California budget debate heats up

July 2, 2009 11:47:08 AM PDT
California will hand out IOUs to taxpayers and contractors -- the consequence of a budget standoff desperately looking for a breakthrough.

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When California, the 8th largest economy in the world, announces that it will be issuing $3 billion worth of IOUs in the month of July - it gets national attention.

Senator Barbara Boxer is in Oakland, Governor Schwarzenegger is in Los Angeles, but for all intents and purposes the two were engaged in a long distance debate over the Sacramento stalemate. Senator Boxer, in town to talk about ports, says when it comes to the mess in Sacramento, the ball is squarely in the corner of the governor and his fellow Republicans.

"The Democrats have come 75 percent their way. My message to the governor and the Republicans is now it's time for you to move because there is nothing that can get you out of this mess except you own action and that's really true," said Sen. Boxer.

Not really true says Governor Schwarzenegger in Los Angeles; he had this to say about anyone who says he won't bridge the final $3 billion worth of deficit with tax increases:

"Make sure you don't say that the governor refuses to raise taxes, say it completely, just say the governor refuses to increase taxes because we just had the biggest tax increase in the history of California ? that's a complete story," said Gov. Schwarzenegger.

While the verbal wrangling goes on, the Bank of America released a statement saying it will redeem the state issued IOUs for existing customers, but only through July 10th. The bank says its experience back in 1992, the last time the state issued IOUs, is that the longer banks accept them, the longer the legislature will take to resolve the matter.

State workers are also paying for the downturn in the economy and have been given a third day without pay per month, meaning a total pay reduction of about 15 percent. ABC7 talked to some workers outside the State Building in San Francisco.

"There's a morale problem, and you know ultimately it's such a small amount of the budget deficit that I don't think it's going to make that big of a difference to the budget," said Deputy Attorney General Chris Grove.

Another man didn't want to give us his name, but, despite what the governor said, suggested this solution to bridge the final few billion dollars in the state's $26 billion dollar deficit:

"We have to increase taxes, corporate taxes, taxes on higher income people," said the man.

The interest rate on the IOUs has been set at 3.75 percent and the state will make good on them starting October 2nd.

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