California unemployment hits 11.4%; Update: CA bonds going to junk status?

As if Californians don’t have enough problems.  The Department of Labor reported this morning that California’s unemployment rate jumped to 11.4%, making it the nation’s fifth-worst state on that measure.  It continued an upward trajectory that began over a year ago:

California’s unemployment rate shot up to 11.5% in May, its highest level since current record-keeping began more than three decades ago.

That’s a substantial increase over a revised rate of 11.1% in April, the U.S. Department of Labor reported this morning. …

Only four states have higher unemployment rates than California: Michigan at 14.1%, Oregon at 12.4% and Rhode Island and South Carolina, tied at 12.1%.

The numbers will get worse this summer, as California works through a massive budget crisis that threatens to sink the state into bankruptcy.  Governor Arnold Schwarzenegger and the legislature must close a $25 billion deficit, and the voters have already rejected new taxes as a solution — not suprising, given their status as one of the most-taxed states in the nation.  Schwarzenegger wants extensive cuts instead, which will lay off thousands of state workers and add to the unemployment problem in the short term.  Expect this news to get worse all year long.

Given that, one might think that the players in Sacramento would be taking this seriously.  Apparently not:

Gov. Arnold Schwarzenegger, who has warned lawmakers they need to act boldly and make some tough budget choices, sent Senate President Pro Tem Darrell Steinberg a metal sculpture of bull testicles.

It was intended as a gag gift but Steinberg, a Sacramento Democrat, was not amused and returned the football-sized gift with a terse note about the seriousness of the ongoing negotiations. …

According to the sources, Schwarzenegger’s gift was in response to an earlier gag gift he had received from Steinberg: a package of mushrooms after the governor called Democrats’ budget proposals, which included tax increases, “hallucinatory.”

Maybe both of them should focus on fixing the budget rather than playing practical jokes.

Update: Moody’s warns California that a failure to produce a rational budget will result in a “multi-notch” downward rating on their debt:

California, struggling to close a $24.3 billion budget gap, faces the prospect of a “multi-notch” downgrade in its credit rating if the state’s legislature fails to act quickly to produce a budget, Moody’s Investors Service warned on Friday.

The ratings agency’s decision to place California’s general obligation debt on alert for such a dramatic possible downgrade stunned state officials. …

The state’s current A2 credit rating is Moody’s sixth-highest investment grade and makes California the lowest rated of the 50 states. The A2 rating is just five notches above speculative status and Moody’s raised the potential for the rating to tumble toward “junk” status. …

A downgrade could push California’s borrowing costs up at time when state officials expect to issue up to $9 billion in revenue anticipation notes as soon as possible after a budget agreement is reached — a deal whose timing is in doubt.

Moody’s said California’s leasing debt and other state-related debt are also on review, affecting a total of $72 billion of debt.

California bonds will reach junk status, which will match the state of their political class in Sacramento.  This state takes in more revenue per person than almost every other state and still manages to squander 20% more above that.  Moody’s has it diagnosed perfectly.

Blowback