I don't care to spend anymore time on California state finances. It's been beaten to death; is not a topic of great interest relative to other more current and important news topics; and I'm bored with going down silly rabbit holes of ridiculous assertions. So I'll make this my last post on the subject and move on.
- California has a huge, diverse, and robust economy of about three trillion dollars. It's GDP is larger than all but a handful of countries. It's a major center for innovation and creating new wealth from new startups.
https://www.statista.com/statistics/us-gross-domestic-product-gdp-by-state- Compared to other large population states, despite some volatility in their revenue system, they currently exhibit a relatively sound financial system and foundation due to major structural changes led by Democratic Governor Jerry Brown nearly a decade ago. Since those changes were put in place, they have turned deficits into surpluses and used those surpluses to eliminate short-term debts; bank over $20 billion in various rainy day reserve funds; and reduce longterm debt obligations with billions in pre-funding. In 2019 they made final payments on their remaining short-term budgetary debt, eliminating it entirely. Or, as Alan would call it... broke.
- Due to this, their financial stability and credit rating have steadily improved. Unlike states that actually are in a financial crisis, like New Jersey and Illinois. California started 2020 with enough reserves to continue paying its bills with no revenue at all for 54-days. New Jersey began 2020 with 4-days of reserve and Illinois zero. California did take money out of the reserve early in 2020, but paid it back fully, some months later, from their surplus.
https://www.pewtrusts.org/en/research-and-analysis/articles/2020/10/13/covid-19-prompts-states-to-start-tapping-financial-reserves- A good overview of the states finances is available here from credit rating firm Fitch...
https://www.fitchratings.com/research/us-public-finance/fitch-upgrades-california-gos-to-aa-outlook-stable-16-08-2019The upgrade of California's IDR and GO rating to 'AA' from 'AA-' reflects the improved fiscal management that has become institutionalized across administrations, which in Fitch's view allows it to better withstand economic and revenue cyclicality. The state has used temporary tax increases, underlying revenue growth, and a disciplined approach to limiting on-going spending growth to enhance its ability to maintain resiliency through the economic cycle. The state eliminated the overhang of budgetary borrowing that had accumulated through two recessions and continues to set-aside funds in the budget stabilization account (BSA). The rating incorporates California's large and diverse economy that supports strong, albeit cyclical, revenue growth prospects, solid ability to manage expenses through the economic cycle and a moderate level of liabilities.- In regards to some of Alan's assertions, the surplus California managed to accrue in 2020 was not just due to a one-time event. It resulted from early estimates of reduced revenue that everyone expected in 2020, due to the pandemic, which prompted judicious cuts in spending by the state combined with a robust stock market that generated higher than projected revenue from capital gains taxes. To say that increases in the market, and the resulting increase in capital gains revenue, are a one-time event seems a bit pessimistic. The article he linked to described it that way, but that seems more a reflection of the author's bias at the California Chamber of Commerce than a realistic assessment. Forecasts of future deficits are made with the assumption that no change in expenditures is made and estimates of the future economic fallout from the pandemic and forecasts of recession. The state has shown an ability and willingness to make adjustments when needed, but could choose to run a deficit if it believes that will provide better stability and growth for economic conditions in the long term. It obviously doesn't mean the state is broke if that occurs. His disbelief in the straightforward accounting of state financial report data, which is simple reporting of
actual revenue (income) and expenditure (outgo) data, and comparing that to
estimates like the Consumer Price Index isn't really worth addressing.
- Finally, to John Camp's post regarding property tax and income tax revenues—the data that you sited is from a 2012 report citing 2010-2011 data. That ratio of property tax to income tax was true a decade ago, when the state was bleeding red ink due to an inability to change property tax rates or assessment and too little in other tax revenue to meet its obligations. The situation has dramatically changed since then regarding tax revenues, especially from income taxes. Due to Proposition 13 in 1978 which created a huge drop in property tax revenue; locked-in a relatively low effective rate of 0.77%; and prohibited re-assessment for life unless property was sold; California had to dramatically restructure its revenue system. The property tax system resulting from Proposition 13 is a bit nuts, although helpful to seniors on a fixed income, and it's nearly impossible to get voters to approve of its elimination or reform due to the provisions for assessment when enacted at 1976 value and restriction of annual increases of assessed value to a maximum of 2% per year. It prohibits reassessment at a new value except when change in ownership occurs or new construction is completed. These rules apply to all real estate, residential and commercial owned by individuals or corporations. Recently, a ballot proposition to eliminate Prop 13 just on commercial real estate assessment failed. It's likely not going away anytime soon.
https://wallethub.com/edu/states-with-the-highest-and-lowest-property-taxeshttps://en.wikipedia.org/wiki/1978_California_Proposition_13
