“Our wallet is empty, our bank is closed and our credit is dried up.”
– Governor Arnold Schwarzenegger, June 2, 2009
California State Controller John Chiang has warned that without a balanced budget in place by July 1, he will begin using IOUs to pay most of the state’s bills. On June 25, California Governor Arnold Schwarzenegger rejected a plan that would save the state $3 billion by cutting school spending, saying he would rather see the state issue IOUs than delay the funding problem with a piecemeal approach. The state’s total budget deficit is $24.3 billion.
Meanwhile, other funding doors are slamming closed. The Obama administration has said it will not use federal stimulus money to prop up California; and Fitch Ratings, a bond rating agency, announced that it was downgrading the credit rating of the state, which already has the lowest in the nation. Once downgraded, California’s rating is likely to fall below the minimum level legally required for most money market funds, forcing the funds to sell their California bonds. The result could be a cost of millions of additional dollars in higher interest rates for the state.