California may be forced to issue IOUs

SACRAMENTO, D.C., June 29 (UPI) -- California officials say they're preparing to issue IOUs to creditors this week as the state gets ready to enter the new fiscal year awash in red ink.

Facing a budget deficit of $24 billion, California has the questionable distinction of having the worst credit rating in the United States, the Financial Times reported.

Despite the huge cash crunch, Gov. Arnold Schwarzenegger and state lawmakers can't agree on a budget that would address the shortfall.

California's fiscal year ends Wednesday but because its cupboard is bare IOUs will be issued to a number of creditors, including contractors, and even the federal government. California contributes money for government-run programs for elderly and developmentally disabled but is considering issuing notes to cover its contributions because of the lack of cash.

Democratic and Republican lawmakers struck an agreement last week on a number of money-saving measures. However, Schwarzenegger vetoed the plan, saying it as a piecemeal solution to California's budgetary woes.

"On Wednesday we start a fiscal year with a ­massively unbalanced spending plan and a cash shortfall not seen since the Great Depression," said state Controller John Chiang. "Unfortunately, the state's inability to balance its checkbook will now mean short-changing taxpayers, local governments and small businesses."