California Misses Budget Deadline, Readies "IOUs"

CNBC ^ | 7/1/2009 | Staff

[Red in Blue PA]

California's lawmakers failed to agree on a balanced budget by the start of its new fiscal year Wednesday morning, clearing the way to suspend payments owed to the state's vendors and local agencies, who instead will get "IOU" notes promising payment.

The notes will mark the first time in 17 years the most populous U.S. state's government will have to resort to the unusual and dramatic measure.

Democrats who control the legislature could not convince Republicans late Tuesday night to back their plans to tackle a $24.3 billion budget shortfall or a stopgap effort to ward off the IOUs.

The two sides agree on the need for spending cuts but are split over whether to raise taxes. Democrats have pushed for new revenues while Republican lawmakers and Governor Arnold Schwarzenegger, also a Republican, have ruled out tax increases.

[Red in Blue PA]

My questions is why don’t the legislators ever get IOU’s????

[Achilles Heel]

great idea...let’s float it around.

[Red in Blue PA]

It makes no sense. State vendors and local agencies get IOU’s, yet the very people who crashed the car into the ditch get their full pay.

[borntobeagle]

well they just jumped right in and offered to for-go their pay until they can get this worked out./sarc

Public servants...my eye!!

[LS]

People in CA, here is my question: what happens when contractors and suppliers simply won’t take an “IOU”? Where does the state get its cement, and food, and workers?

[goldstategop]

Its a joke. They'll play games all summer and in end the GOP will give in on the taxes. Wait and see.

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus

[mosaicwolf]

Ummmm.....Seems to me the people will have to fend for themselves. Individualism - Self reliance....What a concept!!!!!

[Dutchguy]

That's as good as money sir, those are IOUs.

[SkyPilot]

1. Cut teacher pensions by 10%.
2. Stop all payments and health care to illegals.

Gee, that was tough. What other problem would these vaunted "legislators" wish me to fix for them?

[soycd]

Where are the hollywood liberals and their millions in charity? They could let go of a few billion
for the children. They are loose with everyones money except their own.

[ReeseBN38416]

"living within your means doesn't mean anything."

~ Noreen Evans, leader of the California Budget Conference Committee

[who knows what evil?]

Cut teacher’s pensions by 100%...let them figure it out like the rest of us.

[LS]

Yeah, it will be great. See, as much as people bash Al Hamilton, he understood that the key to good government was fiscal conservatism and responsitiliby; that the US had to pay its debts, consistently, on time, and over time reduce those debts, or it would be no better than the Latin American countries.

[whitedog57]

That is not the solution.

Government bribes people into working for them with pension plans instead of pay. It is illegal to suddenly say, “We were just kidding.” Corporate American did the same thing. In fact, numerous corporations intentionally underfunded pensions then went to the government and said “We don’t have the money. Bail us out.”

Corporations adopted Socialism with these types of stunts. Really not much different than the teachers union.

Don’t get me wrong. Government should stay out of everything other than national defense and a few other things. They screw everything up.

[sickoflibs]

RE :”1. Cut teacher pensions by 10%. 2. Stop all payments and health care to illegals.”

Nice start. Notice state employee pensions and health care are last to go. First is services.

Imagine IOUs. They dont even save money by not having a budget. Reminds me of federal shutdown in late 1995.

[Savage Beast]

"My questions is why don’t the legislators ever get IOU’s????"

Good idea, Red.

"State Controller John Chiang plans to issue IOUs by Thursday to...college students."

Just go ahead and lop 'em off, John.

I worked my way through college--in fact, through 15 years of college, including graduate school--and I didn't go into debt! If I can do it, anybody can!

Furthermore, I learned so well the lessons of self-reliance, living within one's means, and keeping the budget balanced that I was able to send my wife through 4 years of college, my children through college three times each, and establish a scholarship fund to send the needy to college.

I don't know how many people I have put through college--financially!

I was able to do it because I worked hard--nights, weekends, holidays--had my first job at age 14 when my father died--because I LIVED WITHIN MY MEANS--because I KEPT MY BUDGET BALANCED--and most of all BECAUSE OF THE CAPITALIST SYSTEM AND THE FREEDOM OF WHICH IT IS A PART!

Not only will lopping off college students' funds eliminate unnecessary debt, but it will have the far greater advantage of teaching these college students where money comes from and--of utmost importance--HOW TO BALANCE A BUDGET AND LIVE WITHIN YOUR MEANS!

This priceless lesson would be put to far greater use if California's politicians were forced to work for a living--or live on IOU's, as you have suggested, Red.

[Andy from Chapel Hill]

Somehow, a market will develop to buy up these IOU’s at a discount for cold hard cash. Thus, the recipient will have a choice of (guesstimate) 80-90% of the face value or will use them to collateralize a loan. Either way, the vendors to the state are being paid less than the contract price.

I wonder what interest rate these IOU’s carry — 1.5% per month like a credit card?

[bustinchops]

I live in CA, and I find it funny.

CA rats DO NOT CARE if we’re broke. They will never stop spending, never seriously cut back on programs and all the other absurdities this state pays for.

[ml/nj]

Article I Sec 10 United States Constitution:

No State shall ... emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts.

I know it's sort of quaint of me to point this out since the Federal Reserve Notes they might issue if they had them are also an unconstitutional tender.

ML/NJ