California plans to borrow $US1.5 billion ($2.3 billion) to meet state payments for the balance of the fiscal year ending June 30.
But State Controller John Chiang warned at the same time that the recently enacted legislation to remedy the state’s $US42 billion budget deficit “won’t solve a cash flow crisis for next year” and could leave the state on the brink of default over the longer term.
“If the governor and lawmakers do not take action before July, we could be accelerating towards the very cliff that we just stopped short of falling over,” Mr. Chiang said in media release distributed shortly before a conference call with reporters.
The controller said he has started to release more than $US2.8 billion in delayed February payments, including income tax refunds and payments to local governments and businesses.
He said his office will work with the state treasurer and the Department of Finance to nail down the $US1.5 billion short-term borrowing, which will come from an unnamed “financial institution”.
Nonetheless, he said, “this recent budget deal does not put California’s fiscal house in order”.
He cited revenue erosion of nearly $US900 million in February alone and said the nation’s largest state hasn’t been cash-positive since July 2007.
Still, he said, he doesn’t think the state will be in a positive cash position, despite its borrowings.
Mr. Chiang said he’s also “concerned about revenues falling short in March, April and May”.
Last month, California privately placed $US194 million of its debt with the Bay Area Toll Authority.
That marked the first time the Golden State has privately sold bonds to another public agency instead of tapping public markets.
State Treasurer Bill Lockyer said at the time that other deals were under consideration, including one with the Los Angeles County Metropolitan Transportation Authority.
Quizzed about why the state is doling out money again when it expects to face imminent cash shortages, Mr. Chiang said it’s important that people be paid and that “we can always slow down payment so we don’t get to a point where the cash payments are in peril”.
When the governor and legislature failed to enact a timely budget, Mr. Chiang began withholding payments last month - a move he said prevented the state from defaulting on debt service.
While raising the possibility of default, he added that, “unless the American economy falls off a cliff, we’re going to make good on our obligations”.
California was downgraded last month by Standard & Poor’s and now is the lowest-rated state in the nation. Whether or not it can borrow long-term in capital markets remains to be seen.
Mr. Chiang said there are many rapidly changing factors in the current economic environment that can’t be projected ahead of time, including “issues with the financial sector”.
He indicated it’s difficult to even know how much capital would be available when a stock like that of Citigroup trades below $US1.
No state has defaulted on its bonded debt since Arkansas in 1933.
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California to borrow $US1.5bn to stay afloat
Stan Rosenberg
7 March 2009
California plans to borrow $US1.5 billion ($2.3 billion) to meet state payments for the balance of the fiscal year ending June 30.
But State Controller John Chiang warned at the same time that the recently enacted legislation to remedy the state’s $US42 billion budget deficit “won’t solve a cash flow crisis for next year” and could leave the state on the brink of default over the longer term.
“If the governor and lawmakers do not take action before July, we could be accelerating towards the very cliff that we just stopped short of falling over,” Mr. Chiang said in media release distributed shortly before a conference call with reporters.
The controller said he has started to release more than $US2.8 billion in delayed February payments, including income tax refunds and payments to local governments and businesses.
He said his office will work with the state treasurer and the Department of Finance to nail down the $US1.5 billion short-term borrowing, which will come from an unnamed “financial institution”.
Nonetheless, he said, “this recent budget deal does not put California’s fiscal house in order”.
He cited revenue erosion of nearly $US900 million in February alone and said the nation’s largest state hasn’t been cash-positive since July 2007.
Still, he said, he doesn’t think the state will be in a positive cash position, despite its borrowings.
Mr. Chiang said he’s also “concerned about revenues falling short in March, April and May”.
Last month, California privately placed $US194 million of its debt with the Bay Area Toll Authority.
That marked the first time the Golden State has privately sold bonds to another public agency instead of tapping public markets.
State Treasurer Bill Lockyer said at the time that other deals were under consideration, including one with the Los Angeles County Metropolitan Transportation Authority.
Quizzed about why the state is doling out money again when it expects to face imminent cash shortages, Mr. Chiang said it’s important that people be paid and that “we can always slow down payment so we don’t get to a point where the cash payments are in peril”.
When the governor and legislature failed to enact a timely budget, Mr. Chiang began withholding payments last month - a move he said prevented the state from defaulting on debt service.
While raising the possibility of default, he added that, “unless the American economy falls off a cliff, we’re going to make good on our obligations”.
California was downgraded last month by Standard & Poor’s and now is the lowest-rated state in the nation. Whether or not it can borrow long-term in capital markets remains to be seen.
Mr. Chiang said there are many rapidly changing factors in the current economic environment that can’t be projected ahead of time, including “issues with the financial sector”.
He indicated it’s difficult to even know how much capital would be available when a stock like that of Citigroup trades below $US1.
No state has defaulted on its bonded debt since Arkansas in 1933.
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