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California Scrambles Again to Avoid Cash Crunch

California will soon run out of cash. Again.

Arnold Schwarzenegger
CNBC.com
Arnold Schwarzenegger

Governor Schwarzenegger today outlined new measures to cut costs and close a projected $24 billion budget gap, including cutting another $680 million in education, plus $315 million in school transportation funds.

State workers may face a 5 percent pay cut on top of the 10 percent cut earlier instituted through twice-monthly furloughs.

Most Californians who receive in-home state-supported healthcare services would have to do without, and the state would also eliminate adult day care services for low-income residents who can't afford nursing home care.

It may not be enough. State Controller John Chiang reports that California will run out of cash on July 29th.

"On that date, the State will be in the red by $317.1 million; two days later, on July 31, our cash deficit increases to a negative $1.02 billion."

He says the situation will continue to worsen, bottoming in April of next year, when the state will be $22 billion short "of meeting our payment obligations...that is four times the $5.1 billion cash deficit we faced this past spring."

Controller Chiang says California has not had a positive cash balance in nearly two years, and that the Legislature needs to fix the budget problem by July 15th to give him enough time to sell Revenue Anticipation Warrants (RAWs) to raise cash before July 29th.

"Without credible budget and cash flow solutions in place, the rating agencies and potential investors who will be evaluating the credit risk of these securities will be highly skeptical about investing in California."