California did the impossible, said Gov. Jerry Brown in his
recent State of the State address. He was referring to a surge of
revenue, stemming from a tax hike and modest economic growth, which
enabled the state to avoid harsh new rounds of budget cuts. Two
years ago, they were writing our obituary, he concluded. Well it
didnt happen. California is back, its budget is balanced, and we are
on the move.
An old saying holds that the future happens first in California.
Someone from outside the state might thus take the governors speech
as a sign of happy days ahead, both for California and the whole
country. There is a catch: California is back only in a relative
Although the states condition isnt as horrible as it was in the
pit of the Great Recession, its still miserable. California like
the federal government will have to make some hard choices going
Take the balanced budget, for instance. The state may be breaking
even for the year, but as the governor has acknowledged, it faces a
$28 billion wall of debt left over from previous years. And last
autumn, an independent group of fiscal experts explained that this
figure omits such items as unfunded pension obligations. Add those
debts to the total, they found, and the real burden is anywhere
between $167 billion and $335 billion.
Just as California will have to face the looming liability of
unfunded pensions, Washington will have to tackle entitlement reform
to keep Social Security and Medicare solvent for the next
In California, debt has created a good news/bad news joke. The
good news is that California has a better credit rating than
Illinois. The bad news is that it has a worse credit rating than the
48 other states.
Decades ago, California could count on population growth to get
it through tough economic times. A steady influx of young newcomers
from other states translated into flourishing businesses and bulging
government coffers. In recent years, however, California has been
sending more people to other states than it has been getting from
them. Immigration has kept the total population from shrinking, but
the boom days are over. After the 2010 census, California gained no
seats in the US House of Representatives for the first time since
statehood in 1850.
Moreover, the states birth rate is plunging. In the near term,
this trend will ease some of the pressure on California schools, but
in the longer run, it will mean fewer people entering the workforce
just as baby boomers are retiring from it.
One could pile on additional data about poverty and unemployment.
The key point is that population and economic growth have slowed.
And because the state is so large, bad times in California could
affect the nation as a whole.
Like the federal government and many other states, California
will have to curb additional spending and debt. To his credit, the
governor spoke in his State of the State about preparing for the
leaner times that will surely come. That same speech, though, raised
serious doubts about whether he really meant it. He proudly noted
that California is going forward with a huge high-speed rail
project, even though critics across the political spectrum have
pointed out that it is ridiculously unnecessary, exorbitantly
expensive, and environmentally harmful. …