• BREAKING NEWS ABC shows live and on-demand -- Download the WATCH ABC app!

Calif. heads toward financial doomsday

June 24, 2009 12:00:00 AM PDT
The state of California is heading for a financial doomsday. Controller John Chiang says he'll be forced to pay the state's bills with IOUs starting July 2, because the state will be out of cash if lawmakers don't pass a balanced budget. It was really no surprise when both houses of the Legislature rejected the proposed $11 billion in spending cuts.

Even Republicans who have been pushing for severe reductions for years wouldn't vote for it because it doesn't solve the entire deficit.

"Today we are voting on a $11 billion solution to a $24 billion problem," said Senate Minority Leader Dennis Hollingsworth, R-Murrieta.

It was a move that upset Democrats who themselves found it difficult to vote for deep cuts that mostly affect the poor, their core constituents.

"If cutting where we have consensus was good enough in January, why isn't it good enough in June, as we are a week away from IOUs and a potential fiscal meltdown?" asks Senate Majority Leader Darrell Steinberg, D-Sacramento.

Meltdown is right. The state treasury is on pace to run out of cash in five weeks. State Controller John Chiang just issued a warning to lawmakers that if a budget revision isn't approved by next Thursday California will have to pay its bills with IOUs.

"This is very serious. This is the next step after cash deferrals and the step before the state defaulting," said State Controller John Chiang.

Local governments, for example, wouldn't get their state money for social services. They're already struggling with cash problems of their own.

"If we get IOUs from the state, that's just going to be like zero. It's just a piece of paper. It's just evidence of fiscal failure," said San Jose Mayor Chuck Reed.

Lawmakers will try again. Protesters from several school districts across California worry that lawmakers are only concentrating on a budget revision that considers only cuts.

"It not only hurts employees, but it also hurts the children. It's devastating. It's disastrous," said Melissa Marshall, a special education teaching assistant.

Report Typo |  Send Tip |  Get Alerts | Most Popular
Follow @abc7 on Twitter  |  Become a fan on Facebook