TARP Can’t Be Used to Solve States Budget Crisis, Geithner

California’s short-term fiscal stability situation was complicated a bit more on Thursday. Treasury Secretary Geithner told a House Appropriations subcommittee in Washington that the U.S.’s $700 billion Troubled Asset Relief Program can’t be used to aid cities and states facing budget crises.

From Bloomberg: The law “does not appear to us to provide a viable way of responding to that challenge,” Geithner said. “Among the hurdles: Money from the [TARP] is reserved for financial companies,” he added.

The Treasury chief said he will work with Congress to help states such as California that have been battered by the credit crunch and are struggling to arrange backing for municipal bonds and short-term debt.

The municipal bond markets are “starting to find some new balance and equilibrium,” Geithner said.

Still, mayors and governors must get deficits down so their cities and states can raise their own funds, Geithner said. The federal government “may be able to help in some ways, but they are going to carry the primary burden,” he said of the state and local officials.

California’s projected budget deficit of $42 billion is greater than all 49 states combined.

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