State Workers Prepare to Get IOUs in Place of Paychecks : Budget crisis: The first notes, which most banks will honor, will be issued Wednesday. Employees say they’re not ready to panic--yet.

Thousands of state employees and welfare recipients in Ventura County were among those bracing themselves Monday to get paid with IOUs instead of their usual checks.

Unable to issue checks without a budget after midnight tonight, the state will be forced to issue promissory notes that nearly all banks in California have promised to cash--at least during July.

But if the budget goes unapproved much past July 31, some banks may cease to honor the state-issued IOUs, officials said.

State employees in Ventura County expressed shock Monday at the extraordinary measure, but said they are not ready to panic--yet.

“Wow, that’s amazing,” said C. L. Price, state lifeguard supervisor for the Channel Islands District, which covers the county’s shoreline. “I truly hope they get the thing signed and they get it solved before everything falls to pieces.

“I don’t know what people are going to do if they can’t make their mortgage payments,” Price said. “Pack their gear and walk away from their $150,000 homes? Say, ‘Sue me--sue my employer?’ ”

Budget delays have been common for years, said Lt. Richard Williamson, a veteran California Highway Patrol officer.

“But I’ve been on the job for 25 years, and this is the first time they’ve ever issued IOUs, to my knowledge,” Williamson said. “I’m prepared to survive without a paycheck for a while. Anybody with any sense has got that already set up. But it is a little unnerving.”

Hal Pittman, Ventura County treasurer-tax collector, explained the IOU plan.

“If you don’t have a budget, and it’s not practical to say, ‘We’re going to close the state down,’ you have to have a methodology to pay bills and pay payrolls,” Pittman said. “You’re kind of borrowing money, and there is no definite (schedule) on when it will be honored.”

The first IOUs, known as registered warrants, will be issued Wednesday to about 34,000 part-time employees statewide, said Ed Fong, a spokesman for the state controller’s office.

On July 15, welfare payments to the county Public Social Services Agency would begin coming in the form of the IOUs.

And by Aug. 1, full-time state employees would begin getting IOUs instead of paychecks, officials said.

County welfare clients, whose state and federal financial aid is passed through county agencies, will receive regular checks on Wednesday. But unless the state budget is passed, those clients will receive IOUs beginning July 15, said Helen Reburn, deputy director of income maintenance for the county Public Social Services Agency.

Nearly 1,500 elderly and disabled Ventura County residents who receive in-home care from state-funded programs also will be affected by the IOUs beginning July 15, said Barbara Fitzgerald, chief deputy public director of the county Public Social Services Agency.

IOUs will be issued to 793 individuals who receive state compensation for caring for the elderly and disabled, and to the county, which will cash them to pay for another 650 contracted home-care aides that it employs, Fitzgerald said.

By July 31, however, the banks will have honored an estimated $1.6 to $2.2 billion in state-issued IOUs, and may begin cutting back on the practice, officials said.

Then, the IOU recipients would have to wait until the budget is passed by the Legislature for their IOUs to be cashable, state spokesman Ed Fong said.

“Our understanding is that most major financial institutions, banks and credit unions have indicated they will accept registered warrants for their customers at no penalty, for 30 days or less,” Fong said. “They’ve given us a verbal contract.”

But even after reaping the 5% annual interest that the state pays to the bearer of its IOUs, the banks will barely break even, said Nancy Badely, spokeswoman for the California Bankers’ Assn.

“The bearer would get one-twelfth of 5%, which is .4%,” Badely said. “The industry’s saying that’s barely enough to cover the cost of figuring out how we’re going to deal with these. We may have to put in new processing systems or go to hand-processing to handle them.”

STATE BUDGET CRISIS: A3