave. In the case of California, it's both. And it's not just those providing jobs who are packing up and leaving, so are many of the workers, including illegal immigrants. The net population change has shown more than 4 million more people have left California than have entered over the past 10 years. And this figure does not include the illegal immigrants, many whom are heading back home because there's no work to be had in the economic wasteland that is California.

Other states have been struggling with economic crises, including New Jersey. It is here where we see the difference in approaches taken to solve fiscal problems. Governor Chris Christie dove head first into the problem, understanding New Jersey's fiscal crisis was due to runaway government spending at all levels and overreaching public employee union demands. He went after both and managed to cut spending and dial back a lot of the union benefits that were unsustainable, particularly during this ongoing recession. As the piece linked above stated, “More states are realizing that the road to fiscal hell is paved with progressive intentions.” Christie gets it. Brown does not.

There was also another thing Christie did that Brown did not: Canceled a multi-billion dollar commuter rail project between New Jersey and New York City that his state could not afford. He knew it for the money-wasting boondoggle it was and wanted nothing to do with it. Brown on the other hand, caved in to federal demands and decided to go ahead with a high-speed rail project that is doomed to fail before the first rail tie is laid down, committing California to billions upon billions of taxpayer dollars it doesn't have for a project no one (except the watermelon environmentalists) wants or needs. What use is a high-speed train to nowhere? (The initial stretches will be built out in economically depressed and less urban and suburban areas. Why would they need such a train when the only place it will take them is to another economically depressed area?)

Need more proof California is heading to an inevitable financial meltdown? Then look at the local level where municipalities are struggling to meet unrealistic demands from their public employees and the state. Here's an example:

A mere handful of people are left to hear the San Jose city manager offer the latest bleak financial news: the state of California was clawing back tens of millions of dollars more, and “140 employees have been separated from the city.” (New times call for new euphemisms.) A pollster presents his finding that, no matter how the question is phrased, the citizens of San Jose are unlikely to approve any ballot measure that raises taxes. A numbers guy gets to his feet and explains that the investment returns in the city’s pension plan are not likely to be anything near as high as was assumed. In addition to there not being enough money in this particular pot to begin with, the pot is failing to expand as fast as everyone had hoped, and so the gap between what the city’s employees are entitled to and what will exist is even greater than previously imagined. The council then votes to postpone, for six weeks, a vote on whether to declare the city’s budget a “public emergency,” and thus to give to the mayor, Chuck Reed, new powers.

The relationship between the people and their money in California is such that you can pluck almost any city at random and enter a crisis. San Jose has the highest per capita income of any city in the United States, after New York. It has the highest credit rating of any city in California with a population over 250,000. It is one of the few cities in America with a triple-A rating from Moody’s and Standard & Poor’s, but only because its bondholders have the power to compel the city to levy a tax on property owners to pay off the bonds. The city itself is not all that far from being bankrupt.


[Mayor Chuck Reed is] a Democrat, but at this point it doesn’t much matter which party he belongs to, or what his ideological leanings are, or for that matter how popular he is with the people of San Jose. He’s got a problem so big that it overwhelms ordinary politics: the city owes so much more money to its employees than it can afford to pay that it could cut its debts in half and still wind up broke. “I did a calculation of cost per public employee,” he says as we settle in. “We’re not as bad as Greece, I don’t think.”

We're not as bad as Greece. Not exactly an overwhelming vote of confidence from the mayor, is it? San Jose isn't the only municipality facing the same kind of crisis. It is, unfortunately, an all too common problem across the state.

Stockton is on the verge of bankruptcy. Vallejo's government is all but shut down after that city's bankruptcy in 2008, with police and fire departments gutted, a relocated city hall with few staff, and a general feeling of hopelessness.

Eighty percent of the city’s budget—and the lion’s share of the claims that had thrown it into bankruptcy—were wrapped up in the pay and benefits of public-safety workers. Relations between the police and the firefighters, on the one hand, and the citizens, on the other, were at historic lows. The public-safety workers thought that the city was out to screw them on their contracts; the citizenry thought that the public-safety workers were using fear as a tool to extort money from them.

Since the bankruptcy, the police and fire departments have been cut in half; some number of the citizens who came to [city manager] Phil Batchelor’s office did so to say they no longer felt safe in their own homes. All other city services had been reduced effectively to zero. “Do you know that some cities actually pave their streets?” says Batchelor. “That’s not here.”

Is this is what is in store for other cities and towns in California? Yes, unless things change and the public employee unions either give up their over-the-top compensation (which has put municipalities into these dire fiscal straits) or are broken or decertified. Otherwise California has no chance at all.