Question from a reader:”I read that California has issued IOUS in the past. They are talking about doing that again. Are they going to? Should I leave the state? Are we broke?”
My answers to the statements and the questions are: At this point, they are trying to decide what to do, you don’t have to leave the state unless you want to and yes, the state is broke though it isn’t like you will the entire city of Sacramento standing by the 405 Freeway on or off ramps begging for spare change-at least not yet anyways.
California has issued warrants in the past. Warrants look like checks except they have the word “warrant” printed on them. The first image above is of Federal refund checks and State refund checks (and warrants) are not that different. If memory serves correctly, I remember receiving a warrant back the past and at the time, I think that most banks went ahead and cashed them and treated them as if they were checks. After all, if the State of California says they will make good on a check they will, even if it is later than sooner. In that case, they came to a resolution relatively quickly. That was back in July 1992.
This time around it is any one’s guess as to what the state will do. They have 60 days as of Dec 31 from what I gather. At the end of the time, the State of California runs out of money and is officially broke. The commercial banks in the state haven’t made a decision yet as to what they would do if they receive warrants either.
So the bad news is that you might get an IOU. The good news is that currently, if they don’t pony up the cash for the IOU the state has to pay you interest and as of now, the interest might go up to 5%. According to Jacob Roper, a spokesman for the California state controller’s office, they haven’t determined what the rate of interest might be if that is the case.
Are other states faring any better or worse? Sure. Does it mean that you have to high tail it out of California? Not unless you already were planning on moving in which case any warrants that would be mailed to you would follow you to your mailing address in your new state.
If you owe money in taxes, you are still required to pay it and the newspapers, Internet and blog sphere have been full of comments screaming the blues that it isn’t fair. I have to ask them, whether or not the State of California pays you any refunds now or later has no bearing on whether we pay taxes or not. The State of California follows that Federal government in that we are taxed on all worldwide income earned while living in California, with the usual exceptions and rules about paying taxes to other states, etc, etc.
People forget that when they don’t have money to pay taxes they work out payment plans and agreements with government agencies themselves. Once in a blue moon I don’t have any issues with the self-same agencies turning around and working out payment plans with us.
Besides, the whole mess is due to mismanagement of money and running out of it. If the subject bugs you, please write your State representatives and get on our Governor’s case. Make sure you suggest they find other avenues of revenue generating like bonds, etc. We don’t need cutting of services in health, education and special needs like they always seem to go after first.
This is a good time to go after our representatives since it is a new time for a new Federal administration and city elections are starting to come around again as well. Make sure that you tell your candidates and representatives that their jobs “warrant” that they look after your money, any refunds and programs or else they won’t get the job!
Remember that normal life rules of engagement apply. Try not to count on any refund money at this point if you can as part of your budget, even if you have planned for it already. If you can’t change your plans, be patient because as I stated earlier, the decision hasn’t been made as to what to do. For the record, State employees are being forced to take days off as well to cut down on costs to try to save money as well.
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State Warrants and Other IOU Questions