BILL ANALYSIS
AB 2541
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Date of Hearing: May 10, 2006
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Judy Chu, Chair
AB 2541 (Matthews) - As Amended: May 3, 2006
Policy Committee: Business and
Professions Vote: 10-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill requires the state to pay a penalty for the late
payment of a grant and establishes a higher late payment penalty
for both contracts and grants. 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," for purposes of prompt payment requirements,
as a solicited or unsolicited proposal of a state agency to
furnish assistance to nonprofit service organizations that
perform public services.
3)Increases, from 0.25% per day to 1% per day, the late payment
penalty state agencies must pay to small business contractors
and grant recipients.
FISCAL EFFECT
1)Significant annual costs. According to information from the
State Controller's Office, late payment penalties have
averaged about $3 million annually over the last three fiscal
years. Assuming one-third of this amount ($1 million) was paid
to small businesses, and the penalty rate increases four-fold
(from 0.25% to 1% per day), the additional cost from all funds
would be $3 million. The actual amount could be somewhat less
to the extent the increased penalty induces fewer late
payments.
2)The impact of adding grantees to those eligible for late
AB 2541
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payment penalties is unknown, but assuming an increase in
penalties of only 5% yields an annual cost of $200,000 from
all funds.
COMMENTS
1)Background . The Budget Act of 2003-04 abolished the Office of
Criminal Justice Planning (OCJP) and transferred OCJP's duties
to the Office of Emergency Services (OES). According to the
author, funding issues arose concerning all programs funded by
the Criminal Justice Division of OES, especially for victim
services programs, which were not receiving reimbursements
from either federal or state grant programs in a timely
manner.
According to the author, last year, several rape crisis
centers nearly closed their doors as a result of delayed
reimbursements. Some centers, in order to continue to provide
services to their community, had to lay off as much as 60% of
their staff.
2)Purpose . The Prompt Payment Act (PPA) requires the state to
pay amounts due on contracts by 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. AB 2541 includes grantees within the
requirements of the PPA. According to the author, 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%."
Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081