With the historic budget impasse's conclusion, it may be conventional wisdom to think the state's fiscal woes are -- at least temporarily -- over. But this morning, the state's top investment officer warned that California is in danger of running out of money due to the uncertainty of what happens next on Wall Street.
Treasurer Bill Lockyer's released his annual debt affordability report for state government today, but it was the particularly dire attached written statement that will make headlines:
"“For 10 days, state and local governments have been closed out of credit markets – long-term and short-term – in spite of the fact that they represent no default risk and provide a good tax-free return to investors," wrote Lockyer. "The credit market is frozen because financial institutions are afraid to commit capital amid enormous uncertainty."
That's particularly bad news for California, as state government typically needs a short-term loan around this time of year to keep the bills paid.
You may remember that the issue of loans was much discussed by both Lockyer and Controller John Chiang during the budget stalemate; at that time, the fear was an expensive loan known as a Revenue Anticipation Warrant (RAW), which was the only option for the state's money needs in the absence of an enacted spending plan. Now, even the frequently used loan known as a Revenue Anticipation Note (RAN) appears in trouble.
Without a RAN loan, the state's cash reserves could be depleted by the end of this month. That means all of those state services that went without during the budget impasse... and more... could end up without cash.
"Payments for teachers' salaries, nursing homes, law enforcement and every other state-funded service would stop or be significantly delayed," says the written statement from Lockyer. "And California’s 5,000 cities, counties, school districts and special districts would face the same fate."