IOUs may hurt California vendors
With California's $24 billion budget gap still unresolved, the state will start paying its bills with IOUs. Sarah Gardner reports on how this may affect state vendors.
California Gov. Arnold Schwarzenegger speaks on the status of the state budget at the California Center for the Arts in Escondido, Calif. (David McNew/Getty Images)
More on The Economy, America's Financial Crisis
TEXT OF STORY
Tess Vigeland: California Governor Arnold Schwarzenegger declared a fiscal emergency today. Last night politicians in Sacramento failed to resolve a $24 billion budget deficit. As we mentioned yesterday, that means the government will start paying out billions of dollars it owes to state vendors in IOUs. As Sarah Gardner reports, the lack of cash could put hundreds of small businesses in jeopardy.
SARAH GARDNER: John Riley says the state of California owes his company more than $450,000 for computer security services. The co-owner of Sacramento Technology Group is bracing for a big IOU instead of cash. Riley says if their bankers don't honor that IOU, his company may be forced to stop doing business with California. That'll hurt. The state accounts for half his company's sales.
JOHN RILEY: Right now we're kind of holding our breath.
Riley says his company's already reduced its workforce from 20 to 13 employees because of the recession. And he doesn't want to cut anymore jobs.
RILEY: So we're just hoping that some of our private customers come through with some more projects.
As of this afternoon, only one lender had promised the state it would cash the IOUs. If banks refuse, thousands of the state's private vendors will be forced to beg for more credit. And in this economic climate, that can be tough.
Mike Murphy runs a day program for developmentally disabled adults in Orange County. He's counting on the state vendor that contracts with him to get a line of credit to tide itself over.
MIKE MURPHY: If they cannot secure that then we're probably going to have an extended summer vacation.
In other words, they'd have to close. When asked today if he had a message for vendors like Mike Murphy, State Controller John Chiang addressed elected officials instead.
JOHN CHIANG: The most important point is that the governor and legislature have only a final few moments to resolve this issue.
If they don't, California will start issuing IOUs tomorrow afternoon, the first time in 17 years.
I'm Sarah Gardner for Marketplace.
Comments
Comment | Refresh
07/22/2009
Chuck,
The IOUS are pretty much what you suggest. Most manks will honor them and then redem them when they expire
From Los Angeles, 07/02/2009
As the oldest California bank owned, operated and serving the Latino communities of Los Angeles and Santa Ana, Pan American Bank decided yesterday to fully honor its customer's presentation of warrants (IOUs). Like the comment above regarding credit unions, Pan American Bank for over 40 years has supported the working class Latino. We have a duty to meet the needs of our communities which have given us the opportunity to thrive for four decades.
Jesse Torres
President and CEO
Pan American Bank
3625 East First Street
Los Angeles, CA 90063
(323) 264-3310
http://www.earthtimes.org/articles/show/los-angeles-bank-to-honor-california-ious,880116.shtml
07/01/2009
I hope state does issue IOU. I am tired of paying so much in taxes and it's time for state cut the pork and cut our taxes as well.
07/01/2009
If I heard it correctly, people on welfare in California will also get IOUs (or will it be some form of credit card, instead?).
If indeed its paper IOUs, how will this affect WalMart and other companies relying on customers who come in at the first of the month to buy such frivolous things like, oh, food?
As the poster above stated, why not hand out local currency like some other towns do? California is the largest economy in the world that CAN'T print its own currency..in other words, inflation is not an option
Those who hate inflation, watch what happens when one of the largest economies of the world cannot inflate its currency in order to save it. Take notes.
From New Haven, CT, 07/01/2009
Hi-
A temporary solution to the budget problem might be to use script- as local banks did before the Federal Reserve system was founded. The IOUs would be the script in this case and onnce the state got "real" (US) money, the script could be redeemed.
Just a thought...
Post a Comment: Please be civil, brief and relevant.
Email addresses are never displayed, but they are required to confirm your comments. All comments are moderated. Marketplace reserves the right to edit any comments on this site and to read them on the air if they are extra-interesting. Please read the Comment Guidelines before posting.
You must be 13 or over to submit information to American Public Media. The information entered into this form will not be used to send unsolicited email and will not be sold to a third party. For more information see Terms and Conditions and Privacy Policy.