BILL ANALYSIS                                                                                                                                                                                                    




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair

                                           727 (Nielsen)
          
          Hearing Date:  7/13/2009        Amended: As Introduced
          Consultant:  Bob Franzoia       Policy Vote: G O 11-1
          _________________________________________________________________ 
          ____
          BILL SUMMARY:  A B 727 would include resource conservation  
          districts (RCD) within the list of entities entitled to late  
          payment penalties when a state entity fails to make payment for  
          goods and services to an RCD pursuant to a contract.  This bill  
          would permit late payment penalties to accrue to an RCD, a  
          certified small business, or a nonprofit organization in the  
          event a state agency fails to make timely payment because no  
          Budget Act has been enacted.
          _________________________________________________________________ 
          ____
                            Fiscal Impact (in thousands)

           Major Provisions         2009-10      2010-11       2011-12     Fund
           Expanded state late    Unknown, minor to major costs to  
          payGeneral/
          payment penalties      late payment penalties or whenever  
          thereSpecial
                                 is a delay in the adoption of the Budget  
          Act                    
          _________________________________________________________________ 
          ____

          STAFF COMMENTS: This bill meets the criteria for referral to the  
          Suspense File.
          
          Under the Prompt Payment Act, state agencies that acquire  
          property or services pursuant to a contract with a business are  
          required to make payment on the date required by the contract,  
          and within 45 days of the state agency's receipt of an  
          undisputed invoice or be subject to a late payment penalty of  
          0.25 percent per day of the amount due if the contractor is a  
          small business, or one percent above the Pooled Money Investment  
          Account rate for all other businesses.  A nonprofit organization  
          shall only be eligible to receive a penalty payment if it has  
          been awarded a contract or grant in an amount less than  
          $500,000.











          A nonprofit public benefit corporation means a corporation as  
          defined by subdivision 9b) of Section 5046 of the Corporations  
          Code, that has registered with the Department of General  
          Services as a small business.

          Late payment penalties have been increasing from $1.8 million to  
          $3.8 million annually over the past five fiscal years.  While  
          the State Controller's Office (SCO) processes late payments and  
          reports pursuant to Government Code 927.9, it does so on behalf  
          of state agencies that have the initial responsibility of  
          ensuring grant payments are made on time.  At this time, there  
          is no central database of grants.  Specific information on late  
          payment penalties is difficult to obtain because not all payment  
          information is provided to the SCO in formats that can be  
          readily aggregated.  In general, the contracting state entity  
          has 30 days to submit the claim and the SCO has 15 days to issue  
          the warrant (check).  When the contracting state entity submits  
          a late claim, this may be unknown to the SCO because the entity  
          adjusts the claim to include any late payment penalties.

          Late payments may occur for a variety of reasons including  
          administrative decisions 
          Page 2
          AB (727) Nielsen 

          relating to cash flow or the timely sale of bonds, delays in  
          meeting conditions set forth in federal legislation and so  
          forth.

          Numerous state entities have contract authority.  For example,  
          the State Water Resources Control Board (SWRCB) has an estimated  
          73 grant agreements with a balance of $18 million that would be  
          subject to the provisions of this bill.  If the SWRCB was 30  
          days late with 20 percent of grant payments to nonprofit public  
          benefit corporations, the costs to the SWRCB would be an  
          estimated $90,000 for the fiscal year.  If the SWRCB was late on  
          all such grant payments, staff estimates the total cost would be  
          over $433,000 for the fiscal year.  

          In some case, these costs would be a General Fund obligation as  
          bond funds that are the source of SWRCB grants, cannot be used  
          for late payment penalties. 

          For purposes of illustration, if $5,000,000 in grants was  
          delayed ten days, the late payment penalty would be $125,000  
          ($5,000,000 x 0.0025 x 10).











          There are 103 RCDs in the state which are mostly funded through  
          state and federal grants.  RCDs are special districts organized  
          under the Public Resources Code and have a locally elected or  
          appointed volunteer board of directors made up of landowners in  
          that district.  RCDs address a wide variety of conservation  
          issues including forest fuel management, water and air quality,  
          wildlife habitat restoration, soil erosion control, and  
          conservation education.   

          This bill is similar in intent to SB 553 (Wiggins) and SB 643  
          (Denham) which are on the Suspense File.