California Gov. Arnold Schwarzenegger said the state is "not out of the woods yet." State Treasurer Bill Lockyer will go ahead with a planned $7 billion bond offering, but market conditions remain dire. "There are no guarantees the legislation will produce the market conditions that will permit completion" of the offering, Mr. Lockyer said in a statement.
Gov. Schwarzenegger said that if the state couldn't borrow on its own, it would again "go to the federal government and ask for help." He had sent U.S. Treasury Secretary Henry Paulson a letter Thursday warning that California might have to seek $7 billion in emergency federal loans until liquidity is restored in credit markets.
With credit frozen, California had enough cash reserves to last until Oct. 28, said Tom Dresslar, a spokesman for Mr. Lockyer. As a result, the state was prepared to seek initial loans of between $1.5 billion and $2 billion to cover expenses including payrolls for thousands of teachers, police, firefighters and other public employees. Mr. Dresslar said $7 billion in federal loans might be needed before next spring, when new state tax revenue will be flowing.
But after the U.S. House of Representatives passed a revised version of the bailout plan that was signed by President George W. Bush on Friday, California's cash situation may be eased. Mr. Dresslar said the state is hopeful "the credit paralysis will end and we'll be able to access those markets the way we normally do." He added that the U.S. Treasury has the authority to grant an emergency loan for the state and that the rescue bill reinforces those powers.
Some other U.S. states, counties and municipalities also are feeling the effects of the credit crunch. Massachusetts this week postponed a $750 million offering and suspended a separate sale of commercial paper, after the state was only able to raise $232 million of its $400 million target for short-term cash needs. North Carolina's Cumberland County planned to borrow $27 million this month and refinance another $63 million for construction projects. But the state is unlikely to move ahead because of market conditions, said a county spokeswoman.
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