No IOUs — at least for now

State revenues in August were greater than expected and expenses were down, allowing the state to pay its bills without resorting to IOUs, Controller John Chiang reported.

The unexpected announcement – Chiang earlier had predicted that the state would be forced to issue IOUs absent a budget – represents the only positive development in an otherwise bleak budget picture. The state faces a $19 billion shortage for the 2010-11 fiscal year, which began July 1. The Legislature and governor have not yet approved a budget. 

But despite the protracted budget impasse, California will be able to pay its monthly bills in cash — at least for now.

On July 26 Chiang’s office sent out a statement warning that, without a budget, the State would have to issue IOU’s by August or September because of lost funds.

Chiang said the state would be completely out of money by the end of October if budget negotiations continued to prove fruitless. Issuing IOU’s would preserve the cash needed to pay certain bills whose payments are made mandatory by the state constitution and federal Law.

But a new financial report shows that August was a more lucrative month than Chiang had projected back in July.

Chiang said personal income tax collections brought in an extra $119.5 million while sales tax revenue increased by $124.8 million above estimates.

The extra cash means California won’t be issuing IOU’s this month but Chiang warns that they will be needed in the coming months if the budget continues to lag.

“The Controller will continue to monitor cash on a daily basis, and may still have to issue IOUs for state payments in early October,” Chiang’s press office said.

The State is still redeeming IOU’s issued during the 2009 budget impasse. They totaled $2.6 billion last year.

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