US: 21 States Fail To Pass Budgets - IOU's Begin

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An unprecedented 21 US states have failed to pass a budget for 2010. Without cash, they begin issuing IOU's in payment as of July 2, 2009.


State employees may not be paid and some state government may shut down. "A lot of states are coming down to the wire," said Todd Haggerty, research analyst for the National Conference of State Legislatures. "More than what's typical. The unprecedented economic situation is creating a lot of difficulty this year."


States are struggling to close shortfalls totaling $121 billion for fiscal 2010 as the recession decimates tax revenues. In Arizona, Republican Gov. Jan Brewer has filed a lawsuit against the Republican-controlled legislature seeking to compel lawmakers to send her the budget it passed on June 4. The lawmakers are holding back until an agreement is reached because she has said she would veto it.


In some states, the leaders aren't even talking. Pennsylvania's governor and Senate Republicans, who have to close a $3.2 billion gap for the current year, are not negotiating on their budgets.
"There's been no significant movement on the budget," said Chuck Ardo, press secretary for Gov. Ed Rendell, who is prepared to cancel his African safari in August if the budget isn't set.


If states don't pass their budgets on time, one of three things usually happens, according to the National Conference of State Legislatures. Lawmakers can pass temporary appropriations measures to keep the doors open and bills paid. Some states have provisions that maintain funding for agencies and services even without a budget.


Sometimes, however, the government faces a shutdown. When Tennessee officials failed to pass a budget on time in 2002, classes stopped at public universities, drivers licenses were not issued and road construction ceased.


California approved its budget in February, but lawmakers and the governor are now locking horns over how to solve a $24 billion shortfall before June 30. The legislature presented a budget proposal last week that includes $11.4 billion in cuts and $2 billion in revenue hikes, but Gov. Arnold Schwarzenegger dismissed it as a piecemeal approach full of gimmicks.


If a budget isn't passed in coming days, California will run out of cash and be forced to start issuing IOUs, Controller John Chiang said on Wednesday. The state faced a similar situation in February, but at that time it had the option of withholding $3 billion in state tax refunds.


California no longer has that cushion. The shortfall is now nearly five times as large, forcing the controller to withhold payments to local governments for social services, private contractors, state vendors, as well as income and corporate tax refunds.

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