Cash Management

With a budget now enacted, the state controller is authorized to make payments that have been held up. The problem is that the budget enactment did not create more cash. Indeed, not having a budget conserved cash precisely because payments were not being made.

Excerpts from the website of controller John Chiang:

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…

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, CalWorks Stage 1 child care, 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…

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…

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.

Full item at http://sco.ca.gov/fiscal_2010-11_budget_payment_status_faq.html