California Economy ''Stable, but Unspectacular''
New report chides Sacramento for using ''gimmicks'' to solve the state's fiscal woes
LOS ANGELES - 12/14/04 - The most recent UCLA Anderson Forecast predicts a "stable but unspectacular" California economy next year and chides Sacramento for serving-up a "fiscally irresponsible budget" by using "financial maneuvering that, if used in your own business, would probably get you thrown in jail."
Research for the Forecast - which is issued every quarter - was headed by Christopher Thornberg and Michael Bazdarich, both senior economists at UCLA's Anderson School of Business.
"The proliferation of gimmicks in budget accounting has continued over from former Governor Gray Davis' time in office to the current Schwarzenegger administration," said Bazdarich, adding that California officials "have manipulated state finances three times in an effort to pay back some of the state's $11.2 billion deficit."
According to Bazdarich, "Sales tax revenues," he said, "initially were diverted to pay interest and principal on the state's debt with property tax revenues then diverted to local governments to compensate for their lost sales tax revenues."
As a result, general fund outlays were reassigned to them "to compensate public schools for lost property tax revenues."
The result, Bazdarich found, was that the state's debt problems were paid with money from general fund outlays meant for education. He also found that through the use of accounting gimmicks, the state has hidden dipping revenues from its reports on the economy.
"In order to pay off the large debt accumulated, the state needed a major influx of money," he said, with two propositions passed by California voters in the November general election moving the state toward that goal.
"Proposition 57 allowed the state to sell $15 billion in bonds to help pay off its debt, while Proposition 58 amended the state constitution to ensure the enactment of a balanced state budget with reserve requirements and limits on future borrowing used to finance state budget deficits," Bazdarich said.
"The passage of these two propositions has helped the state make progress in fixing its budget problems."
Speaking at a press conference introducing the new report, UCLA Anderson Forecast Director Edward Leamer spoke about stable but decreased growth in the economy and his reservations for a continued high rate of home sales.
"2005 is a critical and deceptively difficult year," he said.
"Maintaining the current high rate of home sales is dependent on rising home prices and on consumers having incomes capable of sustaining such purchases," said Lerner. "Also, increased home construction is likely to cause the sale of current homes to decrease and lead to a deflation in the current housing bubble."
One aspect that may save the housing market is what he called "the productivity miracle" - the phenomenon in which improving information technology has allowed workers to get more done in less time.
National productivity was constant at 1.7% growth annually from the 1970s to 1998 but has now doubled in the years following the "dot-com boom" of 1998, said Leamer.
"The rise in gross domestic product each year may be the result of people working more hours each week, not increased productivity from information technology," he said.
Christopher Thornberg found California employment rates to be higher compared to the rest of the US in most areas, excluding manufacturing and health care.
Taxable sales and income are expected to increase in the Bay Area, and vacancy rates in California real estate are believed to be going down, he said.
At the same time, Thornberg stressed the importance of increasing the allocated budget for education.
"These are the kids who are going to be supporting you in 20 or 30 years."
Richard Riordan, former mayor of Los Angeles and California's current Secretary of Education, was also present at the event to unveil the Forecast and agreed that more needed to be done with California's schools.
The future of California depends on a "college-educated workforce" capable of handling the demands of the economy, said Riordan, suggesting "a tightening of the standards expected of students and holding them accountable for their learning."
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