Arizona Maxes Out Line Of Credit In Two Weeks Flat
Mish Moved to MishTalk.Com Click to Visit.
Here is a good story courtesy of the Arizona Republic: Cash-short Ariz. maxes out new line of credit.
The state's cash-flow problems are so dire that it took less than two weeks for government to tap the entire $700 million loan it had borrowed to help with short-term needs.Internal Borrowing vs. Check Kiting
State Treasurer Dean Martin on Wednesday said that means the state will have to revert to some internal borrowing to keep money flowing in the state's checking account.
The shortage developed when the Treasurer's Office had to make a Dec. 1 payment of $389 million to the state's schools, which exceeded the cash on hand. To make up the difference, Martin borrowed $73 million from internal state accounts.
Those amounts will be replenished as tax collections roll in.
On Nov. 19, the state finalized a loan agreement with Bank of America for $700 million, the first time since the Depression that Arizona has needed to turn to an outside borrower.
Internal Borrowing Example: Assume the state has a $30 million expense due in a month with sufficient cash on hand. It has another expense for $30 million due now that it does not have. It borrows money from the first account to pay the bills of the second, hoping to collect enough tax revenue in the interim to pay back the first account before the money is due.
While not exactly the same, the setup has a lot in common with check kiting.
- A piece of negotiable paper representing a fictitious financial transaction and used temporarily to sustain credit or raise money.
- A bank check drawn on insufficient funds to take advantage of the time interval required for collection.
Arizona is betting the "amounts will be replenished as tax collections roll in". I am betting they won't, at least without more internal borrowing.
Eventually, this scheme will blow sky high. In this case I am betting on sooner, rather than later.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
