Cali next in line for the magic bailout fund?

[david austin]

From the negative watch report issued yesterday:

Standard & Poor's Ratings

Services placed its 'A' rating on California's general fund-supported general obligation (GO) debt, and its 'A-' rating on the state's appropriation-backed lease revenue debt, on CreditWatch with negative implications reflecting our assessment of the state's projected depletion of cash by the end of July 2009 absent the adoption of a significant revision to the fiscal 2010 budget. Although we continue to believe the state retains a fundamental capacity to meet its debt service, insufficient or untimely adoption of budget reforms serve to increase the risk of missed payments in our view.

This action affects approximately $59 billion of GO debt and $8.1 billion of appropriation debt.

Both the timing and magnitude of the state's impending liquidity shortfall raise significant credit concerns, in our view, particularly if the state were to begin fiscal 2010 without having meaningful budget revisions in place. We believe that without budget revisions, the state may need to defer (or issue registered warrants in lieu of making) cash payments for certain lower-priority obligations (such as vendors, student aid, and tax refunds) in order to preserve cash for required payments for education and debt service. Were the state to do this, or if it were to adopt a budget package that relied on assumptions that we regard as too optimistic or that relied on mechanisms for bridging the projected shortfall through at least fiscal 2010 that we regard as unreliable, we may consider lower ratings. The risk of any of these scenarios occurring underpins our placement of the state's ratings on CreditWatch with negative implications.

With the specter of approaching payment deferrals or issuance of registered warrants, the magnitude of the cash and revenue problem, and the limited amount of time left within which to make meaningful budget reform, downward pressure on the state's rating is intensifying, in our view. A failure to address the structural budget gap leading to significant use of registered warrants, payment delays, and more acute liquidity strain could cause the rating to fall below the 'A' category.


I guess those 'green shoots' in Cali-for-nee-a are more of the smoking variety.

I cant wait for the next hearings where big ben and 'cant run the printing presses fast enough' timmay explain how TARP funding can now be accessed by a state who has already self-disclosed itself to being a mere 50 days from essential financial ruin.

Just remember folks... CNBC aka 'joe six packs one stop shop for financial media manipulation' says the recession is over!!

[J. Fees]

Just remember folks... CNBC aka 'joe six packs one stop shop for financial media manipulation' says the recession is over!

joe 6 pack watches fox. joe glass of 8$ cab/6 pack of heineken watches cnbc.

[tricky]

hmm


some of us read this earlier today....

Calif. Aid Request Spurned By U.S.
Officials Push State To Repair Budget
By David Cho, Brady Dennis and Karl Vick
Washington Post Staff Writers
Tuesday, June 16, 2009


The Obama administration has turned back pleas for emergency aid from one of the biggest remaining threats to the economy -- the state of California.
Top state officials have gone hat in hand to the administration, armed with dire warnings of a fast-approaching "fiscal meltdown" caused by a budget shortfall. Concern has grown inside the White House in recent weeks as California's fiscal condition has worsened, leading to high-level administration meetings. But federal officials are worried that a bailout of California would set off a cascade of demands from other states.
With an economy larger than Canada's or Brazil's, the state is too big to fail, California officials urge.
"This matters for the U.S., not just for California," said U.S. Rep. Zoe Lofgren, who chairs the state's Democratic congressional delegation. "I can't speak for the president, but when you've got the 8th biggest economy in the world sitting as one of your 50 states, it's hard to see how the country recovers if that state does not."
The administration is worried that California will enact massive cuts to close its deficit, estimated at $24 billion for the fiscal year that begins July 1, aggravating the state's recession and further dragging down the national economy.
After a series of meetings, Treasury Secretary Timothy F. Geithner, top White House economists Lawrence Summers and Christina Romer, and other senior officials have decided that California could hold on a little longer and should get its budget in order rather than rely on a federal bailout.
These policymakers continue to watch the situation closely and do not rule out helping the state if its condition significantly deteriorates, a senior administration official said. But in that case, federal help would carry conditions to protect taxpayers and make similar requests for aid unattractive to other states, the official said. The official did not detail those conditions.
California is among several states that have asked for a bailout from the Treasury Department. A few have gotten some traction, notably Michigan, whose economy is among the country's weakest and is struggling to deal with the fallout from the bankruptcies of General Motors and Chrysler. To stave off mass layoffs, Treasury officials are considering helping the state's auto suppliers stay afloat and convert their businesses to support other industries.

[tricky]

California Controller John Chiang, a Democrat, warned last week that the state was "less than 50 days away from a meltdown of state government."
While its fiscal crisis is severe, experts say the state is unlikely to default on what it owes, even if it runs out of cash. It can raise money through taxes and other means to assure repayment of its debt. Most likely are massive cuts in public services.
"After June 15th, every day of inaction jeopardizes our state's solvency and our ability to pay schools and teachers and to keep hospitals and ERs open," Gov. Arnold Schwarzenegger (R) said Friday.
Problems unique to California have made it hard for the state to find a way out of its crisis.
The state entered the downturn burdened with an inflexible budgeting apparatus, constrained by a state ballot initiative approved by voters in 1978 that severely limited property taxes in California. The signature example of "ballot box budgeting" left the Golden State inordinately reliant on the personal income tax, which accounts for half of revenue to Sacramento.
California's budget is also heavily dependent on taxes paid on capital gains and stock options, which have been clobbered during the meltdown of financial markets. State budget analysts made their annual estimate of revenue a month before the crisis spiked in the fall and have been backpedaling ever since.
"Those revenue projections turned out to be wildly optimistic, but nobody was predicting the October collapse of the financial markets," said Michael Cohen, deputy analyst in the Legislative Analyst's Office.
Consider capital gains -- income from sales of stocks or other assets. In California, that income dropped to $52 billion in 2008 from $130 billion a year earlier. It is estimated to be $36 billion this year.
By February, the shortfall was projected at $42 billion over two years. Lawmakers stared at the figure for weeks, stymied by the state constitution's requirement that the budget pass with two-thirds of the legislative vote and their own profound partisanship. The deadlock broke when a moderate Republican defied his caucus's pledge against any tax hike, but it didn't end there.
In April, budget analysts revised revenue projections downward by another $12 billion. And in May, voters overwhelmingly rejected the portions of the February deal that legally had to be put before them, taking $6 billion off the table.
To close an annual gap now put at $24 billion, Schwarzenegger and leaders of the legislature's Democratic majority have put aside talk of tax increases to concentrate on cuts. Most dramatically, Schwarzenegger would eliminate the state's basic welfare program, which serves 1.3 million.
Facing gridlock and few options other than severe cuts, California began to look to Washington for help. State Treasurer Bill Lockyer sent a letter to Geithner in mid-May, urging him to consider helping cash-strapped municipalities.
"A fiscal meltdown by California or any other large state or municipality would surely destabilize the U.S., if not worldwide, financial markets," Lockyer wrote. If the state were to default, it could shake bond markets and undermine investor confidence in a still-fragile financial system.
Tom Dresslar, a spokesman for Lockyer, said California will not default on its general obligation debts. But by late July, the state conceivably could run out of money to operate, as revenue continues to deteriorate while costs keep mounting. "The problem is getting worse, certainly not getting better," he said.
In testimony before Congress, Geithner did not rule out aiding California. But he was far from enthusiastic about such a proposal, instead suggesting that Congress was better positioned to help the states -- and that states should balance their budgets.
"A lot of the burden," Geithner said, "is going to be on them to lay out a path that gets their deficits down to the point where they're going to be able to fund themselves comfortably."
Most members of California's congressional delegation have also been ambivalent about whether to press for federal help.
State officials are "not expecting any help from the federal government," Dresslar said. "At this point, we're on our own."





but....





FOX News Blogs » FOX Forum » James P. Pinkerton


June 16th, 2009 9:38 AM Eastern
JAMES P. PINKERTON: The Washington Post Wants YOU to Bail Out California!


Should the federal government bail out the state of California? You know, the federal government that owes trillions–should it give borrowed money to a state that owes billions? The Washington Post sure seems to think so. Here’s the way its front-page story this morning begins: “The Obama administration has turned back pleas for emergency aid from one of the biggest remaining threats to the economy — the state of California.” Wow. One’s first reaction is that if even the Obama administration opposes a bailout, then it must be a pretty bad bailout.
———-

Even the Obama administration recognizes that California doesn’t have a ‘budget crisis’ — it has a spending crisis.

———-
But the word-choices in The Post piece are instructive–instructive about the knee-jerk bailout mentality of the MSM: those meanies in the Obama White House have “turned back pleas” from the Golden State. And then this is rich: The Post describes California’s budget crisis as “one of the biggest remaining threats to the economy.”
Oh yes, the prospect that Sacramento might have to make deep cuts in state government spending is as big a threat to America as unemployment, inflation, de-industrialization–not to mention the ominous prospect of “cap and tax” legislation aimed at saving us from the dire threat of carbon dioxide (legislation championed, by the way, by House Energy and Commerce Committee chairman Henry Waxman, Democrat of… California). We are supposed to believe, according to The Post’s logic, that the “Termination” of Governor Arnold Schwarzenegger’s political stardom is a reason for the rest of us to pay out money we don’t have, so that California politicos can come to Washington and continue the work of shutting down American manufacturing.
And yet even The Post has to admit, buried down deep in the piece, that the source of the problem is the reluctance of California voters to pay for the government they are stuck with.
Of course, that’s not how The Post puts it. Instead, the paper writes, “The state entered the downturn burdened with an inflexible budgeting apparatus, constrained by a state ballot initiative approved by voters in 1978 that severely limited property taxes in California.” Again note the loaded word choices: “burdened” … “inflexible.” Facts of life that you like are “sturdy principles.” Facts of life that you don’t like are “inflexible burdens.” And so now we know what The Post thinks of tax-limitations–although, of course, we already knew that.
That California ballot initiative, Proposition 13, passed by a 2:1 margin 31 years ago–there’s been plenty of opportunity, since then, for the voters to repeal their own tax-limiting handiwork. And yet they have chosen not to do so. Now what does that tell you? But The Post derides that choice–affirmed and reaffirmed over three decades–as “ballot box budgeting,” and then glosses over the fact that this past May, the people of California voted down a huge tax increase, Proposition 1A, that was pushed by Governor Schwarzenegger and the state’s Democratic political establishment. And so what does that tell you?
It tells us that the voters are simply waiting for the politicians to get the message: cut spending.
California doesn’t have a budget crisis. California has an overspending crisis. But don’t take my word for it–take the word of the people of California, who keep voting “yea” on tax cuts, and “nay” on tax increases.
One of these days, the governor and the legislature will get that message. But don’t hold out much hope for The Post. In Washington, things are different–but you knew that.

[Funkenstein]

(in regards to Aaron's post)

Well!

[tricky]

Originally Posted by Funkenstein

(in regards to Aaron's post)

Well!

reading is power yo

[Funkenstein]

Originally Posted by tricky

reading is power yo

I did and you edited it by adding that extra part. Cali can burn for all I care. I thought that all the extra revenue they were going to make was going to be from legal pot sales anyway.

[tricky]

Originally Posted by Funkenstein

I did and you edited it by adding that extra part. Cali can burn for all I care. I thought that all the extra revenue they were going to make was going to be from legal pot sales anyway.

The problem with Cali is that it takes a 50%+1 vote to enact new services and a 66.7% vote to enact new taxes. Doesn't take a rocket scientist...

"It was the most memorable time of my life, I...it was a touching moment because I never thought this day would ever happen. I won't have to work out how to put gas in my car, I won't have work out how to pay my mortgage. If I help him, he's gonna help me."

[david austin]

Moody's release today

[California's] A2 rating is just five notches above speculative status and Moody's raised the potential for the rating to tumble toward "junk" status if lawmakers fail to quickly produce a budget for Governor Arnold Schwarzenegger to sign.


"If the legislature does not take action quickly, the state's cash situation will deteriorate to the point where the controller will have to delay most non-priority payments in July," Moody's said in a statement.


"Lack of action could result in a multi-notch downgrade," Moody's added.
A downgrade could push California's borrowing costs up at time when state officials expect to issue up to $9 billion in revenue anticipation notes as soon as possible after a budget agreement is notched -- a deal whose timing is in doubt.

Moody's said California's leasing debt and other state-related debt are also on review, affecting a total of $72 billion of debt.

Moody's cited California's expected massive budget gap for fiscal 2010 of more than 20 percent of its general fund budget; warnings by the state controller that without budget solutions the state will not be able to meet all its financial obligations in July; continued political stalemate, and the limited options.

_________

In what will likely turn into a governmental game of chicken I am placing my bets with the 'systemic risk being too great to allow California to fall to such depths'

Obama needs to think about this:

A large scale downgrade of Cali would set off a chain of events that will not only trash the ratings of virtually all other states, resulting in a skyrocketing of the MCDX, and major pain for associated index arbs, but also impair insurance companies directly and indirectly. All to witness a final outcome likely being comparable to the Lehman blow up, however more protracted and, ultimately, more pronounced.

The decisions get a little more difficult when you arent bailing out a state with a million UAW workers.

Tick Tock

[PETA]

Originally Posted by david austin

I cant wait for the next hearings where big ben and 'cant run the printing presses fast enough' timmay explain how TARP funding can now be accessed by a state who has already self-disclosed itself to being a mere 50 days from essential financial ruin.

What are you suggesting? That we shouldn't bail out Cali? C'mon David that would mean requiring them to cut spending and find some fiscal sanity and we all know that's just not gonna happen. So, after we bail them out the rule will be clear... State governments should spend every dime they can think of spending then go to DC hat in hand to pay for it.

[matt]

the governator is doing a bang up job!

[david austin]

Originally Posted by St. Stalin the Apathetic

What are you suggesting? That we shouldn't bail out Cali? C'mon David that would mean requiring them to cut spending and find some fiscal sanity and we all know that's just not gonna happen. So, after we bail them out the rule will be clear... State governments should spend every dime they can think of spending then go to DC hat in hand to pay for it.

Im suggesting they re: government aka you and me, will be forced to.

[PETA]

Originally Posted by david austin

Im suggesting they re: government aka you and me, will be forced to.

And I was noting the obvious perverse consequences of that upsetting inevitability...

incentivize* something and you'll get more of it

what pisses me off (well one thing anyway) is that shareholders in the corporation are expecting a smaller and smaller minority of us to pay more and more of the ever increasingly large bills...




* (fail to permit negative consequences to result from stupid decision making)

[david austin]

Originally Posted by St. Stalin the Apathetic

what pisses me off (well one thing anyway) is that shareholders in the corporation are expecting a smaller and smaller minority of us to pay more and more of the ever increasingly large bills...

This doesnt make it any easier...

Complete with DA add-ons!!

I heart access to a bloomberg terminal

[PETA]

David needs help... he thinks way too fucking much