CA to issue IOUs instead of tax refunds?

SACRAMENTO (KABC) -- California has been operating for 61 days without a new budget. State officials say California's financial situation is so serious that taxpayers may receive IOUs instead of refund checks on state taxes.

Hoping to get her state income tax refund as soon as possible, Akisha Marshall is getting a jump start on her filing. The single mom depends heavily on her refund.

"It's just like a job check," said Marshall.

Last year, 2.7 million people got their state refund in February, totaling $2 billion. But Marshall and other Californians may have to wait for their refund this year. The state will run out of cash next month. And it is at the point where the Controller will have to issue IOUs to pay the bills, including state tax refunds.

"An IOU is a registered warrant issued on behalf of the state's treasury that lets the individual receiving the IOU know that they will receive their funds at a later date," said Jacob Roper, State Controller's Office.

Roper says the state does not know how much later those funds will come through.

State lawmakers recently came back from a long holiday break to continue budget negotiations. Republicans still don't want to raise taxes, and Democrats don't want deeper cuts to social programs. However, both agree that IOUs are a terrible option. The state issued them only once since the Great Depression.

"It's a horrible thing. It is morally irresponsible for us not to have an agreement," said Assemblywoman Noreen Evans (D-Santa Rosa).

"I think that that's a terrible prospect. Obviously, I don't want to see it," said Assemblyman Roger Niello (R-Sacramento).

Akisha Marshall doesn't want to see the IOUs happen either.

"My landlord isn't going to take it. The utility companies aren't going to take it. It just isn't good," said Marshall.

Taxpayers can't issue the state an IOU, so some may be wondering if an IOU is fair at all.

If the state has to issue IOUs, the money owed to you will earn interest. It's too early to tell what the rate would be, but it could go up to 5 percent.

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