Steve Julian
May 12, 2009
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KPCC's business analyst Mark Lacter discusses why California's deficit keeps growing; Mark also explains how apartment rentals are an indicator of the troubling recession.
Steve Julian: Mark, Governor Schwarzenegger said yesterday that, if the budget-related propositions don't pass next Tuesday in the special election, California will have a $21 billion deficit; $15 billion if they
do pass. Let's get some numbers straight.
Mark Lacter: Take out your calculator Steve. First off, they've raised the estimated deficit that had been in the budget from $8 billion to $15.4 billion – that's what the governor was referring to yesterday.
You know, one reason the number shot up so much is that a lot less money has come in this year than expected. You know, April was supposed to be a big month, but personal income taxes were down, corporate taxes down, sales taxes down – it adds up.
Julian: All right, so how do we get to the $21 billion?
Lacter: Well, you have those ballot measures coming up that would provide another $5.8 billion for the next two years. Except that all the polls show that the measures are failing.
So if that happens, tack that $5.8 billion to the deficit tally and you're up to at least $21 billion – and I say at least, Steve, because it's possible those tax revenues will continue to come in at lower-than-expected levels.
Julian: Now Mark, in relative terms, $21 billion is nothing like the hundreds of billions that the Washington's been talking about in deficit financing.
Lacter: You know, that's right, but the state of California isn't like the federal government, which can print as much money as it wants and doesn't have to balance its budget. So what you're looking at, first of all, is a cash emergency.
And just not enough money coming in to handle the obligations – it's a little like what's going on with General Motors. And the state is reaching its limit on how much it can borrow. But what's
really threatening the economy is the additional budget-cutting that will have to be made.
Julian: All from cities and counties.
Lacter: Yeah. That's the speculation – and they're certainly not in great shape, those cities and counties. You know, there's also talk about releasing minimum security criminals from prisons, possibly slashing Medi-Cal services even further.
You know, obviously, none of this is gonna be very helpful in attracting new businesses, so what up until now has been largely a political problem is quickly turning into this giant-sized economic problem.
Julian: We should also note that this is the first time in 71 years that California's income tax revenue will fall compared to the previous year.
Lacter: Right.
Julian: Not unrelated, Mark, you say, is how apartment rentals are an indicator of our troubling recession.
Lacter: Yeah. You know, the average one-bedroom apartment in L.A. County is running around $1,300 a month. That's really among the highest in the nation.
Now the rule of thumb is that you shouldn't be paying more than 30 percent of annual income on rent. But it turns out that a wage of at least $25 an hour would be required to meet that 30 percent level – and $25-an-hour jobs are in relatively short supply these days.
Julian: These days?! (laughs)
Lacter: (laughs) Yeah, they've been in short supply going back to the early '90s, really, when so many jobs were lost in the aerospace industry. So this is creating kind of a crunch on both sides.
The landlords are lowering their rents in
some parts of Southern California in order to attract tenants, and the tenants are doubling and tripling up in order to afford the monthly rent. Either that or you wind up using most of your paycheck on rent – not a great idea if you have other expenses to worry about, like maybe eating?
Julian: Mm hmm. Yeah. Well isn't it also true, though, that when we're not in a recession, when times are good, that rents go up higher than what the wage levels would call for?
Lacter: Yeah, that's why you see so many nurses, teachers, police officers who live in outlying areas because that's all they can afford. The difference is that in good times there are more jobs out there. So the real issue is how the business climate can be improved so that there are gonna be more jobs in that $25 an hour category, and how long it might take.
Julian: All right, Mark. Thanks very much.
Lacter: Thanks, Steve.
Julian: Mark Lacter is a contributing writer for Los Angeles Magazine and writes a business blog at
LAObserved.com.
