Schwarzenegger to Paulson: California may need $7 billion emergency loan

The Los Angeles Times has obtained a letter from California Gov. Arnold Schwarzenegger to Treasury Secretary Henry Paulson warning that his state may need an emergency $7 billion bridge loan to maintain cash flow as it awaits sales and income tax receipts at the end of this year and in early 2009. The trouble? Seized-up credit markets are making it difficult for the state to get the short-term credit it needs from the banking system.

“California and a number of other state and local governments are experiencing the lack of liquidity in the credit markets firsthand,” Schwarzenegger wrote. “Many state and local governments have been unable to secure financing for bond offerings and for routine cash flow used to make critical payments to schools, local governments and law enforcement. While some states may be able to absorb a delay or obtain high-interest financing through private banks, California is so large that our short-term cash flow needs exceed the entire budget of some states. We expect to issue $7 billion in Revenue Anticipation Notes for short-term cash flow purposes in a matter of days.”

LA Times story

Schwarzenegger letter (PDF)