Fires could catalyze California economy
By Brad Greenberg
Nov. 6, 2003 9:00 p.m.
Wildfires that ravaged Southern California over the past two
weeks have burnt a sizeable hole in the state’s pocketbook to
go along with more than 750,000 acres of charred land.
Many economists said the wildfires will have a positive economic
impact, albeit it a small one, while some policy analysts said the
fires may be the smokescreen Gov.-elect Schwarzenegger needs to
break his campaign promise and raise taxes.
If he does not raise taxes, the growing state deficit may become
too much for the University of California to survive, some
said.
Government officials have estimated that about $400 million were
spent to fight the wildfires that scorched four Southern California
counties, including Los Angeles county, killing 22 and destroying
3,645 homes. Damages are estimated above $2 billion.
But despite the tragedies, the fires may benefit California by
serving as an economic catalyst, much like the 1994 Northridge
earthquake, which damaged or destroyed 40,000 buildings, including
21,000 housing units, said Mark Schniepp, executive director of the
California Economic Forecast.
“Natural disasters … are normally good for the economy
because they funnel lots of money into the area for relief,”
Schniepp said.
Due to President George W. Bush declaring San Bernardino,
Ventura, Los Angeles and San Diego Counties as disaster areas,
federal money is pouring in to finance the firefight.
Approximately 75 percent of the cost to fight the fires will be
reimbursed by the federal government.
The Federal Emergency Management Agency is also providing $5,000
grants for temporary housing and repairs for fire evacuees and
victims. The U.S. Small Business Administration will provide
low-interest loans for home reconstruction projects.
Insured homeowners who were victimized by recent wildfires will
soon find themselves rebuilding and refurnishing decimated homes
““ processes which have not occurred much since a recession
hit the economy in March 2001.
The increases in construction activity will also likely drive up
market prices, improving both the number of construction workers
employed and the size of their hourly wages.
But increased sales tax and income tax revenue caused by the
rebuilding of homes and lives will have only a minimal impact on
state revenue, Schniepp said.
The cost of fighting the fires has again drawn attention to the
state’s looming budget deficit. Estimated at $8 billion
before the Oct. 7 election that recalled Gov. Gray Davis, the
2004-2005 deficit is quickly running away from Schwarzenegger,
picking up speed at a similar rate to the 2003-2004 deficit that
motivated many Californians to remove Davis from office.
After Davis was reelected last November, an estimated $21
billion state deficit was made public. Within three months, more
accurate estimates had the deficit pegged above $38 billion.
The deficit resulted in across-the-board cuts in public funding,
including a $410 million reduction to the UC, which resulted in a
40 percent student fee increase between December 2002 and August
2003.
On top of the $8 billion deficit expected for the 2004-2005
fiscal year, Schwarzenegger is inheriting a $12 billion bill for
money borrowed to balance this year’s budget. If he repeals
the car tax as he has pledged to do, experts say the deficit will
climb to about $25 billion.
“If he doesn’t raise taxes, I think he will cut and
borrow, and the UC will likely face additional cuts,” said
J.R. De Shazo, a UCLA assistant professor of policy studies.
Last month, several UCLA political science professors said they
believed once Schwarzenegger is sworn into office on Nov. 16, the
UC would face some serious cuts.
“My guess … it will not be pretty for the UC,”
said Matt Baum, an assistant professor of political science.
Many, like political science Professor Barbara Sinclair, worry
that Schwarzenegger has a narrow view of education that does not
include the UC ““ fears which may have some grounds.
Schwarzenegger spokesman Darrel Ng said Tuesday that
Schwarzenegger “is still firmly against raising taxes and his
commitment to educational funding remains strong.”
When asked if educational funding included the UC, Ng hesitated,
and replied, “On the campaign, he said that mostly referring
to K-12.”
There was some hope for UC funding on Monday, however, when
several key advisers to Schwarzenegger said he is considering
asking voters to approve a $20 billion deficit bond that would wipe
out the deficit.
In exchange for voter approval, Californians would get a cap on
governmental spending requiring lawmakers to trim billions from the
state budget.
Though Ng said no decision has been made, Assemblyman John
Campbell, R-Irvine, said the idea is being discussed.
“If we are going to borrow this money to cover the five
years of accumulated debt, we want to make sure this is the last
time we ever have to do this,” said Campbell, who also serves
as vice chairman of the budget committee and as a Schwarzenegger
adviser.
“There might be no other options right now,” he
added.
The only other option would be to raise taxes or cut funding to
public institutions, Baum said.
With reports from Bruin wire services.
