A Dem (dim?) future: the CA bailout

Reply Fri 3 Oct, 2008 09:52 pm

Schwarzenegger to U.S.: State may need $7-billion loan

In a letter obtained by The Times, the governor warns that tight credit has dried up funds California routinely relies on and it may have to seek emergency aid within weeks.

By Marc Lifsher and Evan Halper, Los Angeles Times Staff Writers
October 3, 2008

SACRAMENTO -- California Gov. Arnold Schwarzenegger, alarmed by the ongoing national financial crisis, warned Treasury Secretary Henry M. Paulson on Thursday that the state might need an emergency loan of as much as $7 billion from the federal government within weeks.

The warning comes as California is close to running out of cash to fund day-to-day government operations and is unable to access routine short-term loans that it typically relies on to remain solvent.

The state of California is the biggest of several governments nationwide that are being locked out of the bond market by the global credit crunch. If the state is unable to access the cash, administration officials say, payments to schools and other government entities could quickly be suspended and state employees could be laid off.

Plans by several state and local governments to borrow in recent days have been upended by the credit freeze. New Mexico was forced to put off a $500-million bond sale, Massachusetts had to pull the plug halfway into a $400-million offering, and Maine is considering canceling road projects that were to be funded with bonds.

California finance experts say they know of no time in recent history when the state has sought an emergency loan of this magnitude from the federal government. The only other such rescue was in 1975, they said, when the federal government lent New York City money to avoid bankruptcy.

"Absent a clear resolution to this financial crisis," Schwarzenegger wrote in a letter Thursday evening e-mailed to Paulson, "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."

The letter, obtained by The Times, came on the eve of a vote by the House of Representatives on a $700-billion rescue package, but it was too soon to know how the package would affect the nation's paralyzed credit markets. The Senate approved the so-called rescue bill Wednesday night.

A top Schwarzenegger aide followed up the letter with a call to the Treasury secretary Thursday night. Treasury Department officials could not be reached for comment.

It's customary for California to borrow billions of dollars at the start of the fiscal year to fill its coffers until the usual flood of sales tax receipts comes in after Christmas and income tax receipts arrive in the spring.

"California is so large that our short cash-flow needs exceed the entire budget of some states," Schwarzenegger wrote.

The cash needs to be in the state's bank account by Oct. 28 to be available to fund a scheduled $3-billion payment to more than 1,000 school districts.

Said Matt David, Schwarzenegger's communications director: "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. The governor is taking steps to prepare for this scenario to ensure that the state can make critical payments."

But those payments won't be forthcoming if the state can't do routine borrowing. For now, "the window is shut, and if it stays shut, we are in deep trouble," said an administration official, who asked not to be identified, citing the sensitive talks with Washington.

Quick passage of the rescue bill by the House of Representatives today and a signature by President Bush could inject more money into the international financial system and allow California to borrow at a reasonable interest rate, the official said.

But there are no guarantees that the economic recovery plan before Congress will succeed, said California Treasurer Bill Lockyer, who has been working with Schwarzenegger to keep the state solvent.

Asking the federal government for a loan "is one option on the table," said Tom Dresslar, a spokesman for Lockyer. The treasurer, he added, is working with outside financial advisors on a possible emergency plan to sell short-term debt notes to the U.S. government. Lockyer believes that such a plan is both feasible and legal, Dresslar said.

"I don't think we have ever gone to the feds," said Fred Silva, senior fiscal policy advisor with California Forward, a state budget think tank.

Silva said the closest California came may have been in the days after the 1994 Northridge earthquake, when at the request of the state, Washington sped up payment of federal funds that the state was owed.

State officials now fear they face a potential cash crisis worse than California confronted in 2003, in the final days of Schwarzenegger's predecessor, Gov. Gray Davis.

At that time, the precipitous decline of state revenue in the middle of a budget year forced officials to pay a syndicate of banks a premium of hundreds of millions of dollars for what amounted to an expensive "payday loan."

Even that option, administration officials say, would not be available during the current credit drought. They say if Congress does not approve a bailout plan -- and maybe even if it does -- there will be no lenders available to provide the state with the money it needs, regardless of the premium the state is willing to pay.

"We need to go as wide as possible to try to find buyers at reasonable rates," said Robert Fayer, an attorney advising the state on its planned $7-billion bond sale.

"Whether it could ultimately be the federal government, I have no idea. It is a fairly radical concept."

[email protected]

California, before the lib/progressive wing of the Dem party took power, never used to have to worry about issues such as this. But with the tremendous increase in state taxes, which has killed jobs, state regulations, which has driven employers to other states, and the outrageous increase in the size of the state government/bureaucracy, my state is circling the toilet...

The Dems have the entire state legislature, all cabinet offices except for Insurance (and why, indeed, do we need an entire insurance bureaucracy employing hundreds at $80K to $140K + a year?) and until Arnold, the Gov's office. Last election, they had all the state cabinet offices. The state prison guard union, teacher’s union, and state employee’s union are the big dogs re funding candidates for office, so it comes as no surprise that Dems control the state.

And, it comes as no surprise Dems continue to grow the state machine. More employees, more Dem votes. Why are they surprised, then, when employers flee?

Gangs, crime, livability. Many of us with roots here are worried, but we understand we have no statewide voice. We try to keep our little patch of CA from sliding into the same mess as the rest of the state, yet we continue to be taxed and regulated to the extreme. The state continues to take money from our local cities and counties in order to balance their budget, to pay those state employee salaries, I guess.

Although Arnold is a joke, you should have seen CA with Gray Davis as the Gov with Dems in charge of the assembly and senate. Actually, you can see the result now.

If the rest of the US wishes to see what a lib/progressive government running amuck looks like, look west. Maxine Waters? Get to know the name; she will be amongst the 'new' leaders of an unrestrained lib/progressive Dem party...
  • Topic Stats
  • Top Replies
  • Link to this Topic
Type: Discussion • Score: 0 • Views: 2,112 • Replies: 5
No top replies

Reply Fri 3 Oct, 2008 10:46 pm
next to California the US Congress looks to be fiscally responsible. There is such a long record of malfeasance in Sacramento that the pending implosion of there state economy can not be pinned on one party over the other.

As always the citizens are the main problem, the tax revolt of the seventies was the birth of the broken government, with the citizens demanding everything that they wanted but not being willing to pay for it. The citizens demanded that their politicians delivere the unpaid for goods, and they did. Now it is sorry Charley.
0 Replies
Reply Sat 4 Oct, 2008 12:17 am
@A Lone Voice,
Hold on a minute - before Prop. 13 California did not have to worry about budgets. Now most the wealthy home owners do not pay any property tax or so little it is shameful. Unless CA can raise property taxes the state is going to end up in the toilet or some where back in the 70s.

A Lone Voice
Reply Sat 4 Oct, 2008 11:00 pm
Before Prop 13, homeowners were, in cases of the elderly on a fixed income, being taxed out of their homes because of rising property taxes. Hmmm, the dems controlled things then, too.

What's interesting, the wealthy communities, mostly those on the coast, are bastions of libs/progressives who do not pay their fair share of property taxes because they consist of an older, white population who have lived in their homes for many years. And, they have imposed no-growth measures in their communities that have caused home prices to grow out of reach of the middle class, who have moved out of said cities into the rural farming communities to purchase or rent homes.

Minorities in San Francisco, Santa Monica, or any of these other lib/progressive hallmarks of diversity? Forget about it. They left with the middle class.

It's the classic lib/progressive position: "Do as I say, not as I do."

That's one of the reasons we'll never see Prop 13 overturned here.

But by far, the biggest problem is the size and excess of the state bureaucracy. It's far too bloated, paid far too much, and has far too generous retirement benefits. It has grown too fast, is too expensive, hinders job growth, and will be the eventual death of this state...

Do the dems want CA to die? No, but they're pretty short sighted. All they see is this wonderfully large state government, all these union state workers, and all the dem votes...

Reply Sat 4 Oct, 2008 11:34 pm
@A Lone Voice,
if you look at the budget page 2 here;
you will see that over a billion goes for health and dental for retirees, and increase of an average of 15 % per year in ten years. However, California spends $13 billion on prisons and the courts to facilitate the california policy of "lock them up, all of them"....a much bigger cost and an increase of 10% per year. If you want to cut state bureaucracy, start with the police state infrastructure.
A Lone Voice
Reply Mon 6 Oct, 2008 01:27 pm

if you look at the budget page 2 here;
you will see that over a billion goes for health and dental for retirees, and increase of an average of 15 % per year in ten years. However, California spends $13 billion on prisons and the courts to facilitate the california policy of "lock them up, all of them"....a much bigger cost and an increase of 10% per year. If you want to cut state bureaucracy, start with the police state infrastructure.

Actually, you're only partially correct.

Ca's retirement system is run by PERS, which is not administered by the state. While the state must contribute to it, as do cities and counties within the state, PERS is a separate organization. In fact, the state has tried to access the multi-billion dollar PERS fund in the past to fund their state budget (and social programs), but were turned away by court rulings.

Police state infrastructure? Examine a little closer, and you'll discover why prison costs have skyrocketed.

The prison guard union - deeply tied into the dem party - has demanded, and achieved, pay parity with real police officers. So, where it costs a city or the state highway patrol so much to attract a qualified applicant to fill a law enforcement job, prison guards - which do not require the education, training, and have been historically been paid much lower - now earn as much. With the same benefits.

Other states do not pay their prison guards this much money. The federal government does not pay their prison guards this much money.

But because the guard union has become a player in the dem party, we do.

Prison construction does cost, sure. But the never ending costs of salary and benefits keep expanding as the guard union grows, along with the rest of the state bureaucracy.

Which you haven't addressed yet, I see...

One way to cut prison/court costs would be to decriminalize drugs. But along with the repubs, the dems would never agree to this at this point; the guards wouldn't allow it.

0 Replies

Related Topics

Obama '08? - Discussion by sozobe
Let's get rid of the Electoral College - Discussion by Robert Gentel
McCain's VP: - Discussion by Cycloptichorn
Food Stamp Turkeys - Discussion by H2O MAN
The 2008 Democrat Convention - Discussion by Lash
McCain is blowing his election chances. - Discussion by McGentrix
Snowdon is a dummy - Discussion by cicerone imposter
TEA PARTY TO AMERICA: NOW WHAT?! - Discussion by farmerman
  1. Forums
  2. » A Dem (dim?) future: the CA bailout
Copyright © 2023 MadLab, LLC :: Terms of Service :: Privacy Policy :: Page generated in 0.03 seconds on 11/29/2023 at 09:44:53