A last-minute effort is underway to avoid the issuing of IOUs to pay California's bills – something the state hasn't done since 1992. Whether the horse-trading results in an agreement before midnight when the budget year ends, that's the big question.
No one wants to be paying with an IOU, even if it's with interest.
For those who depend on state-funded social programs, receiving an IOU is like getting nothing because it can't be cashed until October.
Erik Puleo-Coats would get a double whammy. Some of his services for the disabled may shut down because of a lack of funding and his Cal-Grant for college wouldn't come.
"I planned on using it on books, obviously regular tuition, maybe a little help with some housing," said Puleo-Coats. "Unfortunately, they'll give you a sad story and a great smile, but they will not take an IOU."
Sacramento Technology Group is among the state vendors that wouldn't get a check - just one of those IOU's. As a struggling small business that provides Internet security, it can't afford four months worth of bills piling up.
"There's going to be pain with getting our vendors paid, with making payroll, with day-to-day operations, paying rent," said John Riley from the Sacramento Technology Group.
And county offices, which are slammed with demand for welfare services, won't be able to do much with IOUs. The recession has already depleted their rainy day funds.
"They don't have the reserves anymore. They've gone through all their reserves in the last couple years because of the budget problems," said county social worker Kathy O'Neil
There's been a lot of back door meetings to avoid IOUs, and the Governor is hopeful something can be done before the new budget year starts in hours.
"This building here functions in a very interesting way. The action always comes like five minutes to midnight -- nothing happens before then," said Gov. Arnold Schwarzenegger (R) California.
Another consequence of IOUs is their effect on California's credit ratings. The interest rates on public works would be astronomical, meaning more tax dollars would go to pay the interest on the loan instead of more road work and other projects.