Frozen credit market jeopardizes California’s borrowing
October 2, 2008
SACRAMENTO ” California’s top financial officials on Wednesday warned that the nation’s frozen credit market is threatening the state’s ability to do short-term borrowing.
State Controller John Chiang said the constricted flow of credit presents “enormous challenges” for California as it seeks to borrow money to pay immediate expenses. He projected the Legislature’s record delay in approving a state budget means California will run out of cash toward the end of October.
Should that happen, state services would come to a halt, and schools, nursing homes and law enforcement agencies would not get paid. Treasurer Bill Lockyer warned that unless Congress acts, the state also will be unable to sell infrastructure bonds.
Lockyer noted that this year’s protracted budget fight has left the state little time to prepare the short-term loans needed to maintain cash flow. Chiang estimates the state will need to borrow $7 billion through June 2009.
“For 10 days, state and local governments have been closed out of credit markets ” long-term and short-term ” in spite of the fact that they represent no default risk and provide a good tax-free return to investors,” Lockyer wrote.
On Wednesday, Gov. Arnold Schwarzenegger sent a letter to members of California’s congressional delegation urging them to support the $700 billion Wall Street bailout plan. He warned that without financing, the state will not be able to sell voter-approved bonds for freeway, school, housing and water construction projects.
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“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 to pay for critical services,” Schwarzenegger wrote.
The Senate passed the rescue bill Wednesday night, sending it to the House of Representatives, which plans to vote on it Friday.