Brown and Gray in California

Although this article does not deal directly with real estate, mortgage notes, or mortgage note buyers, overall economic conditions and state regulations affect all of these areas and more.  I share the information below to make the readers aware of what is happening in California and the path that we are heading down. 

Leading up to the election a few weeks ago, Californians experienced a barrage of TV advertising and seemingly signs on every street corner telling us to vote for Proposition 30, which would raise the sales tax ¼ percent-point and increase the income tax for anyone making over $250,000 per year.  Failure to pass the proposition, we were told, would mean massive budget cuts, especially to schools.  The implied message was that “if you care about children, you have to vote for this law.”  A majority of under-informed voters bought that argument, and the proposition easily passed.

Shortly thereafter, the legislative budget analyst assured Californians that the budget would soon be balanced.  “Yeah, we’re saved,” cheered the masses.

The problecalifornia-BANKRUPTm is that higher taxes do not lead to higher revenues, especially for a poorly managed, economic basket case like California.  According to the state controller and Mish, November’s tax receipts were $807 million below expectations, and overall revenues are below target since the fiscal year started in July.  Meanwhile, actual expenditures were $2.2 billion higher than expected.  Throughout the first five months of the fiscal year, the state has already put itself in a financial hole.  The higher taxes kicking in next month will only hurt economic growth and drive investments to other states.

Bloomberg has started running a series of articles about how California got to be such a fiscal mess.  It started when Jerry Brown granted collective-bargaining rights to state workers during his first term as governor more than thirty years ago.  Gray Davis, who was recalled by voters in 2003, made a further mess of things by giving public unions nearly everything they asked for.  Not coincidentally, the unions were exceedingly generous in their donations to his political campaign.  Jerry Brown, elected again a couple of years ago for another term as governor, is continuing down that path.

The list of despicable actions by Brown and Gray Davis is long, but here a few examples comparing California to the next 11 most populous states, courtesy of Bloomberg:

* California public employees earned more than their counterparts in nearly every type of compensation – wages, overtime, extra duty, and one-time lump sum payments.
* Brown has chosen not to curb overtime expenses or limit payments for accumulated vacation time despite the state’s budget problems.
* The per-worker costs of delivering services in California vastly exceed even those in other collective bargaining states like New York, New Jersey, Illinois, and Ohio.
* Californians have suffered through ongoing budget deficits over the past decade, and now face the country’s highest debt and Standard & Poor’s lowest credit rating for a state.
* 240 California state employees received at least $100,000 in accrued leave payouts last year, compared with 42 for all of the other 11 states combined.  Chris Christie, the governor of New Jersey, calls such payments “boat checks” because they can be large enough to buy a yacht.
* When Davis took over as governor in 1999, he unwound curbs put on pensions, leading California’s annual payment to pension obligations to go from $300 million that year to $3.7 billion in the current fiscal year.

Prison guards, highway patrol troopers, prison guards and nurses, and other public employee unions have made out like pigs at the trough of taxpayer money.  Despite the escalating financial crisis in the state, public employee unions have made only minor concessions.  The governor and Democratic legislature continue to insist that the state has a revenue problem instead of recognizing that it is entirely a spending problem.  Since that philosophy is unlikely to change, I’m confident in predicting more propositions for higher taxes within the next four years.


Written by Alan Noblitt

Alan Noblitt is the President of Seascape Capital, LLC, and works as both a real estate note buyer and a business note broker. Alan has an MBA from Arizona State University, a B.S. from the University of Wyoming, and is licensed as a California Real Estate Note Buyer.

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