California readies IOUs

[Michael]

California readies IOUs -- legislators would be first

State Controller John Chiang warned Tuesday that the first group to get hit in the wallet by California's budget debacle is likely to include legislators – and it could happen as early as Feb. 1.

The bad news is that next in line to get IOUs instead of cash would be Californians awaiting state income tax refunds and companies that do business with the state.

In a letter to state agencies, Chiang said his office was projecting the state would run out of cash around the beginning of March.

Without a deficit-closing deal between legislators and Gov. Arnold Schwarzenegger, Chiang said, his office "has no choice but to pursue the deferral of potentially billions of dollars in payments and/or the issuance of individual registered warrants, commonly referred to as IOUs."

Source (http://www.sacbee.com/topstories/story/1507830.html)

Wow! $40 billion shortfall and a constitutional requirement for a balanced budget by January 10th! That looks nasty! ($40 billion is about $1140 per capita in the state - that's a HUGE shortfall).

On the other hand, its not like this is unfamiliar territory for the State of California who's fiscal games are legendary and bizarre.

[Americano]

Source (http://www.sacbee.com/topstories/story/1507830.html)

Wow! $40 billion shortfall and a constitutional requirement for a balanced budget by January 10th! That looks nasty! ($40 billion is about $1140 per capita in the state - that's a HUGE shortfall).

On the other hand, its not like this is unfamiliar territory for the State of California who's fiscal games are legendary and bizarre.

CA is facing the same problems as many states dependent on declining tax revenues, inability to issue those general obligation bonds with no dedicated revenue stream. Insuring them is almost an impossibility in today's economic climate (AIG anyone?) and with short-term US treasury issues at negative interest as capital moves to liquidity, Arnie has a serious problem. Which taxes to increase is the only question as CA civil service is so heavily unionized it can't cut spending in any significant manner.

We're still waiting on our state's detailed revenue forecast. We got the standard model reduced by out-of-the-air percentages, grim, and now number crunchers are doing revenue surveys and seeing what can be cut from spending. Our country is in horrendous financial condition with revenue forecast for 15% annual reductions over the next four years in reduced federal revenue sharing payments in lieu of property taxes. The Feds own a majority of Oregon.

Some interesting times are ahead of the US. Unless, of course, we learn how to convert water into alternative fuels in the next year or two.