California Declares a Fiscal Emergency

What a freaking disaster and if the bond rating hits junk bond status (its already lowest in the country) it will only compound the disaster. The state is now looking at the desperate measure of issuing IOU's and the stimulus money that was supposed to save them has failed them

SAN FRANCISCO (Reuters) - California Gov. Arnold Schwarzenegger declared a fiscal emergency on Wednesday, forcing lawmakers to tackle a budget gap that has raised the prospect of drastic measures to keep the state working.

Lawmakers debated late into the night Tuesday but could not agree on a plan to balance California's budget -- now showing a deficit of $26.3 billion -- in time for the new fiscal year, which began on Wednesday.

That left state officials with no choice but to prepare for suspension of payments to vendors and local agencies which instead will get "IOU" notes promising payment.

The most populous U.S. state -- the eighth-largest economy in the world in 2006 -- now risks further cuts to its credit ratings, which would increase its borrowing costs when coffers are already stretched to breaking point.

To think people want to split the state up.