On Thursday, state Controller John Chiang (D) announced that California would not be forced to issue IOUs until October at the earliest, the Sacramento Bee reports.

Although the controller originally thought the state would need to issue IOUs this month, the state drew in more revenues and spent less money than expected in August (Yamamura, Sacramento Bee, 9/10).

Background on IOUs

California generally borrows cash flow during the fiscal year to ensure that bills can be paid without having to issue IOUs. However, the state cannot borrow funds when it does not have a budget in place.

During last year's budget stalemate, the state issued almost 450,000 IOUs totaling about $2.6 billion (Buchanan, San Francisco Chronicle, 9/10). That year was only the second time California has issued IOUs since the Great Depression.

Withholding Payments From Clinics, Others

California currently is in its 11th week of the new fiscal year without a spending plan. The protracted stalemate has led Chiang to consider various emergency measures to preserve cash.

On July 1, the first day of the new fiscal year, California began issuing a type of informal IOUs by withholding payments to health clinics, state vendors, community colleges and certain other groups. Once lawmakers approve a state budget, the agencies will receive the owed payments, along with interest in some cases (Sacramento Bee, 9/10).

The payments to the health clinics and other groups are among the bills the state cannot legally pay without a budget. The controller's office estimates that such bills totaled $3.35 billion in July and August combined and $3 billion this month (Goldmacher, Los Angeles Times, 9/10).

Some clinics might be forced to shut down because of the withheld payments, according to the Bee.

Who Will Receive the IOUs? Jacob Roper, spokesperson for the controller's office, said the office has not determined which entities might receive IOUs as early as next month. However, he added that organizations already going without payments would not be eligible for IOUs (Sacramento Bee, 9/10).

Budget Remains at a Standstill

Meanwhile, no progress has been reported in budget negotiations, and Gov. Arnold Schwarzenegger (R) has left the state for a trip to Asia.

If lawmakers do not approve a budget plan within the next couple weeks, this year's budget impasse is poised to become the longest in California's history (Ventura County Star, 9/9).

Chiang warned state leaders not to relax because of the postponed IOUs. He said, "The governor and Legislature should not view this short reprieve as an invitation to break the budget deadlock record" (Sacramento Bee, 9/10).

Broadcast Coverage

On Thursday, Capital Public Radio's "KXJZ News" reported on the controller's announcement that the state would not be forced to issue IOUs in September (Lieszkovszky, "KXJZ News," Capital Public Radio, 9/9).

Read more: http://www.californiahealthline.org/articles/2010/9/10/controller-c...