One on One with William Lockyer, California's Treasurer
Monday, December 29, 2008
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SUSIE GHARIB: California lawmakers are scrambling to come up with a budget deal by the end of this week. The Golden State's deficit is expected to balloon to $42 billion in the next 18 months and by February California could run out of money to pay its bills. Joining us now with the latest on this financial crisis, William Lockyer, California's treasurer and welcome back to NIGHTLY BUSINESS REPORT. Nice to see you.
WILLIAM LOCKYER, TREASURER, CALIFORNIA: Thank you.
GHARIB: Tell me, where do things stand now? Do you think that you're going to have a budget deal by the end of the week?
LOCKYER: Well, they're trying to correct the mid-year budget problem which is about $15 billion in the hole of approximately $100 billion budget. So that's the current effort. Meanwhile, there are also talking about next fiscal year's budget which could be $25-$30 billion. So the two combined get to be that very substantial number you mentioned. They're are about half way there and so there is still a lot of work to do, to both make cuts and potentially look for some efficiencies, cost savings and new revenues.
GHARIB: And when you talk about new revenues, a lot of that's going to depend on the state of the economy of California. Tell us how is the economy doing? I know that your unemployment rate at 8.4 percent is one of the highest in the nation. What is the outlook for the California economy in the New Year?
LOCKYER: Well, that's correct. It's much like, we're such a big part of the national economy that similar trends are noticeable here. Our construction industry is down. Unemployment there is probably well over double the general unemployment rate. We were hit hard by the housing slump and other retail declines and so on. So local forecasters think it's going to pick up some time in the summer and fall. But meanwhile, it will affect the revenue picture for the state.
GHARIB: How is the housing market doing in California? Are there any regions where you're beginning to see stabilization?
LOCKYER: There are some areas where the decline has slowed. Still, for example, in Los Angeles, two-thirds of the recent home sales have really been foreclosed properties that have been moving. So, we still have that inventory to clean out and then hopefully hit some stable bottom where people will be willing to go back in to the market.
GHARIB: I understand that California goes in to the debt markets a lot, borrowing in the municipal bond area. I'm wondering, I've seen that your ratings so far are holding steady. Have you had any conversations with Standard & Poor's or Moody's? Are you at risk of any downgrades as you're going through this difficult period?
LOCKYER: Yes. We have been kind of credit watched even though our rating is lower than I think is fair. Certainly for this period, with this budget problem we have negative ratings are certainly understandable. We talk with the rating agencies, well almost daily to get them to understand what's going on and the current status of discussions in the state capital. So we worry that we could be downgraded if we don't get a budget fix soon. We've already basically cancelled going back to the market in the short term until there's fiscal stability. And we've cancelled about $5 billion in infrastructure projects for schools and highways and levees and so on because the money couldn't be used there and also finance the budget hold that we've got.
GHARIB: Now, are you expecting any financial aid, any kind of help from the new Obama administration? Have you had any conversation?
LOCKYER: There have been a lot of conversations. Of course we're blessed by having two very strong U.S. senators in Feinstein and Boxer and the speaker of the House, Nancy Pelosi. They as well as our governor and others have been in touch with the Obama administration. We hope that there will be some help for Medicaid rates. California like many states only gets a 50-50 match from the Federal government. Other states get almost 20 percent more. We think that formula needs adjustment. And then of course infrastructure funds and we would hope some help in the bond markets, particularly variable rate, option rate markets where the Treasury could help to bring rates down that we've been paying for short-term borrowing.
GHARIB: Sounds like a tough time. I hope things work out for you and for the rest of the state. Thank you very much for coming on our program this evening.
LOCKYER: Thank you very much.
GHARIB: My guest tonight William Lockyer, treasurer of the state of California.
