SACRAMENTO, Calif. — California plans to borrow about $5 billion from private investors next week to protect itself in case the federal government defaults on its debt, the state treasurer's office announced Thursday.
State Treasurer Bill Lockyer said he has asked a select group of banks, credit unions and investment funds for bids Tuesday on private loans to help the state avoid a cash shortage.
Lockyer, a Democrat, said the state needs to act in case talks between Republicans and Democrats in Washington, D.C., remain at an impasse. That could force the federal government to default on loan obligations and shortchange states on health care and education funding.
"We will accept and award bids on July 26," said Lockyer's spokesman, Tom Dresslar. "If the president and Congress reach an agreement to raise the debt ceiling before we award the bids, we could pull the plug on the sale."
The loan is scheduled for one week before the federal government faces default unless a deal is reached to extend the government's borrowing authority.
The treasurer's office is taking the precaution because it's unclear whether California would be able to borrow that much money if global credit markets are thrown into turmoil.
The state typically borrows money in late summer to pay operating expenses until most income tax receipts arrive in the spring. If the state borrows the money early, California would repay it using routine borrowing notes. The state, which currently has the lowest credit rating among the 50 states at "A-," is planning to issue those short-term notes in late August.
It's not clear how much the additional loans could cost California taxpayers. Lockyer has previously said he's hoping to secure a good interest rate because the state changed the way it calculates how much money it has in reserve this year.
President Barack Obama and House Speaker John Boehner continued to negotiate Thursday in hopes of agreeing on a large deficit-cutting package as the deadline looms to extend the debt limit.
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