California began issuing IOUs in July because the state government cannot pay its bills. The IOUs are to mature in October and pay an annualized interest rate of 3.75 percent.
Adam Summers, a policy analyst at the Los Angeles-based Reason Foundation, has long followed the fiscal follies in California and offers these thoughts:
“Despite all of the talk of ‘fiscal Armageddon,’ state revenues today are about the same as they were in Fiscal Year 2004-05. It’s not like we were living in the Stone Ages here five years ago. All we really have to do is pare government back to the size it was five years ago to realign revenues and spending, yet the politicians talk about throwing poor children out onto the streets!”
Summers puts much blame for the state’s problems on deals cut with government labor unions. One example:
“In 1999, a bill was passed to increase state workers’ pensions by up to 50 percent. Public safety workers were now able to retire at age 50 and earn 90 percent of their highest year’s salary in pensions, instead of 60 percent of their salaries. Moreover, the increases were made retroactive so that all workers in the system would get the higher compensation.
“I think the state issuing IOUs is ridiculous, and is essentially an admission that the state is bankrupt and its political leaders have utterly failed to perform the jobs they were hired by the taxpayers to do.”
— Steve Stanek