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California Misses Budget Deadline, Readies “IOUs”

Reuters [1]
Wednesday, July 1, 2009

California’s lawmakers failed to agree on a balanced budget by the start of its new fiscal year Wednesday morning, clearing the way to suspend payments owed to the state’s vendors and local agencies, who instead will get “IOU” notes promising payment.

The notes will mark the first time in 17 years the most populous U.S. state’s government will have to resort to the unusual and dramatic measure.

Democrats who control the legislature could not convince Republicans late Tuesday night to back their plans to tackle a $24.3 billion budget shortfall or a stopgap effort to ward off the IOUs.

The two sides agree on the need for spending cuts but are split over whether to raise taxes. Democrats have pushed for new revenues while Republican lawmakers and Governor Arnold Schwarzenegger, also a Republican, have ruled out tax increases.

Full article here [1]