BILL ANALYSIS                                                                                                                                                                                                    Ó




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair

                                          SB 495 (Fuller)
          
          Hearing Date: 05/26/2011        Amended: 05/10/2011
          Consultant: Mark McKenzie       Policy Vote: Jud 5-0
          _________________________________________________________________
          ____
          BILL SUMMARY: SB 495 would increase the dormancy period for 
          contents of safe-deposit boxes from three to five years before 
          they escheat to the state, and increase notification 
          requirements for holders of unclaimed property.  Specifically, 
          this bill would:
           Require the contents of safe-deposit boxes held by a business 
            association (holder) to escheat to the state if unclaimed by 
            the owner for more than five years from the date on which the 
            lease or rental period on the box expired (rather than three 
            years).
           Require the holder of an unclaimed safe-deposit box to provide 
            notice at two different times before the contents become 
            reportable to the state, rather than the single notice 
            required under existing law, by adding a notice at two and a 
            half to three years prior to escheat to the state.  
           Require the notice include a form that could be filled out and 
            returned by the owner of the property to declare an intention 
            to maintain the safe-deposit box, which would prevent the 
            contents from escheating to the state.  The owner could also 
            contact the business association by phone or electronic means 
            to declare the intention.
           Authorize the holder to charge a fee of up to $2 to cover the 
            administrative costs associated with mailing the notice and 
            form.
           Authorize a business association to provide electronic notice 
            to a person opening an account for a safe deposit box that 
            their property may escheat due to inactivity, as specified, 
            and requires written notice if an electronic notice is 
            returned undeliverable.
           Require the State Controller (SCO) to hold safe deposit box 
            contents with no commercial value for seven years, rather than 
            the current requirement of 18 months.
           Require the SCO to establish a compliance program to identify 
            holder of unclaimed property who are not in compliance with 
            specified report filing requirements.
          _________________________________________________________________
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          SB 495 (Fuller)
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                            Fiscal Impact (in thousands)

           Major Provisions         2011-12      2012-13       2013-14     Fund
           Extended escheat period                       $1,200    General

          Holding items of no value                               
          $152General

          Compliance program staff          $261        $528      
          $528General
           
          Compliance program revenues                   ($5,021)  
          ($11,7110)             General
           NET costs/(revenues)   $261       ($4,493)    (9,831)   General
          _________________________________________________________________
          ____

          STAFF COMMENTS:  SUSPENSE FILE. 
          Existing law, the Unclaimed Property Law (UPL), generally 
          requires financial institutions to transfer account balances to 
          the State Controller (SCO) if the account has had no activity 
          for three years.  Other "holders" (such as insurance companies 
          holding policies, publicly-traded companies holding stock and 
          employers holding wages) are subject to similar transfer rules.  
          After they are transferred, the accounts are managed by the SCO, 
          and the account owners may apply to the state for return of 
          their money and property.  The transfers are often referred to 
          as "escheats."  The purpose of the UPL is to return property to 
          its rightful owners, prevent the holders of unclaimed property 
          from transferring it into their business income, and provide a 
          single source to check for unclaimed property that may have been 
          reported by holders.  The Controller receives approximately $633 
          million annually as escheated property, and currently maintains 
          accounts of approximately $6.1 billion for monies that have been 
          remitted to the SCO and transferred to the General Fund.  Claims 
          on escheated property are processed within 180 days, and valid 
          claims are paid from the General Fund.  A total of 276,000 
          claims are filed annually, with an average claim payment of 
          $1,395.  

          SB 495 would extend the escheat period from three to five years, 
          thereby delaying transfers of unclaimed property in safe deposit 
          boxes to the General Fund for two fiscal years.  This provision 
          would delay the receipt of approximately $1.2 million in cash 








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          from safe deposit boxes beginning in 2013-14.  Also, the two 
          year delay and additional notice requirements would likely 
          result in some property being reunited with owners, thereby 
          preventing it from ever escheating to the state.

          The bill also requires the SCO to hold onto property of no 
          commercial value for seven years, rather than 18 months 
          specified in current law, before disposing of those items.  This 
          provision would increase SCO staffing costs by 2.6 PY beginning 
          in 2013-14 at a cost of $151,748.

          SB 495 would also require the SCO to establish a compliance 
          program to identify holders of unclaimed property who are out of 
          compliance with reporting requirements.  In 2009, the SCO 
          Division of Audits issued a comprehensive analysis of holder 
          compliance by using records from the Franchise Tax Board.  Using 
          these records, the SCO identified 851,000 businesses that should 
          file an unclaimed property report pursuant to current law.  The 
          analysis revealed a minimal compliance rate of approximately 2%, 
          since the SCO typically receives only about 17,000 unclaimed 
          property reports annually.  By contacting these non-compliant 
          businesses, and alerting them to reporting responsibilities and 
          potential penalties, the SCO expects to achieve increased 
          compliance.  The SCO indicates that the program would require a 
          total of 5.2 PY at an annual cost of $528,000, and the program 
          is expected to result in increased revenues of about $5 million 
          in 2012-13 and $11.7 million on 2013-14.

          Staff notes that the Governor's May Revise Budget includes staff 
          and resources for the SCO to initiate a comprehensive UPL 
          "Holder Compliance Initiative."  The proposal would provide 
          $2.41 million and 22.6 positions in 2011-12, and $2.4 million 
          for 23.6 million in 2012-13 and ongoing, for a full program that 
          includes outreach, increased compliance efforts, and an audit 
          program.  Over 5 years, the program is projected to result in 
          the return of $113 million in property to owners, and the 
          remitting of $136 million in property to the state.  Staff notes 
          that if this proposal is enacted, there would be no need for the 
          compliance program in this bill.