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Market for State IOUs Bullish in LA County

July 30, 1992

LOS ANGELES (AP) _ The treasurer of Los Angeles County has found an unusual investment: state government IOUs that promise a better rate of return than most banks.

″A 5 percent rate of return is a reasonable investment, so we’re holding,″ said Maureen Oster, development officer for the Treasurer-Tax Collector’s Office.

Ms. Oster said the county has not deposited $100 million in warrants it was issued by the state and has purchased $175,000 worth of warrants from about 10 school districts.

She said 10 counties have contacted her office to discuss selling their warrants, which for now are being readily cashed by banks.

California’s budget deadlock reached a 29th day Wednesday, making it the longest in state history.

Republican Gov. Pete Wilson and the Legislature’s Democratic leaders can’t agree how to close an $11 billion shortfall in California’s $60 billion budget. While they wrangle, the state is paying bills and salaries with registered warrants, IOUs with a 5 percent tax-free interest rate.

With other short-term investments yielding as little as 3 percent, those IOUs look good to the county. It is buying them from agencies that cannot afford to hold the notes when major banks stop accepting the IOUs next month.

Karen Vogel, finance manager for Imperial County, said her county will run out of cash if the banks reject the warrants, as Bank of America, Wells Fargo and other large institutions have said they will do beginning Aug. 5.

″LA County would be our best bet″ for getting cash for the warrants, she said.

Dick Larkin, managing director of the bond rating firm Standard & Poor’s Co., said the idea of a market in California IOUs wasn’t surprising.

″It’s very likely something will develop because there’s a lot of paper out there,″ Larkin said.

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