Monday, July 20, 2009

Is The End Of California IOUs Nigh? Schwarzies, We Love You

The NY Times is reporting that California has reached a budget compromise, potentially imperilling new Schwarzie issuance. This is a sad day for America (not really) but an even sadder day for TILB (really).

Our friends at Directive 10-289 sent us this link which provides great detail on Schwarzie issuance, etc. We were going to cherish posting this graph:

But alas. The NY Times tells us that focus was all for not.

As an aside, all this budget does it get California to June 30th of next year...maybe their credit ratings and tax base will have stabilized by then allowing them to avoid further cuts (HAHAHAHAHA...not fucking likely). Further, it screws localities by forcing them to funnel money up to the mothership in Sacto, effectively passing the buck.

The NY Times reports the following (all emphasis added by TILB):
California lawmakers, their state broke and its credit rating shot, finally sealed the deal with the governor Monday night on a plan to close a $26 billion budget gap.

The plan, which is certain to be viewed with trepidation among legislatures across the country also facing huge budget gaps, distributes pain through nearly every aspect of government services. While the Legislature pushed back on Gov. Arnold Schwarzenegger’s proposal to eliminate health care programs for children and the state’s generous welfare program, both took large cuts. So did public education, universities and local governments.

All told, the deal contains $15.5 billion in cuts, about $2 billion in borrowing, $4 billion in new revenues and about $3 billion in accounting maneuvers like shifting a payday into the next fiscal year, which Mr. Schwarzenegger had claimed he would not brook.

Under the new budget, which runs through the 2010 fiscal year, localities will basically serve as unwilling lending agents to the state. It will raid their coffers and repay them over time as the state’s fiscal situation improves. [any day now!]
As a result, the state’s deficit continued to grow, and the controller has been forced to issue millions of dollars in i.o.u.’s [Schwarzies] to vendors and taxpayers in lieu of payment because the state is short on cash.
Local governments will lose millions of dollars that are used to build housing, among other purposes, and the state plans to borrow roughly $2 billion in property taxes from localities, which would have to be repaid within three years. Lawmakers believe that cities and counties could in turn borrow against that borrowing; localities bankrupt or nearly so would be exempt.

One of the biggest sticking points was over the $11 billion already cut from public schools. The budget deal calls for roughly $650 million more in cuts.
We suspect this is not the last we will hear of California's budget woes. When California budget does finally break, you can be sure we'll be there, laughing in their face.

What is truly sad about all this is that California has actually taken a big step in the right direction, but it still is not a big enough step. In the end, legislators basically decided it was too much pain to take all at once.

We understand even if we disagree.

Cali's pain will continue until they finish out the process of establishing actual fiscal discipline. Our suspicion is they may not even be able to make it to the fiscal year end as tax "revenue" will come in well below forecast blowing an even bigger hole in the budget than forecast.

As a final aside, California had better pray to high heaven that its credit rating does not take that last downgrade to junk. That would set loose all hell.