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. AB 554 (Mullin) continued PageB 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. AB 554 (Mullin) continued PageC 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. AB 554 (Mullin) continued PageD 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 **********