California – Ready, Set, IOU!
California is about to issue its first IOUs as a response to the budget crisis, State IOUs loom as foes’ battle lines harden:
Reporting from Sacramento — After trying for weeks to fix a state budget gone out of control, Gov. Arnold Schwarzenegger and state lawmakers stood frozen in conflict Wednesday with the state at the brink of a meltdown.
A day after the state Senate failed in a late-night bid to close part of a deficit now projected at $26.3 billion, California Controller John Chiang took steps to begin issuing IOUs today to tens of thousands of companies and individuals that are owed millions of dollars by the state.
When the scale of the budget crisis became clear in May, Bass, the governor and other state leaders expressed confidence that they could attend to it swiftly. A budget put in place in February to take the state through the middle of next year had fallen out of balance. Revenues declined amid a continuing economic downturn, and voters rejected a slate of ballot measures that were intended to raise nearly $6 billion.
I should point out that the scale of the budget crisis was clear for much longer than since May, unless your ability to look forward is limited to 1 month. I wrote about it in January (and others actually did way before me) …
California has to wake up to reality. Whether we like it or not, the state needs to stop paying unionized workers outrageous wages. Instead of reducing expenses for some departments and programs, it needs to dismantle and abolish entire departments and programs. It needs to stop funding unsustainable pension plans. In return it needs to drastically cut the overwhelming taxes and fees that are stifling its economy.
If it doesn’t do it now, then it will have to do it later, by declaring bankruptcy, which will completely wipe out all programs and departments that can then no longer be funded anyway.
The LA Times article concludes with:
The governor and lawmakers appeared resigned that they could no longer avoid the IOUs. A panel of finance officials will meet today to determine the interest rate for banks and other financial institutions that accept the IOUs. Some banks have already agreed to honor them, including Bank of America, which will accept the scrip until July 10. Other banks have not decided.
Note that BofA will be accepting IOUs until July 10th only. Then what? Time for California legislators to come to their senses and wake up to reality. Will they listen this time? Take your guess.