Every year California, like other states, does short term borrowing to bridge between periods when incoming state revenue is lower and the periods when incoming revenue is higher.
To make that short term borrowing possible, the state purchases what are called “credit enhancements” from large commercial banks to insure our short term bonds and make them viable for investors.
But due to the lingering struggles of commercial banks, they can no longer offer these credit enhancements at the level needed for California.
A cash crisis in which the state can’t make its payments to local governments, schools, health care providers and infrastructure contractors would be a devastating blow to the state’s and the nation’s economic recovery.
To avoid this kind of crisis California needs the federal government to step in and provide the insurance that commercial banks cannot currently provide.
We’re not asking for a loan or a bailout, just a guarantee like the banks would normally provide if the country were not in the middle of this unprecedented financial situation.
This week I have been in Washington DC seeking support for those federal guarantees.
I’m pleased to say the response from both the Obama Administration and from Congress has been very positive and they are looking at both legislative and executive solutions that can help with the problem.
We are finally starting to see signs of economic recovery, and our federal government and elected leaders know that allowing the eighth largest economy in the world to fall off a fiscal cliff would have serious repercussions for the rest of the nation.
Back in California we will to continue developing options for balancing the budget and getting the states cash flow problems down to a manageable level so we can get on with the business of sparking economic recovery. |
