Deficit forces California to issue IOUs (again)

And again, if you get IOUs, pay your state taxes in IOUs.

www.ft.com...

Deficit forces California to issue IOUs

By Matthew Garrahan in Los Angeles
Published: June 29 2009 19:26 | Last updated: June 29 2009 19:26

California is preparing to issue IOUs to its creditors this week as it grapples with an unprecedented cash crunch and prepares to begin its new fiscal year deep in the red.

Once the US’s richest state, California now has the dubious distinction of having the worst credit rating in the country.

It is facing a budget deficit of $24bn (€17bn, £14.5bn) yet Arnold Schwarzenegger, its governor, and the state assembly cannot agree on a budget that would address the shortfall.

California’s fiscal year ends on Wednesday but as the state’s cash reserves are empty, IOUs will be issued to a range of creditors, including contractors, such as information technology companies and the food service groups that cater for prisons.

“On Wednesday we start a fiscal year with a ­massively unbalanced spending plan and a cash shortfall not seen since the Great Depression,” said John Chiang, the state controller. “Unfortunately, the state’s inability to balance its chequebook will now mean short-changing taxpayers, local governments and small businesses.”

The state is also likely to issue IOUs to the US government. California currently contributes funding for government-run programmes for elderly and developmentally disabled people but is considering issuing IOUs to cover its contributions because of the lack of cash.

Education funding is protected under the state’s constitution while payments on the state’s bond debt are also guaranteed under state law.

Democrats and Republicans in the state government last week struck an agreement on a range of money-saving measures. However, Mr Schwarzenegger has threatened to veto the plan on the grounds that it was a piecemeal solution to California’s budgetary woes.

Mr Schwarzenegger said he would veto any bills that raised taxes without reforming the state’s government. “I will veto any majority vote tax increase bill that punishes taxpayers for Sacramento’s failure to live within its means,” he said. ”The legislature will have a difficult time explaining to Californians why they are running floor drills the day before our budget deadline. We do not have time for any more floor drills or partial solutions. It’s time for the legislature to send me a budget that solves our entire deficit without raising taxes.”

[edit on 29-6-2009 by Dbriefed]

reply to post by Dbriefed


Doesn't even seem like california is a part of the USA anymore.

I really have no idea what their doing over there.

They hired a celebrity, they got it coming.

Could you imagine if Gary Colemen would of won!

IOU's, Whatch you talkin about!

And California gives more to the feds than they receive... so the fed's 2.2 trillion deficit is now even bigger.

Can we please kick California out of the union? When they send scum like Waxman, Pelosi, Feinstein in Washington DC, we can't take them seriously.

reply to post by Dbriefed


I have to commend Arny on this one. He doesn't want a budget that raises taxes. He wants a budget that cuts all unnecessary programs. The people of Cali voted for no new tax increases and that is what he is going to do.

I can't say I blame him, he came in wanting to reform the government and now he is in the position to reform the government, and he is sticking to his guns. Good job.

Imagine giving your creditors IOU's! LOL.
Hey visa, I cant pay this month, but I'll give you an IOU.
The only way there going to get out of this is to drastically cut programs. Lay off thousands of govt workers. Could we see the first
"state bailout"!

Originally posted by crw2006
Imagine giving your creditors IOU's! LOL.
Hey visa, I cant pay this month, but I'll give you an IOU.
The only way there going to get out of this is to drastically cut programs. Lay off thousands of govt workers. Could we see the first
"state bailout"!

Not a bad idea!

I really want a pizza, but I can't afford it, hopefully the delivery man will take an IOU.... yeah, if our gov't will, then pizza hut should be able to!

Bank of America, send all the letters you want, it's not getting paid. I have to assume it's illegal to overdraft an overdraft, then repeat the process. That doesn't even make sense.

reply to post by Republican08


It's crazy. All they have to do is cut the unnecessary entitlement programs and they won't have to issue IOU's. But of course the congress in that state is more worried about getting re-elected than it is to keep the whole US economy from collapsing. It really boggles the mind.

As far as a State Bailout? Not going to happen, it would be political suicide for everybody in the US congress that would vote for it. We will see though. Things are so on edge that anything can be the straw that breaks the camels back.

My company is a state contractor and certified small business which entitles us to certain "prompt pay" rules and bidding preferences. We have a few hefty invoices coming due next week and if we receive an IOU from the state I'll send it in with our quarterly tax bill. Fair's fair, right?

reply to post by Tripnman


If they aren't going to pay you it only seems fair you can put their IOU on on your 'tab' that you owe them in taxes.

Sounds like California Congress needs to get the s* together.

[atsimg]http://files.abovetopsecret.com/images/member/300499aa4734.jpg[/atsimg]

his face says it all

reply to post by warrenb


... ahaha, I can see the machinery going on in his head ... he's thinking " ... and I propose to ram my fist through your spine " !!!

.... or he's covertly letting one rip.

And still arnold supports the ilegal aliens and says anyone who criticizes them is a nazi.!!!! CA has 10 million illegals who don't pay taxes but use the schools and hospitals and welfare system and send their money back to mexico. And arnold supports them.

I'm just so sick of this corruption. Arnold is paid millions of $ every year in bribes from Big Business to support illegals.

You and me, if our income drops, we spend less. That's natural, that's the way it works. The state of California, if their income drops they spend the same. Why is that? Ignorance that their revenue is tied to our personal revenue? Our personal revenue drops, and they want to raise taxes. Now that's ignorance we should correct!

And although it's harsh, I agree that spending money on those who are here illegally is wasteful. There are so many non-English speakers in L.A. alone, one could only assume how much blood they're sucking out of the system from social services over the last many decades. Illegals do reduce the costs of things like labor, but much of that is in the underground cash economy that does not pay for the social services they use (medical, schools, roadways, emergency, etc). My car was hit by an illegal immigrant (all-points-address), and he didn't have insurance or a home, so he walked away without a ticket or having to pay for the repairs. I think a study should be done to estimate the real costs and benefits of illegal persons over the last few decades for solid data. I'm not happy with a lifetime of living with services made substandard by the burden of illegal residents.

Oh, here's some more good news.

Let's assume I am a contractor who, for the sake of argument, paves roads for the state (I chose this because I have worked for such contractors in Alabama and I assume things go similarly in CA). I am constantly bidding on road improvement and repair projects. These projects keep me working through those times when no one is wanting a driveway or subdivision access road paved, or when no buildings are being built which require excavation work. This way, I manage to keep employees working something akin to a full-time job at a reasonable salary.

Building and construction are at a record low. That means that I cannot keep work for individuals or private companies in sufficient amounts to keep a workforce employed. The only thing keeping me afloat are those government contracts. Now, suddenly, it's pay time and instead of a check in the mailbox, what do I see? An I.O.U. Now, exactly what do I pay my employees with? My own I.O.U? Yeah, right, so what do they pay their power bill with, assuming they accept my I.O.U? Their own I.O.U? How about their water bill? Phone bill? Bank notes? Groceries?

I think the reader can see the real problem here. It's not that the government of CA is broke, it is that CA itself is broke. Somehow we switched from being a country where individuals and private companies created an economy that was self-correcting to one where government runs the economy and is self-destructive. During that switch, we began to rely on government to pay our way instead of ourselves. We all became wards of the state, relying on government programs to prop up our own self-destructive practices. Job doesn't pay enough? get food stamps. Out of work? Welfare. Can't afford health insurance? Medicaid/Medicare. Get laid off? Unemployment. Want to retire? Social Security. Feel too bad to work? SSI. Don't want to pay your employees what they need to survive? Send them to the government for help.

Now, there is no government to help.

When business and individuals have financial difficulties, a capitalist economy forces them to make sacrifices until that problem can be resolved. When government has financial difficulties, they are not forced to cut back; they can simply demand by force of law that they get more money. It's like deciding you want a raise and having a small group of employees in your company force the boss to give it to you by passing a law (and then the boss being unable to fire anyone because of it). If any company tried to run like that, it would be bankrupt and out of business before the paint on the 'open' sign could dry. But somehow we seem to believe that it works for government.

Back to the present situation: That little example only covers one of the arenas where private companies depend on the government for existence. There are plenty more. The police in smaller cities rely on state financial aid to pay their officers. Fire departments rely on the same. Public hospitals rely on funds received to help keep operating. Some construction companies rely on government contracts. Now add up all the employees, police officers, firefighters, paving crews, street sweepers, and civil servants just covered and realize they are making squat.... zero... zip... nada... nothing anymore until these fat cats in Sacramento do their job... and unless they do a good job, maybe not even then. How are these multitudes of people going to pay their bills? Buy food? They're not. So now we can add in all the hairdressers, clothing store workers, clothing manufacturers (assuming there are any left in the US), Starbucks, phone companies, cable TV companies, because their customers have no money to pay them with. Add in the hospital workers, the nurses, the orderlies, and the janitors, since Medicaid payments will now be in the form of something the hospital can't deposit in the bank and therefore can't pay their employees with.

The whole state is bankrupt. The whole state is going under. Say bye-bye to all the state programs you have been depending on. They're going the way of the dinosaurs.

And say goodbye to the state of California, and the Constitution thereof. I just hope some of those refugees from the financial tsumani out there don't make it to Bama. We have our own fights to worry about without the Californians trying their little failed social experiments here as well.

TheRedneck

As a person in L.A., I say this is good news indeed.

I hope the state goes completely bankrupt. Then all the fat pensions that are going to the state unions would be void and all the fat government salaries would be slashed. All the huge social programs that ATTRACT illegal immigrants would also be slashed.

Either way, the day of reckoning is coming whether or not the state government can increase taxes. The tax base is eroding faster than an ice cube in hot running water and the potential revenue the state can extract out of taxation is going bye-bye.

In fact, I long to see the day when state workers start crying about getting their cushy status shredded. They aren't even doing a good job in the first place. The education sucks, the crime rates suck, services suck, the infrastructure sucks,......where the hell is all this money going and why the hell is nothing getting done? If I pay so much taxes but the results are long DMV lines, my car breaking over some pothole, endless traffic, crappy education, and general suckage, what is the point to to paying for all these services in the first place?

So let it all meltdown, the sooner the better.

Maybe the federal government can meltdown too so we can get rid of this damn debt based monetary system that is draining the nation dry.

The biggest problem is the democrats want to add permanent taxes to fix a temporary problem so that after the economy improves they can use the extra money to bankroll there pet projects and give big pay raises to there union supporters.

The democrats have been doing this for years and at the same time have been running businesses out of the state along with the taxes they paid.
this has caused a smaller tax base to support a growing state bureaucracy.

There is no hope in the tax base in Calif growing because the democrats want to de-industrialise Calif.
That means that all the taxes from these industries will go over seas or to other states.

reply to post by wutone


Reminds me of the song from Tool...

Cuz I'm praying for rain
And I'm praying for tidal waves
I wanna see the ground give way.
I wanna watch it all go down.
Mom please flush it all away.
I wanna watch it go right in and down.
I wanna watch it go right in.
Watch you flush it all away.

California must do away with its social projects. They cant keep raising taxs expecting people to stick around. It isnt going to happen. There already is an exodus of a few hundred people moving east daily. And the people that are leaving have assets. They are not like the dirt farmers coming from mexico to replace them


STOP IMMIGRATION NOW!




This video was made in 2008. There are now 33 known camps across the state with estimated over 40,000 occupants and growing daily.



[edit on 1-7-2009 by Spartak_FL]

Oh look!

A warning bell on California muni bonds

The state has appealed to Washington for a federal bailout, but it got a cool response from the Obama Administration. The next step is draconian cuts in state services and payroll, but Weiss says that will only deepen the "depression" in California, where the unemployment rate is 11.5%, by further cutting into tax revenue.

Asked to put odds on California defaulting on its $59 billion in outstanding general obligation bonds, Weiss doesn't hedge. "It's unavoidable," he tells Fortune.

Looks like doomsday is on the horizon, and there is no way out.

The meltdown is coming and there is no one to blame except the high spending and high taxing state government. I hope it hits hard so people here in California will finally open their eyes to who is really at fault for our problems. I also hope the state workers who have been enjoying fat pay and fat pensions get nailed for raping the taxpayers.

California is prime example of what happens when you get a large socialist nanny state that can't print its own money. A government can only tax so much and can only fatten a select few so much before everything pops.

If he's right, the impact on investors would be far broader and deeper than Bernie Madoff, General Motors (GMGMQ) or any of the other investment implosions that have occurred over the past year.

Originally posted by Hastobemoretolife
reply to post by Republican08

 

It's crazy. All they have to do is cut the unnecessary entitlement programs and they won't have to issue IOU's. But of course the congress in that state is more worried about getting re-elected than it is to keep the whole US economy from collapsing. It really boggles the mind.

As far as a State Bailout? Not going to happen, it would be political suicide for everybody in the US congress that would vote for it. We will see though. Things are so on edge that anything can be the straw that breaks the camels back.

I bet the Bailout does happen. If a few weeks go by and the news starts showing tent cities and leads every nights news with CRISIS in California, public opinion may even swing towards a fed bailout. After all what is 20-30 billion, when we already gave AIG 150 billion, cap and trade will cost at least a trillion plus a few million jobs and we are already going to run close to a three trillion dollar deficit?

I think it is pretty obvious at this point congress isn't very worried about getting re-elected, or they would at least pretend to read bills that will destroy their constituents. The sad thing is history has proven they have nothing to worry about, nothing really happened after they voted for the stimulus without reading it despite massive opposition.

Lets face it most voters just look for the D or R next to a name and pull the lever, and that is about all the amount of thought they put into it. Congress at this point knows this and simply votes for whatever side offers them the most perks.