One of the bigger news stories circulating this morning is Arnold's letter to Treasury Secretary Paulson warning that California might run out of cash if the credit markets don't unfreeze. The gist of the problem, according to the /LA Times/:

It's customary for California to borrow billions of dollars at the start of the fiscal year to fill its coffers until the usual flood of sales tax receipts comes in after Christmas and income tax receipts arrive in the spring.

"California is so large that our short cash-flow needs exceed the entire budget of some states," Schwarzenegger wrote.

The cash needs to be in the state's bank account by Oct. 28 to be available to fund a scheduled $3-billion payment to more than 1,000 school districts.

Said Matt David, Schwarzenegger's communications director: "California faces the potential of a perfect storm created by the financial crisis' effect on liquidity, lower-than-anticipated revenues currently coming into the state, and our late budget. The governor is taking steps to prepare for this scenario to ensure that the state can make critical payments."

The SacBee clarifies the role the late budget played in bringing about this mess, by quoting California Treasurer Bill Lockyer:

"More urgently, because the state budget was so late, we have only four short weeks to complete what otherwise would be a routine revenue anticipation note sale to meet the state's cash-flow needs," he said.

Had the budget been on time the revenue anticipation note sale would have been completed earlier, before the credit markets seized up. We have Sacramento Republicans to thank for this, who put their own ideological agenda above basic financial principles and the needs of the state.

It's also likely that this letter is not just designed to publicize California's cash flow problem, but to help grease the skids for the Paulson bailout that is being debated right now on the floor of the House. Arnold supports the bailout but believes it was "mismarketed":

What was wrong right from the beginning was the way it was marketed. I mean, you can't talk about a Wall Street bailout. No one in America is interested in bailing out Wall Street [laughter] because those are the guys that are making the billions of dollars. So who is going to help that? But if you go and explain to people this is going to be a bailout for the ordinary citizens and for businesses, small and large, for everyone, the economy and everyone will be affected all the way down to Main Street, not Wall Street, that is then a different ball game.

This letter is certainly much better marketing for the bailout than anything we've seen out of Capitol Hill. That's not to say the cash crunch isn't real here in California - it is. And we should remember who and what we have to thank for it - Republicans, and the 2/3 rule.