BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 506|
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THIRD READING
Bill No: SB 506
Author: Simitian (D), et al
Amended: 5/5/11
Vote: 21
SENATE GOVERNMENTAL ORG. COMMITTEE : 12-0, 4/26/11
AYES: Wright, Anderson, Berryhill, Cannella, Corbett, De
Le�n, Evans, Hernandez, Padilla, Strickland, Wyland, Yee
NO VOTE RECORDED: Calderon
SENATE GOVERNANCE & FINANCE COMMITTEE : 9-0, 5/4/11
AYES: Wolk, Huff, DeSaulnier, Fuller, Hancock, Hernandez,
Kehoe, La Malfa, Liu
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SUBJECT : State finance: warrants
SOURCE : Apple Inc.
DIGEST : This bill updates and modernizes existing law
pertaining to registered warrants (RWs), as specified and
establishes a procedure whereby RWs can be offset against
the taxes of true investors, rather than those of financial
intermediaries in order to attract new investors to
California bonds.
ANALYSIS :
Existing law authorizes a taxpayer who has a tax liability
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with respect to personal income taxes or bank and
corporation taxes and who is a payee named in a RW to pay
the tax liability with the RW, as specified.
Existing law, the Administrative Procedure Act, governs the
procedure for the adoption, amendment, or repeal of
regulations by state agencies and for the review of those
regulatory actions by the Office of Administrative Law.
This bill updates and modernizes existing law pertaining
to RWs, as specified and establishes a procedure whereby
RWs can be offset against the taxes of true investors,
rather than those of financial intermediaries in order to
attract new investors to California bonds. Specifically,
this bill:
1. Revises and recasts current law that authorizes a
taxpayer who has a tax liability with respect to
personal income taxes or bank and corporation taxes and
who is a payee named in a RW to pay the tax liability
with the RW, as specified.
2. Establishes a procedure whereby a RW may be issued for
the payment of principal or interest due on a state
bond.
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: RWs, registered
reimbursement warrants, 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
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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
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."
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 5/16/11)
Apple Inc. (source)
Cisco Systems, Inc.
eBay Inc.
Google Inc.
Oracle Corporation
Qualcomm Inc.
TechNet
ARGUMENTS IN SUPPORT : The author's office maintains that
major corporations, including some of California's most
well-known companies, are currently precluded from
investing in California debt because California debt does
not meet the companies' investment criteria (due to credit
risk). The author's office believes that this problem can
be remedied with an update to existing law. The author's
office points out that existing law was drafted during a
time when California issued physical bonds to investors -
today the State distributes bonds through financial
institutions that hold bonds on an investor's behalf. This
has left uncertainty over who the "bondholder" is. As a
result, any tax benefits from state-issued RWs will accrue
to the financial institution rather than the true investor
in California debt. To resolve this problem, this bill
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clarifies that RWs can be offset against the taxes of true
investors, rather than those of financial intermediaries.
The author's office emphasizes that it is unlikely that
California would ever need to issue RWs for its bond
obligations (as they have second priority after education
funding for available funds). Thus, the proposed change
will have little material impact on the State Treasury, but
will pave the way for additional investment in California
debt.
PQ:do 5/16/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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