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California budget assumes a sustained recovery even as economy slows

by Bob Morris, published

The recently passed California budget assumed $4 billion in increased revenues. Without that additional income, the budget will not be balanced. Draconian cuts will then ensue, and will hit education hard.

The estimates in revenue increases were apparently due to the expectation that high income individuals, especially in tech, will be making substantially more, and thus paying more in taxes. While there has been a burst of IPOs in Silicon Valley recently, which has created instant mega-millionaires, it's difficult to see how this could lead to sustained and reliable income for the state.

Early last Friday morning, financial sites and blogs were buzzing about how the jobs report was surely going to exceed expectations, and that this would be proof that recovery was at hand. But instead, the jobs report was beyond dismal. Only 18,000 net jobs were created in June, far less than the 150,000 that analysts were expecting.  Spring was expected to be just a temporary slump, with numbers rebounding in the summer. Instead, the opposite happened. The numbers got worse.

The unemployment rate in California in May was 11.7% vs. 9.1% for the U.S.. Marin County has the lowest unemployment, at 7.4%, while Imperial County has a Depression-level rate of 27.2%. California is also tied with Georgia for having the worst teen jobless rate, a whopping 34.6%.

So, where's the recovery that will boost state revenues? Surely it will have to come from more than a few techie geeks who just became multi-millionaires and are probably working 80 hour weeks and thus have no time to spend their money anyway. A real recovery has to include everyone. That means those jobless teenagers too, the ones who can only hope for employment asking "Do you want fries with that?" 

Cleantech and renewable energy are also seen as possible job growth machines. But in reality, while these technologies may be promising, the number of jobs created by them even in the best of circumstances is nowhere near what is needed.

California legislators are known for making rosy estimates of future revenue in order to pass a budget only to have the reality be somewhat less than that. But there is no fat left to cut in the budget. If all or some of that $4 billion doesn't materialize, then California education could suffer another $2.5 billion in cuts on top of what has already been cut.

Last week's horrific jobs report makes this all the more probable. Yet, by slashing education, California makes it increasingly difficult for its teenagers to be sufficiently educated to truly compete in our global economy.  Somehow, this downward spiral needs to be reversed.

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