Gov. Arnold Schwarzenegger applauded the House of Representatives for approving a $700 billion economic rescue package today, but said during a visit to San Diego that tight credit markets may still force California to approach the federal government for a $7 billion loan.
"Because of that vote, California is not out of the woods yet,'' Schwarzenegger said, speaking at a Kearny Mesa Wal-Mart.
The House voted 263 to 171 to approve a bill that would allow the federal government to assume about $700 billion in bad debt in an effort to get the nation's financial institutions back on track and lending to consumers and each other again.
Each year, California borrows money through what's known as revenue anticipation notes to fill short-term cash needs, but the nation's financial crisis has made those loans tough to get.
"If we can't get that loan through the normal course we will go to the federal government and ask for help,'' he said.
The governor sent a letter to U.S. Treasury Secretary Henry Paulson on Thursday warning him that without liquidity in the credit markets, the state would have to seek a $7 billion loan from the federal government.
"Absent a clear resolution to this financial crisis that restores confidence and liquidity to the credit markets, 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 wrote in the letter to Paulson.
"The economic fallout from this national credit crisis continues to drain state tax coffers, making it even more difficult to weather the continuation of frozen credit markets for any length of time,'' he wrote.
Schwarzenegger said he has ordered a meeting Monday with the state's financial experts to discuss the crisis.
"We need that money,'' Schwarzenegger said. "Cash is running out at the end of the month of October so this is why it's important we get going right now and resolve these problems.''
If the cash runs out, payments to schools and other government entities could quickly be suspended and state employees could be laid off, according to the Los Angeles Times.
The last time the federal government made a loan like the one Schwarzenegger might ask for was in 1975, when it lent New York City money to avoid bankruptcy, according to the newspaper.
Schwarzenegger was in San Diego to sign into law the so-called emergency management bill AB 38, which will combine the state's Office of Emergency Services and Office of Homeland Security.
He also announced memorandums of understanding with businesses, such as Wal-Mart, that formalize private-sector partnerships during times of emergency or disaster. The agreements will allow the state to approach businesses to secure goods and serves quickly in the event of a disaster.
Schwarzenegger said the public-private partnerships and the legislation, authored by Assemblyman Pedro Nava, D-Santa Barbara, will help further protect the public from disasters such as last October's wildfires.
"Our partners have stepped up and are willing to be ready 24-7 in case of an emergency,'' the governor said.
He said the legislation will help the state "streamline operations'' so resources can get to victims more quickly.
"California, as we all know, has its fair share of earthquakes, and mudslides, and floods and fires and all of those kinds of things, but with the measure we are spotlighting and highlighting here today we will be even better prepared and in better shape,'' Schwarzenegger said.