California State Budget Deadline

Fresno, Calif. It's being called the equivalent of a 'nuclear meltdown.' California's budget crisis is edging closer to the use of IOU's and it's prompting a disturbing warning from the state controller as lawmakers wrestle with an historic deficit.

At California's capitol there was little outward sign of work on the budget. The two-house conference committee was not in session as scheduled despite new warnings about looming disaster.

"It is the nuclear meltdown of the state's finances." State Controller John Chiang is talking about fears that the state could default on its bonds. That would be an historic calamity. "Now what would happen in a default situation? Can you imagine the state not paying for anything? We would have a shut-down in terms of...a near shut-down of payments."

A shut-down of payments to schools, health care clinics and law enforcement. It would spark massive litigation similar to a bankruptcy.

Arnold Schwarzenegger (R), California Governor: "If anyone comes to me and says the budget is not done, we are running out of money. Then let me tell you, the state will come to a standstill."

"We feel the pressure ourselves, we don't need to be goaded, don't need to be told how serious the crisis is," said Darrell Steinberg (D), State Senate President pro tem. He said a deal has to be done by the end of this month.

"Don't take away services that people that really need 'em, and don't have high income," said capitol visitor Victor Torres.

But staring at a $24-billion dollar hole, deep cuts will have to happen. In the meantime, delay would spell disaster.

July 28th is the day the state goes into debt by a couple hundred million and it will go further into debt the next day; a debt that would exceed $2-billion by the end of July.

Republicans are calling for spending cuts to solve the problem. State Democrats want to dip into the state's emergency reserve and possibly raise taxes to offset some of those cuts.

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