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The Truth about California: It's actually saving the rest of the USA

marketwatch.com

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Re: The Truth about California: It's actually saving the rest of the USA

#11

Post by webXL »

The gist seems to be that despite numerous stories predicting its demise, California:

- is wealthy and talented

- has more (people, VC, etc.) than it did in 1999

- has been funding the rest of the country in federal transfers (he calls them bailouts, therefore you can't complain if CA asks for one)

- has a small budget deficit relative to its budget

It leaves out $138B of unfunded liabilities for state employees until the end, and ignores companies like Facebook opening datacenters out of state, a growing number of people leaving the state (I'm one of them), and its awful credit rating.

Unfortunately if I owe the bank money, I can't tell them how good of an investment I was up until 2008 and expect them to give me a pass. I need to figure out a way to come up with the money. California doesn't appear to be serious about that.

Re: The Truth about California: It's actually saving the rest of the USA

#12

Post by Locke1689 »

webXL wrote: post #11

The gist seems to be that despite numerous stories predicting its demise, California: - is wealthy and talented - has more (people, VC, etc.) than it did in 1999 - has been funding the rest of the country in federal transfers (he calls them bailouts, therefore you can't complain if CA asks for one) - has a small budget deficit relative to its budget It leaves out $138B of unfunded liabilities for state employees unti…

and ignores companies like Facebook opening datacenters out of state

Explain this to me. It seems obvious that companies would open datacenters outside of just California. What would be more obvious to me would be placing them close to 1) backbone hubs and 2) cheap electrical power.

Re: The Truth about California: It's actually saving the rest of the USA

#13

Post by sabat »

webXL wrote: post #11

The gist seems to be that despite numerous stories predicting its demise, California: - is wealthy and talented - has more (people, VC, etc.) than it did in 1999 - has been funding the rest of the country in federal transfers (he calls them bailouts, therefore you can't complain if CA asks for one) - has a small budget deficit relative to its budget It leaves out $138B of unfunded liabilities for state employees unti…

Well, wait --

ignores companies like Facebook opening datacenters out of state

The bulk of Facebook's employees don't work in datacenters, and (as another poster noted), big companies do this for redundancy and to reduce latency -- not because of some ill will against the state.

a growing number of people leaving the state (I'm one of them)

Sounds anecdotal to me, and I've noticed nothing but a surge of out-of-state license plates in the past few months -- but given a population of some 40 million, I don't think a "growing number" of people leaving is a huge problem. It's the economy, not strictly the population number.

California doesn't appear to be serious about [owing money].

No more or less than any other state.

Re: The Truth about California: It's actually saving the rest of the USA

#14

Post by aidenn0 »

webXL wrote: post #11

The gist seems to be that despite numerous stories predicting its demise, California: - is wealthy and talented - has more (people, VC, etc.) than it did in 1999 - has been funding the rest of the country in federal transfers (he calls them bailouts, therefore you can't complain if CA asks for one) - has a small budget deficit relative to its budget It leaves out $138B of unfunded liabilities for state employees unti…

"It leaves out $138B of unfunded liabilities for state employees until the end, and ignores companies like Facebook opening datacenters out of state, a growing number of people leaving the state (I'm one of them), and its awful credit rating."

From the article:

"But how big are these costs in California? The non-partisan Legislative Analysts’ Office in Sacramento estimates there’s a $136 billion gap in the state pension and benefits system. It may work out to more or less. But that’s the actuarial figure at the moment."

Re: The Truth about California: It's actually saving the rest of the USA

#15

Post by rubypay »

Fiscal facts aren't all that matters. Investors' perceptions can also have an impact--if California is perceived to be in trouble, investors demand higher premiums on bonds, and the costs for California to borrow money increase. This can lead to a detrimental cycle of destruction, akin to what happened to Lehman Brothers.

Re: The Truth about California: It's actually saving the rest of the USA

#16

Post by ataggart »

j_baker wrote: post #5
sabat wrote: post #2

IANAE (I am not an economist), but here's an observation from a born-and-bred Californian: whenever the economy is bad, the state budget takes it on the chin. California is big -- bigger than a lot of people realize. I mean this in terms of geography and population. So it seems to me that national problems are magnified here in our microcosm. Once the economy picks up, the state problems ease. Tangential anecdote : I…

Here's what strikes me as funny: California's budget crunch is $25 billion. Texas (a paragon of small government) is facing a deficit of... $25 billion. The fact that both states have similar deficits would seem to back your argument that this has more to do with the economy than budgetary policy. http://www.dallasnews.com/sharedcontent/dws/news/politics/st... http://articles.sfgate.com/2010-11-11/news/24826042_1_bud…

The debt (read: accumulated past deficits) isn't the only, or even main, issue; rather it's the future liabilities that are killers.

For example, California has unfunded pension liabilities of over $500 billion [1]. To put that number in perspective, it's almost seven times greater than all the outstanding voter-approved state general obligation bonds in California.

[1] http://www.stanford.edu/group/siepr/cgi- bin/siepr/?q=/system/files/shared/GoingforBroke_pb.pdf

Re: The Truth about California: It's actually saving the rest of the USA

#17

Post by JSig »

The author has a serious chip on his shoulder. Lots of politicking in this article that distract from the point being made.

Take a look at what the market thinks of the chances for a California default.

http://www.economist.com/blogs/dailychart/2010/11/credit-def...

As of a week ago, "The state with the biggest budget problems, California, is seen as slightly less likely to default than Spain but slightly more so than Italy."

Note that Spain is a total mess with an unemployment rate around 20%.

It's hard to default when your can print your own currency. I think the California bond holders will never take a haircut. The US will just print more dollars.

Re: The Truth about California: It's actually saving the rest of the USA

#18

Post by waterlesscloud »

j_baker wrote: post #8
ggchappell wrote: post #4

Interesting article. One statement struck me as odd: > Most of the states that have grown faster than California during that time are farm states, riding an incredible boom in agriculture prices. I suppose there is nothing wrong with this statement, strictly speaking. However, it suggests that CA is not a "farm state". But it certainly is. CA is the number-one agricultural producer of all the 50 states. It's a clear…

I would imagine that the other states' economies depend much more on agriculture than California's does though. Thus, California has a lot of farmers, but it doesn't get as much from a surge in agriculture prices like the others do.

California %2 is agriculture. Texas is 0.8.

Re: The Truth about California: It's actually saving the rest of the USA

#19

Post by nhebb »

gruseom wrote: post #10
j_baker wrote: post #5

Earlier quoted context omitted.

Here's what strikes me as funny: California's budget crunch is $25 billion. Texas (a paragon of small government) is facing a deficit of... $25 billion. The fact that both states have similar deficits would seem to back your argument that this has more to do with the economy than budgetary policy. http://www.dallasnews.com/sharedcontent/dws/news/politics/st... http://articles.sfgate.com/2010-11-11/news/24826042_1_bud…

But California's economy is 50% larger than Texas', according to http://en.wikipedia.org/wiki/List_of_U.S._states_by_GDP . Since economists mostly talk about debt to GDP ratio, doesn't that make Texas considerably worse off?

Texas has a two-year budget cycle, and the $25 billion deficit figure that's been batted around the internet is speculative since the official numbers won't be known until January.

Re: The Truth about California: It's actually saving the rest of the USA

#20

Post by j_baker »

waterlesscloud wrote: post #18
j_baker wrote: post #8

Earlier quoted context omitted.

I would imagine that the other states' economies depend much more on agriculture than California's does though. Thus, California has a lot of farmers, but it doesn't get as much from a surge in agriculture prices like the others do.

California %2 is agriculture. Texas is 0.8.

Really? That's actually somewhat surprising to me. Still, I don't really think of Texas as a farm state either. I'm thinking more along the lines of the Midwestern states like Kansas or Nebraska.
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