BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                   AB 103|
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                                 THIRD READING


          Bill No:  AB 103
          Author:   Assembly Budget Committee
          Amended:  5/2/12 in Senate
          Vote:     21

           
           SENATE BUDGET & FISCAL REVIEW COMMITTEE  :  9-3, 5/3/12
          AYES:  Leno, Alquist, DeSaulnier, Evans, Hancock, Liu, 
            Lowenthal, Negrete McLeod, Wolk
          NOES:  Emmerson, Gaines, La Malfa
          NO VOTE RECORDED:  Anderson, Fuller, Simitian, Wright

           ASSEMBLY FLOOR  :  Not relevant


           SUBJECT  :    State Cash Resources:  Budget Trailer Bill

           SOURCE  :     Author


           DIGEST  :    This bill provides 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.

           Senate Floor Amendments  of 5/3/12 (1) delay the year-end 
          apportionment payment certification process for about two 
          weeks to capture anticipated property tax revenues and 
          avoid state overpayments to K-12 local education agencies 
          (LEAs), and (2) allow eligible K-12 LEAs to receive a 
          payment deferral exemption without a year-end apportionment 
          certification.

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           ANALYSIS  :    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.  

          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 
               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 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 

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                 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 LEAs:  

                    o           $1.2 billion shall be deferred in 
                      July 2012.
                    o           $600 million shall be deferred in 
                      August 2012.
                    o           $800 million shall be deferred in 
                      October 2012.
                    o           $700 million of the deferral made in 
                      July 2012 shall be paid in September 2012.
                    o           The remaining $1.9 billion of the 
                      deferrals made in July, August, and October 
                      2012 shall be paid in January 2013.
                    o           $900 million shall be deferred in 
                      March 2013 and repaid in its entirety in April 
                      2013.

                     Includes a hardship waiver process for 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.  

          This bill requires the Department of Education (CDE) to 
          delay certification of 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 provisions 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.   

          This bill requires that exempted LEAs receive the amount of 

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          funds necessary for the LEA to meet its financial 
          obligations, regardless of whether that amount is greater 
          than the LEA's June apportionment.  (Under current law, 
          LEAs exempted from the June-to-July deferral receive the 
          lesser of (1) the amount of funds necessary for the LEA to 
          meet its financial obligations or (2) the LEA's June 
          apportionment, calculated based on CDE's P-2 
          certification.)  Since other provisions of the bill require 
          CDE to delay certification until July, updated 
          apportionments for each LEA would not be available for use 
          in reviewing deferral exemption requests.  This bill allows 
          the Superintendent and Director of Finance provide a 
          deferral exemption without updated P-2 certification.

           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 

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               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, except where prohibited 
            by the Constitution.  The fund is the Litigation Deposit 
            Fund.

           Comments
           
          According to the Senate Budget Committee, 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 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.  

           FISCAL EFFECT  :    Appropriation:  Yes   Fiscal Com.:  Yes   
          Local:  No

          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.  This bill also 
          appropriates $1,000 from the General Fund to the State 
          Controller for administrative costs associated with this 
          bill. 


          DLW:nl  5/3/12   Senate Floor Analyses 


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                       SUPPORT/OPPOSITION:  NONE RECEIVED

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