California on the ropes after blowing budget deadline

July 1, 2009

California takes a step closer to issuing IOUs instead of cash to a host of folks, including local governments and private businesses, as the state failed to agree on a budget by Tuesday’s deadline.

The impasse also means the state’s budget gap for the 2009 and 2010 is getting wider, and the political blow-back much fiercer since taxpayers will be the first to feel the sting of an IOU.

From the Sacromento Bee:

Schwarzenegger plans to declare a new state of fiscal emergency today, launch another special session and propose additional program cuts to solve the larger deficit problem, spokesman Aaron McLear said. The new deficit number will be roughly $26.3 billion, about $2 billion higher than the governor’s May budget, according to Schwarzenegger’s Department of Finance…

Absent a significant budget deal today, state Controller John Chiang has warned he must take the next step of issuing IOUs on Thursday to vendors who do business with the state, local governments and people who are owed tax refunds. Chiang said IOUs are necessary to preserve enough cash to meet constitutionally mandated obligations to schools and state bondholders in July.

Hallye Jordan, a Chiang spokeswoman, said the first batch to go out would consist of 28,742 IOUs, worth a total of $53.3 million, to taxpayers awaiting refunds.

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