I owe you
California is on the fast track to a financial train wreck. The state legislature and the governor can’t agree on how to solve a $24 billion budget deficit, and the new budget year has started. So, beginning tomorrow, the state will have to hand out IOU’s to people, including contractors, college students and welfare recipients. This ought to be interesting.
As I understand it, here’s how it’s going to work:
Tomorrow, there will be an emergency session to set interest rates on these IOU’s. The paper will be payable three months from now. Let’s say you’re on welfare, and instead of a check for $100, the state government sends you an IOU for $100. But you need the money now. You’re on welfare. These IOU’s will be tradable. You could go to a bank and hand them this IOU and say, I can’t wait for my $100. I need $80 immediately. You get your $80. The bank takes the note and holds on to it until October 1st, when it can cash the IOU, with interest.
I’m interested to see how this market might work, but I’d prefer it, as a California resident, if the state would get its act together.
The reason there’s a stalemate is that Governor Schwarzenegger has said he’ll veto any bill that doesn’t completely resolve the budget deficit. Last night, the state senate rejected three bills that were designed to save $5 billion, including $3.3 billion in education funding. Republicans say that’s too piecemeal. Democrats are holding on to their favorite government programs with white knuckles. From the San Francisco Chronicle:
“If you solve for a little bit now, do we have any confidence or faith that the Legislature is going to come back to work tomorrow morning and solve the rest of it?” Schwarzenegger spokesman Aaron McLear said Tuesday.
“I think that based on the way things have gone the last couple of years in budget negotiations, I don’t think that anybody in California has faith that we solve a little bit now, a little bit next week, a little bit after that.”
One challenge in reaching a compromise has been Democrats’ refusal to accept the deep cuts to college aid, children’s health care and welfare programs contained in Schwarzenegger’s budget proposal.
California’s problems are the most severe, but five other states have not passed a budget. From stateline.org:
States without budgets on the first day of the new fiscal year are Connecticut, Illinois, Pennsylvania, North Carolina and Ohio…
The last time so many states blew the deadline was two years ago, when six states could not agree on a budget by July 1. The widening of the problem this year reflects a steady drop in tax revenue because of the recession, which has forced 48 states nationwide to close $166 billion of budget gaps.
Even a partial shutdown of state services could have an acute impact on residents and state workers, especially if it dragged on for weeks. Thousands of state employees could be furloughed. Road and bridge repairs would cease. Drivers couldn’t get or renew licenses. Highway welcome centers and state parks would be shuttered just as the Fourth of July weekend approaches.
But let’s give three cheers to the state of Indiana. It passed a budget last night. The LA Times points out that Indiana hasn’t missed a budget deadline since the Civil War. A little history for you:
Back then, when the state general assembly adjourned without passing a budget, Gov. Oliver Perry Morton simply didn’t recall the legislators – and for a year or so, he ran the state government on his own…
Since then, say locals, meeting that midnight budgetary deadline has been a point of Hoosier pride. That’s not to say folks haven’t bent the rules a bit. Inside the state general assembly’s chambers, there is a wooden clock mounted onto the balcony just above the lawmakers’ seats. At one point, many years ago, there was a switch, tucked next to the House speaker’s podium, which would turn off the clock.
When the fiscal budget debates dragged a bit too close to midnight, “they’d stop the clock and battle it out,” said Alan January, director of patron services for the Indiana State Archives. “It’d buy them a few minutes, a few hours, maybe longer.”
The switch is gone, but the clock is still there. Maybe California should invest in one.
There’s a lot happening in the world. Through it all, Marketplace is here for you.
You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible.
Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.