BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
553 (Wiggins)
Hearing Date: 5/28/2009 Amended: 4/22/2009
Consultant: Bob Franzoia Policy Vote: G O 11-0
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BILL SUMMARY: SB 553 would extend provisions of the California
Prompt Payment Act regarding late payment penalties to contracts
with, or grants to, a nonprofit public benefit corporation.
This bill would delete a limitation which prohibits a nonprofit
organization from being eligible to receive a penalty payment if
the contract or grant is more than $500,000. This bill would
delete a limitation which prohibits nonprofit public benefit
corporations from receiving a late payment penalty where a state
agency fails to make a timely payment because no Budget Act has
been enacted.
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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 annually or
when-Special*
ever there is a delay in the adoption of
the Budget Act
* Service Revolving Fund, other special funds
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STAFF COMMENTS: 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.
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SB (553) Wiggins
Numerous state entities have contracts with, or award grants to
nonprofit public benefit corporations. 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 either a General Fund
obligation or absorbed through reductions in SWRCB programs, as
bond funds that are the source of SWRCB grants, cannot be used
for late payment penalties.
For purposes of illustration, if $10,000,000 in grants was
delayed 30 days, the late payment penalty would be $750,000.
($10,000,000 x 0.0025 x 30).