States preparing for debt ceiling default - Jul. 21, 2011
Just the threat of a federal default is prompting California to get a $5 billion loan to make sure it can pay its obligations.
States around the nation are drawing up contingency plans in the event that federal policymakers don't resolve the debt ceiling impasse by Aug. 2. They are preparing for chaos in the municipal debt markets and delays in federal payments for Medicaid, education and other services, which could happen if the federal government defaults on its obligations.
California, for instance, planned to sell $5 billion in revenue-anticipation notes in the bond market in late August. Now, Treasurer Bill Lockyer plans to get a bridge loan so the state can have cash on hand in case the markets are in turmoil and the state is unable to borrow. It would repay the bridge loan once it sells the notes.
Also, Golden State officials are concerned about delayed federal payments for Medicaid, education, transportation and other services.
"If the federal government starts prioritizing payments, the states could get short-shrift," said Tom Dresslar, the treasurer's spokesman.