UPDATE 4-Market turmoil called risk to California note sale
(Adds comments by governor, RAN estimate by state controller)
By Jim Christie and Lisa Lambert
SAN FRANCISCO/WASHINGTON, Oct 1 (Reuters) - California's planned sale of revenue anticipation notes to fund its short-term cash needs is at risk from the uncertainty gripping financial markets and the U.S. government's lack of response to it, state Treasurer Bill Lockyer said on Wednesday.
"Basically no credit is available -- zero today," the treasurer of the most populous U.S. state told Reuters in a telephone interview, underscoring the urgency of California's borrowing difficulties.
Lockyer, who manages the bonds of the biggest issuer of public debt in the nation, said the credit market is simply frozen because financial institutions are afraid to commit capital amid enormous uncertainty.
That makes it imperative for Congress and the White House to adopt a "responsible recovery plan" to reassure financial markets, Lockyer added, joining a growing list of public officials in California calling for federal action.
For California, intervention may help get its revenue anticipation notes out to market to raise money to fund its immediate needs. That plan is on hold right now amid the market's chaos and time is running short, Lockyer said.
"The clock is ticking," Lockyer said, noting he has a four-week window to sell the debt because of the record impasse over a state budget, only recently signed into law by Gov. Arnold Schwarzenegger.
The notes can be sold only after a state budget is in place and state Controller John Chiang estimates California will need to borrow $7 billion.
California's cash reserves may be exhausted near the end of October so various state-funded services are at risk of grinding to a halt and cities, counties, school and special districts may not get state aid, Lockyer said.
"There are ripple effects on essential California services if some federal intervention doesn't occur," he said. "Lots of local agencies won't be able to pay their bills in just a matter of weeks."
Schwarzenegger in a letter to California's Congressional delegation sounded a similar alarm: "It is daunting that California, the eighth-largest economy in the world, cannot obtain financing in the normal course of its business to bridge our annual lag between expenditures and revenues. This means California may soon be forced to delay payments for critical services, such as teachers, law enforcement and nursing homes ... That is, unless Congress acts quickly to restore confidence in our financial system."
FREEZE GRIPS BOND ISSUERS
California joins a host of other bond issuers across the country struggling to sell debt.
On Wednesday, Massachusetts postponed its sale of $375 million in general obligation revenue notes to Oct. 7, which is next Tuesday, from the originally scheduled Oct. 2. The Metropolitan Washington Airports Authority indefinitely delayed a $175 million revenue bonds deal.
"It's a symptom of a broader retreat from risk assets across the credit markets," said Michael Decker, co-chief executive officer of the Regional Bond Dealers Association.
Decker pointed out that regions hardest hit by the housing downturn -- the West, the Northeast and Florida -- are in the toughest bind for bond issuances. States such as California have weak economies forcing them to rely more on debt but they have declining property tax revenues, which are traditionally used to pay off bonds. He said to look to those places first for signs of a thaw in issuance.
"If you look at local economies that are softer, that's probably where issuers are feeling more pressure to come to market quickly," he said. (Editing by Gary Hill)
