Governor Schwarzenegger warned that California might need a $7 billion loan because the state is currently unable to float a short-term bond. It’s not that a bond issue couldn’t be sold; rather, the interest rate would be quite high.
Bluntly, California will soon be forced to cut spending. The budget this year is filled with smoke and mirrors; next year’s situation will be worse. Revenues have been increasing but spending has increased faster. Discipline will be enforced on the Bronze Golden State one way or another. This year’s budget postponed the day of reckoning. I thought that postponement was until next summer but it might not last that long.