New optimism on Calif. budget deal

July 6, 2009 7:12:59 AM PDT
New optimism that a budget deal could be finalized as the State Senate reconvenes after the holiday weekend. Governor Schwarzenegger and legislative leaders have a new reason to push forward after a threat from banks regarding the state's IOU's.

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Banks say come Friday they won't cash those IOU's -- so there's some pressure there. Maybe one reason why there was a rare Sunday night meeting about the projected $26 billion budget deficit.

Governor Schwarzenegger was there for the meeting as well as leaders from both parties. This comes on the heels of the governor's visit to San Francisco on Friday -- where he expressed optimism about negotiations -- saying a deal could be done in the next few days. There was no comment following the talks, but we did get a glimpse of the dispute from comments from both sides last week.

"The bottom line is when you don't have the money, it's ludicrous to promise the people 'don't worry, we are going to keep paying for that' -- when we don't have the money, so it would not be really honest," said Gov. Schwarzenegger.

"Cuts are absolutely necessary, we have never objected to that. But we also have a responsibility to cut surgically," said State Senate President pro Tem Darrell Steinberg.

The state began issuing IOU's to contractors and county governments last week. It expects to pay out more than $3 billion worth this month. Some banks are honoring those IOUs, but will stop on Friday. The state is expected to run out of cash on the 28th of this month.

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