California close to issuing IOUs - again

NEW YORK (CNNMoney.com) -- California is once again running out of money and may have to issue IOUs within a few weeks.

The state's financial crunch stems from the fact that it does not have a budget for the current fiscal year, which began July 1. The governor and lawmakers continue to squabble over how to close an estimated $19 billion shortfall.

State Controller John Chiang said Wednesday that the state could have to issue IOUs in two to four weeks to keep the state solvent. He estimates there are $2.2 billion in expenses -- mainly to social service agencies, vendors and schools -- that will go unpaid in August.

"The failure to pass a timely budget remains the biggest threat to California's finances," said Chiang last week, after issuing a report showing July tax revenues came in 1.9% below estimates.

California is the only state that is late in passing its fiscal 2011 budget.

California is no stranger to IOUs. A budget crunch last year forced the state to issue 450,000 IOUs worth $2.6 billion between July 2 and Sept. 4.

Gov. Arnold Schwarzenegger, however, did get some good news on Wednesday. The California Supreme Court overturned a lower court ruling that temporarily blocked the state from imposing a new slew of furloughs on government workers. The state's Supreme Court will hear oral arguments on the matter on Sept. 8.

Workers will now take off this Friday and next Friday, as well as one floating day this month. More than 150,000 state employees then will have to take off three days a month until the budget is passed, unless the court rules otherwise. It is expected to save the state $147.2 million a month.

"The furloughs are a direct result of the legislature's failure to pass a budget, which is causing the state to run out of cash and face IOUs this month," said Rachel Arrezola, a spokeswoman for the governor. "This is not an action the governor wants to take, but he must ensure the state continues to function and can pay its bills."

The governor is also trying to impose the minimum wage on state workers until a budget is passed. That effort remains tied up in the courts.