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alstry (< 20)

California facing HUGE CRISIS!!!!!



July 27, 2008 – Comments (14)

We know that the slow down to revenues to New York is worse than post 9-11.  However, that pales in comparison to the crisis California faces right NOW!!!!

California's deficit estimates approach $20 Billion dollars for this fiscal year.  If you reduced all 200K of CA full time workers to federal minimum wage and fired 70K of the part time and contract workers.....that would only save about $1 Billion per month....not enought to cover the deficit.

Unlike the Federal Government, states simply can't print money and must balance their budgets or float debt that investors would want to fund.

The only way CA can raise more money is to raise taxes....right now it is one of the highest taxed states.

In San Diego, the Class A office space vacancy is over 25%.  The inland area is littered with half finished housing developments.  Foreclosure sales are approaching the majority of sales in the state.

Now retailers are shutting down everywhere.  Starbucks is closing stores.  HomeDepot is closing stores.  And CA retailer Mervyns is is HUGE trouble:

Squeezed by high-end department stores and large discounters such as Wal-Mart Stores, Mervyns has been closing stores and leaving states since 2005. Now the possibility that the Hayward-based company will have to file for bankruptcy protection – a Mervyns spokesman said the company will not comment on “rumor” – looms large.

With 175 stores in seven states, primarily in California, a bankruptcy also means the potential for a glut of surplus real estate, experts say. In May, Mervyns announced it had hired a firm to try to sell five to 10 underperforming store locations that have high real estate value, hoping to generate up to $50 million to fund operations.

Earlier this year, Borders, the second-largest book store chain, said it was looking for a buyer for its business, and shuttering or attempting to sublease some of its sites, including the 33,000-square-foot Borders in downtown San Diego that opened in 2002.

Last month, discount fashion retailer Steve & Barry's filed for Chapter 11 bankruptcy protection, and it is uncertain what will happen to the company's stores, including one in downtown's Horton Plaza and one in Carlsbad's Plaza Camino Real.

Steve & Barry's joins home furnishing chain Linens N Things and specialty retailer Sharper Image in filing for bankruptcy protection this year. Other retailers, such as Starbucks and Gap, have announced plans to close underperforming stores.

With lots of retail stores closing....that will mean a lot less sales tax and income tax to the state.  That will mean even further slowdown in revenues ahead.

The question now is if CA current budget deficit is so high that it can't make ends meet under current estimates, and the outlook is for even further deterioration....what can the state do to balance its budget short of completely shutting down or declaring bankruptcy and refinancing its debt??????

14 Comments – Post Your Own

#1) On July 27, 2008 at 9:58 AM, rd80 (94.68) wrote:

Like homeowners who used their houses like ATMs during the boom times, states that have been irresponsible with budgets and bond issues will now be forced to seriously cut.

You put your finger on part of California's problem - it's one of the highest tax states in the country.  Combine that with some of the most restrictive business regulations and there is a big disincentive for business to expand or locate there.  They may be past the tipping point where a tax increase would reduce revenue.  Higher taxes will drive more businesses and people to Arizona, Nevada, Utah, ...and could well make the state's situation worse.

For years, California has led the nation in state funded benefits and things like the recent bond issue for stem cell research.  Now the bills are coming due.

This is also one of the reasons I think offshore drilling is a matter of when, not if.  Many of the proposals include provisions for the states to get some of the lease and royalty revenues from drilling operations.  Not to mention lots of job creation.  California may not want offshore drilling, but as the magnitude of their budget problem becomes clearer to the legislature, they won't have much choice.

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#2) On July 27, 2008 at 10:23 AM, alstry (< 20) wrote:


I agree.  But I am not sure offshore drilling will make up the deficit.  CA's gas usage is declining as the economy continues to slow.

CA's economy was dependant on credit and ability to access credit is all but disappearing.  Now it and its citizens are left with a pile of debt.  The rest of the US for that matter but CA is much further along.

The problem for CA now is that its revenues are too low to cover its current debt think that investors are going to want to risk their money on additional debt issues?  Especially with insurance in doubt these days!!!!!!!

America is at a very serious crossroads right now....maybe the most serious in its history.  As a nation, the only two major asset classes left with much NET value is the stock market and bank deposits.

What happens if there is a run on the stock market due to a declining world wide outlook for earnings and increasing liklihoods for bankrupties?  Do you think that the $50 Billion covering the current $7 Trillion in deposits will be sufficient?

The situation is a will be interesting to see what solutions will be proposed.

Tomorrow Obama meets with Buffet and a few others to discuss the issues.  At least Buffet will tell the truth.

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#3) On July 27, 2008 at 11:01 AM, alstry (< 20) wrote:

Housing RESCUE Bill is like "throwing a rubber bone to a starving dog"!!!!!!!!!!!!!!!!!!!!!!!!!

First, it doesn't even start until Oct. 1st.  Second, officials say it will probably take a lot longer before systems are in place to actually get going.

From CNN:

Qualified borrowers must live in their homes and have loans that were issued between January 2005 and June 2007. Additionally, they must be spending at least 31% of their gross monthly income on mortgage debt to be eligible for the program.

They can be up to date on their existing mortgage or in default, but either way borrowers must prove that they will not be able to keep paying their existing mortgage - and attest that they are not deliberately defaulting just to obtain lower payments.

Before homeowners can get FHA-backed mortgages, they must first retire any other debt on the home, such as a home equity loan or line of credit. Borrowers are not permitted to take out another home equity loan for at least five years, unless it's to pay for necessary upkeep on the home.

To get a new home equity loan, borrowers will need approval from the FHA, and total debt cannot exceed 95% of the home's appraised value at the time.

Are F***ing Kidding Me???????

How many troubled homeowners will be able to pay off their HELOC first?????  The loan can't exceed 95 of the appraised value???????  Just loans issued between 05 and 07....what about all those others that over HELOCed who took out mortgages before 05???

Looks like only a few homeowners will benefit from the bill after jumping through the hoops....but that is the way the ball bounces.....and at least it is better than none......


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#4) On July 27, 2008 at 11:38 AM, saunafool (< 20) wrote:

One of the important things to note in CA is Prop 13, which fixed property taxes to the initial purchase, not market values. Therefore, Warren Buffet pays more income tax on his modest Omaha house than his Newport Beach house, which is worth 20X as much.

This tax policy contributed to the wild overvaluation of the housing market, and is contributing to the ride down (people who bought at high prices had huge tax bills--I heard plenty of stories of annual property taxes on the order of $8,000). When prices were going up, existing owners did not have to face higher tax bills and were therefore less likely to sell, reducing liquidity. Plus, their houses went up so much that they kept taking out equity to buy stuff they didn't need or other properties as "investments."

Now, on the way down, the last to buy--the few who were paying market rate property taxes on inflated prices--are the first to lose their properties. Meanwhile, the spending from equity withdrawals is drying up (taking away that fat 8.75% in sales tax), and as alstry points out, the state is losing jobs and the fat 9% in income tax.

I'm glad I don't have to pay those taxes anymore.

Anyone could have seen it coming, and a lot of people did, but not the politicians.

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#5) On July 27, 2008 at 12:31 PM, alstry (< 20) wrote:


Buffet sold his Newport Beach you think he is a fool?

Be careful, the problems facing CA will soon be felt by every other state in the Union. 

Further, my analysis only addresses the issue at the STATE LEVEL.  Much more severe issues are being imposed at the county and city levels right now in CA.  As you probably know, the city of Vallejo already declared BK.  Many more likely to come.

AMERICA has never faced prospects of anything close to this level of insolvency in its history.  As I see this playing out, the change to our country, and the world for that matter, will be much greater than The Great Depression.

I know, many of you will say that when I look around, everything seems fine. 

When those people were driving over the Minneapolis bridge when it collapsed everything seemed fine(except for that person who warned that the structure was not sound).  When a jogger who is in excellent shape drops dead from a heart attack, everything likely seemed fine(except for maybe those nagging chest pains that he chose to ignore as benign).  When a patient, who in otherwise thinks he is in good health, goes to a doctor and is told he has a few weeks to live because cancer has spread throughout his body...thinks everything is fine up until he really knows why he has been getting nagging headaches lately.

My friends, the writing has been on the wall for some time.  The symptoms are out there for all of us to see.  Everything is not fine.  We are now starting to see individuals, businesses and governments fail in growing numbers and severity. 

Few in government are willing to tell us....if they know.

At this point, there is not much we can do to avoid the the question is how to prepare?



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#6) On July 27, 2008 at 1:02 PM, LordZ wrote:

In the zillions and zillions of bearish bad news blogs Alstry loves to post, has he offered any type of solution or recommendation ?

I can't recall any ???

So you must ask yourself why does one seem to go out of his or her way to over exagerate and embellish.

What motivates such behavior ?


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#7) On July 27, 2008 at 1:18 PM, rd80 (94.68) wrote:

Guess I should have been clearer when heading off on the drilling tangent.  I didn't mean to imply it could make up the entire shortfall, just that the state will need to consider every possible revenue source along with budget cuts to meet their obligations. Drilling revenue is one of those possible sources, other options include things like selling off state assets.

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#8) On July 27, 2008 at 2:01 PM, motleyanimal (35.76) wrote:

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#9) On July 27, 2008 at 2:19 PM, abitare (29.59) wrote:

FYI-Here is Mr Mortgage on Alt A crisis:

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#10) On July 27, 2008 at 3:22 PM, bingobum (70.82) wrote:

As a long time resident of California I say we should lure companies back here. We have amusement parks, film making, aircraft, one car manufacturing plant.

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#11) On July 27, 2008 at 9:26 PM, lquadland10 (< 20) wrote:

Is the past repeating its self? Didn't Arnold replace the last gov because of enron and cal power crises? When will they termanate the terminator?

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#12) On July 27, 2008 at 9:39 PM, alstry (< 20) wrote:

I guess "I'll be back" can't apply.  That said, what Ahnald is currently facing is infinitely more difficult than the situation which brought him to power...even if it was power related.

Even his buddy Warren Buffet is going to be stressing on this one.

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#13) On July 28, 2008 at 11:03 AM, bobbyj0708 (< 20) wrote:


There is only one solution - take our lumps now instead of throwing more money at a problem and making it worse. That means increase interest rates, strengthen the dollar, make the banks take their losses, get rid of the off balance sheet loophole crap, get out of Iraq, quit paying for services to illegals when they don't pay into the system, balance the budget, cut the waste, throw out the PAC's, etc.

That isn't too hard to understand, is it?

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#14) On July 28, 2008 at 5:33 PM, jesusfreakinco (28.19) wrote:


Appparently NY not far behind CA



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