Tarnished Gold

The job fair ends in five minutes, but scores of unemployed hopefuls wait steadfastly, sweating in line under the Orange County sun. "They won't get in and yet they're still all standing there," says an incredulous Leo Delgadillo, manager of the California Employment Development office that is hosting the event. More than 700 people started lining up at 6:30 a.m. to interview for a scant 18 tech jobs with the City of Huntington Beach. Joseph Brown is among those still waiting. He hasn't been able to land full-time work since losing his $50,000 computer-programming job two years ago, and now he's kicking himself for not arriving earlier. The 54-year-old father of four came to the fair after spending the morning reading gas meters, a part-time gig he landed a few months ago ahead of 300 other applicants. "I stopped at home because I didn't want to show up in my gas uniform," he says. "But you can't get here late. Young, old and in between, there are so many people out of work."

That's life in California these days. Pessimism and outright anger blanket the state like the smog, thanks to a noxious combination of a stalled economy and fiscal disaster in Sacramento. The state's $38 billion deficit--cited as reason No. 1 to oust Gov. Gray Davis by those who are calling for his head--is so gigantic that it tops the entire budgets of 42 other states. Rather than fix the mess, legislators missed a July 1 budget deadline, leaving the state to kite along entirely on IOUs. If Republicans and Democrats don't come to terms soon, as many as 30,000 state workers may be furloughed. Wall Street could cut the state's bond rating--already the nation's lowest--to "junk" status. Government employees across the state are bracing for the worst: fire departments aren't replacing trucks, school districts aren't buying new textbooks, police departments aren't hiring new cops and some staffers at state unemployment offices are anticipating joining the ranks of the jobless. Last week two of the six employment-assistance offices in Orange County got notices they would be shut down, and some services at the remaining offices may be pared back at a time when demand is increasing.

The state's unemployment remains stubbornly high at 6.7 percent, above the national average of 6.4 percent, thanks in large part to continuing aftershocks in Silicon Valley (unemployment in Santa Clara County runs at a painful 8.5 percent). There, gleaming office parks once stuffed with start-ups are see-through ghost towns. Office vacancies in Silicon Valley remain near 30 percent; in the once trendy dot-com gulches of San Francisco, the rate is almost 40 percent. The NASDAQ has streaked up in the past few months, and bottom lines are improving at some of the larger companies, but the tech jobs haven't returned yet. Technical writer Kristina Hacke, 34, moved to the Bay Area last September after losing her job in L.A., and has spent the better part of the year going from one fruitless interview to another. In two days last week she had three, including a seven-hour marathon that went nowhere. "It's worse than dating," says a frustrated Hacke. "If I don't hit it off with a potential date, I'm just lonely, but if I don't hit it off with a hiring manager, I don't eat."

However bleak things seem, the current joblessness doesn't touch the 9.7 percent high of the early-1990s recession, when California's defense and aerospace jobs vanished along with the cold-war threat. Excluding northern California, the state's economy is faring better than the nation as a whole. In Los Angeles, the movie industry is nearly recession-proof as fans continue to buy tickets in tough times, and sales of computer games are skyrocketing. Biotech is thriving, and increased defense spending for the conflict on Iraq and the war on terror has brought new jobs. Residential real estate continues to boom: median home prices in the state jumped by 15.6 percent in the past year and banks are getting fat off mortgage refinancing. Citing the first slight rise in quarterly tax revenues in nine quarters, State Controller Steve Westly told NEWSWEEK, "That's the first leading indicator of a turnaround."

But if the private sector is showing signs of life, the public sector is in near cardiac arrest. The state government's financial woes began with the tech recession, but Davis and legislators continued to spend money on popular programs long after tax revenues dropped. During the boom, state coffers were filled with taxes on capital gains and stock options from all those tech execs and dot-com millionaires. In the 2000-01 fiscal year, these revenues leapt to $17 billion, representing 25 percent of all state income taxes collected. But by last year, that tax revenue had sunk to just $4.7 billion. The energy crisis of two years ago multiplied the damage, with California spending billions on high-priced electricity contracts after Enron and others manipulated the newly deregulated energy market on Davis's watch. But consumers, still fuming over rates that temporarily doubled and tripled, say the governor was asleep at the switch. Steve Hunyar, 42, a San Diego County software CEO, has near-photographic recall of an electric bill that spiked from $200 to $586. "I don't think anyone could have mismanaged the energy situation worse than Davis has," says Hunyar.

The day of reckoning in Sacramento can't be put off much longer. Democrats and Republicans continue to argue over whether to raise taxes, but whatever budget deal they reach, cuts will be deep and ugly. "It's not going to be a pretty sight," says Tom Lieser, a senior economist with UCLA's Anderson Forecasting unit. Among the hardest hit: education. The state has already cut $2.5 billion from the K-12 schools budget, with more to come.

The budget mess petrifies Cindy Kauffman, who directs a state-funded Adult Day Health Center in San Francisco's Richmond District. Kauffman's center provides nursing, physical therapy, counseling and meals for 170 elderly clients, many suffering from strokes, dementia or Alzheimer's. These facilities aren't cheap, but they save taxpayers millions of dollars by keeping poor, elderly folks like stroke victim Dorothy Shaw out of costlier nursing homes. Shaw, 67, comes here every weekday to improve her speech and movement. "I don't want to go to a nursing home," Shaw says. Earlier this year Governor Davis proposed cutting funds by 15 percent, and Republicans recently called for even deeper cuts. Kauffman believes that cuts anywhere near that large would spell the death of the center. "If we closed, within six months 50 percent of our clients would be in a... nursing home," she says.

Even if the pols agree on a budget, don't expect happy times soon. Tax revenues aren't likely to approach the frothy levels of the bubble days, which means smaller budgets are here to stay. Forecasters say unemployment will remain high for another year, partly because companies are afraid to add jobs despite having regained profitability, and many of the positions lost during the dot-bomb era will never return. All of which could keep unemployed folks like Joe Brown on the job-fair circuit. But after two years of looking, Brown is ready to lower his sights. With household funds dwindling fast, he says he'll take the first full-time job offer he receives--even if that means trading his white-collar past for a blue-collar future. He says he'd even be happy if he can parlay his part-time work as a gas-meter reader into a new career as a gas-meter repairman. That job would pay $20,000 less than the $50,000 he once made, but the staunch Republican has warmed to the idea of union security. "At least," he says, "I know that the gas company is not going to be going away." In California, even that small measure of stability is comforting.