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
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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
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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
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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.