Summer doesn't officially end until September 22. But the state's Summer of Debt -- at least from a cash perspective -- will end on September 4, according to Controller John Chiang.
Chiang said today that's when the state will stop issuing IOUs, thus ending only the second issuance of California promissory notes since the Great Depression. The controller's office doesn't have any official projections of the final dollar total of IOUs, though does report the total to date is just under $2 billion.
That's before interest, mind you.
"Hopefully, this is the last time we've done this," said Chiang in an interview this afternoon. The decision to end the IOUs a month early (the redemption date was technically October 2) comes after Chiang's staff spent the last few weeks crunching numbers provided by Governor Schwarzenegger's budget office, working to get a full sense of the July deficit deal's impact on the state's cash flow.
Chiang says the $24 billion deal was sufficient, but didn't exactly praise it for its fiscal prudence. On the contrary, he said the package includes several "red flags" that will no doubt be noticed by Wall Street investors. Tops on the controller's list: the proposed $1 billion of cash from a partial sale of the state-run worker's compensation insurance fund and a sneaky one day shift of the state paycheck run that happens to make the expense show up in the 2010-11 fiscal year.
And California needs to impress Wall Street investors, not leave them chuckling. That point was also made today, when Chiang and Treasurer Bill Lockyer jointly announced plans for a sale of revenue anticipation notes (RANs)-- short term borrowing -- totaling some $10.5 billion this fiscal year.
The general rule of thumb is that the state needs a 'cash cushion' of $2.5 billion in any month to cover its expenses. But Chiang says several months in the 2009-2010 fiscal year are expected to be below that, with the worst month -- April 2010 -- expected to be a full $8 billion in the red.
Interestingly, the first RAN sale will be in the next two weeks for $1.5 billion. And what will that borrowed cash help pay? Why the IOUs, of course.