Wednesday, June 10, 2009

California State Controller: Out of Cash in 50 Days

by Bill McBride on 6/10/2009 05:43:00 PM

California State Controller John Chiang wrote to Governor Schwarzenegger today. The following graph shows California's Cash Outlook starting in July 2009.

Click on graph for larger image in new window.
California Cash Deficit

And here is the letter to Governor Schwarzenegger (note that May was worse than projections just a few weeks ago):
On May 29, 2009, I informed you of the precarious nature of the State’s cash condition and alerted you to impending risks which threaten the State’s ability to meet its payment obligations.

The situation has not improved. Based on actual revenues received during the month of May, and finalized May Revision data provided by the Department of Finance on June 1, I have the following updates to the State’s 2009-10 cash outlook:

• In the absence of legislative action, the State will not have sufficient cash to meet all of its payment obligations on July 28. By July 31, the cash deficit will increase to a negative $2.78 billion.

• In April, the State’s cash balance will fall to a negative $25.3 billion – the lowest point projected for Fiscal Year 2009-10. To put this shortfall into proper perspective, it is five times the $5.1 billion cash deficit we faced this past spring.

In the letter I sent you on May 29, I indicated we would have a negative cash balance of $1.02 billion at the end of July, and a low point for 2009-10 of $22 billion. The additional deterioration is a result of two factors: (a) May revenues coming in $827 million less than projected by the Governor’s May Revision, and (b) adjustments made by the Department of Finance to its revenue and expenditure projections. Attached is a chart detailing the projected cash low point for each month for the fiscal year starting July 1.

While the severity of the shortfall has worsened since my last letter, the time available to correct our budget and cash deficits has not materially changed. The State will run out of cash in less than 50 days without corrective action by the Legislature and Governor. ...