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Sunday, May 20, 2012

California's bad dream: Budget deficit hits $16B, unemployment 11%, businesses exit

What happened to the California of John Wayne and Ronald Reagan? Where’s the Golden State, where young men and women flocked to pursue the California Dream—a variation of the American Dream but with better weather?

It still thrives in Silicon Valley, as this week’s expected Facebook IPO demonstrates. By some estimates, Facebook, which was founded in a Harvard dorm room but moved West, now is worth $100 billion. Otherwise, the dream has become something of a nightmare. Even Hollywood is eager to move movie production to Michigan, Louisiana and New Zealand.

As recently as a decade ago, California was attracting hundreds of thousands of migrants from other states every year, along with hundreds of thousands of immigrants, legal and illegal, from foreign countries. No more. According to the 2012 edition of the “Rich States, Poor States” survey by the American Legislative Exchange Council, “California suffered a net loss in domestic migration of 1.5 million people from 2001 to 2010, as well as a 2.5 percent non-farm employment loss. Unfortunately for the Golden State, economic decline is unlikely to stop anytime soon.”

Even immigrants from Mexico have started returning home, despite the horrible violence in that country, because the economy South of the Border is growing faster than California’s.

Unemployment rises to 11 percent

Bucking national trends, California’s unemployment rose in March to 11 percent. That’s almost 3 percentage points above the national 8.2 percent rate. As recently as the mid-2000s, California’s rate was only 1 percentage point higher. The last time the state’s unemployment rate was below double digits was in 2008. And California vies with Illinois as the state with the worst credit rating on the bond markets.

State finances in shock

As a result, the state’s finances are in shock. Last week, Gov. Jerry Brown announced that the state’s budget deficit, according to Department of Finance estimates, had soared to $16 billion from the $9.2 billion predicted in January. So the deficit rose by 74 percent in just four months.

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