mongo wrote:4. We plan to stay in California, even with what seems to be a limitless push for higher state taxes, which makes California Muni’s attractive. But given our states inability to address basic fiscal issues, I’m worried that the risk out weights the rewards, and am considering reducing our exposure. Would be interest in others view of a reasonable allocation to California Muni’s.
We have a large liquid portfolio of stocks and bonds. I considered investing in some California-focused muni bonds and funds, but decided to pass.
First, look at the current crop of California bankruptcies, including San Bernardino, Stockton, Atwater, and Mammoth Lakes -- more are coming, guaranteed. Second, review what public employee unions are saying in bankruptcy court, namely, (a) public employee pension and healthcare benefits must be preserved, and (b) bondholders can be forced to suffer losses to preserve these benefits. The reasoning is pensions and healthcare purportedly are sacrosanct promises guaranteed by the California constitution, whereas investors can be forced to eat losses. I don't care / am not discussing the politics of this issue.
What I am saying is, this is an issue you need to consider. A bankruptcy court, or a higher court, may very well issue a ruling that vaporizes your California muni bond investment, giving preference to current/former employees over investors like you. Why even bother rolling the dice with that kind of hand?
Finally, never forget just three years ago, California issued IOUs because it couldn't pay its bills, including issuing IOUs to taxpayers owed refunds. No wonder California has the worst credit rating in the United States.
California's fiscal and financial record is abysmal. This isn't politics, it's simple fact. Proceed accordingly.