Tag Archives: proposition 98

California’s Governing Body Postures While California Collapses

Rome Burning
Rome Burning

Anyone watching our legislature and Governor try to come up with a budget solution knows if they were running a private company, they either would have been fired by now or standing in a soup line because the company would have gone bankrupt. Incredible, watching them posture while those of us in the private sector have seen companies go bankrupt, business decrease and our income and assets go down downhill in a bread basket.

Yet those clowns governing our state posture while trying to figure out how to raise more taxes, or not raise taxes, afraid of cutting any fat because they are afraid of offending the powerful state employees unions which taints their decision making in balancing the budget. But of course, why should they worry, they are receiving full pay, a generous car allowance, per diem and of course free lunches from the special interest lobbyists.

In the mean time, State employees, many with salaries under $30,000 get a hit of a 14 percent pay cut. School teachers are being laid off instead of school superintendents and their staff. Proposition’s 98 monies purpose was to fund K-14. K-14 has seen an enrollment drop of 70,000 students since Prop. 98’s passage. Yet the various school districts use of Prop. 98’s monies have increased the overhead costs of running their school districts to a record 76 percent! Do you think they might cut overhead instead of laying off teachers? (See my blog, California Board of Education Cooks Their Books)

So while one side of the political aisle is blaming the other side of the political aisle for the budget crisis, California still holds the title that no other state in the nation has: “The Lowest Bond Rating.” On July 6, 2009, Fitch Ratings slashed the Golden State’s long-term bond rating from A- to BBB. The BBB rating is just two clicks above a rating for junk bonds. Junk bonds are not sold in a junkyard; instead, junk bonds are low-grade bonds issued by companies without long track records or with questionable ability to meet their debt obligations. They are referred to as junk bonds because most investors do not invest in the low-grade bonds. The bolder investors purchase the risky securities because of their very high interest rates.

Fitch cited the reason for its actions was the state’s inability to close the Budget gap and using IOUs to pay its obligations. Despite Fitch’s decision, Standard and Poor’s and Moody’s did not lower the state’s rating quite as low. Maybe they see something we don’t?

The BBB rating will result in the state incurring higher issuance costs for its general obligation bonds. State Treasurer Bill Lockyer said such a rating cut could cost the state $7.5 million in interest over a 30-year period. The State Treasurer’s projected issuance costs are significant when they are put into the context of the ongoing battle to close the State’s Budget deficit.

This seems like something from Roman times, the governing body of California, like Caesar Augustus, playing a fiddle while California burns. By the way, it wasn’t too much later that the Roman Empire started its collapse wasn’t it? Anyhow, what do you think?