US States Hold Out The Begging Bowl

by Mike Godfrey, Tax-News.com, Washington

07 October 2008

US State treasurers are looking anxiously at declining tax revenues and frozen credit markets at a time of year when even in good conditions they need to borrow in the wholesale money markets to cover running expenses in expectation of a seasonal bump in sales tax over the Thanksgiving and Christmas seasons, and income tax receipts during the early part of the year.

Moody's and other analysts have been expressing concern all year as economic activity started to weaken; now the situation is coming to a head as States find themselves locked out of their usual debt markets. Last Thursday California's Governor Arnold Schwartzenegger wrote to Treasury Secretary Henry Paulson (as if he needed another problem) telling him that California might need to approach the Treasury to buy USD7bn worth of 'Revenue Anticipation Notes' to see it through the next couple of months.

"Absent a clear resolution to this financial crisis," wrote Schwarzenegger, "California and other states may be unable to obtain the necessary level of financing to maintain government operations and may be forced to turn to the federal treasury for short-term financing."

Other States currently facing difficulties raising debt include Nevada, New Mexico, Massachusetts and Maine. Treasurers are hoping that passage of the bail-out package last Friday may start to unfreeze credit markets; but that remains to be seen.

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