In an e-mailed statement to Treasury Secretary Henry Paulson, California Governor Arnold Schwarzenegger said the State of California may have to turn to the Federal Reserve for emergency funding should $700 billion bailout package fail to pass.
"This credit crisis has the power to grind the U.S. economy to a halt," Schwarzenegger wrote in the e-mail to Paulson.
The lack of available credit and falling investor interest in municipal bonds is causing states, cities and towns to hold off on spending for any road projects and maintenance on schools.
California State Treasury Bill Lockyer warns that California is expected to run out of money by the end of the month if the state cannot sell billions in short-term debt.
"Without prompt federal action to address the economic crisis, we may have no market access to conduct that short-term borrowing transaction. That means the State's cash reserves would be exhausted near the end of October," Lockyer said in a press release.
"Payments for teachers' salaries, nursing homes, law enforcement and every other State-funded service would stop or be significantly delayed. And California's 5,000 cities, counties, school districts and special districts would face the same fate," Lockyer warned.
By Steve Stecyk and edited by Nancy Girgis
©CEP News Ltd. 2008