That's right. The world's eighth largest economy is out of money and cannot pay its bills:
Facing a $42 billion budget deficit, State Controller John Chiang told the Sacramento Bee he has already borrowed $21.5 billion to try to cover the state's checks, but by Feb. 1, there will be no more options left but to simply stop paying some of the bills – including tax refunds, welfare checks, student grants and other payments owned to California citizens.So, if you are owed money, you get an IOU. That's right. An IOU. I don't have much ground info yet on how Californians are feeling, other than perhaps that they want bailout money now.
(And no, Chapter 9 does not apply to states, or at least I don't think it does. I am a dirt lawyer, not a BK guru.)
Of course, one solution is ugly: raise taxes, especially property taxes. You have a Proposition 13 problem there of course, but I have always been a bit confounded by the fairness of Prop. 13. You can have two people with identical properties paying highly disparate taxes simply based on length of ownership.
Not that things are much better in Illinois. Here's an example of pharmacies not being reimbursed.
Thanks to Ken Nowak for pointing this story out.