NOT JUST IN FERGUSON

A recent Department of Justice report found that courts and law enforcement in Ferguson, Missouri, are systematically and purposefully taking money from the pockets of poor people—disproportionately from black people—to put into court coffers. The context may be different in California, but many of the practices are chillingly similar. As a result, over four million Californians do not have valid driver’s licenses because they cannot afford to pay traffic fines and fees. These suspensions make it harder for people to get and keep jobs, further impeding their ability to pay their debt. They harm credit ratings. They raise public safety concerns. Ultimately they keep people in long cycles of poverty that are difficult, if not impossible to overcome. This report highlights the growing trend of license suspensions, how the problem happens, the impact on families and communities, and what can and should be done about it. Click here to read the full report.

Via: http://www.anewwayoflife.org/category/blog/

California Sells $2 Billion in Debt as Taxes Roll In

California, the most-indebted U.S. state, began a $2 billion tax-exempt general-obligation bond sale as income taxes, which account for 63 percent of revenue, outpace projections.

The state, which plans to raise $1.25 billion for capital projects and $750 million for refinancing debt, is taking orders from individual investors today. Sales to institutions such as mutual funds and final pricing will take place tomorrow, said Tom Dresslar, a spokesman for Treasurer Bill Lockyer.

California’s second general-obligation sale this year comes as individual income-tax payments have exceeded both projections and 2012 levels before the April 15 filing deadline, according to figures compiled by Controller John Chiang. 

California debt is becoming safer as the state economy rebounds and Governor Jerry Brown and lawmakers reduce long-term obligations, said John Ceffalio, municipal credit analyst for New York-based AllianceBernstein Holding LP (AB), manager of $443 billion in assets.

“For this fiscal year to date, it looks solid and is running above estimates,” Ceffalio said of California revenue. “There’s always a chance of an April surprise on one side or the other. Long-term, there’s always a chance of volatility owing to the progressive nature of California’s income tax.”

Preliminary Yields

California is offering bonds maturing in October 2023 to individual investors at a preliminary yield of 2.33 percent, according to a person with direct knowledge of the sale. That’s about 0.5 percentage point more than the interest rate on benchmark 10-year munis, similar to the spread on California’s borrowing last month, data compiled by Bloomberg show.

In the March offer, Lockyer had to raise yields on some bonds with longer maturities amid a slump in state and local debt. Yields on 20-year securities rose to 3.57 percent from 3.39 percent as a 10-day rally in the Dow Jones Industrial Average depressed the bond market.

Munis have become more attractive to investors since then, even as volume remains high as issuers take advantage of low borrowing costs to refinance, said Michael Schroeder, president and chief investment officer of Naples, Florida-based Wasmer Schroeder & Co., which manages $3.5 billion in local bonds.

“This is a better time to bring a deal,” Schroeder said by telephone. “Cal paper has performed well. There’s a higher demand for it with the higher income taxes.”

Tax Vote

California voters in November raised income-tax rates on individuals earning $250,000 or more, with levies on incomes of $1 million or more increasing 3 percentage points, to 13.3 percent.

Brown, a Democrat who backed the tax increases to fund education, said in January that California would have an $851 million budget surplus at the end of June, its first in more than a decade.

Through Feb. 28, California’s income-tax collections for the year that began July 1 exceeded projections by $4.5 billion, according to figures from Chiang’s office. As of April 5, state income-tax payments exceeded 2012 levels by almost $10 billion, or 29 percent, according to Chiang’s office.

While the trend is encouraging, investors continue to view California debt with caution, Schroeder said. The volatility of income-tax receipts in California was exacerbated by the increases on the highest earners and by one-time events such as the initial stock offering byFacebook Inc. (FB) in May, he said.

“We tend to place some significance on those numbers,” Schroeder said of the income taxes, “but you have to look at the overall picture of what is behind those numbers.”

via Bloomberg

High-Yield in California Gives Governments Bonanza

California’s rebounding finances are drawing investors to the riskiest debt of the world’s ninth- largest economy, buoying prospects for a revival in bond sales by its blight-fighting organizations.

The successor to the San Francisco Redevelopment Agency sold $123 million of debt last week, a year after lawmakers abolished the issuers. The offer marked the first new bonds to back a redevelopment project since all of the more than 400 authorities were eliminated as part of steps to balance the state budget. The securities are unrated, placing them among the most default-prone local obligations.

With the state poised for its first surplus in almost a decade and muni yields close to 47-year lows, some investors are turning to riskier California bonds. U.S. high-yield local bonds have gained 1.3 percent this year, double the investment-grade return, Standard & Poor’s data show. Debt of former redevelopment agencies is also rallying, fueling demand for San Francisco’s sale and raising prospects other cities may follow.

“People are more comfortable that this type of debt is going to pay,” said Bill Black, Oakbrook Terrace, Illinois- based co-manager of the $7.3 billion Invesco High Yield Municipal Fund, which bought some of the issue. “There’s also a demand for high-yield debt, particularly in California.”

Boats Lifted

The most-populous state had its bond rating raised by S&P last week for the first time since 2006 as the revenue outlook improves for the home to companies such as Apple Inc. and Facebook Inc. The fourth-biggest crude oil producer among states has also seen home values rise more than the national average in the past year, according to Zillow Inc. data.

Under California’s redevelopment program, municipalities formed taxing authorities that issued bonds to improve blighted areas and repaid them with levies on property values enhanced by the projects. The local authorities had nearly $30 billion in debt as of June 30, 2010, the state controller said.

Governor Jerry Brown, a 74-year-old Democrat, and legislators eliminated the agencies effective Feb. 1, 2012, to divert about $1 billion to schools. Brown signed a bill last year clarifyingthat cities and counties taking on obligations of the former agencies could issue debt to fulfill contracts with developers.

Rail Yards

San Francisco’s agency had entered into a contract to redevelop rail yards, according to a staffreport to the oversight board of the successor agency. The project includes housing, a medical center, a police station, offices and biomedical laboratories. It represents $9 billion in new investment in the city, according to the report.

The issuer last week was the Successor Agency to the San Francisco City & County Redevelopment Agency. The tax-exempt securities included bonds maturing in August 2022 and priced to yield 3.54 percent, data compiled by Bloomberg show. The yield was about 1.9 percentage points higher than on AAA munis, Bloomberg Valuation data show.

The sale may open the door to other cities, Black said.

“From an investor’s perspective we feel that the sale was successful and should be conducive for more debt sales with issuers that are in a similar position,” he said in an e-mail.

Risk Judgement

Still, unrated bonds are riskier than most local borrowings. About 4 percent of such munis are in default, compared with 0.1 percent of rated bonds, said Matt Fabian, managing director of Municipal Market Advisors in Concord, Massachusetts. About 92 percent of munis are rated, he said.

For investors willing to take the risk, the extra yield is appealing given the rally in lower-rated local debt. Ten-year securities rated BBB, or two levels above junk, yield about one percentage point above top-rated munis, close to the smallest difference since 2008, data compiled by Bloomberg show.

Holders of securities issued by redevelopment agencies before their elimination are benefiting from a rally in California debt.

Federally taxable San Jose redevelopment bonds maturing in August 2035 traded this week at an average yield of about 5.95 percent, data compiled by Bloomberg show. That was about 2.9 percentage points more than similar-maturity Treasuries, according to BVAL analysis.

The difference is down from about 3.5 percentage points early last year. Moody’s Investors Service rates the bonds one level below investment grade.

Reimbursement Funds

Last week’s offer will reimburse the developer for public improvements such as streets and utilities. Unlike redevelopment bonds repaid through taxes on enhanced property values, the San Francisco debt is funded through three special districts that have been collecting taxes on property since 2002.

Such entities are common in California and levy taxes based on the size of parcels rather than assessed value, said Catherine Reilly, manager of the San Francisco project. The three San Francisco districts will collect taxes on properties until 2050 or the improvements are paid off, whichever comes first, Reilly said in a telephone interview.

Investors probably were reassured by the familiar repayment mechanism, Reilly said. At the same time, she said a limited number of cities and counties will be able to replicate San Francisco’s model. Under California’s tax-limiting Proposition 13, two-thirds of residents within the proposed area must vote to form such a district.

In trading yesterday, yields on benchmark munis due in 10 years were little changed at 1.83 percent after the biggest weekly jump since December, Bloomberg Valuation data show.

via Bloomberg

Jerry Brown Creates California Surplus Miracle, But Can It Last?

Something close to a civic miracle seems to have occurred—at least on the surface.

California has long been synonymous with budget deficits so deep that it looked like the Golden State would inevitably be our Greece—beautiful and bankrupt.

But Gov. Jerry Brown announced that his state has suddenly projected a surplus of $851 million. Two years ago, when Brown came back into office, the state had a $25.4 billion deficit, a Sisyphean problem Governor Arnold struggled with unsuccessfully all last decade.

This reversal of fortune raises a lot of questions. What caused California’s budget turnaround? Is it sustainable? And finally, could there be a national lesson here as Washington tries to confront deficits and debt?

The top-line takeaway is that a balanced deficit-reduction approach seems to have worked in the Golden State. When he entered office in 2011, Brown proposed billion-dollar-plus cuts in welfare and Medi-Cal, as well as $500 billion from the UC system.

All told, his initial proposed budget was almost $20 billion less than Governor Schwarzenegger’s 2008–09 budget, which clocked in at $103 billion. Democrats and unions howled, and Brown’s ultimate budget was less austere than originally advertised, but deep cuts were enacted.

Crucially, Brown also took on the unpopular task of raising taxes—winning a 2012 ballot fight sonorously known as Proposition 30 and 39—that raised sales taxes and closed business tax loopholes. Next year, the combined new revenues are expected to exceed $5.8 billion.

The final factor is an improving economy—always the decisive X factor in deficit-reduction efforts. California’s economy is improving slowly, but the shift from the pit of the Great Recession moved the numbers in the right direction.

The result of increased tax revenues and spending cuts is that—at least for now—a projected deficit has been turned into a surplus.

This is good news. But not everyone is happy. And the numbers do sidestep a deeper problem.

Remember, deficits and debt are different things. Projected year-to-year deficits are comparatively easy to close, especially on the back of an improving economy. But out-of-control debt is ultimately what drags you down.

The Los Angeles Times offered a front-page reality check, under the headline “Debt a Cloud Over State’s Future,” pointing out the inconvenient fact that California “has accumulated a crushing load of debt for retiree pensions and healthcare now totaling more than taxpayers spend each year on all state programs combined.” Ouch.

Brown’s budget does begin to pay down the debt, but the outstanding amount dwarfs the pay-down. Of course, that hasn’t stopped liberal activists from demanding more money be spent immediately on social services, under the banner of “investment.”

Moreover, there are real questions about whether the increased tax burden—especially on the wealthy—will end up eroding the state’s tax base in the near future.

“There’s some doubt that high income taxpayers won’t either move to Nevada—or some other low or no-income tax state—or find other ways, such as delaying realization of cap gains, to avoid hefty new surtaxes—especially since their federal taxes are also increasing,” emails the Sacramento Bee’s Dan Walters. “California’s marginal income tax rate (federal plus state) is now highest in U.S. at highest level, about 52 percent.”

But Walters acknowledges that Brown’s budget miracle is more or less legitimate, at least for now. “It’s mostly new revenue from sales and income tax hike approved by voters in November with a dash of economic recovery and a smidgen of creative bookkeeping such as slowing down some debt repayment and assuming renewal of a tax on health care providers to trigger some federal aid,” Walters’ continues. “But overall it’s mostly the new taxes.”

Other Golden State observers take an even more skeptical view. “There is a reason Gov. Brown is known as Governor Moonbeam,” says KABC’s center-right John Phillips. “Structural deficits are everywhere, the nonpartisan Legislative Analyst’s Office says there’s still a $1.9 billion budget deficit, and rich people can’t cross the state line fast enough—taking revenues down almost 11 percent since the passage of his Prop 30 tax hikes with them. On the plus side, hey, we’re not Detroit!”

The Rust Belt does have problems that make California’s cyclical deficits and deep legislative dysfunction seem comparatively easy to solve. But Jerry Brown deserves credit for pulling off at least short-term success in a state budget situation that had many experts calling impossible to solve. In the near term, the deficit turned surplus highlights the improving national economic environment.

It also provides a compelling object lesson for advocates of a “balanced approach” for reducing deficits, like President Obama & Co. Contrary to conservative talking points about how revenue is not a legitimate part of deficit-reduction solutions—instead, it’s all spending cuts all the time—California’s recent example shows that increased tax rates can help rapidly reduce deficits. Moreover, especially compared with much of Europe, the Obama administration’s decision not to simply pursue a path of deep austerity cuts seems to have been the wiser path, at least for now.

But conservatives could have the last laugh if the wealthiest Californians decide to flee the state for comparatively low-tax climes, like a sun-baked Gérard Depardieu.

Bottom line: This fight ain’t over. But at least for the moment, Jerry Brown’s balanced if painful plan to turn deep deficits into a modest surplus deserves study. It offers a rare glimpse of good news in the relentlessly bleak world of state budget. Whether it is sustainable remains to be seen.

via the Daily Beast