In a letter sent on Thursday to Henry Paulson, the US Treasury Secretary, Mr Schwarzenegger, California's governor, made clear that his state was running out of money because its usual borrowing channels had suddenly closed.
He made clear there would be grave consequences for the ability of American states to keep providing basic services if the $700 billion Wall Street bailout plan is not passed by the US House of Representatives.
That even America's richest and most populous state should face such severe financial problems illustrates the extent to which credit markets have seized up in the two weeks since the failure of the investment bank Lehman Brothers.
The US government has not been called on to make such a large emergency loan since New York City borrowed $2.3 billion – equivalent to $9.4 billion today – to stave off bankruptcy in 1975.
In his letter, obtained by the Los Angeles Times, Mr Schwarzenegger pointed out that his state planned to issue $7 billion in revenue anticipation notes in the coming days to pay for its short-term cash needs.
He wrote: "Absent a clear resolution to this financial crisis, California and other states may be unable to obtain the necessary level of financing to maintain government operations and may be forced to turn to the federal treasury for short-term financing."
A senior Schwarzenegger aide followed up the letter with a call to the Treasury Secretary on Thursday night, said the newspaper.
Mr Schwarzenegger wrote: "The economic fallout from this national credit crisis continues to drain state tax coffers, making it even more difficult to weather the continuation of frozen credit markets for any length of time."
On Wednesday, Bill Lockyer, California's treasurer, said its cash reserves may run dry by the end of October, leading to the suspension of payments to schools and other state-financed services.Original here