Analyst: California drought may hurt farmers but won't cause significant hit to state economy

Economic Indicators Associated Press

California's drought is not likely to have a significant effect on the state's economy or budget despite leading to cutbacks on farms, a nonpartisan fiscal analyst said Tuesday.

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Declining agriculture production and residential water use in dry years don't drag down the broader state economy, the Legislative Analyst's Office report said.

But the report does say that a persistent drought, which Gov. Jerry Brown warns might be the new normal in California, is a long-term risk to the state economy if it slows home construction or leads to higher food prices.

"All of the drought's effects could become more significant if it worsens or lasts a long time," the report says.

California's four-year drought has forced farmers to fallow 400,000 acres and driven 17,000 farmhands out of work, according to state officials.

However, the report notes that agriculture makes up only 2 percent of the state economy, and that the state's total economy grew even as food production shrunk in the previous major drought in the 1970s.

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In response to the governor's executive order to curtail water use this month, regulators are preparing new restrictions on watering large commercial landscapes such as golf courses and a prohibition on sprinklers at new homes without water-efficient drip irrigation.

The drought so far has not led to a large slowdown in construction or broad changes in consumer spending or confidence, the report says.