Wednesday, November 25, 2009

CITY OF L.A.’s CREDIT DOWNGRADED: L.A. credit rating takes a hit in light of grim budget outlook + L.A. Council will get briefing on finances, a day after city's credit rating is downgraded

L.A. credit rating takes a hit in light of grim budget outlook

by Phil Willon at L.A. City Hall | LA Times/LA Now!

November 24, 2009 |  6:15 pm

Los Angeles is about to pay a price for its financial woes.

The city’s credit was downgraded today by Fitch Ratings on $2.94 billion in debt, meaning that borrowing money will become more expensive for Los Angeles as it grapples with a $98-million current-year budget shortfall and faces the prospect of graver fiscal woes in the years ahead.

The financial ratings service credited Mayor Antonio Villaraigosa and the City Council for taking aggressive action to whittle down the budget gap, but added it wasn’t enough and that the ratings outlook for the city remains negative. Fitch Ratings, in a statement released today, said the “city’s economic decline, as evidenced by high unemployment, sales tax weakness, assessed value losses and high home foreclosure ... will impede financial recovery."

“It signals that we have some very difficult choices to make in the future," said Administrative Officer Miguel Santana, the city’s top budget official. “We simply cannot be spending at the rate that we have in the past."

Tomorrow, Santana is scheduled to brief the council on the downgrade, as well as the city’s financial status.

Council President Eric Garcetti said the rating downgrade shows that the city still needs to make sweeping structural changes to its $7.05-billion budget. Even after winning concessions from city unions, including pay cuts and an early retirement program, the city still faces a $98-million shortfall in the current budget year and a $408-million budget gap next year.

 

L.A. Council will get briefing on finances, a day after city's credit rating is downgraded

by Phil Willon at L.A. City Hall | LA Times/LA Now!

November 25, 2009 |  7:29 am

Mayor The Los Angeles City Council today will get what is expected to be a sober briefing on the city's financial condition, a day after L.A.'s credit rating was downgraded.

The city’s credit was downgraded  by Fitch Ratings on $2.94 billion in debt, meaning that borrowing money will become more expensive for Los Angeles as it grapples with a $98-million current-year budget shortfall and faces the prospect of graver fiscal woes in the years ahead.

The financial ratings service credited Mayor Antonio Villaraigosa and the City Council for taking aggressive action to whittle down the budget gap but added it wasn’t enough and that the ratings outlook for the city remained negative. Fitch Ratings, in a statement released today, said the “city’s economic decline, as evidenced by high unemployment, sales tax weakness, assessed value losses and high home foreclosure ... will impede financial recovery."

“It signals that we have some very difficult choices to make in the future," said Administrative Officer Miguel Santana, the city’s top budget official. “We simply cannot be spending at the rate that we have in the past."
Council President Eric Garcetti said the rating downgrade showed that the city still needed to make sweeping structural changes to its $7.05-billion budget. Even after winning concessions from city unions, including pay cuts and an early-retirement program, the city still faces a $98-million shortfall in the current budget year and a $408-million budget gap next year.

 

Photo: Mayor Antonio Villaraigosa. Credit: Los Angeles Times

Friday, November 20, 2009

RED INK IN THE GOLDEN STATE

Letters to the LA Times 11/20


Re “State facing $21-billion budget gap,” Nov. 18
While California drowns in nearly $21 billion of red ink, its educational system goes to hell and its tax base keeps shrinking as businesses flee, the morons who run this state busy themselves by regulating big-screen TVs.
As for Los Angeles County, its imbecile district attorney bathes himself in self-aggrandizement and political posturing over Roman Polanski -- a case that even the victim wants no part of -- and medical marijuana clinics while real crime festers.
Is it any wonder that the citizens have given up on the once-Golden State?
Michael Seawell
Santa Monica


::
The eighth-largest economy in the world, the once great state-nation -- California -- is being run like a banana republic.
In the words of Cicero: "O tempora! O mores!"

●●smf's Hollywood High School Latin pays off!: "Alas for the times and the manners!"


M.T.Gyepes
Pacific Palisades

::
The news doesn't get any better for education with the announcement that California is looking at a budget shortfall of more than $20 billion next year. The Los Angeles Unified School District has already cut teachers and support staff, increased class sizes and eliminated many vital programs. Now there is talk that employees are facing a pay cut as high as 12%. Still, educators will be required to increase test scores and improve student learning.
When will we realize you get what you pay for in life? If we continue to shortchange education, we will continue to shortchange our future.
Tom Iannucci
Los Angeles
The writer is assistant principal, Paul Revere Charter Middle School.

Thursday, November 19, 2009

CALIFORNIA FACES A PROJECTED DEFICIT OF $21 BILLION: "Less than four months after California leaders stitched together a patchwork budget, a projected deficit of nearly $21 billion already looms over Sacramento" …and so it continues

The legislative budget analyst's projection, to be released Wednesday, threatens to send Sacramento back into gridlock and force more broad cuts to state programs.

California faces deficit

Gov. Arnold Schwarzenegger will present his next proposed budget in January. Republicans vow to block new taxes; Democrats say they are through with cuts. (Eric Paul Zamora / Associated Press)

 Chart: Projected deficit of $21 billion Chart: Projected deficit of $21 billion

image

LAO REPORT

2010-11 Budget

California's FISCAL OUTLOOK

By Shane Goldmacher reporting from Sacramento  | LA Times

November 18, 2009 -  Less than four months after California leaders stitched together a patchwork budget, a projected deficit of nearly $21 billion already looms over Sacramento, according to a report to be released today by the chief budget analyst.

The new figure -- the nonpartisan analyst's first projection for the coming budget -- threatens to send Sacramento back into budgetary gridlock and force more across-the-board cuts in state programs.

The grim forecast, described by people who were briefed on the report by Legislative Analyst Mac Taylor, comes courtesy of California's recession-wracked economy, unrealistic budgeting assumptions, spending cuts tied up in the courts and disappearing federal stimulus funds.

"Economic recovery will not take away the very severe budget problems for this year, next year and the year after," said Steve Levy, director of the Center for Continuing Study of the California Economy.

In fact, after two years of precipitous revenue declines, the new report projects relatively stable tax collections for the state, said those who were briefed. But that won't stop the deficit from climbing to nearly $21 billion.

Gov. Arnold Schwarzenegger, who will present his next proposed budget to Californians in January as he begins his last year in office, started sounding the alarm last week.

"I think that there will be across-the-board cuts again," he said at a San Jose news conference.

The task in 2010 could be even harder than it was this year, when record deficits and cash shortfalls drove California to issue IOUs for only the second time since the Great Depression. Lawmakers have already cut billions from education, healthcare and social services while temporarily hiking income, sales and vehicle taxes.

"I can't think of any good solutions," said Assemblywoman Noreen Evans (D-Santa Rosa), who chairs the lower house budget committee.

The current budget year accounts for $6.3 billion of the deficit, the nonpartisan analyst projects. Prisons spending will outstrip what has been budgeted by more than $1 billion, and K-12 schools were underpaid by $1 billion under the complex formula that governs education funding, the report says.

Another $14.4 billion of the deficit is for the fiscal year that begins next summer, say those briefed on the report. The governor's next budget will have to account for both years.

The state Department of Finance in August predicted a shortfall of at least $7.4 billion for fiscal 2010-11. But California's financial picture has darkened considerably since then, largely because the shaky summer budget pact relied heavily on borrowing, fiscal tricks and overly optimistic projections.

It assumed receipts of nearly $1 billion from the federal government for Medi-Cal that the analyst questions. Another $1 billion was assumed from the sale of a quasi-public workers' compensation agency that has stalled.

Next year's budget fight is expected to be as contentious as this year's. Republicans vow to block new taxes; Democrats say they are through with program cuts.

Powerful interest groups are already girding for battle.

"There is no more to cut from our schools," California Teachers Assn. President David Sanchez said Tuesday. "There is no more meat on this bone. . . . The next step is amputation."

In higher education, Chancellor Charles Reed of the Cal State University system said this month that he will plead for $884 million in funds from Sacramento next year. The University of California will ask for $913 million more for its 10-campus system, President Mark Yudof has said.

"If ever there was a time to fight for and invest in the institution best positioned to power this state from recession, now is that time," Yudof said in a statement. UC students, meanwhile, are coping with a staggering 32% fee hike.

California's finances have been so bad that the governor's finance director, Mike Genest, told a budget forum in Washington last week that back in February he had combed through the U.S. Constitution to research whether California could legally declare bankruptcy -- or revert to some kind of territorial status. (Neither was realistic, he determined.)

The state's financial problems predate the current recession and the gimmicks used to paper over the deficit, experts say. Year in and year out, state government spends roughly $10 billion more than it collects in tax revenue.

Political divisions in Sacramento, where support from both parties is necessary to pass a budget, have repeatedly stymied efforts to plug that hole. The task probably won't be easier next year as various interests try to muscle one another to the sidelines.

Some have even drafted potential ballot measures to aid themselves in the budget fight and are preparing to collect signatures in an effort to place the initiatives before voters.

Among the ideas: raising tobacco taxes, curbing public pensions, repealing corporate tax breaks passed thisyear and last, splitting the tax rules for commercial and residential property, reducing the legislative votes needed to pass a budget and strengthening the firewall around local government and transportation money.

"There's a lot of people putting chess pieces on the board right now," said Jon Coupal, president of the anti-tax Howard Jarvis Taxpayers Assn. "The question is which of those chess pieces will be moving."

___________________________

 

California's budget woes will continue for years, report says

Tax receipts have leveled off, but revenue won't bounce back until the 2014-15 budget year, according to the chief budget analyst. Near term, the state faces a nearly $21-billion deficit.

    By Shane GoldmacherReporting from Sacramento | LA Times

    November 19, 2009 - Despite an economy on the mend, California's budget woes will drag deep into the next decade, according to a report released Wednesday by the state's chief budget analyst.

    Tax collections have leveled off after one of the most precipitous drops since the Great Depression. But revenue is not expected to fully bounce back until the 2014-15 budget year.

    State government faces a nearly $21-billion deficit over the next year and half, according to the report by nonpartisan Legislative Analyst Mac Taylor. Sacramento will be forced to muddle along, he says, unable to reverse the deep cuts that officials have made to K-12, universities, healthcare and social services.

    A major reason the recovery will take so long, say many experts, is California's place at the epicenter of the real estate slide and the resulting foreclosure wave. Moreover, "the mess in Sacramento is going to affect the California economy," said Jerry Nickelsburg, senior economist at UCLA Anderson Forecast, "and not in a good way."

    Californians must get used to a state that offers fewer services -- and has higher taxes -- than before the real estate boom, Taylor's report suggests. But it remains to be seen how much residents will accept.

    On Wednesday, at least 14 people were arrested in a raucous protest as a University of California regents panel approved a 32% student fee hike. A day earlier, the president of the California Teachers Assn. had likened further K-12 cuts to "amputation."

    "We cannot afford now what we're spending," said Taylor, whom both Democrats and Republicans look to for fiscal advice. More cuts and more taxes will be necessary to balance the books, he said, calling all the options "painful choices."

    Budget shortfalls have reemerged less than four months after lawmakers and Gov. Arnold Schwarzenegger struck a summer deal, which contained accounting gimmicks and rosy assumptions that have failed to pan out.

    "The thing about smoke and mirrors is they are usually short-term solutions, and they come back to bite you the next year," said John Ellwood, a professor of public policy at UC Berkeley.

    Schwarzenegger, who last week predicted more across-the-board budget cuts, must unveil his plan to address the projected $20.7-billion deficit in January. Taylor urged that officials begin tackling the red ink "as soon as possible."

    The deficit is expected to be worse in the years beyond 2011, as temporary taxes expire and raids on local government funds must be repaid by Sacramento. Taylor projected a $21.3-billion deficit in fiscal 2011-12 and a $23-billion shortfall in fiscal 2012-13.

    Even those numbers could be conservative. They assume no raises for state workers and no cost-of-living adjustments for government programs. They also assume that California will win all pending court cases in which billions of dollars in service cuts are being challenged.

    Republican lawmakers have vowed to block new taxes, which many Democrats advocate to balance California's books. Assembly GOP leader Sam Blakeslee (R-San Luis Obispo) issued a statement Wednesday calling on the Democratic-dominated Legislature to instead change the state's "punitive regulatory and tax climate that is driving jobs away."

    The bleak numbers have also spurred calls to Washington, D.C., for help, as much of the federal stimulus package that somewhat blunted this year's state cuts is set to expire. Jean Ross, executive director of the California Budget Project, which advocates for low-income residents, said the state "needs a second round of federal aid as we face record unemployment and continuing economic weakness."

    That may be a hard sell in the nation's capital, where conservatives have questioned the success of the first package.

    "California clearly has mismanaged its fiscal house," Nickelsburg said. "It seems to me it would be very difficult to convince states that have not mismanaged their own fiscal house to come to the aid of California."

    Thursday, November 12, 2009

    Lead line in Tucson TV story about the Arizona state budget” "At least we're not as bad as California".

     

    At least California's budget problems are worse

    KGUN TV9

    12 NOV -- How doses his grab you as a new state motto: "At least we're not as bad as California."

    Don't like it?

    Brace yourself: when it comes to state budget deficits, the motto fits.

    A new pew center report labels our state's budget mess as second worst in the nation.

    Arizona's budget is about two billion dollars in the red.

    Homes are still being foreclosed, people still can't find work and the state is gasping for breath trying to find money.

    Republican state representative frank antenori told us these problems were handed down by the former democratic governor.

    "We had a governor who failed to realize the revenue was dropping. She continued to spend," Antenori said.

    democratic state senator Linda Lopez agrees with antenori in one sense but disagrees on who's to blame.

    There was no debate from either side on the pew study. Lopez and Antenori agreed that Arizona is in big trouble.

    That means, more cuts are coming.

    You can probably expect a tax increase too.

    Antenori's plan would create a flat fee property tax.

    Instead of determining the fee by a home's value.

    "Some property taxpayers will see an increase in property tax. Some may see a decrease," Antenori said.

    Lopez wants to help pass a one cent sales tax increase and also create a whole new tax.

    So what does the governor think about all of this?

    We called Jan Brewer and left a message. Our call was returned but we were told she wouldn't be available to talk to us today (Thursday)

    That would still leave about $1.5 billion unaccounted for they would have to deal with when the regular session starts in January.

    The Arizona legislature is expected to cut the budget deficit down by $500-million during a special session this month.

    Wednesday, November 11, 2009

    SCHWARZENEGGER WARNS OF MORE ACROSS-THE-BOARD BUDGET CUTS

    Michael Rothfeld in Sacramento for the LA Times

    November 10, 2009 |  2:29 pm -- Gov. Arnold Schwarzenegger today predicted a new round of budget cuts, as the state’s finances remain shaky despite large spending reductions made by the governor and lawmakers in July.

    Schwarzenegger, at a news conference today and at the Fresno Bee’s editorial board Monday, estimated that the current fiscal year’s budget is $5 billion to $7 billion in the red, on top of the $7.4-billion deficit projected by his aides for the fiscal year that begins in July.

    The governor said he would reveal his specific plans to deal with the problems in January. But he said that, as in the past, no program would be immune to the budget knife. A wide spectrum of programs were cut as state leaders closed a deficit exceeding $20 billion over the summer.

    “I think there will be across-the-board cuts again,” Schwarzenegger told reporters today in San Jose, after signing legislation that is part of the water deal he reached last week with lawmakers. “We are not going to go and pick and choose" between programs. "I think that we always have to go and cut across the board."

    Schwarzenegger downplayed the impact on state finances from the water deal’s proposed $11-billion bond issue, which will go before voters next year. He said the state would not borrow much of the money for several years, after it has paid down some of its current debt.

    The governor said that though there are signs of a recovery in the housing market and strength in the green technology sector, “the economy is not coming back yet the way we want it.”

    In a bit of positive news, California Controller John Chiang announced today that tax revenue for October was $285 million above projections, although for the current fiscal year it is still short by $854 million.

    Tuesday, November 10, 2009

    CALIFORNIA DEBT BINGE SHAKES UP MUNI BOND MARKET: Interest on state bonds up from 2.48% to 4% in two weeks. Rising market yields also devalue older fixed-rate muni bonds.

    by Tom Petruno | Money & Co. | LA Times

    November 10, 2009 |  8:48 pm -- The municipal bond market’s message to California: Enough with the borrowing already!

    BearflagOver the last seven weeks the state has sold more than $21 billion of short- and long-term debt for budget-related reasons and to finance voter-approved infrastructure projects.

    That flood -- in a period when muni bond yields nationwide already were rebounding after diving in summer -- has helped to boost yields more than they might otherwise have risen, some analysts assert.

    "Yields are higher because California has so much paper in the market," said Matt Fabian, who tracks muni bond trends at Municipal Market Advisors in Westport, Conn.

    The state has been its own worst enemy: Its borrowing costs have risen with each bond deal, which means taxpayers will bear a bigger hit to service the debt over time.

    Rising market yields also have the effect of devaluing older fixed-rate muni bonds. If you own a California muni-bond mutual fund, chances are its share price has been sliding since the end of September as the  market has suffered indigestion from the supply of new bonds.

    In California’s latest offering -- a sale Tuesday of nearly $1.9 billion of bonds maturing in June 2013 -- the state had to pony up for a 4% annualized tax-free yield to lure investors to the deal.

    Less than two weeks ago the state paid a yield of 2.48% on a bond with a similar maturity.

    Investors’ ability to squeeze 4% out of the state in this week’s deal "is an expression of saturation of the market" by California, said George Strickland, a muni bond fund manager at Thornburg Investment Management in Santa Fe, N.M.

    Demand for the bonds sold Tuesday also may have suffered because the deal stemmed from one of the gimmicks concocted by the Legislature and Gov. Arnold Schwarzenegger in July to close the state’s huge budget deficit: The proceeds will repay local governments for the $2 billion in property tax revenue that the state is borrowing from them to plug the budget gap.

    The bonds become part of the state’s overall debt burden, but they’re a step below so-called general obligation issues, which have an iron-clad repayment guarantee in the state Constitution.

    Treasurer Bill Lockyer obviously knows that he has dumped a lot of debt on the market this autumn. He didn’t have much choice, given the budget fixes ordered by the Legislature, and given the backlog of infrastructure bonds California has to sell.

    The state’s borrowing plans had been put on hold for much of this year because of the deepening budget crisis. "We had a lot of work to do to get our financing program back on track" this fall, said Tom Dresslar, Lockyer’s spokesman.

    Of course, for investors with money to put to work, rising muni yields are welcome.

    Ken Naehu, who manages bond investments at Bel Air Investment Advisors in L.A., believes the state’s budget woes are far from over, which Schwarzenegger acknowledged Tuesday. Still, a 4% tax-free yield on a bond maturing in less than four years was too good an opportunity to pass up, he said.

    "We gave them a large order," Naehu said.

    -- Tom Petruno