Monday, July 13, 2009

Fighting Back on the California Budget Mess

I don't normally give financial advice in this column, but California's budget mess provides a perfect opportunity to take personal action to protect your finances in a way that also sends a political message. As you may be aware, the State of California is actually bankrupt, and has started issuing IOUs, except that they are called "registered warrants." Here is a little Q&A from my financial institution:

Q. What is a state-registered warrant? How is it different from other warrants or checks issued by the State of California?

A. State-registered warrants are essentially IOUs that are serialized and distributed to customers in lieu of actual payment. They can be deposited only at financial institutions who agree to receive them. California-registered warrants will be identified with "REGISTERED" printed on the face of the warrant and a special endorsement stamp on the reverse side. Both the issue and the maturity date will appear on the warrant. Registered warrants bear interest and are redeemable by the State Treasury only when the General Fund has sufficient money.

Q. Who is impacted by State of California's registered warrants?

A. At this time, the state has indicated it will issue registered warrants to state business vendors, local governments, for tax refunds and certain others. We understand that state employees will not receive registered warrants at this time. For more specific details about the state's plans, please visit the state treasurer's Web site ( or call the treasurer's registered warrants hotline at 1-888-864-2762
Here is where the personal collides with the political. Note that not all banks are accepting these IOUs. Note also, that tax refunds are among the categories of checks that are no longer being issued by the state. So even though a taxpayer has overpaid the state, he or she won't get a refund. In response, I have significantly changed my state withholding and urge everyone I know to do the same. This way, you won't lose out next year when the state is unable to pay you the refund you are owed. Further, this will starve the state government of cash now, putting more pressure on them to solve this budget crisis. I count on the Republicans to hold steady against new taxes (I could get burned, I know) so this is an opportunity to force spending cuts on our bloated state government. If you are nervous about having to pay a big tax bill next April or you count on that refund, I suggest that you increase you federal withholding by the amount you decreased your state withholding. The Feds will just print enough cash to cover your refund, so no worries there. The other worry is that you might underpay by too much and incur a penalty. Since I don't know your personal tax situation, you'll have to work that one out on your own. I have typically overpaid every year, so my course of action was an easy decision to make.

Hope my readers find this advice helpful. It is an easy quick way to fight back, that might save you some grief down the road.

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