A decade ago many conservatives watched with delight as deep-blue California struggled beneath double-digit unemployment and gaping budget deficits. But the schadenfreude faded as the Golden State’s fiscal and economic picture brightened—at least on paper. Unemployment has dipped to 4.2%, and the state this year recorded a $21 billion surplus, due in part to a 2012 tax hike on the wealthy. Gov. Gavin Newsom this week signed a $215 billion budget that boosts spending on housing, schools and child care. It even includes a sales-tax exemption for diapers.

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