Tags: california | muni | bonds

Lord Abbett: California Munis in No Danger

Thursday, 23 Jul 2009 04:41 PM

By Dan Weil

Milton Ezrati, senior economist for money manager Lord Abbett, says California’s financial problems aren’t really so bad.

“A glimpse at the details explains why, and also suggests that matters, though far from healthy, still make municipal bonds generally attractive,” he writes in Barron’s.

“To be sure, no reasonable person would describe California finances as anything but strained,” he writes.

The recession has brought down the state's revenue by more than 10 percent from a year ago, while raising demands for spending.

“But while all this puts California in a difficult financial spot, the state is far from broke … and even further from default,” Ezrati writes.

“The problem attracting so much attention is more political than fundamental. Sacramento has had to resort to IOUs less because it cannot meet its immediate obligations than because it cannot reach a resolution that can balance the budget.”

A balanced budget is required in California's constitution.

“California's insistence on a two-thirds majority to approve a tax increase makes it that much harder to get things done in Sacramento than elsewhere,” Ezrati says.

“Nonetheless, chances are California will manage a resolution in pretty short order, since it will need to return to the bond market this fall to cover seasonal financing needs, and cannot do that in its current state.”

Some others are skeptical of the state’s latest budget plan.

"It doesn't close the deficit," University of Southern California political scientist Sherry Bebitch Jeffe told The Associated Press.

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