This page has been archived and commenting is disabled.
Los Angeles Likely To Exhaust Reserve Fund By May 10, To Be In The Red By End Of June
Earlier Rick Bookstabber wrote a good piece on why with everyone focusing on ignoring the commercial real estate disaster, the muni market is the next thing to appear out of left field and stun everyone with just how bad things really are domestically (they are pretty horrendous in CRE too, and getting worse, but just because everyone is "aware" of this, somehow this is supposed to make things better). Rick's piece could not have come at a better time: LA's controller Wendy Greuel just announced that she expects LA's general fund to be "out of money" by May 10, and that LA will likely deplete all reserve funds by the end of Q2. Hold on a second: wasn't state Treasurer Lockyer saying just a week ago how Greece is so much worse than California? Isn't it ironic that according to the Controller of LA's biggest city, Cali may end up in a liquidity crisis sooner even than Greece. At least Los Angeles has undisputed access to the IMF - the only question is what shape the California austerity package will end up taking.
Greuel alerted Mayor Antonio Villaraigosa and the City Council of the city’s dire financial situation after the head of the Department of Water and Power stated he would oppose sending $73.5 million in utility revenue to the city treasury. Interim General Manager S. David Freeman said the council’s vote to block a proposed electricity rate hike last week threatens to put the utility in a deficit.
Greuel urged the council and mayor to immediately tap the city’s reserve funds so that city has enough cash to cover payroll.
“This is the most urgent fiscal crisis that the city has faced in recent history, and it is imperative that you act now. That is why I am asking you to immediately transfer $90 million from the city’s reserve fund to the general fund so I can continue to pay the city’s bills, and to ensure the fiscal solvency of the city,” Greuel said.
Councilman Greig Smith said the decision by the DWP had put the city in a “very risky” situation.
“Our reserve fund was already very marginal to begin with. This could push it over the edge,” Smith said. “That would mean we would have nothing in the tank on June 30,” at the end of the fiscal year.
Smith said he could not envision a scenario in which the city could recoup that much money before July 1. Even additional layoffs could not be processed that quickly. “The question is what are we going to do next? That I don’t know,” Smith said.
Is the California IOU market coming back? And what happens if the Federal government is opposed to bailing out the world's 8th biggest economy (somehow we really doubt this number is valid any longer), just like it was a year ago? We are looking at InTrade to provide the ever critical answers, as nobody else seems to be willing to discuss the unpleasant truth these days.
- 8448 reads
- Printer-friendly version
- Send to friend
- advertisements -


The 'economic girly man' should have all the answers.
The DWP is basically just holding the $73.5m as ransom for getting a rate increase approved:
"The Department of Water and Power on Wednesday threatened to withhold $73.5 million from the cash-strapped city of Los Angeles unless the City Council approved its proposal to increase rates between 8.8 percent and 28.8 percent."
So you can assume the rate increase will be approved, the DWP will send the money over and LA wont be in the whole by May 5th. They'll be able to extend and pretend for a little longer.
hmmm.... i am quite sure there is an uber positive spin in the LA fiscal numbers somewhere. hold on, i will get steve liesman on the phone. he will know. he knows everything. he's my hero, and the ultimate voice of super smart economic REASON and super smart logic.
Maybe LA can get some juice from it's southern neighbor OC.
Wait, Bookstabber made a good point? Has he been reading ZH?
Munis are a slow motion train wreck and we're at the part where the engine is rolling off an embankment into a school for orphans. State legislatures locked the doors to that orphanage 30 years ago because they knew how it was going to end and didn't want any survivors.
If you want to live to see recess then you'll cough up some money, filthy orphans.
Here in San Jose (pop. 1M+) it's just as bad. They are about to cut the budget to the bone (read: no libraries, no public-facing services) to save city worker jobs, even as they are doling out millions in payroll to pay for unused city employee sick leave (seriously). The budget kabuki play is looking increasingly surreal by the day. These people are 100% unable to deal with what is clearly a looming implosion.
The local CalTrain commuter rail just noticed a 30% budget shortfall and they may have to cut service by 50% or evaporate entirely. With 50% reductions it's not even clear then can survive. Could be gone by the end of the year, leaving 40K daily commuters stranded or back in their cars ...
... and gas is already at $3.15/gal (was $3/gal all winter) and certainly headed for $3.75, which has "commuter annihilation" written all over it.
The local muni-funded multi-billion dollar airport is running so far in the red with fewer flights (SiliValley businesses are cutting travel expenses to the bone) that they are talking about running all night to lure more passengers. The jets fly right over the city (it is a downtown airstrip that was reworked into a downtown international airport, epic fail) and people in the flightpath (50% of the downtown) are threatening mayhem. But it will happen because there is public funding on the line.
Folks, it is getting really bad here. I mean blood-in-the-streets bad. All we need now is for the Mexican drug gangs that are setting fire to Hemet, CA, to notice how weak we've become and move in for the kill. They could blow throw the public security line in a single night. Then the tender underbelly of the mighty San Francisco Bay Area would be ripped open.
All the ingredients for a techno-thriller novel. Except that it's happening for real.
Man I need a drink.
Make mine a double, CW. I'm in the Bay Area, too, north of you, and the latest outrage here is the new traffic fine increases. A simple violation like running a red light can now set you back hundreds of dollars (fines vary, depending on location). Lots of new cameras to catch red light violators at intersections, which would be bad enough, but the really outrageous thing is that to increase revenues they shortened the length of time the light stays yellow.
There, that should solve a 20 billion dollar problem.
And if you want to be really mad, you might look into who created and installed those red light cameras, and who gets a percentage of each ticket, and who mandates that the yellow lights be made shorter when the cameras are installed.
Good thing that the law abiding citizens of California can easily and quickly arm themselves under the common since gun laws you have there....oh..ah....you guys are screwed.
re: mexican drug gangs particularly, one senses just how not serious the local and state governments there are, as one does the national government, especially in afghanistan, as they, at all levels, genuflect before the shamed ghosts of harry anslinger, richard nixon, nelson rockefeller, et. al. and continue to "enforce" the insane u.s. "drug" (as opposed to national festivals sponsor alcohol) laws both locally and around the world.
maybe when they are flat on their backs broke they will admit their utter failure, at least far enough to legalize a government tax monopoly on recreational drugs a la gambling and the lotteries, now so actively supported and marketed by most state governments. it is pathetic and would be hilarious if it weren't so appallingly tragic counting up all the truly innocent lives ruined and destroyed. even the "guilty" deserve better, as do we whose tax dollars are pissed away warehousing them and whose legal system is further corrupted fighting this absurd "war". the last deflationary depression broke the back of wretched prohibition. perhaps.
Clearly, this signals the start of a new bull market in LA municipal bond issues.
It can't be that bad. The Dow, NASDAQ and SPX were all up today.
And will probably be up again tomorrow and the next day and the next day....You see, this is just fear mongering that no one pays attention to anyway. Now tell them Fox is canceling American Idol and instant implosion.
"It can't be that bad. The Dow, NASDAQ and SPX were all up today."
+1111
Of course not! Even CNBC was talking today about how CRE/REIT investment was up. Obviously, since the bubble hasn't (yet) burst, then there is no bubble. Proceed with the melt-up.
And the Metropolitan Water District of SoCal is on its own rate hiking rampage. The drought and shortage game is in play just in time for the summer irrigation season, despite the fact water usage is down signifigantly this past year .
My suspicion is they have been playing footsie with their bonding debt....swaps and the like....and it's gashing a gaping hole in their operating revenue. And with 4 unions, there may be unfunded pension liability to boot.
Something off radar is going on with the municipal utility structures in CA and its financing. No matter the cause, it will jam the State into an even deeper hole with outrageous rate hikes spiking each year for 5 years.
having been taken to the absolute cleaners by enron couldn't have helped.
"Is the California IOU market coming back?"
BFD in CALI!
Since the days of Pete "Bobble Head" Wilson in 1991... that would be R after his moronic name... We love the IOU. City of LA IOU coming attcha ya!
The Exchange Rate for a City of LA IOU:
1. Banks will refuse them.
2. Check' n' Cash will pay .25 cents on the IOU dollar to cash them +12% cashing fee.
3. 7-11 owners will let you buy .10 cents on the IOU dollar worth of donuts and Chettos.
4. Crack-head street corner finance will pay .10 cents on the IOU dollar in food stamps.
Classic Cali Economny
... It's all good...
Here's my blog about it from last year; Vallejo CA is likely to be joined by a slew of other munucipals who promised way to much to way too many:
http://themeanoldinvestor.blogspot.com/2009/11/problem-with-muni-bonds.html
the only question is what shape the California austerity package will end up taking.
You must be kidding me. Cali will be bailed out just like GM, Chrysler, real estate and the banks. Obama isn't going to let the state with that many Democrats go down the drain. Red States need to pony up for the great Blue State of California.
Red's their colour
Maybe they should charge an entrance fee at the southern border to help pay the bills just like they do at Disney Land.
http://www.borderinvasionpics.com/Invasion.html
But wait, Kramer was singing California's praises this afternoon. Am I missing something?
Its actually much worse than they let on, the DWP creates its "excess revenues" every year by deferring maintenance so the overall electrical system is being degraded more every year with the maintenance budget raided by the city, eventually all the deferred maintenance will catch up with the city and eliminate their annual 200 M gift to the city.
What a clusterFK. Can't you imagine how this is going to work out? Sell something to LA, get paid in IOU, have to count that at 100% for revenues and profits, then pay taxes on it in USD. send in some money to the State for withholding and workers comp - USD. Then those jokers pay benefits in IOU. Who in the heck will be able to operate in that situation? It has to crash, maybe soon.
I'll bet it's about right. The whole global economy is shrinking. Who's to say that California is shrinking dramatically faster than the average? They might even get to 7th in light of the export collapses facing Germany, Japan and China.
http://www.dailynews.com/news/ci_14825623?source=rss
Good linux hosting package offered by ucvhost which not only provides the best in terms of hosting packages but also believes in truly being there for the customer, 24x7. cheap hosting Moreover , they offer unlimited bandwidth as well as nearly 1GB storage along with database maintenance, email facility along with storage, availability of sub domain and many other important features for a very low price. windows hosting Thanks forex vps