Gov. Arnold Schwarzenegger abandoned plans to seek billions in emergency loans to help close a gaping budget hole Thursday, the same day that the Obama administration said it would not provide guarantees for such transactions.
Additionally, the state legislative analyst estimated the state deficit would rise by $3 billion and proposed solutions that include a salary cut for state workers.
The Republican governor said his decision to withdraw his proposal for $5.5 billion in short-term borrowing stemmed partly from the federal government's decision and partly from Tuesday's vote.
The development marks more bad news for a state facing a huge shortfall, massive program cuts and an even more pressing problem, a cash-flow crunch that could leave it unable to pay all its bills by summer.
"It's the worst situation that I'm aware of, in my lifetime, in the state of California," said Assemblywoman Noreen Evans, the Santa Rosa Democrat who chairs the joint legislative budget conference committee charged with seeking solutions.
Schwarzenegger, speaking to reporters after a legislative prayer breakfast, said he is not a big fan of borrowing.
"What it basically means is that you're pushing it off to the future," he said of state debt.
Schwarzenegger did not comment directly on U.S. Treasury Secretary Timothy Geithner's testimony before a House panel Thursday that no loan guarantees would be forthcoming absent an act of Congress.
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