An update: Wells Fargo and B of A announced they will start accepting the IOUs again. Wells Fargo on 9/4 and B of A on 9/9. Yippee! Or alternatively you can mail the IOU to the State Treasurer's office with a return address and they will send you a check to cash in return.
Yippee! California State Controller John Chiang today (8/13/09) announced they will be able to stop issuing IOUs on 9/4/09 and start redeeming previously issued IOUs on that date.
Well you know, maybe holding on to this IOU isn't such a bad thing after all. With money market and CD interest rates hovering near 1%, holding on to this $2000 IOU paying 3.75% isn't so bad. And, the added bonus is that interest on the warrants is both state and federal TAX-FREE! If you're in the 9.55% state and 28% federal tax brackets, that equates to a pre-tax yield of 6%!
So John Chiang, while I still enjoy ranting about these ridiculous IOUs because the cost of issuing and processing them must be outrageous, could I hold on to mine for another year!?
Chiang will give a more definite answer on the IOU redemption timeline after his emergency meeting with the Pooled Money Investment Board on 8/21/09. I spoke with the California State Treasurer's office about the time frames involved. He confirmed that IOU holders will have to either mail in the IOUs to receive a check (with interest) or perhaps after the PMIB meeting, more banks will start accepting the IOUs again.
But if ya ask me, I'm holding on to mine until the end at this point. If you take the IOU to the bank, they get all the interest :<
Originally Posted 7/25/09:
Its my own fault I suppose for filing my tax returns 3 months late (with extensions). Today I received, for the first time in my life, a promise to be paid for money due to me. These registered warrants, also called IOUs, have been issued by the State of California since July 2nd and they will continue to be used until the resolve their cash flow issues.
So here I am, sitting with a "promise to pay" large enough to fund a family summer vacation or a large LCD TV or 4 months of groceries. B of A, Wells Fargo, Chase, Union Bank, US Bank and Citibank won't accept these IOUs. Some credit unions and banks will indeed accept them. Talk about an inconvenience. I can't cash it because my bank won't take them. So I'd have to open a new account just to cash this stupid $2,000 check.
Or I could hold the check until its maturity date of October 2, 2009. IF the state has enough cash to pay me for it at that point, then I get to mail it to them so they can mail me back a check. But if they get the cash before October 2nd they may pay me earlier. Or if they don't have enough cash by October 2nd, then who knows what happens. But the "good" thing is that I earn 3.75% on my IOU! Whoopie! So I'm up like $14.58 by holding on to this warrant until October 2nd.
I wonder how much labor and administrative cost the State is incurring to process and mail these IOUs, receiving them back and process them and then process and mail back a redemption check.
So here I am, holding on to a piece of paper for hard-earned money owed to me that was taken out of my paycheck last year. So maybe they could hold back a portion (not all) of the payroll of state legislators from their paychecks this year? Fair is fair, right? But nooooo...California state payroll and pensions are protected. Effectively, state legislators are biting the hand that feeds them.
Let's summarize this wonderful situation:
- The state is withholding money due to its constituents.
- The administrative time and burden of processing these IOUs is a huge waste of money.
- Since most large banks won't accept the IOUs, thousands of Californians will waste their own personal time establishing accounts at credit unions for the sole purpose of cashing their IOUs.
- Others (like me) will opt to just hold on to the IOUs until the State pays them off, thus prolonging the option of spending the money in this down economy.
I know our Governor is working hard with legislators to get past our budget issues. If you are aware of waste in our government, submit it to www.wastewatchers.ca.gov.
For more information about these IOUs, visit the State Controller's Office website at www.sco.ca.gov/eo_news_registeredwarrants.html or the State Treasurer's Office website at www.treasurer.ca.gov/warrants/index.asp.