Its budget gap growing and its political process for addressing the gap unhinged, California will begin Thursday to pay vendors and taxpayers with i.o.u.’s, only the second time the state has adopted the emergency payment method since the Great Depression.
By Thursday afternoon, state officials said, 28,742 warrants worth $53.3 million will be printed and readied for distribution. If the state’s fiscal crisis – which has left California unable to pay all of its bills – continues without a budget settlement, it would issue as much as $3.36 billion for the month of July.
The bulk of the warrants – which will offer recipients an interest rate of 3.75 percent -- will be issued to Californians waiting for their income tax refunds, though some will be issued to local governments as well as to vendors doing business with the state. Federal and state laws prohibit paying state employees, schools, or Medicaid recipients with the warrants.
The issuance of i.o.u.’s comes after state lawmakers and Gov. Arnold Schwarzenegger failed to agree on how to close a state budget hole — now roughly $27 billion — by the end of the fiscal year on Wednesday. The state is essentially too short on cash to pay its bills, and will continue to issue warrants — with potential long-term serious damage to the state’s credit rating — until the budget impasse is resolved.
Wells Fargo will accept California IOUs, for now
Wells Fargo said Thursday it will accept California IOUs from its retail and business customers until no later than July 10.
“We’re very disappointed, as are many Californians, that California has taken the unfortunate step of issuing IOUs in lieu of its payments to some businesses and individuals,” said Lisa Stevens, head of Community Banking for San Francisco-based Wells Fargo (NYSE: WFC) in California, in a statement announcing the move. “We are reluctant to take this step, but are doing so to help our customers who are not at fault.”
The decision was announced a day after Bank of America (NYSE: BAC), the North Carolina-based bank that is the largest banker in California, also said it would accept the state’s IOUs.
Comment: Arnold's not the only one to blame!
More detail here: requently Asked Questions about Registered Warrants (IOUs)
Wish I had an image!