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CA Credit Lines Drawn Down 85 Percent
By CHRISS STREET In what seems appropriate for a month that ended in Halloween, the state of California just released a scary October Statement of General Fund Cash Receipts and Disbursements indicating annual revenue will plummet by $3.6 billion and spending will spike up by $10.2 billion this year. California has already drawn down 85 percent of its credit lines and only has $4 billion remaining to fund a $13.8 billion deficit. With the same sovereign credit rating as basket-case Portugal, California’s debt is at maximum risk of being downgraded to “junk” bonds. With credit lines almost tapped-out, the sovereign debt crisis that has hammered Europe may arrive in America. Two weeks ago when I CalWatchDog.com published my article, “Will Reform Forestall Pension Junk Rating,” regarding my belief that that a “credible first step on the road to reforming the State’s insolvent public pension plans” had been taken by Gov. Jerry Brown, I received hate mail from the right for complimenting Brown and hate mail from the left for stating Brown’s motivation to take on his own public employee constituency was motivated by fear that California might default. At the time, California had managed to stay out of the financial press since July 7, 2011, when Standard & Poors raised the state’s credit outlook “from negative to stable” following passage of a $129.5 billion budget that closed a $26.6 billion projected deficit for the current year. This new-found credibility came after California had run deficits of $19.3 billion, $42 billion and 24.3 billion for the three prior years. S&P affirmed California’s A-minus ratings for general obligation bonds and BBB-plus rating for appropriation-backed debt. In glowing praise, S&P said their positive upgrade should cover the next “two-year outlook horizon,” as increasing liquidity will provide “better balance between the money coming and cash being spent on state operations.” Choking SpendingLast week at the Bloomberg State and Municipal Finance Conference in New York, analysts including Mary Neale, founder of Greencoast Capital Partners, celebrated the strength of California’s diverse economy and extolled Brown’s leadership in rescuing the state’s beleaguered credit rating. “I think it will go up,” Neale added. “California has been unjustly penalized.” But former Deputy Treasurer Paul Rosenstiel cautioned that the “real spending cuts that will begin to shore up finances” are already choking off state money designated for schools and local governments. “The math just doesn’t work out for you to be able to solve the budget problem without cutting the amount of money that goes to local governments.” October’s shocking cash report brought to an end California’s financial rehabilitation trend. California has been living on borrowed money since 2007 and projected credit availability for October 31 of $7.1 billion. But with both spending and revenue headed in the wrong direction, the state’s budget is upside-down by another $25 million every day. Putting these big numbers in human terms, California’s remaining $4 billion credit line will only last for 11 days. A year ago, California had the luxury of knowing that, if the state ran out of cash, the federal government could always be relied upon for a bailout. That option expired with the downgrade of the United States’ own credit rating and the abhorrence of bailouts by both the left and the Birmingham, Ala. Rapidly running out of access to credit, the outlook for California’s sovereign debt is grim. Chriss Street is the former treasurer of Orange County. On November 1, his latest book, “The Third Way,” will be published. It will be available on Amazon.com. To order a signed copy, please contact The Forum Press at: www.theforumpress.com.
Tags: Chriss Street, Greencoast Capital Partners, Jerry Brown, Mary Neale, Paul Rosenstiel, Standard & Poors Comments(6) |
May 23, 2012
Sounds like the perfect time to borrow billions to build a train to nowhere.
How is it that anyone with the resources of the S&P or these large financial institutions could have gone for the headfake when Jerry’s boys and girls in Sactown passed the bogus budget bill a few months back? Even the unsophisticated little people understood that it grossly exaggerated the incoming revenue and understated the expenses with another massive deficit in the making. I think Mr. Seiler nailed it. The budget bill was simply a way to circumvent Prop 25 and keep those paychecks rolling in for the state legislators. Naturally, the right thing to do NOW would be to acknowledge that the budget bill was a farce and to interrupt those paychecks retroactively. But we know that would never happen simply because the system is allowed to be gamed by those who make the rules at the expense of those who must make up the shortfalls. Next year will will see the same manipulations. And nothing will be done to stop the fraud until the laws of exponential math finally rears it’s ugly head. We are Greece. We are Italy. We are Portugal. We are Spain. We are Ireland. We all share the same terminal disease called DEFAULT. We are just in varying stages of the condition which was self-inflicted by consumption of excessive debt. We are like the patient with terminal lung cancer who still smokes cigarettes through his surgical tracheal opening. Sad. Very sad indeed.
” I think Mr. Seiler nailed it.”
Exactly, Mr. Bub. Why is it that John Seiler got it right but Criminal Clown Krusty Brown and other politicians and bureaucrats got it so wrong? Are they incompetent or do they know better but lie?
Let’s be realistic. All you will get from Sucramento is lies and incompetence.
The ONLY answer is to break free from Sucramento. We must secede and I would nominate John Seiler as governor of the new state. Long live Seilerville!
@Bob – I agree and why there is a slow movement building in the state to do just that! I believe you will start seeing the concept of secession cropping up more and more! There are already groups on FB for this!
I think it’s important for employers to see credit reports. If an employee has difficulty with their own finances, how can a business be sure they will manage their business credit cards effectively?
http://www.creditcards.org/article/california-employers-blocked-accessing-credit-reports-.html
The budget Brown and friends `passed’ was just as phony as his Pension Reform proposal. Smoke and mirrors to occupy the foreground while it’s business as usual w/ the unions and special interests in the backroom.