California Fiscal Crisis And IOUs

The State Of California will be issuing IOUs in a week if lawmakers in California cannot solve the 24 Billion dollar budget deficit and the state Treasurer is planning to tap the states reserve fund to meet the state debt crisis. The crisis reached a boiling point when lawmakers could not reach a deal on 11 billion dollars worth of budget cuts. Therefore, next Wednesday the State Of California will start the year with a unbalanced spending plan and a cash shortfall. The state Controller of California John Chaing said that he, would be forced to use IOUs to pay the states bills beginning July 2. The states 2.8 Billion Dollar shortfall grows to 6.5 Billion dollars in September and after that you will see double digit shortfalls. Chaing said the inability for the state, to balance there checkbook will now mean short changing taxpayers, local governments and small businesses. State Treasure Bill Lockyer meanwhile, is ready to draw on reserves for economic recovery sales tax bonds for the State Of California. The government dipped into the same reserve fund to make a principal payment on the economic recovery bonds, but was able to top the reserves back up within days. The 11 Billion dollar cuts failed down party lines in both houses in California, Republicans saying it shortfall of the savings needed and amounted to posturing by Democrats. Standard and Poor's said it will review the state economic recovery bond, or ERB rating after further projections as to the size and timing of potential draws on the ERB's reserves. The bonds were approved by state voters in 2004, to help the state through another financial crisis and are secured by sales taxes and general obligation pledge by the state. If California draws on debt reserve funds are rare and likely to send make waves in the financial markets. Finally, this budget crisis reflects the strain on cash flow and may signal a situation that leads to a temporary disruption of normal debt services payment. Therefore, how long before we see a Obama Bailout Plan for the State of California. I would love to hear your comment.