 Governor Arnold Schwarzenegger and Finance Director Michael Genest during a press conference, July 1, the first day of the 2009-10 fiscal year, and without a budget. The governor announced, among other items, his order for a third day of monthly furloughs for state employees. The graph at right is from the Department of Finance showing the state’s cash flow predictions for the 2009-10 fiscal year. Photo and graph courtesy of State of California By Mike Bodine
Register Staff
7-4-2009 There is still no state budget, and, as promised, State Controller John Chiang began issuing $3.3 billion in registered warrants, or IOUs, in lieu of payments on Thursday, July 2 to vendors and contractors doing work with the state, as well as for tax-refunds.
A registered warrant is a “promise to pay” note that matures with interest, not unlike a savings bond. These warrants can be redeemed at nearly every major bank in the county, with the exception of Eastern Sierra Community Bank that reported Friday it is waiting for more information from the state before accepting the IOUs.
There were some 11th hour concerns from the county that its bank, Union Bank of California, would not accept the warrants. County Treasurer Leslie Chapman reported on June 30, just two days before the warrants were issued, that the county still had no confirmation from the bank.
Alisha McMurtrie, county treasurer-tax collector, said Thursday that Union Bank will accept the IOUs.
But, as with all banks accepting the warrants, they will only be accepted from bank customers, and only until July 10, 2009.
The warrants are identified by the word “REGISTERED” stamped on the face and may also contain a special endorsement stamp, issue and maturity date.
The promissory notes can also be held by the vendor/contractor who can collect the interest themselves when the warrants mature in October 2009.
The interest rate is 3.75 percent, which is pretty good in these economically distressing times, according to McMurtrie.
These vendors include everyone from local hardware stores to county departments.
Locally, small businesses are reporting that the entities they deal with have suspending or cancelled work, presumably in anticipation of the IOUs.
“I don’t know if that means local vendors are getting a break, or if fewer locals are getting state contracts,” County Administrator Kevin Carunchio said Tuesday.
The responses from small business in the area ranged from “I don’t want to comment and burn a bridge” to “I don’t understand why there’s road work on every stretch of U.S. 395, but we’re laying off teachers.”
The comments may seem a little off topic, but it reflects the public’s apprehension toward the state budget process.
Many business owners interviewed reported that they were given a “head’s up” months before the IOUs, “so work didn’t proceed while awaiting payments.”
However, county departments, such as Health and Human Services that have multiple contracts with the state, will assuredly be hit hard by the IOUs.
The Treasurer’s Office could not say how much in IOUs the county is getting, as many payments have deferment schedules, meaning a July payment would go to pay for August or even October services.
“So it’s still a bit of a waiting game” to see how hard the county will be hit, McMurtrie said.
Carunchio said that the state has been in rocky financial waters for 30 years, but during that time, counties and cities were still able to provide services.
But, he said this situation may be the one that closes the doors to many services. These cuts and payment delays may cause potholes to grow in the roads, or the library or museum to be open just a couple days a week.
McMurtrie said these warrants are different from the last time the state issued IOUs to state employees in July 1992. At that time, the county was accepting the IOUs, cashing them and then holding them to collect the interest. This potential money maker for the county is not being allowed by the state this time around. It is also unknown whether the county could even handle that sort of payment collection.
McMurtrie said more information about the IOUs should be available on July 10.
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