Fitch Ratings lowered various State of California Bonds & RAN's

Fitch Ratings has lowered State of California general obligations to 'A' from 'AA'. The action affects $25.2 billion outstanding bonds. In addition, ratings assigned to lease obligations of the state have been lowered to 'A-' from 'A+'. The bonds are issued by the Board of Public Works, the Franchise Tax Board, East Bay State Building Authority, Los Angeles State Building Authority, Oakland State Building Authority, Riverside County Public Financing Authority, San Francisco State Building Authority, San Bernardino Joint Powers Financing Authority (California Department of Transportation) and Sacramento City Financing Authority. All of the ratings remain on Rating Watch Negative.

The rating on California's $12.5 billion revenue anticipation notes (RAN's) is lowered to 'F2' from 'F1'. The notes mature $9.5 billion on June 20, 2003 and $3.0 billion on June 27, 2003.

Despite the fundamental strength of its economy, California has been under financial pressure since 2001, reflecting in part recessionary conditions, but, more importantly, a steep, unprecedented drop in personal income tax receipts due to a precipitous decline in capital gains, bonuses, options, etc. The yield from the tax in fiscal 2002 was 25% below the previous year, falling from $44 billion to $33 billion. In this fiscal year, which ends on June 30, 2003, the tax is now expected to be about 12% short of the budget estimate and be at about the same level as last year.

The effects of both the economy and the sharply reduced capital gains base are expected to continue into 2003-04. The most recent estimate is that a gap of almost $35 billion exists for the remainder of this year and fiscal 2004. Unrealized revenue is set at about $18 billion of which the personal income tax accounts for over $12 billion, while higher expenditures are set at $4.5 billion. The remainder of the gap represents non-recurring actions taken to balance the original 2002-03 budget; securitization of the state's tobacco settlement accounts for $4.5 billion of the $12.6 billion total in this category.

The magnitude of the problem, over 20% of the budgets, will require significant actions. The governor has proposed expenditure measures totaling some $10 billion and other measures will be recommended when the executive budget for 2003-04 is formally submitted. However, proposals to increase revenues were not approved for the 2002-03 budget and there are indications that resistance to that approach continues.

The lower level of revenues will have a direct impact on cash flow. Estimates made in October indicated that about $6.8 billion of unused borrowable resources would be available to the state's general fund after payment of the RAN's. The new estimates have lowered revenues by $8.5 billion, including $2.3 billion from prior years, and increased expenditures by $1.6 billion. Together, these changes are more than $10 billion, or well in excess of available funds. In the absence of prompt action, repayment of the RAN's may well rely on the state's ability to issue revenue anticipation warrants, which can extend over the close of the fiscal year.

So Fitch is saying that the RAN's are likely to be paid by RAW's, since the state will have no money. Ouch! June 20 and June 23rd should be critical days for these power obligation required RAN's to be repaid. Also note how this is impacting regional bonding authorities.

The most recent estimate is that a gap of almost $35 billion exists for the remainder of this year and fiscal 2004

It just keeps getting bigger and bigger and bigger and bigger........

The train wreck is starting!

So Fitch lowered the State's bond ratings. But perhaps more telling, said that the State is not likely to be able to pay off the RAN's that are outstanding except by heroic short term borrowing.

Snopercod has been a big follower of State RAN & RAW debt. Remember how Connell, who won't be there, lectured the legislature that the state was facing a critical cashflow crisis unless they did certain things so she could pay off short term borrowings? Well, Fitch appears to be saying that the State is in for some real cash flow issues in the coming months.

For several years now I have been predicting that the illegal immigration “problem” in California would be a “self-solving” one. By that I mean, the “Peoples Republic of California” (Left Coast) will collapse into bankruptcy and then there will be no further incentive of illegals to come here…i.e. NO BENEFITS AVAILABLE!

It is my hope that people in California will demand of their elected officials some fiscal responsibility. If the people won't do that, then Wall Street will step in and force the elected officials to "do the right thing" over their screaming objections.

I think that is what is going to happen.

I see the rating agencies starting to flex their muscle and tell what they think is going to happen.

I also think that California is headed for a significant cash flow problem that is going to require the borrowing of short term money to keep things in government going.

To get that short term money, the Legislature is going to have to agree to act fiscally responsible in ways that no Democrat would want to act. That in turn is likely (in my opinion) to cause a significant reaction within the ranks of the populace that views themselves as Democrats and is about to be "betrayed" (in their view) by their elected officials.

Kathleen Connell must be laughing her a$$ off at all this. She was the only democrat of integrity during this whole fiasco.

I hereby award her the Kathleen Harris Medal of Heroism for telling the truth in a blizzard of bovine fecal debris spewing from Gray Davis.

Thanks for posting this and may I recommend this editorial:

California: The tarnish on the Golden State

Calpowercrisis:

To find all articles tagged or indexed using Calpowercrisis, click below:
	click here >>>	Calpowercrisis	<<< click here
(To view all FR Bump Lists, click here)

calgov2002:

calgov2002: for old calgov2002 articles.

calgov2002: for new calgov2002 articles.

Other Bump Lists at: Free Republic Bump List Register

Exactly, which is why it is going to be fun watching the actions in Sacramento in the coming months.

Exactly, which is why it is going to be fun watching the actions in Sacramento in the coming months.

There's little doubt Davis harbors hope that he can be a contender for higher office, yet in order to make any progress on this severe, and fully predictable fiscal crisis, he's going to be forced to betray many of his largest benefactors. Those who have paid for government largesse are not going to get it and if they don't get what they paid for, they're not going to pony up when Davis goes national.

Davis is going to be fielding a ton of angry phone calls and office visits in the coming months. And his budgetary decisions will be made on the basis of how they will impact on his future ability to raise campaign cash. People who have nothing to offer him might as well sink into the sea, for all the attention they're going to get.

This must be tough on the Hollywood crowd. if they could pin blame on the GOP, you can be sure they'd have a huge benefit concert, but to do so now would call attention to the ineptitude of Davis and his cohorts in the Legislature. I hope they do it anyway.

burn baby burn ..... too bad my father won't get out of it, but America needs a total object lesson in the follies of communism. California is rushing headlong into the train wreck.

Do you REALLY think the Feds can just stand by and let 1/10th of the US population go down the toilet?
We are ALL gonna end up paying for this mess.

Can you say Federal loan guarantees?

Sad, but likely. If that does happen then California has a chance of harming the credit rating of the US federal government. The feds can't insure against everything and their pocket is limited. Remember the the rating agencies have downgraded Japan and other countries that have gotten "over extended and not cleaned up their financial houses.

...a huge benefit concert..

Actually, I like the idea. I can just see compasionate republicans raising funds for children, food banks, and emergency medical facilities that Gov Davis and the Dem's propose to cut. It would make a good jumping off point for candidates in the next cycle of elections. Yes, that does sound like a good idea.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.