Didn’t Think It Could Get Any Worse? Think Again

As though the state’s fiscal condition weren’t dire enough, Controller John Chiang sent a letter on May 29 to the governor and legislative leaders saying that on July 31 the state will be $1 billion short of meeting its payment obligations to schools, local governments and vendors.

“Based on the May Revision revenue and expenditure estimates provided to us late last week by the Department of Finance and taking into account the actual cash receipts and expenditures my office tracks, it is clear the health of the State’s treasury has significantly deteriorated since the adoption of the (budget), a mere three months ago,” Chiang wrote.

And, Chiang says, the situation only gets worse.  In April 2010, the state will be $22 billion short of cash to meet its payments.

“That is more than four times the $5.1 billion cash deficit we faced this past spring,” the letter says.

Lawmakers and the governor need to act well before the end of July, Chiang points out.  

The controller is preparing to sell Revenue Anticipation Warrants to cover some of the cash flow problem but “without credible budget and cash flow solutions in place, the rating agencies and potential investors who will be evaluating the credit risk of these securities will be highly skeptical about investing in California.”

Failure to act “can compromise the success of this sale or further increase what is expected to be the largest financing costs in the State’s history.”

In short, Chiang says “the state will not be able to borrow its way out of this crisis.”

Chiang “strongly” urges lawmakers and the governor act by June 15.  

“Inaction would create an even greater fiscal hardship for Californians, especially those businesses that provide goods to the State and those vulnerable individuals who depend on public health and social services.”

A chart accompanying the letter lays out the situation.

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