BILL ANALYSIS �
Bill No: SB
11
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2009-2010 Regular Session
Staff Analysis
SB 11 Author: Anderson
As Introduced: December 6, 2010
Hearing Date: April 26, 2011
Consultant: Art Terzakis
SUBJECT
Registered Warrants
DESCRIPTION
SB 11 prohibits a state entity from assessing a fine,
interest, or penalty, based on a debt owed to the state by
an individual or entity that is a payee of a registered
warrant (RW). Specifically, this measure:
1. Prohibits a state entity from assessing a fine,
interest, or penalty, based on a debt owed to the
state by an individual or entity that is a payee named
in a RW, in an amount not to exceed the amount of the
RW, from the date the state issued the RW until at
least 30 days after the date the RW is payable upon
presentation to the state.
2. Also, notwithstanding any other provision, provides
that a debt owed to the state by an individual or
entity that is a payee named in a RW shall not be due
before at least 30 days after the date the RW is
payable upon presentation to the state.
3. Stipulates that these provisions shall be limited
to an individual or entity that is a payee in a RW and
is subject to a fine, interest, or penalty based on a
debt owed to the state that was imposed between
January 1, 2006, and December 31, 2009.
EXISTING LAW
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Existing law prescribes procedures for the issuance of
registered warrants and provides that a registered warrant
is acceptable and may be used as security for the
performance of any public or private trust or obligation.
Existing law authorizes a taxpayer who is a payee named in
a registered warrant, under certain circumstances, to delay
the payment of specified tax liability until the registered
warrant is payable by the state.
Existing law provides different statute of limitations for
various circumstances. In general, for all taxpayers
filing sales and use tax returns, the statute of
limitations is three years from the due date of the return
or the date the return is filed, whichever is later. In
the event no return has been filed, the statute of
limitations is eight years from the date the return is due.
If the taxpayer is guilty of fraud or intent to evade the
tax, the statute of limitations is indefinite.
BACKGROUND
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: registered 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.
A RW is a "promise to pay," or an IOU, that is issued by
the State when there are not enough funds to pay all of its
General Fund obligations. RWs bear interest and are
redeemable by the State Treasury only when the General Fund
has sufficient money. RWs are presently considered legal
investments for all trust funds, insurance funds, savings
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and loan 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 the law declares "all
warrants are payable in such coin or currency of the U.S.
as at the time of payment is legal tender for the payment
of public and private debts."
Currently, under Government Code Section 17280.1, the
Franchise Tax Board (FTB) has authority to accept RWs in
satisfaction of taxpayer obligations to the State.
Government Section 17280.1 also provides that any taxpayer
submitting a check for the payment of taxes shall be
precluded from receiving interest on his/her RW from the
date the check for the payment of taxes is submitted.
Additionally, Section 17280.1 provides that in the event
the taxpayer who submits a check for the payment of taxes
presents his/her RW to a bank or other institution for
payment, the taxpayer shall make a declaration upon
presentation that he/she is ineligible to receive interest
from the date he/she submitted the check.
In July 2009, the Board of Equalization (BOE) voted to
accept RWs in satisfaction of obligations associated with
tax programs it administers. The Employment Development
Department (EDD) also began accepting RWs in August 2009.
The Department of Motor Vehicles (DMV) and most other
agencies, however, did not accept RWs in lieu of cash.
Government Code Section 17203 provides that RWs issued by
the State are acceptable and may be used as security for
the performance of any public or private trust obligation
or for the performance of any act, including the use of
such RWs by banks and savings and loan associations as
security deposits of funds of any county, municipal or
public corporation, district, political subdivision, or
state agency.
Purpose of SB 11: As noted above, this measure would
prohibit a state entity from assessing fines, interest, or
penalties, based on debts owed to the state by an
individual or entity that is a payee named in a RW.
According to the author, SB 11 is intended to relieve
recipients of state IOU's from late fees and penalties that
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result from the state's failure to pay for products and
services in a timely fashion. The author believes that it
is fundamentally unfair and unscrupulous for the state to
issue fines, late payment charges or penalties on
individual taxpayers, small businesses and nonprofits that
have received IOUs because of the state's inability to meet
its obligations.
The author points out that SB 11 is a companion measure to
SB 120 (Anderson) which requires a state agency to accept a
registered warrant (RW), or other similar evidence of
indebtedness issued by the State Controller, for payment of
any state obligation.
Staff Comments: According to the Controller's website, the
State issued 450,000 RWs or IOUs worth $2.6 billion between
July 2, 2009, and Sept. 4, 2009, when the IOUs matured.
Please note that IOUs stopped accruing interest after Sept.
4, 2009. The interest rate, set by the Pooled Money
Investment Board (PMIB) on July 2, 2009, is 3.75% per year.
Beginning in mid-January 2010, the State Controller and the
State Treasurer began mailing letters to individuals and
businesses that had not cashed their RWs from last summer's
cash crisis. More than 89,000 letters were to be mailed
reminding individuals and businesses to redeem an estimated
$50 million worth of IOUs.
Committee Staff raises the following concerns regarding SB
11:
1.The bill's provisions do not establish a priority for
interest and penalty relief, including relief for debts of
multiple state entities. For example, if a taxpayer was
issued a RW on July 2, 2009 for $1,000 and owed an
individual sales and use tax debt of $2,000 to the BOE and
a debt of $3,000 to the FTB, should the first $1,000 of
both debts have the interest and/or associated penalty
waived? (It's not clear what the author's intent may be
with respect to this matter. Nevertheless, staff recommends
that some sort of priority of relief be established.)
2. The phrase, "Notwithstanding any other provision," used
in subdivision (b) is confusing. As previously noted above
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(Description item #3), subdivision (c) would limit the
bill's provisions to an individual or entity that is a
payee of a RW and is subject to a state fine, interest, or
penalty that was imposed for the period between January 1,
2006 through December 31, 2009. However, subdivision (b)
would, notwithstanding any other provision, make a debt
owed to the state by an individual or entity that is a
payee in a RW not due until 30 days after the date the RW
is redeemable. Thus, there appears to be a conflict
between these two provisions. Subdivision (c) would have
retroactive application only, whereas subdivision (b) would
appear to change the due date for a state debt on a
prospective basis. (It's not clear whether the author's
intent is to change the due date for future state debts for
individuals and entities that are payees in RWs.)
3.The bill would waive penalties, interest, and fines for
state debts that were due and payable between January 1,
2006, through and including December 31, 2009. As noted
above, the Controller began issuing RWS (IOUs) on July 2,
2009, through September 4, 2009. The RWs were payable upon
presentation to the State Treasurer on and after September
4, 2009. This bill could be viewed as rewarding delinquent
taxpayers that failed to pay their tax liability simply
because they received a RW.
PRIOR/RELATED LEGISLATION
SB 120 (Anderson) 2011-12 Session. Would require a state
agency to accept a registered warrant (RW), or other
similar evidence of indebtedness issued by the State
Controller, for payment of any state obligation. (Pending
in this Committee)
SB 506 (Simitian) 2011-12 Session. Among other things,
would provide a procedure whereby a RW may be issued for
the payment of principal or interest due on a state bond.
(Pending in this Committee)
AB 1044 (Butler) 2011-12 Session. Would require the BOE to
accept RWs from a taxpayer with any tax, surcharge, or fee
obligation owed when the RW has been paid directly to that
tax, surcharge, or fee payer. (Pending in Assembly Rev &
Tax Committee)
AB 1506 (Anderson) 2009-10 Session. Similar to SB 120
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(Anderson) of 2011-would have required all state
departments, upon a specified determination made by the
State Controller's Office, to accept RWs, in lieu of cash
payments. (Vetoed - Governor's message stated, "IOUs place
enormous financial strains on recipients who are unable to
use them to pay their own obligations, including debts owed
to the state. However, requiring state departments to
accept IOUs in lieu of cash payments defeats the purpose of
issuing IOUs in the first place. It would exacerbate the
state's cash crisis and would accelerate the possibility of
the state defaulting on its debt service and payroll
obligations.)
SBX3 23 (Ashburn) 2009-10 Session. Would have prohibited
the State Controller from issuing a RW for the purpose of
making payments for a refund of taxes imposed under the
Personal Income Tax Law. (Held in Senate Rules Committee)
SUPPORT: As of April 22, 2011:
Acclamation Insurance Management Services
American Federation of State, County and Municipal
Employees (AFSCME)
Board of Directors, Borrego Water District
Boardmember Darrell Beck, Ramona Municipal Water District
Boardmember George Runner, California State Board of
Equalization
Brett Almquist, On The Border Mexican Grill & Cantina
California Chapter of the American Fence Association
California Fence Contractors' Association
City Attorney Jan I. Goldsmith, City of San Diego
City of Moreno Valley
Congressman Brian Bilbray, U.S. House of Representatives
Councilmember Deborah Pauly, City of Villa Park
Councilmember Ernest Ewin, City of La Mesa
Councilmember Kelly Bennett, City of Murrieta
Councilmember Melissa Melendez, City of Lake Elsinore
Councilmember Merrilee Boyack, City of Poway
Councilmember Rick Gibbs, City of Murrieta
Councilmember Robin Hastings, City of Moreno Valley
Deputy Mayor Jerome Stocks, City of Encinitas
Donna T. Gebhart, Gebhart & Associates
Engineering Contractors' Association
Executive Director Mark R. Klaus, Home of Guiding Hands
Fallbrook Healthcare District Board of Directors
Flasher/Barricade Association
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Frank Lang, Lang Richert & Patch
General Manager Ralph D. McIntosh, Ramona Municipal Water
District
Governing Board President Robert Shield, Grossmont Union
High School District
Howard Jarvis Taxpayers Association
Independent Waste Oil Collectors and Transporters
John Gibson, Hamann Companies
Marin Builders' Association
Mark Hoffman, Foothills Christian Church
Mayor Don Higginson, City of Poway
Mayor Gary Capata, City of Laguna Niguel
Mayor James Bond, City of Encinitas
Mayor Leroy Mills, City of Cypress
Mayor Pro Tempore Brad Reese, City of Villa Park
Mayor Pro Tempore Doug McAllister, City of Murrieta
Mayor Randon K. Lane, City of Murrieta
President & C.E.O. Alan G. Hutcheson, Dantel
President William C. Young, El Cajon Grading & Engineering
Co., Inc.
Ramona Municipal Water District Board of Directors
Research Director Chuck Flacks, San Diego Workforce
Partnership
Riverside County Farm Bureau, Inc.
San Diego County Fire Chiefs Association
San Diego County Medical Society
Student Trustee Charles L. Taylor III, Cuyamaca College
The Associated Builders and Contractors of California
The City of Escondido
The City of Moreno Valley
The Food and Beverage Association
The Helix Water District
The Southwest California Legislative Council
Trabuco Canyon Water District
Trustee Bob Duff, La Mesa-Spring Valley School District
Trustee John Norman, San Jacinto Unified School District
Vice Chair Michelle Steel, California State Board of
Equalization
OPPOSE: None on file as of April 22, 2011.
FISCAL COMMITTEE: Senate Appropriations Committee
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