States Warn Feds They May Ask for Cash, Too

Deficits and tight credit may force states to beg for Treasury dollars
By Harry Kimball,  Newser Staff
Posted Oct 15, 2008 12:53 PM CDT
California Gov. Arnold Schwarzenegger.   (AP Photo)
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(Newser) – The credit crisis is threatening states with budget shortfalls, and they could be the next group seeking a federal bailout, the Christian Science Monitor reports. California, looking at a $7 billion deficit, has informed the Treasury that it could come calling. States take loans to cover lean times, in the form of short-term bonds, much like the commercial paper market.

If banks won’t offer states credit, there may be a rush on an already depleted Treasury. But things are looking up: Massachusetts sold $700 million in debt last week, and California is planning a $4 billion bond offering. An analyst was optimistic about a fed response. “States are the safest loans out there. How can General Motors get a loan, if the state of Massachusetts cannot?”