California in meltdown.
Within the last hour, Governor Arnold Schwarzenegger has officially declared that California is in a state of ‘fiscal emergency.’
State offices will now be closed 3 days out of every month and the legislature will have 45 days to send him a workable, balanced budget. If you didn’t catch it, former Governor Grey Davis said on CNBC that he didn’t expect banks to accept California IOUs.
There is still so much room to cut the fat out of California’s bloated budget. Government in the Golden State has grown steadily over the last decade. Obama had better stay out of this mess. Voters will not appreciate the precedent of a Democratic President saving an important political state while leaving 49 others to fend for themselves.
Eugene at Daily Kos:
If you are owed any money by the state of California (unless, of course, you are a bondholder) you’re going to get an IOU. That includes folks still expecting a tax refund, anyone who still needs state financial aid for school, and the hundreds, perhaps thousands of businesses that do business with the state.
Back in February, when IOUs were nearly sent out during an earlier budget crisis, the Courage Campaign (where I work as Public Policy Director) joined with Andy Cobb of The Public Service Administration and longtime Kossack Malacandra to create Arnoldbucks. We felt that if Californians were going to be paid in funny money that banks may not even accept, we should make sure that everyone knows that Arnold Schwarzenegger is responsible for this mess.
Sheldon Liber at Bloggingstocks:
Next time someone refers to California as the “Golden State” the laughter from all corners of the nation will be deafening. They say that California Bonds and Schools will not be affected.
What I want to know is whether the politicians will be getting paid in I.O.U.’s. There are many people in the land of the petition and ballot initiative that would be in favor of a law that says the politicians do not get paid for twice the time it takes to settle the budget beyond yesterdays (June 30) deadline.
Can you imagine a senior depending on the few bucks that arrives from the State getting an I.O.U.? Is the State going to require that grocery stores and pharmacies accept the I.O.U.’s? Can anyone be forced to accept them? Maybe they should issue them on edible paper because folks could starve before the Legislature resolves the budget.
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.
UPDATE: Felix Salmon
UPDATE #2: Andrew Ross Sorkin’s Dealbook
UPDATE #3: Ed Morrissey
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July 2, 2009 at 9:51 pm
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