SACRAMENTO (CBS) — A political stalemate in Washington has the potential to cut off California’s already-strained cash flow, the state treasurer said on Thursday.
Treasurer Bill Lockyer told KNX 1070 the state may need to seek financing from Wall Street in case talks fail to raise the federal debt ceiling ahead of an Aug. 2 deadline.
A U.S. default “complicates our summer cash management problems,” Lockyer said. “We typically borrow in the summer, and if there’s federal money not coming to the state of California, then we have cash flow difficulties that result pretty quickly.”
The state is considering seeking a bridge loan to pay the bills in advance of the expected $5 billion sale of revenue-anticipation notes (RANs) set for the end of August.
But if talks between the White House and Congress falter, the bond market could be plunged into turmoil, making a loan guarantee far more difficult.
“It does cost more to borrow in California than in other states, so it would be an additional burden to the already-existing ones if the federal defaults occur.”
In 2009, the state ran out of cash and had to issue $2.6 billion in I0Us in order to meet its obligations.
Lockyer also warned of delays in Medicare and other benefit payments in the event of U.S. default that would likely force the federal government to redirect payments to higher-priority states.
Credit rating agency Moody’s Investors Service put the U.S. on notice for a potential rating downgrade over the stalled debt limit talks, along with 7,000 ratings on up to $130 billion in municipal debt backed by the U.S. Treasury or other federal funds.