California vs Trump: La Resistance Could Fall Victim To La Recession

California vs. Trump: La Résistance Could Fall Victim to La Récession

California Governor Jerry Brown enters the Assembly to deliver his annual State of the State address on January 24, 2017, in Sacramento

AMERICA IS A meta-democracy, made up of 50 partially contained sub-republics. California is the most populous, prosperous, and—in the face of the Trump administration’s hard-right policies—prone to protest.

Yesterday, in his State of the State address, Governor Jerry Brown emphasized those first two points (“This is California, we are the sixth most powerful economy in the world, one eighth of Americans live here”), before laying into his promise to defend the state’s protective immigration laws, expansive health care coverage, and globally-renowned climate change regulations from Trump’s anti-all-of-the-above agenda. But, the state’s budget—in many ways, its engine for defiance—is pretty reliant on money from gallows-bound programs like the Affordable Care Act. Also, as Brown himself frequently points out, California’s fortunes are closely tied to the stock market. La résistance could fall victim to la récession.

California has some pretty ambitious laws. It gives undocumented immigrants drivers licenses, and lets them attend public universities. It provides millions of people with health care. And it has some of the most ambitious climate regulations on the planet—including a plan to cut 40 percent of its emissions by 2030.

Policies cost money. And, even though California rakes in more dollars than any other state in the nation, its economy is among the most vulnerable. The state collects 75 percent of its income from taxes. Most of this comes from rich people—California’s progressive tax structure means the more you make, the more you pay. Functionally, this links California’s budget to the stock market, because rich people tend to own businesses and stock, rather than earn fixed wages. “This means California’s economy is sort of on a yo-yo diet,” says Bill Whalen, a research fellow at Stanford’s Hoover Institution. That, in combination with a 1970s-era law that effectively froze property taxes (leaving the state to fill the budget gaps for local governments), leaves the state particularly open to economic downturns.

And that’s just a broad recession. California has other, more specific market vulnerabilities—like its vaunted tech industry. California gets a swipe off the top of any company that goes public. A burst bubble would blow a hole in the budget. And the Trump administration’s moves aren’t helping. “The Trans Pacific Partnership, which has just been scuttled, is an example of where California likely stood to economically benefit,” says Chris Hoene, executive director of the California Budget and Policy Center, an independent analysis organization. Governor Brown isn’t blind to this. He’s proposed an $8 billion “rainy day” fund to pad the budget in case of the unexpected.

Then, of course, there’s the expected: cuts from the federal government. “For example, California received $17 billion to cover the California Health Care Exchange and its expansion of MediCal because of the Affordable Care Act,” says Hoene. “Because the scale of the Affordable Care Act is so large, any potential effort from state leaders to make up ground from losing federal dollars will constrain what they can do in other service areas.” In past economic downturns, California has cut funding to public universities, which means higher tuitions and fewer professors.

Congressional Republicans have already taken the first steps to dismantle the Affordable Care Act, but still haven’t shown any signs of a plan to replace it, as promised. That’s not to say it won’t happen. “Inland central California is full of Republican voters,” says Whalen. “Kevin McCarthy, the House Majority Leader, is also from this area.” Some of these voting districts have as many as 40 percent of the population. The question, to Whalen, isn’t whether the Republicans will replace the ACA, it is whether the replacement comes after a significant—and costly—lag.

If all of this sounds like California is a suckling to the nanny state, listen closely: California historically gives more than it gets from the federal government. The state might be vulnerable to recessions or federal meddling, but, as Governor Brown put it during his State of the State, “When California hurts, America hurts.” Ouch.