It’s happening again. People who should know better are pointing to California’s current budget surplus as proof that the state, the world’s fifth largest economy, is in sound financial shape. That figure is also being used to support the claim that California’s relatively high tax burden and onerous regulations are not too problematic, as CNBC’s Robert Frank did on Squawk Box the morning after Tax Day.
The surplus figure cited by Frank and others has two problems: it’s both misleading and paints an incomplete picture of the Golden State’s finances. The truth is that there is no revenue surplus had by California state government. In fact, the state’s long-run obligations far exceed projected revenue collections to the tune of $1 trillion in unfunded pension liabilities alone. When factoring in the cost of non-pension benefits for state workers, such as health care for retired government employees, the debt facing California taxpayers rises further.
“Combining California’s debt with publicly held federal debt, we estimate a total debt-to-GDP ratio of 125% (or 153% using the broader definition of federal debt),” California Policy Center report released in 2017 points out. “This level places California distressingly close to peripheral Eurozone countries that faced financial crises in 2011 and 2012. Portugal’s 2015 debt-to-GDP ratio was 129% and Italy’s was 133%.”
Bill Fletcher and Marc Joffe, authors of the California Policy Center report, breakdown how much of this debt each Californian is on the hook for and find a burden of “$33,000 per resident and $74,000 per taxpayer – excluding their share of federal debt.”
This massive unfunded pension liability, which California taxpayers are on the hook for, is something that state legislators in Sacramento continue to ignore, acting as though the problem will go away on its own (or, more likely, that the federal government will bail them out at the end of the day).
State and local unfunded pension liabilities are pegged at $5 trillion nationwide, with California accounting for about a fifth of that total. States where unfunded pension liabilities are the worst (states like Illinois, New York, and California) are the places where there is the least amount of political will and interest in addressing the issue.
That’s not the only canary in the California coal mine. Years of domestic net outmigration is further proof that all is not well in the Golden State. In the five years from 2011 to 2016, the most recent half decade for which IRS migration data is available, California had a net loss of more than 243,000 people, with an annual income in excess of $7.7 billion, to other states.
California Is Losing People To The “Mean” States
California Attorney General Xavier Becerra announced earlier this month that California state employee travel and state sponsored travel to anywhere in South Carolina is now banned. No, this prohibition is not due to the recent announcement that the Hominy Grill is closing. Instead the impetus for the travel ban is a recently-enacted South Carolina law that Becerra deems to be “discriminatory.” The law in question protects faith-based institutions and non-profits from being coerced into taking actions that violate their religious beliefs.
With this move, South Carolina becomes the 10th state to which California has banned state employee and state sponsored travel. Others states on California’s travel ban list include Tennessee, Texas, South Dakota, Oklahoma, North Carolina, Mississippi, Kentucky, Alabama, and Kansas.
“The state of California stands strongly against any form of discrimination. (State law) AB 1887 authorizes my office to make that promise real,” California Attorney General Becerra said. “California will now bar state-funded or sponsored travel to South Carolina.”
As it would happen, Californians themselves have been pulling up stakes and moving their families to the very states that Attorney General Becerra has deemed so mean and offensive to California sensibilities that government workers and public university athletes cannot be allowed to travel to them.
Over the past five years, California has lost 2,641 people to South Carolina, who took more than $172 million in annual income with them to the Palmetto State. During that half decade, California experienced a net loss of more than 121,000 people to the ten states to which Becerra and company have banned travel. These ex-Californians brought more than $4 billion in annual income to those states included in the California travel ban.
Instead of spending time issuing more travel bans, a move that serves to both inconvenience student-athletes and heighten American political division, Attorney General Becerra and other California officials might want to reflect on the fact that they’re losing population to states they deem to be “backward” and why that might be happening.
California law is no longer open to letting state workers and public university athletes travel to ten states, including one that is the world’s 10th largest economy (Texas). Yet those ten states are welcoming tens of thousands of ex-Californians with open arms, lower tax rates, and public officials not focused on North Korea-style travel bans.
