State Controller’s Office Information on July 2009 Registered Warrants (IOUs)

Wednesday, July 08, 2009

SACRAMENTO - Controller Chiang Forced to Act Due to Near $3 Billion Deficit by End of July.
Without action by the Governor and Legislature to stave off a severe cash deficit of almost $3 billion at the end of July, the Controller will be forced to issue individual registered warrants, also called IOUs, beginning July 2. A protracted stalemate over budget solutions will only increase the cash deficit to a projected $3.7 billion in August, and $6.5 billion in September. Payment delays, like those used in February to manage a smaller cash crisis, will not provide sufficient resources to meet the State’s obligations.
A registered warrant is a “promise to pay,” with interest, that is issued by the State when there is not enough cash to meet all of the State’s payment obligations.

If there is sufficient cash available, registered warrants, or IOUs, will be paid by the State Treasurer on October 2, 2009. If the Pooled Money Investment Board (PMIB) determines there is sufficient cash available for redemption at an earlier date, they may be redeemed earlier than October 2, 2009. These IOUs are issued in the place of regular warrants, or checks. The interest rate, set by the PMIB on July 2, 2009, is 3.75% per year.

The State Constitution, federal law and court orders protect education, debt service, state payroll, pensions, In-Home Supportive Services and Medi-Cal providers. In July, those payments will be made with regular, or “normal,” warrants.  However, due to the cash shortage, the State has no alternative but to issue registered warrants, or IOUs, to private businesses, local governments, taxpayers receiving income tax refunds and owners of unclaimed property.  Registered warrants are issued in the same manner as regular, or normal, pay warrants, and will be issued on the same day a normal warrant is scheduled to be issued. Registered warrants, or IOUs, are legal negotiable instruments that are paid with interest.

Registered warrants are identified by the word “REGISTERED” printed on the face of the warrant. They also contain a special endorsement stamp on the reverse side

Information copied from State Controllers website http://www.sco.ca.gov.