California’s Economy Expected To Grow Slowly As Costs Rise

By: Raul Riesgo

As the politicians in Sacramento look for new ways to increase taxes, fees and make it harder to pay the rent, economists at the Center for Business and Policy Research at the University of the Pacific show that California’s economy will grow at half the rate of the previous four years.

Part of the caution given by the University of the Pacific’s economists is an uncertain policy environment and a projection for a recession in the next 3-4 years, which is based on historical expansion cycles.

Also causing all this uncertainty is the continued rising costs in housing, transportation, childcare, health care and food.

The costs of living in many parts of California has gotten so ridiculous that a family of four in San Francisco with an income of $105,350 a year is considered “low income.” In Alameda and Contra Costa, an annual income of $80,400 is also considered “low income.”

And “low income” in Los Angeles County is $72,100, in Orange County it’s $84,450 and in San Diego County it’s $72,750.

“When you tell somebody that’s making $70,000 that they’re low income, they reply, ‘What? That’s low income?’ Unfortunately, that’s what comes from living in a high-cost county,” said Cesar Covarrubias, executive director of the Kennedy Commission, an Irvine-based affordable housing advocacy group. “That makes it difficult for working families at all levels.”

Tom Elias with the Ventura County Star writes:

“Overall, says CoreLogic, home prices were up 71 percent in California in that time, with the median statewide home price in mid-2016 reaching $428,000.

There is no backlash yet, mostly because of foreign buyers, who tend to be among their countries’ affluent, seeking a safe place to invest their riches. The leading buyers of this type have lately been mainland Chinese. 

“This makes it harder for the average person to make a living (in California),” said Sam Khater, a CoreLogic economist. “That means less teachers, firefighters, retail workers and more. It’s causing the entire state to be more expensive.”

Or, as a Silicon Valley executive complained earlier this year, “I pay some of my people with master’s degrees $70,000 and $80,000 a year and they still have no hope of buying a house anywhere near where they work.”

In a 2015 study by Carol Jackson, Struggling to Get By, researchers found that, “One in three California households (31%) do not have sufficient income to meet their basic costs of living. This is three times the proportion officially considered poor in California, according to the Federal Poverty Level.”

As Jackson notes, California’s hidden poor earn decent incomes, yet the cost of housing, transportation, food, health care, and other necessities are outpacing wages. What this creates is called “tradeoffs between competing needs” – Do you sacrifice food, gas or child care?

While the simple solution is to just raise everyone’s wages, this cost will also get passed down to everyone in the form of increased prices. If restaurant are required to pay employees $15 an hour, food prices will increase and if construction companies are forced to pay prevailing wages, the average construction project will go up 37%, and that new cost will be passed on to renters and home buyers.

In the end, Californians get stuck with the bill, as our paycheck’s purchasing power continues to diminish.

Raul Riesgo is a former news reporter for two Los Angeles area newspapers, and has authored a historical narrative on the development of the city of Pico Rivera, California.  His book was featured on CNN’s Special Report ‘Latino’s in America.’ He has been featured on Spanish language news outlets Telemundo and Mundo Fox News discussing Latino community issues.

Raul was born and raised in Boyle Heights. He has a completed degree in public administration from the University of La Verne.