California Nighmare

The Mama's and Papa's song California Dreamin' was the #1 song on the Billboard end of year survey for 1966.

The song was written by John and Michelle Phillips when they were living in New York City during a cold winter and missing sunny California.

The lyrics of the song begin this way.

All the leaves are brown (all the leaves are brown)

And the sky is gray (and the sky is gray)

I've been for a walk (I've been for a walk)

On a winter's day (on a winter's day)

I'd be safe and warm (I'd be safe and warm)

If I was in LA (if I was in LA)

The weather is still generally warm in California.

It is debatable on how safe it is in parts of LA.

However, the dreamin' is definitely dying under the weight of compounding financial and other challenges in the state that have been almost entirely self inflicted due to liberal policies.

California is looking more like a nightmare than a dream in 2026.

Governor Gavin Newsom recently approved a $352 billion budget for the fiscal year beginning July 1.

That level of spending is an increase of 10% from last year and is 72% higher than when Newsom took office eight years ago while the population is essentially unchanged over the last decade.

That compares to an overall national inflation rate of 29% over the same period.

California is facing a future structural budget deficit of $35 billion per year according to the state legislature's financial advisor..

However, this assumes that state revenues will continue at the same pace as they have in recent years which have been fueled by outsized personal income tax receipts due to AI stock market gains.

The state's top 1% earners pay about 50% of state income taxes but a proposed wealth tax has caused a number of high earners to flee the state.

At the same time, California owes the federal government over $20 billion it borrowed for unemployment claims during Covid that has not been repaid.

It is the only state that borrowed money from the feds that has not repaid the loan.

Source: https://www.abc10.com/article/news/politics/california-employers-face-higher-taxes-as-ui-debt-tops-20-billion/103-4d90ab3a-5ec9-4e6f-a336-e5ebc9cc43c8

California also faces mounting unfunded pension obligations,

20 years ago these obligations were fully funded.

It is now estimated that these pension obligations are underfunded by over $250 billion,

Source: https://equable.org/resource/california-pensions-calpers-calstrs-2025/

A financial nightmare is a certainty in California if the economy or stock market has a slight wobble.

In Los Angeles, county officials are warning that the Los Angeles Unified School District (LAUSD) is facing insolvency by next year due to a projected $230 million deficit.

Source: https://abc7.com/post/los-angeles-unified-school-district-faces-potential-insolvency-county-officials-warn-could-run-money-year/19478950/

The Los Angeles Unified School District could run out of money within about a year and is showing severe signs of financial distress, according to county education authorities.

The nation's second-largest school district, which serves more than half a million students, faces possible insolvency, prompting the Los Angeles County Office of Education to take action.

"I think it's something everyone was hoping would be avoided, but I don't think it's really a surprise to anyone," educational consultant Jamie Bacall said.

County officials said LAUSD is projected to be more than $230 million in the hole by November of next year. In response, the county superintendent has appointed a fiscal expert and given the school board 45 days to fix its budget.

What has caused the problem?

Student enrollment is only about half of what it was in the early 2000's.

At the same time, total staff has increased by 10%  over the same period.

Source: Google AI

Compounding the problems, the school board just approved new union contracts covering multiple employee unions.

Those contracts are projected to raise costs by $1.13 billion in the upcoming school year and by $1.44 billion in 2027-28.

Employee unions downplay the warnings stating that they expect the state to provide more funding.

I guess they have not been paying much attention to what the numbers look like in Sacramento.

They are also not paying much attention to demographic trends which suggest there is going to be a need to cut school spending a lot over the next decade due to further enrollment declines.

California will lead the nation in enrollment losses according to this data.

The financial problems in California even extend to the beautiful and tony coastal enclave of Santa Monica that abuts Los Angeles.

20 years ago it would have been unthinkable that Santa Monica would have financial problems.

This was the headline in a recent Wall Street Journal story on the city.

At first glance, this picturesque coastal enclave bordering Los Angeles appears to have it all: palm trees along a famed shopping promenade, wide beaches and a wealthy tax base.

Instead, Santa Monica is in recovery mode. It is trying to bounce back from a string of problems—mounting liability settlements, falling international tourism and years of fading retail businesses—that led the city of roughly 90,700 to declare “fiscal distress” in September. 

There are just not many people dreamin' to be in California anymore.

Liberal policies are destroying a state with tremendous natural advantages and turning it into a nightmare.

Illegal immigration openly encouraged and protected.

Doing little to curb open drug use.

Homeless encampments that are tolerated.

Failure to police and curb crime.

Overregulation.

In addition, consider the tax environment in the state,

The top marginal tax rate in the state is now 14.4%--the highest in the country.

However, even a single filer making $71,000 must pay a tax rate of 9.3%.

Source: Grok

The average state and local sales tax rate is 8.99% but the rate in the city of Los Angeles will be 10.25% effective October 1, 2026.

The state gas tax is the highest in the nation---63.4 cents per gallon.

Despite it all, California is still heading towards financial disaster.

A day of reckoning is on the horizon.  The cliff draws closer.  

The big question is what happens when they go over the cliff?  

Bankruptcy is not an option as states are prohibited by federal law of going that route. 

You can be sure that there will be calls for a federal California bailout if it gets bad enough,  

This may be the biggest unspoken issue that will be before us in the next decade.

Who is sitting in The White House and in Congress will make an enormous difference when the time comes.  

20% of all House Democrats alone are currently from California.

That number will probably be even higher after the 2026 mid-term election.

If the Democrats are in power they will be highly motivated to write any checks necessary to keep California afloat.

You may believe California is not your problem.

The reality is that California's nightmare might become all of ours at some point.