(a) It is the intent of the Legislature to establish a new pilot program to explore possible improvements to the state‘s existing advance payment practices for state-funded local assistance grants.

(b) For purposes of this section, all of the following shall apply:

(1) “Administering state agency” means a state agency that administers a grant program that is eligible for advanced payments pursuant to this section.

(2) “Recipient entity” means a local agency or a nongovernmental entity that is awarded a grant by an administering state agency and with whom the administering state agency has entered into a contract pursuant to that grant.

(3) “Recipient state agency” means a state agency that is awarded a grant by an administering state agency and with whom the administering state agency has entered into a contract pursuant to that grant.

(4) “State agency” has the same meaning as in Section 11000.

(c) An administering state agency may advance a payment to a recipient entity pursuant to the following:

(1) The administering state agency shall do all of the following:

(A) Prioritize recipients and projects serving disadvantaged, low-income, and under-resourced communities or organizations with modest reserves and potential cashflow problems.

(B) Stipulate an advance payment structure and request process within the grant agreement or contract between the administering state agency and the recipient entity.

(C) Ensure the advance payment to the recipient entity does not to exceed 25 percent of the total grant amount awarded to that recipient entity. An administering state agency may exceed the 25-percent limit if the administering state agency determines that the project requires a larger advance and the recipient entity provides sufficient justification and documentation to the administering state agency.

(2) (A) Recipient entity shall be subject to the following minimum requirements:

(i) Provide an itemized budget, spending timeline, and workplan developed in a form and manner specified by the administering state agency.

(ii) Submit documentation, as required by the administering state agency, to support the need for advanced payment, which may include, but is not be limited to, invoices, contracts, estimates, payroll records, and financial records.

(iii) Demonstrate good standing with the Internal Revenue Service.

(iv) Obtain insurance, if required by the administering state agency and stipulated within the grant agreement.

(v) Deposit any funds received as an advance payment into a federally insured, interest-bearing account that provides the ability to track interest earned and withdrawals. Any accumulated interest shall be deemed to be grant moneys, subject to federal laws and regulations, and the recipient shall report interest earned on the advanced payment to the administering state agency.

(vi) Establish procedures to minimize the amount of time that elapses between the transfer of funds and the spend down of those funds by the recipient or subrecipient. Further advance payments shall not be made until a grantee is able to demonstrate that all previously advanced funds have been spent down or a plan is in place to ensure spend down of those funds in a timely manner.

(vii) Provide progress reports on the spend down of advanced funds no less than on a quarterly basis. The administering state agency may require progress reports on the spend down of advanced funds. All unused funding provided as an advance payment, but not spent down within the grant timeline, shall be returned to the state.

(viii) Provide a progress report to the administering state agency following the expenditure of an advance payment that includes a summary or work completed, proof of expenditure, and other associated information.

(B) (i) Recipient entities may provide moneys from the advance payment to subrecipients in accordance with their grant program requirements.

(ii) Recipients shall require all entities they subcontract with or award grant moneys to comply with clauses (vi) and (viii) of subparagraph (A).

(iii) Regardless of any transfer or assignment of advanced payments to subrecipients, recipients shall be liable to the state agency for complying with subparagraph (B) and for any failures by subrecipients to perform contractual obligations or to comply with the requirements of this section.

(d) An administering state agency may advance a payment to a recipient state agency in accordance with all of the following:

(1) The administering state agency shall stipulate an advance payment structure and request process within the grant agreement or contract between the state agency administering the program and the recipient state agency.

(2) Each recipient state agency shall provide an itemized budget, a spending timeline, and a workplan, in a form and manner specified by the administering state agency.

(3) (A) The administering state agency may require the recipient state agency to provide progress reports on the spend down of the advance payment.

(B) All unused funding provided as an advance payment, but not spent down within the grant timeline, shall be returned to the administering state agency.

(e) An administering state agency may apply and utilize the advance payment program established by this section only if the program administered by the administering state agency expressly authorizes the use of this section.

(f) An administering state agency authorized to use the advance payment program established by this section may also apply for and utilize the advance payment program in Section 11019, as applicable.

(g) Advance payments authorized under this section shall be limited to the minimum immediate cash requirements necessary to carry out the purpose of the approved activity, program, or project, as determined by the administering state agency and subject to that administering state agency’s approval of the recipient entity’s or recipient state agency’s workplan and written justification.

(h) The Department of Finance or its designee may audit, during or after the conclusion of the term of the grant agreement, any state agency, recipient, or subrecipient that received an advanced payment under this section. The state agency, recipient, or subrecipient shall cooperate fully with the audit, including, but not limited to, providing access to its staff, books, records, accounts, or other materials, as requested.

(i) This section shall not be construed as limiting, prohibiting, or superseding any existing payment or grantmaking authorizations or powers of state agencies utilizing this section.

(j) On or before January 10, 2025, the Department of Finance shall provide a report to the Legislature, in compliance with Section 9795, that identifies outcomes of the advanced payment pilot authorized in this section. The report shall include, but is not limited to, all of the following:

(1) The number of payments advanced pursuant to this section, including by program and geographic location.

(2) The number of payments advanced pursuant to this section that exceeded the 25-percent limit allowed in subparagraph (C) of paragraph (1) of subdivision (c), including by program and geographic location.

(3) A summary of any adverse audit findings associated with audits conducted pursuant to subdivision (h).

(k) This section shall remain in effect only until July 1, 2025, and as of that date is repealed.

(Added by Stats. 2022, Ch. 569, Sec. 15. (AB 156) Effective September 27, 2022. Repealed as of July 1, 2025, by its own provisions.)