Governor Schwarzenegger Defends California Munis

California thirty-year general-obligation munis are yielding close to 5.7% and more than 9% when the tax advantages are calculated. The question is, are they safe? Governor Schwarzenegger insists they are.

Brett Arends from the Wall Street Journal interviewed the governor, who made some interesting points about California's municipal bonds and the general budget situation.

Here are some select quotes:

"The Terminator isn't amused. "The bond rating is, in my opinion, a joke," he thunders, waving his cigar. "California has the worst rating—like some African nation that hasn't paid a penny in 10 years. It's a joke ... it's absolutely ludicrous."

"Ensuring the security of the state's municipal bonds "is the No. 1 priority, above all else," he says, adding that it was a principle that has always been consistently supported by politicians from both parties." As the article points out bond coupons are actually the #2 priority in the state constitution behind K-12 education, but the point is, there is broad political consensus that bond payments must be upheld.

So, why is California's budget such a mess? Why may the state have to resort to IOUs again? These wounds are mainly "self inflicted" according to the Governator. The politicians simply can't agree on the right spending and taxation plan. The conservatives and liberals are deadlocked. Sound familiar?

California has the eighth largest economy in th world. Last year, according to the most recent survey from PricewaterhouseCoopers venture capitalists invested as much in the state as all the other states combined. This is an enormously wealthy and vibrant economy.

For those willing to believe, some juicy yields are available.

 

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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