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Smyth wants IOUs to count for something

Posted: July 2, 2009 10:03 p.m.
Updated: July 3, 2009 4:55 a.m.
 
With California beginning to issue IOUs on Thursday to cover the state's obligation, a local assemblyman suggested the state accepts IOUs as payment for state services.

The state was forced to begin issuing IOUs after the California Senate failed to pass a balanced budget by 11:59 p.m., on Tuesday. The IOUs will be used to pay businesses that contract with the state, income tax refunds for individuals and businesses, state financial aid to college students and social services.

Several banks have yet to decide whether to honor the IOUs and the state itself won't reimburse the "rubber checks" until Oct. 30.

State Assemblyman Cameron Smyth, R-Santa Clarita, proposed a bill on Wednesday to allow those issued IOUs to pay the state with the same "rubber checks" the state is distributing.

"The bill would allow anyone who received an IOU to use it to pay any state fees or taxes they incur," he said.

Under the Smyth plan, Californians who are issued IOUs can use them to pay franchise tax board fees, college tuition, income tax or department of motor vehicle fees.

Smyth proposed the bill after the state decided to issue IOUs and said his bill is about fairness to the taxpayers.

"We feel if the state is going to issue IOUs, the state should accept those very IOUs they distributed as payment," he said.

Carole Lutness, 38th Democratic Central Committee chairwoman, expressed uncertainty about Smyth's proposed bill on Thursday.

"It sounds reasonable, but we have to make sure the budget is passed and the state's in a sound fiscal position by October," she said. "We need to make sure no one is stuck holding an IOU that's worthless."

Accepting the IOUs as payment for service will reduce the state's interest payments on the IOUs, Smyth said.

The interest payment on the IOUs was set at 3.75 percent on Thursday.

After legislators failed to pass a budget, Schwarzenegger declared a fiscal emergency. At a press conference Thursday, Schwarzenegger said he would not sign any bill that comes to his desk unless it pertains to the budget.

"It steps on the turf of the people they want to protect," Schwarzenegger said about the failed budget and the printing of IOUs. "At some point, it has to be Judgment Day. Who do we protect?"

Under the fiscal emergency order, if the Legislature fails to solve the deficit within 45 days, it cannot adjourn or act on other bills until the crisis is resolved.

Meanwhile legislators including Smyth headed home for the Independence Day weekend. Legislators are on call in case a compromise can be reached during the holiday weekend.

Smyth said reconvening the state Assembly or the Senate is up to the Democratic majority. But whatever the Democrats decide, Smyth wants to get the job done.

"There's no need to go back up for drills. We know how to pass a budget, let's do it," Smyth said.

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