BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session
AB 1289 (Davis)
As Amended January 12, 2012
Hearing Date: June 26, 2012
Fiscal: Yes
Urgency: No
LSF/SK:rm
SUBJECT
Court Facilities
DESCRIPTION
This bill, sponsored by the State Association of County
Auditors, would provide that penalty payments on the delinquent
transfer of court fees to the State Facilities Court
Construction Fund would 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. This bill would also
recalculate the penalty on a delinquent payment.
This bill would authorize the Controller to permit the entity to
pay the interest or penalty amounts under a payment schedule if
the interest or penalty amount causes hardship to the entity.
This bill would apply these changes to all delinquent payments
for which the Controller has not issued a final audit before
January 1, 2013.
BACKGROUND
The Lockyer-Isenberg Trial Court Funding Act of 1997 spearheaded
an era of significant restructuring of the state court system.
The act, among other things, shifted sole responsibility for
funding court operations to the state, and required each county
to remit to the state certain statutorily specified amounts for
funding court operations.
The Trial Court Facilities Act of 2002 established the State
Court Facilities Construction Fund (SCFCF), which supports,
among other things, the construction, renovation, and facility
(more)
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modifications for state courts. SCFCF is funded by fines and
fees collected within the judicial branch, with a limited amount
of county reimbursements. In 2008, SB 1407 (Perata, Chapter
311, Statutes of 2008) established the Immediate and Critical
Needs Account (ICNA) of SCFCF which, among other things,
supports the most critically needed construction and renovation
of courthouses and provides limited funding for facility
modifications. ICNA is funded by fines and fees established by
SB 1407.
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Various statutory provisions govern the transfer of funds
collected by the counties and courts to support SCFCF and ICNA.
These provisions establish specified penalties for delinquent
payment of the required funds to SCFCF and ICNA. The delinquent
payments are uncovered in periodic audits by the Controller - in
some smaller counties these audits are performed every five to
seven years.
This bill would apply the same provisions for delinquent
payments as are applied to the Trial Court Trust Fund (TCTF) in
SB 539 (Margett, Chapter 435, Statutes of 2007), which requires
the Controller to give notice to the entity responsible for the
failure to pay, recalculates the penalty on a delinquent
payment, and authorizes the Controller to permit payment of the
penalty according to a payment schedule if the penalty amount
causes a hardship to the paying entity.
CHANGES TO EXISTING LAW
Existing law provides 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. (Gov. Code Sec. 77200 et seq.)
Existing law establishes SCFCF for the improvement of court
facilities to further reasonable access to the courts and
judicial process throughout the state. SCFCF is funded by
various civil and criminal fees, fines, penalties, and
surcharges. The fund may be used in the planning, design,
construction, rehabilitation, leasing or acquisition of court
facilities. (Gov. Code Sec. 70371 et seq.)
Existing law establishes ICNA of SCFCF, the proceeds of which
can be used only for any of the following:
(1) The planning, design, construction, rehabilitation,
renovation, replacement or acquisition of court facilities.
(2) Repayment for monies appropriated for lease of court
facilities pursuant to the issuance of lease-revenue bonds.
(3) Payment for lease or rental of court facilities or payment
of service contracts, 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. (Gov. Code Sec.
70371.5.)
Existing law requires a county to transmit the fees and
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penalties collected for SCFCF or ICNA to the Controller no later
than 45 days after the end of the month in which they were
collected. (Gov. Code Sec. 70377.)
Existing law directs that upon receipt of a delinquent payment,
the Controller shall calculate a penalty on the delinquent
payment by multiplying the amount of the delinquent payment at a
daily rate equivalent to 1.5 percent per month for the number of
days the payment is delinquent. Penalties calculated on
delinquent payments must be paid to the Controller no later than
45 days after the end of the month in which the penalty was
calculated. (Gov. Code Sec. 70377.)
Existing law requires a court to reimburse a county general fund
in an amount equal to the delinquent payment penalty, if the
penalty imposed resulted from a court's failure to deposit money
with the county treasurer in a timely manner. (Gov. Code Sec.
70377.)
Existing law directs that the Controller deposit delinquent
payment penalties in the SCFCF. (Gov. Code Sec 70377.)
Existing law establishes TCTF, funded primarily from fees, to
support trial court operations and other specified purposes.
(Gov. Code Sec. 68085.)
This bill would provide that interest or penalty payments on any
delinquent transfer of funds to SCFCF and ICNA be made by the
entity (county, city, or court) 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 would provide that the penalty rate on a delinquent
payment will be calculated by the Controller as follows:
(1) Calculate interest on the payment by multiplying the amount
of the delinquent payment at a daily rate equivalent to the
rate of return in the Local Agency Investment Fund (LAIF) from
the date the payment was due to the earlier of (a) 30 days
after the Controller issues a final audit report regarding
failure to pay or (b) the date of payment by the responsible
entity.
(2) Calculate a penalty at a daily rate equivalent to 1.5
percent per month from the date 30 days after the Controller's
final audit report is issued.
This bill would authorize the Controller to permit the
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responsible entity to pay the penalty according to a payment
schedule if the penalty amount causes hardship to the paying
entity.
This bill would apply the above changes to delinquent payments
for which no final audit has been issued by the Controller
before January 1, 2013.
COMMENT
1.Stated need for the bill
The author writes:
This bill will give local counties an opportunity to correct
underpayments to a specified fund when brought to their
attention, without 18 percent annual accrued interest as a
penalty. �Discussed below in Comment 4.] For example, small to
medium sized counties are audited on a multi-year schedule,
some only as often as once every five to seven 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 would create uniformity in the law
related to interests and penalties on underpayments to the
state. Furthermore, AB 1289 would provide a window of
opportunity for the local entity to correct the problem, with
interest, and move forward after audit findings.
2.Identification and notice by Controller of entity responsible
for delinquent payments
Current law does not specifically provide that the entity
responsible for penalty payments is the entity required to
actually remit the penalty payments to the Controller. According
to the sponsor, the Controller sends the notice of penalty to
the county, regardless of the entity responsible for the
underpayment. This bill would require the Controller to send the
notice of delinquent payment to the responsible entity and
require that entity to transmit penalty payments to the
Controller.
3.Requires trial courts to pay penalties for which they are
responsible
Under current law, counties are required to pay penalties for
which the trial courts are responsible. Trial courts, if
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responsible for the error resulting in the penalties, are then
required to reimburse the county's general fund in an amount
equal to the actual penalty. This bill would provide that the
penalty payments on delinquent transfers should be made directly
to the Controller by the entity actually responsible for the
error that caused the failure to pay. This change would
streamline the payment of penalties by eliminating the need for
a county to be reimbursed by the courts for delinquent payments
that are the result of a trial court's error.
4.Recalculation of penalties for delinquent payments
The Controller is currently required to calculate penalties for
delinquent payments using a rate of 1.5 percent per month,
resulting in an annual interest rate of 18 percent. This bill
would require the Controller to instead calculate penalties
using the Local Agency Investment Fund (LAIF) rate. In support
of this bill, the sponsor writes that it allows an entity to
correct the underpayment by paying the shortage and calculating
interest using the LAIF rate, which is the rate of interest the
state would have earned if the original remittance had been paid
in full and on time. The author writes that this bill's penalty
calculation will help small and medium sized counties avoid the
accumulation of exorbitant interest, sometimes five to seven
years later, because these counties are audited on a multi-year
schedule.
Essentially, this bill creates a 30-day window for the
responsible entity to repay delinquent payments at the LAIF
rate. If the penalties are not paid within that 30-day window,
the penalty calculation reverts to the 1.5 percent rate.
According to the State Treasurer's Web site, the LAIF rate is
currently at 0.38 percent. The LAIF rate is variable and adjusts
quarterly. A penalty calculated today under the provisions of
this bill would result in responsible entities owing
significantly less in penalties than currently assessed.
However, as recently as the first quarter of 2009, the LAIF rate
was 1.91 percent. A penalty calculated under the provision of
this bill using a 1.9 percent LAIF rate would result in higher
penalties for the responsible entity than currently required by
statute. While the LAIF rate is currently very low, if it
increases above the current statutory underpayment penalty of
1.5 percent, the penalty paid by the responsible entity, as
proposed in this bill, would be more than currently assessed.
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In response to this concern, the sponsor states that the intent
of the bill is for the Controller to take the sum of all
delinquent payments at the time of the audit and calculate the
penalty by multiplying that sum by the averaged LAIF rate during
the time of the delinquency. This averaged LAIF rate would be
calculated by adding all the quarterly LAIF rates for the time
the payment was delinquent and dividing by the number of
quarters the payment was delinquent. In order to carry out this
intent, the following amendment should be made to the bill:
Suggested amendment :
On page 3, line 11, after the period add "In calculating the
penalty under this section, the controller shall apply the
average monthly LAIF rate over the period of delinquency."
5.Creates uniformity in the law related to interest penalties
and repayment
SB 539 applied provisions virtually identical to those in this
bill to the TCTF in 2007; notably recalculating interest on
delinquent payments and identifying and giving notice to the
responsible party. This bill, patterned after SB 539, would
create a uniform scheme of notice and delinquent penalty
calculation for SCFCF, ICNA, and TCTF - the three major funds
supporting, among other things, court operations, construction,
and maintenance.
This bill also would authorize the Controller to permit a
responsible entity to pay the penalty according to a payment
schedule if the penalty amount causes hardship to the paying
entity. This provision is identical to relief provided for
delinquent payments to TCTF under SB 539.
Support : California State Association of Counties; California
State Sheriffs' Association
Opposition : None Known
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HISTORY
Source : State Association of County Auditors
Related Pending Legislation : None Known
Prior Legislation : SB 539 (Margett, Chapter 435, Statutes of
2007) See Background.
Prior Vote :
Assembly Committee on Judiciary (Ayes 10, Noes 0)
Assembly Committee on Appropriations (Ayes 17, Noes 0)
Assembly Floor (Ayes 75, Noes 0)
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