Surplus fails to satisfy state needs

The big news in the latest state economic report is that California is the fifth-largest economy in the world — again. This is the same rank that it had in 2002 when my colleagues and I published “California’s Social Problems.”

During the intervening years, the state’s economy has bounced around, at one point falling back to ninth place. That was after the housing bubble burst. But, according to the New York Times, since 2010, our state has produced 20 percent of the nation’s economic growth. Moreover, between 2016 and 2017, our gross domestic product (the value of all goods and services produced within the state) grew by $127 billion. The total annual GDP is now $2.7 trillion. That’s trillion, with a T.

Despite all of the negative comments that I’ve made over the past several months about our legislature, and especially Gov. Jerry Brown, California remains the world leader in agriculture, entertainment, and technology (see last week’s column). Only the United States as a whole, China, Japan, and Germany now have greater economies. Last year, we surpassed Great Britain, pushing it into sixth place. Resurgence

A decade ago, California was in dire straights, just like many — if not all — other states. Californians were victimized by an over-expanded housing bubble that burst in 2006. People who bought expensive houses with sub-prime loans lost their homes and savings. By 2008, we were in a severe recession.

Because discretionary income was down, money spent on durable goods on which the Board of Equalization collects taxes was far lower than had been projected. With less money being spent in the market, jobs became scarce or disappeared completely. In brief, the future for the Golden State seemed to be tarnished.

For the next six years, home prices dropped annually. During that time, gradually and steadily, unemployment decreased with more people entering the job market, though at somewhat lower wages, except for Silicon Valley where the pre-recession boom continued. And, as might be expected, housing prices began to rise again. But, there was an important difference.

As Diana Olick reported for CNBC in 2016, “The difference today from a decade ago is that these prices are not being driven by faulty mortgage products that people can’t afford. They are being driven by a severe lack of supply of homes for sale, as well as near record low mortgage rates.” But, our major metropolitan areas were still plagued by homelessness, which has been a growing problem.

The bottom line was that the price of a house was still beyond the grasp of even median-income earners. Many economists and critics of the state’s management of our finances foresaw more bleak days, with the treasury wallowing in growing debt. But, then Sacramento presented its May revise for 2018. This is a revision of the budget based on the first two quarters of the current fiscal year. And guess what? California found that it actually had a $9 billion surplus.

Almost immediately, Governor Jerry Brown dropped $2.6 billion into his “rainy-day piggy bank” to bring the total to $15 billion. He said, “This is a time to save for the future, not to make pricey promises we can’t keep.” Pricey promises

Although the governor’s austerity may seem commendable, his statement is quite ironic to those of us who have been following the periodic reports from the California High Speed Rail Authority (CHSRA). About the same time that the May revise of the budget was released, a new business plan was revealed by the CHSRA. Once again, the projected cost of the project increased. And the bump was a cool $13 billion. That comes on top of last year’s equally huge increase, bringing the current estimated total to $77 billion.

Many observers of this ever-changing project, including me, believe that the costs have been spiraling out of control. The report also indicates that ridership will not be as high as was initially expected, and revenue projections are significantly lower. So, the Slo-Mo Choo-Choo, which will be obsolete by the time it is completed, will cost more, bring in less money, and serve fewer people. But, that’s not all.

According to Brian Kelly, the new chief executive of the CHSRA, the authority “doesn’t have enough money in hand to complete an initial segment of the train between San Francisco and the Central Valley.” As those who have followed this unrealistic project from the get-go know, this route was not part of the original plan. The first leg of the route was to be from Borden (nowhere) to Corcoran (home of two prisons and little else). The “bullet train” was dubbed “The Train to Nowhere.“

Last month, Chairman of the Board Dan Richards told the Associated Press, “We are going to deliver high-speed rail for the people of California.” However, the completion date has again changed. The current guess is that people will be able to avail themselves of high-speed rail between San Francisco and Los Angeles by 2033. And to do that, Kelly is petitioning the legislature to extend cap-and-growth trade for 20 additional years, until 2050. A secure future?

Brown’s statement that his $15-billion piggy bank represents significant savings for the future sounds good until we start to list the various projects that the people of our state desperately need. To begin with, our past and projected population growth nearly matches our past and projected economic growth. State estimates made in 2016 indicate that the economy will grow 5.6 percent by 2021. However, the state’s population of about 39 million in 2016 will grow to about 41 million during that same time span, a 5.1 percent increase. We’re already at 40 million.

If we start to list the state’s current and future needs, we’ll see that the contents of Brown’s piggy bank just won’t stretch far enough. For example, the huge, destructive wild fires that we witnessed last year are the new normal. As housing construction continues to spread into unsafe areas to accommodate population growth as well as public expectation, drought will be a continuing problem and will make future fires even more destructive.

Cities will have to cope with the already great and growing problem of homelessness. The state’s energy supply line has been patched and stretched beyond reasonable limits. We desperately need to improve our water storage and delivery systems. Our highways, city streets, and county roads are in miserable shape. And this thumb-nail sketch only scratches the surface.

So, is what Gov. Brown calls a surplus really nothing more than a Band-Aid on a gigantic open wound?

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Jim Glynn may be contacted at