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California May Seek $5 Billion From Wall Street, Lockyer Says
California is lining up a short- term loan of more than $5 billion from a group of Wall Street banks to tide the state over with enough cash after a record- long budget impasse, Treasurer Bill Lockyer said.
The state may borrow the money from Bank of America Merrill Lynch, JPMorgan Chase & Co., Goldman Sachs Group Inc. and RBC Capital Markets once a budget is enacted and would repay the funds with an estimated $10 billion of notes it will sell in October or November, Lockyer said today in New York. The state can’t issue those notes until a budget is signed.
California has been operating without a budget since the start of its fiscal year July 1 amid a dispute over how to erase a $19.1 billion deficit. The state is in danger of having to shutter school construction, roadwork and other public-works projects and force private contractors to put as many as 10,000 employees out of work because of the impasse, Lockyer said at a conference of the Securities Industry and Financial Markets Association.
“We need to get that done,” Lockyer said.
Governor Arnold Schwarzenegger and top lawmakers are scheduled to meet at noon tomorrow to continue negotiations on the budget after announcing they’d agreed to a “framework” to fill the deficit Sept. 24. Schwarzenegger, a Republican approaching the end of his term, and Democrats, who hold a majority in the Legislature, disagreed on how much spending to cut and whether to raise taxes to fill the gap.
JPMorgan Loan
California last year borrowed $1.5 billion in August from JPMorgan at an annual interest rate of 3 percent after a similar budget impasse forced the state to issue IOUs to pay bills. The loan was repaid when Lockyer sold $8.8 billion of one-year notes one month later. The state typically issues such notes in the second or third quarter each year, when cash-on-hand is low, and repays it from later tax collections.
Lockyer said JPMorgan has committed to the largest portion of this year’s loan, though he didn’t say how much.
The Department of Finance has identified about $6 billion of bonding needs through the end of November. Lockyer has been waiting to sell the debt pending approval of a budget. He has warned lawmakers and Schwarzenegger that they need to complete a budget by the end of next week to allow time to sell bonds needed to keep funding public works projects.
That’s because of a self-imposed “dark period” in December and early January, when Lockyer typically doesn’t sell debt while new economic data are prepared, along with a new budget proposal for the coming fiscal year. The governor must deliver the new spending plan to the Legislature in the second week of January.
To contact the reporters on this story: Michael Marois in Sacramento at mmarois@bloomberg.net; Brendan A. McGrail in New York at bmcgrail@bloomberg.net
To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net
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