Fiscal Crisis Is Hitting Some States Hard

Also, many of the most aggressive buyers of municipal bonds frequently used borrowed money -- funds no longer available.

States and localities that did venture into the bond market usually found that interest rates had skyrocketed. Some chose to withdraw, while others were forced to pay the higher rate.

"We've seen the cost of variable rate loans for schools to finance projects increased from 3.25 percent on September 12 to 10 percent on September 30," said Liz Boyd, spokeswoman for Michigan Governor Jennifer M. Granholm (D).

Officials from states with no immediate borrowing plans and enough reserves to deal with temporary cash-flow problems said they are not suffering from the credit crunch. But they need it to ease.

Officials from New Mexico, Minnesota, Ohio, Indiana, Vermont and New Jersey, among others, said they have enough revenue to carry them through the crisis.

Local jurisdictions also reported they could weather the storm.

Virginia officials said Friday that they do not plan to ask the federal government for money despite a budget shortfall of as much as $3 billion over two years. "We're working through our budget problems," said Gordon Hickey, a spokesman for Gov. Timothy M. Kaine (D). "We don't need to ask the feds for money. We will balance our budget."

Local officials in Northern Virginia offered reassurance that their books are sound, the result of years of conservative policies.

In Maryland, Deputy Treasurer Howard S. Freedlander said his state is not at similar risk as California because Maryland issues bonds only to pay for capital expenditures, not day-to-day operating costs. Maryland sold bonds last month and does not have another sale scheduled until early March, Freedlander said.

The credit markets froze at the worst possible time for California. The largest state's notoriously unreliable budget process produced a spending plan later than ever before, with Schwarzenegger and the legislature taking until late August to produce the $145 billion agreement. Revenue was sharply reduced by a housing slump that hit the Golden State especially hard.

Only when the budget figures were known could state accountants determine how much money California would need to borrow to tide itself over during the shortfall that usually comes toward the end of each fiscal year on June 30. The figure came to $7 billion.

Normally, it would be raised by bridge loans, money routinely raised to keep the state treasury afloat in the months before April 15, when income tax revenue floods in. The notes must be sold by Oct. 30, when cash reserves will be exhausted. By Friday, not one had been offered.

The typical four-week time line has been "compressed by the late enactment of the budget, and then you combine that with the paralysis in the credit markets. It's made for a scary situation," said Tom Dresslar, a spokesman for the California state treasurer.

For a week and a half, the investment banks California hired to peddle the notes, Goldman Sachs and Bank of America, have told their client the market is simply not functioning. "We haven't actually tried to sell, because we're told it's frozen if you had tried to go into the market," Dresslar said.

With funding threatened for necessities including teachers, police, fire safety and nursing homes, Schwarzenegger e-mailed his plea to Paulson.

Vick reported from Los Angeles. Staff writers Ashley Surdin in Los Angeles, Kari Lydersen in Chicago, and Peter Whoriskey, Anne Bartlett, John Wagner, Anita Kumar and Fredrick Kunkle in Washington contributed to this report.