Random Walk

JUST when things seemed as if they couldn’t get worse in California, more bad news: Moody’s has just dropped the state’s bond rating for the third time in the past three years. Today California has the worst bond rating of any state not run by Mario Cuomo. With a debt reported (by the Wall Street Journal) at $130 billion, California’s state and city governments are among the largest borrowers in the world. They are now taking hundred-million-dollar gulps from the credit markets each month. The outlook is for another $1.5 billion of red ink next year.

There’s a bipartisan consensus in California that the reason for this seemingly never-ending fiscal mess is that deep Pentagon cutbacks have savaged California’s industrial base. The consensus is wrong. It’s true that real federal defense spending in California has declined by $13 billion—or about 20 per cent—since 1990. But economist Ethan Siegal of Prudential Securities recently did some digging and discovered that “despite the perception that California has been bled by defense cuts, a fairly consistent 12 per cent of federal spending went to the state every year from 1983 to 1992.” Siegal shows that since 1987, when the defense drawdown started, total federal expenditures in California have risen from $101 billion to $140 billion. And a state hit even harder than California by the shrinking Pentagon budget, namely Virginia, is doing just fine.

Featured Tags

Socially Responsible Investing

JUST when things seemed as if they couldn’t get worse in California, more bad news: Moody’s has just dropped the state’s bond rating for the third time in the past three years. Today California has the worst bond rating of any state not run by Mario Cuomo. With a debt reported (by the Wall Street Journal) at $130 billion, California’s state and city governments are among the largest borrowers in the world. They are now taking hundred-million-dollar gulps from the credit markets each month. The outlook is for another $1.5 billion of red ink next year.

There’s a bipartisan consensus in California that the reason for this seemingly never-ending fiscal mess is that deep Pentagon cutbacks have savaged California’s industrial base. The consensus is wrong. It’s true that real federal defense spending in California has declined by $13 billion—or about 20 per cent—since 1990. But economist Ethan Siegal of Prudential Securities recently did some digging and discovered that “despite the perception that California has been bled by defense cuts, a fairly consistent 12 per cent of federal spending went to the state every year from 1983 to 1992.” Siegal shows that since 1987, when the defense drawdown started, total federal expenditures in California have risen from $101 billion to $140 billion. And a state hit even harder than California by the shrinking Pentagon budget, namely Virginia, is doing just fine.