LOS ANGELES, July 2 (Xinhua) -- Amid a worsening cash
crisis, California controller's office started printing first batch of IOUs
Thursday afternoon for the first time in 17 years.
Nearly 29,000 IOUs totaling 53.3 million U.S. dollars
will be sent mostly to residents across the state still awaiting tax refunds,
according to the office.
California is the first U.S. state to operate on IOU,
which means "I owe you."
After the state legislature failed to reach an
agreement on a balanced budget, Governor Arnold Schwarzenegger declared a fiscal
emergency on Wednesday, ordering state workers to take a third unpaid furlough
day each month. He also issued a new list of cuts to schools and public
universities to address a deficit that his finance team now says has swelled to
26.3 billion dollars.
Schwarzenegger's latest cuts are designed to pare
state spending by an additional 4.9 billion dollars.
Senate Republicans, with the support of
Schwarzenegger, blocked an 11th-hour attempt by Democratic leaders to push
through a slate of bills that would have staved off the IOUs.
Being the world's eighth largest economy and the most
populous state in the United States, California accounts for 12 percent of the
nation's gross domestic product and the largest share of retail sales of any
state. It also sends far more in tax revenue to the federal government than it
receives.
Analysts held that the financial trouble in
California will have a tremendous impact on the U.S. economy and since most
states in the United States are facing similar financial problems, the IOU
pattern for a state government to operate could be followed by other states.
State Controller John Chiang said earlier that he
planed to issue IOUs to the state's vendors, local agencies overseeing health
programs and various recipients of state aid, including the elderly and disabled
and college students.
Chiang will send 3.36 billion dollars in IOUs this
month to help maintain 10.9 billion dollars in other payments, which includes
money owed to investors holding California's general obligation debt, according
to earlier press reports.
Hours before the first batch of IOUs was sent out, a
panel of state finance officials set the interest rate for the IOUs at
3.75percent for banks and other financial institutions that are willing to
accept the vouchers. Some banks have agreed to honor the paper, including Bank
of America and Wells Fargo, which will do so until July 10.
California last issued IOUs in 1992. Doing so again
could have serious repercussions. According to Treasurer Bill Lockyer, the
decline in the state's credit rating that is likely to follow IOUs-- as it did
17 years ago -- would cost the state 3.4 billion dollars in higher interest
rates over 30 years, adjusted for inflation.
Wall Street rating agencies have already warned that
they are weighing downgrades to the state's credit, which would probably take
years to recover, Lockyer's aides said.
California Governor Schwarzenegger declares state of emergency due to budget impasse
LOS ANGELES, July 1 (Xinhua) -- California Governor Arnold Schwarzenegger on Wednesday proclaimed a fiscal emergency following the legislature's inability to pass a comprehensive solution to solve California's entire 24.3-billion-dollar deficit.
The governor said he has to exercise his executive authority to save cash for vital state functions and services by ordering three furlough days every month. Full story
