Calif. starts printing IOUs to deal with state budget crisis
Los Angeles Times
In Print: Friday, July 3, 2009
One of the first registered IOUs, needed because of California’s $26.3 billion deficit, prints Thursday in Sacramento, Calif. Lawmakers have not balanced the budget by cutting spending, raising taxes or both.
SACRAMENTO, Calif. — Deep in debt and short on cash, California on Thursday started churning out its first batch of IOUs in nearly two decades amid grumbles from bankers, growing public outrage and scant progress in negotiations to solve the state's widening budget deficit.
At 2 p.m. printing presses began to roll out the first of nearly 29,000 IOUs for more than $53 million, most destined for state residents still awaiting income-tax returns.
The unusual press run came just hours after a panel of state finance officials set the interest rate for the IOUs at 3.75 percent for banks and other financial institutions willing to accept the vouchers. Some banks have agreed to honor the paper, including Bank of America and Wells Fargo, which will do so until July 10.
The state's three-member finance panel voted 2 to 1 to set the interest rate, with the governor's representative on the board objecting, proposing instead a 1.5 percent rate, with a redemption date of June 2010.
Recipients who don't have a bank that will cash them can redeem them Oct. 2, or sooner if the state sets a solution to its latest fiscal calamity.
The moves come little more than a day after state Senate Republicans, supported by Gov. Arnold Schwarzenegger, blocked an 11th-hour attempt by Democratic leaders to push through budget proposals that would have staved off the IOUs.
Outside the Capitol, the mood was grumpy. Richard Blitz, a 73-year-old owner of a downtown Los Angeles variety store, said the IOUs seem a hollow gesture by a state government struggling for answers.
"It's candy for a hungry man," he said. "Banks will accept it for a week or two, but what will happen after that?"
With the state economy hobbled, tax receipts waning and the deficit continuing to swell, the governor Wednesday declared a fiscal emergency and ordered state workers to take a third unpaid furlough day each month. He also issued a new cuts to schools and public universities to address a deficit his finance team says has swelled to $26.3 billion.
Schwarzenegger's latest cuts are designed to pare state spending by an additional $4.9 billion.
News
