California IOUs, here we come

posted at 11:36 am on July 1, 2009 by Ed Morrissey

The California legislature can’t be accused of trying half-measures in their budget crisis.  Faced with a $24 billion shortfall and the need to issue IOUs instead of cash for its payments, Democrats tried passing an agreement that would have resolved less than 15% of their red ink.  Republicans blocked the effort, arguing that the state needs comprehensive action to permanently fix the budget — and now they’ve run out of time:

With a day to go until a cash crisis would force the state to stop paying its bills, lawmakers and Gov. Arnold Schwarzenegger worked into the night Tuesday but failed to reach a budget agreement.

The state Senate, in late session, voted several times as midnight approached in a last-ditch effort to approve $3.3 billion in cuts to education and other programs and stave off, at least temporarily, the IOUs that California Controller John Chiang is set to begin issuing Thursday in lieu of some payments.

Democrats had been hoping to use the funds to help defray the state’s projected $24-billion deficit. But the money was allocated for the fiscal year that ended Tuesday, and after that it was too late to make the cuts.

“We have that duty to make sure that no one starves,” state Sen. Jenny Oropeza (D-Long Beach) said as she pleaded with GOP senators for their votes.

But Republican senators blocked the plan, which the Assembly approved last week. Schwarzenegger had vowed to veto the legislation because it did not meet his demand that any agreement close the state’s entire deficit, an argument echoed by the Republicans in the Senate.

The approach favored by Democrats is akin to putting out a fire in your shrubbery while the entire house is ablaze.  California doesn’t have a $3 billion problem — it has a $24 billion problem.  Solving $3 billion of it doesn’t keep the state from defaulting.  It shirked the legislature’s responsibilities to produce a viable state budget.

It’s absurd, and the Republicans and Schwarzenegger were right in stopping it.  Democrats wanted to use this plan as a stall tactic in order to convince Californians to back higher taxes rather than make significant cuts in the state budget.  However, voters made their feelings plain on that subject in May, voting down a series of Democratic-sponsored, tax-raising referenda by a margin of 2-1.  After 40 years of ever-increasing taxes and spending sprees in Sacramento, Californians have finally had enough — even if Democrats refuse to listen.

What now?  The state has technically gone into default.  It has no budget (not an unusual occurrence in California), and it has no cash (which is the real problem).  Lenders will not buy bonds at cheap rates any longer, and after last night might not buy them at all.  California will have to start issuing IOUs with interest, which will cost them more money than if they’d just solved their problem months ago when they had the chance.


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Count to 10 on July 1, 2009 at 1:21 PM

All they need to do is auction off Offshore drilling rights, and relax their own silly laws.

Romeo13 on July 1, 2009 at 1:23 PM

I say, void all union contracts, and cut pay across the board until the budget is balanced. Oh, and clean up some of that money wasted on illegal immigrants while you’re at it.

Count to 10 on July 1, 2009 at 1:21 PM

Obama must buy the CA vote. He can’t win re-election without it, or hold Congress in 2010. Ergo, he can’t let them default. YOU AND I WILL BAIL THEM OUT. SEVERAL OTHER STATES ARE JUST WATCHING AND WAITING.

JiangxiDad on July 1, 2009 at 1:24 PM

chemman on July 1, 2009 at 1:19 PM

Sadly you are probably a very small minority. I have met some “conservative” Californians and they only differ from liberals in the actual items they want the government to get involved in. I hear the phrase: “Well the government has to do something about that” way to often from that crew.

dpierson on July 1, 2009 at 1:24 PM

All they need to do is auction off Offshore drilling rights, and relax their own silly laws.

Romeo13 on July 1, 2009 at 1:23 PM

I don’t see why they have to do anything. NK’s Kim isn’t the only person who knows how to play a game of chicken, and I will bet you a dollar that Obama blinks first. CA will have it’s cake and eat it too, at least until Obama is gone.

JiangxiDad on July 1, 2009 at 1:25 PM

JiangxiDad on July 1, 2009 at 1:24 PM

I am sure Michigan is next. It is another one of those key electoral states.

dpierson on July 1, 2009 at 1:26 PM

The liberals will NOT learn! Are they completely incapable of intelligent thought?
Spiritk9 on July 1, 2009 at 11:47 AM

The liberals have nothing to learn. Everything they do has worked for them if they keep trying long enough, and blame someone else for the failures. They have never had to pay the costs, someone else is always paying the price for liberal failure. Why should they stop now? They’ll keep doing it until it chosts them more than they want to pay.

Skandia Recluse on July 1, 2009 at 1:29 PM

With “States Rights” comes “States Responsibilities.” California, as well as a number of other liberal states have made their messes. Don’t ask other states to clean it up, or bail them out. If the federal government DOES bail them out with tax payer dollars from responsible states, it will put enormous pressure on our 232 year old union.

Star20 on July 1, 2009 at 1:31 PM

We must not blame the liberals. They only want what is best for the country too.

Jeff from WI on July 1, 2009 at 1:32 PM

I am sure Michigan is next. It is another one of those key electoral states.

dpierson on July 1, 2009 at 1:26 PM

He will buy any state he needs.

fwiw, I saw on CNBC yesterday that the other states closest to actual bankruptcy, besides CA, are Idaho, PA, Fl, Miss,–I can’t remember the others. Will try to look it up. The idea is that states that have no income tax are, right now, in the worst position to repay their debts, because RE tax and sales tax revenues are WAY DOWN.

Here’s the article about why investing in CA GO bonds might be a good idea in spite of the bankruptcy.

cnbc dot com/id/31666432 (change dot com to .com)

JiangxiDad on July 1, 2009 at 1:34 PM

Obama must buy the CA vote. He can’t win re-election without it, or hold Congress in 2010. Ergo, he can’t let them default. YOU AND I WILL BAIL THEM OUT. SEVERAL OTHER STATES ARE JUST WATCHING AND WAITING.

JiangxiDad on July 1, 2009 at 1:24 PM

But he’d be sacrificing so many other states in the process.

Doughboy on July 1, 2009 at 1:34 PM

What will happen when the independently minded people of the red states begin to see their hard-earned dollars disappear into the bloody maw of blue state profligacy and confiscatory taxation? The political catastrope of November 2008 will likely result in a new secession movement and Civil War V2.0. And so it begins…

blackelkspeaks on July 1, 2009 at 1:36 PM

Yeah, I’m sure my landlord will accept IOU’s for rent.

borg on July 1, 2009 at 1:37 PM

It’s time for people like Noreen Evans and Buzz Cut Bass to start living within their means!

Re-negotiate the Union Contracts
Reduce State’s workforce by 48%
NO More Illegal Immigrant handouts – Deport Immediately and issue a Track on their heads to prevent re-entry
Privateize School System

BigMike252 on July 1, 2009 at 1:39 PM

ITS GEORGE BUSH’S FAULT, HE DEMANDED THAT THEY SPEND MONEY ON ORPHAN SEALS AND BIRD REHABILITATION PROGRAMS, HE ALSO INSISTED THAT THEY TEACH MILLIONS OF ILLEAGE ALIENS IN SPANISH INSTEAD OF ENGLISH, GEORGE AND HIS EVIL VICE PRESIDENT ARE RESPONSIBLE FOR IT ALLLLL.

THERE IS NO STATUTE OF LIMITATIONS FOR BLAMING GEORGE BUSH FOR ALLLL OF OUR ILLS

Conservativesailor on July 1, 2009 at 1:43 PM

But he’d be sacrificing so many other states in the process.

Doughboy on July 1, 2009 at 1:34 PM

It seems to me Obama’s in a race to undo America while nobody can see due to the cloud cover provided by the SRM. It’s do or die for him and he’s not holding back. It’s the ultimate political gamble. If he wins, he becomes a true King. If he loses, he may pay the ultimate price. He’s rolling the dice.

JiangxiDad on July 1, 2009 at 1:45 PM

I now believe anything everyone else in here believes as long as it doesn’t offend anyone!

Jeff from WI on July 1, 2009 at 1:46 PM

BigMike252 on July 1, 2009 at 1:39 PM

Why would the CA Dems doing any of those things while Obama is in office?

JiangxiDad on July 1, 2009 at 1:46 PM

I know, invite more illegal aliens to your sanctuary cities. That’ll fix everything. Morons!

TrickyDick on July 1, 2009 at 1:47 PM

I know, invite more illegal aliens to your sanctuary cities. That’ll fix everything. Morons!

TrickyDick on July 1, 2009 at 1:47 PM

Please refrain from the term illegal aliens,they are now undocumented workers. Please don’t confuse morons by saying something will be fixed, if you don’t mean it.

Jeff from WI on July 1, 2009 at 1:52 PM

I have met some “conservative” Californians and they only differ from liberals in the actual items they want the government to get involved in. I hear the phrase: “Well the government has to do something about that” way to often from that crew.

dpierson on July 1, 2009 at 1:24 PM

Your point is well taken. Schwarzenegger has pretty much painted Republicans (and Conservatives) in California as just slightly to the right of the liberals with all of his spending and environmental policies.

Don’t judge us all as squishy, pseudo-Conservatives, though. There are still some pretty solid Conservatives out here. Tom McClintock, Darrel Issa and John Campbell come to mind. And, remember, before Schwarzenegger and Gray Davis, we had Pete Wilson (of prop 187 fame) as governor. He was a true Conservative.

As Mark Steyn has said, most blue states are really red states with a couple of very large urban (blue) areas.

Unfortunately, the two most liberal areas (L.A. and the Bay Area) are also the two largest population centers of California. There are some solid Conservative areas, though. O.C., the Inland Empire, San Diego County, the Central valley and the far northern part of the state are all Conservative-leaning.

JohnInCA on July 1, 2009 at 1:57 PM

Anybody want to buy a bridge? How about a state park?

GarandFan on July 1, 2009 at 1:58 PM

It seems to me Obama’s in a race to undo America while nobody can see due to the cloud cover provided by the SRM. It’s do or die for him and he’s not holding back. It’s the ultimate political gamble. If he wins, he becomes a true King. If he loses, he may pay the ultimate price. He’s rolling the dice.

JiangxiDad on July 1, 2009 at 1:45 PM

He can’t win though. Destroying this country in an effort to remake it will lead to a civil war. Maybe he’ll become king of whatever union remains, but the USA as we know it will be finished.

Doughboy on July 1, 2009 at 2:00 PM

Anybody want to buy a bridge? How about a state park?

GarandFan on July 1, 2009 at 1:58 PM

How about a lot across the street from Pelosi’s house. I want to install a giant teleprompter and beam Glenn Beck down on her 24/7.

highhopes on July 1, 2009 at 2:03 PM

I bet the Speaker is really a wonderful person.

Jeff from WI on July 1, 2009 at 2:06 PM

Schwarzenegger has pretty much painted Republicans (and Conservatives) in California as just slightly to the right of the liberals with all of his spending and environmental policies.

I’d say that is a pretty fair assessment of the California conservatives I know. They differ from Pelosi liberals only on issues like fiscal conservatism but are pretty much indistinguishible when it comes to social issues like legitimizing pot use, sodomy, and illegal aliens.

highhopes on July 1, 2009 at 2:06 PM

He can’t win though. Destroying this country in an effort to remake it will lead to a civil war. Maybe he’ll become king of whatever union remains, but the USA as we know it will be finished.

Doughboy on July 1, 2009 at 2:00 PM

Well yes, I’m with you. But you and I see two sides. Those on the left simply have to ignore on TV station and they NEVER hear anything else that’s going on. They live in an echo chamber, and Obama’s is even fawning. What he says is echoed back to him even sweeter. Even duritn the last campaign, McCAin didn’t hit Obama hard on socialism. McCain said we had “nothing to fear from a President Obama.” So the left may not realize what is inside Pandora’s box.

JiangxiDad on July 1, 2009 at 2:08 PM

Of course I am not an economist or financier of any type, but it seems to me that state issued IOU’s with interest are essentially bonds, so we should be able to buy and trade them. I smell a great money making opportunity here.

Goldenavatar on July 1, 2009 at 2:11 PM

They can always play board games while they wait for their gov’mint IOU checks.

VibrioCocci on July 1, 2009 at 2:13 PM

Well you other 56 State folk might as well send your bail out checks before the cost of a stamp rises again. Please make checks payable to Karen Bass/ CO La Raza Addressed to 4 Suckers Lane, Sacramento, Mexifornia.

Oh and thanks for the help.
/

Bulldogger on July 1, 2009 at 2:14 PM

Democrats wanted to use this plan as a stall tactic in order to convince Californians to back higher taxes revenue rather than make significant cuts in the state budget.

FIFY.

Kafir on July 1, 2009 at 2:17 PM

Goldenavatar on July 1, 2009 at 2:11 PM

of course they’re bonds. bonds are IOU’s. The question is are they worth the paper they’re printed on. The answer is no. Not with the current CA gov’t. It’s like a fiat currency but here the issuer has no legal right to print currency, and thus can’t even pay you back in worthless money like our Fed does. But they’ll trade, just not at par value.

I’ll take some at 50% off par if you have any. I had a small CA tax refund due me for ’08 which I elected to have applied to the ’09 return because I was afraid they were going to pay me an IOU, which I assumed they wouldn’t take back for any tax I owed them for ’09. People will learn how to game the system soon enough.

JiangxiDad on July 1, 2009 at 2:19 PM

The gubernator doesn’t have the nads to do what is necessary…

pull a Chainsaw Al Dunlop… make 40% cuts in personnel and budgets, and make them figure it out… given how much the budget has increased in the past 8 years, it would be real easy

phreshone on July 1, 2009 at 2:23 PM

I ran a company that got an IOU from them last time they issued them…I should have copied it and sent it in again…they probably wouldn’t know the difference.

right2bright on July 1, 2009 at 2:30 PM

Of course I am not an economist or financier of any type, but it seems to me that state issued IOU’s with interest are essentially bonds, so we should be able to buy and trade them. I smell a great money making opportunity here.

Goldenavatar on July 1, 2009 at 2:11 PM

It may have changed, but last time they were only for specific services rendered to the state…no one would touch them.
However the bank did ignore them on the receivable ratio…so our “profitability” went up, and we paid more taxes…what a fiasco.

right2bright on July 1, 2009 at 2:33 PM

If someone offers to pay me in either Kalifornia IOU’s or in Confederate money, which should I take? Does anyone know?

MB4 on July 1, 2009 at 2:36 PM

MB4 on July 1, 2009 at 2:36 PM

Diversification in a portfolio is key to a safe retirement. Take 50/50. I’ll send u my bill. (Canadian dollars only pls.)

JiangxiDad on July 1, 2009 at 2:39 PM

speaking as a midwesterner, this my friends, is the very definition of Schadenfreude

jollycynic on July 1, 2009 at 2:54 PM

The CA supreme court also bears part of the blame, since it requires spending on a variety of things, often without regard to whether the money spent is effective.

What will it take to get them to auction off some drilling leases?

njcommuter on July 1, 2009 at 3:05 PM

California, the Model for Obama.

rob verdi on July 1, 2009 at 3:09 PM

Emanuel is licking his chops: nothing better than a real crisis to usher in socialism to an already left-leaning state.

Christian Conservative on July 1, 2009 at 3:14 PM

I don’t know if someone has already mentioned this but Glenn Beck is played in the afternoon here. He just said that California has received a letter saying if they close any state parks to save money that the federal government might take the land because California has taken money from the federal government.

Cindy Munford on July 1, 2009 at 3:14 PM

Cindy Munford on July 1, 2009 at 3:14 PM

I read that CA has already closed 10 or 11 state parks a few weeks ago. I’ll look for a link.

JiangxiDad on July 1, 2009 at 3:18 PM

as a native Californian I don’t want the rest of the country to bail us out. I want them to stop spending 5+ billion a year on services for illegals and end the Indian basket weaving council that cost 2.5 million . I am sure there is billions more they piss off every year to buy votes with their pet projects .

Mojack420 on July 1, 2009 at 3:19 PM

JiangxiDad on July 1, 2009 at 3:18 PM

I think maybe what I heard was just a threat.

JiangxiDad on July 1, 2009 at 3:20 PM

JiangxiDad on July 1, 2009 at 3:20 PM

The administration has to bail out California. Their own legislature or Arnold was probably using it as a threat to get a budget done. I am glad I don’t live in a state that is going to require the Obama administration to help them more than they already have. YET!!

Cindy Munford on July 1, 2009 at 3:25 PM

as a native Californian I don’t want the rest of the country to bail us out. I want them to stop spending 5+ billion a year on services for illegals and end the Indian basket weaving council that cost 2.5 million . I am sure there is billions more they piss off every year to buy votes with their pet projects .

Mojack420 on July 1, 2009 at 3:19 PM

Whileb I certainly understand and, if no one is offended, agree Ca. should get bailed out. But please don’t swear in here as there may be very sensitive people on this blog. Thank you

Jeff from WI on July 1, 2009 at 3:26 PM

But he’d be sacrificing so many other states in the process.

Doughboy on July 1, 2009 at 1:34 PM

Many of the states that he would be “sacrificing”, wouldn’t have voted for him anyway.

MarkTheGreat on July 1, 2009 at 3:53 PM

I think Obama knows he can’t bail out an entire state, as much as he probably wants to. The other 49(or 56) states would not take it too well. Especially the red or purple ones.

Doughboy on July 1, 2009 at 12:00 PM

All he’ll have to do is bail out CA, MI, and NY. Then after Acorn finishes “adjusting” the census, those three states will have enough electoral votes to elect whomever they want.

MarkTheGreat on July 1, 2009 at 4:08 PM

If someone offers to pay me in either Kalifornia IOU’s or in Confederate money, which should I take? Does anyone know?

MB4 on July 1, 2009 at 2:36 PM

The Confederate money. It’s worth something on the collectable moneies market. Duh.

BillH on July 1, 2009 at 5:09 PM

How much longer til Timmy and Obewon start issuing iou’s for the USA? Maybe we should start a Hotair pool.
Kissmygrits on July 1, 2009 at 11:42 AM

What currency will we need to throw into the kitty? Perhaps Looneys or cans of Spam would be appropriate.

sannhet on July 1, 2009 at 5:52 PM

I live in California and the only way I’d accept a very limited number of IOUs is if I can use them to pay my taxes.

I think California’s loony left has struck out this time. Maybe we could balance the budget by selling San Francisco to China lock stock, population, and fancy bridge. Pelosi instantly becomes Chinese. I giggle at the thought.

{^_^}

herself on July 2, 2009 at 2:40 AM

All the lunacy aside, why is no one talking about the fact that California is placing itself in direct and explicit violation of Article 1, Section 10 of the United Sates Constitution. They are not allowed to use IOU’s or any other form of a bill of credit.

MikeA on July 2, 2009 at 7:22 AM

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