I don't understand your first paragraph. Taking their own IOUs is equivalent to reducing the debt. The problem is that they effectively want to borrow money against the IOUs for free, by refusing to accept the IOUs as tax payments.
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 piece meal as taxes would do the same thing, more slowly.