BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
727 (Nielsen)
Hearing Date: 8/27/2009 Amended: As Introduced
Consultant: Bob Franzoia Policy Vote: G O 11-1
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BILL SUMMARY: AB 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.
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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 Special
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STAFF COMMENTS: SUSPENSE FILE. AS PROPOSED TO BE AMENDED.
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.
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.
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 relating to cash flow or the timely
sale of bonds, delays in meeting conditions set forth in
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AB (727) Nielsen
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 cost as bond funds that are the source of
SWRCB grants, cannot be used for late payment penalties. If $5
million in grants was delayed ten days, the late payment penalty
would be $125,000 ($5,000,000 x 0.0025 x 10).
Using historical data, the Department of Fish and Game estimates
approximately $3 million is expended annually on RCD projects.
If every invoice was delayed ten days, the late payment penalty
would be $75,000 annually. This cost could be minimized by
making payments to RCDs a priority for processing, thereby
avoiding late payments. However, this would delay all other
equally valid department payment obligations.
This bill is similar in intent to SB 553 (Wiggins) and SB 643
(Denham) which are on the Suspense File.
The proposed amendment would revise Government Code 927.11 (b)
as follows:
(b) No nonprofit public benefit corporation or resource
conservation district shall be eligible for a late payment
penalty if a state agency fails to make timely payment because
no Budget Act has been enacted.