BILL ANALYSIS �
SB 120
Page 1
Date of Hearing: June 28, 2011
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
SB 120 (Anderson) - As Amended: May 31, 2011
SENATE VOTE : 39-0
SUBJECT : State funds: registered warrants.
SUMMARY : Requires state agencies to accept a registered
warrant issued by the Controller for the payment of any
obligations owned by that payee, as specified, and contains an
urgency clause.
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.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of this bill . According to the author's office, "SB 120
is a bi-partisan, time-sensitive bill that would direct a state
agency to accept, from any entity, a registered warrant -
commonly known as an IOU - endorsed by that payee, at full face
value, for the payment of any obligations owed by that entity to
that state agency. Survival of services and jobs is at stake.
The state should accept its own IOUs.
"Infamously, on June 24, 2009, the Sacramento Bee reported that
the state's fiscal situation was desperate, 'State controller
John Chiang warned today that if legislators and Governor Arnold
Schwarzenegger fail to come up with a budget-balancing package
in the next week, he would begin paying California's bills with
IOUs on July 2.'
"Drama ensued, the state effectively denying vital payments owed
to service providers, non-profit organizations, and taxpayers,
CNN Money reported, 'The state issued 449,241 warrants, totaling
$2.6 billion. If every one is cashed, the interest payments
will total $9.68 million. State Controller John Chiang said
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California owes 'a debt of gratitude' to the individuals and
businesses that 'were forced to bear the brunt of the State's
chronic fiscal mismanagement.'
"Existing law already allows the state to distribute IOUs.
According to Government Code section 17203, 'Such registered
warrants are acceptable and may be used as security for the
faithful performance of any public or private trust or
obligation or for the performance of any act, including the use
of such registered warrants by banks and savings and loan
associations as security for deposits of funds of any county,
municipal or public corporation, district, political
subdivision, or state agency.' This reminds us of Wimpy's
famous line, 'I'd gladly pay you Tuesday for a hamburger today.'
The inequity is then imposed through the peoples' inability to
use those instruments in a practical way? a policy of forced
borrowing upon innocent Californians."
Background . Warrants are the government equivalent of checks,
and are issued by the State Controller to pay the state's
obligations. There are three types of warrants: registered
warrants, registered reimbursement warrants, and registered
refunding warrants.
The California Constitution mandates that education and debt
service have priority status for regular warrants. The
California 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 registered warrants
for all other payments, including those to private businesses,
local governments, taxpayers receiving income tax refunds and
owners of unclaimed property.
A registered warrant is a "promise to pay" when there are not
enough funds to pay all General Fund (GF) obligations.
Registered warrants bear interest and are redeemable by the
State Treasury only when the GF has sufficient money.
Registered warrants are presently considered legal investments
for all trust funds, insurance funds, savings 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
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amount not to exceed the amount of a registered warrant, and the
law 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."
Currently, under Government Code Section 17280.1, the Franchise
Tax Board has authority to accept 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. The Employment Development Department
also began accepting registered warrants in August 2009. The
Department of Motor Vehicles and most other agencies, however,
did not accept registered warrants in lieu of cash.
Government Code Section 17203 provides that registered warrants
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
registered warrants 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.
Previous legislation . AB 1506 (Anderson) of 2010, requires, as
an urgency measure, a state agency to accept from a person or
entity a registered warrant 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. This bill was vetoed, with the
following message:
"This measure would require all state departments, upon a
specified determination made by the State Controller's Office,
to accept registered warrants, also known as IOUs, in lieu of
cash payments. The issuance of IOUs represents an embarrassing
failure on the part of the state to manage its finances.
Unfortunately, if the Legislature does not pass a balanced
budget soon, the possibility that the Controller will be forced
to issue IOUs this year becomes all too real. I sympathize with
businesses that were issued IOUs last year and those businesses
that may receive them this year. 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.
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It would exacerbate the state's cash crisis and would
accelerate the possibility of the state defaulting on its debt
service and payroll obligations."
REGISTERED SUPPORT / OPPOSITION :
Support
Acclamation Insurance Management Services
American Federation of State, County and Municipal Employees,
AFL-CIO
Associated Builders and Contractors of California
Bill Leonard, Member, Board of Equalization
Board President Bryan Wadlington, Ramona Municipal Water
District
Borrego Water District Board of Directors
California Chapter of the American Fence Association
California Fence Contractors' Association
California State Controller John Chiang
Charles L. Taylor III, Student Trustee
City of Cypress
City of El Cajon
City of Encinitas
City of Moreno Valley
Congressman Brian P. Bilbray, 50th district
Congressman Duncan Hunter, 52nd District
Councilmember Deborah Pauly, City of Villa Park
Councilmember Ernest Ewin, City of La Mesa
Councilmember Kelly A. Bennett, City of Murrieta
Councilmember Melissa Melendez, City of Lake Elsinore
Councilmember Merrilee Boyack, City of Poway
Councilmember Randon K. Lane, City of Murrieta
Councilmember Robin Hastings, City of Moreno Valley
Councilmember Steve Castaneda, City of Chula Vista
Dantel
Deer Springs Fire Protection District
Deputy Mayor Jerome B. Stocks, City of Encinitas
Engineering contractors' Association
Escondido Chamber of commerce
Fallbrook Healthcare District
Flasher/Barricade Association
Food & Beverage Association San Diego County
Foothills Christian Church
Gebhart & Associates
Greater Fresno Area Chamber of Commerce
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Hamann Companies
Helix Water District
Home of Guiding Hands
Howard Jarvis Taxpayers Association
Independent Maintenance Contractors Association
Independent Waste Oil Collectors and Transporters
Jan I. Goldsmith, San Diego City Attorney
John I. Norman, Trustee, San Jacinto Unified School District
Lakeside Chamber of Commerce
Marin Builders' Association
Mayor Don Higginson, City of Poway
Mayor Gary Capata, City of Laguna Niguel
Mayor Gary Monahan, City of Costa Mesa
Mayor Kathleen J. DeRosa, Cathedral City
Mayor pro Tem Brad Reese, City of Villa Park
Mayor pro Tem Doug McAllister, City of Murrieta
Mayor pro Tem Mary England, City of Lemon Grove
Mayor Randy Voepel, City of Santee
Michelle Steele, Vice Chair, California State Board of
Equalization
City of Escondido
Midway City Sanitary District
On The Border Mexican Grill & Cantina
Orange County Board of Supervisors
Orange County Taxpayers Association
Otay Water District
Ralph D. McIntosh, Jr. General Manager, Ramona Municipal Water
District
Riverside County Farm Bureau, Inc.
Robert Shield, Governing Board President, Grossmont Union High
School District
San Diego County Board of Supervisors
San Diego County Fire Chiefs Association
San Diego County Medical Society
San Diego Regional Center
Santee School District
Senator George Runner, Member, California Board of Equalization
Southwest California Legislative Council
State Building and Construction Trades Council, AFL-CIO
Straightline Engineering, Inc.
Superintendent Stephen B. Halfaker, Lakeside Union School
District
Supervisor Bill Horn, San Diego County Board of Supervisors
Supervisor Patricia Bates, County of Orange
SureWest Communications
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TC Construction Company, Inc.
The Arc of California
Trabuco Canyon Water District
United Cerebral Palsy in California
Vista Irrigation District
Waste Management
Several individuals
Opposition
None on file.
Analysis Prepared by : Rebecca May / B.,P. & C.P. / (916)
319-3301