California is flush, or so it would seem. Recent headlines cheered a soaring budget surplus that may have increased by $8 billion over the last several months. The total is four times the original $2 billion estimate and is attributable to stronger-than-anticipated income tax receipts.
As encouraging as this rosy picture may be, there’s still California’s nagging Wall of Debt, its long-term unfunded liabilities, which include retirement benefits that last year The New York Times pegged at $354.5 billion. Since Proposition 98 mandates that most of this year’s $8 billion be spent on schools, and a smaller slice withheld for the rainy day fund, the Wall of Debt remains intact.
|Even Jerry Brown wonders where the water will come from.|
Looking beyond the cheery headlines, and Sacramento’s enthusiasm, another news item casts a cloudier picture on California’s economy. Even though the state has continuously added population, and more homes have been built which increases housing inventory, only one out of three California families can afford to buy. Because new homeownership is largely limited to the wealthy, more and more Californians are renting or, if they are young adults, moving back with their parents.
Although there are risks associated with home ownership, as evidenced during the Great Recession, it’s still the traditional vehicle to build equity and eventually reach financial independence. If a Californian voluntarily opts out of owning a home and chooses to rent, that’s a personal decision. But if he can’t afford to make the down payment because his earnings are too low, and prices are so high, that sends a different message: California doesn’t have enough good jobs or affordable housing.
In today’s California, renting versus purchasing is painful either way. The average cost of a California house is $440,000; a rental, $1,240 per month. Those costs are two-and-a-half times and 50 percent higher, respectively, than anywhere in the nation, according to the California Legislative Analyst’s Office. And when you look beyond averages, some of the numbers for individual markets truly are eye-popping. For instance, the average apartment in Santa Monica rents for more than $2,600 a month.
The California Department of Finance projects the state’s population will hit 50 million by 2050. Where the new residents will live, how they will bathe and whether they and their cars will be able to negotiate the freeways are overpopulation-related problems about which even Governor Jerry Brown recently expressed concern.