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CNBC.com California |
Like a guy trying to borrow money for food, but who has a very low credit score, maxed out credit cards, an overdrawn bank account, and bills he can't afford to pay, California is finding banks aren't interested. For the first time (they say) since New York needed a bailout in 1975, a local government may need a bailout from the Feds.
Governor Arnold Schwarzenegger writes in a letter to Treasury Secretary Hank Paulson, "The credit crisis has frozen investment and commerce, forcing businesses and families to stop purchasing goods and services. This has resulted in tens of thousands of lost jobs and billions of dollars in lost tax revenue to the state." So Cali needs money asap for its day-to-day operations. It could run out of cash by Halloween. Now that's scary.
First to go if the money stops would be road projects and other construction, to be followed by general layoffs, with schools and emergency services somewhere near the end of the line. Pray that fire season takes a vacation this year!
"While some states may be able to absorb a delay or obtain high-interest financing through private banks," the Governor writes Secretary Paulson, "California is so large that our short-term cash flow needs exceed the entire budget of some states."
The state plans to issue $7 billion in bonds called Revenue Anticipation Notes "in a matter of days" with the promise of repaying them quickly through tax revenues or other borrowing. The fear is that there may be no buyers. California has one of the worst credit ratings among the 50 states, and I'm sure the record delay in passing a budget highlighting Cali's fiscal dysfunction doesn't instill confidence.
"Absent a clear resolution to this financial crisis that restores confidence and liquidity to the credit markets," the former movie star writes, "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."
The message here: trust us, America, we're good for it. As the Governor might say, "I'll Pay you Back." "I'll Be (in the) Black."
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