States Dodge Defaults as California May Cut Worker Pay

Bloomberg reports:

Illinois let $5 billion of bills go unpaid. Washington closed state offices. California may cut 200,000 workers’ pay to the minimum wage. Minnesota is delaying tax refunds for a second year.

As fiscal 2011 budgets took effect July 1, state and local governments coping with revenue declines from an economic slowdown are fulfilling legal obligations to balance their books by shaving costs and raising taxes to protect a key constituency: owners of $2.8 trillion of municipal bonds.

“States have taken all measures so far to make sure they keep capital markets open by honoring their debt payments,” said Richard Ciccarone, a managing director for McDonnell Investment Management LLC in Oak Brook, Illinois, which owns $7 billion of municipal bonds. “They are doing everything they can.”