More IOUs Expected From California As Schwarzenegger Vetoes Budget Proposal

January 7, 2009 7:09 a.m. EST

Sacramento, CA (AHN) - California Democrats and Gov. Arnold Schwarzenegger continued to battle over the state budget resulting in the governor rejecting the Democrats' proposed $18 billion tax hikes and service cuts.

The new round of budget impasse is expected to result in California issuing more IOUs by Feb. 1, and to delay tax refunds, student grants and payments to service providers.

There is only about one month's worth of cash in the state coffers, but differences on how to close the budget deficit, which is expected to reach $41.6 billion by middle of 2010, caused Schwarzenegger to veto the $18 billion proposal of the Democrats.

California controller John Chang warned that unless the budget deadlock is resolved by the governor and the legislature, the state will begin issuing promissory notes by next month. At the top of the list in getting cash payments under California's constitution are schools and bondholders.

Businesses and individuals would be the first to receive IOUs, followed by local government and grant recipients from the California Student Aid Commission. Meanwhile, court-appointed attorneys, judges, lawmakers and their staff will not get paid. A program that assists elderly and disabled residents to pay their property taxes will also be delayed.

Assembly Speaker Karen Bass complained Schwarzenegger's rejection of the budget proposal. "These measures would prevent what the governor has called 'fiscal Armageddon'... However, the governor cannot ward off Armageddon if he keeps moving the goal posts."

The governor, in a letter to Bass and Senate President Pro Tempore Darrell Steinberg, said, "The measures you sent me punish people with increased taxes, but do not make the serious cuts in spending necessary to balance our budget; do nothing to help keep California families working during this recession; and do nothing to help Californians facing foreclosures in this mortgage crisis."