CA Sends IOUs To Blind, Old, Disabled

From a tut-tutting New York Times:

(Click to enlarge) Coffers Empty, California Pays With I.O.U.’s

By JENNIFER STEINHAUER

July 3, 2009

LOS ANGELES — An ever-widening budget gap joined with intractable political paralysis to deliver California its biggest fiscal blow in decades on Thursday, when the state’s controller began printing i.o.u.’s in lieu of cash to pay taxpayers, vendors and local governments.

It was only the second time the state had adopted the emergency payment method since the Great Depression. The National Conference of State Legislatures had no record of any other state’s ever using them.

It was unclear whether the i.o.u.’s, known as warrants, would be accepted by all of the banks in California, which were caught off guard by the move and seemed hesitant to entrust the state to repay the them — at an interest rate of 3.75 percent — in October, as promised.

The controller, John Chiang, issued 28,742 warrants totaling $53.3 million. If state lawmakers fail to reach a budget agreement by the end of August, the amount would grow to $4.8 billion.

While the emergency move resulted from California’s combination of outsized budget gaps, unusual budget rules and a morass of financial obligations approved at the polls, the action was seen as a warning flag to other states that have failed to close their budgets this fiscal year because of the economic downturn….

In California’s misery, Gov. Arnold Schwarzenegger, a Republican, has found some opportunity in standing his ground. Mr. Schwarzenegger has not only refused to sign off on stopgap measures like those proposed this week by Democratic lawmakers, but has also demanded that lawmakers adopt substantive changes in policy as part of any budget deal.

Democrats indicated Thursday that they were beginning to submit to Mr. Schwarzenegger’s demands, taking proposed tax increases that he opposes off the table as they worked to close a budget gap estimated to have grown to $27 billion…

Among the changes Mr. Schwarzenegger insists be included in a budget agreement are the fingerprinting of recipients of certain state services for the poor and infirm, tighter checks on the job status of those who receive welfare benefits and changes to the state pension program…

So California is now just like a family that spends more than it takes in and holds off on the cable bill while paying the mortgage: its expenses are greater than its revenues. The state, which previously used i.o.u.’s in 1992 and 1933, will issue them rather than checks to those it can get away with not immediately paying.

Most warrants will go to Californians waiting for tax refunds, vendors doing business with the state and local governments, especially in social service areas. Federal and state laws prohibit i.o.u.’s from being issued to state employees, schools or Medicaid recipients.

While it is against federal law for a state to declare bankruptcy, California’s move Thursday will not go unnoticed by Wall Street or escape consequences.

The state’s credit rating is already shaky, and any further downgrades from rating agencies could send interest rates on its bonds soaring, forcing deeper service cuts…

Do note who the powers that be decided to send the IOUs to first.

The blind, the old, the disabled.

Federal and state laws prohibit i.o.u.’s from being issued to state employees…

Heaven forbid that they try this with any of their millions of union thug bureaucrats.

Anyone who will tug at the heart strings.

While it is against federal law for a state to declare bankruptcy…

Who knew? Hasn’t the media been full of stories about states that are on the brink of bankruptcy?

If this is true, it is probably the only thing that is keeping California from going Chapter 11. Maybe we should pass such a law for companies that are ‘too big too fail.’

In any case this is ultimately another ploy to get the voters let them raise taxes even more.

So California is now just like a family that spends more than it takes in and holds off on the cable bill while paying the mortgage: its expenses are greater than its revenues.

As California goes, so goes the nation.

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