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Sacramento, CA - California Gov. Arnold Schwarzenegger, alarmed by the ongoing national financial crisis, warned Treasury Secretary Henry M. Paulson on Thursday that the state might need an emergency loan of as much as $7 billion from the federal government within weeks.

The warning comes as California is close to running out of cash to fund day-to-day government operations and is unable to access routine short-term loans that it typically relies on to remain solvent.

The state of California is the biggest of several governments nationwide that are being locked out of the bond market by the global credit crunch. If the state is unable to access the cash, administration officials say, payments to schools and other government entities could quickly be suspended and state employees could be laid off.

Plans by several state and local governments to borrow in recent days have been upended by the credit freeze. New Mexico was forced to put off a $500-million bond sale, Massachusetts had to pull the plug halfway into a $400-million offering, and Maine is considering canceling road projects that were to be funded with bonds.

Letter from Schwarzenegger  to U.S. Treasury

California finance experts say they know of no time in recent history when the state has sought an emergency loan of this magnitude from the federal government. The only other such rescue was in 1975, they said, when the federal government lent New York City money to avoid bankruptcy.

"Absent a clear resolution to this financial crisis," Schwarzenegger wrote in a letter Thursday evening e-mailed to Paulson, "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."

The letter, obtained by The Times, came on the eve of a vote by the House of Representatives on a $700-billion rescue package, but it was too soon to know how the package would affect the nation's paralyzed credit markets. The Senate approved the so-called rescue bill Wednesday night.

A top Schwarzenegger aide followed up the letter with a call to the Treasury secretary Thursday night. Treasury Department officials could not be reached for comment.

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."

But those payments won't be forthcoming if the state can't do routine borrowing. For now, "the window is shut, and if it stays shut, we are in deep trouble," said an administration official, who asked not to be identified, citing the sensitive talks with Washington.