Will California Get the Next Bailout?
Since everyone else seems to be coming to the Feds with their hands out, the State of California may be jumping on the bandwagon.
LOS ANGELES — California, the nation’s most populous state and the world’s sixth-biggest economy, has warned the Treasury Department that it may need a $7 billion emergency loan from the federal government because it is running out of cash and has not been able to borrow more.
State officials said they hoped that the $700 billion federal bailout of the financial system approved by the House of Representatives on Friday would help open credit markets that have balked at providing the kind of short-term financing California and other states and local governments routinely rely on to keep operating.
New York State received a similar bailout loan in the 70s and it actually resulted in the city turning around its fortunes for a while. This may not be such a simple proposition, however. The linked article notes that California might not be the only state with these issues.
The problem, he said, may grow worse as 15 states besides California, including New York and Connecticut, work to fill several billion dollars in funding gaps that have emerged this fall.
In his letter, first reported by The Los Angeles Times, Mr. Schwarzenegger said, “California and other states may be unable to obtain the necessary level of financing to maintain government operations and may be forced to turn to the federal treasury for short-term financing.”
How often can we go to the well before it runs dry? And how long will the few remaining fiscal conservatives in Congress keep putting up with this before we begin to see filibusters? I’m quickly coming to the conclusion that it doesn’t matter who wins the presidential election or how many seats each party holds in Congress. Our national leaders are going to be facing some hard times across the nation next year, and the occupant of the Oval Office may not be able to count on more than four years in the seat.
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15 Responses to “Will California Get the Next Bailout?”
Isn't the bailout supposed to ease the credit crunch?
I believe that was the theory, yes.
“…the kind of short-term financing California and other states and local governments routinely rely on to keep operating.”
So American states – including California, which has an economy larger than most countries – are now the same as those fiscally irresponsible people who live from week to week on payday loan services at high interest rates?
People get the governments they deserve . . . and Americans' obsession with not paying taxes, but insisting on larger government . . . results in this. On a larger scale, the federal government's indebtedness to Chinese autocrats is the same thing.
This sort of financing is now “routine” . . . especially since fiscal conservatives have been exiled from the porker conservative GOP.
Americans can only blame themselves for this state of affairs.
They would not live this irresponsibly themselves, but they refuse to pay the extra dollar or two here or there that would support the government programs and entitlements they can't seem to do without.
As the U.S. becomes a one party state and the Democrats want to nationalize all problems, is there any question that the government wil go ahead and bail out the states. The real question is what price will the states pay for handing over control to the federal government. All the next Sec. of Treasury will have to do is tell a state like California that is they so something that DC Democrats do not like, like not raising states and repealing Propl 13, then the feds will cut the bailout money.
Are states ready to surrender their automony for more money. My guess is that the states will do anything for more money.
Maybe somebody needs to use Google to look at the situation. States cannot run deficits, by law and state constitutions, and have to run a balanced budget. No one cried for Michigan in September 2007, the Democrat governor and Republican House reached a compromise before the Michigan shut down.
California's been running on a wing and a prayer for a very long time. Their budgetary woes are legendary, and it's only going to get worse for them, as the PERS bill comes due.
People, please.
I live in California. This is not a bailout loan. California routinely takes out a loan toward the end of each year so as to keep state programs running and pay state employees. Then when taxes come in at the start of the next year, the loan is paid back.
The problem this year is that the credit markets (where California would normally go for such a loan) are frozen. California can't get a loan through commercial channels, because the larger financial crisis has caused so much tightening in the credit markets.
Arnold approached the federal government about this $7 Billion loan before Congress passed the bailout package. The expectation was that if the Congressional bailout passed, the commercial credit markets would start to loosen up and California would get its loan from usual sources. However, if the bailout didn't pass, Arnold simply notified the federal government that he may approach them for the loan instead.
JWeidner–
So, because the bailout passed, the credit crunch is easing, and California won't need a bailout of its own?
(I'm not playing “gotcha” here–I'd just like to know if the bailout is performing as advertised.)
Here's what I know of…I heard an interview with CA state Treasurer Bill Lockyer. He had laid out the situation as I described above. His prediction was that if the Congressional bill passed and was signed into law, the credit markets ought to start thawing, making it less likely that CA would need to approach the Federal government.
Arnold approached the Feds strictly as a “hey, here's our situation if this bill doesn't pass” type of thing. As far as I know, it was never to be structured as a bailout, just a loan to be paid back when tax revenues start coming in at the start of '09 (Lockyer calls it a revenue anticipation note sale). According to Lockyer, this is SOP for the state, something they do every year.
I don't know if the situation was exacerbated somewhat by the fact that the state budget was so late being turned in and approved. I think it was something like 80+ days late. However, the larger problem was simply that no financial institution was lending due to the financial crisis.
Thanks for the explanation, JW.
Let's see… many states like CA and NY pay more to the federal government than they receive. Many states, like Alaska receive more money from the federal government than they pay in taxes. Also Alaska is flush with cash from the increase in energy prices and Palin likes to point out that she has been able to give some of that money back to Alaska's citizens. Can we stop the give away of money to Alaska? I think it's high time we revisited the issue. Times have changed.
http://thecitizens.blogspot.com/2008/09/after-r…
Marlowecan: In the 1970s, New York City, at the forefront of liberalism, bankrupted itself. The city government and many liberals _expected_ US taxpayers to bail out that city, to “rescue” it in today's stupid euphemistic media parlance and prop it up and keep it and its idiotic policies alive and “progressing.” California, with its heavy Democratic control of the state legislature for ages, and Massachusetts Lite politics as I, a native of that state, have called it, has now managed to fail fiscally as well as fail to correct its misbehavior. Yet we'll see clamoring to save it by those to whom moral hazard comes naturally (for no good reasons, to say the least). Oh, and if the people in California's government get desperate, they can always say that they and their huge electoral vote contingent will be angry and vote Democratic this year if they are snubbed by the Bush administration (while the irony of the un-learning that voting heavily Democratic represents will go unnoticed and unannounced).
“California can't get a loan through commercial channels”
and so it is going to Washington for a *BAILOUT*. Truth told.
http://www.time.com/time/magazine/article/0,917…
http://www.nytimes.com/2006/12/31/nyregion/31de…
http://www.gothamgazette.com/article/issueofthe…
http://www.manhattan-institute.org/pdf/PI158McMahonSie...
Any action the government takes to help ease the financial crisis will only treat the symptoms, not the cause. Until we treat the cause we will see one crisis after another.
This crisis is a lesson showing us how interconnected all the worlds finances are. Our greed, self interest and egoistic attitudes are the cause of the crisis and the only cure is to change these internal attitudes.
Any action the government takes to help ease the financial crisis will only treat the symptoms, not the cause. Until we treat the cause we will see one crisis after another.
This crisis is a lesson showing us how interconnected all the worlds finances are. Our greed, self interest and egoistic attitudes are the cause of the crisis and the only cure is to change these internal attitudes.
Michael Laitman expands on the problem and offers solutions in this blog item :-
http://www.laitman.com/2008/10/the-financial-cr…