BILL ANALYSIS �
SB 506
Page 1
SENATE THIRD READING
SB 506 (Simitian)
As Amended August 18, 2011
Majority vote
SENATE VOTE :39-0
BANKING & FINANCE 9-0 REVENUE & TAXATION 9-0
-----------------------------------------------------------------
|Ayes:|Eng, Achadjian, Fuentes, |Ayes:|Perea, Donnelly, Beall, |
| |Gatto, Roger Hern�ndez, | |Charles Calderon, |
| |Lara, Morrell, Perea, | |Cedillo, Fuentes, |
| |Torres | |Wieckowski, Harkey, |
| | | |Nestande |
-----------------------------------------------------------------
APPROPRIATIONS 16-0
--------------------------------
|Ayes:|Fuentes, Harkey, |
| |Blumenfield, Bradford, |
| |Charles Calderon, Campos, |
| |Davis, Donnelly, |
| |Dickinson, Hall, Hill, |
| |Lara, Nielsen, Norby, |
| |Solorio, Wagner |
| | |
--------------------------------
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.
EXISTING LAW 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 : According to the Assembly Appropriations
SB 506
Page 2
Committee, the costs to the State Controller to administer the
provisions of the bill are minor and absorbable.
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
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 state's lack of cash at
that time.
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.
SB 506 adds clarification that RWs can be offset against the
taxes of true investors, rather than those of financial
intermediaries. SB 506 has the intention of paving the way for
additional investment in California debt if California ever has
to issue RWs again.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081
FN: 0001812
SB 506
Page 3