The State of California, faced with an eight billion dollar deficit, will likely run out of cash by March absent measures to deal with the problem. In light of that state vendors may receive IOU’s instead of cash for invoices submitted to the state for payment. From Bloomberg:
California, the world’s eighth-largest economy, may pay vendors with IOUs for only the second time since the Great Depression, State Finance Director Mike Genest said.
In a letter to legislative leaders Dec. 1, Genest said the state “will begin delaying payments or paying in registered warrants in March” unless an $11.2 billion deficit is closed or reduced. California, which approved its budget less than three months ago, may run out of cash by March, state officials say.
Governor Arnold Schwarzenegger warned that the state may issue the warrants, which are a promise to pay with interest, to suppliers and contractors as the seizure in credit markets may make it too costly to borrow.
“It’s getting worse very quickly,” Schwarzenegger, a 61- year-old Republican, told reporters Dec. 1 after declaring a fiscal emergency and ordering the Legislature into a special session to find ways to close the deficit. “It’s like an avalanche in that it gains momentum. And that’s what we’re in right now, so it’s a real crisis.”
A system burdened with an unsustainable cost structure careens towards the cliff, with the California legislature unable or unwilling to make the cuts necessary to bring their budget into balance. The Governator must be hoping for a federal appointment by President-elect Barack Obama to extricate himself from this mess. Dealing with the California Legislature on a daily basis cannot be what he envisioned when he took this job. How does Energy Secretary Arnold Schwarzenegger sound?