FAQ State Controllers Office – John Chiang
1. How bad is the State's cash flow?
It is critical that the Governor and the Legislature enact a sound budget solution that provides much-needed cash by February 1. If not, the State will be $346 million in the red at the end of February, and $5.2 billion in the red in April. Without corrective action by lawmakers, the State's shortfall may exceed $10 billion by July.
2. Why is the State delaying payments?
In order to 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 Controller must, starting in February, begin delaying payments to others funded by the State's depleted General Fund.
3. What payments will be delayed?
Thousands of payments to businesses for services and products they provide to the State; to assistance for more than a million aged, blind and disabled Californians that goes to pay their rent, utilities, or put food on their tables; to State agencies that use the payments to fund critical public services, ranging from public safety to health and welfare; and to pay tax refunds for individuals and businesses that overpaid their 2008 taxes. A more complete list of those payments that will be delayed is available on this Web site.
4. How long will the payments be delayed?
For the month of February, the delays will be for 30 days. Departments are directed to take the full 30 days allowed by the Prompt Payment Act to process General Fund claims submitted by vendors, thus minimizing the potential for interests costs related to the delayed payments. The SCO will also hold claims an additional 30 days and, assuming the claim is correct and valid, will subsequently begin processing these claims.
5. Why don't you just issue registered warrants, or IOUs?
There are no assurances at this time that all financial institutions will accept registered warrants (IOUs) and it is unlikely that any registered warrants issued will be redeemed by the State for several months. Additionally, registered warrants likely will complicate the cash flow borrowing which the State will be required to undertake in July. As the Governor and Legislature work to fix our budget, they are expected to need short-term or cash-flow borrowing from the credit markets to make any new budget work.
6. Doesn't delaying payments also hurt the State's ability to seek loans?
Delaying payments is a more common accounting practice used by many businesses when cash is less than what is needed to immediately meet their obligations. Wall Street recognizes that tactic and can relate the State's use of it to the private sector. By delaying payments the State can immediately 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. Will I get interest?
If Personal Income Tax refunds are not paid on or before May 30, 2009, then interest accrues at 5% from April 15, 2009, until 30 days prior to the payment issue date. If Bank and Corporation Tax refunds are not issued on or before June 15, interest accrues from March 15 at 2%, until 30 days prior to the issuance date. If paid beyond July 1, it is possible different interest factors may apply after June 30, as the Franchise tax Board sets the interest rates semi-annually.
8. 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 (includes K-12, UC, state and community colleges)
- 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 payments that will be made on the regular schedule is available on this Web site.
9. Why are state lawmakers and Constitutional Officers still getting their regular pay when other payments are delayed?
The only time the Controller can withhold salaries for elected State officials, their appointed staff and others who are not covered by the federal Fair Labor Standards Act is during times when there is no budget in place. With a budget in place, the Controller has no discretion to withhold salaries when there is an appropriation from the Legislature.
10. Will my SSI/SSP payment be delayed?
The SSI is a federal program administered by the Federal Social Services Administration (SSA). SSP is a supplemental state-funded program that also is administered through the SSA. The SSA has "floated" the States portion in the past when the State could not provide funding due to a lack of a budget. Because the SSA requires a 30-day notification before ceasing payment, state health officials believe the SSA will continue to disburse both federal and state payments to California's elderly, blind and disabled recipients at least through March and possibly April.
11. I am an IHSS worker. Will my pay be delayed?
In-Home Supportive Services workers will continue to receive their regular paychecks as required by the federal Fair Labor Standards Act (FLSA).
12. What Medi-Cal payments will continue to be paid on a regular schedule?
Both institutional and non-institutional Medi-Cal payments will continue to be paid regularly. Payments will continue to be made for institutional and non-institutional providers, including 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.
