California Governor Arnold Schwarzenegger has warned the federal government that he may need an emergency federal loan of as much as 7 billion U.S. dollars to maintain the state government's day-to-day operations.
Schwarzenegger, in a letter sent to U.S. Treasury Secretary Henry Paulson Thursday, asked Washington to protect California if the state is unable to secure financing from the market amid the ongoing global credit crunch.
California borrows money from the credit market every fall for the state's public spendings and repays it using tax revenues collected in the spring.
State officials said that payments to schools and other government entities could quickly be suspended and state employees could be laid off if the state is still unable to access to the bond market.
Schwarzenegger's letter, which was disclosed by the Los Angeles Times Friday, came one day before the U.S. House of Representatives passed the 700-billion-dollar bailout plan proposed by the Bush Administration in a second vote within a week. The house earlier rejected the plan on Monday.
It is still too early to know whether the rescue plan could solve the current financial crisis resulted from the collapse of the U.S. housing mortgage market and unfreeze the panicked credit market.
"Absent a clear resolution to this financial crisis, California and other states may be unable to obtain the necessary level of financing to maintain government operations and may be forced to turn to the federal treasury for short-term financing," Schwarzenegger told Paulson in the e-mailed letter.
Finance experts in California say they have not heard of any example in recent history that the state has sought an emergency loan of this magnitude form Washington, and the only other such rescue was in 1975 when the federal government lent New York City money to avoid bankruptcy.
California State Treasurer Bill Lockyer warned earlier this week that the state may exhaust its reserves for public spendings within a month unless the current credit crunch is solved soon.
Source: Xinhua
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