For most of the past two decades, the communications between the municipal finance markets and California’s lawmakers have been a one-way street, with municipal-market investors and other lenders jawboning about the state’s need to achieve long-term fiscal balance … and then, invariably, devising creative financing structures to help the state bridge its recurring budget gaps.
But this year, as the state faces its most serious budget crisis in decades, the conversation is more of a dialogue than ever before. While some players in the municipal market reacted in time-honored fashion – the rating agencies that judge municipal creditworthiness slapped California with rounds of downgrades that left it the lowest-rated state in the nation – others have been notably silent, as the global liquidity crisis tied investment bankers’ hands.
Meanwhile, California elected officials have been among the most vocal in the nation at criticizing the market structures that helped give rise to the credit bubble – and, they say, cost California taxpayers money at the same time by systematically under-weighting the legal structures that severely restrict the state’s ability to default on its debt-service obligations.
Now, as the market digests the details of July’s budget deal, credit is beginning to loosen. JP Morgan agreed to lend the state $1.5 billion directly, which will be used to repay IOUs issued by the Controller’s office. But many observers still have their doubts about whether investors will be willing or able to fund the full scope of the state’s cash-flow needs if the economic recovery is slow to arrive.
All of those tensions will rise to the surface next month at The Bond Buyer’s California Public Finance Conference, which will bring together a mix of government finance officers, market professionals, and political leaders and analysts of all ideological stripes – including Treasurer Bill Lockyer, former Congressman Tom Campbell and this site’s Joel Fox – to discuss and debate what comes next.
The conference – in its 19th year – is unique in the size and diversity of the audience it attracts and the expertise of our speakers. Alongside practical sessions on how to attract investors and structure bond deals in the current market environment, conference participants will debate potential longer-term fixes to the state’s fiscal condition, from curbing its ever-increasing spending appetite to constitutional changes.
As the national media propagates a story line that California is ungovernable, the people who fund its government are looking for a seat at the table. I invite you to join the debate over California’s fiscal future at The Bond Buyer’s 19th Annual California Public Finance Conference, September 14-16 in Carlsbad.