BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
AB 391 (Pan) - Secondhand dealers and pawnbrokers: electronic
reporting.
Amended: May 9, 2012 Policy Vote: Public Safety 7-0
Urgency: Yes Mandate: No
Hearing Date: June 4, 2012 Consultant: Jolie Onodera
This bill meets the criteria for referral to the Suspense File.
Bill Summary: AB 391, an urgency measure, would require the
Department of Justice (DOJ) to develop and implement a single,
statewide uniform electronic reporting system for reporting the
acquisition of secondhand, tangible personal property upon the
availability of sufficient funding collected through the
imposition of specified fees on secondhand dealers and
pawnbrokers.
Fiscal Impact:
One-time costs of $1.2 million (Special Fund) to the DOJ in
2012-13 to develop the electronic reporting system, to be
offset through the collection of a combination of fees, both
from a new/renewal license fee of $300 and a one-time fee of
$288 imposed on pre-existing licensees. The DOJ estimates
$1,382,000 in fees will be collected from an estimated 4,800
licensees statewide within 120 days of the bill's enactment.
Additional time may be required for sufficient funding to be
available to initiate development of the system to the extent
there are fewer licensees statewide.
Ongoing costs of $691,000 (Special Fund) in 2013-14 and
thereafter to the DOJ to operate and maintain the electronic
reporting system, to be offset by biennial license renewal
fees and new license application fees of $720,000 from an
estimated 2,400 licensees in 2013-14 and annually thereafter.
To the extent there are fewer new/renewed licensees and/or
increased costs for ongoing system operation and maintenance,
annual costs in the initial years of operation may not be
fully covered by fees.
Potential increase in the Proposition 98 minimum funding
guarantee in the range of $550,000 one-time and $288,000
(General Fund) ongoing should the increased revenues be
considered General Fund proceeds of taxes for purposes of
calculating the minimum school funding obligation.
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Ongoing costs to the DOJ to process fingerprint images for
new licensees, to be fully offset by fees of $32 per
applicant (Fingerprint Fee Account).
Ongoing costs to local licensing authorities, to be offset
by fees authorized to be charged to applicants to recover the
actual costs of processing applications. Clarifying language
to include costs for the collection and transmittal of
license fees in the authorized fee is recommended to ensure
full cost recovery by licensing agencies.
Some degree of economic stimulus resulting from cost savings
realized by affected businesses through operational
efficiencies gained by transitioning from the paper reporting
process to the electronic reporting system.
Non-reimbursable local enforcement costs for increased
enforcement of licensing requirements and investigations
associated with the recovery of stolen property.
Background: Existing law includes a statement of legislative
intent to curtail the dissemination and facilitate the recovery
of stolen property by means of a uniform, statewide,
state-administered program of regulation of persons whose
principal business is dealing in tangible personal property.
Additional intent language states the uniform statewide
reporting of tangible personal property to be used for the
purpose of correlating the reports with other law enforcement
reports and utilizing the DOJ to aid in tracing and recovering
stolen property.
Existing law requires pawnbrokers, secondhand dealers and coin
dealers to report daily to local law enforcement agencies on
forms approved or provided by the DOJ of all personal property
purchased or taken in trade or pawn. The reports include, but
are not limited to, the following information from the intended
seller or pledger of the property: name and current address,
valid personal identification such as a passport or driver's
license that includes a photograph, description, or both, and a
signature, a description and serial number of the property,
certification of ownership, and a legible fingerprint.
Currently, this daily reporting process is completed via the use
of paper forms limited to a single transaction, requiring
businesses to print, manually complete, and mail or deliver
hundreds to thousands of paper reports each year.
Existing law provides that secondhand dealers and coin dealers
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are to report these specified transactions using an electronic
reporting system twelve months after the DOJ and local law
enforcement agencies have developed comprehensive categories of
tangible personal property subject to reporting, and, in
consultation with representatives from secondhand dealer and
coin dealer businesses, have developed a standard format to be
used statewide to transmit a report electronically.
Coin dealers, by definition, are not secondhand dealers,
however, to the extent a coin dealer engages in transactions
involving tangible personal property taken in trade or pawn,
coin dealers must be licensed as secondhand dealers. Under
existing law, coin dealers engaging in less than 10 transactions
per week in items taken in trade or pawn are required to report
daily via facsimile transmission or mail on written forms
developed by the DOJ to the chief of police or sheriff. When a
coin dealer engages in at least 10 transactions per week, the
coin dealer is required to report electronically, consistent
with any pawnbroker or secondhand dealer.
Proposed Law: This bill proposes to implement the currently
unfunded system for electronic reporting of transactions in
pawned and secondhand goods through fees imposed on secondhand
dealers and pawnbrokers. Specifically, this bill:
Provides that on the date the DOJ implements the statewide
electronic reporting system for pawned and secondhand
tangible personal property, each pawnbroker, secondhand
dealer, and coin dealer shall electronically report
transactions, as specified.
Provides that coin dealers shall report electronically if at
least 10 transactions per week are completed, and shall
otherwise continue to report on paper forms.
Provides that dealers shall report both electronically as
well as on paper forms for the first 30 days following
implementation of the electronic reporting system.
Provides that the DOJ shall require each applicant for an
initial license or renewal of a license as a secondhand
dealer or pawnbroker to pay a fee not to exceed $300. The fee
shall be no more than necessary to cover the costs of
processing the initial and renewal applications, and the
costs of implementing, operating, and maintaining the
electronic reporting system. The fee may be increased at a
rate not to exceed any increase in the California Consumer
Price Index (CPI) as compiled and reported by the Department
of Industrial Relations.
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Provides that all licensees holding a license as a
secondhand dealer or pawnbroker issued before the effective
date of this bill's enactment shall, within 120 days of
enactment, pay a fee not to exceed $288 to the DOJ. This fee
is in addition to any fee required for licensure application
or renewal.
Establishes the Secondhand Dealer and Pawnbroker Fund, into
which the aforementioned fees are to be deposited and
continuously appropriated to the DOJ for the costs of
implementing, operating, and maintaining the statewide
uniform electronic reporting system, as well as for the
ongoing costs of processing initial license and renewal
applications.
Appropriates $2.5 million from the Secondhand Dealer and
Pawnbroker Fund to the DOJ for the purpose of implementing
the single, statewide, uniform electronic reporting system.
Requires local licensing authorities to collect and transmit
the licensing fees to the DOJ, and authorizes local licensing
authorities to charge a fee to cover the actual costs of
processing applications for new licenses and license
renewals.
Requires applicants to submit fingerprint images to the DOJ
for the purpose of processing criminal background checks, and
authorizes the DOJ to charge a fee sufficient to cover the
processing costs. The fees are to be deposited in the
Fingerprint Fee Account and continuously appropriated to the
DOJ.
States legislative intent that fees authorized are necessary
to implement and maintain the new system and constitute
charges imposed for the specific benefit of secondhand
dealers and pawnbrokers. Further intent language stating the
fees imposed are for the reasonable regulatory costs to the
state incident to issuing licenses and performing
investigations.
Prior Legislation: SB 1520 (Schiff) Chapter 994/2000 established
the requirement for the development of an electronic reporting
system of secondhand, tangible personal property, however, the
measure did not provide for a funding mechanism to develop,
implement, and maintain the system.
SB 1893 (Burton) 2004 would have required the electronic
reporting system of secondhand, tangible personal property to be
funded through licensure fees to be operational by January 1,
2007. This bill failed passage in the Assembly Business and
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Professions Committee.
AB 1178 (Yee) 2005 was a similar measure that would have funded
an electronic reporting system through specified licensure fees
on secondhand dealers and pawnbrokers. This bill died on the
Assembly Floor.
SCR 63 (Yee) Resolution Chapter 16/2010 urges the DOJ to ensure
compliance with the requirement pursuant to Chapter 994/2000
that the DOJ develop a standard format to be used statewide for
purposes of reporting secondhand dealer transactions at the
earliest possible time.
Staff Comments: This bill proposes a funding mechanism for the
development, implementation, operation, and maintenance of a
statewide electronic reporting system for pawned and secondhand
goods through the imposition of various fees on pawnbrokers and
secondhand dealers. Once implemented, the electronic reporting
system will enable businesses to enter transaction data into the
new database, alleviating the need to provide the DOJ-developed
paper form (JUS-123) to local law enforcement. The information
tracked in the database will be made available to all law
enforcement agencies to assist in the location and recovery of
stolen property.
The DOJ estimates one-time costs to develop the electronic
reporting system of $1.2 million in 2012-13. This cost estimate
is based on staffing for three positions as well as development
costs associated with infrastructure (servers, storage, and
software licenses) and consultant costs for software
development. To offset these costs, DOJ estimates there are
approximately 4,800 existing licensees who will be subject to
the $288 fee to be paid within 120 days of enactment, resulting
in $1,382,400 in fee revenue to be deposited in the newly
created Secondhand Dealer and Pawnbroker Fund.
The DOJ estimates ongoing costs of $691,000 for permanent
staffing to operate and maintain the electronic reporting
system. Costs reflect three permanent positions to operate and
maintain the system. Ongoing costs are projected to be fully
offset by licensure application and renewal fees of $300 per
application, estimated at 2,400 licensees to account for new
licensees and the biennial renewal of existing licensees. Until
the system is completed and fully operational, the ongoing level
of workload required to operate and maintain the system is
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unknown and could result in additional workload (data
management, error resolution, help desk) and costs that have yet
to be identified by the DOJ.
Staff notes that the revenue and expenditure estimates are not
known with certainty at this time, and the exact number of
currently licensed pawnbrokers and secondhand dealers is unknown
although estimated at 4,800 dealers statewide based on dated
information from law enforcement agencies. The DOJ does not
retain records of existing licensees that are licensed at the
local level by licensing authorities. As a result, the amount of
revenue collected within 120 days of enactment of the bill could
be substantially less than the amount noted above. In such an
event, additional fees from applications for new/renewed
licenses would need to be collected before sufficient funding is
available to initiate development of the electronic reporting
system.
Due to the absence of specific information on licensees, the
timing of biennial renewals also cannot be known with certainty.
As a result, the amount of ongoing revenue collected under this
bill could be less than $720,000 depending on the proportion of
licensees up for renewal and may be insufficient to cover annual
costs in the initial years of operation. To the extent 40
percent of existing licensees renew in any one year instead of
an assumption of 50 percent would result in fee revenue of
$576,000, or $115,000 short of estimated annual costs of
$691,000. Should ongoing costs be greater than the estimated
$691,000 once the system is completed and operational, the
funding shortfall could be greater. A shortfall in one year
would result in excess funds of the same amount in the
subsequent year, assuming a static level of new licensees and
licensees who do not renew.
There will likely be additional businesses subject to licensure
that will increase the number of licensees as well as offsetting
reductions in licensure due to fewer renewals for smaller
businesses that determine the higher fees are not cost
beneficial. Information from the DOJ indicates there could be
over 40,000 currently unlicensed businesses that would require
licensure under the provisions of this bill. With increased
enforcement of the licensing provisions of this bill, an
increased number of dealers would be licensed over time that
should result in increased fee revenue to support the ongoing
costs of licensure activities and maintenance of the system.
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To ensure adequate funding is available to develop and maintain
the system as well as to provide a level of legislative
oversight, staff recommends the bill be amended to delete the
initial $2.5 million appropriation of funds as well as the
continuous appropriation and instead provide funding to the DOJ
subject to appropriation by the Legislature. Once the system is
implemented and fully operational, the DOJ will be able to fully
identify ongoing costs to operate and maintain the system.
Further, from the bill's enactment date and throughout the
system's development period, a more accurate estimate of the
number of licensees will be available. At that time, the fee
structure may be reevaluated to ensure it is sufficient to
support licensing activities and the maintenance and operation
of the system.
The DOJ will incur costs to process the fingerprint images of
applicants for new licenses. Costs for processing may be fully
recovered through the imposition of a fee, which is
approximately $32 per applicant. Applicants for secondhand
dealer and pawnbroker licenses currently submit fingerprint
images as part of the application process, and therefore, no
significant increase in workload is anticipated that would
require additional resources for processing background checks.
This bill authorizes licensing authorities to assess a fee to
recover the costs associated with processing licensure
applications and renewals. As the provisions of this bill also
require licensing authorities to collect and transmit licensure
fees to the DOJ, staff recommends the bill be amended to clarify
cost recovery by licensing authorities for costs associated with
the collection and transmittal of these fees to the DOJ.
Staff notes this measure currently includes an urgency clause
that requires a two-thirds vote of the Legislature for passage.
In the absence of the urgency clause, the Legislative Counsel
has informally opined that the fees imposed under the provisions
of this bill would constitute a tax under Proposition 26 of the
November 2010 General Election, which amended Section 3 of
Article XIII A of the California Constitution and broadened the
definition of a state or local tax to include various payments
previously considered to be fees or charges.
If these fees are deemed a tax, at least 40 percent of the new
revenue would be allocated to K-14 education pursuant to
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Proposition 98. In some years, however, a notably higher share
of the associated revenue might need to be allocated to K-14
education. The exact share going to K-14 education would depend
upon various factors, including the size of the Proposition 98
maintenance factor, how the maintenance factor is repaid, and
the overall growth in state revenues.
Should a share of the new revenues be required to be set aside
for the Proposition 98 minimum funding guarantee, development of
the electronic reporting system would be delayed until
sufficient funds could be collected in the Secondhand Dealer and
Pawnbroker Fund. Moreover, in the absence of DOJ authority to
charge licensed dealers any more than the actual cost of
processing applications and the electronic reporting system,
additional funding from other sources would be required in order
to cover both the ongoing costs of the system and the potential
cost of the education set aside.
Recommended Amendments: Staff recommends the bill be amended to
delete the initial $2.5 million appropriation as well as the
continuous appropriation from the newly established Secondhand
Dealer and Pawnbroker Fund and instead make the revenue in the
fund available to the DOJ subject to appropriation by the
Legislature for the purpose of licensing activities and
development and ongoing support of the new system.
Staff recommends the bill be amended to delete the continuous
appropriation from the Fingerprint Fee Account for purposes of
paying the costs associated with processing fingerprint images
and instead have the fee revenues subject to appropriation by
the Legislature.
Staff additionally recommends an amendment to clarify that the
fee authorized to be charged by local licensing authorities to
cover the actual costs of processing applications shall also
include the cost of collecting and transmitting the specified
fees of licensees to the DOJ.
The author may also wish to consider amending Section 5 of the
bill to include provisional language to address the potential
interaction with Proposition 98. As currently drafted, the DOJ
may charge fees "in no event exceeding the costs" associated
with the electronic reporting system and processing
applications. In the event the fees are deemed a tax, the DOJ
may require the authority to charge licensed dealers more than
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the actual cost of processing applications and the electronic
reporting system such that the state can cover both the costs of
the system and the potential cost of the education set aside. In
the absence of this authority, other fund sources would be
required to fully fund the cost of the reporting system.