California's Budget Crisis Returns... In 10 Short Weeks

I'd be saying bwhahahahahahaha right about now if, you know, this wasn't the place I call home.

California Governor Arnold Schwarzenegger will know within a month whether a $1.1 billion drop in revenue collections is part of a growing budget shortfall or an isolated event, his budget spokesman said.

Revenue in the three months ended Sept. 30 was 5.3 percent less than assumed in the $85 billion annual budget, state controller John Chiang reported yesterday. Income tax receipts led the gap, as unemployment reached 12.2 percent in August.

“The culprit here appears to be estimated quarterly personal income tax statements,” H.D. Palmer, the governor’s budget spokesman, said yesterday. “The numbers are cause for concern, but the issue now for us is to determine if this is a one-time event or whether it has more long-term implications.”

The latest figures show that California is facing resurgent fiscal strains brought on by the U.S. recession. Since February, Schwarzenegger and lawmakers have cut $32 billion from spending, raised taxes by $12.5 billion and covered $6 billion more with accounting gimmicks and borrowing. Even with those actions, state budget officials predict an additional $38 billion in deficits in the next three fiscal years combined, including $7.4 billion in the year starting July 1.

Schwarzenegger must present a budget for the coming fiscal year in January. The state’s Franchise Tax Board will deliver new data to the governor in November.

Damnit. Bend over, neighbor, they're going to have to make up for the shortfall one way or another.

Without naming names, Jr Deputy Accountant has discovered that a certain state agency sent out letters to staff implying that it might be a good idea to find work now as their jobs will not exist 4 months from now. Ouch.

Worse, California is plunging deeper and trying to use the MasterCard to pay the interest on the Visa. Bad move, California, bad bad move.

More Bloomberg:

California Treasurer Bill Lockyer said the lowest-rated, most-populous U.S. state may sell as much as $15 billion of bonds over the next nine months to refinance debts and fund public works projects.

California may offer $4 billion of debt during the week of Oct. 26 to refinance the bonds used by Governor Arnold Schwarzenegger to cover previous budget deficits. The budget enacted in July would allow the sale of as much as $11 billion more of general obligation bonds through the June 30 end of the fiscal year if financial markets allow, Lockyer said. The exact amount of a sale hasn’t been decided.

“If the market is inhospitable, we won’t go,” Lockyer said in an interview. “We’ll just have to wait and see how the feelings are when we get ready to think about it again.”

Psst: if any of you touches a single one of these "bonds," you deserve every single bit that is about to come down on your ass.

Let's make this painfully fucking simple for those of you out there with thicker skulls (yeah I know who you are already, shhh) and define a "bond" (word is I need to learn how to dumb things down. I'm not sure how in the hell I can make this much clearer?!):

A debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing. The Federal government, states, cities, corporations, and many other types of institutions sell bonds. Generally, a bond is a promise to repay the principal along with interest (coupons) on a specified date (maturity). Some bonds do not pay interest, but all bonds require a repayment of principal. When an investor buys a bond, he/she becomes a creditor of the issuer. However, the buyer does not gain any kind of ownership rights to the issuer, unlike in the case of equities. On the hand, a bond holder has a greater claim on an issuer's income than a shareholder in the case of financial distress (this is true for all creditors). Bonds are often divided into different categories based on tax status, credit quality, issuer type, maturity and secured/unsecured (and there are several other ways to classify bonds as well). U.S. Treasury bonds are generally considered the safest unsecured bonds, since the possibility of the Treasury defaulting on payments is almost zero. The yield from a bond is made up of three components: coupon interest, capital gains and interest on interest (if a bond pays no coupon interest, the only yield will be capital gains). A bond might be sold at above or below par (the amount paid out at maturity), but the market price will approach par value as the bond approaches maturity. A riskier bond has to provide a higher payout to compensate for that additional risk. Some bonds are tax-exempt, and these are typically issued by municipal, county or state governments, whose interest payments are not subject to federal income tax, and sometimes also state or local income tax.

Mmmkay. So our Treasurer Bill Lockyer makes it even simpler:

Even after increasing what would pay, California still borrowed more cheaply than it did during previous offerings. A taxable California bond maturing in 2039 yielded 7.23 percent this week, down from a yield of 7.43 percent during a sale in April.

“Everybody thinks there’s still an appetite for California bonds,” Lockyer said. “There’s certainly a continuing need for long-term investments in schools, high speed rail, stem cell research centers and so on.”

7.23% and dropping? That doesn't seem like large enough bait for the risk involved. This is California we're talking about.

2039? Look at this sexy ass chart of 10 year gold:

Of course nothing can sustain this type of movement, except maybe when the financial crack addicts are printing their way out of trouble. Your biggest mistake would be to think this is just your average downturn. *snicker*

Anyway, I think Mr Lockyer is confusing the meaning of "appetite."

Shit, I better start packing.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


Imagine, there are people who will buy California bonds. Hahahahahaha the Mogambo Guru would say.

this story needs a punchline, that's it I presume.

pete said...

California Unemployment Trends - September 2009

California Unemployment Trends Visualized as a Heat Map:
California Unemployment in September 2009 (BLS data)

versus California Unemployment Levels 1 year ago