State will have to begin issuing IOUs next week, controller says

By Eric Bailey
11:42 AM PDT, June 24, 2009

If the budget crisis is not solved, county agencies, vendors and tax-refund recipients will receive warrants instead of checks, Controller John Chiang warns.

Reporting from Sacramento -- The state controller announced this morning that he will have to begin issuing IOUs next week if California lawmakers and Gov. Arnold Schwarzenegger don't settle on a solution to the $24-billion deficit.

As lawmakers in both houses began debating proposals for balancing the budget, Controller John Chiang said he would have to issue warrants starting July 2 because of the state's precarious cash position.

Among those who could receive IOUs are county social service agencies, private contractors, state vendors and Californians entitled to income and corporate tax refunds.

Chiang met with Schwarzenegger and legislative leaders this week to warn them of the consequences of further delays.

The controller had to delay some payments for a month in February as lawmakers wrangled over the budget, which since then has been undermined even further by free-falling tax receipts as the economy has continued to decline.

Chiang said the state's cash shortfall is unlike anything "seen since the Great Depression," with a $2.8-billion shortfall anticipated in July that could grow to $6.5 billion by September.

Meanwhile, legislative leaders were saying even before the first vote was cast that key provisions of the Democrat-crafted budget proposal they are considering today -- in particular, tax hikes on the oil and tobacco industries -- will almost certainly fail to garner the necessary two-thirds approval.

That level of support requires the votes of several Republicans in each house.

"In all likelihood we're probably not going to get them," said Senate President Pro Tem Darrell Steinberg (D-Sacramento).

If today's attempts to pass the Democrats' plan flops as anticipated, legislative leaders and Schwarzenegger are expected to gather behind closed doors in coming days to negotiate a compromise.

State officials say that without a solid budget, California government could run out of cash by late July.

eric.bailey@latimes.com

http://www.latimes.com/news/local/la-me ... 0005.story