State Forced to Issue “IOUs” Without Immediate Budget Fix
SACRAMENTO – Today State Controller John Chiang announced that he will be forced to issue registered warrants – also known as IOUs – beginning July 2 if immediate budget and cash solutions are not quickly adopted by the Governor and Legislature.
“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.”
The Controller was forced to delay payments for 30 days in February to manage a smaller cash crisis. But the magnitude of this shortfall – which is nearly five times larger – cannot be temporarily covered by payment delays. The option to pursue short-term, high-cost loans from Wall Street to cover the cash shortfall was taken off the table by Governor Schwarzenegger earlier this month.
The State Controller met with the Governor and Legislative leaders this week to warn them of the consequences of further budget delays. In addition to the burden on those who receive the notes, resorting to IOUs sends a signal that California has exhausted all other options to manage its cash flow.
Payment categories protected by the State Constitution, federal law and court decisions will receive regular payments in July. All other general fund payments will be paid with IOUs. These include 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.
The warrants will carry an interest rate set by the Pooled Money Investment Board. The Controller has requested an emergency meeting of the Board on July 2 to set the rate. Any rate adoption will become effective immediately. The warrants will have a maturity date of October 1, 2009.
If IOUs are issued next month, the State Controller will launch a customer call-center to answer questions. The Controller’s Web site, www.sco.ca.gov, will be updated regularly with the latest information on the State’s cash position and related developments. The Controller's Web site also has several new Web pages with information about registered warrants.