California, Hit by Repo Homes, Needs Loads of Cash by July

California, one of the 3 states hardest hit by repo homes, could be insolvent by July if Governor Arnold Schwarzenegger and legislators do not remedy the cash problem of the state, according to state legislative analyst Mac Taylor.

Taylor said California needs $23 billion more for the year despite the legislative remedies launched in February.

The report released by Taylor said the recession, largely caused by an unprecedented flood of repo homes in the state and in other parts of the country, has cut down tax receipts.

In the third quarter, California foreclosures increased to a total of 230,915 filings, including 45,784 real estate owned repo homes, according to a report from foreclosure tracking firm RealtyTrac. It had 14, 352 real estate owned repo homes in March. With a foreclosure rate of 1 unit in every 58 houses in the first quarter, it is third behind Nevada and Arizona in RealtyTrac’s ranking of state foreclosure rates.

Taylor also said the budget proposals to be presented for voter approval on the ballot on May 19 can reduce the deficit, but it would still be short by $6 billion.

Besides, early polls show that voters are not going to approve the ballot proposals.

To add to the problem, lenders have indicated that they may be unable to afford the level of loans needed by California as the state credit rating has declined to low levels.

Taylor warned that California will not have money to pay its financial obligations for the rest of the 2009 to 2010 fiscal year if legislators do not find solutions to the budget problem. He recommends making short-term loans from credit markets to cover the shortfall.

In February, Governor Schwarzenegger signed a budget package that prevented a cash crisis. The package also assured the state’s solvency through June 2009, but as the effects of an oversupply of repo homes continued to wreck the national economy, the February budget plan was also wrecked.

The chief budget analyst warned against asking money or loan guarantees from the federal government. He said the state could lose some of its control of its state affairs if the federal government is allowed to intervene.

The common options available to legislators in a budget crisis are more tax increases and spending cuts, as affirmed by Taylor’s recommendation for the suspension of employee salaries and funding for local governments.

But all these measures would cause further hardship to Californians already struggling against the effects of repo homes.

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