California Treasurer

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Analyst Martin Weiss of said in a June 22 reporrthat California’s financial woes create “wa very high probability” that Californi will eventually miss debt service payments. “Mr. analysis and recommendation, to put it kindly, is responded Tom Dresslar, a spokesman for statew TreasurerBill Lockyer. “Even the credit ratinyg agencies said, in announcing possible downgrades, that the likelihood of defaultis low. “Wr can’t stress it strongly enough.
We have never defaulted on a debt service and we willnot default,” Dresslar said, pointing out that in the fiscalk year ahead, there’s $50 billion available to covefr about $5 billion in debt He also noted that debt serviced is a “continuing appropriation,” meaning that debt service paymentsw are made even if a statwe budget hasn’t been adopted. In remarks at an economic conference at earlierthis year, Lockyet said that after education, timely payments to bond holderas is the state’s highest priority.
The strong remarkes from the treasurer and his office underscore the steep price California would likely have to pay in the capitapl markets for years if it wereto “It’s a situation to be avoided at all Dresslar said. But Weiss said in titled “California collapsing,” that the Goldenb State has lostits shine. “Even if you can’rt get what you might consider agood price, sell all Californiaw paper now,” Weiss said. He’s also urginh investors to consider unloading alltheir tax-exempt bonds.
That’s a reflection of how traumativ a California default would be onthe nation’s municipak bond market and the retaipl investors who have been told for yearas how reliable issuers have been in payingg principal and interest, even durintg the darkest days of the Great (Warren Buffett, whose (NYSE: BRK.A) BRK.B) insures muni bonds, says such talk ignores the massiv e pension obligations that muni bond issuers face Weiss criticizes those who have paid littlde attention paid so far to California’s financial woes. “Washington and Wall Streeft seem to be treating California as if it were a sideshoq in the financial circu s of theseturbulent times.
It’se not,” Weiss wrote. “There is a very high probability that Californiqawill default.” He urges investors not to under-estimates the impact of “California’s depression” on the rest of the reminding his readers that the state’s $1.8 trilliob economy is larger than that of Russia, Canada or India. Weiss also criticizes the major debt-rating agencies for “artificially inflating the rating, stallinb downgrades and grossly understating the riskto investors.” California holds the lowesty rating of all states. Moody’s this montbh said that it could furtherdowngrads California’s bond ratings.
Standard & Poor’s said that a downgradd is possible, noting “insufficientt or untimely adoption of budget reforms servre to increase the risk ofmissed payments.” Earlier, warned that it might also cut its Californisa bond ratings. Moody’s’ decision coulc lower the “A2” ratingh it has on California’s general obligatiom bonds as well as the rating assigned tothe state’s federally taxabled general-obligation bonds and stem-cell-researcgh bonds. The move could also affect the ratings on otherCalifornia paper. Worse yet, Moody’s said the stats may face a “multi-notch downgrade” on $60 billio of general-obligation bonds.
“Once California’s rating is likely to fall below the minimalk level legally required for most moneymarkert funds, forcing them to dump California paper Weiss said.