BILL ANALYSIS Ó
SENATE COMMITTEE ON BUDGET AND FISCAL REVIEW
Mark Leno, Chair
Bill No: AB 103
Author: Committee on Budget
As Amended: May 2, 2012
Consultant: Keely Martin Bosler
Fiscal: Yes
Hearing Date: May 3, 2012
Subject: Cash Management.
Summary: These amendments provide the necessary statutory
changes in the area of cash management and cash deferrals
in order to ensure sufficient cash reserves during the
2012-13 fiscal year.
Background: Since 2010, the state has employed a version
of the intra-year deferrals of major cash payments to
schools, universities, and counties in an effort to
conserve cash resources and manage the external cash
borrowing necessary to ensure the solvency of the state.
Proposed Law: This trailer bill contains the following
major amendments related to cash management. Most of the
payment deferrals proposed for 2012-13 are similar to
deferrals approved last year for 2011-12. However, the
deferrals to K-12 schools are significantly less than they
have been in prior budgets.
1. Scheduled Deferrals - General. Authorizes General
Fund payments to be deferred starting in July 2012,
October 2012, and March 2013, except as specified
below. The deferrals can be made for no more than 60
days, 90 days, and 60 days, respectively. These
deferrals may be triggered off or repaid early, in
whole or in part, at such time as the State Treasurer,
State Controller, and Director of Finance determine
sufficient cash reserves are available. The deferrals
can be moved forward to the prior month or delayed to
the subsequent month. However, the Joint Legislative
Budget Committee must be notified before changes can
be made. The following General Fund payments are
subject to the deferral criteria outlined above along
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with the more detailed payment-specific criteria
listed below:
Supplementary Security Income/State
Supplementary Payments . Permits up to three
deferrals of payments to the federal government
for Supplementary Security Income/State
Supplementary Payments (SSI/SSP) benefits .
Local Governments. Permits deferral of
social services and other payments to cities,
counties and local governments not to exceed $1
billion. This may include deferral of CalWORKs
assistance payments and other social services
costs. The Administration has stated that it
does not anticipate resulting delays to
beneficiaries' receipt of assistance payments.
Payments to counties or cities with a population
of less than 50,000 shall not be deferred.
1. Scheduled Deferrals - K-12 Education.
Schedules a specific deferral plan for
payments to K-12 local educational agencies
(LEAs) :
$1.2 billion shall be
deferred in July 2012.
$600 million shall be
deferred in August 2012.
$800 million shall be
deferred in October 2012.
$700 million of the deferral
made in July 2012 shall be paid in
September 2012.
The remaining $1.9 billion of
the deferrals made in July, August, and
October 2012 shall be paid in January 2013.
$900 million shall be
deferred in March 2013 and repaid in its
entirety in
April 2013.
Includes a hardship waiver process for
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LEAs who might not be able meet financial
obligations if payments are deferred. In order
to be eligible for a hardship waiver, LEAs would
need to qualify for an emergency apportionment.
1. Payment Smoothing. Modifies higher-education
payments to smooth payment over the fiscal year.
University of California - Authorizes the
State to pay only one-twelfth (1/12) of the UC's
annual appropriation each month between July 2012
and April 2013. After April 2013, there are no
limitations on payments within the UC's
appropriations limit.
California State University - Authorizes
the State to pay only one-twelfth (1/12) of the
CSU's annual appropriation each month between
July 2012 and April 2013. After April 2013,
there are no limitations on payments within the
CSU's appropriations limit.
1. Other Deferrals and Adjustments.
California Community Colleges -
Authorizes the deferral of a $150 million payment
from July 2012 to December 2012. Authorizes the
deferral of a $50 million payment from September
2012 to January 2013. Authorizes the deferral of
$100 million from October 2012 to January 2013.
Includes a hardship clause to exempt those
community college districts that cannot raise
funds to cover their necessary expenses during
those time periods.
California State University. In addition
to the payment smoothing, authorizes deferral of
a $250 million payment to the CSU with repayment
mandated in April 2013.
1. Authorize Cash Flow Borrowing from Additional
Special Fund. This bill adds one special fund to
those eligible for cash flow borrowing. Most special
funds are already eligible for cash flow borrowing,
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except where prohibited by the Constitution. The fund
is the Litigation Deposit Fund.
Fiscal Effect: This bill continues a similar cash deferral
schedule employed by the state in the last two years. This
bill helps the state avoid insolvency and ensure that
payments are made in a timely manner. This avoids
significant future costs related to interest and damages
that could be owed if the state failed to pay its bills.
Furthermore, it also reduces the state's external borrowing
costs to a manageable level, thereby saving the state
millions of dollars in borrowing costs.
This bill may have an unknown effect on the short term cash
management costs of schools, colleges, and local
governments.
Proposed Amendments: Proposed amendments would require the
California Department of Education (CDE) to recertify final
June apportionment payments for 2011-12 to account for
additional RDA-related property tax remittances received
through June 10, 2012. Because June apportionment payments
are currently deferred until July, this change would delay
certification of the second principal apportionment from
July 2, 2012 to July 15, 2012.
In effect, these amendments would require CDE to count
about two extra weeks of RDA-related property taxes that
would offset state June apportionment payments, which are
currently deferred until July. In counting these
additional property taxes, the state can avoid costly
overpayments.
Support: Unknown.
Opposed: Unknown.
Comments: The state is currently facing a budget shortfall
of around $10 billion. It is likely that the official
estimate of the budget shortfall will widen on May 14,
2012, when the Governor proposes the May Revision and
updates his revenue forecast. Recent revenue trends have
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indicated that the state is on track to take in $3 billion
less than the Governor assumed in the January budget.
Given this, the state is projected to continue to have
months in which cash flow is constrained. The deferrals
proposed in this bill help to alleviate the cash
constraints and ensure state solvency.
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