11/26/2018 A Rainy Day Ahead? What A Recession Or Bear Market Could Mean To The Golden State Gabriel Petek, CFA U.S. States Group / U.S. Public Finance.

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Presentation transcript:

11/26/2018 A Rainy Day Ahead? What A Recession Or Bear Market Could Mean To The Golden State Gabriel Petek, CFA U.S. States Group / U.S. Public Finance November 2, 2018 Copyright © 2016 by S&P Global. All rights reserved.

S&P Global Rating’s Analytic Coverage We cover these broad sectors: Corporates Financial institutions Infrastructure and utilities Sovereigns/ international public finance $ Structured finance U.S. public finance Insurance companies Funds

S&P Approach to U.S. States: Overall Analytical Framework Government Framework Fiscal policy framework System support Intergovernmental funding Financial Management FMA Budget management Economy Demographic profile Economic structure Wealth and income indicators Economic development Budgetary Performance Budget reserves Liquidity Tax/revenue structure Revenue forecasting Service levels Structural performance Debt and Liability Profile Debt burden Pension liabilities OPEB risk assessment System support Willingness to support debt Liquidity and capital market access High level of expected future debt/liabilities Weak structural budget performance High level of contingent liquidity risk Indicative Credit Level Overriding factors Holistic analysis State Rating + + One-notch adjustment, subject to any applicable rating cap Source: S&P Global Ratings U.S. States Ratings Methodology, October 17, 2016

Ratings Movements For U.S. States Downgrade Upgrade Source: S&P Global Ratings History of U.S. State Ratings 09/20/18. *As of 09/20/18. Includes multiple rating changes for same state within a year 4

Total Revenue Recovery Has Lagged Prior Economic Expansions (All States) Source: U.S. Census Bureau

Percentage Change In Share Of Employment By Industry (1999-2018)

California General Fund Revenue Composition Increased reliance on Personal Income Tax; Decreased reliance on Sales and Use Tax Source: California Legislative Analyst’s Office; California Dept. of Finance

State Sector, Total Tax Revenues Vs. Medicaid Expenditures Source: Rockefeller Institute of Government Source: National Association of State Budget Officers Expenditure Reports

Combined Medicaid, Debt Service, Pension And OPEB Contributions Share Of General Fund Expenditures

Major State Tax Revenues and Nominal GDP Indexed to 1995 (All States) Source: Rockefeller Institute of Government

The Problem: California General Fund Total Fund Balance Pct Of Expenditures; FY 2007-2012 Source: Comprehensive Annual Financial Statements

The Solution (Part 1): California General Fund Expenditures; Projected And Actual Source: LAO 2011-2012 Fiscal Outlook and CA Dept of Finance

The Solution (Part 2): California General Fund Revenues; Projected And Actual Source: LAO 2011-2012 Fiscal Outlook and CA Dept of Finance

The Results: California General Fund Total Fund Balance Pct Of Expenditures; FY 2007-2017 Source: Comprehensive Annual Financial Statements

…But California General Fund Revenues Remain Prone To Cyclicality Source: Source CA Dept of Finance and S&P calculations

California Special Fund for Economic Uncertainty and Budget Stabilization Account Source: Source CA Dept of Finance

California Real State GDP Growth Rates

Mortgage Debt To Personal Income In California