California To Begin Issuing IOUs; Gov. Declares Fiscal Emergency

Today, California Controller John Chiang (D) is expected to begin printing 28,742 IOUs to cover $53.3 million in state payments, the Los Angeles Times reports.

The IOUs became necessary after lawmakers failed to reach a budget agreement before the start of the new fiscal year yesterday (Rothfeld/Goldmacher, Los Angeles Times, 7/2).

If legislators fail to pass a budget plan by the end of the month, Chiang is expected to issue almost $3.4 billion in IOUs to individuals, vendors, social service providers and others.

Certain obligations, such as state employee paychecks, cannot be paid with IOUs.

However, California can issue IOUs to cover most health and welfare programs, including facilities that receive funds from Medi-Cal, California's Medicaid program (Sweeney, San Diego Union-Tribune, 7/2).

Deficit Grows

The Legislature's failure to pass any budget stop-gap measures this week propelled the state's deficit to swell by an additional $2 billion.

Gov. Arnold Schwarzenegger (R) now projects the total shortfall at $26.3 billion.

Mike Genest, director of the Department of Finance, said the deficit could grow by an additional $1 billion if legislators do not approve a budget plan by the end of July (Yi, San Francisco Chronicle, 7/2).

Fiscal Emergency Declared

Yesterday, Schwarzenegger declared a fiscal emergency for California and called a special legislative session under Proposition 58.

Proposition 58 gives legislators 45 days to send a budget plan to the governor's desk. If lawmakers fail to reach an agreement within 45 days, legislators would be prohibited from taking up any other measures until they resolve the deficit (Office of the Governor release, 7/1).

Senate President Pro Tempore Darrell Steinberg (D-Sacramento) also canceled all hearings on bills unrelated to the budget (Los Angeles Times, 7/2).