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.