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OPINION: IOU ARNOLD

by Curtis L Walker
Opinion By Majority Leader Dean Florez concerning the State of California which will begin to issue IOUs in the next few hours.
Opinion By Majority Leader Dean Florez

In the next few hours, the state will issue IOUs--a depressing, embarassing and avoidable action pushed upon this state by the Governor.

It is the Governor's cavalier attitude toward the state issuing IOUs under his watch is certainly a game-changer in the current effort to bridge the gaping $24 billion dollar hole in the state's finances.

In a nutshell, under the governor's IOU plan the state pays vendors and others it owes with the equivalent of a post-dated check that is good for the face value of the amount owed plus interest. IOU recipients, for the most part, "sell" their IOUs to a bank for the face value of the check for quick cash. The bank holds onto and then redeems the IOU at a later date, earning millions of dollars in interest.

This type of borrowing is nothing like pulling out the state's credit card to pay the bills. Rather, this is more like the state going down the street and getting an expensive payday loan.

The Governor's payday scheme not only makes California the laughingstock of the credit markets, but it unnecessarily puts a black eye on the state's long-term credit rating.

This means that, for years to come, millions of taxpayer dollars get shoved into the pockets of Wall Street bankers every time we issue long-term debt to build schools or roads, or other needed public projects.

Somewhere in the neighborhood of $6 billion dollars in additional interest alone will be added to the cost of selling bonds that voters have already approved.

The fact that the Governor doesn't care much about the consequences of an IOU-fueled government signals that he's willing to take extreme measures, even punishing taxpayers and ruining the state's credit, to get his way on budget negotiations.

Given this pattern, I believe that a Newt Gingrich-style government shutdown is just around the corner. Bleeding precious dollars on costly IOUs will only widen the overall budget gap, requiring even further budget cuts -- cuts that some legislators will most likely never make, thus leading to an inevitable government shutdown.

The Governor's intransigence on taking action to avoid the black-eye of IOUs makes me wonder if a stalemated government isn't really his ultimate goal.

This is an outcome that he could use as a launch pad to "reform" the legislature in a way that gives the office of the governor distinct and ultimate power - power that he has always craved.

Just as an IOU is paid off at a later date, the governor may be betting that there is a later day political pay-off in creating a stalemated government.

In either case, taxpayers will ultimately foot the bill.
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