This week, State Controller John Chiang announced Wednesday that, starting July 2, his office would be issuing registered warrants, or IOUs, if immediate budget and cash solutions are not approved by the Legislature and the Governor. Controller Chiang reached this conclusion after the Legislature and Governor failed to meet the June 15th deadline for a budget resolution that would have enabled the Treasurer and Controller to seek much-needed short-term cash flow borrowing from Wall Street. The option to pursue Revenue Anticipation Warrants (RAWs) was eliminated when Governor Schwarzenegger rescinded the authority for the Controller to do so earlier this month.
According to the State Controller’s Office, regular payments will continue for K-12 schools, UC, CSU, and community colleges; debt service on general obligation bonds; payments to CalPERS and CalSTRS; state, legislative, and court employees’ salaries; In-Home Supportive Services (IHSS); Medi-Cal associated payments; and child support services payments.
IOUs will be issued for the following payments:
· Cal Grants.
· SSI/SSP grants. (The State Controller notes that the federal Social Security Administration will pay both the federal Supplemental Security Income and the State Supplementary Payment for the months of July and August.)
· CalWORKS grants.
· County administration of social services programs.
· Developmentally disabled centers.
· Local assistance payments for mental health services.
· Local assistance payments for alcohol and drug treatment services.
· Judicial branch.
· State and small business vendors.
· Personal income tax and corporate tax income refunds.
The warrants will carry an interest rate set by the Pooled Money Investment Board (PMIB). The Controller has requested an emergency PMIB meeting on July 2 to set the rate and that rate adoption will become effective immediately. The warrants will have a maturity date of October 1, 2009.
It is important to note that the 2009-10 State Budget already includes deferred payments to counties for most social services payments expected in July and August 2009. IOUs will only be issued for those payments that are currently scheduled to be made during those months. For those counties that are exempted from deferrals (counties with a population under 40,000), these payments will be made with IOUs.
In terms of impacts to counties, it appears that registered warrants are a preferable option to delaying payments outright. There is at least the potential that banks or other lenders will cash these warrants in anticipation of receiving the interest earnings when the warrants mature. CSAC is communicating with the State Controller’s Office to determine if and when banks are willing to accept the IOUs.
Obviously, the need for IOUs is negated by a budget agreement between the Legislature and Governor. The Assembly and Senate have scheduled meetings over the weekend to continue to try to hash out a budget package that will stave off the need for the issuance of registered warrants. Stay tuned.
