LOS ANGELES — California has warned the US government it may seek a seven-billion-dollar emergency loan to help the state pay its bills as the national financial crisis bites, a statement said Friday.
Governor Arnold Schwarzenegger said in a letter to Treasury Secretary Henry Paulson the credit crunch had resulted in billions of dollars of lost tax revenue and was stretching state coffers to the breaking point.
Schwarzenegger said the crisis meant California, the most populous and wealthiest US state, was unable to access routine financing used to make payments to schools, local government and law enforcement.
"While some states may be able to absorb a delay or obtain high-interest financing through private banks, California is so large that our short-term cash flow needs exceed the entire budget of some states," Schwarzenegger said.
"We expect to issue seven billion dollars in Revenue Anticipation Notes for short term cash flow purposes in a matter of days."
"Absent a clear resolution to this financial crisis, 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."
California routinely borrows money at the beginning of every fiscal year to ensure cash flow until sales tax receipts begin pouring in after Christmas and income tax is collected in the spring.
Schwarzenegger's letter to Paulson was sent before Congress approved a 700-billion-dollar bailout package aimed at easing the crisis.
California officials said Friday the bailout may inject enough liquidity into credit marks to allow the state to borrow the money it requires, but warned they could still require billions of dollars in assistance if markets don't stabilize quickly.
"California is not out of the woods yet," Schwarzenegger told reporters in San Diego shortly after the vote in Washington.
"There are big challenges ahead of us."
California requires an injection of cash by the end of October in order to help pay three billion dollars to 1,000 school districts across the state.
Schwarzenegger's communications director Matt David told The Los Angeles Times the state's finances were creaking under a combination of factors.
"California faces the potential of a perfect storm created by the financial crisis' effect on liquidity, lower-than-anticipated revenues currently coming into the state, and our late budget," David said.
"The governor is taking steps to prepare for this scenario to ensure that the state can make critical payments."
However those payments would not be made if the state is unable to borrow, said one state official speaking to the Times on condition of anonymity.
"The window is shut, and if it stays shut, we are in deep trouble," the official said. Successful package of the bailout bill being voted on in Congress would increase liquidity in the financial system and allow California to borrow money at a reasonable interest rate, the official said.