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Calif. could be out of cash by August

May 6, 2008 12:00:00 AM PDT
"We're running out of cash," said Assembly Speaker Fabian Nunez, D-Los Angeles.Those haunting words from the State Capitol are ringing throughout California. From state-funded daycare to all other programs that rely on Sacramento for money, state leaders are warning the state could run out of cash as early as August.

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"We need more. We need more cash in the state coffers in order to just pay the bills," said Nunez.

State accounts continue to dwindle because of the housing crisis and stock losses. Couple that with automatic spending growth mandated by law, and it's a combination that could trigger a cash shortage.

"It's a major crunch, and it's not only because of the economy, but it's because we have a budget system that has really failed the state for the last few decades," said Governor Arnold Schwarzenegger, R-California.

During cash crunches, the state often turned to Wall Street for short-term loans, or moved money around the budget -- some would describe that as robbing Peter to pay Paul. Borrowing is tricky this time. In order to get favorable interest rates, the state has to enact a timely budget, which hasn't been done in years.

The other option is take out the equivalent of a sub-prime loan, which has extremely high interest rates and a $100 million fee. It could also lower California's credit rating, which is already one of the lowest among state governments.

One state-funded daycare Eyewitness News visited is already thinking about the cash crunch. Its best hope is an on-time budget, but it's bracing for something much worse -- another cut in funding.

"We put on hold any pay increases for the staff. Any kind of stipends they may receive, they're not going to get. No raises," said daycare provider Bonnie Kurtz.

 

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