| From Dan Weintraub's California Insider, a portion of Moody's report describing the increase of California's bond rating to A1:
California's rating remains low compared to other states due to its ongoing fiscal challenges. The most immediate challenge is the state's stubborn structural budget gap. Although moderate in size on its face -- at less than 4% in the fiscal 2007 budget proposal -- the gap remains a concern for three reasons: (i) its persistence after several years of good economic performance; (ii) the state's still relatively narrow budget reserves; and (iii) the state's high degree of reliance on tax revenue from volatile sources such as corporate net income, capital gains, exercised stock options, and high-income taxpayers generally. Although the conditions do not appear to be in place for a sharp high-end income decline in the near-term, this represents a significant area of potential exposure for the state. Any significant revenue underperformance in the near term would directly lead to a swelling of the structural imbalance and cause difficult budgeting challenges.(California Insider 5/22/06)
The upgrade, along with the similar move by Standard and Poor's, will make the bonds substantially cheaper. For a quick history of our credit rating, see the Treasurer's website. This is a really great thing for the state, it will save us millions of dollars on both outstanding and upcoming bond issuances. However, the cynicism showed is probably something that should be taken to heart by those in Sacramento. The windfall is not something that we should be counting on next year. We still have yet to really fix the structural deficit.
And the phrase "difficult budgeting challenges", that's a laugher huh? Every year has difficult budgetary challenges. Every year we hash out some sort of bizarre plan that makes nobody happy, but is required by the damn supermajority rules. If push comes to shove and there is a real revenue crunch we end up imploding (see: Davis, Gray).
In the past we sought to use the extra revenue in fashions that bought us peace in Sacramento. but that's not necessarily what we need most. What we need most is a workable budget that kowtows to nobody, but succeeds in following a vision of long-term stability. The windfall should be used to ensure that the state can sustain economic hardships without resorting to political rarities. |
