Fitch cuts California's bond rating to BBB

Reuters ^ | December 18, 2003

[calcowgirl]

Update 1 - Fitch cuts California's bond rating to BBB
Thu December 18, 2003 04:35 PM ET
(Adds more details, background)

NEW YORK, Dec 18 (Reuters) - California's credit rating took another blow on Thursday when Fitch Ratings cut the state's $30 billion of debt three notches to BBB, citing a widening budget gap and planned deficit funding.

California, the nation's most populous and most economically productive state, has the lowest bond rating in the nation.

Newly elected Gov. Arnold Schwarzenegger recently reached agreement with the legislature to fund the state's estimated $20 billion budget gap partly using $15 billion in bonds, a plan that still needs voter approval in March.

The magnitude of measures necessary to restore balance to the budget, including the uncertainty of voters to approve the debt, underlie the rating downgrade, Fitch said.

The state needs the bond money to pay back $14 billion of short-term notes that mature in June. Without those funds, the state may face the potentially expensive alternative of refinancing its short-term debt.

Fitch also cut the ratings on several state agency lease obligations to BBB from A-minus, but Fitch did not change the single-A rating on $1.9 billion outstanding in veterans bonds.

The downgrade from Fitch, which also maintains the bonds on Rating Watch Negative, still keeps the state's credit rating above junk level at all three major ratings agencies. Moody's Investors Service cut California's rating earlier this month to Baa1, just above the BBB rating assigned by Standard & Poor's Ratings Services.

On Thursday, Schwarzenegger said he would shift about $2.7 billion from the state's general fund to local governments. The governor invoked a mid-year budget authority to transfer the funds, a point of contention for local governments after a car tax that had provided them with state funds was rescinded.

[genghis]

even if the budget situation is dire, the state has plenty of assets that it can sell (roads, beaches etc)
so i don't see how bk is a possibility

[AdamSelene235]

Dayum, thats lower than Malaysia, Chile, Puerto Rico or even (gasp) Washington D.C.'s credit rating.

[Feiny]

The state of CA owns billions of dollars worth of property.
I read about a year ago about several large office buildings and warehouses that are unused & empty....there is plenty of land to be sold off as well. Tell Arnold to put it on Ebay!

[Dog Gone]

The only thing that can save California is if the American economy continues its broad expansion.

[Feiny]

Here it is:

6/27/03

Senator Battin Calls for Sale of California’s Surplus Properties During Senate Budget Debate
Battin’s SB 669 could result in a billion dollars of untapped revenue for California

For Immediate Release

On the Senate floor amidst a stalled budget debate, Senator Jim Battin (R- La Quinta) pointed to what could potentially result in a billion dollars of untapped revenue for the state. Battin’s bill, SB 669 calls for an investigation of surplus properties owned by the state that are serving no legitimate purpose. Many of the properties in question reside in highly valued real-estate locations, that if sold or leased, could help significantly reduce California’s massive budget deficit.

“This is something all members serious about correcting our state’s financial condition should be helping us look into,” stated Battin. “During this time, when the state is in need of serious and real fiscal solutions, this is one very worthwhile investigation that needs to begin immediately.”

SB 669 currently resides in the Senate Appropriations committee where it is awaiting review. The committee is scheduled to reconvene on July 14th.

The bill in its existing form, would direct the Department of General Services to identify one billion dollars ($1,000,000,000) worth of surplus, non-productive state property that can be sold immediately to help close the state’s budget deficit. Additionally this legislation will require state agencies and departments that may be affected by the sale of land or structures to determine the costs and benefits of leasing back their existing space or finding new space.

Currently, the Department of General Services (DGS) has pinpointed 40,000 properties owned by the state. However, there are several agencies that have not reported properties owned to DGS even though they are required to do so under current law (Govt. Code 11011.17). One of the biggest being the University of California who hasn’t reported property holdings since 1988.

“If we find even a handful of properties being underutilized, then it will have been worth our while,” concluded Battin. “It is our job to find as many savings opportunities to the state as possible. We owe it to the people of California to act.”

There is no known opposition to Senator Battin’s bill.

[calcowgirl]

Selling property to fund the spending zealots in Sacramento is like selling your house to pay for the new Hummer, or groceries. The fact that Battin refers to this as "savings" and "revenue" is another worrisome sign. It may have to be done, but people should recognize it for what it is... just another source to fund unaffordable state programs. The spending problem remains.

[Ernest_at_the_Beach]

Thanks for posting this.

[calcowgirl]

Dec. 18, 2003
California's Credit Rating Downgraded
DON THOMPSON
Associated Press

SACRAMENTO, Calif. - A second Wall Street rating agency cut California's bond rating to near junk-bond status Thursday, even as Gov. Arnold Schwarzenegger said he would use his emergency powers to cut the budget to send more money to cities and counties.

Fitch Ratings lowered the state's bond rating three notches, from A to BBB. Anything below BBB- is considered to be below investment grade, or "junk bonds."

The service also put the state on a "rating watch," meaning an additional downgrade is likely within months.

It cited as reasons for the downgrade "California's widening budget gap, its intention to increase the amount to be raised from deficit funding and the magnitude of measures necessary to restore balance."

In his first act as governor, Schwarzenegger added $4 billion to the state's budget deficit by rolling back a car tax, that went to fund city and county services. Schwarzenegger also persuaded state lawmakers to put a $15 billion bond measure on the March ballot, up from about $13 billion in legally questionable borrowing previously approved by the Legislature.

Schwarzenegger said he was not concerned by the downgrading and expects the rating agency to change its decision as his budget plan develops.

California already has the lowest credit rating among all 50 states. Moody's Investors Service and Standard & Poor's earlier this year downgraded its bond rating.

Lower credit ratings could cost taxpayers millions of dollars in higher interest on the billions of dollars the state will likely need to borrow.

If the state's credit falls below junk bond status, many major pension funds and other big mutual funds will be unable to buy California bonds, causing the state to pay even higher interest rates among smaller investors and even risk not being able to raise all the borrowed money it might need.

-------------------

Arnold "not concerned". Amazing!

[SierraWasp]

What? You wanna buy my county road out front? It's so poorly maintained you'd be better off tearin up the assphault and gradin the gravel!!!

You wanna know how much it wurth? How much you got?

[FairOpinion]

What did you want Arnold do, wring his hands, put ashes on his head and wail in public, that the bonds got downgraded?

His position is that he is focusing on getting things done to improve the situation, and as the situation improves, the bondrating will improve.

Actually this gives him more leverage, because everyone can see that there really IS a financial emergency.

[luvbach1]

BK is always a possibilty with an ultra-liberal (sorry "progressives," I'm not done discrediting the word liberal)Democrap legislature still in a spending mindset and wanting Arnold to fail.

[calcowgirl]

What did you want Arnold do, wring his hands, put ashes on his head and wail in public, that the bonds got downgraded?

No. I want him to act as the fiscal conservative he was touted as. I want the electorate to hold him accountable for his promises. I want him to address the SPENDING problem that HE said the state had. I want him to abandon the notion that his enabling bond measure is somehow a solution to a spending problem.

Accolades in the media and this forum regarding his 'emergency powers' to reduce $150,000,000 is ridiculous. If I had $1,000 in my budget, that would be like reducing $1.50. It's a joke. Every day that this goes on, the problem just gets worse.

[luvbach1]

...just another source to fund unaffordable state programs.

You are right on the mark. New sources of funds, instead of, and before, real spending cuts, ironically, could be one of the worst things that could befall California.

[luvbach1]

Lowered bond ratings are just part of the pain that Arnold said the sate must endure until its house is in order. He is not panicking and is being realistic. He deserves his chance which he most certainly has not yet had.

[calcowgirl]

Lowered bond ratings are just part of the pain that Arnold said the sate must endure until its house is in order. He is not panicking and is being realistic. He deserves his chance which he most certainly has not yet had.

I beg to differ. The lowered bond rating is a direct result of Arnold's actions, the $15 million bond measure, for one. From the AP article above.

It cited as reasons for the downgrade "California's widening budget gap, its intention to increase the amount to be raised from deficit funding and the magnitude of measures necessary to restore balance."

In his first act as governor, Schwarzenegger added $4 billion to the state's budget deficit by rolling back a car tax, that went to fund city and county services. Schwarzenegger also persuaded state lawmakers to put a $15 billion bond measure on the March ballot, up from about $13 billion in legally questionable borrowing previously approved by the Legislature.

[FairOpinion]

"No. I want him to act as the fiscal conservative he was touted as. "

===

And what do you call this?

SACRAMENTO, Calif. - Gov. Arnold Schwarzenegger (news - web sites) declared California in a fiscal crisis Thursday and invoked emergency powers that allow him to make spending cuts without the Legislature's approval.

[calcowgirl]

Ummmm.... did you read my post?
Here is the part again that answers your question.

Accolades in the media and this forum regarding his 'emergency powers' to reduce $150,000,000 is ridiculous. If I had $1,000 in my budget, that would be like reducing $1.50. It's a joke. Every day that this goes on, the problem just gets worse.

[Lazamataz]

I hate California.

[OrthodoxPresbyterian]

Senator Battin Calls for Sale of California’s Surplus Properties During Senate Budget Debate ~~ Selling property to fund the spending zealots in Sacramento is like selling your house to pay for the new Hummer, or groceries. The fact that Battin refers to this as "savings" and "revenue" is another worrisome sign. It may have to be done, but people should recognize it for what it is... just another source to fund unaffordable state programs. The spending problem remains.

If you were starving, and you had an empty couple of acres that you weren't using and from which you were deriving no income... wouldn't it actually make sense to sell off some acreage, to put food on your table?

Personally, I think it is morally desirable for Government to own as little Property as possible... everything that can reasonably be privatized, SHOULD be privatized -- and I am convinced that this includes basically all functions of Government except National Defense and the Courts, and maybe local town roads (which are less easily-converted to Profit-based ownership and maintenance than are major highways -- and tend to be accountable to local consumer demand anyway).

It is an intrinsic Moral Good for Government to own as little property as possible -- every acre not under Government ownership, is another acre farther away from Sovietism. Granted, it's a shame that the proceeds from the sales will be used to fund a bloated spending bureaucracy... but at least the property will no longer be owned by Government, which is a silver lining.

Also, every property sold off now is a property that the Government can't sell off in the future to paper-over further deficits, a property which will no longer be available as pledged collateral for Government borrowings, etc.

It would be best to cut spending; but since it is a prima facie Conservative policy to privatize Government property, it's an action which deserves our (cautious) support.