BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 506|
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UNFINISHED BUSINESS
Bill No: SB 506
Author: Simitian (D), et al
Amended: 8/18/11
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
SENATE FLOOR : 39-0, 5/23/11 (Consent)
AYES: Alquist, Anderson, Berryhill, Blakeslee, Calderon,
Cannella, Corbett, Correa, De Le�n, DeSaulnier, Dutton,
Emmerson, Evans, Fuller, Gaines, Hancock, Hernandez,
Huff, Kehoe, La Malfa, Leno, Lieu, Liu, Lowenthal,
Negrete McLeod, Padilla, Pavley, Price, Rubio, Runner,
Simitian, Steinberg, Strickland, Vargas, Walters, Wolk,
Wright, Wyland, Yee
NO VOTE RECORDED: Harman
ASSEMBLY FLOOR : Not available
SUBJECT : State finance: warrants
SOURCE : Apple Inc.
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DIGEST : This bill updates and modernizes existing law
pertaining to registered warrants.
Assembly Amendments delete language that authorizes the
State Controller to promulgate regulations to establish a
procedure where a registered warrant may be issued for the
payment of principal or interest due on a state bond.
ANALYSIS : Existing law authorizes holders of warrants to
use registered warrants (RWs) to pay state income and
corporation tax liabilities, including estimated payments.
This bill updates and modernizes existing law pertaining to
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.
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
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tax refunds and owners of unclaimed property.
A RW is a "promise to pay," or an IOU, that is issued by
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) (unable to reverify at time
of writing)
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
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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
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 8/29/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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