Thread: CA-California asks feds to back its IOUs

Now that illegal aliens have "bankrupted" California, its legislators are now going to the U.S. Federal Government to ask they cover California's illegal aliens education, welfare benefits and health costs....

California asks feds to back its IOUs

By Steve Wiegand
swiegand@sacbee.com
Published: Wednesday, Apr. 15, 2009 - 12:00 am | Page 1A

Facing what could be the largest cash flow problem in state history, California officials are asking the federal government to back billions of dollars in short-term loans the state must seek in July.

"We're going to need cash-flow borrowing the likes of which California has never seen, at a time when market and economic forces are stacked against us," said Tom Dresslar, spokesman for state Treasurer Bill Lockyer. "That's a recipe for calamity."

While the state routinely borrows money at the start of fiscal years on July 1 by issuing interest-bearing Revenue Anticipation Notes, or RANs, a combination of factors have conspired to form a mountainous hurdle this time around.

Those factors include the sheer size of the amount needed – at least $13 billion – the state's woeful credit rating and the generally sorry state of the nation's financial markets.

Lockyer and other state and local officials have been quietly exploring the idea of doing what hordes of private financial and insurance enterprises have done in the past year: Ask Uncle Sam for help.

Precisely what kind of help it would be hasn't been decided. A spokesman for the House Financial Services Committee, chaired by Rep. Barney Frank, D-Mass., confirmed that Lockyer had met with Frank in late March, and that Frank was in the process of drafting legislation designed to aid states and local governments with problems similar to California's.

"There is something in the works," said spokesman Steve Adamske, "and that should be drafted by the end of this month ... there are several ideas being considered."

One idea is that buyers of RANs issued by states and local governments would be able to resell them to the federal government. The funds would come from the Troubled Assets Relief Program, or TARP, the $700 billion program that buys assets and equity stakes from financial institutions.

Another possibility is the federal government would provide RAN "enhancements," or guarantees that if the state or municipality defaults on the notes, the feds would pick up the tab. The state and local governments would pay the federal government a fee for providing the guarantees.

Other California officials are backing Lockyer's pitch in Washington.

"It's his (Lockyer's) issue, his domain," said Aaron McLear, spokesman for Gov. Arnold Schwarzenegger, "and we are supportive of his efforts."

So are the League of California Cities and the California Association of Counties, or CSAC.

"Municipalities are going to have huge (cash flow) deficits between July and December," said Paul McIntosh, CSAC's executive director. "We generally do, but it's going to be exacerbated because many had to use up their reserves last year. And when they can't get letters of credit to back their RANs, it becomes a real mess."

Chris McKenzie, executive director of the League of California Cities, said the groups are not seeking a permanent bailout from the federal government.

"We're just trying to get through this temporary problem with credit enhancements, which are there because of all the other problems there are with the economy," he said.

State government traditionally pays most of its bills in the first half of the fiscal year and collects most of its tax revenue in the second half.

That means borrowing from scores of "special funds" that are earmarked for specific programs, or issuing RANs, which are usually purchased by banks, money market mutual funds and other institutions.

Normally, state special funds have as much as $20 billion available at the start of the fiscal year that can be tapped to pay day-to-day bills. But because of the sour economy and earlier borrowing, special fund reserves are expected to be as low as $6.9 billion at the end of June.

In addition, because tax revenue has badly lagged behind estimates, the state's budget mavens are projecting the need to borrow at least $13 billion in the coming fiscal year.

That number will grow if voters reject several revenue-producing measures on the May 19 special election ballot or if tax revenue continues to be lower than estimated.

"The bottom line is we're looking at a very big number, and we have a major cash flow challenge coming up this summer," said Jason Dickerson, a budget and policy analyst for the nonpartisan Legislative Analyst's Office.

In fact, the number is likely to represent the largest cash-flow headache in state history, eclipsing the $11 billion borrowed in 2003.

Compounding the headache is the fact that last month national credit agencies bumped the state's bond ratings into a "second tier" of financial instruments.

As a result, many of the usual buyers – such as money market funds – avoid California RANs as well as Revenue Anticipation Warrants. The buyers won't touch them without some form of assurance that the notes will be repaid.

"The banks have told us they're not going to fork over anywhere close to that level of support," said Dresslar, the treasurer's spokesman. "That's why we're exploring other avenues, including the federal guarantee proposal."

Not everyone is enamored with the idea of federal help. In a recent position paper, Orange County Treasurer Chriss W. Street suggested federal guarantees of California's notes could threaten the U.S. government's own credit ratings.

"Furthermore," Street wrote, "U.S. guarantees … would have a material adverse effect on the ability of all other municipality and state borrowers to fund, due to a 'crowding out' effect; interest rates would soar for non-federal-guaranteed debt."

But Dresslar pointed out that other states and local governments would also be covered by federal legislation, that the state had never defaulted on a single debt and that it would pay fees to the feds for the guarantees.

"And in assessing the relatively worthiness of receiving help from the federal government," Dresslar said, "we'll stack up California taxpayers against the Wall Street magicians who made our money disappear, any day of the week."

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Here is an example of a state, that because of its fiscal irresponsibility in giving a free ride to illegal aliens, is looking for you and I to bail them out by way of the coruptocrats in Washington!!!

JUST SAY NO!!!!!!!!!

Cut the check when California has ousted about 7 million of the parasites they are going down for!

Quit Whining Arnold and get to governing your FAILED STATE!

Perhaps YOU should be impeached?