BILL ANALYSIS AB 727 Page 1 Date of Hearing: April 29, 2009 ASSEMBLY COMMITTEE ON APPROPRIATIONS Kevin De Leon, Chair AB 727 (Nielsen) - As Introduced: February 26, 2009 Policy Committee: Business and Professions Vote: 9 - 0 Urgency: No State Mandated Local Program: No Reimbursable: SUMMARY This bill expands the definition of small businesses in the California Prompt Payment Act to include Resource Conservation Districts (RCDs). This expansion allows RCDs to be paid the higher level of penalty payment if the state fails to pay them any required payments in a timely manner FISCAL EFFECT 1)Any delay in the implementation of the annual budget would result in a GF penalty cost for the state under this legislation. 2)Using this year's budget delay as an example, if a budget were signed by September 23 (85 days into the start of the fiscal year) for every $5 million in delayed RCD payments, the penalty cost for this legislation would be $500,000 in GF. COMMENTS 1)Purpose . According to the author's office, current law treats Resource Conservation Districts (RCDs) in different ways. In some parts of the code RCDs are treated as non-profit entities that the state contracts with to perform certain projects, and in other parts of the code they are treated as quasi-state entities, as an extension of the state itself. Due to this AB 727 Page 2 complex and ambiguous treatment, RCDs do not have a clear set of rules under which they are to be paid for projects that they perform for the state. This leads, in some cases, to payments not being made for several years with no penalty to the state. Under this legislation, RCDs would be eligible for a 0.25% per day payment penalty for all payments that are delayed beyond 45 days. 2)The Prompt Payment Act requires the state to pay amounts due on the date specified in a contract or within 45 days of a properly submitted, undisputed invoice, or pay a penalty of 0.25% per day if the contractor is a small business or non profit organization, or 1% above the Pooled Money Investment Account rate for all other businesses. 3)Resource Conservation Districts . RCDs emerged during the 1930s as a way to prevent the soil erosion problems of the Dust Bowl from recurring. Formed as independent local liaisons between the federal government and landowners, conservation districts have always worked closely with the USDA Natural Resources Conservation Service (formerly the Soil Conservation Service). In California, RCDs are special districts organized under the state Public Resources Code. Each district has a locally elected or appointed volunteer board of directors made up of landowners in that district. RCDs address a wide variety of conservation issues such as forest fuel management, water and air quality, wildlife habitat restoration, soil erosion control, and conservation education. California has 103 RCDs, most of which are funded largely through state and federal grants. 4)Related Legislation . This bill is virtually identical to AB 2992 (La Malfa) from 2008 that was vetoed due to the late passage of the 2008-09 budget. In the message the governor wrote, "I am only signing bills that are the highest priority for California. This bill does not meet that standard and I cannot sign it at this time." In 2008, SB 983 (Correa) would have expanded the definition of small businesses in the California Prompt Payment Act to AB 727 Page 3 include disabled veteran business enterprises (DVBE). This expansion allows DVBEs, regardless of size, to be paid the higher level of penalty payment if the state fails to pay them any required payments in a timely manner. That bill was held on this committee's suspense file. Analysis Prepared by : Julie Salley-Gray / APPR. / (916) 319-2081