California Starting to Pay With I.O.U.’s
By JENNIFER STEINHAUER
nytimes.com
LOS ANGELES — Its budget gap growing and its political process for addressing the gap unhinged, California will begin Thursday to pay vendors and taxpayers with i.o.u.’s, only the second time the state has adopted the emergency payment method since the Great Depression.
A state board will meet Thursday morning to set the interest rate for the i.o.u.’s — known officially as warrants — as well as their maturity date. By Thursday afternoon, state officials said, 28,742 warrants worth $53.3 million will be printed and readied for distribution.
The bulk of the warrants will be issued to Californians waiting their income tax refunds, though some will be issued to local governments as well as vendors doing business with the state. Federal and state laws prohibit paying state employees, schools, or Medicaid recipients with the warrants.
The issuance of i.o.u.’s comes after state lawmakers and Gov. Arnold Schwarzenegger failed to agree on how to close a state budget hole — now roughly $27 billion — by the end of the fiscal yearon Wednesday. The state is essentially too short on cash to pay its bills, and will continue to issue warrants — with potential long-term serious damage to the state’s credit rating — until the budget impasse is resolved.
In the meantime, Mr. Schwarzenegger, a Republican, has ordered state workers to take a third furlough day each month, beginning next Friday, to help stave off a further cash crisis in the state. On Wednesday, he proclaimed a fiscal emergency and called for a special session to continue the budget debate.
Vendors and state residents who receive warrants may take them to a bank or credit union that accepts them for cash, or hold on to them until their maturity date — which will probably be sometime in October — and get their cash plus the accrued interest.
The setting of the interest rate, which can range from zero to 5 percent under state law, will likely be a matter of contentious debate; a low rate could mean fewer financial institutions will find it profitable to accept the i.o.u.’s, causing further financial turmoil in the state, while a high rate could drag state finances further down the hole.
Democrats in the State Legislature tried unsuccessfully to stave off the need for the warrants through piece-meal budget cutting earlier in the week that was blocked by Republican lawmakers. The Democrats, who are in the majority in both houses of the legislature, are at bitter war with the governor, who said he would sign no budget legislation that did not close the entire budget gap and include several significant policy changes that would have impact on future budgets.
The governor held his first of two planned news conference in Southern California here Thursday intended to denounce the lawmakers, whom he has already taken to task in every possible media — television, video and Twitter feed — for mulling, in one instance, changes to a law concerning the tail of cows while the budget stalemate continued. He also promoted several policy initiatives, including some that are sure to run afoul of public employee unions, which have historically been aligned with Democrats.
“I know that the legislature historically is kicking that can down the aisle,” Mr. Schwarzenegger said during his news conference in Los Angeles. “Right now we don’t have the time.” He added: “The legislature has decided it is more important to protect state employees and special interest other than protecting the people.”
As the political circus showed no signs of ending, residents and businesses across the state braced for the shock of being paid with a promise.
As of Thursday morning, only a credit union in Sacramento and Bank of America had formally agreed to accept the warrants, which would be mailed Thursday afternoon or Friday morning, depending on how long they took to print, according to the state controller’s office.
Copyright 2009 The New York Times Company |
