BILL ANALYSIS �
SB 506
Page 1
Date of Hearing: July 13, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 506 (Simitian) - As Amended: June 21, 2011
Policy Committee: Banking and
Finance Vote: 9-0
Revenue and Taxation 9-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill provides that, if the state issues a registered
warrant to pay principal or interest on a state bond that is
held in book entry form by a securities settlement system, the
bond's beneficial owner shall be deemed to be the taxpayer who
is permitted under existing law to submit a check for taxes owed
that the state cannot cash until the registered warrant is
payable. Specifically, this bill:
1)Bars the state from cashing the beneficial owner's check until
the registered warrant is payable.
2)Bars any beneficial owner who submits such a check from
receiving interest accruing on the registered warrant after
the date of the check's submission.
3)Defines a "state bond" as any general obligation bond or
revenue anticipation note issued by the state.
4)Authorizes the State Controller to promulgate implementing
regulations.
FISCAL EFFECT
Costs to the State Controller to administer the provisions of
the bill are minor and absorbable.
COMMENTS
SB 506
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1) Purpose . 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,
creating uncertainty over who is the bondholder. As a result,
any tax benefits from state issued warrants would accrue to
the financial institution holding the debt rather than the
actual investor. SB 506 clarifies that registered warrants
can be offset against the taxes of investors, rather than
financial intermediaries. The author argues that SB 506 would
pave the way for additional investment in California debt if
California ever has to issue RWs again.
2)Background . Warrants are the government equivalent of checks,
and are issued by the Controller to pay for the state's
obligations. A registered warrant is a promise to pay, with
interest, issued by the State when there is not enough cash to
meet the State's payment obligations. Registered warrants
bear interest and are redeemable by the State Treasury when
there is sufficient money. They are legal 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.
3)When did the State Controller last issue registered warrants?
On June 24, 2009, the State Controller announced plans to
issue registered warrants in an effort to manage the state's
cash crisis. To ensure the General Fund's ability to make
priority status payments, the State Controller's Office began
issuing registered warrants (also known as IOUs) on July 2,
2009, for all General Fund payments without priority status
under the Constitution, federal law or court order. These
warrants earned interest at a rate of 3.75% as determined by
the State Pooled Money Investment Board.
4) Relevant legislation .
a) AB 1044 (Butler), pending in Senate Appropriations,
requires the Board of Equalization to accept registered
warrants from a taxpayer with any tax, surcharge or fee
obligation.
b) SB 11 (Anderson), held on this committee's 2011 Suspense
File, would prohibit a state entity from assessing a fine,
SB 506
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interest or penalty on a debt owed to the state by the
payee of a registered warrant for a debt 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 the registered warrant.
c) SB 120 (Anderson), pending in this committee, 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.
5)Previous legislation
a) AB 1506 (Anderson), 2010, required a state agency to
accept from a person or entity a registered warrant for the
payment of any obligations owed by that payee to the state
agency. This measure was vetoed.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081