They’re seeing red in the Golden state.
California’s controller said on Wednesday that he would have to issue IOUs in a week if lawmakers can’t quickly solve a $24 billion budget deficit, and the state’s treasurer plans to tap a reserve fund to meet debt service costs.
The measures came as a budget crisis deepened in the most populous U.S. state and the gridlocked legislature failed to pass a proposed $11 billion in cuts.
Why the gridlock? Because Dems want to makes cuts and raise taxes and Republicans won’t let them. They say that massive cuts need to be made, and that’s fair politically, but we’re getting into some pretty dire territory at this point and I don’t see how cutting health care and school funding is going to help California in the long run.
But back to the IOU situation…
“Next Wednesday we start a fiscal year with a massively unbalanced spending plan and a cash shortfall not seen since the Great Depression,” Controller John Chiang said in a statement announcing that he would be forced to use IOUs to pay the state’s bills beginning on July 2.
“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,” Chiang said. “Unfortunately, the state’s inability to balance its checkbook will now mean short-changing taxpayers, local governments and small businesses.”
They say they plan to solve some part of it by issuing bonds, but that’s not as surefire as it once was since rating agencies may downgrade them.
No easy answers in this debate, but that’s where we’re at right now.
More as it develops…