BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 1494
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          Date of Hearing:   August 4, 2010

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                Felipe Fuentes, Chair

           SB 1494 (Committee on Revenue and Taxation) - As Amended:  June  
                                      21, 2010 

          Policy Committee:                             Revenue and  
          Taxation     Vote:                            9-0

          Urgency:     No                   State Mandated Local Program:  
          No     Reimbursable:              

           SUMMARY  

          This bill requires the Board of Equalization (BOE) to accept  
          registered warrants in lieu of cash payments for tax-related  
          obligations, and makes numerous other changes to the tax laws it  
          administers. Key provisions of the bill:

          1)Require the BOE to accept a state-issued registered warrant as  
            a payment for any tax, surcharge, or fee obligation owed to  
            BOE, provided that the warrant has been issued directly to the  
            entity making the payment.

          2)Adds a trustee to the list of persons who can file claims for  
            the parent-child and grandparent-grandchild "change in  
            ownership" exclusion claims on behalf of eligible transferors  
            and transferees, and authorizes a trustee to inspect otherwise  
            confidential claims for the exclusion previously filed. 

          3)Establish a general provision to preclude assessors from  
            revoking homeowners' exemptions for disaster-affected property  
            upon a declaration of disaster from the Governor, thereby  
            avoiding the need for special purpose legislation for each  
            individual disaster.

          4)Extend the use of the existing assessment valuation  
            methodology for inter-county pipeline rights-of-way that is  
            otherwise scheduled to sunset on January 1, 2011.

          5)Make numerous other changes that clarify existing law, delete  
            outdated provisions, and correct erroneous cross references in  
            existing law related to the taxes and fees the BOE  








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            administers. 

           FISCAL EFFECT  


          1)The provision requiring acceptance of registered warrants  
            would have unknown, potentially moderate impacts on the  
            state's cash flow situation.

             a)   The BOE currently has discretion to accept registered  
               warrants in lieu of cash payments, and in fact accepted $7  
               million in such warrants last year. The effect of this bill  
               would be to make a discretionary act mandatory, regardless  
               of the consequences for the state's cash-flow situation.

             b)   Any loss in cash payments resulting from acceptance of  
               IOUs will require the state to issue additional IOUs to  
               make up for the additional cash shortfalls that result. In  
               extreme circumstances (involving much larger issuances of  
               IOUs than in the past), the loss of cash could affect the  
               ability of the state to make priority payments for debt  
               service or other purposes.

          2)The revenue and cost impacts of the remaining provisions are  
            negligible.

           COMMENTS  

           1)Purpose.  This bill, sponsored by the BOE, is intended to  
            improve the administration of property tax laws to help both  
            taxpayers and tax administration agencies and to codify BOE's  
            existing administrative practice and procedures related to the  
            transfer of real property from parents to children and to the  
            base year value transfers.  According to the author, this  
            measure contains only items with universal agreement; items  
            that are controversial or problematic will be removed from the  
            bill. 

           2)Background - registered warrants  .  While most provisions of  
            this bill are technical and clarifying in nature, the  
            provision mandating acceptance by BOE of registered warrants  
            in lieu of cash represents a potentially significant change in  
            policy. In normal times, the state issues warrants to satisfy  
            its obligations to vendors, contractors, hospitals, workers,  
            and other entities. Warrants are the government equivalent of  








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            checks, and are issued by the Controller.

            During periods of serious cash shortfalls, the state may have  
            to issue of registered warrants. This occurs when, after  
            ranking all of the state's obligations and setting aside all  
            money that must be set apart for higher ranking obligations,  
            the controller determines that there are insufficient funds to  
            pay a warrant. In this case, the warrant is registered, and  
            the state promises to pay the face value as soon as money is  
            available.  Under the California Government Code, registered  
            warrants are legal investments for funds of all banks and are  
            negotiable instruments. Registered warrants bear interest at a  
            rate fixed by California law from the date of registration to  
            the date of maturity, or the date upon which the California  
            Treasurer advertises that they are payable upon presentation  
            if they bear no date of maturity.

            Under current law, the Franchise Tax Board is required to  
            accept state-issued registered warrants in satisfaction of  
            taxpayer obligations to the state. In July, 2009, the Board of  
            Equalization voted to accept registered warrants in  
            satisfaction of obligations associated with tax programs it  
            administers. DMV and most other agencies, however, do not  
            accept registered warrants in lieu of cash. Also, AB 1506  
            (Anderson), currently in the Senate Appropriations Committee,  
            would require that all state agencies accept registered  
            warrants in lieu of cash, but only if the state controller  
            determines that their acceptance will not have negative  
            consequences for the state's cash-flow. 

           3)Trade-off  . While addressing potential inequities related to  
            individuals that have received registered warrants and owe  
            money to the state, from a broader perspective, the main  
            effect of allowing payment with registered warrants is simply  
            to shift IOUs from one entity to another. Given the dire  
            circumstances leading to IOU issuance by the state, any  
            reduction in cash payments by one taxpayer will have to be  
            made up through additional state payments of registered  
            warrants to other entities. Given that the controller ranks  
            payments according to priorities, the additional warrants  
            will, by definition, go for higher priority payments. In  
            extreme circumstances, mandatory acceptance of IOUs by the BOE  
            could adversely affect the state's ability to make higher  
            priority payments. 









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           Analysis Prepared by  :    Brad Williams / APPR. / (916) 319-2081