Calif. Budget Gap Could Mean IOUs, Not Tax Refunds

Facing $42B deficit, Schwarzenegger, state Dems continue to wrangle
By Harry Kimball,  Newser Staff
Posted Jan 7, 2009 11:11 AM CST
Gov. Arnold Schwarzenegger.   (AP Photo)
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(Newser) – Faced with a mounting budget gap and failed negotiations toward a solution, California may have to send out promissory notes to taxpayers owed refunds and local governments, the Los Angeles Times reports. Talks between Gov. Arnold Schwarzenegger and the Democratic legislature foundered yesterday; lawmakers sent the governor a disputed package of tax hikes and service cuts, which he promptly vetoed.

With the deficit forecast at $41.6 billion by next year, California could next month begin mailing IOUs, which look like checks but are not cashable due to “want of funds.” The bill Schwarzenegger vetoed includes many measures agreed upon previously, but the sides could not reach consensus. “The governor cannot ward off Armageddon if he keeps moving the goal posts,” one lawmaker said.