BILL ANALYSIS �
AB 1289
Page 1
Date of Hearing: January 10, 2012
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 1289 (Davis) - As Amended: January 4, 2012
As Proposed to be Amended
SUBJECT : COURT CONSTRUCTION FUNDS: PENALTY PROVISION
CLARIFICATIONS
KEY ISSUE : SHOULD VARIOUS NON-CONTROVERSIAL TECHNICAL
IMPROVEMENTS BE MADE TO PENALTY PROVISIONS PERTAINING TO THE
COURTS' CONSTRUCTION FUNDS?
FISCAL EFFECT : As currently in print this bill is keyed
fiscal.
SYNOPSIS
This non-controversial bill, sponsored by the State Association
of County Auditors, seeks to make some clarifications to the law
surrounding penalty provisions in the state's court construction
funds - the State Court Facilities Construction Fund (SCFCF) and
the Immediate and Critical Needs Account of the State Court
Facilities Construction Fund (ICNA). Specifically, the bill
provides that penalty payments on the delinquent transfer of
court fees to these construction funds should appropriately be
made by the entity (county, city and county, or court) actually
responsible for the error or other action that caused the
failure to pay, as determined by the Controller in notice given
to the responsible entity. This bill also limits the penalty
when notice of the delinquent transfer is not to the responsible
entity until much later. Finally, the bill also appropriately
provides that the Controller is authorized to permit a county,
city and county, or court to pay the penalty amounts according
to a payment schedule in the event of a large penalty amount
that would cause hardship to the paying entity. These relief
provisions are the same as already provided to counties and
courts for delinquent payments to the Trial Court Trust Fund,
under SB 539 (Margett), Chap. 435, Stats. 2007. There is no
known opposition to this measure.
SUMMARY : Seeks to make some clarifications to the law
surrounding penalty provisions in the state's court construction
AB 1289
Page 2
funds. Specifically, this bill :
1)Provides that any interest or penalty payments on any
delinquent transfer of court fees to the SCFCF and ICNA be
made by the entity (county, city and county, or court)
responsible for the error or other action that caused the
failure to pay, as determined by the Controller, accompanied
by a remittance advice identifying the collection month and
the account to which the payment shall be made.
2)Requires the Controller upon receipt of a delinquent payment
to:
a) Calculate interest on the delinquent payment by
multiplying the delinquent interest rate, calculated based
on the daily return rate for fund deposited in the Local
Agency Investment Fund, from the date payment was originally
due to either 30 days after the Controller issues the final
audit report concerning the failure to pay or the date of
the payment by the responsible entity, whichever comes
first.
b) Calculate the penalty at a daily rate equal to 1.5 percent
per month from the day 30 days after the date of issuance by
the Controller of the final audit report concerning the
failure to pay.
3)Allows the Controller to permit a county, city and county, or
court to pay the penalty amounts according to a payment
schedule in the event of a large penalty amount that causes
hardship to the paying entity.
4)Provides that the changes made by this bill apply to all
delinquent payments for which the Controller has not issued a
final audit before January 1, 2013.
EXISTING LAW :
1)Provides, under the Lockyer-Isenberg Trial Court Funding Act
of 1997, among other things, that the state has sole
responsibility for funding court operations, as defined, and
each county must remit to the state certain statutorily
specified amounts for funding court operations. (AB 233
(Escutia and Pringle) Chap. 850, Stats. 1997; Government Code
Sections 77200 et seq. All further references are to this
code unless otherwise noted.)
AB 1289
Page 3
2)Establishes the Trial Court Trust Fund (TCTF), the proceeds of
which are apportioned for funding trial court operations, as
defined, and for other specified court purposes. (Section
68085.)
3)Establishes the SCFCF, funded by revenues from civil and
criminal fees, fines, penalties, and surcharges, the proceeds
of which may be used only in the planning, design,
construction, rehabilitation, renovation, replacement,
leasing, or acquisition of court facilities. (Section 70371
et seq.)
4)Establishes the ICNA of the SCFCF, the proceeds of which may
only be used for the following:
a) Planning, design, construction, rehabilitation,
renovation, replacement, or acquisition of court
facilities;
b) Repayment for moneys appropriated for lease of court
facilities pursuant to the issuance of lease-revenue bonds;
or
c) Payment for lease or rental of court facilities,
including those made for facilities in which one or more
private sector participants undertake some of the risks
associated with the financing, design, construction, or
operation of the facility. (Section 70371.5.)
5)Requires that fees or penalties collected for the SCFCF or the
ICNA be transmitted to the Controller no later than 45 days
after the end of the month in which they are collected. Upon
receipt of any delinquent payment, requires the Controller to
calculate a penalty by multiplying by 1.5 percent per month
(18 percent per year). Provides that, if the penalty is the
result of a court's failure to timely deposit money with the
county, the court must reimburse the county for any actual
penalty. (Section 70377.)
COMMENTS : This non-controversial bill, sponsored by the State
Association of County Auditors, seeks to make some
clarifications to the law surrounding penalty provisions in the
state's court construction funds - the SCFCF and the ICNA.
Specifically, the bill provides that penalty payments on the
delinquent transfer of court fees to these construction funds
should appropriately be made by the entity (county, city and
AB 1289
Page 4
county, or court) actually responsible for the error or other
action that caused the failure to pay, as determined by the
Controller in notice given to the responsible entity. This bill
also limits the penalty when notice of the delinquent transfer
is not to the responsible entity until sometimes years later.
This bill is modeled after the same relief that was already
provided to counties and courts with respect to delinquent
payments to the Trial Court Trust Fund, under SB 539 (Margett),
Chap. 435, Stats. 2007.
The author writes:
This bill will give local cities, counties, and agencies an
opportunity to correct underpayments to a specified fund
when brought to their attention, without 18% annual accrued
interest as a penalty. For example, small to medium-sized
counties are audited on a multi-year schedule, some only as
often as once every 5-7 years. If the underpayment took
place early in the cycle, the interest will accrue to an
exorbitant amount over time until it is uncovered in an
audit.
This bill requires that penalties for delinquent payments of
fees to the SCFCF or ICNA be paid by the responsible entity .
Current law does not specifically provide that the entity
responsible for penalty payments (as determined by the
Controller) -- whether it be the county, city and county, or the
trial court -- is the entity required to actually remit the
penalty payments to the Controller. The sponsor states that
currently the Controller does not send the notice of penalty
assessments to the responsible entity, but rather sends the
notice to the county. According to the sponsor, this bill would
rectify both of these situations. It requires the Controller to
send the notice to the responsible entity and requires the
responsible entity to transmit penalty payments to the
Controller, providing a fairer way to handle penalty payments.
This bill prospectively requires trial courts to pay penalty
payments they are responsible for . Current law requires
counties to pay trial courts' penalty payments for which the
trial courts are to reimburse the counties. The sponsor argues
that, if the trial court is found to be the responsible entity
for a penalty payment, the trial court should pay the penalty.
This bill so provides on a going forward basis.
AB 1289
Page 5
This bill is intended to assist counties in avoiding the
financial hardship of large penalty payments when they are not
given reasonable notice of the delinquent payment until
sometimes years later . The sponsor notes that penalty payments
are generally assessed pursuant to an audit conducted by the
Controller. For most counties, these audits may only occur on a
five to seven-year cycle, while for some larger counties, they
may be annual. Thus, a larger county would be on notice of a
penalty assessment much sooner than a smaller county, and would
thereby save money by paying the penalty sooner rather than
later. A smaller county may not find out until five to seven
years later that the county must remit a substantial penalty
payment. This delay could affect future court operations,
particularly in smaller counties if they find themselves with
substantial penalty payments five to seven years after the
initial fees were transmitted to the state. The sponsor argues
this is an unfair situation that this bill rectifies.
This bill provides the local entities with the same relief
already provided for mistakes made to the Trial Court Trust
Fund. The Lockyer-Isenberg Trial Court Funding Act of 1997
governs the transfer of funds collected by the counties and the
courts, primarily from fees, to the Trial Court Trust Fund
(TCTF) to support trial court operations. The TCTF specified
penalties for delinquent payment of the required transfer of
funds to the TCTF. Just as with the SCFCF and the ICNA funds,
the penalty provisions of the TCTF originally did not provide
which entity - the county, city and county, or the court - was
responsible for penalty payments or to which entity or entities
the Controller had to send a delinquent payment notice. It also
required payment of significant penalties even if the entity
responsible for the missed payment did not learn about the
mistake until an audit was done years later.
SB 539 (Margett), Chap. 435, Stats. 2007 provided that specified
penalty payments on the delinquent transfer of court fees to the
TCTF be made by the entity (county, city and county, or court)
responsible for the error or other action that caused the
failure to pay, as determined by the State Controller in notice
given to the responsible entity. That bill also limited the
penalty if the responsible entity did not find out about the
delinquency until much later. This bill makes those same fixes
to the SCFCF and the ICNA.
Proposed amendment allows the Controller to provide a repayment
AB 1289
Page 6
schedule if necessary to avoid a hardship . Additionally, as
proposed to be amended by the author, this bill quite reasonably
provides that if a large fine is imposed, the Controller can
permit a payment schedule to avoid a hardship. The language
proposed by the author is identical to the relief already
allowed to counties for penalty provisions related to the TCTF
under SB 529. This change is accomplished by the following
amendment:
On page 3, after line 40 insert the following and renumber the
last two subdivisions:
(e) The Controller may permit a county, city and county, or
court to pay the interest or penalty amounts according to a
payment schedule in the event of a large interest or penalty
amount that causes a hardship to the paying entity.
Technical Amendments : The author has rightly agreed to two
technical amendments that ensure the bill operates
appropriately.
First, in order to ensure that courts are properly included in
the list of entities that may be required to make the
transmissions to the state, the author rightly agrees to the
following amendment to the first sentence in subdivision (a)
(page 2, lines 3-7):
Any amounts required to be transmitted by a county , or city
and county or court to the state pursuant to this section
shall be remitted to the State Treasurer no later than 45 days
after the end of the month in which the fees, assessments, or
penalties were collected.
Second, in order to ensure that the changes contemplated by this
bill apply only prospectively, the author rightly requests that
it apply to all delinquent payments for which the Controller has
not issued a final audit before January 1, 2013. To accomplish
this, the following change is necessary:
On page 4, line 11, delete 2012 and insert 2013
ARGUMENTS IN SUPPORT : In support of the bill, the bill's
sponsor, the State Association of County Auditors, writes:
Based on the provisions of Senate Bill 539 (Margett,
AB 1289
Page 7
Chapter 435, 2007), upon discovery of an underpayment,
existing law allows an entity to correct the error by
paying the shortage and calculating interest using the
Local Agency Investment Fund Rate (LAIF), which is what the
money would have earned had it been paid in full and on
time. Existing law related to underpayments to the State
Trial Court Construction fund continues to assess an 18%
accrued annual interest to the underpayment. This is the
problem that SB 539 was introduced to address, and appears
to be the only fund that continues to carry the severe
penalty.
This bill will give small to medium-sized entities an
opportunity to correct underpayments to the State Trial
Court Construction Fund when brought to their attention,
without 18% annual accrued interest as a penalty. Small to
medium-sized counties are audited on a multi-year schedule,
some only as often as once every 5-7 years. If the
underpayment took place early in the cycle, the interest
will accrue to an unmanageable amount over time until it is
uncovered in an audit. As with obligations to other funds,
the entities will continue to be responsible to pay
interest on the balance (calculated with the LAIF rate).
REGISTERED SUPPORT / OPPOSITION :
Support
State Association of County Auditors (sponsor)
California State Association of Counties
Opposition
None on file
Analysis Prepared by : Leora Gershenzon / JUD. / (916)
319-2334