California could face a staggering shortage of cash unless voters and legislators both address the issue before the start of the new fiscal year July 1, the Legislative Analyst's Office said today.
In a report called "California's Cash Flow Crisis," the nonpartisan and independent analyst said state government could be faced with having to borrow a record $20 billion at the start of the fiscal year in order to pay its day-to-day bills.
The report said failure of budget-balancing measures before voters at the May 19 special election "would increase the state's cash flow pressures substantially - potentially increasing the short-term borrowing requirement to well over $20 billion."
That would be nearly double the largest cash flow headache in state history, which was $11 billion in 2003. It's also $7 billion more than state budget analysts estimated just a month ago that California would need to borrow.
In addition to voter approval of the ballot measures, the report said, the Legislature needs to quickly take steps to close a new budget deficit projected to be at least $8 billion. The LAO recommended that legislators find a way to get the amount that needs to be borrowed below $10 billion, either through program cuts, tax increases or delaying payments to schools and local governments.
"Without additional legislative measures to address the state's financial difficulties or unprecedented amounts of borrowing from the short-term credit markets," the report said, "the state will not be able to pay many of its bills on time for much of its 2009-10 fiscal year."
California routinely borrows money at the start of fiscal years by issuing what are known as Revenue Anticipation Notes, or RANs. But state Treasurer Bill Lockyer has warned that the magnitude of the amount needed this year, coupled with the state's poor credit rating and the deep nationwide recession, will make borrowing much more difficult this year.
Lockyer and other state officials have asked Congress to ease the problem by backing the state's RANs, either through guaranteeing to note buyers that the federal government will back them, or by having the federal government set up a fund that would purchase the notes on a secondary market.
Assembly Speaker Karen Bass, D-Los Angeles, is in Washington D.C. meeting with members of congress and the Obama Administration to make the state's case.
But Rep. Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, has indicated a bill his committee is drafting will not give California officials what they want. Instead, the bill is expected to include a temporary federal "reinsurance" program for state and municipal bonds and notes, as well as requiring bond rating agencies to base ratings on the likelihood of the issuing agency paying off the bondholders. Frank's committee is slated to take up the bill May 21, two days after the special election here.
California has never defaulted on a bond or note it issued.
Call The Bee's Steve Wiegand, (916) 321-1076.
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