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The need for the IOUs rose during California's recent budget crisis, in which the state's deficit reached $24.3 billion. State officials have said that 28,742 IOUs worth $53.3 million will be printed.
State Controller John Chiang has also said that his office is prepared to issue $3.3 billion in IOUs in July, the bulk of which will be issued to Californians waiting for income tax refunds. Local governments will be issued IOUs as well.
Neither the interest rate nor the maturity date for the IOUs has been set, but it is estimated that the maturity date will fall in October. Under California state law, the IOU interest rate can range from zero to five percent.
Bank of America (BAC | Quote | Chart | News | PowerRating) issued a statement Wednesday, saying that it would accept the California IOUs from its customers through July 10.
"To support our customers, while giving the government additional time to pass a budget, we will accept California state-registered warrants--or IOUs--from existing customers and clients," Bank of America said.
On Wednesday, California governor Arnold Schwarzenegger declared a fiscal state of emergency after the state legislature could not present a solution to address the full deficit.
Under the declaration, 235,000 state employees will receive a third, unpaid furlough day each month. The third furlough day will result in a total pay cut of 14 percent to state workers this year.
The declaration also dictates that the state legislature has 45 days to solve the deficit. If they cannot pass a solution in 45 days, they cannot adjourn or act on any other bills until they do so.
On Tuesday the California Senate rejected three bills that were designed to save $5 billion dollars, and the deficit is now expected to grow because of the legislature's inaction. The deficit is now estimated to be as much as $26.3 billion.
Republican lawmakers in the Senate blocked the bills with Schwarzenegger's support. Schwarzenegger promised in June that he would not sign any legislation that did not address the entire deficit.
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