This is the idea that Sen. Dean Florez included in a letter sent to Treasurer Bill Lockyer.  The two now plan on bringing the idea to the two largest pension funds in the country: CalPERS and CalSTRS. From the Bee:

Sen. Dean Florez, D-Shafter, has proposed that the California Public Employees’ Retirement System purchase the state’s looming debt. The money would keep California operating – including paying state employee payroll and funding schools – into next year.

Florez outlined the plan in a letter to state Treasurer Bill Lockyer on Friday. Lockyer spokesman Tom Dresslar on Monday said his boss will also float the idea to the California State Teachers’ Retirement System. Lockyer sits on the boards of both funds.(SacBee 10/7/08)

With the market still in the tank and below 10,000, and the credit markets still extremely tight, our long budget feud didn’t make things easy. We need to sell these revenue anticipation notes (RANs) or we won’t be able to pay our bills. It is that simple.  Having CalPERS and CalSTRS do that seems a reasonable idea, save one minor catch.

Both pension plans have a fiduciary duty first to their clients, that is those whose money they hold.  Both have lost substantial sums of money over the last 3-4 months, and so both are probably very nervous about their investments.  Now, the legislature and governor could get some legislation requiring the purchase of the RANs, but barring that, CalPERS must do what is in the best interest of their shareholders. Or, as the Bee gets an investment guy to tell them:

It’s possible that the funds will take a pass, said Keith Brainard, research director for the National Association of State Retirement Administrators.

“If the state can’t borrow money from the credit markets, why would CalPERS be interested?” Brainard said.

Yup, that’s where it is folks. Welcome to the Aftereffects of the Bush Legacy, where even California pensions don’t want our debt. You’ll be seeing these effects for a while.  If this ploy doesn’t work, it looks like Schwarzenegger will have to go to DC, hat in hand, for $7 Billion. Oh, and the Feds are going to get back to us any day on that. Just keep holding your breath, Governor.

“Only” out of balance by about $700 million?! (to be fair, $699 million) Yeah, right. Let’s take a look at the gimmicks

Add on $330 million for the prison guard contract offer (the LOWEST estimate available for their salary increase)

Add on $190 million for the overstatement of property tax revenues (per the LAO warning)

Add on $184 million for the overstatement of tribal gaming revenues (ditto)

Add on $603 million for the failure to account for the May-June shortfall (yes, we were $603 million short, but this budget still assumes it was accounted for)

Add on $300 million for the postponement of reimbursements to local governments for mandates (we owe the money, the current budget just pushes them into next year’s budget in order to avoid paying it this year)

Add on $357 million for the acceleration of tobacco securitization funds (the tobacco securitization funds are supposed to pay for the 2008-9 CTA settlement costs, but instead are being accelerated into this budget to pay for general fund spending)

Add on $250 million for the theft of the Williams School Facility Repair funds (we’ll need to repay the ‘loan’ in future years)

Add on $260 million for the EPSDT prior year deficiency deferral

That comes to a $3.173 billion deficit

As if that wasn’t bad enough. We have $2.865 billion  on very shaky ground:

$709 million from escheated property DEFYING A COURT’S ORDER

$200 million for the “limited liability” court case  (state lost the case, will likely lose the apppeal, and LOWEST estimate is $200 million)

$176 million in unallocated reductions (assuming Arnold will make $176 million in unallocated reductions when he’s ignored most unallocated reductions in past budgets)

$300 million for the Medi-Cal FPACT waiver (likely NOT to be renewed this year, so the state will have to make it up)

$980 for the EdFund sale (has not gotten the federal approval it needs, has never been appraised, and real value is likely 1/5 of that)

$500 million for the CalSTRS court order (court order says state has to pay $500 million of $558 million adverse judgment due to its failure to fund CalSTRS. Likely to lose the appeal and will have to make this payment during the budget year)

That is about $2.865 billion, making a MINIMUM of a $6.038 billion deficit

We have a current reserve of about $3.4 billion. We need a LOT more than $700 million in cuts. We should do about $2.9 billion more in cuts, in order to have more than the bare minimum