Explaining Southern California's economy

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

Farmers Insurance Open - Preview Day 3

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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.


Why capital appreciation bonds aren't as bad as they sound

School Bonds - 13

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A playground for kindergarten students under construction. It's being build in part with capital appreciation bonds.

Capital Appreciation Bonds. CABs for short. They're getting a very, very bad name and have invited some very, very bad press over the past few months. My KPCC colleague Vanessa Romo is the latest reporter to take a dive into these financial instruments, which school districts in California and other states have been using to borrow money.

Why the bad name? In exchange for making no payments on principal or interest for, in some cases, decades, school districts trying to build facilities borrow tens of millions today and can end up paying six times that when the bill comes due, well into the future, after the interest has "accreted," in the lingo of finance.

The cost of present-day, voter-approved borrowing is passed on to a completely different generation of taxpaying voters.

School districts do this when property taxes aren't adequate to fund projects and when raising taxes is politically unpalatable. 


Moody's raises a red flag about November California tax revenues

CA Governor Jerry Brown Holds News Conference On Pension Reform

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California Gov. Jerry Brown discusses pension reform during a news conference in Los Angeles. The state's revenue outlook deteriorated slightly in November.

The tax revenue outlook for California has been improving. But Moody’s, the big credit rating agency, reported Friday that the take for November was lower than expected. 

The agency wasted no time is raising a red flag about the sudden reversal of a positive revenue trend. November came in 11 percent lower than the state’s budget called for.

Emily Raimes, a Moody’s analyst with whom we've talked before at the DeBord Report, pointed out that the shortfall highlights the volatility of California’s tax revenues — a point I've been droning on about for months now. In the state, we're overly dependent on the incomes of the rich to make the budget work.

This is something that Raimes says Moody’s “sees in states with high wealth.” The same issue arises in New York and New Jersey. 

"California’s progressive income tax structure fuels the volatility; the wealthiest 15% of state taxpayers pay approximately 80% of all state taxes, according to the state’s audited financial reports," she wrote in a contribution to Moody's Weekly Credit Outlook.


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

Gov. Jerry Brown

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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.


Vice presidential debate: 5 (and a half) economic battles Biden and Ryan will fight

Vice President Joe Biden and Vice Presidential Candidate Paul Ryan

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Joe Biden and Paul Ryan will get their big chance tonight to duke it out for their respective tickets as the Presidential campaign enters its final weeks.

Gaffe-prone Vice President Joe Biden and buffed-up Republican VP nominee Paul Ryan will trade barbs Thursday in the Bluegrass State. The garrulous, off-the-cuff Biden, 69, will likely offer vivid contrast with his much younger opponent, who at 42 is the wonky wunderkind of Congress.

Biden has run for President a couple of times, and his expertise is in foreign policy. Ryan has a reputation as a number-cruncher who can drill down into the weeds of economic policy. Given that the country still has not shaken off the Great Recession, it is reasonable to expect the two men to lock horns on economic issues. Here are five-and-half ones they'll most likely tackle.

Medicare and Medicaid. In his "Path to Prosperity" 2012 budget proposal, Ryan and the GOP proposed a radical — and there's really no other way to describe it — reform of government-supported health care for the elderly and the poor. The end result of Ryan's plan doesn't look terribly extreme, but by turning Medicare into a voucher system — in theory, giving seniors control over their own health-care choices — the Congressional Budget Office estimates that seniors could end up paying thousands of dollars more in health care expenses on a yearly basis. The White House also proposes to reform Medicare, via the Affordable Care Act. Both plans target the same problem: Swelling future Medicare costs threaten to render the entitlement insolvent.