BILL ANALYSIS
AB 2541
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Date of Hearing: April 25, 2006
ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS
Gloria Negrete McLeod, Chair
AB 2541 (Matthews) - As Amended: April 17, 2006
SUBJECT : Claims against the state.
SUMMARY : Requires the state to pay a penalty for the late
payment of a grant. Specifically, this bill :
1)Requires the state to pay a penalty for the late payment of a
grant in the same manner that penalties are paid for the late
payment of amounts due on contracts.
2)Defines "grant" as a solicited or unsolicited proposal of a
state agency to furnish assistance to nonprofit service
organizations that perform public services.
3)Defines "nonprofit service organization" as a nonprofit entity
that is organized to provide services to the public.
4)Increases the late payment penalty state agencies will be
required to pay to small business contractors and grant
recipients from 0.25% per day to 1% per day.
EXISTING LAW requires the state to pay amounts due on contract
on the date specified in the contract or within 45 days of a
properly submitted, undisputed invoice, or pay a penalty of
0.25% per day if the contractor is a small business, or 1% above
the Pooled Money Investment Account rate for all other
businesses.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of this bill . According to the author: "The California
Budget Act of 2003, Chapter 229, abolished the Office of
Criminal Justice Planning (OCJP) effective 12/31/03. The OCJP
administered most of the majority of victim services grants in
the state. The duties and obligations of the OCJP were
transferred to and assumed by the Office of Emergency Services
(OES). Soon thereafter, funding issues arose concerning all
programs funded by the Criminal Justice Division of OES,
AB 2541
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especially for victim services programs. These victim services
programs were not receiving reimbursements from either federal
or state grant programs in a timely manner.
"Under current law, state agencies are required to remit payment
to the person or business under specified conditions of the
contract, and within 45 days of the state agency's receipt of an
undisputed invoice, or be subject to a late penalty. The late
payment penalty is currently 0.25% of the amount due per day.
This is known as the Prompt Payment Act (PPA), California
Government Code section 927 et seq.
"Even though existing law under the PPA requires state agencies
to maintain practices of prompt payment, numerous small business
and non-profit organizations such as victim services programs
are not under the purview of the PPA and thus regularly see
payment delays extending as long as nine months after submission
of invoices.
"In the last year, several Rape Crisis Centers nearly closed
their doors as a result of delayed reimbursements, in some cases
as much as $97,000 (34% of the center's annual budget) and in
many cases as long as nine months after submission of
appropriate paperwork. Some centers found that in order to
continue to provide services to their community, they had to lay
off as much as 60% of their staff.
"AB 2541 would close a loophole in the current statute by
including certain defined grantees within the requirements of
the PPA. AB 2541 would ensure that state agencies will be
consistent in the procedures for paying/reimbursing claimants,
and that payments will be made in a timely manner. Furthermore,
AB 2541 would increase the late penalty from 0.25% to 1%."
The Committee may wish to consider the possibility that
increasing the penalty state agencies will pay to 1% per day (a
365% annual rate) may have the unintended consequence of
creating a disincentive to the prompt award of grants monies.
For example, if a state agency is contemplating making a grant
in the latter part of the fiscal year from funds that will be
appropriated in the Budget Act for the next fiscal year, it may
be reluctant to make the award until after the Budget Act is
enacted. Further, the Committee may wish to consider that such
extraordinary penalty payments may have the potential to reduce
the overall availability of grant funds.
AB 2541
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REGISTERED SUPPORT / OPPOSITION :
Support
California Coalition Against Sexual Assault (co-sponsor)
A Woman's Place of Merced County (co-sponsor)
National Asian Pacific American Families Against Substance Abuse
Opposition
None on file.
Analysis Prepared by : Ross Warren / B. & P. / (916) 319-3301