Explaining Southern California's economy

Did Californians vote against self-interest on Props 30, 33, and 38?

Prop 30 and 38

David McNew/Getty Images

A voter walks from the polling place inside Fire Station 38 in Pasadena, California. Did he vote for against his economic self-interest on Props. 30 and 33?

Did California voters make a choice against their self-interest in voting on Propositions 30 and 33.

From an economic standpoint, you could say yes.

And no.

And maybe.

Prop 30, Gov. Brown's tax-increase initiative, passed, while Molly Munger's Prop 38 failed. The big difference between the two was that Prop. 30 will increase taxes on Californians making more than $250,000 per year (for seven years) and add a quarter of a cent to the state sales tax (for four years), while Munger's plan would have raised taxes on pretty much everybody for 12 years. 

In passing 30 and voting down 38, Californians said that they're OK with a temporary tax increase on consumption and a tax hike on the wealthy, but not okay with an across-the-board tax increase on income. So they voted in their self-interest on income taxes (as long as they aren't making over $250,000 a year), but against it on the sales tax, which will rise to 7.5 percent from the current state base of 7.25 percent.

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Oh look, California is actually $335 billion in debt

Cap-Gains-Chart

The volatile incomes of the wealthy, mostly derived from capital gains, are causing ongoing problems for California to develop successful budgets.

The independent State Budget Crisis Tax Force has released its analysis of California's finances and found that rather than being a whopping $28 billion in debt, as Gov. Jerry Brown alleged with he came to office, the state is actually a nearly unfathomable $335 billion debt. Brown called it a "wall," as the New York Times noted. But it's really more like a dozen walls. All stacked on top of each other to make a mega-wall that blocks out the Sun. 

This is not an exaggeration. Californian's total level of debt, on and off the books, is pushing a fifth of the total annual economic output of the state, which is about $2 trillion.

Some of the usual suspects are responsible for this: overspending and undertaxing during boom times, colossal pension liabilities, taking on too much debt. But the report zeroed in on an important area that I've written about before: a California tax system that relies far too much on the incomes of the wealthy, and in particular on income derived from capital gains, or the sale of stocks, bonds, and other assets (see the chart above, which I grabbed from the report). 

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San Bernardino's loss of redevelopment money: Not the state's problem

BANKRUPTCY RESOLUTIONS

Steven Cuevas/KPCC

San Bernardino Councilman Rikke Van Johnson explains municipal bankruptcy process at a town hall meeting last week. What role has the loss of redevelopment money played in the city's fiscal crisis?

The San Bernardino City Council is expected to vote tonight to declare a fiscal emergency, enabling the Inland Empire municipality to proceed directly to Chapter 9 bankruptcy without passing the 90-day state-mandated "Go" of mediation with its creditors. I've been reporting on how San Bernardino wound up with a fiscal crisis — and why other California cities may be staring down the same nightmare scenario. 

But one thing that has city officials particularly enraged in San Bernardino is the loss of state redevelopment money. Last year, Gov. Jerry Brown and the state legislature took back money that had been going to redevelopment agencies to close the state's massive budget deficit. The total loss to cities? Around $6 billion. 

The move — which was fought by the redevelopment agencies and got all the way to the California Supreme Court, where the new law was upheld — hit San Bernardino hard.

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The Facebook Effect and the problem of California's budget

Getty Images

Facebook founder and CEO Mark Zuckerberg speaks during a news conference at Facebook headquarters on October 6, 2010 in Palo Alto, California.

What exactly is the "Facebook Effect" and why could be both a boon and bane for California's budget crisis? According to the Legislative Analyst's Office, it's the massive amount of money that will be infused into California's sagging revenues when Facebook launches its anticipated IPO later this year.

Facebook isn't even going to sell that many shares to the public — it will probably continue a trend of "low float" IPOs in tech offerings, designed to elevate valuations (fewer shares equals higher demands equals higher prices). But it's still expected to raise $10 billion and achieve, overnight, a market valuation of $100 billion.

The capital gains from the creation of all those new Facebook millionaires will bring...well, billions to the state's coffers. As Bloomberg (via the San Francisco Chronicle) reports, Gov. Jerry Brown is estimating that 2012 will see $96 billion in total capital gains earned as income. The LAO figures rather less: $64 billion. 

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California's budget: Hostage to the rich

California Budget

Rich Pedroncelli/AP

Gov. Jerry Brown discusses the cuts he has already made to help reduce the state's budget deficit from nearly $20 billion last year to a gap of about $9.2 billion as he unveiled his proposed $92.5 billion 2012-13 state budget at a Capitol news conference in Sacramento, Calif., Thursday, Jan. 5, 2012. California faces a smaller budget deficit in the coming fiscal year but will require nearly $5 billion in cuts to public education if voters reject Brown's plan to raise taxes in the fall.(AP Photo/Rich Pedroncelli)

The Los Angeles Times' Anthony York reports on a...disagreement between the Legislative Analyst's Office and California Gov. Jerry Brown. Brown's budget plan, released prematurely last week, calls for tax increases that would generate almost $7 billion in additional revenue each year, bringing the state deficit down to zero in five years — the time frame for the tax hikes.

Not so fast, says the LAO: it will only be $4.8 billion in 2012-13, then $5.5 billion thereafter.

Here's York:

The wide discrepancy is the latest split over numbers between the administration and the Legislative Analyst's Office. Last November, the Legislative Analyst's Office released a revised estimate for the state’s current budget picture. Less than a month later, Brown’s department of finance came back with estimates that were $1.5 billion higher than the Legislative Analyst's Office numbers.

In its analysis Monday, the Legislative Analyst's Office said that predicting just how much Brown’s tax measure would bring in is difficult because it is dependent on income taxes from upper earners. That money varies wildly from year to year.

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