Confusion among the staff of three Zions Bank branches in Orem, Bountiful and St. George over California's issuance of IOUs to cope with its budget crisis left several Utahns irate over their inability to cash checks from California at the bank.

On Friday, when Geoffrey Evans of Orem tried to deposit a retirement check his 90-year-old mother receives monthly from California State Teachers Retirement at Zions in Orem, it was rejected, supposedly because the bank staff were told to "not accept anything from California."

Cash-strapped California last Thursday began issuing IOUs rather than cash payments to its creditors after the state legislature failed to agree on a budget deal. The reason for the IOUs is California's $26.3 billion deficit. The state has been struggling with mass foreclosures and an 11.5 percent jobless rate, and lawmakers have not been able to agree on a balanced budget by cutting spending, raising taxes or both.

Without a balanced budget, the state controller's office says the treasury does not have enough cash to meet all its financial obligations. So IOUs are scheduled to go out to private contractors, state vendors, people getting tax refunds and local governments for social services.

But in Evans's case, his mother isn't getting an IOU, but a check from the California State Teachers Retirement program, which he said has its own portfolio of investments, and those have been sound so far. And until Friday, she has been able to deposit the retirement check for the past 19 years at Zions without any issues.

"I was told by the Orem manager that her supervisor had told her not to accept anything from California because it was out of cash, even after I told her it was a check, not an IOU. If Zions wasn't sure if the check was good, they could have offered to call the state to check, but they didn't bother to do that," Evans said.

In the end, Evans deposited the $2,500 check at Wells Fargo because his mother needed the money to cover her mortgage payment. "If we couldn't get any funds, that would have dinged her credit report, and caused problems with her mortgage," he said.

Rob Brough, executive vice president of marketing and communications for Zions, said there were five or six incidents since Friday in which customers weren't able to deposit checks from California because of confusion over the IOUs and checks issued by the state.

"It sounds like there was an error made at the branch level, and we're doing everything to correct it. It's a fairly new thing, and so there's a lot of confusion over which instruments from California were good or not good," he said. "The branches are now clearly trained on what instruments are accepted or not. If we have information on who the affected customers are, our branches are calling them back about the error they made and asking them to bring in their checks."

Unlike Wells Fargo, Bank of America and Chase bank, which are accepting California's IOUs from existing customers through July 10, Zions won't be accepting the IOUs until after Oct. 1, Brough said.

"We're not accepting the IOUs until after Oct. 1 because the IOU is valid only after Oct. 1," he said.

But Zions's affiliate, California Bank & Trust, will accept the IOUs because "of the size of their presence and the number of clients that may be impacted in California," he said.

The latest IOUs, called individual registered warrants, will be redeemable with interest in October by banks, individuals or anyone who still has them. The interest rate was set at 3.75 percent.

The IOUs look like regular state checks except they will be printed on darker green paper and bear the issue and maturity dates and the word "registered."

Bank of America will stop accepting IOUs after July 10 but will try to assist those customers in other ways, perhaps by waiving fees or making other arrangements on payments, bank officials said. Wells Fargo and Chase didn't elaborate on their plans for IOUs after July 10.

State Controller John Chiang, who plans to issue about $3.3 billion in IOUs this month along with nearly $11 billion in regular payments, began printing the IOUs on Thursday, marking the first time since 1992 the state has found itself in this position. The California crisis came as lawmakers in more than a half-dozen states wrestled with recession-wracked budgets.

"We're very disappointed, as are many Californians, that California has taken the unfortunate step of issuing IOUs in lieu of its payments to some businesses and individuals," Lisa Stevens, head of Community Banking for Wells Fargo in California, said in a statement. "We are reluctant to take this step, but are doing so to help our customers who are not at fault and with the expectation that the Legislature and Governor will complete the budget within days."

Chase said it would accept the IOUs as a courtesy to its customers.

"Banking involves risk management. We made the decision to accept the IOUs to help our customers through this challenging time," said Mary Jane Rogers, spokeswoman for Chase.

While describing California's move as a bold one, Howard Headlee, president of the Utah Bankers Association said the state is forcing banks and credit unions to wrestle with its financial problems, putting them in a "difficult situation with their customers."

"Is it the role of banks and credit unions to finance a state's deficit?" Headlee asked. "There's the cost of financing the debt and the risk we're taking that California will make good on the IOU. Am I going to give California a loan at 3.75 percent, obviously there aren't enough bond holders who think it is. And so California is asking banks and credit unions to finance its budget deficit at 3.75 percent for the next three to four months."

It's an interesting way to spread risk beyond its state borders, Headlee said. "But it puts us in a difficult situation with our customers. They are owed the money. But do the banks want to finance it?"

For more information on California's IOUs, visit the state controller's Q&A at www.sco.ca.gov/5935.html

The Associated Press contributed to this report.

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