California to Pay Nearly $10M on IOUs

September 4, 2009 9:10:20 PM PDT
The state of California began paying back its IOUs Friday. It issued 449,000 of them after running out of cash this summer, the last one just yesterday, for a $41 cab ride. A steady stream of eager Californians lined up at the state treasurer's office to cash in their IOUs. Printers were working overtime converting registered warrants into actual checks.

While Nicole Alleyn is glad to finally receive her $1,500 income tax refund, she says it wasn't worth the wait because she earned only $1.47 in interest.

"Absolutely not," said Alleyn. "I don't think that they would like that from us, if we told them we couldn't pay, I think they'd charge us a lot more than $1.47."

California took the embarrassing step of issuing IOUs in early July because lawmakers were gridlocked over how to solve the state's budget crisis. IOUs became a symbol of the state's financial meltdown. It's only the third time in history the state couldn't pay its bills.

Attorney Jim Koester found it hard to make ends meet, while waiting for $10,000 he billed the state for appellate work.

"You don't budget for something like this, so when it gets after a couple of months, it can be kind of tight," said Koester.

Lawmakers finally sent California Governor Arnold Schwarzenegger a budget nearly a month after the first IOU went out. IOU printing didn't stop until this week to ensure state coffers had enough cash.

In the end, it actually cost the state more to issue IOUs. If all of them are cashed in, the state will pay out almost $10 million in interest alone.

But State Treasurer Bill Lockyer says the cost to taxpayers was actually greater.

"It hurts the state's reputation, it causes our credit rating to degrade, which means then when we have to borrow money to build a school or something, it costs more," said Lockyer.

For those who couldn't make it to Sacramento, IOUs can be redeemed by mail or at certain banks.

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