BILL ANALYSIS
Bill No: SB
553
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2009-2010 Regular Session
Staff Analysis
SB 553 Author: Wiggins
As Amended: April 22, 2009
Hearing Date: April 28, 2009
Consultant: Art Terzakis
SUBJECT
Payment of State Claims: grants: nonprofit corporations
DESCRIPTION
SB 553 makes substantive, clarifying and technical changes
to the California Prompt Payment Act (Act) in order to
create clarity and equity for nonprofits with respect to
late payments for contracts and grants. Specifically, this
measure:
1. Extends existing provisions regarding late payment
penalties to contracts with, or grants to, a "nonprofit
public benefit corporation."
2. Deletes an existing provision of law that prohibits a
nonprofit public benefit corporation from being eligible
for late payment penalties under the Act.
3. Deletes an existing provision of law that stipulates a
nonprofit organization shall only be eligible to receive
a penalty payment under the Act if it has been awarded a
contract or grant of less than $500,000.
4. Defines "contract" for purposes of the Act to mean a
legally binding agreement between the state and another
private entity for the provision of goods or services.
5. Deletes the definition of "nonprofit service
organization" from the Act.
EXISTING LAW
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Existing law, the California Prompt Payment Act (Government
Code Section 927, et seq.), requires a state agency that
acquires property or services pursuant to a contract with a
business 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% per day if the contractor is a small
business or a recognized nonprofit, or 1% above the Pooled
Money Investment Account rate for all other businesses.
Existing law defines various terms for purposes of the Act
including, "grant," "invoice," "nonprofit public benefit
corporation," "nonprofit service organization," and "small
business."
The Act provides that, in the event a state agency fails to
make timely payment because no Budget Act has been enacted,
penalties shall continue to accrue until the time that the
invoice is paid. The Act also provides that a nonprofit
public benefit corporation is not eligible for a late
payment penalty in those circumstances.
BACKGROUND
Purpose of SB 553: According to the author's office this
measure is intended to ensure that nonprofit grantees of
public funds will be paid for their work within the
specified time frame provided for under provisions of the
California Prompt Payment Act (Act) or else the state will
be subject to penalties.
The author's office notes that nonprofits have become the
cornerstone of public-private partnerships with numerous
state entities and are often the lead entrepreneurial
visionary and advocate for the spectrum of services
provided by the State of California, including resource
conservation, affordable housing, health and human
services, public transportation, and environmental justice.
Proponents believe that the "Act does little to support
these efforts, and, in fact creates barriers to ensuring
nonprofits are treated fairly and equitably in cases where
late payment penalties are mandated." Proponents cite the
Stop Work Order issued by the Department of Finance to all
state agencies on December 17, 2008, which essentially shut
down thousands of infrastructure projects supported by over
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$18 billion in bond funding, as one such example where some
nonprofits will be asked to bear more burden than others as
reimbursements begin to trickle out for work completed
before December 17th.
Proponents contend that the state's economic crisis and
subsequent bond freeze merely serve as the backdrop for a
problem that is long overdue to be resolved, namely that
the Act is "rife with ambiguous language regarding specific
nonprofit eligibility, the treatment of grants versus
contracts, and special interest language that is
exclusionary without apparent rhyme or reason."
Proponents note that "SB 553 seeks no preferential
treatment among communities within the nonprofit sector,
but instead acknowledges the equal standing all nonprofits
deserve under the Act."
Proponents argue that existing law is ambiguous with
respect to how penalty payments are applied to contracts
that aren't specified grant agreements, as defined,
creating uncertainty as to which are even eligible for
penalties under the Act. Additionally, proponents contend
that "existing law embraces a seemingly arbitrary and
exceedingly unfair fiscal threshold for late payment
penalties specifically directed at nonprofits."
In summary, proponents emphasize that SB 533 will:
Level the playing field for all nonprofits.
Level the playing field for all grants and
contracts.
Create late payment penalty equity for all sizes of
grants and contracts and for all nonprofits.
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 (Government Code Section 927, et seq.), so that
certified DVBEs receive the same prompt payment protections
afforded other California small businesses. (Pending in
this Committee)
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AB 727 (Nielsen) 2009-10 Session. Would make 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. (Pending in Assembly Appropriations
Committee)
SB 159 (Wyland) 2007-08 Session. Identical to SB 643
(Denham) of 2009. (Died in Assembly Appropriations
Committee)
AB 2992 (LaMalfa) 2007-08 Session. Identical to AB 727
(Nielsen) of 2009. (Vetoed; The Governor vetoed a
substantial number of bills with the same message, as a
result of the delay in passing the 2008-09 State Budget, he
would only sign bills that were "the highest priority for
California.")
AB 2541 (Matthews) Chapter 861, Statutes of 2006. Included
"grants" within the Prompt Payment Act, and required a
state agency that awards a grant, as defined, to make
payment to the person or business that is the recipient of
the grant on the date required by the grant, and within 45
days of the state agency's receipt of an undisputed
invoice, or be subject to a late payment penalty. Also,
defined "nonprofit service organization" to mean a
nonprofit entity that is organized to provide services to
the public.
SUPPORT: As of April 24, 2009:
California Council of Land Trusts (co-sponsor)
California State Parks Foundation (co-sponsor)
Planning and Conservation League (co-sponsor)
Sonoma County Open Space District (co-sponsor)
American Land Conservancy
Anza Borrego Foundation
Arroyo Seco Foundation
Bay Area Open Space Council
Big Sur Land Trust
California Association of Nonprofits
California ReLeaf
California Urban Forest Council
Canopy
Central Valley Land Trust Council
Community Alliance for Family Farmers
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Elkhorn Slough Foundation
Friends of the Urban Forest
Goleta Valley Beautiful
SUPPORT (continued)
Housing California
Lake County Land Trust
Land Conservancy of San Luis Obispo County
Land Trust Council
Land Trust of Napa County
Land Trust for Santa Barbara County
Land Trust of Santa Cruz County
Lassen Land & Trails Trust
Marin Agricultural Land Trust
Mattole Restoration Council
Mattole Salmon Group
Mountain Meadows Conservancy
Muir Heritage Land Trust
Outdoor Heritage Alliance
Palos Verdes Peninsula Land Conservancy
Peninsula Open Space Trust
Placer Land Trust
Redwood Coast Land Conservancy
Sacramento Tree Foundation
San Joaquin River Parkway & Conservation Trust
San Diego River Park Foundation
Sequoia Riverlands Trust
Solano Land Trust
Sonoma Land Trust
Tree Davis
Tri-Valley Conservancy
OPPOSE: None on file as of April 24, 2009.
FISCAL COMMITTEE: Senate Appropriations Committee
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