BILL ANALYSIS �
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THIRD READING
Bill No: AB 103
Author: Assembly Budget Committee
Amended: 5/2/12 in Senate
Vote: 21
SENATE BUDGET & FISCAL REVIEW COMMITTEE : 9-3, 5/3/12
AYES: Leno, Alquist, DeSaulnier, Evans, Hancock, Liu,
Lowenthal, Negrete McLeod, Wolk
NOES: Emmerson, Gaines, La Malfa
NO VOTE RECORDED: Anderson, Fuller, Simitian, Wright
ASSEMBLY FLOOR : Not relevant
SUBJECT : State Cash Resources: Budget Trailer Bill
SOURCE : Author
DIGEST : This bill provides the necessary statutory
changes in the area of cash management and cash deferrals
in order to ensure sufficient cash reserves during the
2012-13 fiscal year.
Senate Floor Amendments of 5/3/12 (1) delay the year-end
apportionment payment certification process for about two
weeks to capture anticipated property tax revenues and
avoid state overpayments to K-12 local education agencies
(LEAs), and (2) allow eligible K-12 LEAs to receive a
payment deferral exemption without a year-end apportionment
certification.
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ANALYSIS : Since 2010, the state has employed a version
of the intra-year deferrals of major cash payments to
schools, universities, and counties in an effort to
conserve cash resources and manage the external cash
borrowing necessary to ensure the solvency of the state.
This trailer bill contains the following major amendments
related to cash management. Most of the payment deferrals
proposed for 2012-13 are similar to deferrals approved last
year for 2011-12. However, the deferrals to K-12 schools
are significantly less than they have been in prior
budgets.
1. Scheduled Deferrals - General . Authorizes General
Fund payments to be deferred starting in July 2012,
October 2012, and March 2013, except as specified
below. The deferrals can be made for no more than 60
days, 90 days, and 60 days, respectively. These
deferrals may be triggered off or repaid early, in
whole or in part, at such time as the State Treasurer,
State Controller, and Director of Finance determine
sufficient cash reserves are available. The deferrals
can be moved forward to the prior month or delayed to
the subsequent month. However, the Joint Legislative
Budget Committee must be notified before changes can
be made. The following General Fund payments are
subject to the deferral criteria outlined above along
with the more detailed payment-specific criteria
listed below:
Supplementary Security Income/State
Supplementary Payments. Permits up to three
deferrals of payments to the federal government for
Supplementary Security Income/State Supplementary
Payments benefits.
Local Governments. Permits deferral of social
services and other payments to cities, counties and
local governments not to exceed $1 billion. This
may include deferral of CalWORKs assistance payments
and other social services costs. The Administration
has stated that it does not anticipate resulting
delays to beneficiaries' receipt of assistance
payments. Payments to counties or cities with a
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population of less than 50,000 shall not be
deferred.
1. Scheduled Deferrals - K-12 Education .
Schedules a specific deferral plan for payments
to K-12 LEAs:
o $1.2 billion shall be deferred in
July 2012.
o $600 million shall be deferred in
August 2012.
o $800 million shall be deferred in
October 2012.
o $700 million of the deferral made in
July 2012 shall be paid in September 2012.
o The remaining $1.9 billion of the
deferrals made in July, August, and October
2012 shall be paid in January 2013.
o $900 million shall be deferred in
March 2013 and repaid in its entirety in April
2013.
Includes a hardship waiver process for LEAs who
might not be able meet financial obligations if
payments are deferred. In order to be eligible for
a hardship waiver, LEAs would need to qualify for an
emergency apportionment.
This bill requires the Department of Education (CDE) to
delay certification of final June apportionment payments
for 2011-12 to account for additional RDA-related property
tax remittances received through June 10, 2012. Because
June apportionment payments are currently deferred until
July, this change would delay certification of the second
principal apportionment from July 2, 2012 to July 15, 2012.
In effect, these provisions require CDE to count about
two extra weeks of RDA-related property taxes that would
offset state June apportionment payments, which are
currently deferred until July. In counting these
additional property taxes, the state can avoid costly
overpayments.
This bill requires that exempted LEAs receive the amount of
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funds necessary for the LEA to meet its financial
obligations, regardless of whether that amount is greater
than the LEA's June apportionment. (Under current law,
LEAs exempted from the June-to-July deferral receive the
lesser of (1) the amount of funds necessary for the LEA to
meet its financial obligations or (2) the LEA's June
apportionment, calculated based on CDE's P-2
certification.) Since other provisions of the bill require
CDE to delay certification until July, updated
apportionments for each LEA would not be available for use
in reviewing deferral exemption requests. This bill allows
the Superintendent and Director of Finance provide a
deferral exemption without updated P-2 certification.
1.Payment Smoothing . Modifies higher-education payments to
smooth payment over the fiscal year.
University of California. Authorizes the State to
pay only one-twelfth (1/12) of the UC's annual
appropriation each month between July 2012 and April
2013. After April 2013, there are no limitations on
payments within the UC's appropriations limit.
California State University. Authorizes the State
to pay only one-twelfth (1/12) of the CSU's annual
appropriation each month between July 2012 and April
2013. After April 2013, there are no limitations on
payments within the CSU's appropriations limit.
1.Other Deferrals and Adjustments.
California Community Colleges. Authorizes the
deferral of a $150 million payment from July 2012 to
December 2012. Authorizes the deferral of a $50
million payment from September 2012 to January 2013.
Authorizes the deferral of $100 million from October
2012 to January 2013. Includes a hardship clause to
exempt those community college districts that cannot
raise funds to cover their necessary expenses during
those time periods.
California State University. In addition to the
payment smoothing, authorizes deferral of a $250
million payment to the CSU with repayment mandated in
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April 2013.
1.Authorize Cash Flow Borrowing from Additional Special
Fund . This bill adds one special fund to those eligible
for cash flow borrowing. Most special funds are already
eligible for cash flow borrowing, except where prohibited
by the Constitution. The fund is the Litigation Deposit
Fund.
Comments
According to the Senate Budget Committee, the state is
currently facing a budget shortfall of around $10 billion.
It is likely that the official estimate of the budget
shortfall will widen on May 14, 2012, when the Governor
proposes the May Revision and updates his revenue forecast.
Recent revenue trends have indicated that the state is on
track to take in $3 billion less than the Governor assumed
in the January budget. Given this, the state is projected
to continue to have months in which cash flow is
constrained. The deferrals proposed in this bill help to
alleviate the cash constraints and ensure state solvency.
FISCAL EFFECT : Appropriation: Yes Fiscal Com.: Yes
Local: No
This bill continues a similar cash deferral schedule
employed by the state in the last two years. This bill
helps the state avoid insolvency and ensure that payments
are made in a timely manner. This avoids significant
future costs related to interest and damages that could be
owed if the state failed to pay its bills. Furthermore, it
also reduces the state's external borrowing costs to a
manageable level, thereby saving the state millions of
dollars in borrowing costs. This bill may have an unknown
effect on the short term cash management costs of schools,
colleges, and local governments. This bill also
appropriates $1,000 from the General Fund to the State
Controller for administrative costs associated with this
bill.
DLW:nl 5/3/12 Senate Floor Analyses
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SUPPORT/OPPOSITION: NONE RECEIVED
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