'Budget Kabuki' Increases California’s Debt Costs

Thursday, 02 Sep 2010 09:05 AM

California’s borrowing costs are rising, even as Governor Arnold Schwarzenegger says he’s not ready to call lawmakers into special session to eliminate a $19.1 billion deficit before the state runs out of cash.

The extra yield investors demand on 10-year California bonds rose to 124 basis points above AAA rated municipal securities yesterday, up 14 percent in a week, Bloomberg Fair Value Index data show. The increase comes as the state will need to borrow as much as $10 billion in short-term notes within four weeks of any budget agreement and more than $6 billion in longer-dated bonds by December for public-works projects.

California hasn’t had a budget since the fiscal year began on July 1. Schwarzenegger, a Republican, yesterday said he would resume private negotiations with Legislative leaders after lawmakers rejected a pair of dueling deficit-cutting plans and then adjourned for the year. The state may need to issue IOUs to pay bills by next month and Standard & Poor’s has said it may cut California’s A- rating, already the lowest among states.

The “budget Kabuki did not bring us any closer to a solution, but it did highlight the fundamental and critical differences about how to close our deficit and bring our economy back,â€