SAN FRANCISCO - The California state government does not have a lot of room to maneuver to avoid a cash crunch that would require the state to issue revenue anticipation warrants, according to a document released by the state controller's office.
The controller's staff conducted "stress tests" of the state's financial position and presented the results in a letter that was distributed to legislative leaders last week.
The tests reviewed a number of potential scenarios stemming from the fiscal 2009 budget proposal of Gov. Arnold Schwarzenegger.
Almost all of the scenarios would lead to the issuance of Raws. The warrants, issued by the controller's office, allow the state to borrow cash on a short-term basis without a budget in place or between fiscal years.
They cost more to issue than revenue anticipation notes, the usual vehicle for cash management borrowings.
Schwarzenegger's budget proposal called for a ballot measure that would seek authorization for the state government to issue bonds securitizing lottery revenues. The budget also contained a temporary sales tax increase as a backstop if those plans fail.
Both elements of the proposal are controversial, which could make it a tough sell in a Legislature in which budgets must be passed with two-thirds majorities.
According to the controller's analysis, the state could be in the position of having to issue Raws if the budget is not enacted by Aug. 1, even if that budget includes all of the governor's proposals.
Under that scenario, without the issuance of Raws, the stress test shows a cash deficit by October.
The administration is also seeking changes to its cash management practices, including delayed disbursements to school districts, that would allow it to get by with $3.6 billion less in external borrowing.
Even so, the administration still proposes to issue $10 billion in Rans in October or September, but because of the time needed to prepare the transaction, administration officials have said that the budget would have to be in place by August.
California Controller John Chiang has already begun laying the groundwork to issue Raws. In April, he requested and received authorization from Schwarzenegger to open the state's general cash revolving fund, which is a prerequisite for issuing the warrants.
"As you are aware, this authorization does NOT signal that the need for a Raw is inevitable. Rather it is a precautionary step intended to optimize options for the state to fully meet its payment obligations under even the most difficult of circumstances," Chiang wrote to the governor.
"It's to get the ball rolling in case we need it," said Chiang spokeswoman Hallye Jordan. "There's no penalty and difficulty in undoing it."
California last issued revenue anticipation warrants - an $11 billion transaction - during its last budget crisis in 2003.
