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 US’s 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.
CaliforniaÂ’s fiscal year ends on Wednesday but as the stateÂ’s 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 Âmassively unbalanced spending plan and a cash shortfall not seen since the Great Depression,” said John Chiang, the state Âcontroller. “Unfortunately, the stateÂ’s 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 stateÂ’s constitution while payments on the stateÂ’s 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 CaliforniaÂ’s budgetary woes.
Mr Schwarzenegger said he would veto any bills that raised taxes without reforming the state’s government. “I will veto any majority vote tax increase bill that punishes taxpayers for Sacramento’s 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. It’s 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. |