Are Registered Warrants (IOUs) in California’s Future…Again?

California’s Controller, John Chiang, called California’s cash situation “precarious.” Mr. Chiang called on the legislature and Governor Schwarzenegger to act on the $9 billion of budget cuts by March. The alternative is that California will run out of cash.

If this sounds familiar, it should. This situation happened last year, and led to the bad budget fix last February which included tax increases.

The budget that Governor Schwarzenegger proposed earlier this month has billions of budget cuts in it. However, Democrats in Sacramento showed that they were completely out of touch with both fiscal and political realities when they passed a $200 billion health care plan in the State Assembly. (If this plan should reach Governor Schwarzenegger’s desk, he would undoubtedly veto it.) I do not expect the budget negotiations to go smoothly this year. Indeed, I can’t see a budget passing by March…or May. Even July is optimistic.

The time of easy budget cuts is gone. Most Californians do not want tax increases. It’s time to cut the budget with a chainsaw. Unfortunately, the politicians in Sacramento haven’t figured that out.

Expect IOUs to be issued again in about a month.

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