SACRAMENTO — Deep in debt and short on cash, California on Thursday churned out its first batch of IOUs in nearly two decades amid grumbles from bankers, growing public outrage and scant progress in negotiations to resolve the state's widening budget deficit.
The state controller's office fired up a pair of printing presses and began rolling out nearly 29,000 IOUs totaling more than $53 million, most of them destined for residents around the state still awaiting income tax refunds. Recipients also include some businesses, pensioners, health clinics, college students and many others who get checks from the state.
"We never thought we would do it again," said Dorothy Cottrill, who manages check disbursement at the state controller's office and still remembers the last time the state spun out IOUs in the lean days of 1992.
The unusual move came hours after a panel of state finance officials set the annual interest rate for the IOUs at 3.75% for banks and other financial institutions willing to accept the vouchers. Some banks, including Bank of America, Citi and Wells Fargo, have agreed to honor the paper, but only until July 10. Many recipients could receive their IOUs after that date.
Those who don't have a bank that will cash the IOUs can redeem them from the state Oct. 2, or sooner if officials settle on a solution to the financial crisis.
Rodney K. Brown, president and chief executive of the California Bankers Assn., said the state's failure to resolve the budget crisis "has placed a tremendous burden on California's citizens, communities and banks."
State officials estimated that without a budget resolution they will have to issue $3.2 billion in IOUs in July and $1.65 billion in August.
State Controller John Chiang said the IOUs "are a sign that the state is being fiscally mismanaged" and a precursor to further credit downgrades for California, already the lowest-rated state on Wall Street.
The IOUs come two days after state Senate Republicans, with the support of Gov. Arnold Schwarzenegger, blocked an eleventh-hour attempt by Democratic leaders to push through budget proposals that would have staved off the IOUs, at least temporarily.
Outside the Capitol, the mood was cross. Richard Blitz, a 73-year-old owner of a downtown Los Angeles variety store, said the IOUs seem a hollow gesture by a state government struggling for answers.
