State Controller John Chiang has announced his cash analysis found — based on projected declines in revenues coupled with shaky elements in California’s record-setting late budget — the state needs to borrow $7 billion to meet all of its obligations through the fiscal year ending June 30.
“There is no question that today’s economic uncertainties and a tight credit market may create enormous challenges to the State to borrow at one time the entire $7 billion I have determined the State will need to meet its obligations through the end of the fiscal year. The difficulty is also compounded by the short window of time between now and the final days of October, the period in which my office has projected the State will likely run out of cash,” Chiang said.
“It is critical that Congress take swift action to adopt an economic recovery plan that can calm the fears of American consumers, stabilize the market and loosen the credit stream we will need to continue to provide quality programs and services Californians expect and deserve.”
This is why Congress must act, rather than let “the free market” correct itself without any government intervention as some have so blithely suggested in recent days. It’s easy and right to argue against bailing out billionaires and for aiding those truly in need, but the bottom-line truth is that our economy, our very society relies on credit, from the short-term loans our state government takes to pay its bills to the college loans, car loans, home loans, small-business lines of credit and so forth on which ordinary citizens rely to survive.
State Treasurer Bill Lockyer spelled it out earlier today.
“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,” he said. “The credit market is frozen because financial institutions are afraid to commit capital amid enormous uncertainty. Congress and the President need to adopt a responsible recovery plan, and get the job done quickly.”
“Without action, we will be unable to sell voter-approved bonds for highway construction, schools, housing or water projects,” he continued. “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. Without prompt federal action to address the economic crisis, we may have no market access to conduct that short-term borrowing transaction. That means the State’s cash reserves would be exhausted near the end of October. Payments for teachers’ salaries, nursing homes, law enforcement and every other State-funded service would stop or be significantly delayed. And California’s 5,000 cities, counties, school districts and special districts would face the same fate.”
Gov. Arnold Schwarzenegger agrees. Read the letter he sent today to California’s Congressional delegation, after the jump…
October 1, 2008
Dear Members of the California Congressional Delegation,
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.
This is how serious the situation is: our State Treasurer warns that the credit market has already frozen up to the point that it chills even the State of California’s ability to meet its short-term cash flow needs. Additionally, without immediate action from you and your colleagues in Congress, California will be unable to sell voter-approved bonds for the highway, school, housing and water construction projects that our state is relying on to help carry us through this difficult economy. The state of our already-slow economy makes the financial situation even more urgent.
It is daunting that California, the eighth-largest economy in the world, cannot obtain financing in the normal course of its business to bridge our annual lag between expenditures and revenues. This means California may soon be forced to delay payments for critical services, such as teachers, law enforcement and nursing homes. The same thing would happen to California’s counties and cities. That is, unless Congress acts quickly to restore confidence in our financial system.
I am writing to urge you to vote in favor of the Emergency Economic Stabilization Act. This plan is critical to the well-being of every community in California and across the nation. Swift action in Congress is needed to restore confidence in our financial system.
Let’s be clear, this plan is not a “bailout” for Wall Street. To the contrary, the plan is about protecting Main Street.
We are currently witnessing the initial consequences of depositors and investors withdrawing assets from a financial system in which they have lost confidence and putting them in FDIC-insured accounts and federal obligations. That means there’s little money for normal commerce, and what money is available is too costly. This dramatically reduces economic activity, translating into fewer jobs, lower wages, reduced savings and threatened pensions. If the stabilization plan fails, these outcomes will materialize in scale.
California’s businesses, both large and small, also face the prospect that banks will not be able to renew loans. It goes without saying that, when people and companies can’t get the money to buy cars, inventory goods, plant crops, expand business and go to school, economic activity slows down, leading to job losses, wage reductions, savings declines and pension failures all along Main Street, California.
The situation is urgent. The crisis we face demands swift action and bipartisan leadership. Congress must pass this economic stability plan without further delay.