The state was sued today over those hundreds of millions of dollars of IOUs it's been issuing since early July.
Nancy Baird, a small-business owner from the San Luis Obispo area, filed a class-action suit against State Controller John Chiang and State Treasurer Bill Lockyer, saying the IOUs are unconstitutional.
The suit, filed in U.S. District Court in San Francisco, demands that the state stop issuing any more IOUs and immediately redeem the notes issued so far. Even though Gov. Arnold Schwarzenegger signed the new budget agreement into law Tuesday, the state has said it will keep issuing the IOUs for the time being because of cash shortages.
Baird says she was stuck with $27,752 in IOUs for embroidered shirts she produced for a California National Guard youth camp.
More than $1.1 billion worth of IOUs have been issued so far to state vendors, taxpayers who are owed refunds, and local governments that use state money to deliver various social services.
Tom Dresslar, a spokesman for Lockyer, said the treasurer understands vendors' frustration but the IOUs are legal.
Meanwhile, the city of Sacramento said today it has bought $2.5 million worth of IOUs. The city set aside $10 million to buy IOUs from city residents and businesses.