Page last updated at 16:06 GMT, Wednesday, 1 July 2009 17:06 UK

California misses budget deadline

People protest outside the state Capitol as California lawmakers debated the budget
Some state workers have already seen their pay and hours cut

The US state of California is on the brink of issuing IOUs instead of making direct payments, after lawmakers failed to agree on ways to balance the budget.

State senators in Sacramento wrangled into the night as the start of the new fiscal year on 1 July approached.

California faces a budget shortfall of some $24.3bn (£14.5bn), but lawmakers are at odds over how to tackle it.

With tax revenues slumping amid the economic slowdown, several US states are facing a budget crunch.

California struggles to balance its budget every year, but this year has been particularly difficult.

And the size of the Californian economy - it generates nearly 13% of US gross domestic product - means what happens there matters.

Balanced books

Amid at times heated debate on Tuesday, the Californian Senate failed to agree on Democratic proposals to shave $3.3bn from education and other programmes as a stopgap measure to address the shortfall.

Gov Arnold Schwarzenegger appeals to lawmakers to reach agreement
Gov Schwarzenegger says painful cuts are necessary

Democrats believe cuts should not slash vital social programmes.

"We have that duty to make sure that no one starves," Sen Jenny Oropeza said.

The Republicans argue that much deeper spending cuts are needed to balance the budget.

They and Gov Arnold Schwarzenegger, who has pushed for moves to address the entire deficit, have also ruled out tax increases.

"No-one wants to see IOUs issued but equally important no one wants to see us continue to avoid the problem," said Senate Minority Leader Dennis Hollingsworth.

California's State Controller John Chiang said he would be forced to begin issuing IOUs from Thursday to contractors and vendors, local agencies overseeing health programmes, as well as some people who receive state aid.

"The general obligation bonds will be paid," Mr Chiang told Reuters. "California has never defaulted on its debt obligation and we don't plan to do so."

For many US states, 30 June heralds the end of the fiscal year, but several were facing crucial decisions to balance the books as the deadline neared.

Many of the states are legally required to have a balanced budget, which can mean cutting services and firing workers.

Print Sponsor

Californians snub budget measures
20 May 09 |  Americas
California's budget worries grow
18 Feb 09 |  Americas
California approves budget bill
19 Feb 09 |  Business
20,000 jobs may go in California
17 Feb 09 |  Business

The BBC is not responsible for the content of external internet sites

New York Times Coffers Empty, California Pays With I.O.U.'s - 9 hrs ago
China Post California declares fiscal budget emergency - 12 hrs ago
Time California's Budget Crisis: Is There a Way Out? - 15 hrs ago California declares fiscal emergency - 20 hrs ago
Boston Globe California declares fiscal emergency over budget - 29 hrs ago

Has China's housing bubble burst?
How the world's oldest clove tree defied an empire
Why Royal Ballet principal Sergei Polunin quit


Sign in

BBC navigation

Copyright © 2017 BBC. The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.

Americas Africa Europe Middle East South Asia Asia Pacific