No joke: State broke

The state’s paymaster in Sacramento says there’s still a chance he won’t have to hand out IOUs to pay California’s bills. But Controller John Chiang says the governor and state lawmakers would have to agree on a balanced budget today.

Without that, Chiang says he’ll start sending out warrants &ndash or IOUs &ndash to almost anyone who’s due money from the state government. Whether banks will accept those warrants depends on their interest rate. The state’s Pooled Money Investment Board will set the rate tomorrow. KPCC’s Sacramento reporter Julie Small spoke with Chiang about the warrants:

Julie Small: I know that the Pooled Money Investment Board is going to determine the rate of interest and majority date tomorrow at a special emergency meeting. But what kind of factors do they take into consideration to determine that? What are they looking at in the markets?

Controller John Chiang: We’ll get a staff briefing tomorrow at the Pooled Money Investment Board. Also within the contemplation will be what rate would commercial banks redeem the IOUs? The critical consideration is we don’t want to pay more than we have to because the taxpayers are going to have to pay back that interest.

Small: And I understand so far, is it true that no banks have said they will redeem or honor them?

Chiang: That’s correct. We do have one credit union, Golden-1 that will redeem the IOUs for their customers. They’ve decided to step up in this situation as they did earlier this year to assist the state through these difficult times.

Small: What will issuing IOUs do to our credit rating?

Chiang: IOUs are an indication that the state cannot pay its bills on a timely basis. It’s a sign of the fiscal mismanagement that’s taking place. And when you have fiscal mismanagement, it can lead to further downgrades. Today, California is the lowest credit-rated state in America.

Small: What is the last possible moment you can stop the presses on these IOUs?

Chiang: If the governor and the legislature act immediately, some time today, and if the budget provided cash solutions immediately and for the long term, we would get to our true objective, which is to not have to issue IOUs. Period.

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