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California on Forbes’ list of ‘Death Spiral States’

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Posted: Friday, March 1, 2013 12:19 pm

In December Forbes magazines, one of the nation’s leading business journals, published a list of what it called “Death Spiral States.” The story set off a furious round of Internet mass emails complete with color-coded maps that identified the collapsing states. But although the branded states are in poor fiscal condition — reporter William Baldwin called them “fiscal hellholes” — things might not be as grim as the emails indicated.

According to the widely circulated emails, a state is in a “death spiral” if its number of “takers” (those collecting welfare) exceeds its “makers” (wage earners who contribute to the tax base that supports “takers.”)

But Forbes included among “takers” those “dependent on government” such as state and local employees as well as former government employees currently collecting pensions and Medicaid benefits. The emails (which you may have received) omitted this vital information. Baldwin also noted that while there may be states with more residents who receive welfare than work, he pointed out that the determinant would be how welfare is defined. Does the definition include Temporary Assistance for Needy Families and Supplemental Nutrition Assistance, formerly known as food stamps?

Baldwin insists that he was comparing private sector employment to all government dependency. Using Baldwin’s definition of “welfare” — those enrolled only in Medicaid — none of the states he analyzed has more people on welfare than workers, whether in the private sector or overall.

In compiling its list, Forbes also considered a second factor: the state’s credit rating. Many variables go into determining creditworthiness. Most important are aggregate debt, depressed home prices, unfriendly business environment and high unemployment. After Forbes tallied all the factors, California with a 1.39 taker-maker ratio finished third behind number two Mississippi (1.49) and number one New Mexico (1.53). Other states with more than a 1.0 ratio included Maine, Kentucky, New York, South Carolina, Illinois, Hawaii and Ohio.

As a result of its findings, Forbes recommended that investors holding California municipal bonds should sell them. And, if sent to California as part of a corporate relocation assignment, don’t buy a house — rent. If you already live in California, leave.

While that may be too drastic a measure for some, a realistic look at California’s economic health is in order. Last week, Sacramento City Manager John Sherey told the City Council that the capital is $2 billion in debt and that managing it would be “challenging.”

The state's cumulative debt load is hundreds of billions of dollars, proportionately one of the nation’s largest. Sacramento Bee columnist Dan Walters estimates that California’s cities have about $30 billion in bonded debt and counties another $20 billion more in redevelopment debt.

In the midst of this waterfall of bad news, one attention-grabbing item came across my desk that offered an intriguing option. For the disenfranchised, the best place to move is Cuba.

During the two years that have passed since the first real estate transaction between private parties in decades, property values have increased by 20 percent. The weather’s great. Raul Castro announced that he’ll be resigning in five years. Unfortunately, the United States has an ongoing embargo against Cuba that makes money transfers to purchase property next to impossible.

Come to think of it, ending the Cuban embargo might prove easier than California working out from under its multiple debt layers.

Joe Guzzardi retired from the Lodi Unified School District in 2008. Contact him at guzzjoe@yahoo.com

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  • robert maurer posted at 10:45 am on Thu, Mar 7, 2013.

    mason day Posts: 485

    Thanks for the clarification. I hear ya.

  • Eric Barrow posted at 10:20 am on Thu, Mar 7, 2013.

    Eric Barrow Posts: 1604

    Maybe for some but I spent well over a decade enduring Utah's winters and no thanks. It’s not so much the cold but the length of the winters that get to you and I'm pretty sure that N.D. is worse than Utah but if some hardy soul wants to make a go of it good for them. My point is that there are more factors than what Forbes used to determine the quality of life in a particular state and for the life of me I cannot figure out why the LNS hates Lodi so much that they pay Pittsburgh Joe to continually trash our community.

  • robert maurer posted at 9:48 am on Thu, Mar 7, 2013.

    mason day Posts: 485

    I believe you are correct about the oil boom being the first motivator of growth in the Dakotas. My last employer's dad is the chief engineer in that project,since he designed much of the specialty equiment and methods making it possible to drill at various angles through the frozen tundra without breaking expensive augers. I admit, I am ignorant about their tax rates and credit rating,however, it only took a few years to achieve the rank of 20th in GDP. compared to one of the very last positions just 10 years ago. The opportunities for enterprising businesses still abound there if people don't mind the cold.It takes about a year of misery and a new wardrobe to adjust,especially if you were raised in mild California climate like I was.

  • Eric Barrow posted at 9:04 am on Thu, Mar 7, 2013.

    Eric Barrow Posts: 1604

    I am aware of that Robert I'm also aware that the mean maximum temperature is below freezing for four months a year and the still rank 20th in GDP per capita to California's 12th and I think most of their recent success has to do with an oil boom not tax rates or their credit rating.

  • robert maurer posted at 8:32 am on Thu, Mar 7, 2013.

    mason day Posts: 485

    Just in case you didn't know: Both the Dakotas are experiencing such economic prosperity BECAUSE of the exodus from "death spiral" states: so much so,that housing cannot keep up with demand, thus opening the door for much needed industries such as construction of all types, and hospitality industries. Many people are working there,living in company supplied or personal travel trailers and temporary housing until supply has caught up with demand,and housing costs become more affordable.

  • Eric Barrow posted at 7:59 am on Mon, Mar 4, 2013.

    Eric Barrow Posts: 1604

    Forbes list is based on two indices tax rate and credit rating when quality of life and other factors are taken into account California's star starts to shine and studies done by California Policy Institute took these factor into account to explain how California continues to draw business into the state in spite of factors like those mentioned by Forbes. One state that did very well on Forbes list was North Dakota ( that's North Dakota the one that is even further north than South Dakota) anyone have plans on moving there anytime soon?
    The real question is why the LNS has such self-loathing and loathing of its community that it continues to publish Joe Pittsburgh in its paper. I can understand why Joe feels the need to justify his exodus from the beautiful state of California and the warm welcoming community of Lodi by why does this paper think so little of itself and the very community that supports it.

  • Doug Chaney posted at 3:31 pm on Sun, Mar 3, 2013.

    advocate Posts: 502

    Ms. Bobin, Lodi already has its share of drug addicts, also called alcoholics or winos, on our roads. It's more important for the city of Lodi and LPD to target misdemeanor traffic infractions, mostly to the minorities of the east side, in their dui/license checkpoint traps. These are nothing short of the speed traps of our day only intent on removing those traffic code offenders to line their pockets and keep the "big 6" Lodi tow/impound business in their constant hunt for cash for all those new tow vehicles and outrageous tow/impound/release fees that can amount to $3,000 or more. With seemingly one dui in the last three checkpoints, it seems pretty apparent to me that with all these wine events that LPD can't seem to nab more than one or two impaired drivers, yet can snare up to as many as thirty or so tow/impounds in recent checkpoints. Oh well, livable, lovable Lodi, where the well connected and affluent never have to worry about impaired driving citations, in my opinion.

  • Joanne Bobin posted at 12:37 pm on Sat, Mar 2, 2013.

    Joanne Bobin Posts: 4488

    Valid points of concern - however, since the US is the #1 customer for marijuana exports from Mexico, many experts predict that legalization will definitely cut into cartel profits and, more importantly, drug industry violence.

    As far as DUI traffic accidents, since we already have HUGE marijuana usage in the US, as evidenced by the large amounts of imported product, I wouldn't expect these statistics to rise significantly. Why?

    Those who want to buy and use marijuana already do, and those who might be tempted to use it when/if it becomes legal are most likely on the "conservative" side, i.e., reluctant to take chances by buying an illegal product through illicit channels. Just guessing, but I doubt those who avoid illegal drug buys now would also avoid the chances of being on the road under the influence.

    This discussion is completely off-topic with Guzzardi's column, but some interesting facts from DrugScience.org:

    Marijuana production IN the United States has increased 10 fold over the past 25 years, from 2.2 million pounds to 22 million pounds - as of 2006.
    It has now become BEYOND the scope of law enforcement to control illicit marijuana growing operations and marijuana distribution to teens and children.
    This underground industry utilizes a huge amount of public resources, i.e., law enforcement (local, DEA, Homeland Security), but doesn't contribute one dollar to support enforcement activities and other related consequences of illicit marijuana use.

  • robert maurer posted at 10:25 am on Sat, Mar 2, 2013.

    mason day Posts: 485

    The state of Washington has completely legalized marijuana. Anyone who is in possession of an ounce or less, is completely legal if they are 18 years or older. I am watching this carefully for the reasons Joanne wrote and also for possible increases in DUI traffic accidents. There is also a push to delete marijuana possession records of those who were arrested and served jail time and those that are serving time for less than the current 1 ounce possession law. I'm curious how much revenue will be offset by going over these cases. I think it will be awhile before any real benefit may be seen.I really don't have a clue how this will affect the product sales from Mexico,Afghanistan,Thailand,columbia,etc. compared to the state legal marijuana shops.

  • Joanne Bobin posted at 9:52 am on Sat, Mar 2, 2013.

    Joanne Bobin Posts: 4488

    Maybe if marijuana was legalized in the US, California would benefit from the revenue stream it would create instead of all of the profits going to an underground economy that doesn't fully contribute currently.

    Besides it would certainly knock some of the wind out of the Mexican drug cartels if their illicit product was no longer illegal.

  • robert maurer posted at 9:16 am on Sat, Mar 2, 2013.

    mason day Posts: 485

    Joe G. states that it may be easier to end the Cuban embargo than working out from California's debt layers. Funny he should mention that, since I could legally grow and smoke marijuana legally with a doctors note,but I would be committing a crime if I imported some Cuban cigars for my own consumption. Now that is absolutely warped.

  • Joanne Bobin posted at 8:51 am on Sat, Mar 2, 2013.

    Joanne Bobin Posts: 4488

    Two interesting points:

    1. Joe Guzzardi, as a former teacher and California government pensioner, fails to point out that HE is one of the "takers." Not only one of the "takers," but he up and took his California money to Pennsylvania.

    2. Joe Guzzardi supports pulling a reverse whammy on a Latin American country by invading it with Anglos - if only they could buy up all of the property.

    Isn't that how Castro came into power in the first place? American investors owen 2/3 of the land in Cuba prior to the Cuban Revolution.

    MoneyWeek gives Cuba a thumbs down as far as investing in property - too many disadvantages aside from US laws banning the purchase of property in that country. Cuban citizens cannot purchase property - they can only "swap" one for another. Although new developments are targeting Canadian and European investors, say MoneyWeek, they will only be allowed a 75 year "lease" - no freehold property rights allowed.

    Finally - if you really enjoy being in the path of an oncoming hurricane - then Cuba is definitely your best choice.


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