Saying that borrowing money without a balanced budget in place "would be irresponsible," Gov. Arnold Schwarzenegger revoked a financial mechanism today that he agreed to last year for seeking emergency loans.
In a letter to state Controller John Chiang, the governor said he was rescinding his authorization for a General Cash Revolving Fund, which he had approved in April 2008. The fund is legally necessary to enable the controller to borrow money on the commercial credit market through the issuance of Registered Anticipation Warrants, or RAWS. The warrants usually carry steep interest rates and up-front fees, but would give the state more than a year to repay.
"I have informed legislative leaders that under no circumstances will I agree to issue a RAW to paper over our current budget shortfall," Schwarzenegger said. "This revocation ends any chance that the state could issue a RAW and helps to clarify that our only alternative to running out of cash is to enact the budget solutions needed to restore the 2009-10 budget to balance."
The governor and legislators are wrestling over the best way to close a $24 billion hole in the budget they approved last February for the fiscal year that begins July 1.
Schwarzenegger has proposed a package of about $17 billion in cuts and about $7 billion in accelerated tax collections, borrowing from local governments, selling some state assets and making some accounting maneuvers. Assembly Speaker Karen Bass, D-L.A., has said her caucus wants more revenues raised, although she stopped short of specifically calling for higher taxes. Senate leader Darrell Steinberg, D-Sacramento has suggested restoring some of the cuts by spending down a $4.5 billion reserve the governor wants.
But a spokesman for state Treasurer Bill Lockyer said Lockyer does not favor a reduction of the reserve because it would make it harder for him to borrow money from Wall Street.
"When you start slashing the reserve, you slash our ability to instill confidence in investors that the state will be able to meet its obligations," said Tom Dresslar.
Chiang and Lockyer have warned that if the governor and lawmakers don't have a deal in the next three weeks, they may be unable to borrow enough money in the private markets to ease the cash flow crunch the state normally faces in the first months of a fiscal year. Chiang has estimated that the state's coffers will run out of cash by July 28.
Without the governor's move, officials said it would have been possible, although hugely expensive, for the state to borrow money to see it through the summer while a budget fix was hammered out.
But Schwarzenegger told reporters on Wednesday that there was no good reason to delay making the "hard decisions" on a budget fix.
"It doesn't get any easier in three weeks from now or four weeks from now" he said. "Now is the time to make those kinds of changes, make those kinds of cuts. I will not under any circumstances sign a RAW.
"If anyone comes to me and says 'the budget is not done, we are running out of money,' then, let me tell you, the state will come to a standstill, because I will not sign a RAW just so the Legislature will have additional time to solve the problem."
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