California, Short of Cash, May Ask U.S. for Loan

October 4, 2008
California, Short of Cash, May Ask U.S. for Loan
By RANDAL C. ARCHIBOLD

LOS ANGELES — With the credit crisis cutting off access to short-term financing, California officials said they may be forced to ask the United States government to lend it $7 billion, warning that the state could run out of money in a few weeks without it.

Gov. Arnold Schwarzenegger in a letter Thursday night to Treasury Secretary Henry M. Paulson Jr. said that with credit markets essentially frozen, the state, like a slew of others and local governments nationwide, had no access to short-term financing that normally support day-to-day operations.

“California and other states may be unable to obtain the necessary level of financing to maintain government operations and may be forced to turn to the Federal Treasury for short-term financing,” Mr. Schwarzenegger said in the letter, which was first reported by The Los Angeles Times.

As the nation’s most populous state, California’s precarious finances underscore the depths of the financial crisis. The emergency handout, the equivalent of $192 for each resident, would rival the federal government’s bailout of New York City in 1975 as it teetered on bankruptcy.

Treasury officials said they were reviewing the letter.

Bill Lockyer, the state treasurer, had warned on Wednesday that with Congress debating a national recovery plan, the state had been locked out of credit markets for the past 10 days.

“The credit market is frozen because financial institutions are afraid to commit capital amid enormous uncertainty,” he said then.

In an interview Friday morning, Mr. Lockyer cast the emergency loan as a measure of last resort in the event the recovery plan is defeated or does not compel credit financiers to begin lending money again.

“We want to make sure we exhaust every avenue,” he said.

Typically, he said, the state gets routine short-term loans in the fall to cover its bases until state coffers refill in the spring from tax revenue and other sources.

But the shuttered credit market has upended the budgeting. And Mr. Lockyer said that even if the credit markets loosen, it could cost more to borrow, noting that in the weeks leading up to the crisis borrowing terms had increased substantially.

Still, he said he believed the recovery plan would provide some relief and predicted that would be more likely than the government loan.

In his Wednesday statement, Mr. Lockyer said the state’s cash reserves would drain completely near the end of the month, jeopardizing payment for teachers’ salaries, nursing homes, law enforcement and an array of other state-financed services. California’s 5,000 cities, counties and school districts, he added, would face the same fate.

Mr. Schwarzenegger, a Republican, on Wednesday had already sent a letter to Congress urging passage of $700 billion plan to rescue the sinking economy.

In his letter to the Treasury Department, he reiterated his support of the rescue package, which was passed by the Senate and is under consideration by the House.

“The federal rescue package is not a bailout of Wall Street tycoons — it is a lifeboat for millions of Americans whose life savings, businesses, retirement plans and jobs are at stake,” he wrote.

Late in September, California adopted a $143 billion budget, 85 days overdue, after a protracted fight between Mr. Schwarzenegger and the legislature over how to close a $15 billion gap.

The budget included some cuts in services. It also relied on accounting maneuvers and assumptions like voter approval to borrow $5 billion against future lottery revenue and to expand the state’s rainy day fund to 12.5 percent of general fund expenditures, from 5 percent.

 

Not surprising.
California is nearly the 6th largest country in the world.

 

Hey Benny, better do what the Terminator says...

 

Fuck California. When you decide that you need to provide "free everything", that's what happens. You run out of money.

Fuck that. I'm fed up with this shit!

Where is Ron Paul.

 

I'm surprised the bond insurers are not selling off on this CA and NY news. it seems pretty clear that there will be losses on their muni side as well

 

"NO DEAL"

 

California better spend less. I find it so friggin' comical that the left coast wants the exact same Federal government as their failed state spending model. Of course it's the same story as everywhere. If the Cal voters were exclusively white males the state would be solid red. Mucho problemo when your single taxpaying vote is negated by 10 others out of East L.A......

 

We better get in line for handouts before this whole thing flushes down the tubes. Time to call up my Congress Critter for some phat bling from Uncle Samta.

 

Exactly. They can't make it work on a state level, so 65% of these idiots will vote for Barack to try to implement the same bullshit on a federal level.

 

CA has been in debt it seems for the past decade. Nothing new.