Alameda County officials said they are worried that IOUs, issued by the state for the second time since the Great Depression, could have a crippling effect on local, state-funded public assistance services.

Due to a $3 billion cash shortage and budget deadlock, the State Controller's Office has distributed 29,000 registered warrants, or IOUs-totalling $53 million-instead of regular checks.

According to the State Controller's Office, $64 million in IOUs will be issued to county governments in July for welfare, mental health and drug and alcohol programs.

However, other payments to services such as Medi-Cal are protected by federal law and will continue to be paid by check.

While many major banks like Bank of America, Wells Fargo and Chase have announced that they will accept IOU deposits from customers up until July 10, recipients may not be able to exchange their IOUs for cash after that date.

In a memo to state legislators, Jim Wiltshire, deputy director of the California State Association of Counties, called the issuance of IOUs a "crisis" for counties.

He estimated the delay in payment could cost counties $776 million in July.

The office of Keith Carson, Alameda County District 5 supervisor, issued a strongly-worded press release

Thursday, entitled "Hasta La Vista, Baby," which decried the IOUs for potentially limiting county services.

"We're the safety net," Carson said in an interview. "We're where people go when they have no place else to go."

Recipients may redeem IOUs with an additional 3.75 percent annual interest rate after Oct. 1, or earlier if a state board says California has enough cash.

According to California State Controller John Chiang, California will be facing a projected $3 billion cash deficit by the end of July, which will keep the state from paying its bills on time.

In addition to the state's drained cash accounts, California is also facing a $26.3 billion budget shortfall.

Carson said that IOUs posed a greater risk to small organizations than they did to the county, which had larger cash reserves.

"The IOU is something the county could absorb for a short time, but the community-based organizations won't be able to," he said.

According to Beth Newell, project analyst for the Alameda County Health Consortium, IOUs, on top of budget cuts and the economic crisis, create a significant challenge to smaller organizations.

"This is a further complication in an already stressful situation," Newell said. "(IOUs are) a limit on our ability to see patients at a time when we should be expanding services."

Marty Lynch, CEO of LifeLong Medical Care, a program which operates community clinics in Berkeley and Oakland, said he would try to get the program's bank to accept the IOUs, but that in the past it had not accepted them.

The last time California issued IOUs was 1992, when the legislature went 61 days past the start of the fiscal year before passing a budget, according to H.D. Palmer, spokesperson for the California Department of Finance.

In addition to his concerns about the IOUs, Carson said he was also worried about losing sources of county revenue to the state.

In an attempt to close the state's now $26.3 billion budget deficit, legislators are considering borrowing gas and property taxes from the state to be paid back with interest in three years.

In Sacramento, five days after the new fiscal year began, state legislators are continuing to negotiate on the state budget.

At a press conference in San Francisco on Friday, Governor Schwarzenegger urged Californians to demand a balanced budget from their representatives.

"I think everyone basically wants to get this done," Schwarzenegger said. "Look, no one, Democrats or Republicans, don't want to have IOU's out there. They don't want to have the whole world watch us go through these real difficult times."

Tags: ALAMEDA COUNTY BOARD OF SUPERVISORS, CALIFORNIA IOUS