California took quite a hard blow during the 2007 to 2009 recession and predictions are that it will continue to lag behind for a while even as the rest of the country picks up.
This year’s economic growth for California is projected at 1.5 percent with two hundred thousand jobs being added; currently the rate of unemployment stands at about 11 percent which is higher than the country’s average of 8.3 percent.
According to a report, the state’s economy will continue to recover but the problem is that the process will take quite some time. Come 2013 the rate of unemployment will still stand at an unattractive 10.3 percent.
California finances might be assisted by the entertainment (Hollywood), technology and international trade sectors as things look rather promising there. The real estate sector which was among the worst hit is improving but all indications are that it will take a considerable amount of time for things to get back to where they should be.
California‘s median household income drastically fell in the five year period between 2006 and 2011 by about 13.5%. This translates to the lowest household income for 18 years meaning that all the gains (on household income) that were made during the 90s as a result of a booming economy have pretty much been done away with. Currently, California’s economy is the 9th largest in the world which is a fall from the 8th position that it was not long ago.
Another indicator that all is not exactly well in California is the state’s budget. This year’s budget deficit is 16 billion dollars which is way more than what was previously predicted. Basically what this means is that the state will have to find solutions to deal with this issue and one option is increasing taxes which of course will first have to be approved by voters come November. The other option will be to cut funding to the education sector and public safety.
One of the reasons that the governor gave for this deficit increase is that the state failed to collect the amount of taxes they had expected; tax revenue actually fell by 3.5 billion dollars. He also attributed the increase to an unfavorable economy saying that the rate of growth of the same was not exactly what was anticipated du to the bad loans issue. Governor Brown asked the people of California to approve the tax increases saying that doing so will greatly assist in lifting the state from the financial quagmire that it is currently in.
Brown’s proposition is to raise the taxes of people making 250,000 dollars and above; this is however not a permanent measure. According to the governor doing this would add about 9 billion dollars to the state’s coffers although analysts say that the actual figure is 6.8 billion dollars.
There are some analysts who are claiming that the deficit could actually be more than the official figure of 16 billion, maybe more than 17 billion. There has been a lot of criticism on the state of California on its inability to improve its performance seeing that its residents are some of the highest taxed in the world.