OMMMMMmg! California could start giving IOUs tomorrow


Looks like even the Terminator can't help them right now. A whopping $24 billion budget deficit and a legal stalemate between California's Democratic and Republican lawmakers over whether or not to raise taxes to balance the budget has led to this: Starting tomorrow, instead of paying its bills, the suddenly not-so-Golden State will be doling out IOUs to some of its vendors as well as agencies that work with the state, including those that provide support for the elderly and college students.

Barring any last-minute agreement between the battling legislative factions, California plans to give out $3.36 billion in IOUs this month alone. It's saving what little cash it does have to pay more urgent expenses, including its general obligation bond, which is sort of like a mortgage for municipalities; blow off that bill and you open up a huge can of worms. Ratings agencies have already downgraded California's debt rating, which is sort of like the state's credit report. A lower rating makes it more expensive for California to borrow additional funds in the future, something the state is expected to have to do.

Even if there is a budget agreement eventually settled on, it doesn't mean California's out of the (red)woods yet; lawmakers say it will still have to sell another $7 to $9 billion in short-term debt just to balance the books, which of course will have to be paid back at a higher interest rate thanks to the state's poor debt rating.

Originally published