Region: California
The Milken Institute’s fourth annual California Summit provided an opportunity to assemble prominent state leaders in business, policy, philanthropy, and academia to address the issues facing the world’s seventh-largest economy and one of the most diverse populations on the globe. Held December 8, 2015, at the Ritz-Carlton in Marina del Rey, the Summit focused on four key areas that define many of the challenges facing the state: the business climate; the need for opportunities in finance and access to capital, including financial technology; investment in the state’s infrastructure, particularly involving water; and the need to maintain and grow the culture of innovation.
New sources of labor should be top of mind for CEOs as they contemplate protracted labor shortages. These shortages will hit most industries, pinching profits and prolonging the economic slowdown. . . An unprecedented confluence of trends—historically low productivity growth and massive baby boomer retirements—has set the stage for shortages that will hit across regions and industries.
While the most current complete tax data from the Franchise Tax Board is for 2013, the recently published zip code data enables some preliminary analysis for the 2014 receipts. By region, 40.3% of PIT revenues came from the Bay Area. More importantly, 51.2% of the increased PIT revenues in 2014 came from this region, once again illustrating how much California is reliant on a single region not only for continued jobs and employment growth, but the continued health of the state’s fiscal situation. Los Angeles, with 30% of the population, was the next largest region, paying 27.5% of total PIT and a 25.5% share of the increased PIT receipts. In the absence of state policies that promote more balanced and geographically dispersed jobs growth, California’s finances will likely continue to be reliant on the economic health of one region.
In total, the study covers 564 state and local systems in the United States that reported $1.91 trillion in unfunded pension liabilities under GASB 67 in FY 2014. The analysis reveals that, despite well-performing markets from 2009 to 2014, state and local government pension systems are underwater by $3.4 trillion and that the true cost of keeping pension liabilities from rising is 17.5 percent of state and local budgets. Even contributions of those magnitudes would not begin to pay down the trillions of dollars of unfunded legacy liabilities; they would simply stop the unfunded liability from rising.
The proposed spending is more than double the $3.09 billion in cap-and-trade auction spending included in Governor Jerry Brown’s proposed budget, and comes at a time when the spending of auction revenue is under scrutiny. The auctions are generating billions of dollars a year for programs that are unrelated to those who are required to pay, but the process was not approved by a two-thirds majority of lawmakers, as the California Constitution requires for tax increases.
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Nov. 17, 2017 / Andrew Khouri

Nov. 17, 2017 / The Editorial Board