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State Weighs a Tax Hike The letter noted that when the deficit bonds are taken together with all the other short- and long-term borrowing that the state plans, California could rack up $40 billion to $50 billion in new debt by year's end, putting the state in a vulnerable financial situation. "We have the financial equivalent of a high-wire act, and the state's goal should be to have a sufficient margin of safety to avoid any significant risk of failure," said the Goldman Sachs letter, which added that California risks losing its ability to borrow "at any cost." The bankers made clear that deficit financing would be a one-time-only option, and that it is essential the state not have a budget that falls out of balance again next year. "The markets and credit community are looking to the state to adopt a package of sound measures with this budget that will provide a final 'fix' to the state's structural deficit, and not continue to push the problems off into future years," said the letter from UBS/Paine Webber. Lehman Bros. wrote that "at all costs" the state must avoid leaving the impression that "fiscal matters remain out of control and that the deficit financing represents 'punting' into next year." The message was sobering to lawmakers, who are moving into the most difficult negotiation stage, with the June 15 constitutional budget deadline nearing. "They are telling us they have never seen California in worse shape," said Assemblyman Keith Richman (R-Northridge), a leader of a bipartisan group of lawmakers working on budget solutions. "Wall Street is receptive to deficit financing, but they want a fiscally sound budget in place going forward that answers the structural deficit." |
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