WASHINGTON - The White House on Tuesday dashed hopes that the federal government would help California overcome a mammoth budget crisis that has brought the state dangerously close to an economic meltdown, saying the state will have to solve the problem on its own.
It's obviously not an easy time for the state of California, White House spokesman Robert Gibbs told a briefing when asked if the administration would provide emergency financing for the state.
We'll continue to monitor the challenges that they have, but this budgetary problem unfortunately is one that they're going to have to solve, Gibbs said.
California's revenues are plunging amid recession, rising unemployment and the prolonged housing crisis, and the state is unable to borrow its way out of its immediate financial trouble by issuing debt because of its budget gap.
It will run out of cash within weeks if it does not balance its books, according to State Controller John Chiang, who estimated last week California was less than 50 days away from a meltdown of state government.
One potential rescuer has been the federal government, and for nearly a year California Treasurer Bill Lockyer has pressured the U.S. Congress and the president to help the state with debt markets.
While U.S. Treasury Secretary Timothy Geithner said this spring the administration was looking into assisting California and other states, it has yet to offer any help beyond that included for all states in the $787 billion economic stimulus plan passed in February.
Obviously many states throughout the country because of the slowdown in our economy find themselves with severe budgetary constraints, Gibbs said. The president believed and addressed part of this in the recovery and reinvestment plan by ensuring the largest amount of fiscal relief that we've seen move to states in the history of our country.
Gibbs said he didn't know the degree to which we've analyzed each of California's individual (budget) cuts.
This is not the first time a U.S. president has closed the federal wallet to a struggling state or city.
In 1975 the New York Daily News ran the headline Ford to city: drop dead, when then President Gerald Ford denied assistance to New York City that would have allowed the U.S. financial capital to sidestep filing for bankruptcy.
WASHINGTON'S REBUFF ADDS TO DEBT MARKET WOES
Standard & Poor's ratings agency on Monday put $67.1 billion of California's debt on alert for a possible ratings cut because the state may run out of cash by the end of July.
Dick Larkin, director of credit analysis at Herbert J. Sims & Co Inc in Iselin, New Jersey, predicted a downgrade.
To say they've got big problems is an understatement. The budget problems are too large for the rating agencies to be comfortable with single-A ratings on the state.
Washington's view toward California is one more reason to not hold the state's debt, said Tom Tarabicos, a financial adviser at Wells Fargo Financial Advisors Network in Roswell, Georgia.
We're selling every California bond we can, Tarabicos said. We don't like them.
Instead, Tarabicos said he may buy into California's general obligation debt next year should its yields rise to reflect inflation and continued risk to the state's finances from ongoing economic weakness.
Sometime next year you'll be able to buy California GOs somewhere around 7 percent or 8 percent, Tarabicos said, referring to general obligation bonds, adding:
Nothing is going to change in that state, fiscally, over the next two or three years. I just don't see anything positive coming out of there. It's going to be dead for quite a while.
(Reporting by David Alexander and Lisa Lambert in Washington, Jim Christie in San Francisco and Karen Pierog in Chicago; Editing by James Dalgleish)