BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2013-2014 Regular Session
AB 619 (Garcia)
As Introduced
Hearing Date: June 18, 2013
Fiscal: No
Urgency: No
BCP:rm
SUBJECT
Court Facilities
DESCRIPTION
This bill would provide that penalty payments on the delinquent
transfer of court fees to the State Facilities Court
Construction Fund would 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 State Controller
in notice given to the responsible entity. This bill would also
recalculate the penalty on a delinquent payment.
This bill would authorize the Controller to permit the entity to
pay the interest or penalty amounts under a payment schedule if
the interest or penalty amount causes hardship to the entity.
This bill would apply these changes to all delinquent payments
for which the Controller has not issued a final audit before
January 1, 2014.
BACKGROUND
The Lockyer-Isenberg Trial Court Funding Act of 1997 spearheaded
an era of significant restructuring of the state court system.
The act, among other things, shifted sole responsibility for
funding court operations to the state, and required each county
to remit to the state certain statutorily specified amounts for
funding court operations.
The Trial Court Facilities Act of 2002 established the State
Court Facilities Construction Fund (SCFCF), which supports,
(more)
AB 619 (Garcia)
PageB of?
among other things, the construction, renovation, and facility
modifications for state courts. SCFCF is funded by fines and
fees collected within the judicial branch, with a limited amount
of county reimbursements. In 2008, SB 1407 (Perata, Chapter
311, Statutes of 2008) established the Immediate and Critical
Needs Account (ICNA) of the SCFCF which, among other things,
supports the most critically needed construction and renovation
of courthouses and provides limited funding for facility
modifications. ICNA is funded by fines and fees established by
SB 1407.
Various statutory provisions govern the transfer of funds
collected by the counties and courts to support SCFCF and ICNA.
These provisions establish specified penalties for delinquent
payment of the required funds to SCFCF and ICNA. The delinquent
payments are uncovered in periodic audits by the Controller - in
some smaller counties these audits are performed every five to
seven years.
In 2007, SB 539 (Margett, Chapter 435, Statutes of 2007) was
enacted to require the Controller to give notice to the entity
responsible for delinquent payments of fees to be deposited in
the Trial Court Trust Fund, recalculate the penalty on a
delinquent payment, and authorize the Controller to permit
payment of the penalty according to a payment schedule if the
penalty amount causes a hardship to the paying entity. This
bill would apply those same provisions for delinquent payments
to delinquent payments to the SCFCF and ICNA.
This bill is substantially similar to AB 1289 (Davis, 2012),
which was approved by this Committee but held under submission
in the Senate Appropriations Committee.
CHANGES TO EXISTING LAW
Existing law provides that the state has sole responsibility for
funding court operations, as defined, and each county must remit
to the state certain statutorily specified amounts for funding
court operations. (Gov. Code Sec. 77200 et seq.)
Existing law establishes the State Court Facilities Construction
Fund (SCFCF) for the improvement of court facilities to further
reasonable access to the courts and judicial process throughout
the state. SCFCF is funded by various civil and criminal fees,
fines, penalties, and surcharges. SCFCF proceeds may be used in
the planning, design, construction, rehabilitation, leasing or
AB 619 (Garcia)
PageC of?
acquisition of court facilities. (Gov. Code Sec. 70371 et seq.)
Existing law establishes the Immediate and Critical Needs
Account (ICNA) of the SCFCF, the proceeds of which can be used
only for any of the following:
(1) the planning, design, construction, rehabilitation,
renovation, replacement or acquisition of court facilities;
(2) repayment for monies appropriated for lease of court
facilities pursuant to the issuance of lease-revenue bonds;
and
(3) payment for lease or rental of court facilities or payment
of service contracts, 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. (Gov. Code Sec.
70371.5.)
Existing law requires a county to transmit the fees and
penalties collected for SCFCF or ICNA to the Controller no later
than 45 days after the end of the month in which they were
collected. (Gov. Code Sec. 70377(a).)
Existing law , upon receipt of a delinquent payment, requires the
Controller to calculate a penalty on the delinquent payment by
multiplying the amount of the delinquent payment at a daily rate
equivalent to 1.5 percent per month for the number of days the
payment is delinquent. Penalties calculated on delinquent
payments must be paid to the Controller no later than 45 days
after the end of the month in which the penalty was calculated.
(Gov. Code Sec. 70377 (b),(c).)
Existing law requires the Controller to deposit delinquent
payment penalties in the SCFCF. (Gov. Code Sec. 70377(c).)
Existing law requires a court to reimburse a county general fund
in an amount equal to the delinquent payment penalty, if the
penalty imposed resulted from a court's failure to deposit money
with the county treasurer in a timely manner. (Gov. Code Sec.
70377(d).)
Existing law establishes the Trial Court Trust Fund (TCTF),
funded primarily from court fees, to support trial court
operations and other specified purposes. (Gov. Code Sec. 68085.)
This bill would provide that any interest or penalty payments on
AB 619 (Garcia)
PageD of?
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.
This bill would provide that the party responsible for the error
or other action that caused the failure to pay may include, but
is not limited to, the party that collected the funds who is not
the party responsible for remitting the funds to the SCFCF or
the ICNA, if the collecting party failed to provide or delayed
providing the remitting party with sufficient information needed
by the remitting party to distribute the funds.
This bill would require the Controller upon receipt of a
delinquent payment to:
calculate interest on the delinquent payment by multiplying
the delinquent interest rate, calculated based on the daily
return rate for funds deposited in the Local Agency Investment
Fund (LAIF), from the date payment was originally due to
either (1) 30 days after the Controller issues the final audit
report concerning the failure to pay, or (2) the date of the
payment by the responsible entity, whichever comes first; in
calculating the interest rate, the Controller must apply the
average monthly LAIF rate over the period of delinquency; and
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.
This bill would permit a court to pay any penalty or interest
imposed due to an error or other action by the court from money
received from the TCTF.
AB 619 (Garcia)
PageE of?
This bill would allow 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.
This bill would provide that the above changes apply to all
delinquent payments for which the Controller has not issued a
final audit before January 1, 2014.
COMMENT
1. Stated need for the bill
According to the author, AB 619 will "change the interest rate
on late payments to the State Court Construction Fund [from 1.5
percent] to the [Local Agency Investment Fund (LAIF)] rate for a
period of 30 days. This gives unaware counties who may have
been on a multi-year audit cycle to quickly correct the
underpayment without incurring an 18[percent] annual penalty."
The author further asserts:
Many smaller and mid-sized counties are audited on a
multi-year cycle, and are made aware of possible budget
issues and payment obligations at the conclusion of these
audits. If the county is audited once every 3 years and has
been miscalculating their payment to the State Court
Construction Fund for this period of time, their
underpayment will have been accruing an 18 [percent] annual
penalty that will be due immediately. This bill seeks to
offer a grace period of 30 days, with a LAIF fund interest
rate, to allow the county to resolve the issue and move
forward without incurring a massive penalty.
2. Changing calculation of penalties and interest for
delinquent payments
The Controller is currently required to calculate penalties for
delinquent payments using a rate of 1.5 percent per month,
resulting in an annual interest rate of 18 percent. This bill
would require the Controller to, instead, calculate "interest"
AB 619 (Garcia)
PageF of?
using the Local Agency Investment Fund (LAIF)<1> rate from the
date the payment was due to the earlier of (1) 30 days after the
Controller's issuance of the final audit report, or (2) the date
of payment by the entity responsible for the delinquent payment.
That provision differs from existing law in not only the rate
used to calculate a penalty, but in its characterization as
interest (as opposed to a penalty). The California State
Association of Counties, in support, notes that the LAIF rate is
what the money would have earned absent underpayment.
If the delinquent payments are not paid within 30 days after the
date of the issuance of the final audit report, this bill would
apply the existing "penalty" rate of 1.5 percent per month.
That penalty of 1.5 percent per month is the equivalent of an
annual interest rate of 18 percent. This bill would
additionally authorize the Controller to permit a responsible
entity to pay the penalty according to a payment schedule in
cases where the interest or penalty causes a hardship to the
paying entity.
The State Association of County Auditors, co-sponsor, asserts
that "[t]his 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
[percent] annual accrued interest as a penalty. Small to
medium-sized counties are audited on a multi-year schedule, some
only as often as one 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)."
Staff notes that, according to the State Treasurer's Web site,
---------------------------
<1> The State Treasurer's Internet Web site notes that the LAIF
fund is "a voluntary program created by statute; began in 1977
as an investment alternative for California's local governments
and special districts and it continues today under Treasurer
Bill Lockyer's administration. . . . This program offers local
agencies the opportunity to participate in a major portfolio,
which invests hundreds of millions of dollars, using the
investment expertise of the State Treasurer's Office investment
staff at no additional cost to the taxpayer." (LAIF Program
Description,
http://www.treasurer.ca.gov/pmia-laif/laif-program.asp .)
AB 619 (Garcia)
PageG of?
the LAIF rate is currently at 0.28 percent. The LAIF rate is
variable and adjusts quarterly. A penalty calculated today under
the provisions of this bill would result in responsible entities
owing significantly less in penalties than currently assessed.
However, as recently as the first quarter of 2009, the LAIF rate
was 1.91 percent. A penalty calculated under the provisions of
this bill using a 1.9 percent LAIF rate would result in higher
penalties for the responsible entity than currently required by
statute. While the LAIF rate is currently very low, if it
increases above the current statutory underpayment penalty of
1.5 percent, the penalty paid by the responsible entity, as
proposed in this bill, would be more than currently assessed.
In response to concerns about future increases, last year, AB
1289 (Davis, 2012) was amended in this Committee to require the
Controller to apply the average monthly LAIF rate over the
period of delinquency. This bill incorporates that same
amendment, thus, requiring the LAIF rate to be calculated by
adding all the quarterly LAIF rates for the time the payment was
delinquent and dividing by the number of quarters the payment
was delinquent. Staff notes that using the average LAIF rate
would appear to provide some buffer if, in fact, the rate does
fluctuate dramatically over the period of delinquency.
3. Other changes regarding notice to entities and payments by
trial courts
This bill would make additional changes with respect to the
entity responsible for the delinquent payment and payments of
penalties by the trial courts.
a. Entities responsible for the error
Current law does not specifically provide that the entity
responsible for penalty payments is the entity required to
actually remit the penalty payments to the Controller.
According to the proponents, the Controller sends the notice
of penalty to the county, regardless of the entity responsible
for the underpayment. This bill would require the Controller
to send the notice of delinquent payment to the responsible
entity and require that entity to transmit penalty payments to
the Controller. To provide greater clarity to the State
AB 619 (Garcia)
PageH of?
Treasurer (who receives the actual payments), this bill would
require those payments to be accompanied by "remittance
advice" identifying the collection month and the appropriate
account in the SCFCF or the ICNA to which it is to be
deposited.
b. Trial courts
Under current law, counties are required to pay penalties for
which the trial courts are responsible. Trial courts, if
responsible for the error resulting in the penalties, are then
required to reimburse the county's general fund in an amount
equal to the actual penalty. This bill would remove that
provision and, instead, require the penalty payments on
delinquent transfers to be made directly to the Controller by
the entity actually responsible for the error that caused the
failure to pay. This change would streamline the payment of
penalties by eliminating the need for a county to be
reimbursed by the courts for delinquent payments that are the
result of a trial court's error.
4. Creates uniformity in the law related to interest penalties
and repayment
SB 539 (Margett, Ch. 435, Stats. 2007) recalculated interest on
delinquent payments and provided for the identification of, and
notice to, the responsible party. This bill, modeled after SB
539, would create a uniform scheme of notice and delinquent
penalty calculation for SCFCF, ICNA, and TCTF - the three major
funds supporting, among other things, court operations,
construction, and maintenance.
Support : California State Association of Counties
Opposition : None Known
HISTORY
Source : State Association of County Auditors; Judicial Council
Related Pending Legislation : None Known
Prior Legislation :
AB 619 (Garcia)
PageI of?
AB 1289 (Davis, 2012) See Background; Comment 2.
SB 1407 (Perata, Ch. 311, Stats. 2008) See Background.
SB 539 (Margett, Ch. 435, Stats. 2007) See Background.
Prior Vote :
Assembly Committee on Judiciary (Ayes 9, Noes 0)
Assembly Floor (Ayes 75, Noes 0)
**************