California was hit hardest by the recession, but the Golden State has come roaring back with a vengeance. A new tech boom, the housing recovery and a temporary tax increase approved by voters under Proposition 30 have led California out of a deficit and into a budget surplus. Unemployment has fallen from a peak of 12.4 percent to 6.1 percent.
Now for the bad news.
"There is a dark side for the jobs and the budget," writes economist Bill Watkins, who runs the Center for Economic Research and Forecasting at California Lutheran University. The dark side, in Watkins' mind, is the state's continuing reliance on the fortunes of its richest residents, especially since capital gains in California are taxed as regular income. "With recent stock market losses, California's major taxpayers will likely have a bad year," said Watkins. "Look for California's surplus to disappear quickly."