Wednesday, July 1, 2009

California to Begin Paying with IOU's on Thursday, And: "California Treasurer: We will not default on bonds"

The second headline reminds me of a quote [so what's new? -ed]:
"He lied like a finance minister on the eve of a devaluation"
-Warren Buffett
From the San Jose Business Journal:

The California’s state Treasurer’s office on Monday refuted an analyst’s recommendation last week that investors dump California municipal bonds and that the state is likely to default.

Analyst Martin Weiss of Weiss Research said in a June 22 report that California’s financial woes create “a very high probability” that California will eventually miss debt service payments.

“Mr. Weiss’ analysis and recommendation, to put it kindly, is misinformed,” responded Tom Dresslar, a spokesman for state Treasurer Bill Lockyer. “Even the credit rating agencies said, in announcing possible downgrades, that the likelihood of default is low.

“We can’t stress it strongly enough. We have never defaulted on a debt service payment, and we will not default,” Dresslar said, pointing out that in the fiscal year ahead, there’s $50 billion available to cover about $5 billion in debt service. He also noted that debt service is a “continuing appropriation,” meaning that debt service payments are made even if a state budget hasn’t been adopted....MORE

From Reuters:

Without state budget, California readies "IOUs"

California's lawmakers failed to agree on a balanced budget by the start of its new fiscal year on Wednesday, clearing the way to suspend payments owed to the state's vendors and local agencies, who instead will get "IOU" notes promising payment.

The notes will mark the first time in 17 years the most populous U.S. state's government will have to resort to the unusual and dramatic measure.

While California lawmakers struggle with budget deadlines practically every year, this year's budget fight is taking place amid the state's worst drop in revenues from personal income taxes since the Great Depression as recession and rising unemployment pile on to the damage done to the state's economy from its long housing slump.

Democrats who control the legislature could not convince Republicans late Tuesday to back their plans to tackle a $24.3 billion budget shortfall or a stopgap effort to ward off the IOUs. The two sides agree on the need for spending cuts, but are split over whether to raise taxes to help fill the gap....MORE