California officially out of money

February 2, 2009 6:06:58 PM PST
It is day 89 of budget stalemate, and California has now officially run out of money. Now the state will start picking and choosing which bills it will pay.

So if you are expecting a state tax refund, be prepared to wait for at least a month and that's just the beginning of a financial chain-reaction.

The poor, the disabled and the elderly will continue to receive their government assistance checks thanks to the Federal government which will float the state some money. UC, Cal State and community colleges will also make sure Cal Grants to students will be paid out.

But everyone else won't get rescued.

February 1st triggered the Cash Deferral Plan, meaning the state is only paying bills the law says it has to pay.

State Controller John Chiang says he had no choice and has to prevent the treasury from emptying.

"My responsibility is to make sure California does not go into default. The consequences would be very severe," said Chiang.

The biggest hit will be to those who have a state income tax refund due in February.

Marilee Johnson just got her taxes done. The state owes her nearly $1,400. She won't see a penny for at least a month.

"We all have bills, and we are all trying to survive. I think it's too bad we have to wait," said Johnson.

Local clinics that help the uninsured won't get their state money either, forcing some to consider closing their doors.

Amber Tanase cares for her aunt.

"For two years she's been going to this clinic. So if it shuts down, where is she going to go?" said Tanase.

State leaders met again, but now outside forces are making it harder for them to solve the budget crisis.

"The mood is really cautiously optimistic and there is a lot of pressure to get this done," said one law maker.

Labor groups are threatening Democrats with a recall if they agree to relax some worker protections. Conservatives are considering censuring any Republicans who vote for a tax hike.

Assemblyman Anthony Adams says he will break his anti-tax pledge under the right circumstances, even if it means voter backlash.

"That's a chance I have to take. I think I'm doing what's right. I want to make sure California is on solid financial footing now and in the future," said Assemblyman Adams.

While delaying payments is the answer for February -- that cannot go on forever. Issuing IOUs may be the answer for March or April bills. Legally, the state has until May 30th to mail out tax refunds without interest.