JUNE 24, 2009: Controller Chaing To Start Issuing IOU’s As Soon As Next Week Without A Budget Solution

In a press release out today, Controller John Chaing expects to start issuing IOU’s instead of payments as soon as next week if a budget is not passed by July 1.

“Next Wednesday we start a fiscal year with a massively unbalanced spending plan and a cash shortfall not seen since the Great Depression,” Chiang said. “The State’s $2.8 billion cash shortage in July grows to $6.5 billion in September, and after that we see a double-digit freefall. Unfortunately, the State’s inability to balance its checkbook will now mean short-changing taxpayers, local governments and small businesses.”

All general fund obligations except for those protected under the state Constitution, court order and federal law will be “paid” with IOU’s.  This includes all payments to local governments for social services, private contractors, state vendors, income and corporate tax refunds, and payments for State operations including legislative per diem.  But according to Chaing, IOU’s won’t be enough.

Earlier in the month Governor Schwarzenegger revoked Chaings authority to secure high interest, short term loans from Wall Street called Revenue Anticipation Warrants (RAW loans) to float the state checkbook.  

The date to pass the state budget as required by the California Constitution came and went on June 15th with little to no fan fare.  As you previously read here in a quote from the Governor’s office, Schwarzenegger brushed off last weeks deadline for his new one of July 1st, which is next Wednesday.  

The current Legislative proposed budget fixes only address part of the deficit and would take MILLIONS from each local government from gas and property tax revenue to total about $1.9 BILLION, as well as adding new tax hikes, a minor reduction in spending and some really creative accounting.  None of which amounts to a real budget solution.   The Democratic controlled Assembly and Senate do not have enough support from Republicans to push a budget thru with the required two-thirds majority.  Governor Schwarzenegger has said that he will not sign a budget brought to him by the Legislature that raises taxes.  He even launched an email campaign last week from his “California Dream Team” asking citizens to email their Legislator’s and ask for them to vote no on a budget that includes tax increases.  This is quite a turn around from the same Governor that pulled out all the stops in trying to get people to pass the largest tax increase in history on the May 19th special election ballot.

The inevitable stalemate doesn’t bode well for getting a budget passed by next Wednesday, which starts the next fiscal year for California.  We can only hope our Legislature will grow a backbone and get a stiff dose of common sense.