Geithner Skeptical of Calif. Bailout
Friday, May 22, 2009
California, the country's most populous and cash-strapped state, is looking for a lifeline. But after bailing out banks, insurers and automakers, will the federal government provide it?
Treasury Secretary Timothy F. Geithner didn't rule out the possibility yesterday, though he sounded less than enthusiastic about the prospect.
"Mr. Secretary," Rep. John Culberson (R-Tex.), asked during a hearing on Capitol Hill, "will you categorically rule out bailing out California or any other states with our tax dollars?"
"We will have to do exceptional things, as we have done already, to fix this mess," Geithner said. "That's not putting on the table or taking off the table any specific thing like that. But I just want you to know that there are things that we've had to do I would never have contemplated doing."
He stopped far short of suggesting that the administration would help repair California's financial problems, expressing the same ambivalence shared by others in the Obama administration.
California voters this week rejected six ballot propositions that would have saved the state an estimated $6 billion. But passage would have made only a small dent in the deficit. Faced with decreased tax revenue and an abysmal credit rating, California is facing an estimated $20 billion cash-flow shortage and the prospect that it could run out of money by July.
State officials are pressing the U.S. Treasury Department to backstop billions in loans that would help the state raise cash.
"We are not asking for a bailout," said Tom Dressler, a spokesman for California Treasurer Bill Lockyer. "What we want the federal government to do is to basically tell the banks, 'We've got your back.' "
Without that backing, Dressler said, the state would have to borrow at much higher rates -- if it could borrow at all.
Geithner yesterday said that the Treasury's Troubled Assets Relief Program isn't suited to help cities and states facing budget crises. He suggested that a better solution might come from Congress, as well as state fiscal responsibility. "A lot of the burden," he said, "is going to be on them to lay out a path that gets their deficits down to the point where they're going to be able to fund themselves comfortably."
California Gov. Arnold Schwarzenegger has said he plans to cut the budget by laying off thousands of state workers, selling properties and slashing education funds, among other measures. "We're going to make the necessary cuts," he said this week after meetings on Capitol Hill.