BILL ANALYSIS
AB 1364
Page 1
Date of Hearing: May 20, 2009
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
AB 1364 (Evans) - As Amended: April 29, 2009
Policy Committee: Business and
Professions Vote: 11-0
Urgency: Yes State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill authorizes any state agency that has entered into a
grant agreement for expenditure of state bond funds-where either
party may be unable to comply with the agreement due to
suspension of bond funded programs by the Pooled Money
Investment Board (PMIB)-to, with the consent of the grant
recipient, either invalidate the agreement or renegotiate terms
that may not be met due to the PMIB action.
FISCAL EFFECT
Potential administrative costs to renegotiate contracts,
probably more than offset by savings from avoided legal
proceedings by eliminating uncertainty regarding existing
contracts.
COMMENTS
1)Background . On December 17, 2008, the PMIB froze all
disbursements from the Pooled Money Investment Account (PMIA)
because of the state's poor cash position. The PMIA has
historically been used to provide interim funding for all bond
funded projects until the State Treasurer's Office (STO) is
able to issue commerical paper and subsequently sell bonds.
The PMIB "freeze" affected approximately 5,700 projects across
the state. In the weeks that followed this action, the
Department of Finance authorized 276 projects to continue, but
the remaining 5,400 projects were directed to be shut-down
unless other non-state funding sources were available to
enable them to continue.
AB 1364
Page 2
Enactment of the 2009-10 Budget Act in February allowed the
STO to re-enter the bond market and resume issuing bonds.
Prior to the March 2009 bond sale, the state was unable to
sell bonds since June of 2008. A mismatch remains, however,
between the amount of bond resources committed through state
contracts and the amount of bond funds available. Moreover,
the Legislative Analyst's Office, in its recent report,
"California's Cash Flow Crisis: May 2009 Update," states that
the state's cash flow pressures are likely to reemerge this
summer and fall, and the short-term borrowing requirement
could reach $20 billion.
2)Purpose . According to the author's office, "On April 3, the
Department of Finance issued Budget Letter 09-09 which says,
'If projects continue with non-state funding sources, the
state intends to eventually pay the costs to which it has
committed through a valid agreement.' While this passage
brings important clarity regarding the state's intentions
relating to fiscal assurances, uncertainty now shifts to the
validity of contracts where datelines for deliverables are
passing. For these reasons, as the state moves ahead with its
contract partners, the grey area centers on what constitutes a
valid contract. This raises the inevitable question: Since
the timetables for deliverables are passing and not being met,
are such contracts valid? AB 1364 proposes an affirmative
solution to validate these state contracts. The approach
proposed to in AB 1364 is for state agencies to amend
timetables for these contracts."
Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081