By Matthew Garrahan in Los Angeles

Published: June 29 2009 19:26 | Last updated: June 29 2009 19:26

California is preparing to issue IOUs to its creditors this week as it grapples with an unprecedented cash crunch and prepares to begin its new fiscal year deep in the red.

Once the US’s richest state, California now has the dubious distinction of having the worst credit rating in the country.

It is facing a budget deficit of $24bn (€17bn, £14.5bn) yet Arnold Schwarzenegger, its governor, and the state assembly cannot agree on a budget that would address the shortfall.

California’s fiscal year ends on Wednesday but as the state’s cash reserves are empty, IOUs will be issued to a range of creditors, including contractors, such as information technology companies and the food service groups that cater for prisons.

“On Wednesday we start a fiscal year with a ­massively unbalanced spending plan and a cash shortfall not seen since the Great Depression,” said John Chiang, the state ­controller. “Unfortunately, the state’s inability to balance its chequebook will now mean short-changing taxpayers, local governments and small businesses.”

The state is also likely to issue IOUs to the US government. California currently contributes funding for government-run programmes for elderly and developmentally disabled people but is considering issuing IOUs to cover its contributions because of the lack of cash.

Education funding is ­protected under the state’s constitution while payments on the state’s bond debt are also guaranteed under state law.

Democrats and Republicans in the state government last week struck an agreement on a range of money-saving measures. However, Mr Schwarzenegger has threatened to veto the plan on the grounds that it was a piecemeal solution to California’s budgetary woes.

Mr Schwarzenegger said he would veto any bills that raised taxes without reforming the state’s government. “I will veto any majority vote tax increase bill that punishes taxpayers for Sacramento’s failure to live within its means,” he said. ”The legislature will have a difficult time explaining to Californians why they are running floor drills the day before our budget deadline. We do not have time for any more floor drills or partial solutions. It’s time for the legislature to send me a budget that solves our entire deficit without raising taxes.”

http://www.ft.com/cms/s/0/1940d18e-64cf-11de-a13f-00144feabdc0.html

I can’t see how this is going to work. The US is having enough trouble at the moment without having to invest billions in healthcare. Where will the money come from for this? They can’t tax people any more

From http://www.guardian.co.uk/world/2009/jun/11/obama-administration-universal-healthcare-reform

Barack Obama today set out a broad plan to replace America’s patchwork healthcare coverage with a universal system, the goal that has eluded US presidents for more than a century.

Obama, whose speech was preceded by emotional testimony from a cancer patient, said: “After decades of inaction, we have finally decided to fix what is broken about healthcare in America. We have decided that it’s time to give every American quality healthcare at an affordable cost.”

The political firefight that is about to engulf the US over the summer is over the 45 million people who have no health insurance that Obama wants to bring into the system.

One of the main doctors’ groups warned today that Obama’s plan would lead to an explosion in health insurance costs. The are testimonies from thousands of uninsured people relating horror stories of experiences in trying to obtain medical help.

There are also gripping stories from people with insurance but who found the companies failing to pay out for treatment. Others complain that insurance companies refuse to give them coverage because they already have a medical condition.

The president hopes to have legislation implementing health reform on his desk by 1 October and said today he would not tolerate “endless delay” by Congress.

Obama specifically chose to deliver his speech in Green Bay, Wisconsin because it has a healthcare system in place that is more extensive and cheaper than elsewhere in the US.

He proposed the establishment of a health insurance exchange, which would set up a government-backed insurance scheme in competition with private health insurance companies.

His scheme “would allow you to one-stop shop for a healthcare plan, compare benefits and prices, and choose the plan that’s best for you. None of these plans would be able to deny coverage on the basis of a pre-existing condition, and all should include an affordable, basic benefit package,” Obama said.

“And if you can’t afford one of the plans, we should provide assistance to make sure you can.”