S&P: California’s Fiscal Problems Different From Greece
SACRAMENTO (CBS / AP) — California and Greece might share enviable weather and postcard-worthy beaches, but their fiscal problems aren’t the same, according to a Standard & Poor’s report released Tuesday.
In the aftermath of the global financial crisis, commentators, bloggers and financial figures started drawing parallels between the debt-plagued country and the most populous state in the U.S.
JPMorgan Chase Chief Executive Jamie Dimon, for example, told shareholders in early 2010 that California was a bigger risk than Greece because a default by a large state could trigger defaults by smaller states.
S&P analyst Gabriel Petek said Tuesday the rating agency took a closer look at the credit climates of the two economies as a case study to show that states and sovereign nations not only function differently but also manage their money differently.
The report concluded that California’s problems are more a crisis of policy than of debt. California faces a remaining $15.4 billion budget shortfall after lawmakers agreed to some cuts and transfers. But Democratic Gov. Jerry Brown has been unsuccessful at getting consensus on a budget package.
“No doubt they are both experiencing their own versions of distress, but as we show in the report we don’t think California is having a debt crisis, although you might say that Greece is,” Petek said.
With more than 37 million residents and a $1.7 trillion economy, California ranks as the world’s 8th largest economy if it were a country, according to census and commerce figures. Greece, with 11 million people, is listed as the world’s 27th largest economy, according to the World Bank’s ranking based on gross domestic product.
The report also points out that Greece’s government spending makes up a significantly larger portion of the country’s economy than state spending does in California. While Greece’s government spending is more than 50 percent of its gross domestic product in 2011, California’s direct state spending makes up just 7 percent of the state’s economy.
Even when analysts estimated spending by all governments — local, state and federal — it makes up 32 percent of California’s economy.
“The notion that California was in any way comparable to Greece was exposed as so much poppycock. We appreciate S&P’s reaffirmation of that fact,” said Tom Dresslar, a spokesman for state Treasurer Bill Lockyer, a Democrat who has been critical of the comparison between California and Greece.
S&P found that “contrary to popular perception, California’s direct state spending is not growing relative to its economy,” although the portion of state funds needed to pay debt service has grown from under 2 percent in 1990 to 6 percent this year.
Petek noted that there are differences in the way debts are structured in Greece and California. The state pays down debt gradually, while Greece has balloon payments.
California is constitutionally required to adopt a balanced budget, while Greece is a sovereign nation that can run a yearly deficit. The report also said California’s economy is more diverse and resilient.
“We all enjoy the traditional Greek myths of yore, but we’re certainly glad to see this modern-day canard laid to rest,” said Brown’s spokesman, Gil Duran.
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