Home California Fiscal Issues and Information page Frequently Asked Questions about Status of Payments upon Enactment of Fiscal 2010-11 State Budget

Frequently Asked Questions about Status of Payments upon Enactment of Fiscal 2010-11 State Budget

Update: The California Treasurer’s Office has succeeded in obtaining an interim $6.7 billion borrowing which will allow the State to pay the $5.5 billion in delayed payments to individuals and businesses owed tax refunds, community colleges, and K-12 schools that were authorized by AB 1624

The only AB 1624 deferrals that will continue to be held are $323 million in Cal Grant payments to UC and CSU, and a $359 million payment to UC. However, UC and CSU will continue to pay Cal Grants to students using other funds until the State releases the payments.

All of the UC and CSU payments will be held until no later than December 10, or until the Treasurer is able to complete the traditional, full cash loan, expected in late November.

Frequently Asked Questions:

1. A budget was just signed and enacted, why are you delaying payments?

To confront our cash problems and ensure that there is adequate cash for education, debt service and other General Fund payments that are deemed by the State Constitution, federal law or court rulings as having first claim to available General Fund cash, the Legislature approved, and the Governor signed, AB 1624, which defers some payments until the State Treasurer can secure an external cash loan through the sale of Revenue Anticipation Notes (RANs).

Since January 2010, State Controller John Chiang had repeatedly warned the Governor and the Legislature that California was expected to run out of cash in later summer 2010, and urged swift action to pass a budget that honestly addressed the State’s projected budget and cash shortfalls. Without a budget in place on the July 1 start of the fiscal year, the Treasurer was unable to sell the RANs typically needed to smooth over cash shortfalls. For 27 of the past 28 years, RANs have been used to provide the State with cash during the early “revenue-dry” months of the fiscal year until the bulk of annual revenues from tax receipts are received in the last third of the fiscal year. Usually obtained by September or October, this year’s RANs have not yet been sold due to the historic, 100-day delay in enacting a budget. There is not enough money in the treasury to meet all of the State’s current payment obligations.

2. How bad is the State’s cash flow?

Unfortunately, the more than three-month long stalemate over a spending plan resulted in the State being unable to make more than $8.3 billion in payments to small businesses, community clinics, and local governments since July 1. After accounting for September’s cash receipts and expenditures, the State’s available cash to make all payments dips to just $3.5 billion at the end of October, creating a need for at least $4.8 billion additional funds in October alone.

3. What payments will be delayed?

The majority of the delayed payments authorized by AB 1624 will be to agencies that continued to receive payments since July 1, even though there was no budget in place. Until there is sufficient funding AB 1624 authorizes the temporary delay of payments to K-12 for Proposition 98 appropriations, personal and business income tax refunds, the University of California and the California State Teachers’ Retirement System. These deferrals provide the cash necessary to pay back small businesses that contract with the State, community clinics, local programs and most other entities that went without payment during the three-month budget delay. The Controller’s website includes a chart showing the cash problem that follows enactment of the budget, as well as a breakdown of the budget’s payment deferrals.

4. How long will the payments be delayed?

Under AB 1624, there are specific dates that delayed payments will be made. Please see the payment deferral list for scheduled payment dates.

For claims that had not been paid during the budget stalemate, and can now be paid due to the enacted budget, the Controller has ordered his staff to work around the clock to ensure those delayed payments are made no later than 15 days after they are received from departments and agencies.

5. Why don’t you just issue registered warrants, or IOUs?

Registered warrants, or IOUs, are the option of last resort when the State is faced with a cash deficit. Issuing IOUs makes it much more difficult and expensive to obtain external loans, or Revenue Anticipation Notes (RANs), that are needed to smooth over cash shortages during the first eight months of the fiscal year until tax revenues begin arriving during the last four months.

While the Controller does not believe IOUs are warranted at this time, they are still a possibility, depending on how October and November receipts and expenditures compare to budget projections, whether there are elements in the newly-enacted budget that will provide cash to the State, how big an external borrowing will be required, and how quickly that borrowing can be secured.

6. Doesn’t delaying payments also hurt the State’s ability to seek loans?

Delaying payments is a more common cash management tool used by many businesses when cash is less than what is needed to immediately meet their obligations. Wall Street is familiar with this cash management practice and can relate the State’s use of it to the private sector. By delaying payments, the State can immediately turn around and issue payments as soon as cash becomes available. IOUs are more complex, and the redemption process could delay the time it takes to transmit those funds to the recipient.

7. What payments will continue to be made?

The payments that will be made as regularly scheduled are those deemed by the State Constitution, federal law or court order as having first claim on General Fund cash, such as:

• Education (except for the payments AB 1624 authorized to delay).
• Debt service (General Obligation bonds, lease revenue bonds, internal borrowing).
• Payroll
• Department of Social Services In-home Support Service with federal match.
• Managed Risk Medical Insurance Board’s Healthy Families Program.

A list of other payments that will be made on their regular schedule, as long as there is money in the treasury, is available on this website.

8. Will the State pay me interest for the period in which my income tax refund is delayed?

Once there are sufficient funds in the state Treasury, personal and business income tax refunds will be paid. If personal income tax refunds are not paid by November 30, and the tax returns were filed by October 15, they will accrue interest at a 4% rate. No interest accrues on delayed corporate income tax refunds.

9. Will my SSI/SSP payment be delayed?

No. The SSI is a federal program administered by the Federal Social Services Administration (SSA) that provides cash assistance to blind, elderly and disabled residents. SSP is a supplemental state-funded program that also is administered through the SSA. Even without a budget, the State continued to pay its SSP portion of the SSI/SSP payments because it is a federally-mandated program.

10. I am an IHSS worker. Will my pay be delayed?

In-Home Supportive Services workers have and will continue to receive their regular paychecks as required by the federal Fair Labor Standards Act (FLSA).

11. I am a retired teacher. Will my pension check be delayed?

No, you will continue to receive your pension payments from the California State Teachers’ Retirement System (CalSTRS) on a timely basis. AB 1624 authorized a one-month delay of the State’s quarterly contribution scheduled to be made to CalSTRS on October 15, resulting in a revised payment date of November 15. However, that delay will be offset with a payment acceleration later next year. Specifically, a payment scheduled to be made on April 15, 2011, will now be made on March 14, 2011, resulting in a neutral impact to CalSTRS.

12. I am a college student. Will my CalGrant be delayed?

Without a budget in place, the Controller was unable to make CalGrant payments to the University of California and California State University systems, as well as California Community Colleges. Under AB 1624, CalGrant payments for UC and CSU students will continue to be delayed until no later than December 10. However, UC and CSU officials have assured the state financial officers that they will cover the CalGrants for their students until the state payments have been made.

CalGrant payments for community college students that were delayed as a result of the 100-day budget impasse will now be paid.

13. What Medi-Cal payments will continue to be paid on a regular schedule?

Without a budget, up to $2 billion in state and federal funds may be paid to Institutional Providers of Medi-Cal Services and Regional Centers for services provided between July 1 and September 1. Due to the American Recovery & Reinvestment Act of 2009, hospitals and nursing homes also were paid during the budget stalemate until the $2 billion in funds ran out. With the enactment of a budget, all Medi-Cal providers – including institutional and non-institutional providers, doctors, nurses, dentists, adult day health care, home health care agencies, regional health care agencies, pharmacies, and other Medi-Cal home- and community-based services – will receive all payments owed them, and will be paid on a regular basis.