Cash-strapped California may appeal to the federal government for a multibillion-dollar loan if the nation's credit markets do not stabilize quickly.
Gov. Arnold Schwarzenegger sent a letter Thursday to Treasury Secretary Henry M. Paulson warning that the state needs $7 billion and "may be forced to turn to the Federal Treasury for short-term financing."
Schwarzenegger said passage of a federal rescue plan for the nation's lenders is urgent because "the credit crisis has the power to grind the U.S. economy to a halt."
"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," Schwarzenegger wrote.
California's record 85-day budget standoff reduced the window for securing short-term borrowing depended upon by the state each year to fill gaps in revenue collection. The nation's financial crisis has exacerbated the problem.
Treasurer Bill Lockyer said the state's reserves will be exhausted this month absent a thawing of the nation's credit freeze.
California potentially could be forced next month to stop or delay payments for teachers' salaries, nursing homes, law enforcement, cities, counties, school districts and every other state-funded service, Lockyer said.
The state could be $1.5 billion in the red by Oct. 29 unless a short-term revenue source is found, said Hallye Jordan, spokeswoman for State Controller John Chiang.
The $7 billion in short-term financing, called revenue anticipation notes, is the amount needed by the state through June 30.
"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," Schwarzenegger said to Paulson.
Schwarzenegger said California's economy is "dynamic and resilient, but also uniquely sensitive to national and international economic conditions and fluctuations in the financial markets."
"The federal rescue package is not a bailout of Wall Street tycoons - it is a lifeboat for millions of Americans whose life savings, businesses, retirement plans and jobs are at stake," he said.
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