BILL ANALYSIS Ó SB 79 Page 1 ( Without Reference to File ) SENATE THIRD READING SB 79 (Budget and Fiscal Review Committee) As Amended July 11, 2011 Majority Vote. Budget Bill Appropriation Takes Effect Immediately SENATE VOTE :Vote not relevant SUMMARY : The bill provides the necessary statutory changes relating to state funds and cash-flow borrowing necessary for the 2011-12 Budget Act. Specifically, this bill: 1)Creates the State Agency Investment Fund (SAIF) in the State Treasury. The SAIF will receive moneys from state agencies not currently required by law to be deposited in the Pooled Money Investment Account (PMIA). State agencies includes any state office, officer, department, division, bureau, board, commission, organization, or agency, including, but not limited to, the University of California, the California State University, the California Community Colleges, and the Judicial Council. 2)Specifies that each agency shall deposit not less than $500 million and that the total amount of moneys from all sources deposited in the SAIF shall not exceed $10 billion, and: a) Terms and conditions of investment including size of deposit, length of time of deposit, and availability of fund withdrawals would be set by the Director of Finance in consultation with the treasurer; and, b) Moneys would be used for investments authorized by existing statutory authority relating to the PMIA and would be borrowable by the General Fund (GF) for cash flow purposes. Repayment of borrowing would be a priority payment of the GF. 3)Establishes that the rate of interest paid by the SAIF would consist of a base rate (equal to the rate paid for PMIA investments), plus an enhanced amount. The enhanced amount would be determined by the Director of Finance, in SB 79 Page 2 consultation with the Treasurer, and added to the base amount. Funds in the SAIF would be continuously appropriated for repayment by the State Controller. 4)Adds an appropriation allowing this bill to take effect immediately upon enactment. FISCAL IMPACT : By creating a new fund for the deposit of cash by state agencies, the state can reduce its external borrowing by an amount up to $1.7 billion. This will add additional flexibility for cash flow management and result in savings equal to the differential between borrowing from SAIF and borrowing through the credit markets through the issuance of Revenue Anticipation Notes (RANs). COMMENTS: It is anticipated that the interest rate paid on the SAIF would fall between the PMIA rate and the prevailing rate paid on external borrowing through the issuance of RANs. The state would realize some GF saving based on the interest rate "break," and state agencies will receive an enhanced return over what they would receive from the PMIA. Savings from this initiative are dependent on the actual amount invested in the fund, and the extent to which these amounts can off-set more expensive external borrowing. Analysis prepared by: Mark Ibele / BUDGET / (916) 319-2099 FN: 0001597