California formally asks Geithner for TARP assistance

California Treasurer Bill Lockyer asked U.S. Treasury Secretary Timothy Geithner on Wednesday to authorize assistance for his state from the federal Troubled Asset Relief Program, warning that depressed tax revenues may cut into basic services and halt the building of infrastructure.

In a letter, Lockyer asked Geithner for TARP assistance for California and "other financially strapped states and local governments which face a severe cash flow crunch."

"If we cannot obtain our usual short-term cash-flow borrowings, there could be devastating impacts on the ability of the State or other governments to provide essential services to their citizens," Lockyer wrote.

In particular, Lockyer cited fire and police protection, education and social services.
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In addition, Lockyer warned in the letter that California's cash flow problems may lead to trouble accessing the long-term bond market, which could "eventually even halt our infrastructure construction programs."

Lockyer estimated that California's cash flow shortfall in fiscal 2009-2010 will be more than $13 billion.

But weakness in the credit markets will cause difficulties in short-term borrowing to make up that difference, Lockyer wrote, necessitating the use of TARP money to help make funds more easily available through banks.

Under a plan outlined by Lockyer in his letter, if a government is unable to repay loans made using TARP funds, the Treasury would use TARP money to "purchase the non-performing assets."

Under that scenario, the state or local government would then directly repay the Treasury under the terms it had with the bank, according to Lockyer's plan.

Lockyer has stated previously that he believes the Obama administration has the authority to use TARP to guarantee state-government borrowing