Explaining Southern California's economy

Standard & Poor's upgrades California's bonds...but state is still in the bottom two

Gov. Jerry Brown

Sharon McNary/KPCC

California Gov. Jerry Brown speaks in support of Prop. 30 at a rally of UCLA students on campus, Oct. 16, 2012. The passage of the ballor measure in combination with fiscal discipline has led ratings agencies to re-examine California's debt.

Hot on the heels of lowering Illinois' general obligation (GO) bond debt one notch, from "A" to "A-", Standard & Poor's raised California's GO debt to "A" from "A-".

So California is now the second lowest rating U.S. state, among those whose debt S&P rates.

It was S&P's first upgrade for the state since before the financial crisis.

I talked to California Treasurer Bill Lockyer after the announcement, and he credited the combination of Prop 30 — the ballot measure passed last November that raised sales taxes and income taxes on wealthy Californians — along with improved fiscal discipline for prompting the upgrade.

Another agency, Fitch Ratings, is also keeping an eye on California's improving finances. Doug Offerman, an analyst I spoke with last year, wouldn't put a timetable on a possible upgrade, but he did indicate that Fitch likes the math Prop 30 delivers:


The Phil Mickelson dilemma: Why California can't afford to lose its millionaires

Farmers Insurance Open - Preview Day 3

Donald Miralle/Getty Images

Phil Mickelson speaks to reporters following play during the Pro-Am at the Farmers Insurance Open at Torrey Pines South Golf Course on January 23 in La Jolla, California. Will higher taxes drive him and other rich Californians to tax-free states?

Millionaire professional golfer and San Diegan Phil Mickelson got himself into a spot of bogeyish bother during the weekend when he said that in response to rising income taxes on the wealthy in the U.S. and California, he would have to take "drastic action."

Observers interpreted the pronouncement as a pledge to leave the Golden State for the tax-free embrace of Florida to which Mickelson's fellow native Californian, Tiger Woods, skedaddled in the mid-1990s. It also shed some light on why, after being part of an investor group that won the bidding for the Padres last year and bought the team for $800 million, he pulled up his ownership stake.

Florida is pretty much the epicenter of pro golf. Numerous touring professionals, American and otherwise, have pitched their tents there. Mickelson is something of an outlier for choosing tax-addled California and having to add to his private jet flying time when he visits the links of Europe.


The 'Facebook Effect' that wasn't in California

Getty Images

Facebook founder and CEO Mark Zuckerberg speaks during a news conference at Facebook headquarters. The social network's IPO didn't deliver the big capital gains taxes that California was counting on.

On Wednesday, KPCC's Julie Small caught up with the California state finance department and reported on the "Facebook Effect" that failed to live up to intial expectations. The state of California had anticipated a windfall from the sale of stock by employees of the gargantuan social network after its initial public offering.

We all know how the IPO went: it was a massive disappointment. Facebook opened at $38 a share and hasn't climbed back to that offering price since Day 1 of trading. Now it's bumping around in the high $20 range, but it fell below $18 earlier this year. 

California still collected a decent amount of tax revenue from Facebook employees and investors who sold stock. But the finance department had initially projected almost $2 billion; it got half that.

This is sad, but there's a far sadder factor at play, and it's called...the "Facebook Effect!"


UCLA economists say CA Prop 30 is a 'double-edged sword'

Gov. Jerry Brown

Sharon McNary/KPCC

California Gov. Jerry Brown speaks in support of Prop. 30 at a rally of UCLA students on campus. According to UCLA economists, the ballot measure could be a "double-edged sword" for the state.

The economists at the UCLA Anderson Forecast have been busy crunching numbers on a state and national economy.

Now they’ve taken a closer look at Prop 30, Gov. Jerry Brown’s successful ballot measure to raise income and sales taxes.

UCLA Economist Jerry Nickelsburg calls Prop 30 a “double-edged sword.” The ballot measure, which passed in November, imposes a state income tax increase on the wealthiest Californians and also raises the sales tax by a quarter of a percent.

Prop 30 was intended to avoid billions of dollars in education spending cuts. Nickelsburg predicts that it could achieve that objective, a real positive given that funding education at an appropriate level will enable the state to remain competitive in an increasingly complex global economy.

But on the downside, he said, Prop 30 doesn’t deal with how Californian keeps the money coming in long-term.