08/18/2010 07:39 pm ET Updated May 25, 2011

California Threatens To Pay Workers With IOUs As Deficit Soars

California state contractors and others could find their paychecks replaced by IOUs this September, as legislative disputes over the state's $19 billion deficit threaten to stall the passage of a budget.

"The fiscal year began on July 1 and we haven't had a budget since then," H.D. Palmer, a spokesman for the California Department of Finance, told the Huffington Post.

The IOUs could be issued in as little as two-week's time, while available funds are allocated instead to prioritized items such as bond payments.

"I am hoping we won't need to issue IOUs," State Controller John Chiang told his audience at the Sacramento Press Club Wednesday. "It's an embarrassment to the state of California."

The state alone constitutes the world's eighth-largest economy. That's down from several years ago when it was the world's fifth-largest economy.

With the state's budget currently at $19.1-billion, Chiang blamed the California Legislature and Governor Arnold Schwarzenegger for the stalemate.

"The Governor has been in consultation with... legislative leaders, doing what he can to move this process forward," said Palmer, "because the later we go the more costly it's going to be for the state."

If implemented the state will be issuing IOUs for the second consecutive year; last year the warrants amounted to $2.6 billion.