California IOUs: Where's my cash?

The Golden State now has a budget, but it will be several weeks before residents and businesses can redeem their IOUs.

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By Tami Luhby, CNNMoney.com senior writer

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NEW YORK (CNNMoney.com) -- California may have a budget, but that doesn't mean it has the money to cash the $1.1 billion in IOUs sent out this month.

The state Controller's Office, which has issued nearly 220,000 IOUs to residents, government agencies and contractors, likely won't know until the end of next week when it can start trading the IOUs for cash. First it must review the new budget to determine when there will be enough funds in the state coffers.

Gov. Arnold Schwarzenegger signed a contentious budget agreement Tuesday that closes a $24 billion deficit in large part by slashing $15 billion in spending. The governor vetoed another $489 million in spending, mainly from health and human services, after lawmakers rejected a plan to tap local governments' gas taxes and allow new offshore oil drilling.

The state Finance Department is expected to send the agreement to the controller next week. It will then take the Controller's Office three or four days to crunch the numbers.

"We will develop the cash flows so we can determine when the state will have sufficient funds to pay all its bills and repay all the IOUs already issued," said Hallye Jordan, a controller spokeswoman.

Controller John Chiang started mailing IOUs on July 2 to preserve enough cash to cover debt payments and fund education. The state was facing a $400 million shortage for July. The figure was revised downward from nearly $3 billion after June cash flow figures were calculated.

It was the first time the state issued IOUs since 1992, though it did delay payments in February during another cash crunch.

The IOUs went mainly to residents and companies owed tax refunds, as well as social service agencies and state vendors. They were told they could redeem the paper on Oct. 2 or when the state has enough money in the bank, whichever came first. They will be paid an interest rate of 3.75%.

At least some are not pleased that they have to wait to see their money.

Carol Gillis, an Anaheim mother of five grown children, was depending on a $958 tax refund to help cover the rent and motor vehicle fees after her husband's pay was cut. Instead, they got an IOU.

"I feel that it is my money and I should never have had to wait in the first place," said Gillis, an accounting clerk. "To wait even longer just makes me angrier."

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