Posted on 03/01/2004 12:42:50 PM PST by calcowgirl
Which county? IYDMMA
I have to admit... that took me a second. LOL.
Los Angeles County
You and Ernest must both be at the beach, Malibu Beach.
In the rest of the county there are 22 ballot measures in your county alone asking for an increase in taxes or approval of more bonding.
Increases for police services, libraries and school improvements appear to be popular requests. No surprises here.
Schwarzenegger is going slumming with Davis to pick our pockets.
How are Arnie's supporters going to spin this one?
Two tests for California bonds
Voter OK, then Wall Street favor, needed for $15 bln. issue
By Rachel Koning, CBS.MarketWatch.com Last Update: 4:28 PM ET Feb. 28, 2004
CHICAGO (CBS.MW) -- If investor appetite for a recent California bond offering is any barometer, demand for $15 billion in deficit bailout bonds could be equally ravenous, a key step in plugging the state's budget hole.
But the issue faces a bigger initial test -- California voters.
Recent surveys show Proposition 57, to allow the one-time bond issue, and its companion Proposition 58, which requires balanced budgets, should pass in Tuesday's vote. But their popularity is far from overwhelming, leaving some doubt on Wall Street and forcing state officials to pursue backup refinancing for the $14 billion in short-term debt due to mature in June, which the state must pay off or risk a more serious threat of bankruptcy.
Even passage on Tuesday might open doors to new controversy.
"If it passes, watch for lawsuits filed by municipalities angry at the intercept of their local revenues" which are likely to be compromised as the state must pay debt service on its larger bond issue, said analysts at California-based municipal bond underwriter Stone & Youngberg.
The state sold a much slimmer $2 billion general obligation bond offering last week, drawing substantial bidding from institutional and retail investors alike. In fact, retail investors snapped up more than $870 million, their largest share in California bond history.
The Stone & Youngberg analysts said the smaller sale might prove a good litmus test for general California bond demand, but there are no guarantees.
California general-obligation debt carries ratings of "Baa1" from Moody's, and "BBB" from both Standard & Poor's and Fitch, the lowest ratings of any state and teetering unusually close to "junk" status. But bond market analysts have said it's not likely the state, which is the world's sixth-largest economy, will default on its bond payments.
The rating makes California debt, long an anchor of municipal bond funds, too risky for the rules governing many pension and insurance funds. The new debt would presumably carry the same ratings, or potentially higher ratings, analysts have said.
A slow national economy, the technology bubble burst and the steep bill after electricity shortages under the watch of former Gov. Gray Davis have stung California. Aggravated by political wrangling, the budget gap is expected to reach $7 billion in fiscal 2005-2006 and remain roughly the same over the next few years, without changes to current tax or spending structures. Tuesday's ballot will also include a measure to require just 55 percent approval in the Legislature for state budgets rather than the current two-thirds. Passage would effectively give control of the budget to Democrats, who have had to negotiate with Republicans in past years to reach 67 percent approval for tax or revenue increases that balance the spending plans.
Passage of the $15 billion bond measure is key to California's near-term fiscal fix and may help make inroads to longer-term stability, but a budget gap over several years still looms, said Andrew Tilton, an economist with Goldman Sachs.
He thinks investors would more likely warm to California bonds if the state could pass at least one of its more controversial proposals to change revenue and spending stipulations.
"Given California's economic strength, the state could easily generate more tax revenue if needed," he said.
Schwarzenegger stumps
Gov. Arnold Schwarzenegger courted Wall Street's largest investment banks while in New York last week. He assured these potential investors in the state that his administration, working under the counsel of Schwarzenegger friend and investment guru Warren Buffett, would craft a bond proposal that makes the most sense for California's fiscal rejuvenation and yet not add undue interest costs to taxpayers.
Schwarzenegger's administration has been short on details, such as duration and financing structure for the $15 billion sale, but the actor-turned-politician reportedly told the bankers a 15-year bond might be preferable to a shorter maturity, in part because interest rates are currently low, Reuters said.
Jeff Lipton, who oversees the tax-exempt investments for management firm Weiss, Peck & Greer, said he's not certain he'll buy the new California bonds if the measure passes Tuesday, but he'll take a close look at the investment.
He says the state's historically low credit rating is accurate because it more likely reflects the state's "unwillingness" to finance its budget deficit rather than its inability to.
Still, he said that despite the rating, the state is a much sounder investment, than say, corporate bonds with similar ratings.
Contingencies
If Tuesday's measure is rejected, the state hopes to proceed with a $10.7 billion bond issue previously approved by Davis and the Legislature, although the issue remains hung up by a court challenge that says voters should be allowed to approve all new bonds.
To buy some time if necessary, the state has secured a costly but potentially credit-rating-saving guarantee that allows it to legally postpone some short-term bond payments.
State Controller Steve Westly told a business luncheon on San Francisco last week that officials were prepared to run to Wall Street if Tuesday's ballot measure fails.
But he warned that California's desperation might mean the state has to sell bonds "at loan-shark interest rates."
Including the latest general obligation offering, proceeds from which are used to fund infrastructure projects and other basic state needs, California's general obligation debt outstanding is about $15 billion, roughly 1 percent of the state's gross domestic product.
Goldman's Tilton said that from a broader economic perspective, California's debt problems are not that extreme.
He suggests California's woes "pale in comparison" to 1970s New York, when New York City by itself ran a budget shortfall three times the size of California's red ink.
"California's economy is strong enough to weather the current crisis ... but Gov. Schwarzenegger still has some heavy lifting ahead of him," said Tilton.
Arnoold is getting desperate! he should never do anything with Grayout Davis!
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