BILL ANALYSIS Ó
AB 619
Page 1
Date of Hearing: April 2, 2013
ASSEMBLY COMMITTEE ON JUDICIARY
Bob Wieckowski, Chair
AB 619 (Garcia) - As Introduced: February 20, 2013
PROPOSED CONSENT
SUBJECT : COURT CONSTRUCTION FUNDS: PENALTY PROVISION
CLARIFICATION
KEY ISSUE : SHOULD VARIOUS TECHNICAL IMPROVEMENTS BE MADE TO
PENALTY PROVISIONS PERTAINING TO THE COURTS' CONSTRUCTION FUNDS?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
This substantively non-controversial bill, sponsored by the
State Association of County Auditors, seeks to make some
clarifications to the law surrounding penalty provisions in the
state's court construction funds - the State Court Facilities
Construction Fund (SCFCF) and the Immediate and Critical Needs
Account of the State Court Facilities Construction Fund (ICNA).
Specifically, the bill provides that penalty payments on the
delinquent transfer of court fees to the these constriction
funds should appropriately be made by the entity (county or
court) actually responsible for the error or other action that
caused the failure to pay, as determined by the Controller in
notice given to the responsible entity. This bill also limits
the penalty when notice of the delinquent transfer is not made
to the responsible entity until much later. Finally, the bill
also appropriately provides that the Controller is authorized to
permit a county or court to pay the penalty amounts according to
a payment schedule in the event of a large penalty amount that
would cause hardship to the paying entity. These relief
provisions are the same as already provided to counties and
courts for delinquent payments to the Trial Court Trust Fund,
under SB 539 (Margett), Chap. 435, Stats. 2007. There is no
known opposition to this measure. This bill is nearly identical
to last year's AB 1289 (Davis), which passed the Assembly and
the Senate Judiciary Committee unanimously, but died on the
Senate Appropriations Suspense File.
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SUMMARY : Clarifies the law surrounding penalty provisions in
the state's court construction funds. Specifically, this bill :
1)Provides that any interest or penalty payments on any
delinquent transfer of court fees to the SCFCF and ICNA be
made by the entity (county, city and county, or court)
responsible for the error or other action that caused the
failure to pay, as determined by the Controller, accompanied
by a remittance advice identifying the collection month and
the account to which the payment shall be made.
2)Requires the Controller upon receipt of a delinquent payment
to:
a) Calculate interest on the delinquent payment by
multiplying the delinquent interest rate, calculated based
on the daily return rate for fund deposited in the Local
Agency Investment Fund (LAIF), from the date payment was
originally due to either 30 days after the Controller issues
the final audit report concerning the failure to pay or the
date of the payment by the responsible entity, whichever
comes first. Provides that, in calculating the interest
rate, the Controller must apply the average monthly LAIF
rate over the period of delinquency.
b) Calculate the penalty at a daily rate equal to 1.5 percent
per month from the day 30 days after the date of issuance by
the Controller of the final audit report concerning the
failure to pay.
3)Allows the Controller to permit a county, city and county, or
court to pay the penalty amounts according to a payment
schedule in the event that a large penalty amount causes
hardship to the paying entity.
4)Provides that the changes made by this bill apply to all
delinquent payments for which the Controller has not issued a
final audit before January 1, 2014.
EXISTING LAW :
1)Provides, under the Lockyer-Isenberg Trial Court Funding Act
of 1997, among other things, that the state has sole
responsibility for funding court operations, as defined, and
each county must remit to the state certain statutorily
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specified amounts for funding court operations. (AB 233
(Escutia and Pringle) Chap. 850, Stats. 1997; Government Code
Sections 77200 et seq. All further references are to this
code unless otherwise noted.)
2)Establishes the Trial Court Trust Fund (TCTF), the proceeds of
which are apportioned for funding trial court operations, as
defined, and for other specified court purposes. (Section
68085.)
3)Establishes the SCFCF, funded by revenues from civil and
criminal fees, fines, penalties, and surcharges, the proceeds
of which may be used only in the planning, design,
construction, rehabilitation, renovation, replacement,
leasing, or acquisition of court facilities. (Section 70371
et seq.)
4)Establishes the ICNA of the SCFCF, the proceeds of which may
only be used for the following:
a) Planning, design, construction, rehabilitation,
renovation, replacement, or acquisition of court
facilities;
b) Repayment for moneys appropriated for lease of court
facilities pursuant to the issuance of lease-revenue bonds;
or
c) Payment for lease or rental of court facilities,
including those made for facilities in which one or more
private sector participants undertake some of the risks
associated with the financing, design, construction, or
operation of the facility. (Section 70371.5.)
5)Requires that fees or penalties collected for the SCFCF or the
ICNA be transmitted to the Controller no later than 45 days
after the end of the month in which they are collected. Upon
receipt of any delinquent payment, requires the Controller to
calculate a penalty by multiplying by 1.5 percent per month
(18 percent per year). Provides that, if the penalty is the
result of a court's failure to timely deposit money with the
county, the court must reimburse the county for any actual
penalty. (Section 70377.)
COMMENTS : This substantively non-controversial bill, sponsored
by the State Association of County Auditors, seeks to make some
clarifications to the law surrounding penalty provisions in the
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state's court construction funds - the SCFCF and the ICNA.
Specifically, the bill provides that penalty payments on the
delinquent transfer of court fees to these construction funds
should appropriately be made by the entity actually responsible
for the error or other action that caused the failure to pay, as
determined by the Controller. This bill also limits the penalty
when notice of the delinquent transfer is not made to the
responsible entity until sometimes years later. This bill is
modeled after the same relief that was already provided to
counties and courts with respect to delinquent payments to the
Trial Court Trust Fund, under SB 539 (Margett), Chap. 435,
Stats. 2007.
This bill is also nearly identical to last year's AB 1289
(Davis), which passed this Committee, the Assembly
Appropriations Committee, the Assembly Floor and the Senate
Judiciary Committee all unanimously. However, that legislation
died on the Senate Appropriations Suspense File after the
committee noted that the bill "will likely result in near-term
ongoing decreases in penalty revenues to the SCFCF."
The author writes:
This bill will give small to medium-sized entities an
opportunity to correct underpayments when brought to their
attention, without 18% annual accrued interest as a
penalty. Small to medium-sized counties are audited on a
multi-year schedule, some only as often as once every 5-7
years. If the underpayment took place early in the cycle,
the interest will accrue to an unmanageable amount over
time until it is uncovered in an audit. This bill allows
the entity to repay the underpayment, with a corresponding
interest rate associated with the Local Agency Investment
Fund rate (the amount the money would have earned if paid
on time).
This bill requires that penalties for delinquent payments of
fees to be paid by the responsible entity . Current law does not
specifically provide that the entity responsible for penalty
payments (as determined by the Controller) -- whether it is the
county, city and county, or the trial court -- is the entity
required to actually remit the penalty payments to the
Controller. The sponsor states that currently the Controller
does not send the notice of penalty assessments to the
responsible entity, but rather sends the notice to the county.
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According to the sponsor, this bill would rectify both of these
situations. It requires the Controller to send the notice to
the responsible entity and requires the responsible entity to
transmit penalty payments to the Controller, providing a fairer
way to handle penalty payments.
This bill prospectively requires trial courts to pay penalty
payments they are responsible for . Current law requires
counties to pay trial courts' penalty payments for which the
trial courts are to reimburse the counties. The sponsor argues
that, if the trial court is found to be the responsible entity
for a penalty payment, the trial court should pay the penalty.
This bill provides so on a going forward basis.
This bill is intended to assist counties avoid the financial
hardship of large penalty payments when they are not given
reasonable notice of the delinquent payment until sometimes
years later . The sponsor notes that penalty payments are
generally assessed pursuant to an audit conducted by the
Controller. For most counties, these audits may only occur on a
five to seven-year cycle, while for some larger counties, they
may be annual. Thus, a larger county would be on notice of a
penalty assessment much sooner than a smaller county, and would
thereby save money by paying the penalty sooner rather than
later. A smaller county may not find out until five to seven
years later that the county must remit a substantial penalty
payment. This delay could affect future court operations,
particularly in smaller counties if they find themselves with
substantial penalty payments five to seven years after the
initial fees were transmitted to the state. The sponsor argues
this is an unfair situation that this bill rectifies.
This bill provides the local entities with the same relief
already provided for mistakes made to the Trial Court Trust
Fund. The Lockyer-Isenberg Trial Court Funding Act of 1997
governs the transfer of funds collected by the counties and the
courts, primarily from fees, to TCTF to support trial court
operations. The TCTF specified penalties for delinquent payment
of the required transfer of funds to the TCTF. Just as with the
SCFCF and the ICNA funds, the penalty provisions of the TCTF
originally did not provide which entity - the county or the
court - was responsible for penalty payments or to which entity
or entities the Controller had to send a delinquent payment
notice. It also required payment of significant penalties even
if the entity responsible for the missed payment did not learn
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about the mistake until an audit was done years later.
SB 539 (Margett), Chap. 435, Stats. 2007 provided that specified
penalty payments on the delinquent transfer of court fees to the
TCTF be made by the entity responsible for the error or other
action that caused the failure to pay, as determined by the
State Controller. That bill also limited the penalty if the
responsible entity did not find out about the delinquency until
much later. This bill makes those same fixes to the SCFCF and
the ICNA.
ARGUMENTS IN SUPPORT : In support of the bill, the bill's
sponsor, the State Association of County Auditors, writes:
Based on the provisions of Senate Bill 539 (Margett,
Chapter 435, 2007), upon discovery of an underpayment,
existing law allows an entity to correct the error made on
a transfer of funds to the Trial Court Trust Fund by paying
the shortage and calculating interest using the Local
Agency Investment Fund Rate (LAIF), which is what the money
would have earned had it been paid in full and on time.
Existing law related to underpayments to the State Trial
Court Construction fund continues to assess an 18% accrued
annual interest to the underpayment. This is the problem
that SB 539 was introduced to address, and appears to be
the only fund that continues to carry the severe penalty.
This bill will give small to medium-sized entities an
opportunity to correct underpayments to the State Trial
Court Construction Fund when brought to their attention,
without 18% annual accrued interest as a penalty. Small to
medium-sized counties are audited on a multi-year schedule,
some only as often as once every 5-7 years. If the
underpayment took place early in the cycle, the interest
will accrue to an unmanageable amount over time until it is
uncovered in an audit. As with obligations to other funds,
the entities will continue to be responsible to pay
interest on the balance (calculated with the LAIF rate).
REGISTERED SUPPORT / OPPOSITION :
AB 619
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Support
State Association of County Auditors (sponsor)
Opposition
None on file
Analysis Prepared by : Leora Gershenzon / JUD. / (916)
319-2334