Oct 3, 2008 4:28 pm US/Pacific
Cash-Poor Calif. Looks To Bailout For Credit Help
SACRAMENTO (AP) ―
Gov. Arnold Schwarzenegger and California's top finance officials reacted cautiously Friday to congressional approval of the $700 billion Wall Street bailout package, warning that the nation's tight credit market still presents considerable challenges for the state.
They have been worried that a frozen credit market will prevent the state from getting short-term loans to cover basic operating expenses, a step California takes each fall until the bulk of its tax revenue arrives in the spring. The state's record-long budget impasse this year prevented the state from going to the bond market sooner.
Even with the bailout plan passing, Schwarzenegger predicted a difficult path ahead in the financial markets.
"California's not out of the woods yet," he said during a news conference in San Diego, noting that California soon will begin seeking loans on the open market. "It will be difficult. We will be going through challenges in the future."
Schwarzenegger said he would convene a meeting on Wednesday with the four legislative leaders to discuss the state's fiscal situation, including next year's projected deficit, said gubernatorial spokesman Aaron McLear.
On Thursday, Schwarzenegger sent a letter to Treasury Secretary
Henry Paulson asking the federal government to protect California if the state is unable to secure financing for routine borrowing.
"Absent a clear resolution to this financial crisis that restores confidence and liquidity to the credit markets, 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," Schwarzenegger wrote.
Paulson has said he hoped approval of the bailout package will infuse optimism into the banking sector and reinvigorate the credit market for both large and small borrowers.
Tom Dresslar, spokesman for the state treasurer's office, said pursuing a federal loan is just one option if the credit markets do not respond as Paulson predicted. Unless it can secure those loans, California is expected to run out of cash Oct. 29, which would stop payments to schools, nursing homes and law enforcement.
"Like everyone else, we're waiting for the market reaction. Hopefully, confidence and trust will be restored and hopefully the state will be able to meet its cash-flow needs and continue to provide uninterrupted crucial service for the people of the state," Dresslar said. "But there's no guarantees."
Earlier this week, the controller's office said California will need to borrow $7 billion to pay its expenses throughout the fiscal year, which ends June 30. The state plans to make a bond offering on Oct. 13 seeking short-term loans for an amount up to $7 billion.
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