The American Interest
Analysis by Walter Russell Mead & Staff
California Steps Back From The Ledge

800px-Jerry_Brown_2

After years in which California’s credit rating ranked among the worst in the nation, the state has completed a massive, $764 million bond sale in which it enjoyed quite favorable interest rates. The Wall Street Journal reports that the premium (the additional interest the state offers compared with AAA rated bonds) was 0.45 percent, down from 0.71 percent a year before. If these are any indication, bond markets are finally sold on a California revival:

Tuesday’s sale shows municipal bond-market participants no longer view the state as “a distressed credit,” said Dan Genter, president and chief investment officer of RNC Genter Capital Management in Los Angeles, which oversees about $2 billion in municipal investments. RNC Genter didn’t plan to buy any of California’s new debt Tuesday, Mr. Genter said, because it could buy the state’s outstanding debt at more attractive yields….

Once a municipal bond market problem child, with delayed budgets and deficits in the tens of billions of dollars, California lately has seen its fiscal picture brighten. The state is no longer the lowest-rated U.S. state, and its credit rating has been raised twice this year, once by S&P in January and by Fitch this month. California expects to end its current fiscal year with a surplus, and for the third year in a row, the state has passed its budget on time.

This is a welcome sign that the rising tide is lifting many boats in the state. It also suggests that Governor Brown’s pension reforms are a step in the right direction (and he says there are more to come). And as long as Silicon Valley and Hollywood are home to two of the country’s most vibrant industries, California will retain some important strengths.

But let’s not forget that the state still has some serious problems: taxes and poverty are both extremely high, its schools consistently underperform national averages, its prisons are hopelessly overcrowded, and multiple cities are still either bankrupt or on the edge of bankruptcy. Signs of economic recovery shouldn’t tempt California’s leaders to procrastinate in facing these challenges.

[Governor Jerry Brown image courtesy of Wikimedia Commons]

Published on August 28, 2013 5:15 pm
  • Jacksonian_Libertarian

    The Blue Model Democrat controlled states, are raising taxes and regulating everything they can think of, the Red Model Republican controlled states are lowering taxes, implementing right to work and forcing the labor gangs to collect their own dues. The Blue Model states are losing population to the Red Model states, and the Blue Model states are growing slower than the national average while the Red Model states are growing faster than the national average. As time passes the Red Model states will begin to pull farther and farther ahead, as the most powerful force in the Universe (compounding growth) drives Red Model states ahead while brain and talent draining the Blue Model states.
    California finances may be good for the moment with the recent massive tax increase voted for in November 2012, but giving Democrats more money to spend is like giving a crack head more drugs and telling him, he has to make it last all month.

  • cubanbob

    If a number of economists are right we are heading for another recession so it’s premature to crow about California getting out of its hole.