State Controller John Chiang says he’ll be forced to issue the IOU’s starting next week, unless lawmakers fix the state’s budget problems immediately. The IOU’s would come with a promise that the state would pay up in October – with interest. They'd go to local governments and businesses. Chiang says it could affect the state’s ability to borrow money:
"Wall Street would be concerned about IOU’s. IOU’s are symptomatic of the state’s inability to handle its fiscal affairs.”
As the Controller issued his warning, the state legislature was voting down a Democratic plan to reduce the state’s 24 billion dollar deficit. Republican lawmakers and GOP Governor Arnold Schwarzenegger want to make deeper cuts – but Democrats would rather raise taxes.