California to Creditors: IOU

California is unable to reach a budget deal to close their $26.3 billion deficit. The State Controller has started issuing IOU's.

From The Los Angeles Times:

Reporting from Sacramento -- After trying for weeks to fix a state budget gone out of control, Gov. Arnold Schwarzenegger and state lawmakers stood frozen in conflict Wednesday with the state at the brink of a meltdown.

A day after the state Senate failed in a late-night bid to close part of a deficit now projected at $26.3 billion, California Controller John Chiang took steps to begin issuing IOUs today to tens of thousands of companies and individuals that are owed millions of dollars by the state.

Inside the Capitol, signs of a resolution grew faint. The governor declared a fiscal emergency, proposed suspending the education funding requirements of Proposition 98 and -- as union members protested outside the Capitol -- ordered state workers to take a third unpaid day off each month.

A meeting of Schwarzenegger and the state's top four legislative leaders ended abruptly within half an hour. Assembly Speaker Karen Bass (D-Los Angeles) charged out of the governor's office, clearly distraught, and walked briskly down the hall.

Chiang was set to print 28,742 IOUs starting at 2 p.m., said Garin Casaleggio, a spokesman for the controller. The initial warrants, which total $53.3 million, will go primarily to people who are expecting state income-tax refunds. The state last issued IOUs in 1992.