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

(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.

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Gov. Arnold Schwarzenegger. (AP Photo)

A joint session of the California Legislature in the Assembly chambers at the Capitol in Sacramento. (AP Photo)

California Gov. Arnold Schwarzenegger walks through the Capitol. (AP Photo)

Robert Dutton, right, a Republican state senator, reacts during debate on the California senate floor over bills which would raise taxes to help close a budget shortfall in the state. (AP Photo)

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We have not made any decision about deferring payments or using IOUs, but they are possibilities if the governor and Legislature don't come to some agreement soon. - California State Controller John Chiang

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Calif. Budget Gap Could Mean IOUs, Not Tax Refunds