SAN FRANCISCO - California will need to borrow $1.5 billion to make it through the end of the fiscal year, Controller John Chiang announced Friday.
The borrowing is needed following an analysis of the cash-flow needs created by the recently enacted budget, which included tax hikes and spending cuts to close a $40 billion budget gap, he said.
Chiang said the new budget goes a long way to solving the state's immediate cash shortfall, but not all the way, which is why borrowing is required to get through June 30, when the fiscal year ends.
"The cash crisis, which would have maintained a stranglehold over the state for the rest of the year, was reduced to a three-week period in early April," Chiang said in a news release.
The most likely form of borrowing is a revenue anticipation note, which would have to be repaid by June 30, according to a spokesman for Treasurer Bill Lockyer.
"We're still consulting with finance and the controller's office on the best short-term borrowing approach," said Tom Dresslar. "While no final decisions have been made, we anticipate at this point it'll be a Ran."
The state has a commitment from an unnamed financial institution to buy the notes, Chiang told reporters on a conference call Friday.
The controller's news release yesterday foreshadowed budget trouble ahead, reporting a $900 million revenue erosion in February.
"While current-year cash-flow problems appear to be manageable, early projections indicate the recently enacted budget did little to guarantee there would be sufficient cash solutions to meet the state's payment obligations for the coming fiscal year," Chiang said in his news release. "If the governor and lawmakers do not take action before July, we could be accelerating towards the very cliff that we just stopped short of falling over."
The state's budget woes and cash crunch have hobbled its ability to enter the market to issue long-term general obligation bonds. It last sold GOs in June. As a result, the state has halted work on thousands of GO bond-financed infrastructure projects.
Officials have also tried to develop ways to work around the crisis, including the recent private placement of $194 million of state GOs with the Bay Area Toll Authority, in order to keep money flowing to projects in BATA's service area.
The state will pay BATA a 3.34% interest rate for those 18-month bonds.
California's budget woes also led Standard & Poor's to downgrade the state's GO rating to A from A-plus in February. The other two rating agencies have A-plus level ratings but have the state on negative watch.
California paid a high price the last time it issued Rans, in October. After the Lehman Brothers bankruptcy, there was uncertainty if the state could sell its $7 billion in revenue anticipation notes at all. In the end, with the deal scaled back to $5 billion and pitched heavily to retail buyers, the state sold Rans at yields between 3.75% and 4.25%.
Chiang also announced that his office has begun to release almost $2.8 billion in payments that it withheld in February to entities that include local governments, social service providers and taxpayers owed income tax refunds.
