Today's Reminder that California is Broke

We wondered last week if S&P; was perhaps being overly sunny about California's finances when it upgraded the state's outlook from negative to stable. After all, its struggling economy is unlikely to keep up with the spending habits of its government. Well, right on cue, Business Week reports that Treasurer Bill Lockyer is seeking a "bridge loan" from Wall Street similar to the one that recently bailed out New Jersey. The loan of about $5 billion would allow Sacramento to keep paying its bills until late August, when it issues a new round of Revenue Anticipation Notes. Without the loans, the state will almost certainly run out of cash and be forced to issue IOUs, as it did in 2009. Lockyer explained that the loan is needed because the possibility of a federal government shutdown related to the debt-limit negotiations in Washington creates uncertainty regarding payments to states and borrowing on the muni market. However, as Zero Hedge points out, a portion of the new bridge loan would be used to pay down the last bridge loan, which California got from JP Morgan last October, and part of the August RAN issuance would go toward payments on the new loan. In other words, the state is very, very short of cash. Moreover, to Lockyer's point, if DC shuts down and US debt is downgraded, short-term cash flow will be the least of California's worries. Such a move would trigger literally thousands of muni downgrades from Moody's, and would halt the issue of muni debt, including RAN, for an indefinite period of time. Meaning that every broke city and county in California would sink like a stone.