Incorrect. If I am the state of California and you are a bondholder to whom I owe $1 in daily interest, which must be paid in cash, accepting IOUs in the form of tax receivables doesn't reduce my debt to you at all.
Taking them in reduces the liability 9and thus the interest payable) on the outstanding IOUs, which I agree looks like a good thing. Thing is that California needs the cash now whereas it has invoked its authority to pay on the IOUs later, because the state's contractual promises to its bondholders are more onerous than the promises it makes to its suppliers.
Unfair? Sure. States need cash more than they need goods, so they give better terms to suppliers of liquidity than they do to suppliers of goods and services.
Taking them in reduces the liability 9and thus the interest payable) on the outstanding IOUs, which I agree looks like a good thing. Thing is that California needs the cash now whereas it has invoked its authority to pay on the IOUs later, because the state's contractual promises to its bondholders are more onerous than the promises it makes to its suppliers.
Unfair? Sure. States need cash more than they need goods, so they give better terms to suppliers of liquidity than they do to suppliers of goods and services.