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State Treasurer John Chiang announced this past week that California will run out of cash by early March if the state does not take swift action to find $3.3 billion through payment delays and borrowing. The announcement comes as somewhat of a surprise, since lawmakers previously believed the state had enough cash to last through the fiscal year that ends in June.
In his announcement Chiang said additional cash management solutions are needed now because state tax revenues are $2.6 billion less than what Governor Jerry Brown and legislators assumed in their optimistic budget last year. Meanwhile, Chiang said, the state is spending $2.6 billion more than state leaders planned on.
The Assembly budget committee approved a bill today that would enable $865 million of borrowing from existing state accounts, Senate Bill 95. Chiang, after consultation with the Department of Finance and state Treasurer Bill Lockyer, is also seeking about $2.4 billion in delayed payments to universities, counties and Medi-Cal, as well as additional borrowing from outside investors. Without these actions Chiang estimates the state would actually end up $730 million in the red. The state would be below the safe cash cushion for several weeks ending April 13, save for several days at the end of March.
Should these actions be successful, Chiang believes the state would not have to use IOUs or delay tax refunds, maneuvers that have been relied upon in previous years. But Chiang also warned that "more cash solutions may be required if our revenues continue to erode or if disbursements significantly exceed estimates."
California borrows money early each fiscal year because the state has regular monthly expenses but receives the bulk of its tax revenues in the spring. The state borrowed $5.4 billion last fall for this purpose.