State Controller John Chiang warned Tuesday that the first group to get hit in the wallet by California's budget debacle is likely to include legislators – and it could happen as early as Feb. 1.
The bad news is that next in line to get IOUs instead of cash would be Californians awaiting state income tax refunds and companies that do business with the state.
In a letter to state agencies, Chiang said his office was projecting the state would run out of cash around the beginning of March.
Without a deficit-closing deal between legislators and Gov. Arnold Schwarzenegger, Chiang said, his office "has no choice but to pursue the deferral of potentially billions of dollars in payments and/or the issuance of individual registered warrants, commonly referred to as IOUs."
The controller advised state agencies to rework their accounting systems now to take people and firms paid by direct deposits and eligible to be paid with IOUs off the systems, because the warrants must be issued on paper.
Chiang spokeswoman Hallye Jordan said that whether IOUs would be needed – and how many – would depend on several factors, including how fast the governor and lawmakers can reach a deal and how much the state collects in tax revenues in December.
Jordan said the first group to get IOUs would be the state's 1,700 elected officials and their staffs. That number includes constitutional officers, legislators and judges.
"But we may also have to defer or use IOUs to pay tax refunds," Jordan said. "That's a big concern, because that doesn't help restart the economy if we don't have the money in people's pockets."
Some groups and programs, such as education and state workers, cannot legally be paid with IOUs. That leaves tax refunds, elected officials and firms that sell goods and services to the state.
"It's better that than not paying IHHS (In-Home Supportive Services) workers or the disabled, blind and elderly," Jordan said. "But we may not have to go this horrible, dangerous route if the governor and the Legislature can come up with some agreement."
Spokesmen for legislative leaders and the governor said that while negotiations were ongoing, meetings Tuesday were confined to staff members.
The governor is constitutionally obligated to present a balanced budget proposal by Jan. 10.
Aides to Schwarzenegger said Monday the administration is preparing a plan that would cover the entire $40 billion deficit in case a deal to close at least part of it can't be made before then.
The letter was sent as Chiang was in a Fort Worth hospital. The 46-year-old controller suffered chest pains Friday and was admitted for tests. Jordan said he is scheduled to be released by the end of the week.
Call Steve Wiegand, Bee Capitol Bureau, (916) 321-1076.
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