Just a week after state lawmakers finally passed a budget, California discovered it couldn't borrow the cash it needs. Turmoil in the financial markets so tightened credit that lenders also turned down Massachusetts and New York when they sought loans. KPCC's Julie Small reports that the financial rescue plan Congress passed Friday may help, but it's no guarantee that cash will flow to the states.
Julie Small: California collects most of its tax revenues in the spring. So every fall, the state borrows money to pay the bills until those revenues come in. This year California needs to borrow $7 billion, but the credit markets are frozen.
State officials say that without a loan, California will run out of cash by the end of the month. H.D. Palmer with the governor's finance department says he's optimistic that the federal bailout plan will bolster credit markets, and that California will get its loan.
H.D Palmer: We've been working very closely with Treasurer Bill Lockyer and his staff, as well as the state controller and his staff, to do all of the necessary preparation work: working on the cash flows, talking to the credit rating agencies, getting everything all set so that when that credit window opens, we've got our track shoes laced up and we're ready to go.
Small: But, given the turmoil in the lending industry, Palmer said the window may open just a crack.
Palmer: We are clearly in an environment that we've never been in before in modern times. That said, the state of California has always been a solid investment, and we hope and expect that markets will continue to view us as such.
Small: Just in case, Governor Schwarzenegger's asked the federal treasury to extend emergency loans to California and other states until credit loosens. He's also called a meeting of the state's legislative leaders next week to determine how to manage the cash crisis.