clipped from: online.wsj.com   

California's top accountant said the state would begin issuing IOUs to hundreds of thousands of creditors after lawmakers failed to meet its deadline this week to close a massive budget deficit.

California Controller John Chiang said Wednesday he planned to send out $3.4 billion of IOUs in July to state contractors and local governments, as well as to residents expecting income-tax refunds, welfare grants and college scholarships.

Mr. Chiang said without IOUs, the state would run out of cash by the end of July. "It's our last official step prior to defaulting," he said.
Republican Gov. Arnold Schwarzenegger proposed deep cuts and some so-called revenue accelerations, which would include larger income-tax withholding. Democrats, who control the Legislature, countered with a $21 billion proposal that includes $11 billion of cuts and relies more heavily on accounting gimmicks and one-time fixes.