As California goes, so goes the nation?
California reported a 10.1% unemployment rate last month, down from 11.5% in October 2011 and the lowest since February 2009. In September, California had its biggest month-to-month drop in unemployment in the 36 years the state has collected statistics, from 10.6% to 10.2%, though the state has the third-highest jobless rate in the nation, and metro areas like Yuba City and Merced still see unemployment over 17%. Home sales rose 25% in Southern California in October compared with a year earlier, and houses are sitting on the market for a shorter time and selling at higher prices as new home construction is rising. That has meant homes are selling faster at higher prices—which means fewer homeowners owe more than their house is worth. California could set the trend for what will happen in the country, meaning that opposition to taxing the wealthy is opposition to the recovery.
But conservatives argue that the state’s latest tax increases and its thicket of regulations would drive out businesses and people to states like Nevada or Texas. The independent California Legislative Analyst’s Office projected a deficit for next year of $1.9 billion – down from $25 billion at one point – and said California might post a $1 billion surplus in 2014. In addition to a series of deep budget cuts in recent years, voter approval of Proposition 30 to raise taxes temporarily to avoid up to $6 billion in education cuts has been cited as a helping hand. Other voter initiatives were approved to begin repairing a notoriously dysfunctional government, as it no longer takes a two-thirds vote of the Legislature to increase spending (the requirement remains for tax increases), and a nonpartisan election system went into effect this month. Many now see the possible end of a decade of acute state budget challenges as indications show California’s leaders face a dramatically smaller budget problem in 2013-14.
Yet California still faces major problems. The economic recovery is hardly uniform. Central California and the Inland Empire – the suburban sprawl east of Los Angeles – continue to stagger under the collapse of the construction market, and some economists wonder if they will ever join the coastal cities on the prosperity train. Cities, most recently San Bernardino, are facing bankruptcy, and public employee pension costs loom as a major threat to the state budget and those of many municipalities, including Los Angeles. But there are many signs of incipient growth, including a surge in rental costs in the Bay Area, which suggests an influx of people looking for jobs. Although it will continue to be a polarizing recovery for different parts of the state, the foreclosure storm is beginning to subside, and fewer foreclosed homes are flooding the market.
The U.S. Treasury Department, as part of the rescue of the financial system in 2008, set aside funds to help homeowners in California and 17 other states hit hardest by the foreclosure crisis. Four programs of Keep Your Home California were established by the California Housing Finance Agency, after consulting with community leaders statewide. The goal of these state-run programs with their $2 billion budget is to keep homeowners facing foreclosure in their homes, whenever possible. State officials established the four programs to help those from the behind-in-payments homeowner to those who need some money after a short sale, as well as to assist unemployed homeowners struggling to pay their bills and a principal-reduction program for homeowners with homes underwater. Keep Your Home California has earmarked $875 million to Unemployment Mortgage Assistance, the largest of the four programs. The Principal Reduction program is the second largest at $790 million, followed by the Mortgage Reinstatement program at $129 million. The remaining dollars are earmarked to help homeowners relocate after a short sale; as long as the loan service approves the plan. The federal funds are part of a $75 billion effort by the Obama administration to help troubled borrowers.
Many complain about the socialistic angle of this, and rightly so, but few homeowners or loan agents mind the values going up or the low rates.