How hosed is California? This hosed: State Treasurer Bill Lockyer and Stephen Levy of the Center for Continuing Study of Self-Immolation the California Economy have taken to the L.A. Times to deny that they even have a problem.
The headline is the confidence-uninspiring "California Isn't Broken," the argumentation is straight out of the obfuscation/decontextualization school of MarketWatch columnist Brett Arends (down to using the same hidden-ball trick of celebrating increased "share" of a venture capital market whose precipitous decline shall go unmentioned), and the only semi-firm ground the defense can rest on is opposite the straw man of state default. Here's how the thing starts; please note the word "any" in that second paragraph:
In the last month or so, an echo chamber of insults has engulfed California. An online opinion editor for the Wall Street Journal even called California "the Lindsay Lohan of states," describing our state as having squandered its promise.
Critics have suggested the state will default on its debt payments, that it is addicted to spending and that it has a hostile business climate. The criticism is long on inflammatory rhetoric, but it lacks any evidentiary foundation.
First, let's look at the default threat. California has never failed to make its bond payments on time and in full, not even during the Depression. And there is no chance we will smudge that pristine record.
Payment of debt service is constitutionally protected, with bond payments required even when the state is operating without a budget. Debt service has second call on general fund dollars, right behind education. Under the California Constitution, making sure bond investors get their money is a higher priority than providing healthcare to kids, protecting the environment and keeping our communities safe.
During the current fiscal year, general fund revenues are expected to total $89.4 billion. Education spending under Proposition 98 will total $36 billion. That leaves $53.4 billion available to pay debt service on bonds — more than eight times the $6.6 billion the state will need.
Aaaaannnnndddd CUT!! Sounds like Cali's critics are totally wrong about that whole default thing, right? Well they might be, if they ever actually talked about it that much.
The nameless Wall Street Journal writer (Allysia Finley, for the record) did not broach the D-word (or concept), and neither did the authors of the two highest-profile California-is-screwed pieces of the past month or so, Joel Kotkin and Victor Davis Hanson. Certainly the notion is out there–I recall being asked a time or two recently in Democratic-unfriendly media settings whether California faces imminent default (and I always say no). But to pretend that debt non-repayment is anywhere near the center of the complaint against California public policy is to live in what Gov.-elect Jerry Brown earlier this month rightly termed a "fantasy land."
The default-dodge is a handy way for not talking about the real trouble with reckless persistent borrowing: As Lockyer himself has neatly demonstrated in other venues [PDF], California has jacked up debt levels from $34 billion in 2003 to $88 billion in 2010, with annual debt service increasing from around $2.5 billion in fiscal 2004 to nearly $6 billion in 2010 (accounting for nearly 7 percent of the state's general fund revenue). And those numbers are set to deteriorate still further: According to Lockyer, "From FY 2013-14 through FY 2019-20, the State's General Fund debt ratio is estimated to range from 7.6% to 9.6%, assuming GF revenues grow between two and five percent annually and that no additional bonds are authorized by voters or the legislature." Note how rosy both assumptions are.
As Chris Newfield of the Remaking the Unviersity blog has observed,
These numbers reveal the extent of the disaster for the citizens of the state. The increase in annual debt service during the Schwarzenegger administration of about $3 billion is about the same as what the state spends on all programs for the developmentally disabled, and what it spends on the University of California. In other words, during the Schwarzenegger era, the state came to pay the annual costs for an entire second University of California entirely to the holders of its new public debt.
Italics in original. And to again quote Lockyer's non-denialist work, because of the inevitable price-increases that debt-buyers demand from fiscally reckless borrowers, "California pays a significant penalty for its low credit ratings."
In other words, you don't have to risk imminent default to have a serious borrowing problem. And it's worth pointing out that if the annual debt service keeps doubling every five years, it'll take less than two decades for the state budget to be spent solely on K-12 education and bond payments. But at least the latter will be "constitutionally protected"!
In their LAT op-ed, Lockyer/Levy tease and massage various numbers to give you the impression that California's economy is A-OK (more on that in a minute). But the most damning number I've seen about California in a long time came this week from the Census Bureau:
For only the second time in its history, California will get no new congressional seats from the latest Census.
(And the last non-increase had nothing to do with population growth.) Take a look at the population numbers at the Census Bureau's nifty website and you'll see that for the first half of the 20th century, California's population grew roughly 3-4 times faster each decade than the rest of the country. Decades from the '50s-'80s saw growth rates roughly 1.5-2.5 times higher. But since 1990, the western frontier has become just another state–13.8 percent population growth compared to the country's 13.2 percent in the '90s, 10.0 percent to 9.7 percent in the aughties. The Dream is Over, Long Live the Dream!
A final note-slash-beg about Lockyer/Levy (whose denialism has been greeted with a predictable standing O). They include this claim:
Still, over the last decade, California has seen strong growth. From 1999 to 2009, the state's GDP rose by 27.2%. That's better growth than in the U.S. as a whole, which saw GDP growth of 20.2%, or in Texas, where GDP grew by 25.9%.
I have been doing my worst with the Bureau of Economic Analysis website, and every comparative number I come up with has Texas GDP growing faster. Google so far has not been my friend. What am I missing?
And oh–speaking of Jerry Brown, you wanna read a cracking-good libertarianish speech by a sitting U.S. governor? With a tip o' the hat to Chris Newfield, try Gov. Moonbeam's Second Inaugural.
