California State Controller John Chiang's office began issuing IOUs on July 2, 2009, to pay the various businesses, big and small, that contract with the state.
The IOUs have an interest rate of 3.75% and a maturity date of October 1, which assumes that California will have a state budget in place by then.
Chiang's office has also compiled a list of programs and agencies that will receive IOUs in lieu of cash payments as well as a list of those that will continue to receive their regular cash payments for the foreseeable future.
The California Department of Social Services (CDSS), which administers that portion of the CalWORKS program known as stage 1 that provides temporary cash assistance for basic family needs and issues specific welfare-to-work requirements, is on the list of agencies to receive IOUs.
Educational institutions, however, will continue to receive their monthly budgetary allotments, since funding for K-12, community, colleges, and public universities are constitutionally mandated.
This includes the California Department of Education (CDE), which administers that portion of CalWORKS known as stage 2 and stage 3 that provides child care subsidies to low-income families and individuals.
All this means that individuals and families who receive cash assistance under CalWORKS stage 1 could see their payments significantly delayed or cut off; the situation will depend upon how much remaining cash CDSS has on hand or whether it has access to a line of credit.
Meanwhile, child care providers may continue to receive subsidy payments from their alternative payment (AP) agencies with all of the attendant issues they have experienced in the past such as payment delays, lost attendance sheets, etc. However, each AP agency is operating under different circumstances, and the experience of individual providers is likely to vary in each county.
A similar situation occurred in 1992 when Democrat Gray Davis was the state controller under Republican Governor Pete Wilson.
That year, another state budget crisis prompted Davis to issue IOUs for two months, all of which were subsequently paid off after a budget was passed that provided sufficient cash in the treasury to pay the bills.
It is presently unclear how long it will take the legislature and governor to agree on a suitable state budget.
The controller's office is expected to issue $3.3 billion worth of IOUs in the month of July alone. Another $11 billion worth of payments will continue to be made the same way.
For more information, please visit the state controller's website at www.sco.ca.gov and keep checking this space for more updates.