The California economy is headed toward a recession and the state’s economy “will be worse than that of the United States,” according to the Economic Forecast Project at UC Santa Barbara.

Speaking at an economic forecast presentation in San Diego, the project’s director, Bill Watkins, a former research economist at the Federal Reserve in Washington, said that California has an economy that is much more volatile than the nation’s. Its current weaknesses include the state’s budget crisis and the reduced availability of initial-stage venture capital. “These weaknesses, along with a decimated residential real estate sector, imply that, once again, Californians will suffer more difficult economic times than will most Americans,” Watkins said. “Even if the United States manages to avoid a recession, California likely will not.”

The UC Santa Barbara Economic Forecast Project is a research unit that provides regional, statewide, and national economic data, analysis, and forecasts to the public. According to research by the project’s economists, California will lose jobs in the coming months, the tech sector will be weak, and unemployment will climb more rapidly than in the rest of the nation. In addition, domestic migration out of the state will accelerate and California’s state budget, already in crisis will get worse. “Local governments will see serious fiscal challenges,” Watkins said.

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According to new data released by the Census Bureau, five California metropolitan statistical areas were in the top 25 MSAs with the largest numerical population gains between July 2006 and July 2007. The five were Riverside/San Bernardino/Ontario (86,700, or 2.2% gain), San Francisco/Oakland/Fremont (35,900, or 0.9% gain), Sacramento/Arden-Arcade/Roseville (28,400, or 1.4% gain), San Jose/Sunnyvale/Santa Clara (28,200, or 1.6% gain), and San Diego/Carlsbad/San Marcos (26,500, or 0.9% gain).

In a new poll from the Public Policy Institute of California, Governor Schwarzenegger’s approval ratings have slipped to 44%, which is down 6 points since January and 13 points since December. The governor’s lowest approval rating was 33%, which was in October 2005.

Approval of the legislature among Californians is down to 30%.

The state’s budget woes, which have been heavily featured in the news lately, are a source of particular concern among Californians, according to the PPIC poll. 68% say that the budget situation is a “big problem.” 56% say that they are “very concerned” about the effects of spending reductions in the governor’s latest budget proposal. 42% prefer a mix of budget cuts and tax increases to deal with the budget crisis. In general, Californians are extremely pessimistic about the way things are going nationally — 73% say that things are going in the wrong direction, the highest point in the 10-year history of the PPIC poll in which this question has been asked.

The poll also asks about Proposition 98, the eminent domain initiative on the June ballot that would restrict or eliminate rent control in jurisdictions in which it is now in effect. 41% of likely voters say that they would vote against Proposition 98. 37% say that they would vote for it. Proposition 99, a competing initiative that would supersede Proposition 98 if it got more votes on the June ballot, garners 53-27% support.

Source: http://www.ppic.org/main/home.asp

By Russ Roberts

This commentary aired on National Public Radio’s All Things Considered on March 25, 2008. Audio is here.

Wall Street is all about profit. All about the bottom line. And profit does play a major role in making our world go round. Without profit, there’s no point in taking risks. Without risk-taking, there’s no investment. Without investment, there’s no growth. Profits are the cornerstone of our economy and our way of life.

But as Milton Friedman liked to point out, our economic system isn’t just based on profit. It’s a profit and loss system. It’s the combination that sustains and enhances our standard of living.

Yes, the potential for profit encourages people to take risks. But without the potential for loss, you have reckless risk-taking. You have risk-taking without prudence. Without the potential for loss, irresponsibility goes unpunished.

The Federal Reserve and the Treasury Department have orchestrated the rescue of Bear Stearns. The defenders of that maneuver argue that if Bear Stearns had failed it would have created a lot of collateral damage, so much collateral damage, that you and I, normal folk who don’t know anything about high-falutin’ financial instruments like “collateralized debt obligations” would have been engulfed as well. If Bear Stearns had gone bankrupt, Lehman Brothers might have been next. Some say that if Bear Stearns had failed, the entire banking system was at risk.

Maybe.

It seems awfully hard to know for sure.

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California policymakers initially said 2008 would be “the year of education.” Instead, it’s turned out to be the year of the multibillion-dollar budget deficit.

A slumping housing market and other factors have brought on a state shortfall of approximately $16 billion, and the governor has pledged not to raise taxes to make up the difference. It all adds up to big-time challenges for K-12 school districts, which will be significantly impacted in 2008-09, if not sooner.

So what does this all mean for Irvine?

Governor Schwarzenegger’s most recent budget proposal to strip $4.8 billion from public education would create a budgetary gap of $12.5 million in the Irvine Unified School District. Though the Governor’s spending plan will likely undergo many changes before an actual budget is adopted this summer, IUSD and other districts are bound by deadlines that force us to make cuts very soon. In fact, we are required to finalize our budgets by June 30 – which will be weeks or months before a state budget is adopted.

For information visit the IUSD at: http://www.iusd.k12.ca.us/IUSDBudgetWatch.html

Proposition 98