The latest economic forecast - heavy storms

I had hoped I was wrong when I first wrote at the end of May that "the 'other shoe' is about to drop in our Great Recession. California is hosting a "belated" economic collapse. Of course, no one publicly calls it that because no one wants to see it."

Now, a month later on June 24, the Business Forecasting Center of the University of the Pacific has reported that it does see it. In the "California and Metro Forecast 2009-2013" UOP economists predict:

• California will lose another 200,000 non-farm jobs reaching 1,020,000 jobs statewide over the length of the two year recession
• unemployment will reach 12% by the end of 2009 peaking at 12.3% in 2010
• unemployment will remain in double digits for the next two years through the end of 2011
• San Jose and San Francisco will be the first metro areas to in Northern California to regain their pre-recession employment levels no earlier than the summer of 2012

“The state budget crisis is a dangerous aftershock to...the foreclosure earthquake,” said Jeff Michael, Director of the Business Forecasting Center.

And indeed the state budget wrangle continues as, on the same day the UOP report was released, legislators failed to reach a compromise on spending cuts and the State Controller warned that next week he will issue IOUs instead of checks.

Without any solutions on the horizon, the following morning the State Assembly voted 69-0 and 54-0 to pass two stopgap measures to delay until after July 1 (the beginning of the new fiscal year) payments to all levels of the public education system and to cities and counties from gas tax funds for road repair. Further cuts would be made in state school spending in the fiscal year that ends next Tuesday.

A third bill likely to pass redrafts a measure legislators passed earlier this year that would transfer money from regional redevelopment agencies to the state. The earlier bill was ruled unconstitutional in April by Sacramento Superior Court Judge Lloyd Connelly because those property tax monies are required to be spent within the area served by the redevelopment agencies. The new bill would move the money to school districts within those boundaries allowing the state to reduce State General Fund transfers to those schools.

Governor Arnold Schwarzenegger says he will veto those bills because the Legislature needs to solve the big problem.

"Since the first day we began working to solve this $24 billion deficit, I have been clear: the legislature must solve the entire deficit, must make the hard decisions now, and must not ask California taxpayers to foot the bill," the governor said. "The current proposal in the Legislature amounts to nothing more than a piecemeal proposal and a second day of drills and if passed, I will veto it because it doesn't solve the problem."

Senate President Darrell Steinberg, D-Sacramento, countered the governor was making a mistake.

"If the governor wants his legacy to be 'I refused to sign a bill that would have prevented IOUs,' that's his choice," Steinberg said. "I think it's a bad choice."

In the background, however, leaders for the League of California Cities said in a news conference held as the bills were being considered they will sue if the state attempts to steal gas tax funds. The failed budget proposal included a plan to divert $1.7 billion from the local share of gas tax funds over the next two years as well as borrow another $2 billion in local property taxes from local governments to help make ends meet. Local governments have warned that the proposals would devastate jurisdictions already suffering the effects of the recession in the form of lower sales and property tax revenues.