California's Deficit Plan Now Includes IOUs

California lawmakers failed to agree on deficit measures to close the state's $24 billion budget shortfall on the eve of July 4 weekend. As a result, the state controller said he will start paying some of the state's bills with IOUs. At this point, the state has 45 days to solve the deficit. After that deadline, lawmakers are constitutionally unable to actually make law or adjourn until budget provisions are passed to close the shortfall. This is absolutely dreadful, not to mention embarrassing, news for the state, but apparently the treasury is getting creative. Its solution? Split the state in half.
No, not literally -- the San Andreas fault won't be primed. Instead State Treasurer Bill Lockyer wants to write two different budgets. One for the liberal coast and one for the conservative regions inland. How would this work? He explains, "We'll have the budget for the coast that has tax increases and services ... And in a bunch of other areas in Central and Southern California that don't have tax increases . . . their public schools are closed a month of the year -- and see what happens." Effectively treating California as two different states funded under separate budgets is an idea that likely won't be cheered by the public, even if it's a fascinating experiment in "reap what you sow" that could teach Californians about the impact of their tax dollars. But on the other hand, this is the alternative: 28,742 IOUs worth $53.3 million, mostly sent to residents awaiting tax refunds. The only thing worse that creating a showdown between the Cali Republic and the State of Fornia is a single state running on fake money.

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http://www.theatlantic.com/business/archive/2009/07/californias-deficit-plan-now-includes-ious/20536/