California facing bankruptcy

SACRAMENTO, CA (WFLX Posted by Rachel Leigh) – If budget issues don't get resolved this week, the entire state of California could go bankrupt.

The state controller, John Chiang warns if an agreement to address the state's $42 billion budget shortfall isn't reached by February 1, he'll stop paying unemployment and hand out IOU's instead of legislators paychecks, student loan checks and tax refunds.

The deadlock over the budget put the democrat-controlled legislature and republican governor at odds over spending cuts.

Tax increases and the governor's plan to suspend environmental restrictions so public works projects can get off the ground.

Chiang said, "We are the eighth largest economy; we have the 50th or we are tied of last in the credit ratings. We are a world economic power, but we have fiscal mismanagement in this state."

Governor Schwarzenegger also made a personal appeal to President Obama for federal help.

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