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. _________________________________________________________________ ____ SB 495 (Fuller) Page 1 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 SB 495 (Fuller) Page 2 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.