California Prepares to Issue IOUs
With voting steadfastly along party lines, right up until 3 minutes before midnight on June 30th, California failed to pass a budget on Tuesday night. This means, unless there is some sort of miraculous breakthrough, California Treasurer John Chiang will begin issues IOUs Thursday.
The state said it would have to resort to paying with IOUs if the new budget was not in place today, and that has happened, as expected. The first such batch of IOUs is most likely to go to those expecting a state tax refund, but also contractors, vendors, and local governments.
California struggles with budget SNAFUs virtually every year. The reason has been that California is one of a handful of states that requires a 2/3 majority to pass a budget. With the economic downturn affecting revenues, California has been placed in a tough position.
However, it does bring up the question as to why California approved tax decreases during the height of the dot-com boom. In my own common-sense way, I would have thought "don't lower them; you'll never be able to raise them again in an emergency (like now)."
The GOP steadfastly refuses to allow tax increases. Meanwhile, the voters in California have a want-it-all attitude; they also don't want tax increases, yet they don't want anything cut, as well. Although voters appear willing to approve increases in porn and tobacco taxes.
At the same time, the state with the 8th largest global economy is forced to cut billions from its public school budgets, placing it in the unenviable position of having a large global economic impact on the world while at the same time spending among the least among U.S. states on its students.
Meanwhile, as Chiang prepares IOUs, Fitch Ratings last week downgraded its rating on California's general obligation debt by one notch to A-minus, warning it may downgrade the rating again. This is the lowest rating of any U.S. state.
At the same time, Standard & Poor's Ratings Services and Moody's Investors Service also warned of possible downgrades to California's general obligation debt. Moody's has said the state could see a multi-notch downgrade of its A2 rating. S&P rates $57 billion of the state's outstanding general obligation bonds A.
1 comments:
Jct: There’s nothing wrong with small denomination California State IOUs if I or anyone else can pay their taxes with them. When Argentina’s government workers were faced with cuts, their unions talked 6 state governments into paying them with small-denomination state bonds which could be used to pay for state services and taxes and which everyone accepted as useful currency. Best of all, when the local currency is pegged to the Time Standard of Money (how many dollars per unskilled hour child labor) Hours earned locally can be intertraded with other timebanks globally! In 1999, I paid for 39/40 nights in Europe with an IOU for a night back in Canada worth 5 Hours.
U.N. Millennium Declaration UNILETS Resolution C6 to governments is for a time-based currency to restructure the global financial architecture. See my banking systems engineering analysis at http://youtube.com/kingofthepaupers
Too bad California State IOUs won’t be accepted in payment for state taxes and services like state bonds were in Argentina. Too bad California State IOUs will be denominated too big to use as local currency. Too bad Argentina people were smart enough to avoid the tent-cities catastrophe and California people are too stupid to follow their example.
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