So Controller John Chiang has laid out his spending plans for February. The state's constitution mandates that the first dollars the state takes in go to education, followed by debt payments. Of the $6.5 billion California will spend this month, $4 billion will go to education alone. The rest will go to bond holders, Medi-Cal, and payroll (minus mandatory unpaid furloughs which start Friday). But $3.5 billion in payments will be delayed for 30 days. Most of that amount is for tax refunds, but about $1 billion is for social services for the state's needy, and $500 million will be delayed to businesses who provide goods and services to the state. What's more, the controller says he may ask for another 30-day delay in March, when cash reserves will again go to zero, barring a budget deal.
Those denied payments will not be receiving IOUs in lieu of checks, despite reports to the contrary. Controller Chiang's office tells CNBC that IOU's "are a last resort."
On his Web site, he explains why:
"There are no assurances at this time that all financial institutions will accept registered warrants (IOUs) and it is unlikely that any registered warrants issued will be redeemed by the state for several months. Additionally, registered warrants likely will complicate the cash flow borrowing which the State will be required to undertake in July. As the Governor and Legislature work to fix our budget, they are expected to need short-term or cash-flow borrowing from the credit markets to make any new budget work."
Also today, employee unions are going to court to appeal a judge's ruling last week giving Gov. Schwarzenegger the authority to furlough most of the state's 238,000 workers two days a month. And local governments are scrambling to try to find ways to cover funds the state can't pay for services. This as the state's unemployment rate has rocketed to 9.3 percent, and it's No. 1 industry—agriculture—suffers through the worst drought in decades.