Hoping to help residents and businesses--as well as themselves--during the state budget crisis, some cities have started cashing the IOUs that California is issuing in lieu of paying bills.
City councils in Inglewood and Culver City this week voted to join Gardena, which last week became the first city in the South Bay to begin cashing the IOUs after some of the state's largest banks said they would no longer exchange the state government scrip for cash.
The move is intended to serve local residents and businesses who hold the state-issued paper, according to city officials.
"We're trying to do what we can," said Inglewood Finance Director Nick D. Rives. "We certainly can't solve the whole problem, but if we can help some of the (state) workers we'll be happy to do it."
But the promise of a pay-back is another incentive.
"In some cases we might make a little money on it," said Norman Y. Cravens, Inglewood's assistant city manager.
The state IOUs, also known as registered warrants, pledge to pay the bearer 5% in interest--more than the 3% to 4% cities are earning now on short-term investments. Even the yield on U.S. Treasury notes currently is less than 5%, according to Culver City's treasurer, Sue A. McCabe.
Unlike Culver City and Gardena, Inglewood will not cash any IOUs for businesses--only for residents who are active or retired state workers. Inglewood is also charging a $2 handling fee on each IOU.
Gardena has been operating its IOU program for a week, whereas Culver City began to cash the warrants only this week. Inglewood will begin its program Monday, providing state officials are still at odds over how to balance the budget.
California, now in its 58th day of budget crisis, has a deficit this year of more than $10 billion. The state is issuing IOUs while the Legislature and Gov. Pete Wilson struggle to reach agreement on how to close the gap between projected spending and revenues.
Officials in all three cities say they have no idea how much demand for cash to expect or how long the demand will last. They have no way of knowing, they said, how many of their residents or businesses depend on state payments or how much longer the state will be without a budget.
"That's one of the uncertainties," Rives said. Inglewood will not cash IOUs larger than $5,000. Gardena and Culver City have set no limit.
However, financial records in Gardena, now in the second week of its IOU-cashing program, show that during the first week of the program, the city cashed more than $17,000 worth of the warrants.
The overwhelming majority of them, Gardena Deputy Treasurer Ingrid Tsukiyama said, came from businesses that deal with the state--largely medical services suppliers such as pharmacies and doctors.
Only one individual, a retiree, has come to City Hall to cash her IOU, Tsukiyama said.
Sacramento, which on Aug. 10 became the first city in the state to begin cashing the IOUs owing to its huge number of state workers, has found itself widening its program as the budget crisis continues. At first the city was cashing warrants from only its residents and businesses.
Under pressure from doctors in nearby communities, however, it agreed to cash IOUs for out-of-town physicians who treat Sacramento residents.
Even state officials cannot say for sure which banks and grocery stores are currently cashing the IOUs or which employees are receiving warrants in place of their paychecks.
Many state workers are getting their regular checks despite the crisis because they are paid out of a fund other than the state's general fund, said Jennifer Openshaw, spokeswoman for Treasurer Kathleen Brown. The general fund is the only one directly affected by the budget crisis, she said.
People who work for the Department of Motor Vehicles, for example, are paid from funds collected as DMV fees, which, unlike state income tax revenues, are not deposited in the general fund. Workers in the Department of Transportation and the Department of Employment Development, which operates largely on federal funds, are also receiving paychecks.