State vendors stressed about IOUs

July 1, 2009 5:19:32 PM PDT
California's budget problem now becomes a financial issue for thousands of state vendors who will be paid in IOU's. But, that promise of payment by the state does not help cover their costs.

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Some business owners are unhappy.

Arthur McCoy and his son Clint sell potatoes to 38 of the state's prisons and correctional facilities, from tater tots and potato wedges, to crinkle-cut French fries. But, the next time they send out an invoice they are expecting to get an IOU.

"It's definitely going to put a kink in our cash flow because our suppliers are still going to want to be paid. They're not going to accept an IOU from me," Clint told ABC7.

Their company, French Fry Xpress, has been a state contractor for 16 years. They will not deny food to the inmates but it is taking money out of their pocket.

"We'd much rather have our money in a timely manner than sit there and get penalty fees. But yeah, we are floating the loan," Clint said.

Sacramento auto mechanic Jim Spuehler is facing a similar problem. He does repairs on state-owned vehicles.

"We have expenses on paying the hourly rates for our mechanics. Then, we have expenses for parts and pieces," he told ABC7. "Somebody has to pay those bills and so they come out of our pocket. And, in turn we expect to get it back from the state and an IOU doesn't pay those bills."

It is up to banks whether to accept the IOU's. They are technically called "registered warrants." The last time they were issued was in 1992. State Controller John Chiang plans to start printing them Thursday afternoon.

"It's a joke. I mean, it's a joke," Clint said.

This is a huge problem for the state's vendors. The list is 90 pages long and involves thousands of companies stretching from Oregon to the Mexican Border.

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