If you live in California you’ve got some short-term and some long-term problemos. Short-term, you just got a 10% increase in your commuting costs. They better build that bullet train quicker. When you consider that California accounts for 15% of U.S. GDP, I’m sure this little refinery fire won’t cause any headaches for the U.S. economy. Why would the stock market be flying, if we had any problems?
It seems Aaarnold the Republican bastion of fiscal responsibility did nothing but pile up debt while he was in office. California is now buried under $30 billion of debt that Moonbeam Brown promised to pay down with his new taxes. Well it seems our politicians never seem to actually follow through on their promises and the new taxes will be used for other purposes – more spending. Do you get the feeling that Oakland, LA and about a hundred other cities in California will be declaring bankruptcy in the next few years? If you are a government worker in California, I’d highly recommend that you start saving on your own for your retirement, because that gold plated pension is not going to be there for you.
So it goes.
Gasoline Futures, Spot Prices Rally on Chevron Fire
NYMEX September RBOB futures are up over 1 percent — topping $2.95 a gallon, close to a three-month high — in the aftermath of a fire at California’s third largest refinery that blazed for hours Monday night.
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KNTV/NBC Bay Area
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Meanwhile the local gasoline market has seen a swift, steep price surge that continues to gain momentum. California spot gasoline prices have soared, rising 30 cents to $3.23 a gallon, skyrocketing 10 percent since Monday’s close. Prices could climb at least 40 cents in the wake of this incident, says OPIS analyst Tom Kloza.
California spot prices help determine retail prices, currently at $3.86 a gallon for the state-wide average and already higher than this time last year, according to AAA. Due in part to the specific blend, California gasoline prices are always among the most expensive in the country, now 23 cents above the national average of $3.63 a gallon. (Track commodities here)
The 240,000 barrel per day Chevron refinery in Richmond, where the fire occurred, produces about 15 percent of the gasoline used by California drivers, says energy analyst Andy Lipow. Though the fire is now out, operations at Chevron’s Richmond, CA refinery are expected to be hampered for some time. Analysts say it could take months to repair the crude distillation unit where the fire broke out.
Strong global oil prices are also aiding the rally in the gasoline market. London-based Brent crude futures hit a nearly three-month high of $111 a barrel Tuesday morning, due to supply concerns due to tensions with Iran, violence in Syria, and disruptions in production due to maintenance at North Sea refineries.
California’s ‘wall of debt’ has risen even higher
dwalters@sacbee.com
Published Friday, Aug. 03, 2012
Jerry Brown devoted the first months of his second governorship last year to dickering with Republicans on placing a multibillion-dollar tax increase before voters.
The negotiations failed, and eventually Brown turned to an initiative. His tax hike measure, Proposition 30, will be on the November ballot.
During his drive for Republican votes, Brown cited repaying “a wall of debt” as a major justification for a tax increase.
During the final years of predecessor Arnold Schwarzenegger’s governorship, as recession deepened and tax revenue plummeted, Schwarzenegger and the Legislature propped up the budget by borrowing heavily, both formally and informally.
They added more debt to the misnamed “economic recovery bonds” that he had floated in 2004 to save the state from defaulting on some short-term notes.
By the time Brown took office in January 2011, budget debts – including the remnants of the 2004 bond issue – had climbed to well over $30 billion, including deferred payments to schools and local governments, raids on local government, diversion of money from transportation and other special funds, and deferred payroll and pension fund outlays.
Brown declared that reducing the “wall of debt” would be his “top priority” if taxes were increased. “The wall of debt has to be brought down,” he told reporters.
So now that Brown is asking voters for new taxes, is it still his “top priority?”
Well, yes and no.
Brown has since shifted rhetorical gears, arguing that taxes are needed to save schools from deep cuts and prop up “public safety” services. And the two budgets he has signed since then actually added to the debt by borrowing more money, while the debt retirement plan he once proposed has been scaled back.
A newly revised debt retirement plan pegs the “wall of debt” at $34.2 billion, but it would largely repay schools for money owed under Proposition 98, the school finance law, because helping schools is the centerpiece of his pitch to voters for new taxes.
Beyond schools, the plan would mostly meet legal requirements to retire the 2004 bonds that Schwarzenegger sponsored and to repay the money borrowed from local governments.
A previous version that Brown’s Department of Finance released in February had all of the debt erased by the 2015-16 fiscal year. The revision, however, says $8.8 billion would remain unpaid by then.
What happened?
The February version was based on his 2012-13 budget proposal. The July version takes into account the 2012-13 budget that he signed in June, which boosts borrowing from special funds even more and diverts money from debt retirement into spending.
That’s why, one assumes, Brown hasn’t been talking lately about tearing down the “wall of debt.”
bluestem says:
watched the fire on zer0 hedge live stream last night. nothing on the msm’s or even DR today. Mercy. John
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7th August 2012 at 1:53 pm
Colma Rising says:
That place always has issues. Part of that whole infrastructure neglect thing (cue anti-greenie rants).
The toxic fumes will be unnoticed as they will not be enough to mask those of the meth laboratories piping away in Richmond.
Moonbeam, being more acceptable by reason of a “D” next to his name will achieve more cuts to CA than Aanold could fit into his wet dreams of Jaba-looking maids…
Blessing in disguise…. when you look at the current paradigm the State operates under.
Be sure to visit a gift shop on your way home….
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7th August 2012 at 1:56 pm
Ron says:
Arnold started with high hopes until he met the dems in Sacramento.California is one state that mirrors Washington,everyone wants to have massive social programs with no cuts.All with no means to pay for them.Oh and i never saw Arnold as a republican,or mabe he is and this shows the difference between a republican and a conservative.
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7th August 2012 at 2:05 pm
Administrator says:
Ponzi Financing in Poway California
By Michael Shedlock
08/07/2012
Poway California, population 47,811 as of 2010, has placed an enormous bet on rising home prices and tax revenues. Poway borrowed $105 million but will not start to pay that amount back until 2033 at which time they will owe $877 million in interest.
Clearly this would be fiscal insanity anywhere, but it is especially true in California given Proposition 13 that caps property taxes.
The Voice of San Diego reports Where Borrowing $105 Million Will Cost $1 Billion: Poway Schools
Last year the Poway Unified School District made a deal: It borrowed $105 million from investors to fund a final push in its decade-long effort to revamp aging schools.
Without increasing taxes, the district couldn’t afford to borrow money in the conventional way. So, instead of borrowing from investors over 20 or 30 years and paying the debt down each year, like a mortgage, the district got creative.
With advice from an Orange County financial consultant, the district borrowed the money over 40 years in a controversial loan called a capital appreciation bond. The key point for the district: It won’t make any payments on the debt for 20 years.
And that means the district’s debt will keep getting bigger and bigger as interest on the loan piles up.
As well as being expensive, capital appreciation bonds work by tapping future growth in property values to pay today’s debts, a concept considered by many in the school bond business to be both risky and inequitable. In 1994, the state of Michigan banned school districts from issuing bonds like this, deeming them too toxic to taxpayers.
Nevertheless, California’s ever-strapped districts have increasingly looked to capital appreciation bonds to raise money for improvements without increasing taxes on current residents. Across the state, districts have borrowed billions this way, using exotic financing to shift the burden for paying for today’s school construction to future generations of Californians.
“This is way worse than loan sharking,” said Michael Turnipseed, executive director of the Kern County Taxpayers Association in central California, which has lobbied the state Legislature to tighten laws on school district borrowing. “And Poway is the poster child. What they have done is absolutely insane.”
Last year, the district put together its deal to borrow $105 million, without paying anything towards the debt for 20 years.
In two decades’ time, taxpayers will start paying about $50 million a year towards the loan. They’ll make those payments for the next 20 years or so.
It’s a bit like a massive version of one of those exotic loans that got homeowners into so much trouble.
With one key difference: For the next 20 years, Poway Unified isn’t even paying the interest.
Essential Math
Think growth will bail out Poway? Think again.
From Poway City Data the population of Poway shrank by .5% between 2000 and 2010.
The current upfront cost of this $1 billion proposal would be $2196 per every man, woman, and child.
By the time Poway starts paying the bill, the cost will be $20,916 per every man, woman, and child.
Given the average household size is 2.9, the cost per household when the debt is due will be $60,656.
Beyond Insanity
This scheme is not insane, it’s well beyond insane. Unfortunately, I cannot come up with a stronger word to describe it.
Bear in mind that 20 years from now it is highly likely the school district will need still more money for school maintenance. What then? Will property taxes rise 10-fold to pay back this loan?
I do not think that would happen even without Proposition 13 caps.
Forget about 20 years from now, Poway Unified residents are still waiting for the renovations they had been promised back in 2002. Cost overruns ate up the last bond effort already.
Not having learned anything, the district approached voters a second time in 2008, and voters approved on the promise of no property tax hikes.
Until when?
How?
This jackass deal was done with advice from an Orange County financial consultant. Can we have a name please?
I want to know what was in this deal for him, if anything. And if there is something, I want to see this person brought up on criminal charges. If there was nothing in it for the consultant, then he is just another stupid idiot who thinks property tax revenues will skyrocket enough to pay for this mess.
I assure you they won’t. I also assure you this deal will bankrupt Poway.
It will not take 20 years to find out either. 10 years from now (or less) with property values stagnant, and the district likely needing still more money, it will be all over for Poway.
Source: Global Economic Analysis
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7th August 2012 at 2:18 pm
dd says:
maybe Meredith Whitney is right, eh? she never said all munis will go to zero, my recollection is she said 50-100 sizeable defaults.
seems inevitable at this point.
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7th August 2012 at 2:35 pm
Llpoh says:
Actually, sounds to me like Poway has pulled off one of the greatest scams ever. They will never repay accent, will go bankrupt and will hit the reset button. The idiots are the ones that lent the money.
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7th August 2012 at 6:53 pm