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The Revolution Begins in California

|Includes: NAC, NCP, Invesco California Value Municipal Income Trust (VCV)

I finished my indoctrination on how to overthrow the government last weekend. Specifically, I attended a grass roots meeting of activists in Berkeley, California planning to collect 450,000 signatures by April to put the “California Democracy Act of 2010” on the November ballot. The measure seeks to amend California’s broken constitution by permitting passage of budget and tax measures with a simple majority. The current two thirds requirement, which California shares only with the miniature states of Rhode Island and Delaware, is widely blamed for the legislative impasse in Sacramento that has driven the state to financial ruin. Overdependence on capital gains-up to 40% of revenues in good years-enabled the state to just barely balance the budget at stock and real estate market tops, but death spiral into gigantic deficits during the inevitable busts that followed. Furthermore, since proposition 13 capped real estate taxes at 1.25% 1978, the state’s population has grown by 16 million to 38 million, placing a backbreaking strain on all services. Only six obstinate, conservative legislators are holding hostage the world’s sixth largest economy, right after France. Decades of relentless gerrymandering have made virtually every seat in the state safe, so elections offer no solutions. I sat down with Daryl Steinberg, president of the California Senate, who says that people of all political stripes are fed up. Once boasting the best public education system in the country, California now ranks 47th in spending/pupil and 49th in pupils/teacher. The University of California, the top public university in the world and a veritable PhD and Nobel Prize factory, has endured two 20% back to back budget cuts. Schools, police and fire departments, parks and aid agencies are closing throughout the state. Antiquated infrastructure is falling apart, with the San Francisco Bay Bridge closed for five days this month, forcing the local economy to take a huge hit. The barbaric prison system, which has been ruled by a federal judge as inflicting “cruel and unusual punishment,” is letting 24,000 prisoners out early, since it can’t afford to house or feed them. The public outrage is so violent the initiative will almost certainly pass. When it does, taxes are going to go up a lot. Target numero uno: property taxes and the top 5% of income earners. Expect a battle royal, as the top 1% of taxpayers already pay a marginal state tax rate of 10.3%, the second highest in the country after Vermont, generating 50% of state revenues. This will make our sunshine the world’s most expensive. That will be great news for the Golden State’s beleaguered bond holders who will love to see new sustainable sources of revenue. Take a look at the California municipal bond funds (NYSE:VCV), (NYSE:NCP), and the (NVX). If California were a stock, I’d be buying it now. If you want to join the revolution, or just learn more about the issue, go to www.CAMajorityRule.com by clicking here.