Posted on 10/06/2008 12:26:44 AM PDT by bruinbirdman
California’s economy, which would be the eighth biggest in the world if the state was a separate country, is teetering on the brink of a financial crisis intensified by the credit crunch.
California is weeks away from running out of money. In a letter to Hank Paulson, the US Treasury secretary, Arnold Schwarzenegger, California’s governor, last week admitted an immediate $7bn (€5bn, £4bn) was needed to pay for essential public services, such as police and fire-fighters.
California would normally generate interim funding by issuing “revenue anticipation notes” in the short term credit markets to tide it over until tax revenues arrive later in its financial year. But the door to the credit markets is firmly closed.
Other states are also suffering from poor economic conditions and declining tax revenues.
Florida, Nevada, Massachusetts and Ohio have dipped into their reserves to maintain spending, according to Robert Kurtter, managing director of Moody’s US public finance group. But he said California’s situation was unique as it often relied on the capital markets to maintain spending commitments.
“When you have that dependency year-in-year-out you are going to get caught out when the markets are disrupted,” he said. “And that’s exactly what happened.”
Unlike most other states, California does not have a reserve fund and because it depends heavily on capital gains tax and stock option realisations, its revenues can be volatile. The looming cash flow crunch has caused considerable alarm.
“We are two weeks or so away from not being able to pay teachers and fire-fighters,” said Ross DeVol, director of regional economics at the Milken Institute, a Los Angeles-based think-tank.
Passage of the $700bn bail-out bill last week may not have solved the state’s immediate problems. “If we could get through the next two or three weeks without another financial institution being taken over that might restore confidence in counter-parties. But I don’t think the bill will free up the credit markets in the near term.”
Others in the municipal bond arena are more hopeful the bail-out will ease credit conditions for state borrowers. “I am hopeful that this bill will serve as the catalyst to provide stability and a resumption of normal activity,” said Ben Watkins, director of bond finance for the state of Florida.
Florida is facing a projected budget deficit of about $1.4bn and recently postponed a $200m bond issue earmarked for school construction.
Bill Lockyer, California’s treasurer, said immediate cash needs could be met with as little as $3bn.
But to end its reliance on the markets, California must first become better at balancing its budget, said Mr Kurtter. “Typically, when entities get into trouble it begins with cash flow. And when you are chronically running budget deficits, your cash is going to dry up.”
As we are still paying for all those Global warming studies that is costing us over a billion.
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
The current California financial crisis will have no effect of the socialists in Sacto.
The first thought of Mr. Socialist himself AG Gerri Brown was to spread CA's debt to the entire country.
yitbos
Every other state pays it’s own way. Get with it California if you weren’t supporting all those illegal immigrants and your budget would be fine.
So who is going to pay the rest of the taxpaying states so they don’t have to beg the government for money?
Wow! School teachers and firemen are depleting the state treasury? Who knew?
I have not heard of any plans to cut back on bloated Jabba the Hut government. Have you?
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
Guess we might as well bite the bullet and close down Bezerkely. Gee, that’s too bad.
Unfortunatly they do not need any more legislation. The Tres sec can do anything he wants.
Exactly, CA has dug themselves and it’s citizens a deep deep hole by simply not being able to say “No, we cannot afford it”.
Issuing credit to them is like taking a drunk guys credit card as he runs a tab by buying the whole bar drinks all night.
In the morning, he may have made some new “friends” but he will have one heck of a bar tab to pay.
Those are always the first listed (in terms of not getting paid)... aren’t they? Hmmmm...
The other states will soon be at the trough.
There’s a reason CA bonds have been rated so low for so long. This is it.
Shirley you jest ?
And FWIW there are no Firemen in CA thats like so totally sexist for sure. Firepeople sheesh. :-)
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
Children will starve, burn in fires, and get horrible test scores.
Nevada balanced its budget.
My state assemblyman brother-in-law (R-D20) is up for re-election. His yard signs are 1/2 normal size, "Small is good".
Governor Gibbons ran on "No new tax" platform two years ago. He has kept to the pledge to the consternation of the Democrat Assembly. There was a special session of the state legislature to cut spending. Nevada legislature only meets once every two years and revenues would not meet authorized spending.
yitbos
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
In fact, when Jerry Brown was interviewed about going to the Fed for bucks, he said CA had a lot of collateral. He doesn't need to close down Bezerkely, he needs to sell it.
yitbos
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