Deficit forces California to issue IOUs
California is preparing to issue IOUs to its creditors this week as it grapples with an unprecedented cash crunch and prepares to begin its new fiscal year deep in the red.
Once the USs richest state, California now has the dubious distinction of having the worst credit rating in the country. It is facing a budget deficit of $24bn (17bn, £14.5bn) yet Arnold Schwarzenegger, its governor, and the state assembly cannot agree on a budget that would address the shortfall.
Californias fiscal year ends on Wednesday but as the states cash reserves are empty, IOUs will be issued to a range of creditors, including contractors, such as information technology companies and the food service groups that cater for prisons.
On Wednesday we start a fiscal year with a massively unbalanced spending plan and a cash shortfall not seen since the Great Depression, said John Chiang, the state controller. Unfortunately, the states inability to balance its chequebook will now mean short-changing taxpayers, local governments and small businesses.
The state is also likely to issue IOUs to the US government. California currently contributes funding for government-run programmes for elderly and developmentally disabled people but is considering issuing IOUs to cover its contributions because of the lack of cash. Education funding is protected under the states constitution while payments on the states bond debt are also guaranteed under state law.
Democrats and Republicans in the state government last week struck an agreement on a range of money-saving measures. However, Mr Schwarzenegger has threatened to veto the plan on the grounds that it was a piecemeal solution to Californias budgetary woes.
Mr Schwarzenegger said he would veto any bills that raised taxes without reforming the states government. I will veto any majority vote tax increase bill that punishes taxpayers for Sacramentos failure to live within its means, he said. The legislature will have a difficult time explaining to Californians why they are running floor drills the day before our budget deadline. We do not have time for any more floor drills or partial solutions. Its time for the legislature to send me a budget that solves our entire deficit without raising taxes.
Could have been this all along, Arnie; instead you allowed state spending to jump out of control these last few years, and now you're paying for it. |
Posted by: Steve White 2009-06-30 |