I’m note sure how to even comment on this one. From what I read, California went through a similar situation in 1992 where state workers – in lieu of a paycheck – got an IOU from the state and the employees were able to go to the bank and cash the IOU.
Now, with more budget issues at hand, California is considering providing IOUs to state residents who are due a refund after completing their state income tax documents.
Hat tip tonight goes to Glenn over at Instapundit, who references an article on MSNBC’s online site.
“My office [California’s Controller John Chiang] has projected that, in approximately 60 days, there will be insufficient cash available to meet all expenditures reflected in the 2008-09 Budget Act,” stated a Tuesday letter from Controller Chiang to the directors of all state agencies. “To ensure that the State can meet its obligations to schools, debt service, and others entitled to payment under the State Constitution, federal law, or court order. California may begin, as early as February 1, 2009, issuing registered warrants…commonly referred to as IOUs…to individuals and entities in lieu of regular payments.”
In 1992, banks honored the state’s IOUs, cashing them [state employee paychecks] on demand, and then receiving an additional 5% from the state when it made good on the obligations. In effect, the IOUs served the state as unsecured bridge loans from banks. But this time around, with credit tight and banks still feeling the impact of the fall meltdown in the financial services industry, it is not yet clear how banks will respond.
Yeah, would you loan money to California and expect a 5 percent rate of return? Didn’t think so.
Doug Ross suggests that – in lieu of taxes due – residents provide the state with IOUs when it comes to paying their taxes.
California’s registered Republicans should, in lieu of regular tax payments, be permitted to pay the state with “registered warrants” since they’re not responsible for this disaster.