California stopped issuing IOUs on Thursday, and started to redeem them on Friday. The state issued $2.6 billion IOUs, officially called warrants, from July 2 to September 3 as its budget was delayed. There probably will not be much of an initial rush to redeem the IOUs, which officially mature on October 2 and carry an interest rate of 3.75 percent. That’s just as well, because it gives the state time to borrow the money elsewhere.
Quite a few states were late in getting budgets together this year. State budgets are a struggle every year, but all the more so with a declining tax base during a time when the need for public services is greater than usual. At this point, only one state, my home state of Pennsylvania, is still without a budget, and that is expected to come in the next couple of weeks. Many workers have not been paid since June, and if a budget does not come by the middle of September, agencies will have to start shutting down.
This kind of budget indecision and procrastination is an embarrassment that makes states appear weaker than they really are, and it seems to make everyone unhappy. A new poll in Pennsylvania indicates historically low approval ratings for the state legislature and governor.