California sued over its IOUs

SACRAMENTO, Calif. (MCT) — A California vendor sued state officials Wednesday for paying bills with IOUs, calling the notes an unconstitutional dead weight on small businesses everywhere.

The lawsuit, filed one day after Gov. Arnold Schwarzenegger signed a new budget agreement, highlights California's continued cash problems.

Despite the budget deal, State Controller John Chiang will continue issuing IOUs to pay certain bills until he's convinced the state has sufficient cash, said his spokeswoman, Hallye Jordan. Since July 2, Chiang has disbursed more than 222,000 IOUs worth a combined $1.1 billion to vendors, taxpayers owed refunds and local governments that deliver social services with state dollars.

The lawsuit by Nancy Baird, who owns a small business in the San Luis Obispo area, seeks class-action status on behalf of all IOU recipients.

Baird, who received an IOU for $27,752.16 to pay for embroidered shirts she produced for a California National Guard youth camp, is demanding that the state stop issuing IOUs and immediately redeem the notes issued so far.

The state has said it will redeem all IOUs by Oct. 2 at an annualized interest rate of 3.75 percent. Baird's suit, though, referred to her IOU as "a worthless piece of paper."