The True Story Of How California Came Back From The Brink And Started Kicking arse Again

Arnold Schwarzenegger

Photo: Getty Images

Last week, California Gov. Jerry Brown announced that for the first time in years, the state was projected to run a surplus starting next fiscal year.Given what the state went through during the recession, few could have predicted this (although Bill McBride did).

So how’d they do it?

We dug in.

It's 2008. Cities are declaring bankruptcy.

Unions are demanding a recall vote on Gov. Schwarzenegger.

The state breaks its own record for failing to enact a budget.

Meanwhile in the economy, payrolls are collapsing (Cali's in blue).

The housing market is getting obliterated.

As has its Conference Board coincident index, which measures cyclical data.

Finally, the state is forced to issue actual IOUs.

And some were even predicting the state could break up.

Well, that was then...

This is now.

Payrolls have recovered.

Home prices are now on the RISE!

Their leading index is booming.

As is its coincident index.

So what turned it around?

According to Richard Green, chair of USC's Lusk centre for Real Estate, the answer's pretty simple...

Here's YOY state employment growth in five different sectors, with TECHNOLOGY in blue. Case closed. Domestic industry is booming.

Here's the local view. Silicon Valley tech is BOOMING.

San Francisco's foreclosure rate is now one of the lowest in the nation — 1 out of every 2,420 units, compared with 1 out of every 728 nationally.

It's sort of hard to stay down for long with these guys around.

And when your bread-and-butter industry improves, employment for everyone goes up — here's San Francisco's labour force rate.

Orange County has also helped the state recover — here's its unemployment rate.

Orange County hosts the regional headquarters for most Asian automakers, most of whom have seen phenomenal turnarounds.

And as mentioned earlier, people wanna buy houses again — even in SoCal, where prospects recently bid up the price of a 1,500 sq ft. home 10 per cent.

The last key to the turnaround has been the popularity of Gov. Jerry Brown and his Sacramento reunion tour (he was also governor in the '70s).

In his first budget, he cut spending by $12.5 billion.

This year, he proposed $8.5 billion in tax increases — a seemingly impossible task in a state where most taxes must be voted on by referendum.

But two months ago, after aggressive, if late, campaigning from Brown, voters approved Prop 30, which will raise $6 billion via a $0.25-cent sales tax hike and a new marginal income rate.

And thanks to Prop 30, Gov. Brown could make his historic budget surplus announcement.

And for the first time in ages, the state has a Democratic supermajority...

Which many say will bring an end to the state's political gridlock.

That's California's story. For the rest of the country, check out...

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.