BILL ANALYSIS                                                                                                                                                                                                    Ó




                   Senate Appropriations Committee Fiscal Summary
                            Senator Kevin de León, Chair


          AB 212 (Lowenthal) - Unclaimed property.
          
          Amended: June 24, 2013          Policy Vote: Jud 4-2
          Urgency: No                     Mandate: No
          Hearing Date: August 12, 2013                           
          Consultant: Mark McKenzie       
          
          This bill meets the criteria for referral to the Suspense File. 

          
          Bill Summary: AB 212 would lower the threshold for reporting of  
          the name and address of owners of property escheating to the  
          state under the Unclaimed Property Law (UPL).  Specifically,  
          this bill would lower the threshold at which a holder of  
          escheated property must report an owner's contact information to  
          the State Controller's Office (SCO) from $50 to $25, beginning  
          on July 1, 2014; items with a value under that threshold may be  
          reported to the SCO in aggregate without an owner's contact  
          information.

          Fiscal Impact: 
              SCO costs of approximately $120,000 annually, beginning in  
              2014-15, to provide additional notices to owners of  
              lower-valued property escheated to the state that was  
              formerly included in the aggregate reporting without owner  
              contact information (General Fund).

              The SCO estimates revenue losses of $12,544 in 2015-16,  
              $92,544 in 2016-17, and $143,744 in 2017-18, with moderate  
              ongoing growth, as a result of increased claims by owners of  
              lower-valued property escheated to the state that was  
              formerly included in the aggregate reporting without owner  
              contact information (General Fund).  Actual losses could be  
              higher, depending on how much of the current aggregate  
              property transferred to the state is valued over $25, and  
              the claim rate for lower valued property.  For example, if  
              half of the aggregate property currently transferred to the  
              state in a year has a value of $25 to $50, and the claim  
              rate is one fourth of the overall first year claim rate for  
              escheated property, the first year impact would be $30,400  
              (based on $12.8 million in aggregate property transferred to  
              the state in 2011-12, and average overall first year claim  








          AB 212 (Lowenthal)
          Page 1


              rate of 1.9%)

          Background: Existing law, the UPL, generally requires financial  
          institutions to transfer account balances to the SCO and  
          deposited into the General Fund if the account has had no  
          activity for three years and an owner of property does not  
          respond to a specified due diligence notice.  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  
          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 for  
          owners to check for unclaimed property that may have been  
          reported by holders.  The SCO maintains an online database of  
          unclaimed property through which owners of property may conduct  
          searches and file claims.

          Existing law requires holders of property escheating to the  
          state to report the name and last known address of an owner of  
          property with a value of at least $50.  Property with a value  
          less than $50 may be reported in aggregate, without individual  
          identifying information associated with each property.  Over the  
          last five years, the SCO has received $68 million in aggregate  
          properties, and only about $33,000 was returned to owners over  
          that period.  In 2011-12, the most recent year for which data is  
          available, over $12.8 million in aggregate property was  
          transferred to the SCO.

          Since owner information is generally unavailable for aggregate  
          property that escheats to the state, that property is not  
          uploaded in the SCO's searchable unclaimed property database,  
          which presents difficulties in reuniting owners with their  
          property.  This bill is intended to increase the ability of the  
          SCO to succeed in that mission, and enable property owners to  
          easily file claims for lower-valued property.

          Proposed Law: AB 312 would lower the threshold for holders of  
          property escheating to the state to report and transfer that  
          property in the aggregate as of July 1, 2014.  Specifically,  
          holders would be required to report a property owner's name and  
          last known address for all property escheating to the state  








          AB 212 (Lowenthal)
          Page 2


          valued at $25 or higher, rather than $50 or higher.  Property  
          valued at under $25 may still be reported and transferred to the  
          SCO in the aggregate.  The bill would also clarify that a holder  
          of property may impose a service charge of up to $2 to send a  
          required due diligence notification to an owner of property,  
          pursuant to existing law, but only if the owner's property has a  
          value of over $2. 

          Staff Comments: Lowering the threshold for aggregate reporting  
          of property escheating to the state from $50 to $25 will enhance  
          the SCO's ability to return unclaimed property to its rightful  
          owner by requiring financial institutions and other holders of  
          property to report owner information for individual property  
          transferred to the state.  Data on how much of the $12.8 million  
          in aggregate property that escheated in 2011-12 had a value of  
          $25 to $50 is unavailable, so it is difficult to accurately  
          estimate the fiscal impact of lowering the threshold for  
          aggregate reporting.  The bill would, however, increase the  
          number of claims paid by the SCO to owners of this unclaimed  
          property, resulting in a corresponding loss to the General Fund.  
           

          The SCO estimates a General Fund revenue loss of $12,544 in  
          2015-16 (beginning the year after the 2014 reporting period),  
          $92,544 in 2016-17, and $143,744 in 2017-18 from increased  
          claims paid as a result of the lower aggregate threshold.  Using  
          the aggregate amount reported in 2011-12, the SCO's estimate of  
          claims in 2017-18 only represents a 1.1 percent increase in  
          amounts claimed as a result of lowering the aggregate reporting  
          threshold from $50 to $25.  The current rate of successful  
          payment of claims for all property that is reported to the SCO  
          with owners' contact information is approximately 1.9 percent in  
          the first year, which increases rapidly over the next several  
          years, then drops by the fifth year back to around the same  
          claim rate as year one.  After about eight years the claim rate  
          is negligible.  Typically, a little over half of the property  
          escheated to the state is ultimately claimed.  Property with a  
          lower value, however, is claimed at a much lower rate than the  
          average overall claim rate since many owners do not deem it  
          worth the time, cost, and effort.  As such, the SCO estimates  
          that in the first year of fiscal impacts, the bill will result  
          in a doubling of the current average claims payment rate that  
          applies to aggregate properties over the past five years.  As  
          noted above, only about $6,500 out of $13.6 million in aggregate  








          AB 212 (Lowenthal)
          Page 3


          properties were returned to owners on average in each of the  
          past five years.  Doubling the claims payment rate for the first  
          year would result in a fiscal impact of $12,544 in 2015-16.   
          Year two impacts would represent a higher second year claim rate  
          applied to properties reported in the first year, plus the lower  
          first year rate applied to properties reported in year two,  
          resulting in a 2016-17 fiscal impact of $92,544.  The impact  
          would be compounded each year, resulting in moderate increases  
          in each subsequent year.

          The SCO also indicates that it would incur annual costs of  
          approximately $120,000 to send additional notices to owners of  
          property since they will receive more owner data from holders of  
          property escheating to the state.  Although the SCO will receive  
          contact information for more account owners, the process for  
          uploading that data on the unclaimed property database and the  
          process for filing electronic claims is automated and is not  
          expected to result in increased SCO administrative costs.