California feeling credit crisis, treasurer warns
By Jim Sanders -
jsanders@sacbee.com
Published 12:00 am PDT Thursday, October 2, 2008
California is running out of cash – again.
Eight days after Gov. Arnold Schwarzenegger signed a new state budget to end a record 85-day standoff, the nation's financial storm poses a new threat to the state's ability to pay its bills.
California will be hard-pressed next month to fund critical services ranging from law enforcement to school teachers unless Congress acts quickly to calm the nation's lenders, state Treasurer Bill Lockyer warned Wednesday.
Schwarzenegger fired off a letter to California's congressional delegation calling the situation urgent and seeking "swift action and bipartisan leadership" to pass a national stabilization plan.
"It's now very clear that the financial crisis on Wall Street is affecting California – its businesses, its citizens' daily lives and its state government's ability to obtain financing," the Republican governor said.
Lockyer said the nation's credit market is frozen because financial institutions are afraid to commit capital amid enormous uncertainty.
Lockyer described a one-two punch to California's fiscal gut: The late state budget leaves little time to complete needed short-term borrowing, and the national storm slams that door shut.
California's cash reserves will be exhausted this month if the state continues to find itself unable to sell short-term securities, called revenue anticipation notes, Lockyer said.
Because the state receives tax revenues in uneven intervals, short-term borrowing smooths the cash flow.
Specifically, the state could be $1.5 billion in the red by Oct. 29, said Hallye Jordan, spokeswoman for Controller John Chiang.
"Without action, we will be unable to sell voter-approved bonds for highway construction, schools, housing or water projects," Lockyer said in urging passage of a national rescue plan.
"More urgently, because the state budget was so late, we have only four short weeks to complete what otherwise would be a routine revenue anticipation note sale to meet the state's cash-flow needs," he said.
Exhausting California's cash reserves could have dire consequences.
"Payments for teachers' salaries, nursing homes, law enforcement and every other state-funded service would stop or be significantly delayed," Lockyer said.
"And California's 5,000 cities, counties, school districts and special districts would face the same fate."
The governor's letter said national fiscal uncertainty also reduces economic activity in California, thus affecting jobs, wages, savings – and could threaten pensions.
"It is daunting that California, the eighth-largest economy in the world, cannot obtain financing in the normal course of business," Schwarzenegger wrote.
Chiang said his office estimates that California will need to borrow $7 billion to meet its obligations through June 30.
"It is critical that Congress take swift action to adopt an economic recovery plan," Chiang said in a written statement.
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