New York governor sees risk of California bond default
Besides understanding his own state’s finances, New York Gov. David Paterson apparently has an excellent grasp of California’s fiscal situation.
So much so, in fact, that Paterson feels confident speculating publicly about the probability of California eventually defaulting on its municipal bond debt.
In a Bloomberg Radio interview on Thursday, Paterson described his plans for dealing with New York’s financial woes, and why it was important to avoid budget "gimmicks which grind up your credit rating."
From there the governor, a Democrat, segued into California’s plight as he sees it:
"Now many of the legislatures don’t understand what a downgrading in a credit rating is eventually going to do. They need to go spend a few weeks in California, it might be a good investment for us to send them there because California is in a state which, I don’t know, in spite of the valiant efforts of their governor, I don’t know that California can remain in a place where they don’t inevitably go into default."
Did Paterson really mean to suggest that the largest state in the Union will stiff the investors who own tens of billions of dollars of its bonds?
A spokesman said Thursday that "Gov. Paterson was simply expressing the fact that states face a variety of financial risks in the current economic and revenue environment. He did not say California will go into default."
But what do you suppose New Yorkers’ reaction would be if Gov. Arnold Schwarzenegger were to opine publicly that "I don’t know that New York can remain in a place where they don’t inevitably go into default"?
For the record, the California Constitution mandates that state tax revenue must go first to pay education costs, and second to repay general-obligation bond debt. All other expenses are subordinate to those two.
Tom Dresslar, a spokesman for California State Treasurer Bill Lockyer, said the treasurer would be "happy to have not just the legislature of New York but also the governor come out to California so we can show how we have a perfect record of paying investors in full and on time, and how we will maintain that spotless record."
Plus, we have many empty hotels that would love the business of some free-spending New York pols.
-- Tom Petruno
Photo: New York Gov. David Paterson. Credit: Tim Roske / Associated Press