California talks to Wall Street about a big short-term loan

California said it was talking with Wall Street banks about a short-term loan of about $5 billion to help replenish the state’s cash coffers once a budget agreement is reached in Sacramento.

The loan, which could be highly profitable for the banks, would be repaid within about four weeks via “revenue anticipation notes” that the state would sell to individual and institutional investors.

The bank deal could enable the state to begin making payments to the long list of creditors that have been stiffed since July 1, when the fiscal year began without a budget deal.

Treasurer Bill Lockyer’s office said Monday that the state was negotiating with JPMorgan Chase, Bank of America, Goldman Sachs and other big banks for the loan. The total borrowed depends on what the state finance department estimates its near-term cash needs will be, said Joe DeAnda, a spokesman for Lockyer.

“It could be less or it could be more” than $5 billion, he said.

In August 2009, the state borrowed $1.5 billion from JPMorgan Chase at an annualized interest rate of 3%, a hefty return to the bank. That sum was repaid a month later when the state sold $8.8 billion in revenue anticipation notes to investors at tax-free rates as low as 1.25%. The notes matured the following May and June.

The state normally borrows via short-term notes in autumn to tide it over until tax revenue arrives later in the fiscal year. But Lockyer can’t borrow money until a budget deal is reached.

Late last week, Gov. Arnold Schwarzenegger said he and legislative leaders had reached “a framework of an agreement” on eliminating the state’s $19.1-billion deficit and ending the budget stalemate. Talks continued Monday.

tom.petruno@latimes.com