July 12, 2007 seemed to be an unremarkable day here in Sacramento. It was a Thursday with a pleasant un-summer-like high temperature of 85 degrees. The budget was almost two weeks late, though that certainly wasn't surprising.
But that day now stands as a milestone for the long crisis in California's governance: it was the last time the Golden State had "real"... not borrowed... cash on hand to pay its bills. Ever since, finance officials have scrounged for money to keep the wheels turning -- a process that's expected to continue in 2010.
Sure, the state has received tens of billions of dollars in tax revenues since July 12, 2007 -- money that's ostensibly "real" -- but those dollars have been fulfilling all the previous obligations created to either internal funds that were borrowed against, Wall Street investors, or both.
Today, state finance officials are chatting with representatives of the various credit rating agencies to explain Governor Schwarzenegger's new budget plan. Those conversations, coupled with a recent debate over the state's ability to pay back all of its borrowing, prompted an unusual joint press statement this morning from California's top three financial officials -- Controller John Chiang, Treasurer Bill Lockyer, and Department of Finance Director Ana Matasantos.
"Our three offices will continue to work together to ensure California has sufficient cash resources to meet its Constitutional and legal obligations," it reads, in part. (The full statement is here.)
Even so, the cash problems of the state government have become almost a way of life. And as everyone remembers, those problems really hit rock bottom last summer.
That's when California was forced to issue 449, 241 registered warrants... more than $2.6 billion in IOUs in all.
"One year ago, California faced a double whammy," said Jason Dickerson of the Legislative Analyst's Office in an interview for a short radio story of mine last week. That double whammy was the state's steep drop in tax revenues combined with the global credit crunch that, for a time, totally froze the state government's ability to borrow operating cash.
Ultimately, the state made its way through the crisis, borrowing $8.8 billion from Wall Street once the markets improved, a lot of cash from internal sources (which, for a time, meant no money for many infrastructure projects across the state), and issuing IOUs.
This year, things look better... but still not great. For starters, there are concerns about what happens in March. Schwarzenegger's proposed budget projects that's when the state's cash reserves will dip down to $1.7 billion -- below the preferred cash "cushion" of $2.5 billion in any given month. As a result, the budget includes a placeholder of $1 billion in cash solutions that need to be worked out with the Legislature, the Controller's office, and others.
The LAO's Dickerson says more troublesome, though, is the projection of another cash deficit come July... a monthly shortfall of almost $7.8 billion according to the governor's budget.
"If the Legislature and the Governor do not agree to a balanced budget solution that investors can understand and believe in by early summer," said Dickerson, "it may be difficult for the state to borrow the funds it needs in early summer to keep paying its bills on time."
Translation: Ye Olde Budget Stalemate is going to hurt in 2010.
Back to the historical nature of this ongoing cash problem, here's a factoid that's hard to believe but true, according to last week's monthly cash report from the Controller's office: on New Year's Eve, the state of California was technically $24.8 billion short on cash -- a number that represents the total shortfall, accumulated through the years, to date.
The only reason we weren't in trouble was because we had borrowed money, $16 billion of internal borrowing and the $8.8 billion in revenue anticipation notes (RANs) from Wall Street in 2009. And when did we start running that tab?
That would be that seemingly normal day in July, more than two years ago.