California credit rating cut close to junk

[mawilson 2,133]

California’s debt rating was slashed by Fitch Ratings to triple B – two notches above junk –

after the state was forced to issue IOUs for certain payments while it frantically tries to

agree a budget.

Further downgrades are possible, Fitch said, if legislators and Arnold Schwarzenegger,

governor, do not end a stalemate over how to close a $26bn budget gap. “This underscores

the urgency to solve our entire deficit,” Mr Schwarzenegger said.

By issuing the IOUs for what is considered non-priority payments, including vendor bills

and tax refunds, the state is taking steps to ensure debt service on California’s nearly

$70bn in general obligations bonds, Douglas Offerman, an analyst at Fitch, said.

“Right now we do not have any concern about the payment of debt service,” he said.

Bond obligations have priority over other payments in California, except funds for education.

“The options are now finite in terms of managing cash flow in a way that covers the state’s

obligations, and obviously, IOU recipients are already being asked to front the state

resources,” Mr Offerman added.

The use of IOUs for non-priority payments would offset cash shortfalls into September 2009,

as currently projected, Fitch said. But by the end of October the projected cash deficit

expands to $16bn, beyond non-priority spending of $10.6bn, excluding tax refunds. The

rating, which is four notches below that by Fitch for any other state, is Fitch’s second cut

for California in the past few weeks. At the previous single A minus, California already

had Fitch’s lowest rating. It is rated at single A level by Moody’s Investors Service and

Standard & Poor’s.

Tom Dresslar, spokesman for California state treasurer Bill Lockyer, said: “It is hardly

surprising; nevertheless, it is always disappointing, especially for a state that is already

at the bottom of the ladder when it comes to credit ratings.”

He added: “The folks who will pay the price are tax-papers when we go to market to sell

infrastructure bonds. It will cost taxpayers more money to build their schools, roads,

levies, affordable housing.”

California bonds began weakening late in the day. Long-term debt has been yielding just

over 6 per cent, about a full percentage point more than other state bonds.

“It could set up a more difficult day for prices [today] if the state does not produce good

news in a hurry,” said Matt Fabian, managing director at Municipal Market Advisors.

California is the most populous state in the US and the largest issuer of state debt. It was

rated triple B in 2003 and 2004 when the state also faced a budget deficit.

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[w¡n9Nµ7 §£@¥€r 123]

Stick a fork in Cali, she's done.

This downturn has demonstrated, in terms more vivid than I had thought possible, the wisdom of the way Texas runs things... of the superiority of the Texas model over the California model.

[tmma 467]

Stick a fork in Cali, she's done.

This downturn has demonstrated, in terms more vivid than I had thought possible, the wisdom of the way Texas runs things... of the superiority of the Texas model over the California model.

I heard we have a 9 billion or so surplus here.....

[Peikko 1,575]

I'm heading to the store for a six shooter, time to even the scores I think.

[Ban Hammer 13,407]

Stick a fork in Cali, she's done.

This downturn has demonstrated, in terms more vivid than I had thought possible, the wisdom of the way Texas runs things... of the superiority of the Texas model over the California model.

I heard we have a 9 billion or so surplus here.....

just another reason for cali to hate on texas.........

[dalegg 143]

Stick a fork in Cali, she's done.

This downturn has demonstrated, in terms more vivid than I had thought possible, the wisdom of the way Texas runs things... of the superiority of the Texas model over the California model.

I heard we have a 9 billion or so surplus here.....

Are you guys interested in buying any state parks? How about some schools, or maybe we could sell you the LAPD after the MJ fueral procession.

[Ban Hammer 13,407]

Stick a fork in Cali, she's done.

This downturn has demonstrated, in terms more vivid than I had thought possible, the wisdom of the way Texas runs things... of the superiority of the Texas model over the California model.

I heard we have a 9 billion or so surplus here.....

Are you guys interested in buying any state parks? How about some schools, or maybe we could sell you the LAPD after the MJ fueral procession.

[tmma 467]

Are you guys interested in buying any state parks? How about some schools, or maybe we could sell you the LAPD after the MJ fueral procession.

Nope-not at all.....In fact I am getting the impression that alot of Texans arn't too interested in still being part of the union......

On a different note, is anyone else getting the impression from Perry that he might be looking for a prez run in 2012? Now that would be interesting considering not so long ago he was sabre rattling and spouting off State sovreignty.........Hmmm...Interesting times indeed.

Edited July 7, 2009 by tmma

[w¡n9Nµ7 §£@¥€r 123]

Are you guys interested in buying any state parks? How about some schools, or maybe we could sell you the LAPD after the MJ fueral procession.

Nope-not at all.....In fact I am getting the impression that alot of Texans arn't too interested in still being part of the union......

On a different note, is anyone else getting the impression from Perry that he might be looking for a prez run in 2012? Now that would be interesting considering not so long ago we was sabre rattling and spouting off State sovreignty.........Hmmm...Interesting times indeed.

How do you feel about secession?

IMO Texas would likely be better off.

[mawilson 2,133]

How do you feel about secession?

IMO Texas would likely be better off.

So would California for that matter. If Californians didn't have to pay Federal taxes,

they would fix their deficit problem in a second.

[w¡n9Nµ7 §£@¥€r 123]

How do you feel about secession?

IMO Texas would likely be better off.

So would California for that matter. If Californians didn't have to pay Federal taxes,

they would fix their deficit problem in a second.

California is dead weight.

[tmma 467]

How do you feel about secession?

IMO Texas would likely be better off.

It's strange but ( and this is my opinion and I am not too 'up' on alot of stuff) afew years ago I would say "Hell-no!" but now .....I honestly think that Texas would be better off. I like the fiscal policy here which flies in the face of the current financial policies of the present Govt...But the proof is in the pudding...and despite the recession...we are not bankrupt and we are still building and creating jobs.....

How do you feel about secession?

IMO Texas would likely be better off.

So would California for that matter. If Californians didn't have to pay Federal taxes,

they would fix their deficit problem in a second.

California is dead weight.

Kind of like Louisiana...

[w¡n9Nµ7 §£@¥€r 123]

... the proof is in the pudding...and despite the recession...we are not bankrupt and we are still building and creating jobs.....

Exactly. This recession has been very revealing.

Kind of like Louisiana...

An independent Texas would need to build a barbed wire fence on the border with Mexico and on the border to Louisiana too.

[tmma 467]

... the proof is in the pudding...and despite the recession...we are not bankrupt and we are still building and creating jobs.....

Exactly. This recession has been very revealing.

Kind of like Louisiana...

An independent Texas would need to build a barbed wire fence on the border with Mexico and on the border to Louisiana too.

Yep-I'll take a small tax increase to help pay for it too! Although with a 9 billion surplus-we may just have enough to cover it......I hope they cordon off La first.

[mawilson 2,133]

... the proof is in the pudding...and despite the recession...we are not bankrupt and we are still building and creating jobs.....

Exactly. This recession has been very revealing.

In fact, more than 50% of the new jobs created in America last year were in Texas.

That's an astonishing figure.