State provides details on how the IOUs will work

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As California prepares to issue IOUs to pay many of its bills, Controller John Chiang‘s website has posted answers to 26 questions about the scrip, formally known as registered warrants.

A few key points upfront: The state won’t doesn’t have to redeem the IOUs before Oct. 2, and even that will be dependent on its cash situation; you may be able to redeem the IOUs at a bank before Oct. 2, but it’s up to individual banks whether they’ll take the scrip; the warrants will accrue tax-free interest on the amount owed at a 3.75% annualized rate.

So far, Bank of America and Wells Fargo say they will redeem the IOUs from their customers, but only through July 10.

State retirees as well as people receiving unemployment and disability insurance benefits will get their normal checks, not IOUs.

If the state has sufficient cash on hand, it could begin redeeming the IOUs before October.

Note: The Oct. 2 maturity date was just determined today; Chiang’s website may still show Oct. 1 as the date, but that will be updated.

Read Chiang’s full Q&A on the IOUs.

-- Tom Petruno