01-23-2002 LA Times
THE STATE
State
May Be Broke by June, Connell Says
Finance: The controller fears there will be no money to pay
bills and foresees a need to borrow up to $8 billion next fiscal year. A Davis
aide scoffs at warning.
SACRAMENTO -- SACRAMENTO --
Controller Kathleen Connell, who must track California's cash flow, warned
Tuesday that the state will end the fiscal year with virtually no money to pay
its bills, and may have to borrow as much as $8 billion next year.
Even under Davis' more optimistic view, Connell said, the state could be forced
to borrow $2 billion in the new fiscal year that begins July 1.
Connell said she expects that the state can borrow using a
revenue anticipation note, a type of short-term loan that is repaid during the
same year it is issued. "The governor will not be in disagreement that we
will need to do a borrowing," Connell said, adding that she believes the
state will probably need to borrow $5 billion. "It is a question of how
much and when."
Connell is a Democrat, as is Davis. But she has been among the governor's most
persistent critics.
Davis spokesman Steve Maviglio dismissed her comments: "Kathleen Connell
has proved herself wrong in projecting just about everything about the state's
financial situation. We expect this pattern to continue."
The controller, whose job entails writing checks to cover state expenses, said
the budget that Davis proposed this month overestimates the amount of tax money
flowing to Sacramento by about $1.4 billion, and underestimates an array of
costs, including those for public schools.
She says the state will need to spend $935 million more than Davis estimates to
fully cover costs of rising enrollment.
"This is a multiyear problem," Connell said. "This problem does
not go away in the beginning of July 2003. In fact, we think the cash situation
in July 2003 may be more precarious than it is at the beginning of this fiscal
year."
Adding to her downbeat view of the governor's budget, Connell predicted that
the state won't receive the bulk of the $1.1 billion that Davis assumes he will
get from the federal government for health care and to help cover costs related
to terrorism. The governor is counting on receiving at least 75% of the
request.
Connell said she based her assumptions on a combination of her own calculations
and those of the state's legislative analyst and the Department of Finance.
"We will end the fiscal year with virtually almost nothing in the
bank," Connell said, adding that with a budget of $100 billion, the state
should have at least $2.5 billion in the bank at all times. "Unless we do
a financing, we do not have adequate cash to run the state of California, and
in fact we dip into a deficit situation come next March [2003]."
Connell said the state must sell energy bonds no later than December to cover
the $6.5 billion it spent purchasing electricity last year.
If the state cannot sell the bonds, it will have to use revenue anticipation
warrants, which are paid off the following year, and could run the cost of
borrowing as high as $8 billion, she said. The state has not issued a revenue
warrant since the recession of the 1990s.
"It would be like you asking for extension on your credit card
payment," Connell said, describing such an action a "black
mark."
Rating agencies downgraded California's credit rating during the energy crisis
last year. State officials will meet with executives of rating agencies this
week in an effort to assuage concerns about the state's credit-worthiness.