State Of Suspense

As if drought, earthquakes, fire and floods weren't enough, there was the recession and the riots and, now, for the first time since the Great Depression, no more money. The beleaguered state of California has run out of cash and is paying its bills with IOUS.

The controller's office in Sacramento sent out the first 12,000 of the IOUs, euphemistically labeled registered warrants, after the Democratic-led state assembly failed to reach agreement with Republican Governor Pete Wilson on how to erase a $10.7 billion shortfall in the latest state budget. Most of the IOUS were for income tax refunds, but within days the state will begin using the warrants to pay 34,000 part-time employees. Most major banks are honoring the notes for now, but they make no long-term promises. The budget impasse has left thousands of state workers wondering whether the eventual settlement will leave them without jobs; unemployment figures released last week put the jobless rate in the state at 9.5%. Meanwhile, if the budget battle is not resolved by the end of this month, California may be forced to close schools, parks and libraries.