SACRAMENTO — Hoping to placate banks upset at the prospect of having to sit indefinitely on a pile of state IOUs, Controller Gray Davis said Wednesday that California has enough money to begin redeeming $922 million in registered warrants Aug. 3.
Without a state budget since July 1, the state has issued more than $1 billion in so-called registered warrants to pay its bills. Meanwhile, tax collections and other funds have continued to roll in, Davis said in a telephone interview, and the state has about $1.5 billion in available cash.
Asked whether state employees might react indignantly to the news that so much cash is available while they are being paid IOUs, Davis said: "I've already been sued." Late last week, a class action suit was filed on behalf of state employees seeking damages and an order requiring the state to pay its workers in cash. The state has 20 days to reply.
The promise of redemption for some of the IOUs between Aug. 3 and Aug. 6 comes as good news to the state's financial institutions, whose patience with legislators and Gov. Pete Wilson has been wearing thin.
"Every bank will at some point reach a saturation point," Davis said at a news conference in Sacramento. "The governor and the Legislature should know that time is running out."
Davis said bankers with whom he had spoken indicated relief at the promise that the state will cash a hefty portion of the warrants that have been issued. Most banks and credit unions are continuing to accept the warrants, but a handful of small banks--including Tri Counties Bank in Chico and the Bank of San Pedro--have declined, saying the warrants carry too much risk.
"I think they (Bank of America, First Interstate, Wells Fargo) feel better knowing there's some end in sight," Davis said.
Even so, the state is expecting to continue to pay its debts with warrants even as it pays off earlier warrants with cash. If there is no budget in place, the state will still have $1.6 billion in outstanding IOUs as of Aug. 14, according to projections from the controller's office.
Separately, state Treasurer Kathleen Brown met Wednesday with bankers, credit union officials and other representatives of the financial community and told reporters afterward that "they definitely expressed grave concern about how long they can continue to accept the warrants."
