BILL ANALYSIS                                                                                                                                                                                                    Ó






                                                       Bill No:  AB  
          554
          
                 SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
                       Senator Roderick D. Wright, Chair
                           2013-2014 Regular Session
                                 Staff Analysis



          AB 554  Author:  Mullin
          As Amended:  April 9, 2013
          Hearing Date:  June 25, 2013
          Consultant:  Paul Donahue


                                     SUBJECT  

                            Secretary of State: Fees

                                   DESCRIPTION
           
          This bill changes accounting procedures for the Business  
          Fees Fund at the Secretary of State (SOS), and establishes  
          a new account for deposit of a portion of funds from the  
          existing corporate disclosure fee. Specifically,  this bill  :

          1)Authorizes the SOS to adopt regulations establishing fees  
            to be charged and collected for copying and special  
            handling in connection with filing documents, issuing of  
            certificates, and other services performed by the SOS,  
            but that such fees shall approximate the estimated cost  
            of copying and special handling.

          2)Specifies that fees charged for preclearance of documents  
            and expedited filings may be in different amounts, not to  
            exceed $1,000. <1>

          3)Deposits revenues from expedited business fees filings  
            into the Business Fees Fund rather than accounting for  
            these revenues as reimbursements to the SOS.

          4)Deposits one-half of the existing $5 disclosure fee into  
          -------------------------
          <1> Those fees may be charged only if the special handling  
          does not cause disruption or delay in the process of normal  
          handling of documents.




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            the newly created Business Programs Modernization Fund.

                                   EXISTING LAW

           Existing law authorizes the Secretary of State to collect  
          business filing fees, and directs the Secretary of State to  
          utilize the Business Fees Fund to perform business-related  
          functions for the state. 

          Existing law specifies maximum fees that may be charged for  
          expedited filings, the filing of articles of incorporation,  
          and for mergers of corporations. Some fees charged,  
          including those for expedited filings, cannot exceed the   
          maximum specified in statute.

                                    BACKGROUND
           
           1)Purpose  : According to the Secretary of State, "due to a  
            quirk of statute, two businesses filing identical  
            documents have the fees they pay go into separate funds,  
            depending on whether they filed the document using the  
            standard process or paid an expedite fee to have it filed  
            more quickly. While immaterial to the businesses filing  
            the documents, the end result is those expedite fees?are  
            counted as reimbursements. As a result, the money does  
            not show up in the Business Fees Fund, which obscures how  
            much money is being collected from businesses and how  
            that money is spent. 

            "AB 554 directs these expedite fees into the existing  
            Business Fees Fund where other fees are deposited...it  
            will give the Legislature and the public a more complete  
            and accurate picture of the money being paid by  
            businesses to file their documents."

           2)Business entity filings generally  : The Secretary of State  
            is responsible for the management of over 150 different  
            types of filings of business entities and receives over  
            one million filings annually. The majority of the filings  
            submitted to the Secretary of State are recorded on index  
            cards. The Business Programs Division, which is  
            responsible for the management of the filings, is  
            comprised of three sections:  the Business Entities  
            Section, Notary Public/Special Filings Section, and the  
            Uniform Commercial Code/Statement of Information section.






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            The SOS's Business Programs Division processes business  
            filings and is authorized to collect fees, including  
            those for expedited filings. Businesses have the option  
            of paying expedited filing fees (ranging from $350 to  
            $750) so their documents are processed more quickly.  
            According to the SOS, budget cuts resulted in the  
            processing time for business filings increasing from less  
            than 15 days in May 2009 to more than 120 days in January  
            2012. The SOS indicates that its business filing system  
            is largely paper based and needs to be modernized.  
            Business filing fees generate more than $70 million per  
            year and plans to use a portion of these revenues to  
            implement its California Business Connect project, which  
            will automate the paper-based filing process and allow  
            for more extensive online filings and records requests. 

           3)Accounting change  : Business filing fees that undergo  
            standard processing are currently accounted for  
            differently than the filing fees for expedited filings.  
            Standard process fees are paid to SOS's Business Fees  
            Fund, while expedited filing fees are classified as  
            reimbursements to the SOS, which the SOS contends  
            obscures the presentation of the total amount of business  
            fees collected. Depositing all business fees to the same  
            fund would more accurately show how much businesses are  
            paying for filings.

           4)New fund created  : Current law imposes a $5 annual  
            disclosure fee on corporations for filing their articles  
            of incorporation. Half of this fee is deposited in the  
            Victims of Corporate Fraud Compensation Fund and half is  
            used for the SOS's administrative costs, including  
            maintaining an online business database. This rather  
            limited online database contains a search function  
            allowing users to view basic business information like  
            the name, address, and status of entities. Under the  
            bill, this half of the fee would instead be deposited to  
            the Business Programs Modernization Fund, and, upon  
            appropriation by the Legislature, could be used for  
            modernizing the filing system, including the further  
            development of the online database. According to SOS, the  
            approximate $1.6 million per year that would be deposited  
            in the new fund would create a dependable stream of  
            funding to assist with the California Business Connect  
            modernization project and to prevent the business filing  
            systems from again becoming antiquated.





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           5)Recent legislation approved to reduce backlog  :  Earlier  
            this year the Legislature approved AB 113, which  
            appropriates $1.6 million to the SOS to end a two-month  
            backlog in processing business filings in California.  
            According to the Secretary of State's office, state  
            budget cuts were largely responsible for creating the  
            conditions that caused backlog of 122,000 applications.  
            The SOS must process the forms before businesses can hire  
            employees. The $1.6 million granted to the SOS by AB 113  
            would let the office hire temporary employees and pay for  
            overtime to process thousands of business applications. 
           
                            PRIOR/RELATED LEGISLATION
           
          AB 113 (Committee on Budget), Chapter 3, Statutes of 2013.  
          Appropriates $1.6 million to the Secretary of State in  
          order to address the backlog associated with the processing  
          of business filings. Requires the Secretary of State report  
          to the Joint Legislative Budget Committee on the 30th day  
          of each month regarding the Secretary of State's progress  
          on reducing the processing time for business filings.

           SUPPORT:   Secretary of State

           OPPOSE:   None on file

           FISCAL COMMITTEE:   Senate Appropriations Committee



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