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College students getting Cal grants, and those who rely on assistance checks from social programs will also be getting IOUs.
"We're very concerned about the vendors, the aged, the blind and the disabled receiving these IOUs. They don't have access to financial institutions who are willing to redeem the IOUs," said State Controller John Chiang.
People doing business with the state won't get paid either. Staff USA provides medical personal for state programs used by the developmentally disabled. The company already has had to cut expenses in anticipation of getting IOUs instead of cash.
"I've had to layoff my staff employees, my administrative staff in order to try to operate my business," said Gloria Freeman, state vendor.
In a 2-1 vote, a state investment board set the interest rate at 3.75 percent. So that means a $1,000 IOU would earn $9 in interest when it matures in October.
There is a caveat. The IOUs are only cashable if the state has the money. If it doesn't, the redeemable date can always be extended.
But the IOUs aren't just a sign of California's cash problems. They also symbolize the state leaders' failure to fix the budget mess on time.
IOUs have only been issued twice in the state's history and no one is taking responsibility for this fiasco.
"I don't believe we let it happen," said St. Sen. Darrell Steinberg, D-Sacramento.
"It's a sad story. They have known for a month now that the deadline was June 30," said Gov. Schwarzenegger.
Only a budget fix can stop the IOUs, some lawmakers will work through the holiday weekend to try to craft a solution.
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