Sacramento Area Local News

SACRAMENTO (AP) ― Gov. Arnold Schwarzenegger and legislative leaders emerged from a meeting Wednesday saying they're confident California will be able to repay up to $7 billion in short-term loans, even as the state treasurer estimated the state's revenues are likely to drop another $3 billion below projections.

But they offered no explanation -- and reached no agreement -- on how they plan to solve the state's mounting fiscal problems, other than to say they will hold weekly meetings to discuss the crisis.

"We want to just assure everybody that we'll be able to pay our bills at the end of the month, and we go step by step after that," Senate President Pro Tem Don Perata, D-Oakland, said after the meeting.

State officials have worried that the ongoing national credit crisis may make it hard for the state to sell $7 billion in short-term bonds, starting with a $4 million offering next week. The state needs the money to tide it over until it gets a surge in tax revenue next spring.

That concern about an inability to borrow prompted Schwarzenegger to write to U.S. Treasury Secretary Henry Paulson last week warning that California may need a $7 billion loan if it can't get the funds from private lenders in the tight credit market.

Revenue for the first quarter of the fiscal year that started July 1 is already down $1.1 billion from the projections in a May estimate, according to state Controller John Chiang.

Based on that estimate, the state treasurer's office warned in a lending prospectus issued Wednesday that the revenue shortfall could grow to $3 billion.

State Treasurer Bill Lockyer issued the prospectus in anticipation of next week's bond sale.

In a worst-case scenario, he warned, California's revenues could erode by as much as $5.5 billion: $3.5 billion in tax revenues, $800 million from overestimating new fines, $300 million in unexpected prisoner health care expenses and $900 million from various lawsuits and responses to natural disasters.

Wednesday's meeting took place just two weeks after Schwarzenegger signed a $103.4 billion budget for the 2008-09 fiscal year in which legislators acknowledged they used accounting tricks to help close a $15.2 billion deficit. It was the latest budget in state history, as lawmakers fought for two months over how to deal with the red ink.

Yet Democratic and Republican leaders insisted that the worsening financial picture has now brought them together.

Senate Minority Leader Dave Cogdill, R-Modesto, on Tuesday criticized Democratic Assembly Speaker Karen Bass' contention that California may have to increase taxes to close the latest budget gap.

On Wednesday, he said the financial crisis is more serious "than anyone in my generation has faced. There's certainly reason to be concerned and we are, but I'm confident that this state is strong enough that at the end of the day we'll be fine."

Schwarzenegger and the legislative leaders downplayed the idea of holding a special legislative session to address the budget shortfall, possibly after the Nov. 4 election. They said their first priority is the short-term borrowing needed to carry Calfornia through the spring, when tax revenues come in.

"There's really no reason to have a special session yet, until we have a plan to do something," Perata said.

(© 2009 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)