BILL ANALYSIS
AB 1506
Page 1
ASSEMBLY THIRD READING
AB 1506 (Anderson)
As Amended August 31, 2009
2/3 vote. Urgency
BUSINESS & PROFESSIONS 11-0 APPROPRIATIONS 17-0
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|Ayes:|Hayashi, Emmerson, |Ayes:|De Leon, Conway, Ammiano, |
| |Conway, Eng, | | |
| |Hernandez, Nava, Niello, | |Charles Calderon, Coto, |
| |John A. Perez, Ruskin, | |Davis, Fuentes, Hall, |
| |Smyth, Monning | |Harkey, Miller, Nielsen, |
| | | |John A. Perez, Skinner, |
| | | |Solorio, Audra |
| | | |Strickland, Torlakson, |
| | | |Hill |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Requires, as an urgency measure, a state agency to
accept from any person or entity a registered warrant (RW) or
other similar evidence of indebtedness issued by the State
Controller that is endorsed by that payee, at full face value,
for the payment of any obligations owed by that payee to that
state agency, as specified, until July 1, 2012. Specifically,
this bill :
1)Requires a state agency to accept from any person or entity a
registered warrant or other similar evidence of indebtedness
issued by the State Controller (Controller) that is endorsed
by that payee, at full face value, for the payment of any
obligation owed by that payee to that state agency, if the
Controller determines that the following conditions are
satisfied:
a) Acceptance of RWs will not jeopardize the ability of the
state to issue regular warrants for education, debt
service, state payroll, pensions, In-Home Supportive
Services, Medi-Cal providers, or any other payment required
by federal law, the State Constitution, or court orders;
and,
b) The acceptance of RWs will not result in a net cost to
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the state. The calculation of "net cost" shall include, but
not be limited to, the following factors:
i) Interest savings related to redemption of the
registered warrant or other form of indebtedness;
ii) Interest costs related to any new registered
warrants or other forms of indebtedness issued to replace
the registered warrant or other form of indebtedness
accepted for payment of an obligation to the state;
iii) Costs related to any other internal or external
borrowing required to offset the loss of resources due to
acceptance of the registered warrants or other forms of
indebtedness for payment of an obligation to the state;
iv) Foregone interest earnings related to loss of
payments due to acceptance of the registered warrants or
other forms of indebtedness for payment of an obligation
to the state; and,
v) Significant administrative costs to state agencies
related to acceptance of the registered warrants or other
forms of indebtedness for payment of an obligation to the
state.
2)Prohibits a state agency from accepting a RW for obligations
owed by a payee for payments subject to immediate deposit
standards, as specified.
3)Requires the Controller to report to the Joint Legislative
Budget Committee the following information by September 1
following the conclusion of a fiscal year in which state
agencies accept RWs or similar evidence of indebtedness:
a) The amount of warrants received or other forms of
indebtedness received by state agencies; and,
b) The effect of the acceptance of these warrants on the
state's cash flow and financial well being, including any
net costs or savings, and any impacts on state payments
required by federal law, the State Constitution, or court
orders.
AB 1506
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4)Sunsets on July 1, 2012.
FISCAL EFFECT : According to Assembly Appropriations Committee:
Following are examples of effects that could occur if the bill's
provisions were to become operative. As amended, the bill will
only become operative if the controller determines that its
provisions will result in no net costs to the state and will not
jeopardize priority payments.
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.
c) The Franchise Tax Board and the Board of Equalization
are currently accepting state registered warrants in lieu
of cash payments. However, numerous other state agencies,
including the Employment Development Department) (EDD)
(which administers over $40 billion in collections
programs) and the Department of Motor Vehicles, are not
currently accepting registered warrants and would be
affected.
2)Administrative costs . The bill will result in significant
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administrative costs. EDD indicates that it would incur about
$1.2 million in costs to revise its system to accommodate the
IOUs, and for outreach and communication with taxpayers.
COMMENTS : 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 (RAWs), 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 tax refunds and owners of unclaimed
property.
RWs are presently considered legal investments for all trust
funds, insurance funds, savings and loans 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 government code
declares "all warrants are payable in such coin or currency of
the United States as at the time of payment is legal tender for
the payment of public and private debts."
Analysis Prepared by : Sarah Huchel / B. & P. / (916) 319-3301
FN: 0002681