City not affected by state IOUs

Cash-strapped California stepped up its use of IOUs yesterday, a major concern to the county but less of an issue for the City of Sonoma. According to the city manager’s office, Sonoma receives most of its state support through special funds – not the IOU-generating general fund – which will continue as quarterly cash payments.
“IOUs are not really a concern right now,” said Carol Giovanatto, Assistant City Manager/Administrative Services Director. “We get almost nothing from the state from the general fund. This will not have a major operational effect. The city has positioned itself financially to weather a short period of unknowns.”
Most payments to Sonoma by the state are earmarked to fund specific projects – a percentage of vehicle license fees and gas taxes going towards transportation and street improvements, for example. These will continue, Giovanatto said.
“Cities are not affected as much as counties,” she said, which are responsible for maintaining an array of health, welfare and social services. Sonoma County will have the burden of maintaining those programs without the usual cash reimbursement from the state.
The biggest concern for the City of Sonoma is that the state, still looking to close a $26 billion dollar budget deficit, will seize (via a “mandatory loan”) a portion of property tax revenue. The total hit to the city budget could be as high as $400,000. “If they go after the property tax, it will have a major effect on the city,” Giovanatto.
The state’s plans hinge on getting the final property tax revenue figure from the county, which is later than usual in the budgeting process. “You can’t fault the county,” said Giovanatto. “They are inundated with reassessments and foreclosures.”
Once that figure is in, the state is expected to grab 8 percent of it. That finality will then allow Sonoma to proceed with its own budget, which as of July 1 has been operating under an interim expenditure plan.
Hopefully that will be the last state raid on city funds, if only because Sacramento is running out of options. “They’ve pretty much already grabbed it all,” remarked Giovanatto.
As for IOUs to businesses and individuals, the process started last week with the mailing of IOUs in lieu of state tax refunds. All state IOUs – some $3.4 billion to be issued this month – carry an interest rate of 3.75 percent, payable as of Oct. 2.
If you want to cash that now, hurry: major banks such as Bank of America, Chase and Wells Fargo have announced, at the corporate level, that they will cash IOUs for customers only through today, July 10. Sonoma Bank will not accept the IOU, a spokesperson said.
After today, recipients will have to wait until the October 2 payout date – if the state has enough money then to meet its obligations. Even then, beware of trading or selling the IOUs without documentation. According to the treasurer’s office, state’s IOUs won’t be cashed without a notarized receipt signed by the payee named on the note.