BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
727 (Nielsen)
Hearing Date: 7/13/2009 Amended: As Introduced
Consultant: Bob Franzoia Policy Vote: G O 11-1
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BILL SUMMARY: A B 727 would include resource conservation
districts (RCD) within the list of entities entitled to late
payment penalties when a state entity fails to make payment for
goods and services to an RCD pursuant to a contract. This bill
would permit late payment penalties to accrue to an RCD, a
certified small business, or a nonprofit organization in the
event a state agency fails to make timely payment because no
Budget Act has been enacted.
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Fiscal Impact (in thousands)
Major Provisions 2009-10 2010-11 2011-12 Fund
Expanded state late Unknown, minor to major costs to
payGeneral/
payment penalties late payment penalties or whenever
thereSpecial
is a delay in the adoption of the Budget
Act
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
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.
A nonprofit public benefit corporation means a corporation as
defined by subdivision 9b) of Section 5046 of the Corporations
Code, that has registered with the Department of General
Services as a small business.
Late payment penalties have been increasing from $1.8 million to
$3.8 million annually over the past five fiscal years. While
the State Controller's Office (SCO) processes late payments and
reports pursuant to Government Code 927.9, 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. Specific information on late
payment penalties is difficult to obtain because not all payment
information is provided to the SCO in formats that can be
readily aggregated. In general, the contracting state entity
has 30 days to submit the claim and the SCO has 15 days to issue
the warrant (check). When the contracting state entity submits
a late claim, this may be unknown to the SCO because the entity
adjusts the claim to include any late payment penalties.
Late payments may occur for a variety of reasons including
administrative decisions
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AB (727) Nielsen
relating to cash flow or the timely sale of bonds, delays in
meeting conditions set forth in federal legislation and so
forth.
Numerous state entities have contract authority. For example,
the State Water Resources Control Board (SWRCB) has an estimated
73 grant agreements with a balance of $18 million that would be
subject to the provisions of this bill. If the SWRCB was 30
days late with 20 percent of grant payments to nonprofit public
benefit corporations, the costs to the SWRCB would be an
estimated $90,000 for the fiscal year. If the SWRCB was late on
all such grant payments, staff estimates the total cost would be
over $433,000 for the fiscal year.
In some case, these costs would be a General Fund obligation as
bond funds that are the source of SWRCB grants, cannot be used
for late payment penalties.
For purposes of illustration, if $5,000,000 in grants was
delayed ten days, the late payment penalty would be $125,000
($5,000,000 x 0.0025 x 10).
There are 103 RCDs in the state which are mostly funded through
state and federal grants. RCDs are special districts organized
under the Public Resources Code and have a locally elected or
appointed volunteer board of directors made up of landowners in
that district. RCDs address a wide variety of conservation
issues including forest fuel management, water and air quality,
wildlife habitat restoration, soil erosion control, and
conservation education.
This bill is similar in intent to SB 553 (Wiggins) and SB 643
(Denham) which are on the Suspense File.