BILL ANALYSIS                                                                                                                                                                                                    �



                                                                  SB 506
                                                                  Page  1

          Date of Hearing:   June 20, 2011

                      ASSEMBLY COMMITTEE ON BANKING AND FINANCE
                                   Mike Eng, Chair
                     SB 506 (Simitian) - As Amended:  May 5, 2011

           SENATE VOTE  :   39-0
           
          SUBJECT  :   State Finance: warrants. 

           SUMMARY  :   Updates and modernizes existing law pertaining to 
          registered warrants (RWs).   Specifically,  this bill  :   

          1)Revises and recasts current law that authorizes a taxpayer who 
            has a tax liability with the respect to personal income taxes 
            or bank and corporation taxes who is a payee named in a RW to 
            pay the tax liability with the RW. 

          2)Establishes a procedure whereby a RW may be issued for the 
            payment of principal or interest due on a state bond. 

          3)Authorizes the State Controller to promulgate regulations to 
            establish a procedure where a RW may be issued for the payment 
            of principal or interest due on a state bond. 

           EXISTING LAW  

          1)Authorizes holders of warrants to use RWs to pay state income 
            and corporation tax liabilities, including estimated payments. 
             (Government Code, Section 17280.1)

           FISCAL EFFECT  :   Unknown.

           BACKGROUND  :

          Warrants are the government equivalent of checks, and are issued 
          by the Controller to pay for the state's obligations.  There are 
          three types of warrants:  RWs, registered reimbursement 
          warrants, and registered refunding warrants.  

          A registered warrant is a "promise to pay," with interest, that 
          is issued by the State when there is not enough cash to meet all 
          of the State's payment obligations.  RWs bear interest and are 
          redeemable by the State Treasury only when the General Fund has 
          sufficient money.  RWs are presently considered legal 








                                                                  SB 506
                                                                  Page  2

          investments for all trust funds, insurance funds, saving and 
          loan funds, and funds of all counties, municipal corporations, 
          districts, public corporations, political subdivisions, and 
          state agencies.  When available cash falls below liabilities, 
          the Controller pays its creditors with RWs.  The controller has 
          not issued RWs since 2009, due to the states lack of cash at 
          that time.  This measure would not be triggered unless the 
          Controller had to issue RWs again.  This is rare. 

          According to the Author, existing law is defective because it 
          does not recognize the way bonds are issued today.  When the law 
          was enacted, California issued physical bonds to investors.  The 
          state now distributes bonds through financial institutions that 
          hold bonds on the investor's behalf.  This has left uncertainty 
          over who the bondholder is.  As a result, any tax benefits from 
          state issued warrants would accrue to the financial institution 
          rather than the true investor in California debt.  

          AB 506 adds clarification that RWs can be offset against the 
          taxes of true investors, rather than those of financial 
          intermediaries.  AB 506 has the intention of paving the way for 
          additional investment in California debt if California ever has 
          to issue RWs again. 

           RELATED LEGISLATION
           
          AB 1044 (Butler, 2011 Legislative Session) would require the 
          Board of Equalization 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.  

          SB 11 (Anderson, 2011 Legislative Session) would prohibit a 
          state entity from assessing a fine, interest, or penalty on a 
          debt owed to the state for the payee of a RW if the debt owed to 
          the state was imposed between January 1, 2006 and December 31, 
          2009 and would change the due date of a state debt to 30 days 
          after the payable date of RWs. 

          SB 120 (Anderson, 2011 Legislative Session) would require a 
          state agency to accept a RW, or other similar evidence of 
          indebtedness issued by the state controller, for payment of any 
          state obligation.  

           PREVIOUS LEGISLATION
           








                                                                  SB 506
                                                                  Page  3

          AB 1506 (Anderson, 2010 Legislative Session) would have required 
          a state agency to  accept from a person or entity a RW 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 measure was vetoed by Governor. 

           REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          Apple, Inc.
          Cisco Systems, Inc.
          eBay Inc.
          Google Inc.
          Oracle Corporation
          Qualcomm Inc.
          TechAmerica
          TechNet
           
            Opposition 
           
          None on file.

           Analysis Prepared by  :    Kathleen O'Malley / B. & F. / (916) 
          319-3081