California may need emergency loan

SACRAMENTO Even though a budget has been passed, the state may still need to secure an emergency loan from the federal government.

However, the governor says the state faces a potential cash crisis due to the national credit freeze. So Governor Schwarzenegger warned U.S. Treasury Secretary Henry Paulson that California may need a government rescue package of its own to keep government services running.

Governor Schwarzenegger got the ball rolling for the state to possibly take out a rare emergency loan from the federal government in the amount of $7 billion.

However, the national credit crunch is making it impossible for California, or any state, to do any routine short-term borrowing.

"Right now, because liquidity has dried up, it doesn't exist, therefore it's very hard to get that loan," said Governor Schwarzenegger.

Borrowing in the fall is typical for California, as it needs to bridge the gap between now and when a flood of income tax receipts starts arriving in the spring. The state uses these loans to pay bills between now and the early part of the new year. Without them, state-funded programs may not get their money.

"Payments to schools, payments for law enforcement, public safety, firefighting, healthcare, nursing homes ... you name it," said Tom Dressler, California Treasurer's Office.

The hope is that the newly enacted $700 billion Wall Street rescue package will inject confidence back into the economy and unfreeze the credit markets. But no one knows for sure if and when that will happen.

"This was a very important step in the House passing this bill, but we are not out of the woods yet," said Governor Schwarzenegger.

California is expected to run out of cash on Oct. 29.

The last thing state-funded programs need to hear is money may not be coming their way. They have just struggled through the longest state budget impasse ever. That delay withheld program money for three months.

"It's a bigger question mark now then it was before in terms of whether or not we're going to be able to stay open ... if they can't get that figured out and get it figured out quickly," said Jennifer Crosetti, an adult day-care provider.

The governor will be meeting with legislative leaders next week to update them on this potential crisis.

Meanwhile, 1,000 public school districts are supposed to get $3 billion from the state at the end of October.


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