BILL ANALYSIS                                                                                                                                                                                                    




                   Senate Appropriations Committee Fiscal Summary
                           Senator Kevin Murray, Chairman

                                           2541 (Matthews)
          
          Hearing Date:  8/7/06           Amended: 8/7/06
          Consultant:  Bob Franzoia       Policy Vote: GO 8-1
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          ____
          BILL SUMMARY: AB 2541 would revise the California Prompt Payment  
          Act by adding grants to provisions of the act such that a state  
          agency that awards a grant must make payment to the grant  
          recipient on the date required by the grant, and within 45 days  
          of the state agency's receipt of an undisputed invoice, or be  
          subject to a late payment penalty.   The bill would define (1)  
          grant to mean a signed final agreement between any state agency  
          and a local government agency or organization authorized to  
          accept grant funding for victim services or prevention programs  
          administered by any state agency, and (2) nonprofit service  
          organization as a nonprofit entity that is organized to provide  
          services to the public.
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          ____
                            Fiscal Impact (in thousands)

           Major Provisions         2006-07      2007-08       2008-09     Fund
           Expansion of late payment         $38         $75        
          $75General/
          penalties*                                              Special

          * Potentially less to the extent any grant within the estimated  
          $20 million of grants is more than $500,000 and thus not  
          eligible for penalty payments.
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          ____

          STAFF COMMENTS: Under the Prompt Payment Act, state agencies  
          that acquire property or services pursuant to a contract with a  
          business are required to make payment on the date required by  
          the contract, and within 45 days of the state agency's receipt  
          of an undisputed invoice or be subject to a late payment penalty  
          of 0.25 percent per day of the amount due if the contractor is a  
          small business, or one percent above the Pooled Money Investment  
          Account rate for all other businesses.  A nonprofit organization  
          shall only be eligible to receive a penalty payment if it has  
          been awarded a contract or grant in an amount less than  










          $500,000.

          The State Controller's Office indicates late payment penalties  
          have averaged approximately $3 million annually over the last  
          three fiscal years.  While the Controller's Office processes  
          late payments, it does so on behalf of state agencies that have  
          the initial responsibility of ensuring grant payments are made  
          on time.  At this time, there is no central database of grants.   
           For purposes of representing a fiscal impact, if this bill  
          makes eligible for penalty payments $20 million in grants and  
          five percent ($1,000,000) of those grant payments are late by 30  
          days (which would be 75 days after the state agency's receipt of  
          an invoice) under this bill the Controller would process  
          additional late penalties of $75,000 ($1,000,000 x 0.025 x 30)  
          annually.  According to the Controller's Office, all late  
          payment penalties have averaged about $3 million annually over  
          the last three fiscal years.