Sacramento Grows Twice as Fast as U.S. on Government Boom

The Sacramento region’s economy is growing at twice the rate of the rest of the United States, due to the huge growth of California taxes and government spending over the last five years, igniting a local housing boom.

A new report by the Center for Continuing Study of the California Economy found that the real (after inflation) growth rate for the Sacramento metropolitan area for 2016 was 3.1 percent last year, to hit a new annual GDP of $128 billion. That was more than twice the United States growth rate of just 1.5 percent, and second only to the Bay Area’s 5.2 percent growth rate.

The lead economist at CCSCE, Stephen Levy, told the Sacramento Bee: “The Sacramento region had a bunch of catching up to do because it got so hard hit by the recession.” He added that the Sacramento metropolitan area — which includes Sacramento, El Dorado, Placer, Sutter, Yolo and Yuba counties — is experiencing strong economic performance “led by gains in finance and professional services.”

The “finance and professional services sector” in Sacramento metro area is actually government. Although inflation was only 6.1 percent for the 5 years from 2012 through 2016, California government spending has been in a boom, rising by 31 percent from $173.5 billion in 2012 fiscal year ending in June to 251.1 at the end of the 2017 fiscal year.

But during the Great Recession that lasted from 2008 to 2010, Sacramento County lost about 60,000 jobs as the State of California suffered a near-death experience with an $11 billion deficit. The per capita income in Sacramento County plunged from about $40,000 to $37,640 by 2011.

California State Controller John Chiang was forced to delay $3.5 billion in state payments, including tax refunds, for at least 30 days due to a cash flow crisis. Then-governor Arnold Schwarzenegger ordered that state workers be furloughed for three days a month, despite lawsuits and outrage from then state’s powerful public-sector unions.

The big turnaround in the Sacramento metro region is directly tied to huge tax increases that began in 2012 after voters passed Governor Jerry Brown’s Proposition 30, officially titled “Temporary Taxes to Fund Education.” That initiative increased the state’s sales tax to 7.75 percent, and spiked income taxes to a national high of up to 13.3 percent for seven years. California government spending has shown no sign of fading after voters passed Proposition 55 in 2016 as another 12-year “temporary” extension of the tax increases.

The Sacramento metro boom is most obvious in real estate prices. According to the Trulia website, which tracks real estate purchases in all major U.S. cities, Sacramento’s median sales price has jumped over the last five years, from $145,000 in August 2012 to $305,000 last month.

But the State of California may be headed for another tax revolt, after the legislature passed a big increase in the state’s gasoline tax in April that is expected to raise $52 billion over the next decade. Republican Assemblyman Travis Allen (R-Huntington Beach) was able to qualify an initiative for this November ballot to rescind that tax increase.