Is California a State Defined by Delusion?
In mid-May, speaking at a California Chamber of Commerce event, California Governor Jerry Brown made two statements that best encapsulate the feelings of Sacramento's elected leadership: "California is definitely back," Brown exclaimed followed by "this is a job creation engine."
It's very clear that California's elected and media elite are focused on the so-called, "California comeback." And they have reason to be optimistic. After peaking around 12.4%, California's unemployment rate has fallen almost 5 points to 7.8% as of April. Since hitting its employment trough around November 2009, California has gained 167,189 more jobs than it lost during the recession.
But the economic news is a mixed bag. For one, 53% of those unemployed are because they lost their jobs vs.28% who are re-entrants into the labor force. The largest group of unemployed, still, is those who have been without work for 52 weeks or more. At 62.3% as of April, California's labor force participation rate continues to decline. In addition, California hourly wages have stagnated. Between 2010 and 2013, median hourly wages grew just 2.7% compared to 8.7% during the Golden State's previous recovery (2001 to 2004). Lastly, the state's unemployment rate is still 3 points higher than it was in the lead-up to the Great Recession.
So, the economic news is going in the right direction, just not as robustly as many would like Californians to believe. And Californians are aware of this. Beginning in the autumn of 2013, the Hoover Institution has conducted a regular survey (the Golden State Poll) of Californians' attitudes on their economic confidence with surveys released in September 2013, January 2014, and most recently, May 2014.
The results are illuminating. Not only is there a disconnect between what the state's leaders are saying and what Californians believe, but also Californians feel as if they are stuck in neutral trying to drive uphill (accelerating is typically the norm coming out of a recession).
In September 2013, by a 2-to-1 ratio, Californians said they were worse off (33%) financially than a year ago than better off (17%). Almost a majority said they were about the same. Statistically, these results remained unchanged into January and in May. Among Latino Californians, those saying they were about the same as a year ago have dropped 10 points between September and May, while the number saying they were worse off than a year ago has increased from 28% in September to 35% in May. In addition, millennial Californians have shifted, for the worse. In September, 57% and 19% of 18-to-29 year olds said they were either about the same, financially, as a year ago or worse off. Just 8 months later, 39% and 32% of that same age group say the same.
And for Californians, the end of the tunnel is still looking quite dim. In the May Golden State survey, 54% of Californians say they will be financially about the same in six months - no change from September. More importantly, while slightly more said they would be better off in six months than worse off in September (21% vs. 19%), those sentiments are now tied (19% vs. 19%). Among millennials, those saying they will be worse off in six months has more than doubled (7% in September vs. 19% in May), while those saying they will be better off has dropped ten points to 19%.
Despite Jerry Brown's reassurances, Californians continue to believe that tax rates will be going up. 58% of Californians say they think state tax rates will increase a little or a lot in the next year. While slightly fewer Californians are unconfident in being able to pay additional taxes while meeting other expenses (46% in May compared to 51% in December) that is not because they are becoming more confident in their ability - which saw no statistical change; instead, more Californians are unsure of their ability to meet additional tax liabilities. This paints an ominous, but fixable situation.
California's overburdened economy - from government regulations to high taxes - is holding back the Golden State's potential. Instead, to shift California's economy out of neutral and press on the gas, Sacramento needs to focus on pro-growth policies. Otherwise, Sacramento leaders will continue to tout a "California comeback" that few Californians actually believe is happening.