California has alerted the U.S. Treasury that it may need an emergency, $7 billion loan within days as shortfalls in revenue have caused it to be frozen out of the credit markets.
In a letter to Treasury Secretary Henry Paulson, California Governor Arnold Schwarzenegger said the credit crunch and recession enveloping the state have left it short of revenues and cash it needs to float a $7 billion note needed to maintain day to day state operations.
The governor added that other states also may be unable to obtain financing in the stressed credit markets, which have forced many states and cities to postpone borrowing or pay exorbitant interest rates on bonds and notes they had to issue in recent weeks.
"Like many other states, California is feeling the enormous effects of this crisis on our economy," Mr. Schwarzenegger said in a plea that reportedly helped sway some lawmakers to vote for the $700 billion bank bailout package that passed the House this afternoon.
"Absent a clear resolution to this financial crisis that restores confidence and liquidity to the credit markets, 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."
"This credit crisis has the power to grind the U.S. economy to a halt if swift and decisive action is not taken immediately," the governor continued. "Many states and local governments have been unable to secure financing for bond offerings and for routine cash flow used to make critical payments to schools, local governments and law enforcement."
California, which has had major budget problems for years due to the crash in its housing markets, is in particularly dire straits, he said.
"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." The Treasury had no immediate comment on California's request.