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California to redeem IOUs early
SACRAMENTO, Calif. (8/17/09)--California will stop issuing IOUs on Sept. 4, well before the planned redemption date of Oct. 2, state Controller John Chiang announced Thursday. That's good news for more than 80 credit unions and their state-employee members who were impacted by this summer's state budget stalemate. Chiang said the IOUs--called registered warrants--will be redeemed early because the state's revised budget will replenish its coffers (The Wall Street Journal Aug. 14). The state started issuing the warrants as payments to creditors--instead of using cash--to avoid running out of money by the end of July. It said it would repay the IOUs with interest when it had a budget. The warrants pay a 3.75% annualized interest rate. A $1,000 IOU would pay about $6.70 in interest at most. To assist their members who were state employees working without pay, more than 80 credit unions in the state agreed to accept the IOUs indefinitely. Credit unions were applauded by regulators and others for their assistance, and they became the topic of a number of positive media reports for their efforts. Several large banks, on the other hand, generated themselves a barrage of negative publicity for announcing they would not accept the warrants or for putting a mid-July deadline on acceptance. On July 20, state lawmakers and Gov. Arnold Schwarzenegger reached an agreement that closed a $24 billion deficit (News Now July 27). The state issued 327,000 IOUs, worth $1.95 billion. Chiang said it was possible that officials could issue IOUs again later this year if the state's economy worsens. The IOUs can be redeemed at the Treasurer's office beginning Sept. 4.
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