BILL ANALYSIS
AB 1506
Page 1
Date of Hearing: August 19, 2009
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
AB 1506 (Anderson) - As Amended: July 1, 2009
Policy Committee: Business and
Professions Vote: 11-0
Urgency: Yes State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill requires state agencies to accept registered warrants
or similar evidence of indebtedness issued by the state for the
payment of obligations owed to them.
FISCAL EFFECT
1)Cash Flow Effects . The bill will not have an immediate impact
on the state since, with the recent enactment of budget
savings measures, the controller is planning to redeem
registered warrants that are currently outstanding. Future
effects would depend on the magnitude of cash shortfalls that
emerge in the future.
a) As an illustration, recent budget and cash imbalances
required the Controller to issue $1.9 billion in registered
warrants between July 2 and August 11. If similar amounts
were issued at some point in the future and this bill
enabled an additional 1% of registered warrants to be used
in satisfaction of obligations owed to the state, the
reduction in state cash receipts would be about $19
million.
b) Any loss in cash payments resulting from acceptance of
IOUs will require the state to issue additional IOUs to
make up for the additional cash shortfalls that result. In
extreme circumstances (involving much larger issuances of
IOUs than in the past), the loss of cash could affect the
ability of the state to make priority payments for debt
service or other purposes.
AB 1506
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c) FTB and BOE are currently accepting state registered
warrants in lieu of cash payments. However, numerous other
state agencies - including EDD (which administers over $40
billion in collections programs) and DMV- are not currently
accepting registered warrants and would be affected.
2)Administrative costs . The bill would result in substantial
administrative costs. EDD indicates that it would require
about $1.2 million for programming and outreach efforts for
programs it administers. The department also indicates that
the bill, if applied to UI deposits, would place California
out of conformity with provisions of the U.S. Unemployment
Insurance Tax Act, potentially resulting in sanctions against
California.
COMMENTS :
1)Rationale . According to the author's office, the bill is a
taxpayers' rights measure that addresses an inequity in
current law, whereby the state may issue IOUs in lieu of
warrants, but is not required to accept these IOUs for
obligations owed to the state.
2)Background . In normal times, the state issues warrants to
satisfy its obligations to vendors, contractors, hospitals,
workers, and other entities. Warrants are the government
equivalent of checks, and are issued by the Controller.
During periods of serious cash shortfalls, the state may have
to issue of registered warrants. This occurs when, after
ranking all of the state's obligations and setting aside all
money that must be set apart for higher ranking obligations,
the controller determines that there are insufficient funds to
pay a warrant. In this case, the warrant is registered, and
the state promises to pay the face value as soon as money is
available. Under the California Government Code, registered
warrants are legal investments for funds of all banks and are
negotiable instruments. Registered warrants bear interest at a
rate fixed by California law from the date of registration to
the date of maturity, or the date upon which the California
Treasurer advertises that they are payable upon presentation
if they bear no date of maturity.
AB 1506
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Under current law, the Franchise Tax Board is required to
accept state-issued registered warrants in satisfaction of
taxpayer obligations to the state. In July, 2009, the Board of
Equalization voted to accept registered warrants in
satisfaction of obligations associated with tax programs it
administers. DMV and most other agencies, however, do not
accept registered warrants in lieu of cash.
3)Trade-off . While perhaps addressing potential inequities
related to individuals that have received registered warrants
and owe money to the state, from a broader perspective, the
main effect of the bill is simply to shift IOUs from one
entity to another. Given the circumstances leading to IOU
issuance by the state, any reduction in cash payments by one
taxpayer will have to be made up through additional state
payments of registered warrants to other entities. Given that
the controller ranks payments according to priorities, the
additional warrants will, by definition, go for higher
priority payments. In extreme circumstances, mandatory
acceptance of IOUs by all state agencies could affect the
state's ability to make timely payments for debt service or
obligations required by federal law or the state Constitution.
4)Related legislation . SB 23 (Ashburn) of 2009 prohibits the
issuance of a registered warrant to make any payment for a
personal income tax refund. This bill is currently pending in
the Senate Committee on Rules.
Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081