The New Year started off with a bang. Sacramento Bee writer, Kevin Yamamura, kicked off the first Monday of 2011 with the headline, “[Governor-elect Jerry] Brown to propose a broad list of budget cuts.” In the article he cited an anonymous source stating that Brown will propose to reduce social services, reduce library hours, and “wipe out hundreds of local redevelopment agencies.” California is facing significant fiscal challenges, but State laws unequivocally protect the monies used to service the existing debt of redevelopment agencies.
Redevelopment agencies are vital to cities. Their objective is to relieve cities of blight by redeveloping the less productive areas of town and transforming them into thriving and prosperous neighborhoods. Consider the facts about redevelopment agency bonds:
- Money is lent to redevelopment agencies in exchange for the promise of future property taxes
- Growth from redevelopment activities usually increases local tax revenue
- Redevelopment agencies help provide jobs and affordable housing to local communities
- Voters approved Proposition 22, which prevents the State from taking funds from local governments, including redevelopment agencies
Jerry Brown will need to cut spending in certain areas. He has not announced his proposed budget yet, and his team has not commented on any of the budget speculation. Regardless, existing redevelopment debt is legally protected, and new debt will have specific revenues pledged to the prompt payment of principal and interest when due.
The surprise of the week came January 5th, when ADP Payrolls came in much higher than expected at 297k, compared to a consensus of 100k. ADP Payroll data covers some 24 million U.S. workers across approximately 400k businesses. The ADP report was tempered on January 7th, when overall payrolls increased by 103k, compared to a consensus of 150k. The jobless rate fell to 9.4%, and a respectable 1.1 million jobs were created in 2010, the most since 2006.
Fixed income markets experienced a moderate selloff for the week ending January 7th. Equity markets saw a modest rally to begin the year while they searched for direction, after a strong close to 2010. Next week will bring a fair amount of economic data, with the Fed Beige Book coming out January 12th, the PPI and Jobless Claims coming out January 13th, and the week will end with the CPI and Consumer Sentiment coming out January 14th.
Investment Information Coordinator
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