The following article, part of CU Journal's July 13 Bonus Content, is an extended version of the way it appeared in print.
SANTA ROSA, Calif. — Several of California's credit are now accepting "registered warrants from the state of California, a fact made notable when several large banks either refused to take the IOUs or imposed a short deadline on redemption.
Credit unions contacted by Credit Union Journal acknowledged there is some risk in allowing members to trade the registered warrants for cash-the state might not have money in its treasury on Oct. 2 when the IOUs come due-but they agreed member service is paramount.
California State Controller's Office is calling the registered warrants a "promise to pay." The warrents are issued by the state when there are not enough funds to pay all of its General Fund obligations. They are redeemable by the State Treasury only when the General Fund has sufficient money.
The warrants will not be issued in lieu of paychecks to state employees. The list of potential recipients is a short one, including private businesses that contract with the state, local governments, taxpayers receiving income tax refunds and owners of unclaimed property.
California will pay an interest rate of 3.75% annually until the warrant is redeemed. The scheduled maturity date is Oct. 2, but if the Pooled Money Investment Board (PMIB) determines there is sufficient cash available for redemption at an earlier date, they may be redeemed earlier.
Bank of America said it would accept the warrants only until July 10, a short window given the earliest the warrants could have been received by mail was July 6.
Among those accepting the warrants is Redwood Credit Union. Robin McKenzie, SVP of marketing and PR, said in addition to existing members, it would honor registered warrants from new members who "establish a financial relationship" with RCU-opening savings or checking accounts, online banking and direct deposit and/or online bill pay.
"I can't say why banks are making their decisions not to accept the warrants," McKenzie said. "Of course, given the state's financial situation there is no guarantee, but we feel this is a very important member service offering and we are prepared to assist our members."
Redwood CU issued a statement saying it would not impose a firm deadline on how long it would accept the IOUs, but would "continue to monitor and evaluate the situation as new information becomes available from the State."
Redwood CU had received a total of five warrants as of press time, all presented on July 8.
Jose Lara, SVP of organizational planning and development for Santa Ana-based SchoolsFirst FCU, told Credit Union Journal the credit union believes the state will honor the warrants in October.
"We analyzed our membership and decided we wanted to put our members' minds at ease," he said. "There is no hard deadline, but we did tell our members we would evaluate the situation over time. There is a risk of taking on an account receivable, but we took that risk on behalf of our members, and we have the liquidity to take that risk."
Ricki McManuis, SVP, corporate communications for Altura CU in Riverside, said the risk is worth it because the credit union is not expecting a large number of warrants to be turned in by its members.
"We are doing it because we want to be there for our members," McManuis said. "We are not doing it to generate more members, as people must be members to cash the warrants."
$908 million Altura CU is open to anyone who lives, works, attends school or worships in Riverside and San Diego counties, as well as selected cities in Orange and San Bernardino counties. It serves 110,000 members.
