California can get through August without a cash crunch, Controller John Chiang said Wednesday in a letter to lawmakers and Gov. Arnold Schwarzenegger.
But Chiang warned that his office could well be forced to start issuing IOUs to many creditors, as it did last year, without the timely passage of a budget that addresses the state’s budget deficit.
“A protracted budget stalemate or the passage of a 'get-out-of-town budget’ relying on accounting gimmicks and unrealistic solutions will create cash shortfalls starting in October,” he wrote, adding that he would have to take actions, such as issuing IOUs, well in advance of any such shortfall.
“While there should be debate regarding the role tax increases and spending cuts are to play in this budget, there is no debate that the worst thing you can do is nothing,” wrote Chiang, a Democrat. “Political paralysis cannot be an option.”
In 2009, Chiang issued $2 billion of IOUs to lower-priority creditors to preserve cash for creditors with higher legal standing, such as bondholders. The IOUs were ultimately redeemed.
