California is to begin handing out IOUs tomorrow

This is effectively bankruptcy. Bloomberg reports.

California is poised to begin its new fiscal year tomorrow without a plan in place to close a $24 billion deficit as the state prepares to conserve cash by issuing IOUs to vendors who are owed money.

Republican Governor Arnold Schwarzenegger and Democrats who control both chambers of the Legislature are scheduled to meet throughout the day to reach a compromise. Schwarzenegger has sought spending cuts that would eliminate welfare programs and push nearly 1 million low-income children out of government health insurance. Democrats want fewer reductions and some tax increases to make up the difference…

Schwarzenegger yesterday vowed to veto a $23 billion package of tax increases, spending cuts and accounting maneuvers Democrats passed by a simple majority rather than the required two-thirds vote. Democrats argued that the tax bills needed only the simple majority because they cut some taxes, while increasing others an equal amount and raised fees that don’t meet the two-thirds approval requirement…

“Is there anyone in this room who believes that we are going to magically solve this problem by midnight? It’s just not likely,” said Senator Mark Leno, a San Francisco Democrat.

While you may not have heard of similar problems in other states, 48 states have funding gaps to close.  And in some states the percentage gap is even larger than in California – New York and Nevada where budget gaps are nearly one-third of revenues -to name two.  By the way, the California IOUs will pay 5% interest.

Update 1 Jul 2009:  The impasse was not cleared. IOUs are coming.

3 Comments
  1. Anonymous says

    Jct: There’s nothing wrong with small denomination California State IOUs if I or anyone else can pay their taxes with them. When Argentina’s government workers were faced with cuts, their unions talked 6 state governments into paying them with small-denomination state bonds which could be used to pay for state services and taxes and which everyone accepted as useful currency. Best of all, when the local currency is pegged to the Time Standard of Money (how many dollars per unskilled hour child labor) Hours earned locally can be intertraded with other timebanks globally! In 1999, I paid for 39/40 nights in Europe with an IOU for a night back in Canada worth 5 Hours.
    U.N. Millennium Declaration UNILETS Resolution C6 to governments is for a time-based currency to restructure the global financial architecture. See my banking systems engineering analysis at http://youtube.com/kingofthepaupers
    Too bad California State IOUs won’t be accepted in payment for state taxes and services like state bonds were in Argentina. Too bad California State IOUs will be denominated too big to use as local currency. Too bad Argentina people were smart enough to avoid the tent-cities catastrophe and California people are too stupid to follow their example.

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