The Golden State's Fiscal Fraud

California, once known for job-creating mega-infrastructure projects like its famous aqueduct, is now more known as a fiscally unhealthy welfare state. (Peter Bennett Danita Delimont)  7/15/2016

California: For years, the liberal media have lionized California Gov. Jerry Brown's economic "miracle" in bringing the Golden State back from the dead and balancing the state's budget. But his supposed miracle looks more like a mirage by the day.

Thanks to budget legerdemain, Brown and his Democratic allies in the legislature have posed themselves as the fiscal saviors of California, making brave choices to balance the books and get the economy growing again. But the fact is, the nation's largest and still-wealthiest state is in a fiscal fix from which it will be tough to extricate itself.

Democrats boast of running a "surplus." What they don't say is they only run a surplus by excluding costs for the state's out-of-control public-pension programs. If a company did this, it would be accused of fraud. In California, this gets you re-elected.

California's total debt is $118.17 billion, but when you add in what it really owes, that surges to an unbelievable $757 billion -- roughly equal to 46% of the state's total income. This is why the Mercatus Center at George Mason University recently ranked California 44th in the nation in terms of fiscal health.

Meanwhile, a recent survey of the nation's CEOs again ranked California's business climate dead last in the nation. Not surprisingly, according to business consultant Joe Vranich, this has led to some 1,687 companies moving out of California since 2008 -- the latest being California fast-food icon Carl's Jr.

Says Vranich, "California is considering imposing a broad set of new taxes, tax extensions and fees on businesses in 2016 and 2017 -- a tsunami that may trigger the worst demands on private-sector finances ever organized by the state's politicians."

But isn't Silicon Valley booming? Yes. But that's created a two-tier economy. In 2014, the most recent year for data, nearly half of all state income taxes were paid by the top 1% in incomes -- which were boosted by capital gains from stock options. In a tech downturn, which is inevitable, the state's chronic deficits will once again reappear.

Spending is out of control, with the next budget projecting $173 billion in outlays. As recently as the 1990s, spending was less than $50 billion. California is just one business-cycle downturn away from returning to $20 billion a year in deficits.

A big part of this is priorities. Brown has focused on foolish global warming initiatives, tax hikes and mindless regulation rather than initiatives that would create jobs. Today, a third of all U.S. welfare recipients live in California, which, with its generous welfare benefits, has become a magnet for impoverished immigrants from around the world. A quarter of the population lives near the poverty line.

California once had the finest roads in the nation, and its vast water project literally made the nation's second-largest city, Los Angeles, possible. Its public elementary and secondary schools were once among the best, while its public university system was hailed as the best in the world.

Today, that's no longer the case. California is a massive welfare state.  "California's capital outlays have declined from about 20% of the state budget in the 1960s to about 3% today," wrote Nobel prize-winning economist Edward C. Prescott and UCLA economics professor Lee E. Ohanian, in a recent column about what ails the state. "California's political leaders once agreed that substantial infrastructure investment was a major obligation of state government." No more. There is no economic miracle. Just a mirage.

http://www.investors.com/politics/editorials/the-golden-states-fiscal-fraud/