BILL ANALYSIS SB 537 Page 1 SENATE THIRD READING SB 537 (Hughes) - As Amended: July 19, 1995 SENATE VOTE: 21-10 ASSEMBLY ACTIONS: COMMITTEE: L. GOV. VOTE: 6-5 COMMITTEE: VOTE: Ayes: Rainey, Sweeney, Cannella, Hannigan, W. Murray, Napolitano Nays: Brewer, Goldsmith, Granlund, Kuykendall, Margett DIGEST Existing law requires the county recorder, upon payment of proper fees and taxes, to accept for recordation any instrument, paper or notice that is authorized or required by law to be recorded. This bill: 1) Permits a county board of supervisors to require a fee of up to $1 to be paid at the time of recording documents transferring title, and for the fees to be paid into a Real Estate Fraud Prosecution Trust Fund (Trust Fund). 2) Requires the funds to be expended for purposes of deterring, investigating and prosecuting real estate fraud crimes, with 60% of funds to be distributed to district attorneys (DA) and 40% to enforcement agencies, except that 100% of funds are to be distributed to DAs in counties without enforcement agencies, subject to deduction of actual and necessary administrative costs. 3) Requires a Trust Fund Committee annually to determine allocation of funds to law enforcement agencies based on: application for proposed use; evidence of qualification for funds; SB 537 Page 2 and an accounting of, and accountability for, the previous year's expenditures of moneys. 4) Subjects the DA to annual review and accountability of funds. 5) Permits a DA's office or law enforcement agency to receive nonexpended funds from the previous year subject to review of previous expenditures. 6) Prohibits money collected pursuant to this section from being expended to offset a reduction in any other source of funds, and requires those funds to be spent in connection with prosecutions and investigations of fraud involving recorded documents. SB 537 Page 3 FISCAL EFFECT Unknown COMMENTS 1) A fee must be reasonable and related to the regulation or service that generated the charge. A special tax, on the other hand, has a special purpose and requires a two-thirds vote. Cal. Const. Art. XIIIA, ?4. The relevant distinction is that a "special tax" does not include "regulatory fees" which are "reasonably commensurate with the cost of the regulatory activity from those at whose instance the activity is conducted." [ Mills v. County of Trinity, 108 Cal. App. 3d 656, 662-663 (1980)] Here, the maximum $1 fee is not being charged for the purpose of covering administrative costs of recording a document related to the transfer of title. Rather, the maximum $1 charge goes to fraud prevention programs in counties. A fee that bears no relationship to the administration of document filings is arguably a special tax requiring a two-thirds vote. However, the argument for the legality of this maximum $1 fee is that it is of a regulatory nature, the proceeds of which are directed to regulating the activity (transferring title to property) being conducted. Recent amendments require funds to be spent in connection with prosecutions and investigations involving recorded documents. This makes the fee a closer nexus to fraud prevention activities. 3) According to the Los Angeles DA's Office, the Los Angeles field office of the F.B.I. handled 1,152 cases of fraud in the fiscal year ending September, 1994, of which 905 involved losses over $100,000. Despite this number, the DA's office has only three investigators assigned to its newly-created Real Estate Fraud Unit, with 16 open investigations. Presumably due to the limited number of DAs assigned to prosecute fraud, only nine new cases have been filed by the unit since July 1994. Many cases involve total losses from real estate fraud in the tens of SB 537 Page 4 millions of dollars, and the total loss from fraud to victims overall is estimated at $183.8 million. Los Angeles County estimates up to $2 million could be raised by a $1 fee on approximately two million anticipated document recordings. Analysis prepared by: Brad Taylor / algov / 445-6034 FN 017769