BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
402 (Wolk)
Hearing Date: 05/18/2009 Amended: 04/28/2009
Consultant: Mark McKenzie Policy Vote: Rev&Tax 5-2
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BILL SUMMARY: SB 402 would enact the Financial Institution
Record Match (FIRM) Program. Specifically, this bill would:
Require financial institutions to match a list for delinquent
tax debtors against its customer account records and provide
specified information on each identified individual to the
Franchise Tax Board (FTB) on a quarterly basis.
Prohibit financial institutions from notifying account holders
that specified information has been received from or furnished
to FTB.
Absolve financial institutions from liability related to
implementation of FIRM.
Impose a penalty upon financial institutions for willful
failure to comply of $50 for each record not provided, up to a
maximum of $100,000 in a calendar year.
Require FTB to reimburse financial institutions for actual
costs to implement and administer the program, up to $2,500
for startup costs and no more than $250 per quarter
thereafter.
Specifiy that implementation of FIRM is not operative until
120 days after funds are appropriated for that purpose.
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Fiscal Impact (in thousands)
Major Provisions 2009-10 2010-11 2011-12 Fund
FTB: Project Costs $3,155 $4,484 $2,216 General
FTB: Program Costs $1,005 $3,204 $3,414 General
Financial Institution reimb. $495 $2,155
$800General
Total Costs $4,655 $9,844 $6,430 General*
Revenue Collections (gains) ($35,000)
($63,000) General*
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* Staff notes that total costs for FY 2012-13 would be $5.9
million, and revenue collections would be $99 million.
Financial institution reimbursements would be $800,000 ongoing,
while revenue collections are projected to increase annually,
reaching $150 million annually by 2017-18 when FIRM is fully
phased-in.
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
Existing law mandates the establishment of the Financial
Information Data Match (FIDM) program, which requires financial
institutions to match its customer records against a list of
child support debtors. Financial institutions may comply with
the requirement by sending its depositor information to FTB, or
match the names themselves, either in-house or contracting with
a data management firm. Once a name from the child support
debtor list matches a name on the financial institution's
customer records, FTB issues an order to withhold (OTW) to the
financial institution,
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SB 402 (Wolk)
which must then freeze the taxpayer's assets and remit amounts
necessary to satisfy the debt, as specified. Federal law
prohibits FIDM information from being used for any purpose other
than the collection of outstanding child support debts. This
bill would adapt the FIDM record matching model to efforts aimed
at improving collections for tax delinquencies.
FTB indicates that modification to core processes would be
required to ensure that existing collection processes can handle
the increased volume of data expected under this bill.
Specifically SB 402 would require system programming,
development, and testing to ensure successful integration. In
an effort to bring in revenue as soon as possible, FTB will
implement a semi-automated effort in the initial phase of the
project, whereby collection staff will manually generate the
OTWs. Upon full project implementation, which is estimated to
take 18 months, an automated process would be available to issue
the OTWs generated from the new data obtained under this
proposal. The "project costs" noted in the fiscal summary
include hardware procurement, "SWIFT" licenses for data
transmission, system reprogramming, development of FIRM data
file and matching processes, and system testing. "Program
costs" include staffing augmentations to facilitate data
matching with 800 financial institutions, to handle additional
levies resulting from data received, and to answer increased
taxpayer inquiries.
The revenue impact of this bill would be determined by the
number of successful matches identified by financial
institutions and the collection rate on those accounts. FTB
estimates that FIRM would result in some acceleration of
existing collection efforts as well as new revenues from data
matching. FTB estimates record matches would identify
approximately $2.5 billion in assets maintained at financial
institutions from 1.5 million debtors. Assuming financial
institutions could initially process 15 percent of these levies
with 8 percent of outstanding balances collected, FTB estimates
first year combined revenue gains of approximately $35 million.
Since the new collection process would begin 12 months after
enactment of SB 402, this General Fund revenue gain would accrue
to the 2010-11 fiscal year. Financial institutions would be
able to process additional OTWs in subsequent fiscal years,
resulting in increased revenue gains each year. When the
project is fully phased in by 2017-18, additional collections
are projected at $150 million.
Staff notes that last year FIRM was discussed in the Budget
Conference Committee, but its implementation was opposed by the
Department of Finance because a Feasibility Study Report (FSR),
which is required for all new IT projects, had not been
completed. The FSR has since been completed, but the
Administration has not proposed to include the project in the
2009-10 Budget. FTB has submitted a Budget Change Proposal
(BCP), however, to request funding of $3.2 million in the Budget
to begin implementation in the budget year. This proposal has
been heard in the Budget Subcommittees of both the Assembly and
Senate with recommendations to approve the BCP. If this
proposal is included in the final Budget Act, FTB estimates that
revenue collections could begin earlier, resulting in a $35
million revenue gain accrued to the 2009-10 fiscal year.