Tuesday, July 27, 2010

Californication: More Problems in Cali- Part Deux

The California budget project, a think tank, indicates that the states university system remains the largest employer at 38%, however no one wants to make any cuts in that sector because of the powerful teachers union (the largest lobby in the state) that is vehemently opposed to any new measures to raise standards, change probation periods, and alter the ‘laughably easy teacher tests’ which dictate hiring. The State has the largest classrooms with 23.4 students, almost twice the national average, and spending per pupil has dropped 11% in the past two years and is likely to drop even further now that the stimulus package has run out. And, considering that the states 8th graders ranked 46th in the nation last year as well as the fact that the state sends fewer high school graduates to college than all but three other states, there are many arguments for reorganizing the entire education system, however the possibility of that becoming reality remains improbable.

Consequently, the school system is not the only pressing issue of economic consequence. The rich and fertile central valley of California is running out of its most valuable resource, water. Geologically the region was once, thousands of years ago, an inland sea, however now the cumulative abuse of resources and successive droughts since 2006 have severely reduced the natural water supply. Importing water has increased the cost of acquiring the resource for local farmers, which is now accounting to above 30% of their expenditures. Even the use of “micro-sprinklers”, aimed at helping reduce water waste, has had little overall effect. While it is unlikely that farming will disappear entirely from the region, whether it will be as productive as it was in years past remains unclear. In the San Joaquin valley agriculture accounts for 20% of the available jobs, the only other comparable source being the state prison system. And, because of the very poor level of education among the workers in the valley, opportunities would be scare if many are left without work in the fields. The demographic trend of increasing Spanish speaking workers, now reaching close to 6.8 million, who migrate to the valley add to the already pressing problem of few opportunities and increasing water costs.

Much like the problematic issues facing Sacramento and the central valley face, the city of Los Angles also has many enormous budget cuts to deal with in order to decrease its deficits of close to $212 million. Next year Wendy Gruel, the cities chief accountant, estimates that the deficit may increase to $484 million and with the power and water utilities refusing to transfer funds to the city’s general fund LA’s accounts will be overdrawn, leaving little available cash to pay its employees. On top of a state-wide housing bust and complicated property taxes, including proposition 13 which capped property taxes in 1978, the city has few viable resources for generating any necessary funds. In addition, proposition 218 was passed in 1996 requiring explicit voter approval for increasing any of the cities fees, further complicating the city’s fiscal issues. The only option the city now has is cutting the size of its services. And, in the case of the police force which was once lauded for its hard-won success against crime, chief of police Charlie Beck has cut overtime pay and will potentially limit hiring next year. As with the state, the future of Los Angles looks bleak and is due a real miracle if it is resolve its deepening fiscal issues.

Cited form the Economist Magazine, Website &

Tom Rodelli
Research Analyst
Analyze Capital LLC

1 comment:

  1. It is a real shame Washington Mutual and Countrywide had greedy executives who exploited Californianians. It is also a shame Alt-A mortgages and ARMs went unregulated for so long. Hence, these toxic securities allowed speculators to buy every property in sight without the intention of actually living in these luscious homes. Both Countrywide and Wamu literally created a don't ask don't tell policy for mortgage applications to speed up the process of home loans and increase home ownership. Meanwhile Kerry Killinger and Angelo Mozilo were paid a king's ransom. Yet, John McCain is still under the impression Standard and Poor's sells Mortgage Backed Securities. Empirical culpability is hard to come by these days.


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