No wonder Gov. Arnold Schwarzenegger (R) is horrified as shown in this New York Time photo in this morning's edition. You would too if you had to wake up to the financial mess he is greeted with each morning.
According to the New York Times: "An ever-widening budget gap joined with intractable political paralysis to deliver California its biggest fiscal blow in decades on Thursday, when the state’s controller began printing i.o.u.’s in lieu of cash to pay taxpayers, vendors and local governments.
It was only the second time the state had adopted the emergency payment method since the Great Depression. The National Conference of State Legislatures had no record of any other state’s ever using them.
It was unclear whether the i.o.u.’s, known as warrants, would be accepted by all of the banks in California, which were caught off guard by the move and seemed hesitant to entrust the state to repay the them — at an interest rate of 3.75 percent — in October, as promised.
The controller, John Chiang, issued 28,742 warrants totaling $53.3 million. If state lawmakers fail to reach a budget agreement by the end of August, the amount would grow to $4.8 billion.
While the emergency move resulted from California’s combination of outsized budget gaps, unusual budget rules and a morass of financial obligations approved at the polls, the action was seen as a warning flag to other states that have failed to close their budgets this fiscal year because of the economic downturn."
Let's not follow California down this RED BRICK ROAD. Issuing the warrants is the easy part. Paying for them is much more difficult. See Richard Davis' column in today's Puget Sound Business Journal.
Don C. Brunell, President (DonB@awb.org)
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