Explaining Southern California's economy

California's debt crisis: We'll figure something out

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Justin Sullivan/Getty Images

The California State flag.

California just kicked off a $2 billion municipal bond offering that will run through tomorrow. So far, it's looking pretty solid, according to the Wall Street Journal/Dow Jones Newswires, with $550 million sold so far to retail investors. Institutional investors will get their shot later this week. 

The bond sale highlights the paradox of the Golden State:

California's bond offering comes after Standard & Poor's sweetened its outlook on the state to positive from stable earlier this month. At the time, the ratings agency said it could upgrade the Golden State, depending on its ability to better align its cash performance and budget assumptions.

California is "the most heavily indebted state, but it also has the biggest economy," said Paul Montaquila, vice president of fixed-income trading at San Francisco-based Bank of the West, whose capital markets group has $10 billion of total assets under management. "For as bad as things may seem to be, the state always figures something out."

Montaquila said his firm's clients, which range from ultra high-net-worth individuals to mid-tier corporations, placed an order for California bonds. He added that the state's debt offered better yields than other similarly maturing fixed-income assets, like Treasurys.

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The Cal State faculty strike highlights every single problem with higher education

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Slobodan Dimitrov/California Faculty Association

Elected officials and members of the Screen Actors Guild supported a faculty and student protest of budget cuts at CSU Dominguez Hills. Rally organizers oppose an administration process underway that could lead to cutting entire programs or majors.

You can't say that faculty members in the California State University system aren't patient. Since they gained the right to collective bargaining in 1983, they've...never staged a strike. Until now. Next week, the union will strike at Cal State Dominguez Hills and Cal State East Bay, two of the 23 campuses that make up CSU, which sits just below the University of California system in the state's educational hierarchy.

This is from the LA Times:

The group is protesting a decision by Chancellor Charles Reed to withhold pay raises negotiated for the 2008-09 and 2009-10 academic years. The raises, which would total about $20 million in the first year, stalled when the state cut education funding.

Sounds fairly straightforward, but it isn't. Here's why:

  • Both CSU and UC are trapped in the budgetary morass that is California. They're already been hit with $650 million in cuts and will suffer even more pain if revenue projection continue to disappoint.
  • Tuition has been hiked by 23 percent. That sounds like a lot, but CSU is still a relatively good deal in higher education, with tuition and fees of around $6,000 per year. However, enrollment has been axed, by 10,000 students — so fewer kids have access to that good price.
  • The faculty wants "pay parity" — existing faculty would be paid at the same level as new hires, who are getting paid more. In this context, what's rankled the faculty is that high-level administrators are increasingly being paid more than their predecessors. The new CSU San Diego president will get $100,000 more than the guy who preceded him.

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