BILL ANALYSIS Bill No: AB 727 SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION Senator Roderick D. Wright, Chair 2009-2010 Regular Session Staff Analysis AB 727 Author: Nielsen As Introduced: February 25, 2009 Hearing Date: June 23, 2009 Consultant: Art Terzakis SUBJECT Prompt Payment Act: Resource Conservation Districts DESCRIPTION AB 727 makes resource conservation districts (RCDs) eligible for specified late payment penalties, pursuant to the state's Prompt Payment Act, when state agencies are delinquent in making contract payments to RCDs. EXISTING LAW Existing law, the Prompt Payment Act, requires state agencies to pay properly submitted, undisputed invoices within 45 calendar days of initial receipt. If the requirement is not met, state departments must automatically calculate and pay the appropriate late payment penalties as specified in Government Code Section 927, et seq. The penalty rate is 0.25% per calendar day if the contractor is a small business or the Pooled Money Investment Account (PMIA) rate plus 1% (not to exceed 15%) for all other businesses. BACKGROUND Purpose of AB 727: According to the author's office, current law treats Resource Conservation Districts (RCDs) in several 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 AB 727 (Nielsen) continued Page 2 code they are treated as quasi-state entities, as an extension of the state itself. Due to this complex and ultimately ambiguous nature of treatment of RCDs, they 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, of payments not being made for several years with no penalty to the state. As noted above, existing law 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 1% above the PMIA rate for all other businesses. This measure would simply include RCDs within the prompt payment provisions applicable to small businesses. Arguments in Support: Proponents state that late payments to RCDs around the state continue to hamper districts' ability to administer state contracts and since RCDs do not receive funding for basic capacity, they do not have adequate cash reserves to front money to their contractors while waiting for payment from the state agencies that have funded the projects. Proponents of this measure note that RCDs across the state are completing millions of dollars of conservation and restoration work. Proponents emphasize that RCDs need to receive timely reimbursement on invoices for state-funded projects to assure that this good work continues. Arguments in Opposition: Opponents express sympathy to the plight of RCDs when invoices are slow to be paid, however given the State's current fiscal situation and the potential costs associated with this measure, opponents do not believe the timing is right to afford RCDs this prioritization. Resource Conservation Districts (RCDs): 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 AB 727 (Nielsen) continued Page 3 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 approximately 103 RCDs, most of which are funded largely through state and federal grants. PRIOR/RELATED LEGISLATION SB 643 (Denham) 2009-10 Session. Would add "disabled veteran business enterprise" (DVBE) to the definition of small business, found within the California Prompt Payment Act so that certified DVBEs receive the same prompt payment protections afforded other California small businesses. (Held in Senate Appropriations - suspense file) SB 553 Wiggins) 2009-10 Session. Would make substantive, clarifying and technical changes to the California Prompt Payment Act in order to create clarity and equity for nonprofits with respect to late payments for contracts and grants. (Held in Senate Appropriations - suspense file) AB 2992 (La Malfa) 2007-08 Session. Identical to AB 727 (Nielsen) of 2009. (Vetoed by Governor on the basis that the delay in passing the 2008-2009 State Budget forced him to prioritize bills and only sign bills that met his standard of "highest priority for California.") SB 159 (Wyland) 2007-08 Session. Identical to SB 643 (Denham) of 2009. (Died in Assembly Appropriations Committee) SUPPORT: As of June 19, 2009: California Association of Resource Conservation Districts California Special Districts Association Contra Costa Resource Conservation District Counties of Colusa and Siskiyou Glenn County Resource Conservation District Honey Lake Valley Resource Conservation District Inland Empire Resource Conservation District Marin Resource Conservation District Mission Resource Conservation District AB 727 (Nielsen) continued Page 4 Napa County Resource Conservation District Regional Council of Rural Counties Resource Conservation District Ventura County San Jacinto Basin Resource Conservation District Shasta Valley Resource Conservation District Sotoyome Resource Conservation District Tahoe Resource Conservation District Tehama County Resource Conservation District Western Shasta Resource Conservation District Wildscape Restoration OPPOSE: As of June 19, 2009: Department of Fish and Game State Water Resources Control Board FISCAL COMMITTEE: Senate Appropriations Committee **********