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Nov 30, 2001
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From the SDUT

State seeks loan to bridge budget gap

At least $7.5 billion sought; could increase to $11 billion

By Ed Mendel

April 25, 2002

SACRAMENTO – A long delay in repaying the state general fund for $6 billion worth of power purchases has created a serious cash-flow problem, forcing the state to seek an unusual loan to keep from running out of money this summer.

The cash-flow crunch comes as Gov. Gray Davis and the Legislature face a budget gap now estimated to be $20 billion or more after a surprising drop in income-tax revenue reported by the April 15 filing deadline last week.

As the fiscal problems worsen, Controller Kathleen Connell began taking steps yesterday to obtain a multi-year loan of at least $7.5 billion, with the authorization to increase the amount to $11 billion if needed.

Connell said the loan, only the sixth of its kind in state history, will make sure that the state can pay big bills coming due in June: repayment of a $5.7 billion loan obtained last fall and a $1.4 billion payment to schools.

She said the loan also will provide enough cash to pay state bills through August if a lengthy legislative deadlock leaves the state without a new budget in place after the new fiscal year begins on July 1.

Connell said she is confident the state can avoid issuing IOUs, as happened in 1992 when the state paid its bills with more than $3 billion worth of warrants that could not be cashed until after a budget was finally signed Sept. 2.

"I want to avoid an IOU," Connell said. "I think it's the worst, distasteful action that can be taken by a state."

Davis, whose earlier plan closed a $12.5 billion budget gap, will make a revised proposal May 14 for closing a shortfall that the Legislative Analyst now believes will be $20 billion or more – a quarter of the general fund that pays for most state programs.

Republican legislators, who must provide a handful of the votes needed to pass a budget, want deep spending cuts and are blasting Davis for allowing general fund spending to increase by 37 percent during his three years in office.

The powerful Senate Democratic leader, John Burton of San Francisco, is among those who want to close part of the huge budget gap with a tax increase, which Davis is trying to avoid as he prepares to run for re-election in November.

With the lines drawn for the budget battle, Connell's office also is keeping an eye on a little-known lawsuit that could prevent the state from paying its bills during a budget deadlock this summer, even if there is plenty of cash.

The Howard Jarvis Taxpayers Association filed a lawsuit in 1998 to prevent the state from paying bills without a budget. Jarvis won in a lower court, and an appeals court is expected to issue a decision before July 1.

"It could be significant or hyper-technical with no significance," said Jon Coupal of the association.

Connell said the decline in tax revenue has hurt state cash flow, but the state would not have needed a multi-year loan if the general fund had been repaid for the power purchases.

"If we had $6.4 billion, we would not be standing here today," she said at a news conference announcing the multi-year loan. The governor's Department of Finance asked Connell last month to begin preparing for a loan.

The state began buying power for utility customers in January 2001 after the two largest utilities, Pacific Gas & Electric and Southern California Edison, ran up huge debts under a failed deregulation plan.

The drain on the state general fund ended last June, when the state began buying power with a $4.3 billion loan. The loan and the $6.4 billion owed the general fund were expected to be repaid by last October with an $11.1 billion bond that will be paid off by ratepayers over 15 years.

But state Treasurer Phil Angelides has not been able to issue the bond because of disputes over how the state Public Utilities Commission will split ratepayer revenue between the state and the utilities.

Connell said the 30-day period for appealing the PUC's revenue agreement ended Monday without a lawsuit being filed. She said she has been told that the treasurer's office is on track to issue the power bond and repay the state general fund by August.

However, the treasurer's office said several issues are not yet resolved, including a PUC "servicing" agreement with PG&E and a lawsuit filed in Superior Court by PG&E contending that the commission did not hold required public hearings.

Angelides previously has said that issuing the power bond will take a "minimum" of 12 to 15 weeks after all of the legal obstacles have been resolved.

If a budget deadlock extends into September and the power bond needed to repay the general fund has not been issued, Connell said the state would have the option of obtaining more short-term loans to maintain cash flow.

The multi-year loan sought by Connell, called a Reimbursement Warrant, provides money in one fiscal year and does not have to be repaid until the following fiscal year.

During a deep recession in the early 1990s, the state issued warrants for three years in a row, the first since similar but much smaller loans were obtained in 1982 and 1939. The largest warrant, $7.4 billion, was obtained in fiscal 1994.

Often the state obtains short-term loans, which are paid off in the same fiscal year, to pay its bills while awaiting tax revenue. These loans are obtained through Revenue Anticipation Notes, such as the $5.7 billion debt due in June.

Funny thing is if I remember the state had been running a surplus when Davis first came into office. I guess buying power at two and three times the market value and selling it below market prices if you ever get paid for it at all was a really good idea. More taxes will fix it all after all we don’t want the truth to come out that the Davis was like a yote in the high beams of a truck did know what was going on till it was over.
If you like paying for power two time vote for Davis and all the Democrats if you like more taxes vote for Davis and the Democrats if you like your right to own a fire arm take way a piece at a time vote for Davis and the Democrats. Just remember this you votes for them so don’t say a think when it happens and if you don’t vote then don’t say anythink at all because you didn’t think it was that big of a deal in the first place.
Sorry for it being so long but just had to do it.



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Feb 4, 2002
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This, and similar bungling, have earned Gov. Davis the title of "Governor Lowbeam".  This heart-felt tribute was bestowed upon Gov. Lowbeam by Mr. KABC, a radio talk show host in Los Angeles (KABC, 790, 10pm - 1am).  It's in memory of our current governor's mentor, Governor Moonbeam (Jerry Brown).  You did know that Governor Lowbeam was Governor Moonbeam's chief of staff, didn't you?  Now you know why Lowbeam's bulbs burn so dimly.

Hail to Governor Lowbeam!  (And pass it around.  I think it would be cool (and effective) if this caught on).


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May 3, 2001
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we had black outs in 2001 and hopfully we can get gray out in 2002.


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Sep 21, 2001
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Right on !! Vote out Gov. Lowbeam !!!!!!

jerry d

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Mar 17, 2001
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Don't you think Simon should take something like this and run with it. It's a perfect opportunity to show how Lowbeam and the Demo's runs the state. Spend, then borrow more to squander.

So far I have very little idea what the man stands for except he says it's no ones business what his finances might include. You almost get the idea he's trying to hide something. Why doesn't he just produce his 1040 and tell them to shove it. If he has something in the shadows, it's gonna "leak out" sooner or later.

He made a lot of noise during the primaries but you very seldom read anything about him these days except George W. just raised 1.5 mil for him at a fund raiser.

Some polls, for what they're worth, say he's far behind and not likely to catch up.

Come on Bill talk to us!!!!!!
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