TARP program needed for muni debt-California treasurer

SAN FRANCISCO, May 13 (Reuters) - The California state treasurer called Wednesday on U.S. Treasury Secretary Timothy Geithner to extend debt guarantees through the Troubled Asset Relief Program to financially strapped states and local governments facing declining revenues.

In a letter to Geithner, Bill Lockyer said essential public services could suffer "devastating impacts" unless states and local governments are able to borrow short-term funds as they normally do amid recession.

Without short-term borrowing, California, the most populous U.S. state, could face difficulty in selling its long-term debt, Lockyer added.

Lockyer proposed in his letter that the U.S. Treasury create a TARP program to induce banks to make credit available for short-term borrowing by municipal issuers.

The $700 billion TARP program was set up by the government to support financial institutions and stabilise the financial system. (Reporting by Jim Christie; Editing by Neil Fullick)