A bond sale this week will test whether private capital can meet California's shortfall.
How California fares with a $4 billion short-term bond sale this week will help answer a key question looming over the current US financial crisis: are traditional credit markets so frozen that states won't be able to raise revenues to tide them over their cash crunch?
The practice of selling short-term bonds is used regularly by at least a dozen US states, and occasionally by several more, to keep state programs and services running smoothly year round.
Because tax income is not steady throughout the year – far more revenue comes in from September through December than January through March – California and others (including Massachusetts, New Jersey, Nevada, Rhode Island, Arizona, Delaware, New York, Florida, and Alabama) borrow short-term to pay their bills when revenues are temporarily insufficient.
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