Hole Gets Deeper by Billions

The amount of money California will need to borrow in June to keep the government running into the next fiscal year has jumped to as much as $11 billion, according to the state controller, an increase of more than a third over the most recent official estimate.

Fiscal analysts warn that banks may soon be reluctant to lend the state the money, and could impose strict conditions on how it operates before doing so. At the very least, they say, borrowing such a large sum simply to make it into the next fiscal year would cost state taxpayers tens of millions of dollars in interest.

State Controller Steve Westly said the new projection reflects a mix of factors, from weaker than expected revenues to the failure of the Legislature and Gov. Gray Davis to enact major budget changes.

“As the amount of money we need to borrow gets higher, it also becomes more expensive,” said Westly. “Interest rates will go up and that represents a loss to the state. Wall Street might also ask for stipulations if they think the number is too high.”

State finance officials say those stipulations could include anything from a demand for temporary tax hikes to a call for a spending freeze.

Westly says between $4 billion and $11 billion would have to be borrowed in June to keep state government operating as lawmakers seek to close a budget shortfall estimated at as much as $35 billion by July 2004. The loans would be used, in part, to make payments on another $12.5 billion in loans taken out last year against anticipated revenues to help even out the state’s cash flow. With tax receipts down, the state will not have enough money to cover last year’s bonds, Westly said.

Up until this week, state officials said the amount that would have to be borrowed in June would be less than $8 billion.