California: Budget Deficit Now $27 Billion & Growing

Image by ben_templesmith via Flickr

Seemingly the Governor with the greatest potential, if you believed his campaign promises, and yet the most ineffective in California history, Arnold Schwarzenegger admitted that California's budget is no longer $24 Billion but is in fact closer to $27 Billion and growing everyday.

California's Controller, John Chiang, is preparing to issue $3.5 Billion in IOU's to mail to creditors this month. In a desperate effort to prevent further negative ratings on California bonds the State will pay the interest due to bondholders in cash but will pay suppliers with an IOU.

This means that if you sell goods or services to the State of California you are not going to receive a check in payment, but instead an IOU will arrive in the mail. The IOU is good for 90 days and renewable at the State's discretion. It will pay interest at the rate of 3.75% and hopefully you will continue to accept renewals of the IOU every 90 days instead of cash.

Try to deposit an IOU at your bank, they'll chuckle and maybe call the police on the theory you're trying to commit a fraud. Try to pay your employees with the IOU and see if their landlord will accept it in payment of rent. Ask your local grocery store to accept the IOU instead of cash.

The long chain of unpaid vendors begins now. State employees are obviously looking for other jobs but as one executive stated "...this is it, there are no other jobs and this one may not pay the bills either."

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