Bankrupt California Seeks Federal Bailout
Politics / Credit Crisis Bailouts May 14, 2009 - 02:36 AM GMTBy: Mike_Shedlock
MarketWatch is reporting California formally asks Geithner for TARP assistance
California Treasurer Bill Lockyer asked U.S. Treasury Secretary Timothy Geithner on Wednesday to authorize assistance for his state from the federal Troubled Asset Relief Program, warning that depressed tax revenues may cut into basic services and halt the building of infrastructure.
In a letter, Lockyer asked Geithner for TARP assistance for California and "other financially strapped states and local governments which face a severe cash flow crunch."
"If we cannot obtain our usual short-term cash-flow borrowings, there could be devastating impacts on the ability of the State or other governments to provide essential services to their citizens," Lockyer wrote.
In addition, Lockyer warned in the letter that California's cash flow problems may lead to trouble accessing the long-term bond market, which could "eventually even halt our infrastructure construction programs."
Lockyer estimated that California's cash flow shortfall in fiscal 2009-2010 will be more than $13 billion.
A $13 Billion Deficit?
Who does Lockyer think he is fooling? California has not yet passed and should not pass $16 billion in Propositions 1A through 1F as noted in California, Please Send A Message!
Note that the proposed $16 billion in tax hikes was supposed to plug the budget but it is already another $8 billion in the hole. And judging from what Lockyer said, it appears the gap is up to $13 billion, assuming California passes those hikes.
I am betting California does not pas those propositions. Moreover I encourage California to not pass those propositions or they will be taxing themselves to death.
Assuming the hikes do not pass, California will be $29 billion in the hole, and counting, with the important phrase being "and counting".
California is going $2 billion more in the hole every month like clockwork and I see no reason for that to stop now.
LA Mayor To Declare Fiscal Emergency
Meanwhile, Villaraigosa calls on City Council to declare a fiscal emergency.
With Los Angeles facing a $529-million budget deficit, Mayor Antonio Villaraigosa on Tuesday urged the City Council to declare a fiscal emergency that would grant him the authority to lay off and furlough thousands of city workers.
The request signals a more hard-line tack by the mayor to win salary and benefit concessions from the city's public employee unions, which had soured on Villaraigosa's call for a salary freeze, furloughs and increased benefit costs to save $230 million and avert the need for layoffs.
Villaraigosa said the worsening economy and an expected $300-million drop in city tax revenue gave him "very few options." L.A.'s budget gap is expected to grow to $1 billion in the 2010-2011 fiscal year because of investment losses in the city's pension systems, which the city is required to keep solvent.
"The gravity of the fiscal emergency that we face is enormous," Villaraigosa said in his letter to the council. "Unless we act with urgency, the city will face a cash flow crisis, raising the prospect of running out of cash between November and February."The city council is required to have a balanced budget by July 1. Good luck with that. My plan for LA is simple: declare bankruptcy just like Vallejo did and hope the unions get what they deserve in court, nothing.
Unions Hold California Hostage
Are unions out of their minds in this environment to object to a wage freeze? On the surface it would appear so. However, unions may be emboldened by the Obama Administration's willingness to bend over backwards for union demands.
Please consider Demoting California.
One of the biggest stories in politics earlier this year was about California's budget teetering on the edge of a $42-billion deficit abyss. It only staved off insolvency when its legislature ended three months of gridlock to pass a budget with steep tax hikes and spending cuts. Guess what the Obama Administration is doing? It is telling Governor Arnold Schwarzenegger that it will revoke nearly $7 billion in federal stimulus money unless the state restores legislated wage cuts for unionized health-care workers.
Governor Schwarzenegger has sent a letter asking the feds to reconsider, noting the cuts were taken in response to "an unprecedented fiscal crisis." Even now the state faces an estimated cash-flow problem of some $17 billion by July.
Restoring the union money will require a two-thirds vote of the Legislature, a task in California somewhat akin to moving the Sierra Nevadas. Still, it's worth noting where the Obama team ranks the political authority of a legislative enactment by the state of California versus the political clout of a union.Come to your senses California. If you are dumb enough to pass Propositions 1A through 1F, expect yet another round of tax hikes to follow.
By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.
I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.
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