The California State Government yesterday started printing IOUs worth about $US53 million ($NZ82.6 million) that will be sent out mostly to residents awaiting their tax funds.
The IOUs have a coupon rate of 3.75% and are due for redemption in October.
Some banks have agreed to take them on behalf of their customers.
If recipients - likely to be the elderly, beneficiaries, state employees and suppliers of services to the state - cannot find a bank to redeem them, they will have to hold the IOUs until October 2 and hope California has enough money by then to honour the interest rate.
As hard as it might be to believe, California is due to run out of money by the end of the month; as political stand-offs prevent Governor Arnold Schwarzenegger from finally approving a budget designed to cut spending and close a $US26 billion hole in the economy.
State financial officials set the interest rate for the IOUs at 3.75% for banks and other financial institutions that are willing to accept the vouchers.
Some banks have agreed to honour the paper, including Bank of America and Wells Fargo - they will do so until July 10, in the hope state legislators can solve their impasse.
Harlan Christianson, an environmental engineer from Los Angeles, told the Otago Daily Times by telephone most of his friends and colleagues had been expecting the IOUs to be printed this week.
"They don't care too much about the IOUs; but we think the Republicans are operating under false pretences," he said.
The Democrats, which lack a two-thirds majority in the State Capitol, had proposed small tax increases and a rise in car registrations to help balance the budget, he said.
Governor Schwarzenegger vetoed those measures, instead proposing deep cuts to government services and the elimination of some health and welfare programmes, Mr Christianson said.
Democrats said they would not budge from holding the most severe proposed cuts at bay, but Republicans said they would stand fast against any new taxes, and complained the majority Democrats did not let them participate as a joint conference committee at the latest budget proposal.
"There is a feeling about a lack of understanding how the Government is operating.
The politicians are taking advantage of public ignorance for short-term political gains," Mr Christianson said.
Anyone who provided work for the state was likely to be paid in IOUs as cash dried up.
Mr Christianson did not do much work for the state and was not expecting to see many of the IOUs come through his accounts.
Some of the banks had been reluctant to take part because they felt it would give the state "permission" to extend the programme, Mr Christianson said.
California's infrastructure had been left to run down for 30 years.
It was starting to show.
Cutting expenditure would not fix it, Mr Christianson said.
With the California economy hobbled, tax receipts falling and the budget deficit continuing to swell, Mr Schwarzenegger declared a fiscal emergency and ordered state workers to take a third unpaid furlough day each month.
He also issued a new list of cuts to schools and public universities, to address a deficit that his finance team now says has swelled to $US26.3 billion.
