Published August 01, 2011
Nobody knows exactly what's going to happen if lawmakers and President Obama don't get a deal "done done" by Tuesday's deadline, but just in case federal funds stop flowing to the states, California has borrowed $5.4 billion to make sure it can cover health care programs, transportation and other services.
"It means the state obligations are paid," said California Treasurer Bill Lockyer.
The perennially indebted California takes out this so-called bridge loan every year, usually later in summer when revenues are low and before tax receipts begin arriving in the Spring.
But state Treasurer Bill Lockyer says a failure to raise the federal debt ceiling could well throw credit markets into turmoil, and he didn't want risk having to pay more in interest.
University of San Francisco economics professor James Forcier says securing the loan now was a smart move.
"The only thing you can do is act on the information that you have at any one time, and the future is so uncertain with the debt situation relative to the federal government's resolution, that he was wise to do it," Forcier told Fox News.
The state got a low rate: 0.237 percent from Wells Fargo, Citigroup and several other financial institutions.
"It means when we pay it back its in November, it could be sooner, it's a few million dollars in interest -- which for $5.4 billion, is a good deal," Lockyer said.
Political experts say it's ironic that just when California hammers out a solid, on-time budget for the first time in years, the state still faces potential harm because of the ongoing debate in Washington.
"Us Californians aren't used to looking fiscally responsible, compared to anyone, so I guess we should be enjoying this contrast," said Dan Schnur, head of the Jesse M. Unruh Institute of Politics at University of Southern California. "But just like everybody else in the country, we want to see this get solved. And if it's not, it's nice knowing that our state treasurer has found $5 billion other dollars to keep the state going in case the federal government can't pay its bills come next week."
States like Maryland and New Mexico, and cities like Portland, Ore., are also taking monetary precautions, even as they wait and watch for an 11th hour resolution in Washington.