from
http://www.testosteronepit.com/home/...ve-by-335.html
(snip)"our detractors were stunned to learn from State Controller John Chaing that California’s July sales tax revenue was down 33.5% from the Budget approved in late June. Even more ominously, the state’s $9.6 billion cash deficit that was rolled over from the June 30th fiscal year has catapulted to $18 billion last month.
The state has avoided default by temporarily borrowing from state trust funds, but those accounts will soon need their cash back to continue operating. Today California quickly began trying to sell $10 billion in municipal bonds to fund the record $28 billion they need to keep the lights on. With tax revenue plummeting and the state already the second lowest rated credit in the country, if the independent credit rating agencies downgrade the state to “junk bond”, California will be short up to $18 billion and default.
Governor Brown used his line-item veto authority to strike $128.9 million in spending from the $91.3 billion California general fund before signing the state budget. Brown’s cuts surprisingly hit Democrat priorities, such as spending for child care and preschool for low-income children, and closing 30 state parks. But Republican Senator Tom Berryhill warned Brown: “This budget is a slow-motion train wreck, and you’re driving the bus.” Berryhill criticized Democrats for failing to reign in public pensions, regulatory terrorism and cap state spending that Republicans say are all needed to rescue state government. But by agreeing to sign the budget before the June 30th end of the fiscal year, Brown spared all the California legislators from losing their paychecks under a voter-approved initiative that blocks their pay if a budget is late.
The governor justified signing the budget based on the twin assumption that the California economy was expanding and the voters would approve his tax initiative that would raise $8.5 billion. Many analysts doubted the voters willingness to vote to raise sales tax on themselves, but we were virtually alone in warning California’s shallow economic recovery had peaked and the state was at risk for a double dip recession.
State Controller John Chiang tried to rationalize that even though California revenues were “disappointingly” down $475 million in July: “However, because spending appears to be tracking and the funds that the State depends on for liquidity are performing well, California’s cash outlook remains stable.” This is sort of like the pilot of a jumbo jet announcing to the passengers that as a safety precaution they may want to cross your arms over your calves and grab your ankles and to brace yourself for possible impact."(snip)
As always, sales tax data is one of those 'spin-proof' economic indicators ... because it is directly tied to the amount of money that consumers are actually spending ( or not spending ). This newest data strongly indicates that the California economy is well into 'double-dip' recession mode.
I would also point out that the author's discussion of a likely downgrade in California's already bad credit rating, with some possibility of default, is a real reason for concern. First off, it is of major concern to California taxpayers in general, since any newly issued muni bonds and any rolled over muni bonds will cost California taxpayers more money in the form of interest payments. In the absence of even higher tax rates, more tax revenues needing to be spent on bond interest leaves less tax revenues for current spending for any other purpose.
Second, this is of major concern to very rich California taxpayers, who purchased tax exempt California muni bonds in earnest to minimize their tax liabilities after California announced a significant increase in personal income tax rates last year. If California's credit rating gets cut to junk, and interest rates on future muni bonds rise, the present owners of muni bonds will experience a major loss of 'principal' because the present value of their older, lower interest rate, muni bonds will drop. And if a default should actually occur, the present owners of muni bonds may experience HUGE losses of 'principal'. Arguably, the availability of tax free muni bonds involving near zero risk of loss was a major factor in preventing some number of very rich California residents from leaving the state after their personal tax rates were increased significantly last year. But if significant loss risk must now be factored into that equation, some number of very rich California residents may decide to reduce their taxes via relocating out of the state. If that happens, it will be devastating for California's economy and remaining taxpayers - given that the relative handful of very rich Californians contribute some 40%+ of overall state tax revenues ( despite owning tax exempt muni bonds ), as well as contributing some 20+% of overall state consumer spending !!!
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