Pathways Advisory Group, Inc.
Michelle Carter, CFP®
On May 25th, the local members of the Financial Planning Association, citizens of Fresno, various media outlets, and several of our clients gathered to hear the California State Controller speak at Fresno State. The session included a brief welcome from Fresno State President John Welty, followed by an hour long question and answer session with John Chiang.
He began with various statistics; the last date that California was ‘in the black’ was July 12, 2007. This means next month will mark four years we have been in deficit. The last recession began five months later, in December 2007. The major causes? I think we all know by now… real estate, construction and, of course, real estate finance.
During the recession, California watched its unemployment rate soar from 5.9% to 12.5%. At the time of John Chiang’s visit we were down to about 11.9%.
We are seven quarters out of the recession, and growth has begun to occur… somewhat. According to John Chiang, the growth has been asymmetrical. While agriculture and technology seem to be doing well, real estate and other areas are still struggling. John believes two areas will indicate recovery: commodity prices and a combination of consumer confidence, spending, and savings rates.
California is still struggling. Our credit rating is an A-. We are still in debt. Our biggest expenses (K-12 education, health care, social services and prisons) are increasing while our biggest revenue sources (personal, sales and corporate taxes) are low, relative to where we were prior to the recession. There is no state bankruptcy program meaning we need to find a solution somewhere.
The big debate is whether to cut spending or raise taxes (or both). It seemed like John treaded lightly on that topic. One issue he really touched on was making California more business friendly. He had a few ideas, but his ideal plan would be to eliminate corporate tax credits and drop the corporate tax rate. His thought was this would equal out revenue-wise, but make the state appear to be more business friendly, as people tend to pay more attention to the actual rates than to credits offered.
It was an interesting hour of conversation. Some things made sense, some made you raise an eyebrow, but all of it was thought-provoking. It would be fascinating to sit down and have dinner with the Controller, and really get insight into the craziness that is Sacramento. A big thank you to the clients who attended the event with us. We hope the experience was interesting for you as well.