Deficit forces California to issue IOUs

06-29-2009 • Financial Times

California is preparing to issue IOUs to its creditors this week as it grapples with an unprecedented cash crunch and prepares to begin its new fiscal year deep in the red. Once the US’s richest state, California now has the dubious distinction of having the worst credit rating in the country. It is facing a budget deficit of $24bn (€17bn, £14.5bn) yet Arnold Schwarzenegger, its governor, and the state assembly cannot agree on a budget that would address the shortfall. California’s fiscal year ends on Wednesday but as the state’s cash reserves are empty, IOUs will be issued to a range of creditors, including contractors, such as information technology companies and the food service groups that cater for prisons. “On Wednesday we start a fiscal year with a massively unbalanced spending plan and a cash shortfall not seen since the Great Depression,” said John Chiang, the state controller. “Unfortunately, the state’s inabilit