California May Issue I.O.U. postcard

6/24/2009

The state controller of California, John Chiang, warned that the state government will have to start issuing I.O.U. to its creditors, if the lawmakers fail to close the $24 billion budget gap by July 2.

"Next Wednesday we start a fiscal year with a massively unbalanced spending plan and a cash shortfall not seen since the Great Depression," Controller John Chiang said in a statement announcing that he would be forced to use I.O.U.s to pay the state's bills beginning on July 2.

California's long-standing gridlock on budget is caused by many intertwined legislative issues. To name a few, California is one of a few states that require a two-thirds majority legislative vote for new taxes or budgets. California voters are also said too liberal who passed Prop 13 thirty years ago that capped California property tax increases. Neither does the measure have a sunset clause that lets it expire, nor can be overturned by the legislature itself.

The legislative issues appear too complicated to fix now without a new state constitution. That, however, does not help the state with regards to its issuance of I.O.U. in the short term.