Beleaguered California, in financial difficulty for years, has resorted to issuing IOU notes to creditors after legislators failed to balance the state's budget by the end of its fiscal year, June 30th.
California's budget just needed $24.3 million more to be balanced, but disagreement over whether or not taxes should be raised meant that California started its new fiscal year today with no funds. This means that all payments have been suspended. The state's vendors and agencies will be issued IOUs, while state workers will have to take one unpaid holiday day in July.
The Democrats and the Republicans (Governor Schwarzenegger is a Republican) agreed on the need to cut expenditures in the budget, but the process dissolved over disagreements about whether or not to raise taxes. The Republicans, including the Governor, do not want to see any tax increases levied. The housing downturn and the economic crisis are being posited as the reasons for California’s money troubles, because the state relies heavily on taxation revenues.
California is not alone with its difficulties. A Reuter’s article cites the Washington-based Center on Budget and Policy Priorities as saying that 46 other states face budget shortfalls in 2010. States are not allowed to run deficits. This particular crisis is a matter that California legislators have been trying to circumvent since late 2008.
This is the second time this year that California has delayed getting payments out to people. Earlier this year, the state deferred paying out tax refunds due to its cash crisis. The State of California now has the worst credit rating in the United States.
This is also the second time since the Great Depression that California has resorted to issuing IOUs.
It is anticipated that Governor Schwarzenegger will declare a state of financial emergency today.
Russian Professor Igor Panarin predicts the collapse of the United States of America in 2010. It is a prediction he first proposed ten years ago.