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California Reinstates Mandatory Furloughs Ahead of Looming Cash Shortfall

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California Governor Arnold Schwarzenegger has reinstated unpaid furloughs for approximately 200,000 state workers under an executive order, according to union officials cited by several news organizations including the LA Times.

California state workers had been subject to similar unpaid furloughs that began last year but they expired with the fiscal year that ended June 30. The state is now 28 days into the new fiscal year and still no budget agreement has been reached.

Essentially, the move is being used to pressure lawmakers to reach a budget agreement before the state must again issue IOUs. The LA Times reported that state Controller John Chiang has said he may be forced to begin issuing IOUs by late August. The newspaper, citing unnamed union officials, also reported that the new furloughs would last the duration of the state's budget impasse.

The bottom line is this is not a market moving event for either stocks or currencies, but does raise the long-term and ongoing specter of the state's budget woes since California comprises more than 10% of the United States GDP and, according to the IMF, ranks eighth globally in terms of nominal GDP, ahead of Spain, 10th, Greece, 40th, and Portugal, 58th.
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