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NEW YORK: California will have enough cash to stop issuing IOUs on Sept. 4, almost one month earlier than expected, the state controller said Thursday. That’s also the date when people and companies can redeem their IOUs with the state treasurer.The controller’s office has issued 327,000 IOUs worth a total of 1.95 billion so far. The Golden State was forced to start handing out IOUs on July 2 after Gov. Arnold Schwarzenegger and lawmakers failed to close a 24 billion budget deficit. Controller John Chiang had to start issuing the vouchers so the state would have enough money to cover debt payments and fund education. It was the first time the state issued IOUs since 1992, though it did delay payments in February during another cash crunch.Even after the governor signed a budget agreement in late July, the controller’s office had to determine when there’d be enough money in the state coffers to end the IOU issuance. Since the budget was signed, Chiang has issued 100,000 IOUs totaling more than 800 million.”Along with short-term loans that are routinely obtained in the fall, this spending plan should provide sufficient cash to meet all of California’s payment obligations through the fiscal year,” Chiang said.The IOUs were sent to the state’s vendors, county social service agencies and residents expecting tax refunds. The state’s biggest banks accepted them until July 10, but then most cut them off, hoping to bring lawmakers and the governors to the negotiating table. They were told they could redeem the paper on Oct. 2 or when the state had enough money in the bank, whichever came first. They will be paid an annual interest rate of 3.75%.California still isn’t out of its hole: The state will need to borrow 10.5 billion to meet California’s cash needs for the fiscal year, Chiang said. Ending the IOUs on Sept. 4 is contingent on the state obtaining a 1.5 billion loan by Aug. 28, which the state treasurer assured the controller will happen.

Source:CNN

NEW YORK: California may have a budget, but that doesn’t mean it has the money to cash the 1.1 billion in IOUs sent out this month.The state Controller’s Office, which has issued nearly 220,000 IOUs to residents, government agencies and contractors, likely won’t know until the end of next week when it can start trading the IOUs for cash. First it must review the new budget to determine when there will be enough funds in the state coffers.Gov. Arnold Schwarzenegger signed a contentious budget agreement Tuesday that closes a 24 billion deficit in large part by slashing 15 billion in spending. The governor vetoed another 489 million in spending, mainly from health and human services, after lawmakers rejected a plan to tap local governments’ gas taxes and allow new offshore oil drilling.The state Finance Department is expected to send the agreement to the controller next week. It will then take the Controller’s Office three or four days to crunch the numbers.”We will develop the cash flows so we can determine when the state will have sufficient funds to pay all its bills and repay all the IOUs already issued,” said Hallye Jordan, a controller spokeswoman.Controller John Chiang started mailing IOUs on July 2 to preserve enough cash to cover debt payments and fund education. The state was facing a 400 million shortage for July. The figure was revised downward from nearly 3 billion after June cash flow figures were calculated.0:00
/2:26States face budget disastersIt was the first time the state issued IOUs since 1992, though it did delay payments in February during another cash crunch.The IOUs went mainly to residents and companies owed tax refunds, as well as social service agencies and state vendors. They were told they could redeem the paper on Oct. 2 or when the state has enough money in the bank, whichever came first. They will be paid an interest rate of 3.75%.At least some are not pleased that they have to wait to see their money.Carol Gillis, an Anaheim mother of five grown children, was depending on a 958 tax refund to help cover the rent and motor vehicle fees after her husband’s pay was cut. Instead, they got an IOU.”I feel that it is my money and I should never have had to wait in the first place,” said Gillis, an accounting clerk. “To wait even longer just makes me angrier.”How has President Obama’s 787 billion stimulus program affected you or your community? Are you seeing a benefit from the Making Work Pay tax cuts or the additional 25 in unemployment benefits? Are you seeing construction jobs or other stimulus-funded work in your neighborhood? Do you still have a job because of stimulus funds? We want to hear your experiences. E-mail your story to realstories@cnnmoney.com or send in an iReport and you could be part of an upcoming article. For the CNNMoney.com Comment Policy, click here.

Source:CNN

NEW YORK (CNN) — After an all-night session, California senators approved a package of 30 bills early Friday aimed at closing a 25.3 billion budget gap.The state General Assembly was still debating the compromise measures, said Senate spokeswoman Alicia Trost. She said Assembly members were having a hard time with a bill that would repay 11 billion owed to schools. She didn’t elaborate.”Passing our bills puts a little bit of pressure on them,” Trost said.The cuts approved by senators apply to the 2009-2010 budget that was passed in February, and include 24.2 billion in deficit-reduction steps and 921 million from reserve funds, Trost said. An additional bill addressing the deficit was passed by the Senate a few months ago.In addition to the reserve, the package includes 15.6 billion in cuts to all parts of government, 3.9 billion in “revenue solutions” — steps to increase money coming in — 3.1 billion in borrowing from local governments, 500 million in fund shifts and 1.2 billion in deferrals.0:00
/2:26States face budget disastersSenators began their debate at 7 p.m. Thursday and finished their session about 6:30 a.m. Friday, Trost said.”The bipartisan solution was the product of several months of negotiations and public hearings on how to address the historic downturn in the economy by responsibly cutting all areas of government while keeping the state’s social service safety net intact,” according to a statement issued by the office of Senate President Darrell Steinberg.By 12:30 a.m. Friday, legislators had voted on only half of the bills and had not touched the controversial legislation proposing deep cuts into some state agencies, Trost said.The marathon legislative session came after Gov. Arnold Schwarzenegger announced a tentative deal to eliminate the massive deficit.The state’s budget impasse forced California to issue IOUs this month to stave off a nearly 3 billion shortfall for July. Some county agencies, state vendors and taxpayers are being paid in paper.California is not alone in its budget difficulties.At least 12 states and the District of Columbia are confronting gaps totaling 23 billion in budgets already adopted, according to a late June report from the Center for Budget Policy and Priorities.

Source:CNN

SACRAMENTO, Calif. (Reuters) — California Governor Arnold Schwarzenegger and top lawmakers told reporters Monday evening they had reached an agreement to close a 26.3 billion deficit to balance the state’s budget, ending weeks of lengthy and often tense negotiations.The government of the most populous U.S. state, also the world’s eighth-largest economy, began its fiscal year on July 1 facing the massive shortfall due to a plunge in revenues propelled by the recession and rising unemployment.Schwarzenegger, a Republican, said during a press conference in front of his office that no tax increases would be included in the spending plan.The legislature’s top Democrats and Republicans said they would brief rank-and-file lawmakers on the agreement in the hope of holding votes in the state Assembly and Senate on Thursday.

Source:CNN

SAN FRANCISCO (Reuters) — California Assembly Speaker Karen Bass said Wednesday she sees stalled negotiations with Gov. Arnold Schwarzenegger over closing the state’s 26.3 billion budget gap resuming by Friday. California has been burning through its cash without a budget agreement and is issuing IOUs for tax refunds. The legislature is being urged to consider taxing marijuana to help raise revenues. Bass, a Democrat, and Schwarzenegger, a Republican, have been at odds in recent days over his demands for overhauling some state operations with new rules, including some to root out and prevent fraud in the state’s welfare system, as part of a broader agreement for balancing the state’s budget.0:00
/2:26States face budget disasters”The problems are with the reforms, and I hate to call them reforms because they are really just policy concerns the governor has had for the past few years, that they are just too massive,” Bass told Reuters in a telephone interview. But Bass said she is hopeful budget talks would resume by Friday. “There’s some wiggle room,” she said. “I do see us back at the negotiation table in the next day or two.” State Senate Republican Leader Dennis Hollingsworth said lawmakers from both parties would welcome budget talks resuming as soon as possible. “There’s not a lot of movement,” Hollingsworth said of the day’s business in the state capital of Sacramento. Burning through cash. Without a budget agreement, California is going through its cash while suffering its worst slump in personal income tax revenues since the Great Depression because of the recession, rising unemployment and the housing downturn. The state’s cash crunch has grown so severe the state controller is issuing “IOUs” promising payment for tax refunds and vendors in order to have money available to pay priority bills such as payments to debt holders. One option open to the government of the most populous U.S. state for raising revenue is to tax marijuana, said retiree Nadene Herndon, a 58-year-old retire in Fair Oaks, California. Herdon promotes a tax on pot in a television commercial, paid for by the Marijuana Policy Project Foundation, that began airing on Wednesday in some California broadcast markets. “I’m a medical marijuana user, but I bake with it. I had several strokes several years ago and have left-sided weakness when I get fatigued … It helps late at night when I can’t get to sleep,” she told Reuters by telephone. Pointing to cigarette smokers, who light up regardless of California’s stiff tax on tobacco, Herndon said marijuana could prove a steady source of revenue for the state. “It should be taxed like any other commodity,” she said.

Source:CNN

NEW YORK: California’s bond rating is far from golden.Citing the Golden State’s ongoing budget upheaval, Fitch Ratings on Monday downgraded California’s long-term debt to BBB, one category above junk bond status. The next step is BBB- before the state’s bonds would be considered speculative debt.Fitch also maintained its so-called negative outlook on California. “[I]nstitutional gridlock could persist, further aggravating the state’s already severe economic, revenue and liquidity challenges,” Fitch wrote.While Gov. Arnold Schwarzenegger and lawmakers battle over closing a 26.3 billion budget gap, the state’s controller last week was forced to issue IOUs for the first time in 17 years. Some county agencies, state vendors and taxpayers are getting paid in paper. The IOUs help the state controller stave off a deficit of nearly 3 billion for July.California has the lowest bond rating of any state, and therefore must pay higher interest rates than its peers when it issues debt.The other two major ratings agencies — Standard & Poors and Moody’s — had previously placed the state on watch for a possible downgrade. They did not follow Fitch’s lead Monday and have maintained California’s ratings at several levels above junk.Moody’s put the state on watch in mid-June after Controller John Chiang warned of the pending cash shortfall. Standard & Poors affirmed its rating last week”We believe California retains the ability to take the actions necessary to meet its debt service payments in full and on time, although we remain concerned about the state’s financial liquidity,” wrote Standard & Poors analyst Gabriel Petek.

Source:CNN

NEW YORK: Here come the California IOUs, again.The state, fast running out of cash, is on the brink of not being able to pay its bills for the second time this year.Unless the governor and legislature pass a balanced budget by Thursday morning, the state will start issuing IOUs to county agencies, small businesses and taxpayers owed billions of dollars. The state’s fiscal condition is disastrous. Officials passed a budget in February, but declining tax revenues have opened up a 24 billion deficit.Lawmakers and Gov. Arnold Schwarzenegger are locking horns over how to bridge the gap: The governor wants to use deep spending cuts and borrowing, and Senate Democrats are pushing tax increases and less-severe cuts.Schwarzenegger on Wednesday declared a fiscal emergency, giving the legislature 45 days to address the crisis. He also ordered state workers to take a third furlough day every month.Meanwhile, the state controller may be forced to turn to IOUs to stave off a deficit of nearly 3 billion for July. The gap widens to 6.5 billion in September.”Unfortunately, the state’s inability to balance its checkbook will now mean short-changing taxpayers, local governments and small businesses,” state Controller John Chiang said last week.After September, even IOUs won’t be enough, said Hallye Jordan, spokeswoman for the controller. The cash shortfall will hit 16.7 billion by October.Withholding paymentsTo save money for education and debt payments, Chiang plans to withhold 424 million that would go for state operations, primarily to vendors, as well as another 141 million in payments to small businesses. Nearly 200 million in personal income and corporate tax payments would be delayed. Regional centers that provide services to those with developmental disabilities would get IOUs instead of 363 million, while the CalWorks welfare program wouldn’t get 495 million right away.The IOUs can have devastating effects on residents and companies, particularly small businesses. Gloria Freeman runs Staff USA, which supplies medical staff for state prisons and other facilities. State contracts represent 80% of her business. “I have already laid off 5 employees in preparation for IOUs,” Freeman said in a statement.The budget crisis is also hurting California’s bond ratings, making it more expensive for it to borrow short-term and long-term.”Because of the threat of IOUs, when we do short-term borrowing, it’s going to be a lot more expensive for taxpayers,” said Tom Dresslar, spokesman for Treasurer Bill Lockyear.In May, the treasurer had asked the Obama administration to back its short-term borrowing using funds from the Troubled Asset Relief Program, which has bailed out the nation’s banks and car companies. Federal officials turned him down and the state is no longer seeking help, Dresslar said.And they won’t get it. White House Press Secretary Robert Gibbs Wednesday said that the Obama administration is helping California by providing stimulus funds.”The major contribution from the federal government has been an increase in Medicaid and education money to go to helping to close some of those fiscal gaps,” Gibbs said.Ratings watchThe state’s long-term bond rating is in jeopardy, as well. It already has the worst credit rating in the nation.Fitch Ratings last week downgraded the state’s long-term general obligation bonds to A-, from A, and placed them on a negative ratings watch, signaling the company’s concern about California’s ability to solve its liquidity crisis.Moody’s and Standard & Poor’s also have the state on negative rating watches, meaning downgrades are possible.The state, however, is not at risk of defaulting on its debt payments, Dresslar said.”It won’t happen,” he said.California officials have struggled with massive budget shortfalls all year. It had to delay 2.8 billion in payments for five weeks starting in February after the governor and legislators failed to address a 42 billion deficit at that time. The two sides came to an agreement and Schwarzenegger signed it into law on Feb. 20.Voters delivered a crushing blow to the state finances in May, when they rejected five ballot proposals that would have eased the budget strain.

Source:CNN

SAN FRANCISCO (Reuters) — California’s economy faces more hard times this year and will not grow until late next year, weighed down by the ongoing housing slump and the state government’s need to slash spending, a UCLA Anderson Forecast report released Tuesday said.California, the country’s most populous state with roughly 38 million people, also faces a double-digit unemployment rate persisting until 2011, the report said.”California is in for a continued rough ride for the balance of 2009 and is not going to see economic growth return until the end of the year, shortly after the U.S. economy begins to grow,” the report said.A 24.3 billion budget gap faced by the state is sure to force deep spending cuts, which will limit the contribution of public spending to the state’s economic recovery, the report said.”California’s state government, saddled with anachronistic revenue and spending processes, has no choice but to contract at the worst time,” the report said.California’s current recession may be its worst since World War Two, and headwinds impeding a recovery include weak international trading partners.The home of Silicon Valley and Hollywood, and often seen as a cultural trendsetter, California will be a follower not a leader in recovery from the country’s current downturn, the report said.Housing woes near endSome relief in housing, however, is taking shape. “If there is any good news in the picture, it is that the correction in the housing market is complete and the overshooting which normally occurs after a correction has appeared,” the report said.”Our employment forecast suggests that it will be late in 2009 before prices are tempting enough and supply is low enough for the market to stabilize. When it does, the contraction in residential construction will, finally, after more than three years, cease to be a drag on the California economy,” the report added.But then the drag from state worker layoffs will emerge, and it will be “decidedly negative and will retard economic growth in 2010.”California’s unemployment rate now stands at a near-record 11 percent, largely from slashed payrolls in home building and finance amid the mortgage crisis and foreclosure surge.California’s economy will begin to grow at more normal levels by the beginning of 2011, but not enough jobs will be created to push the unemployment rate below double digits until the end of 2011, the report predicted.Potential risks to recovery include renewed turmoil in financial markets and a “longer term collapse in consumption,” the report added.It also listed political risks from state officials failing to craft a state budget in a timely manner and protectionism in international trade.”While we don’t anticipate any of these to occur, there is enough momentum in this recession and discussion in the policy sphere to make them possible,” the report said.

Source:CNN

NEW YORK: Time is running out for California residents wanting to take advantage of a 10,000 tax credit. The state set aside 100 million to help home buyers purchasing newly built homes, hoping to jump start the moribund residential-construction market. But only about 20% of the pot is left.”We’re less than four months into it, and all the tax credits authorized are gone, or practically gone,” said Tim Coyle, a senior VP with the California Building Industry Association (CBIA).The program launched in March and by June 3 nearly 24 million in tax credit certificates had already been issued, according to the state’s Franchise Tax Board. That leaves nearly 76 million in credit available – but there are already numerous claims on that money. In fact, if all the submitted applications are approved, only 17.5 million will be left in the fund. And it has a run rate of about 10 million per week. “The program is working better than intended,” said Coyle. “It’s really pushing people off the fence.”How it works0:00
/2:47Mortgage rates tick back upThe credit is available on a first-come first-served basis and was supposed to last through March 2010. Almost any newly built home qualifies, as long as it’s an owner-occupied, principal residence on which property tax is paid. It could be a single-family home, a condo, a coop, a manufactured home or mobile home — even a houseboat. Only owner-built housing does not qualify. There is no cap on the home price or buyer’s income. The credit reduces taxes dollar-for-dollar up to 3,333 a year for three years, or 5% of the purchase price of a home, whatever is less. Unlike the federal first-time homebuyers tax credit, which is 8,000 or 10% of the home price, whichever is less, the California credit is not refundable. That means the credit will only wipe out taxes up to the full amount paid or owed but no more. For example, if the buyer’s tax bill came to 2,000 for the year, a buyer claiming the full 3,333 would owe nothing but couldn’t claim the extra 1,333 back from the state.First-time, new-home buyers in California can claim both the federal credit and the state if they qualify. That could reduce taxes by 11,333 for the first year of ownership.More money coming?Because the money has gone so quickly, the state legislature is considering adding another 200 million to the program. That may be difficult to accomplish right now, however: The state is worse than flat-broke; it’s running a 24 billion budget deficit and has the lowest bond rating of any state.But Coyle argues that the credit is a net win for state coffers and it puts people to work. “Every time you build a home in California, you’re generating 16,000 in taxes,” he said.During the boom years, developers were building about 200,000 housing units annually and supported about a half million jobs. Now, only about 50,000 new homes will go up this year and industry employment has shrunk to a fraction of its peak. From 2006 to 2007 alone, industry employment dropped by about 220,000 jobs, according to the CBIA.Passage of an extension of the program has a good chance, according to Assemblywoman Anna Caballero (D-Salinas), who supports a new bill that already won Assembly approval and has gone to the state Senate.There has been little opposition, she said, but the program has to be “revenue neutral,” which could limit how much is made available as funds would have to be cut from other areas to pay for it.There is also one big change from the original offering: People buying homes under construction – not just those already finished – will qualify, which should help put projects back on track.”It creates a reservation system that was absent in the first bill,” said Caballero. “Buyers only received a credit when they closed escrow. Now, they would get it with a signed contract.”"Contractors in Southern California were reporting no housing starts last January,” she added. “Now, they have new crews out on the job. That’s significant for California.”

Source:CNN