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California eyes $5 billion bank loan

By Ben Rooney, staff reporter


NEW YORK (CNNMoney.com) -- California is in talks with Wall Street banks to secure up to $5 billion in short-term loans following an exceptionally long budget impasse.

Treasurer Bill Lockyer said Monday at a banking conference in New York that he is working on a deal with Bank of America Merrill Lynch (BAC, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Goldman Sachs (GS, Fortune 500) and others.

But the final loan amount will not be known until California's legislature resolves a record-long budget impasse, according to Joe DeAnda, a spokesman for Lockyer.

"$5 billion is a possibility, but it could be more or less than that," he told CNNMoney.com. "The numbers will depend on the timing of the budget and the state's cash flow situation at the time of signing."

California has been without a budget since July 1, as state lawmakers grapple with a $19.1 billion shortfall. The impasse has resulted in state workers being furloughed and raised the possibility that the state would have to issue I.O.U.s to creditors.

The bank loans would be in lieu of money the state normally raises by selling short-term "revenue anticipation notes" to investors. But California cannot issue such debt due to disclosure requirements that it cannot fulfill without a budget.

Once the budget is passed, the state would issue notes within weeks to repay the bank loans, according to DeAnda. After a drawn-out budget stalemate in 2009, he said, California borrowed $1.5 billion which was repaid one month later.

Gov. Arnold Schwarzenegger said last week that state officials have reached "a framework of an agreement" on how to close the deficit. To top of page

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