Pension Problems Continue to Plague California

In the midst of a $19 billion budget deficit the state of California is struggling to make its payments and that may mean IOUs for state workers for the second year in a row.

California has yet to pass a budget for this year, and state Controller John Chiang said IOUs may be issued in two to four weeks if the budget impasse continues.

Today on "Varney & Co." Tim Cavanaugh from the Reason Foundation said IOUs are possible if political bickering continues. "It is possible if there is no budget passed," Cavanaugh said. "In some ways it's sort of a brinksmanship between the Democrats and Governor Schwarzenegger."

One of the main issues in the budget battle is public-employee pensions. California owes about $500 billion in pension payouts, and Tim Cavanaugh said until something happens to fix that, Gov. Schwarzenegger won't budge on his budget demands.

"Things are bad. We are still looking at $500 billion in pension payouts." Cavanaugh said. "The real outstanding thing is that Gov. Schwarzenegger wants to get some permanent fixes to the way public employee pensions are done. California has the world's eighth largest economy, but until they take care of their own finances business will continue to struggle in California.