The Tarnished State

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      Tarnished State

      California has a new governor and he faces a host of challenges. The California Dream has fallen out of reach for many with the high cost of housing, health care and energy and problems with water, schools, and illegal immigration. Because of its size, what happens in California tends to have impact beyond state borders. In 2017, California’s economy was fifth largest in the world, right behind Germany—beating out Great Britain. Today, we investigate how the Golden State has become the Tarnished State.. and is on a mission to regain its shine.

      Sharyl: California is known for Sun Fun and Lifestyle. It’s home to some of the world’s great innovators. But now more than ever, California is a state of wild contrasts. In the shadow of lavish neighborhoods with multimillion dollar homes are sprawling encampments filled with workers and families living out of campers and cars.

      Sharyl: We’re in the heart of Silicon Valley. Google headquarters is just a couple of miles away. And this is one impact of the fact that so many workers in the state can’t afford to buy a house or even rent an apartment.

      Sharyl: California’s homeless population spiked nearly 14% in 2017 — reaching 134,000.

      Sharyl: What do you think is the number one challenge?

      John Cox: making sure that the forgotten California the middle class can actually make a life in this state.

      Sharyl: Attorney and businessman John Cox, a Republican, lost the Governor’s race to Democrat Gavin Newsom— who declined our request for an interview about California’s future. Cox campaigned against the 40% gas tax hike under Governor Jerry Brown— who also declined our interview request. California’s state tax on a gallon of gas is now 55.5 cents.

      John Cox: It's the cost of gasoline. It’s the cost of housing. It's being driven up by regulations, by impact fees, by litigation, by delay.

      Sharyl: The Golden State has racked up a growing list of troubles.

      It’s home to nearly one-third of the nation’s welfare recipients, more than 2 million illegal immigrants, and one in four of America’s homeless. California residents pay among the highest taxes, but one in five lives in poverty. Its public schools rank in the bottom ten.

      And it’s almost dead last when it comes to affordable housing. This modest two-bedroom house in Palo Alto was on the market for nearly 3 million dollars during our visit.

      Cox: Half of the people in this state are either planning the move or are contemplating a move out of state

      Grimes: Most people in the rest of the country have heard that we are the Golden State.

      Sharyl: Katy Grimes is an investigative journalist who covers California politics.

      Grimes: And I think it really was at one time the land of opportunity and the land of innovation. And today we are a state that is so highly regulated. We're losing businesses, we’re losing residents, we’re highly taxed. It's changing before our very eyes.

      Sharyl: Grimes says one of California’s most looming problems is future payments owed that it cannot make.

      Grimes: We now have the largest state budget in history, $200,000,000,000 but we also have a trillion dollars of unfunded pension and healthcare liability that is not being addressed.

      Sharyl: What does that mean? I mean, people hear about unfunded liabilities, in simple terms what does that mean if you have a trillion dollars in liabilities?

      Grimes: It means we've got a very, very large government workforce that were promised these extremely generous pensions. What that means is we've got all these future retirees that California has not figured out how they're going to pay.

      Sharyl: For all the pessimism, we found a mix of concern and optimism among Californians we spoke to.

      Sharyl: What’s your view of sort of the economy of California and how livable it is?

      Diana: I think it's really hard. I think you need to have two parents working and it's very expensive compared to other states that we've lived.

      Matthew Borlcky: I mean it's, it's hard to get even apartments houses right now, but just, I think living in general California, it's nice, but you need to have a household with multiple incomes.

      Jonny Hayworth: Definitely some businesses moving out of California just because of the livability problems. But I definitely think that California is still a growing economy and you know, you won't find any shortage of industrious kind of entrepreneurial people.

      Sharyl: Is it accurate in your view to say that the criticisms of California and where it's future is going are exaggerated or overblown?

      Jonathan Lansner: Definitely.

      Sharyl: Jonathan Lansner is a business columnist at the Orange County Register newspaper.

      Sharyl: The conservatives seemed to be more concerned and worried and negative, and liberals seem to be less concerned and more positive?

      Lansner: Let's just say fiscal critics that tend to fall on the conservative side of the question. They are particularly concerned that state government is too big, too unwieldy and has some hidden costs that are going to come back to haunt all people of California in the coming years. I think on the liberal side, there are people who would probably argue that we're not spending enough or spending it in the right ways. No place is perfect. This place has as many warts as, as any other, particularly with the size.

      Sharyl: As a business reporter, Lansner views California’s economy as nothing short of amazing. When Governor Brown was elected in 2010, the housing industry had tanked. California was spending $27-billion dollars more than it had in income from taxes. Today, the state is running a $6-billion surplus— not counting that pesky pension liability. Unemployment is low and millions of jobs have been created.

      Lansner: The recovery in the California economy, which certainly filters down to many, not all neighborhoods, is somewhat truly miraculous when you consider what people were saying a decade ago. And I think when you go back to politics, those who promised us that if we did not change the way the state acted, we were going to have financial ruin; it's a little bit of that “Chicken Little” right now.

      Sharyl: Then again— they called John Moorlach “Chicken Little” back in 1994.

      Sharyl: You predicted that Orange County bankruptcy

      John Moorlach: Pretty much.

      Sharyl: But people scoffed at you at the time

      Moorlach: Thought I was a gadfly.

      Sharyl: At the time, Moorlach was running for Treasurer of Orange County, California. A certified public accountant and financial planner. He warned that their borrowing and spending was putting them on the road to ruin.

      Sharyl: And at the time did people call you chicken little?

      Moorlach: Yeah, Even in the newspapers. So “Sky Did Not Fall” is what the headline said. So they were inferring that I was Chicken Little. ‘Everything is fine’.

      Sharyl: Everything wasn’t fine. Moorlach was right. Within weeks of his prediction, Orange County declared bankruptcy.

      CBS News: The largest municipality in U.S. history to file for bankruptcy.

      Sharyl: And then when it happened, Orange County actually brought you in and made you treasurer?

      Moorlach: That's right. Then I helped with the administration to get out of chapter nine bankruptcy protection. Took us about 18 months and we had to, you know, start fresh as a county that had lost a 1.7 billion. It was the largest bankruptcy in us history at the time.

      Sharyl: Today, Moorlach is a California state senator whose license tag famously reads: “Sky Fell.” And now he sees another recession on the horizon.

      Sharyl: What is your prediction for the near-term future of California?

      Moorlach: It’s bumpy. We can talk about how wonderful things are and they are, you know, on the outside. But underneath, the house is being held together by termites holding hands together and it's just gonna be real awful because when it, when the ship hits the sand, it's not going to be pretty

      Sharyl: If there’s something most everyone seems to agree on it has to be California’s best and most enduring feature.

      Lansner: Well, it's always embarrassing to say, but the first thing is the weather and most of the states.

      Sharyl: It’s not embarrassing— it's beautiful

      Lansner: But it sounds embarrassing because it's not sort of very, you know, cerebral, right? We want to talk about all those great things. But the weather drives a of things.

      Moorlach: This is an amazing place California is its coastline, Yosemite, the redwoods in the north, that deserts. This place is amazing.

      Sharyl: In the end for a lot of people life in California is a conscious trade off.

      Angelica Lego: Well, you have to pay for living in a sunshine state. There is certain benefits to living here in California that you don't find anywhere else in the country and to reap those benefits, there's a price associated with it..

      In 2017, Orange County, California finally paid off the last of its bankruptcy debt from 1994.