This article doesn’t directly address real estate, mortgage loans, or buyers of mortgage notes. However, the overall economic environment and state regulations have a significant impact on all these areas. To inform the readers about what’s happening in California, and the direction we are going down, I have provided the following information.
Californians were bombarded with TV ads and signs warning them to vote for Proposition 30. This would increase the sales tax by 1/4 percent and raise the income tax for those earning over $250,000 annually. We were told that failing to pass the proposition would result in massive budget cuts, particularly to schools. It was implied that “if your concern is for children, you must vote for this law.” The proposition passed easily with the support of a majority of voters who were not well-informed.
Soon after, the legislative budget analyst assured Californians the budget would soon balance. The people cheered, “Yeah! We’re saved!”
The problem m, is that higher taxes don’t lead to higher revenue, particularly for an economically poor state like California. Mish and the state controller reported that November’s tax receipts were $807million less than expected. Overall revenues are also below target since July’s fiscal year began. Despite this, actual spending was $2.2 billion more than anticipated. The state is already in financial trouble after the first five months. Higher taxes that will be imposed next month will not only affect economic growth but also drive investment to other states.
Bloomberg started publishing articles on how California became such a fiscal disaster. 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 in 2003 by voters, caused even more chaos by giving public unions almost everything they wanted. The unions gave Gray Davis a lot of money in donations. Jerry Brown was reelected a few years ago to a second term as governor. He is still on that same path.
Gray Davis and Brown have committed many despicable acts. Here are some examples to show how California compares to the 11 next most populous US states.
* California public employees made more than their counterparts in almost every type of compensation, including wages, overtime and lump sum payments.
* Brown chose not to limit overtime expenses or pay for vacation time accrued despite state budget problems.
* California’s per-worker delivery costs are far higher than those in other states that have collective bargaining, such as New York, New Jersey and Illinois.
* Californians have been suffering from ongoing budget deficits for the past decade and now have the highest level of debt in the country and the lowest credit rating by Standard & Poor’s for a state.
* Last year, at least 240 California state employees received more than $100,000 in accrued leaves payouts. This compares to 42 for the rest of the 11 states. Chris Christie, New Jersey’s governor, refers to such payments as “boat checks”, because they can be large enough for a yacht purchase.
* In 1999, Davis became governor. He removed all restrictions on pensions. California’s annual pension payments increased from $300 million in 1999 to $3.7 billion in the current fiscal.
Highway patrol troopers, prisoners guards, nurses and other public employees unions have been pigs at taxpayer money. The state’s financial crisis is causing public employee unions to make only minor concessions. Instead of acknowledging that the state is a spending problem, the governor and Democratic legislature insist on proving that revenue is a problem. This philosophy is not likely to change. I am confident that there will be more proposals for higher taxes in the next four years.