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California plans to pay off IOUs beginning Sept. 4

August 13, 2009 |  1:05 pm

California expects to begin redeeming outstanding IOUs on Sept. 4, a month earlier than expected, thanks to cash savings from budget cuts, state Controller John Chiang announced today.

He said the state also will need $10.5 billion in short-term loans from investors to get through the fiscal year ending June 30. That is about on par with the maximum that Wall Street has been expecting.

Treasurer Bill Lockyer said he plans to borrow the money via so-called revenue anticipation notes, or RANs, in mid-September. The RANs, which will be heavily marketed to individual investors, would mature sometime before June 30.

Johnchiang The borrowing plan and the savings from the slashed state budget "should provide sufficient cash to meet all of California’s payment obligations through the fiscal year," Chiang said in a statement.

Strapped for money, the state began issuing IOUs last month to pay vendors, people owed tax refunds and other creditors. Since July 2 the state has issued 327,000 IOUs totaling $1.95 billion.

The IOUs, which are earning an annualized tax-free interest rate of 3.75%, have a redemption date of Oct. 2. But under Chiang’s plan, IOU holders would be able to redeem them beginning Sept. 4, if the state’s Pooled Money Investment Board goes along with the controller's recommendation when it meets Aug. 21.

-- Tom Petruno

Photo: Controller John Chiang. Credit: Rich Pedroncelli / Associated Press

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