Golden State Deadbeats

Turns out the state of California is so broke, it's down to the point of actively choosing to miss payments on the billions it has borrowed over the last 18 months. (h/t Atrios):

The state's cash situation is somewhat analogous to your family emptying its checking account, drawing down the savings account to cover checks, and only having enough left to pay either the mortgage or the utility bill.

Of course you could then file for bankruptcy protection. Under federal law, the state can't do that, but it can do something you can't: Issue IOUs.

Known formally as "registered warrants," the state's IOUs are just that. Someone – a vendor, a landlord, the water company – who is owed money by a California government agency gets a piece of paper that says the state owes them money, and will pay them the amount plus interest at some point in the future.

The only time since the Great Depression that the state has issued IOUs was in 1992, and it wasn't a pretty sight. About 1.6 million of them, worth a total of $3.8 billion, were issued during a two-month budget tiff between then-Gov. Pete Wilson and legislators.

Instead of paychecks, about 100,000 state workers got IOUs, which proved somewhat harder to cash. After the first month, many of the state's major banks quit accepting the warrants, saying the 5 percent interest they were paid wasn't worth the arduous processing needed to redeem them.

And after state employees sued, a federal judge ruled that paying workers with IOUs violated federal labor law. The state agreed in 1996 to give the affected workers extra paid vacation to compensate.

If IOUs are issued this year, they won't go to state workers. They also might not be accepted by many banks.

Beth Mills, a spokeswoman for the California Bankers Association, said the group's members still had "a lot of technical and operational questions we're trying to get some resolution on" about IOUs.

Banks aren't going to want to touch these things. Not when they know California may just decide "Hey. we're a state government and we're going to decide just not to pay you."

I'm wondering how many states will have to be bailed out over the next couple of years, how many state employees will be laid off as services are curtailed or eliminated.

There are plenty of states in dire trouble where Republicans are in charge, and their solution is going to be to privatize or eliminate as many state services as humanly possible. That means a whole hell of a lot of jobs are going to be lost, despite Obama's promises to fund "shovel-ready" projects.