Now the fourth-term governor has new evidence for his case. A comprehensive new report by the Mercatus Center at George Mason University that looked at every state’s audited financial documents from 2014 ranks California 44th in its ability to meet short-term bills and longer term obligations. The report makes the case both for caution on expanding new state spending and for putting as much as possible in the rainy-day fund that voters approved in 2014.

In two categories, the Golden State is in the middle of the back.

On budget solvency — which Mercatus defines as “can a state cover its fiscal year spending with current revenues, or does it have a budget shortfall?” — California ranked 23rd.

On service-level solvency — “how much ‘fiscal slack’ does a state have to increase spending if citizens demand more services?” — California ranked 28th.

Long-term picture for California is grim

But in three categories, the Golden State was far worse than the national average, buttressing Brown’s call to beef up the state’s rainy-day fund.

On long-run solvency — “can a state meet its long-term spending commitments? Will there be enough money to cushion it from economic shocks or other long-term fiscal risks?” — California ranked 46th.

On cash solvency — “does a state have enough cash on hand to cover its short-term bills?” — California ranked 47th.

On trust fund solvency — “how much debt does a state have? How large are its unfunded pension and healthcare liabilities?” — California ranked 42nd.

A recent New York Times story about Gov. Brown depicted him as having put California on solid fiscal ground and guided the state’s economy into a “period of prosperity.” The Times account suggested Brown and the Golden State could be a model for national Democrats.

The Mercatus study indicates that this narrative is based on perception more than hard data. Recent U.S. “U-6” unemployment data, which covers not just people without a job but people who work fewer hours than they want, backs up Mercatus. As of August, only six states had more residents unable to find jobs or full-time employment than California.

California placed 44^th among U.S. states for fiscal health, which is two places higher than the year before. During FY 2012-13, California placed 46^th and had a -2.01 score on the Mercatus Center’s fiscal condition index, which is the sum of the cash, budget, long-run and service-level solvency indices. This year, the center added an additional trust fund solvency index to the formula, and ultimately scored California at -1.41 on the overall fiscal condition index.

In terms of cash solvency, California remains near the bottom of the group in 46^th place. According to the report, states have, on average, two times the amount of cash as short-term liabilities. But California is one of 14 states with a cash ratio of less than one – which means we have less cash on hand than short-term liabilities. In fact, Mercatus reports, “The state can only cover 59 percent of its short-term expenses with the most liquid forms of cash.” And when less liquid forms of cash were included in the mix, California had “1.29 times cash relative to short-term bills, nearly three times less than the national average.”

Long-run solvency also dealt a blow to California’s fiscal health index. Unfunded pension obligations, state debt and OPEB liabilities indicated that the state does not have enough assets to cover its long-term liabilities. California carries a staggering primary government debt of $123.46 billion; the market value of unfunded pension liabilities totaled $636.22 billion, and the total unfunded OPEB liability reached $65.97 billion. Those liabilities represented nearly 80 percent of the California’s assets, which is double the national average. That amounts to $4,320 per capita, and a net asset ratio of -0.43.

However, California’s budget solvency and service-level solvency saw higher rankings, at 23^rd and 27^th place, respectively. Budget solvency deals with fiscal year spending in relation to current revenues. During fiscal year 2013-14, California was “able to meet its fiscal year spending with revenues about equal to expenses,” with a slight surplus of $260 per capita. Service-level solvency determines whether a state is in a good position to increase taxes without harming the economy and whether spending is too high relative to its tax base. According to the report, “California’s total taxes made up 6 percent of state income, about average for the nation,” while revenues made up “13 percent of total personal income.”

Read the full report here.

By Wayne Lusvardi

California’s current employment rate is about at the same as in 2009, a year after the bank panic and mortgage meltdown of 2008.

While California’s unemployment rate has dropped from a high of 12.3 percent in 2010, it has steadily declined to 10.8 percent as of May 2012.

But the more important employment ratio has only recovered to the same level as 2009.

Population and Employment Change in California, 2008 to 2012 

(Source: California Employment Development Department)

According to Dr. Keith Hall, economist at the Mercatus Center at George Mason University in Arlington, Virginia, the employment-to-population ratio is the most accurate indicator of labor market health.  This is because the employment ratio takes into consideration population growth.

According to official data from the California Employment Development Department, the unemployment rate has dropped from 12.3 percent in 2010 to 10.8 percent in May 2012.  California population has grown by an average of 0.6 percent per year since 2008, but employment has grown by an average of only 0.3 percent per year over the same time period.

Job growth has not been great enough to support California’s growing population even at an anemic forecasted population growth rate of 1 percent.

California has about 12 percent of the U.S. population.  Using data from Hall, California’s working age population grows by an average of 259,600 per year.  California would need to gain 360,000 jobs per year for years to eventually catch up.  This would be like adding jobs for the entire population of Pleasant Hill in Northern California or Santa Paula in Southern California each year.