Are Dentists Expected to Accept Bankrupt States’ IOUs for Dentistry?

You’ve probably heard that California is broke. Curious about what a state-sanctioned IOU looks like?

Find out how the State asked our editor for a $28 loan, offering as repayment a “Registered Warrant,” also known as an IOU — that is, an uncashable check.

These IOUs are going out to state employees as paychecks, and to taxpayers in lieu of cash refunds, but many banks are not accepting them as payment.

I Hope My $28 Loan Is Keeping California Afloat

The official-looking piece of mail from the State of California was impossible to ignore. Inside were two ominous words I had never expected to apply to me: “Registered Warrant.”

But the only crime I had committed was living in a state that had officially gone broke.

“Due to the State of California’s severe cash crisis, your payment is being made with the enclosed registered warrant, also known as an IOU,” read the letter signed by the State Controller.

It looked like a check for $28.18, but it wasn’t. “This REGISTERED WARRANT will be honored on or after 10/02/2009,” it read. (See the actual document)

The letter explained more:

A registered warrant is a “promise to pay,” with interest, that is issued by the State when there is not enough cash to meet all of the State’s payment obligations. Registered warrants are legally negotiable documents that bear a maturity date of October 2, 2009. IOUs may be redeemed, with interest, by the State Treasurer on or after October 2, 2009. If the Pooled Money Investment Board (PMIB) determines there is sufficient cash available for redemption at an earlier date, they may be redeemed earlier than October 2, 2009. These IOUs are issued in the place of regular warrants, or checks. The interest rate, set by the State Pooled Money Investment Board on July 2, 2009, is 3.75% per year.

Some financial institutions may choose to accept IOUs before the maturity date. If your financial institution honors the IOU, you may “cash” the warrant as you would any other check. Contact your financial institution to determine its policy on accepting IOUs.

If your financial institution will not accept the registered warrant, you may hold the IOU until it matures and then be paid the full face value of the warrant, plus interest. To receive interest, warrants should be presented in person or by mail on or after the maturity date of October 2, 2009, to the State Treasurer’s Office at 915 Capitol Mall, Sacramento CA. If the PMIB sets an earlier date for redemption, IOUs may be redeemed with interest on that date.

More information about IOUs is available at the Controller’s Web site at www.sco.ca.gov. The Web site will be updated as new information becomes available. You may also call the Controller’s Registered Warrants Assistance Line at 1-866-267-4255. I regret the inconvenience this causes and appreciate your understanding as I try to manage the worst cash crisis since the Great Depression.

STATE CONTROLLER

I’m lucky, really; I can afford to wait a few months for my $28. People are getting these as paychecks, which is a genuine crisis for many families. But it merits mentioning how the state came to owe me $28.

The previous month, I’d received another letter from the State. “We revised your California state income tax return for the 2008 year,” it informed me, telling me I owed the State an estimated tax penalty of $28.18. (See the document)

I didn’t understand why, but I was hardly going to make a fuss over such a nominal amount. I sent California a check for $28.18, which the state cashed in June.

Come July, they decided they were mistaken about the tax penalty. But they can’t send me an actual check, just an IOU they say will be good in October.

So apparently I’m loaning the state $28 for a few months… Hopefully that will be enough to pull us all through, right?

So the next real question is this: would you accept an endorsed “Registered Warrant” from a bankrupt state government as payment for dental treatment in your practice? Watch for Friday’s survey!

About Jim Du Molin

+Jim Du Molin is a leading Internet marketing expert for dentists in North America. He has helped hundreds of doctors make more money in their practices using his proven Internet marketing techniques.

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