California nearly out of cash, state official warns

Despite the budget fix enacted in February, the state is $20 billion short of what it needs to pay its bills over the next several months, says Mac Taylor, the Legislature's chief budget analyst.

By Evan Halper

10:35 AM PDT, May 7, 2009

Reporting from Sacramento — California has an unprecedented cash crisis and could run out of money at the end of next month if lawmakers and the governor do not act to stop the financial hemorrhaging, according to a new forecast by the Legislature's chief budget analyst.

The recession has caused tax receipts to plummet, leaving the state more than $20 billion short of what it needs to pay its bills over the next several months, says a report released this morning by Legislative Analyst Mac Taylor.

At the same time, California's credit rating is so weak that the state is unlikely to be able to borrow money to buy time to address the problem, Taylor wrote. Lenders have signaled to California that they may not be able to make loans on the scale the state would need.

"Without additional legislative measures to address the state's fiscal difficulties or unprecedented amounts of borrowing from short-term credit markets, the state will not be able to pay many of its bills on time for much of its 2009-2010 fiscal year," Taylor wrote.

The budget package that Gov. Arnold Schwarzenegger signed into law in February, averting an earlier cash crisis, was intended to keep the state solvent through June of next year. But the deterioration of the economy quickly knocked that spending plan out of balance. The problem will grow worse if voters reject five budget-related matters on the May 19 special election ballot, as polls show they are inclined to do.

The analyst cautioned lawmakers against asking the federal government to help the state secure loans that might provide relief. In such a scenario, the federal government would guarantee lenders that it would repay them if California defaulted. The analyst said such provisions would be likely to have strings attached and could give the federal government too much authority over state affairs.