California may seek $9b aid from Washington
October 4, 2008 - 10:37AM
California is preparing to ask the federal government to buy up to
$US7 billion ($9 billion) in notes in the face of a frozen municipal
debt market, but the landmark US financial rescue bill may thaw the
market so states may resume borrowing to finance various programs and
projects.
California, the biggest issuer of US municipal debt and
the most populous US state, needs to sell its revenue anticipation
notes to tide itself over before it collects fees and other income.
Without short-term cash, the state may need to cut spending on
services, including law enforcement.
Gov. Arnold Schwarzenegger on
Friday said California was not ``out of the woods'' after the $US700
billion federal financial bailout bill was passed into law.
But he
called passage of the legislation, seen as key to calming market fears
around the world, ``extremely important'' for California and the
nation.
In a dramatic step, Schwarzenegger in a letter on Thursday told US
Treasury Secretary Henry Paulson that California could need the
federal government to buy $US7 billion of state revenue anticipation
notes stalled by a weak credit market.
``If we can't get that loan
through the normal course, we will go to the federal government and
ask for help and we have already set that in motion,'' he told a news
conference.
The state's liquidity squeeze also weighed on its Congressional
delegation. ``I can't recall when that has happened before,'' Rep. Dan
Lungren, a California Republican said on the floor of the US House.
``That ought to give us some pause here.''
With the rescue bill
signed, an aide suggested the outlook for California's planned note
sale will improve.
``We believe that the package ... is going to
restore confidence on Wall Street and add liquidity,'' Schwarzenegger
spokesman Aaron McLear said, adding the state may soon be able to sell
the debt to raise money as it normally does.
H.D. Palmer, a spokesman for the state's Finance Department, was more
guarded, but noted State Treasurer Bill Lockyer is poised to get the
notes to market quickly as the state has only enough cash to its pay
bills through late October. ``We've got our track shoes laced-up and
we're ready to go,'' Palmer said. ``That said, we will have to see how
far the credit window opens and under what conditions.''
Reopening
muni market
California's note sale was in peril because the municipal
debt market was effectively closed, Lockyer said.
The market has all but frozen up over the past three weeks. Buyers
have been scarce and tax-exempt yields have skyrocketed. Few deals
have been priced and scores of issuers such as states, hospitals,
school districts and others, have postponed their bond sales awaiting
a market turn around.
Without access to the debt market, Lockyer, a Democrat, and
Schwarzenegger, a Republican, warned California may have to delay
payments for essential state services such as law enforcement. In his
Oct. 2 letter to Paulson, Schwarzenegger warned California is not
alone.
``The economic fallout from this national credit crisis continues to
drain state tax coffers, making it even more difficult to weather the
continuation of frozen credit markets for any length of time,''
Schwarzenegger said.
Lockyer said on Wednesday the planned note sale was at risk from the
uncertainty gripping financial markets. ``Basically no credit is
available -- zero today,'' he told Reuters.
Lockyer aims to offer up the notes the week of Oct. 13 if market
condition permits.
The frozen public debt market was just one of many concerns driving
public officials across California to support the financial rescue
bill.
Many fear state assistance to local governments may be cut while local
sales tax and property tax revenues are sagging. Many are concerned
about the finances of public pension funds.
Amid the chaos in financial markets, partisan tempers that flared in
California's capital of Sacramento during the state's marathon budget
impasse, only recently settled, have cooled.
``We have been working with the governor's office to explore every
possible avenue to make sure the people of the state don't suffer an
interruption in services,'' Lockyer spokesman Tom Dresslar said.
Palmer said Schwarzenegger and Lockyer are in full agreement about a
potential note sale to the US government: ``There is absolutely no
daylight between the governor and the treasurer in understanding the
gravity of the situation.''
Reuters
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