BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 506| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ UNFINISHED BUSINESS Bill No: SB 506 Author: Simitian (D), et al Amended: 8/18/11 Vote: 21 SENATE GOVERNMENTAL ORG. COMMITTEE : 12-0, 4/26/11 AYES: Wright, Anderson, Berryhill, Cannella, Corbett, De León, Evans, Hernandez, Padilla, Strickland, Wyland, Yee NO VOTE RECORDED: Calderon SENATE GOVERNANCE & FINANCE COMMITTEE : 9-0, 5/4/11 AYES: Wolk, Huff, DeSaulnier, Fuller, Hancock, Hernandez, Kehoe, La Malfa, Liu SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8 SENATE FLOOR : 39-0, 5/23/11 (Consent) AYES: Alquist, Anderson, Berryhill, Blakeslee, Calderon, Cannella, Corbett, Correa, De León, DeSaulnier, Dutton, Emmerson, Evans, Fuller, Gaines, Hancock, Hernandez, Huff, Kehoe, La Malfa, Leno, Lieu, Liu, Lowenthal, Negrete McLeod, Padilla, Pavley, Price, Rubio, Runner, Simitian, Steinberg, Strickland, Vargas, Walters, Wolk, Wright, Wyland, Yee NO VOTE RECORDED: Harman ASSEMBLY FLOOR : Not available SUBJECT : State finance: warrants SOURCE : Apple Inc. CONTINUED SB 506 Page 2 DIGEST : This bill updates and modernizes existing law pertaining to registered warrants. Assembly Amendments delete language that authorizes the State Controller to promulgate regulations to establish a procedure where a registered warrant may be issued for the payment of principal or interest due on a state bond. ANALYSIS : Existing law authorizes holders of warrants to use registered warrants (RWs) to pay state income and corporation tax liabilities, including estimated payments. This bill updates and modernizes existing law pertaining to RWs. Specifically, this bill: 1. Revises and recasts current law that authorizes a taxpayer who has a tax liability with the respect to personal income taxes or bank and corporation taxes who is a payee named in a RW to pay the tax liability with the RW. 2. Establishes a procedure whereby a RW may be issued for the payment of principal or interest due on a state bond. Background Warrants are the government equivalent of checks, and are issued by the Controller to pay the state's obligations. There are three types of warrants: RWs, registered reimbursement warrants, and registered refunding warrants. The State Constitution mandates that education and debt service have priority status for regular warrants. The state Constitution, federal law and a court order require that state payroll, the California Public Employees Retirement System, the California State Teachers Retirement System, In-Home Supportive Services and Medi-Cal providers also be paid with regular warrants. The State may issue RWs for all other payments, including those to private businesses, local governments, taxpayers receiving income CONTINUED SB 506 Page 3 tax refunds and owners of unclaimed property. A RW is a "promise to pay," or an IOU, that is issued by the State when there are not enough funds to pay all of its General Fund obligations. RWs bear interest and are redeemable by the State Treasury only when the General Fund has sufficient money. RWs are presently considered legal investments for all trust funds, insurance funds, savings and loan funds, and funds of all counties, municipal corporations, districts, public corporations, political subdivisions, or state agencies. Further, state law expressly permits a taxpayer to pay a tax liability, as specified, in whole or in part, by a check in an amount not to exceed the amount of a RW, and the law declares "all warrants are payable in such coin or currency of the U.S. as at the time of payment is legal tender for the payment of public and private debts." FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No SUPPORT : (Verified 5/16/11) (unable to reverify at time of writing) Apple Inc. (source) Cisco Systems, Inc. eBay Inc. Google Inc. Oracle Corporation Qualcomm Inc. TechNet ARGUMENTS IN SUPPORT : The author's office maintains that major corporations, including some of California's most well-known companies, are currently precluded from investing in California debt because California debt does not meet the companies' investment criteria (due to credit risk). The author's office believes that this problem can be remedied with an update to existing law. The author's office points out that existing law was drafted during a time when California issued physical bonds to investors - today the State distributes bonds through financial institutions that hold bonds on an investor's behalf. This has left uncertainty over who the "bondholder" is. As a CONTINUED SB 506 Page 4 result, any tax benefits from state-issued RWs will accrue to the financial institution rather than the true investor in California debt. To resolve this problem, this bill clarifies that RWs can be offset against the taxes of true investors, rather than those of financial intermediaries. The author's office emphasizes that it is unlikely that California would ever need to issue RWs for its bond obligations (as they have second priority after education funding for available funds). Thus, the proposed change will have little material impact on the State Treasury, but will pave the way for additional investment in California debt. PQ:do 8/29/11 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED