BILL ANALYSIS                                                                                                                                                                                                    




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair

                                           2663 (Lowenthal)
          
          Hearing Date:  08/02/2010           Amended: 06/22/2010
          Consultant: Mark McKenzie       Policy Vote: L Gov 5-0
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          ____
          BILL SUMMARY:  AB 2663 would require the state to delay any  
          transfer of local funds from cities that function under a  
          federal fiscal year until October 1, but would require all  
          transfers to be complete by June 30 of the same fiscal year.   
          Specifically, this bill would delay the transfer, suspension, or  
          borrowing of property tax revenues, Highway Users Tax Account  
          (HUTA) revenues, specified Transportation Investment Fund  
          revenues (Proposition 42 gas taxes), and redevelopment agency  
          funds.
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          ____
                            Fiscal Impact (in thousands)

           Major Provisions         2010-11      2011-12       2012-13     Fund
           Loss of Interest       potential revenue loss of up to  
          $200General
                                         (see staff comments)

          Cash flow impact       potential 3 month delay of cash  
          receiptsVarious
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          ____

          STAFF COMMENTS: This bill meets the criteria for referral to the  
          Suspense File.
          California's fiscal year begins on July 1, but the federal  
          fiscal year begins on October 1.  The following five California  
          cities budget according to the federal fiscal year: Long Beach,  
          Huntington Beach, Inglewood, El Segundo, and South Lake Tahoe.   
          In recent years, the state has relied on borrowing, suspensions,  
          and transfers from multiple sources, including local  
          governments, to address major budget and cash flow shortfalls.   
          The 2009-10 Budget Act, for example, transferred $1.7 billion in  
          redevelopment funds and suspended Proposition 1A to borrow $1.9  
          billion in local property tax revenues.

          AB 2663 would delay any future state transfer, borrowing, or  










          suspension of specified local government revenues until October  
          1 for the five cities that operate under the a federal fiscal  
          year, but would require the full year's worth of revenues to be  
          transferred by the end of the state fiscal year on June 30.

          This bill is intended to provide relief to five federal fiscal  
          year cities, by allowing them to delay payments to the state  
          until the beginning of their fiscal year.  The delay in payments  
          would represent a shift of the burden from these five cities to  
          the state, who would otherwise benefit from having  
          interest-earning cash on hand or available for state payments.   
          The magnitude of the fiscal impact of this bill would depend  
          upon the amount and timing of any state transfer, borrowing, or  
          suspension of local revenues.  If the bill resulted in a future  
          three-month delay of payment to the state, there would be a  
          corresponding disruption of General Fund cash flow and a loss of  
          interest.  The actual impact could range from minimal to several  
          hundred thousand dollars, depending on the amount transferred,  
          borrowed, or suspended and the applicable interest rate.  If a  
          simple 5% interest rate applied, there would be a loss of  
          $125,000 in interest for every $10 million transfer from these  
          five cities.