LAO 2003-04 Budget Analysis: General Government

Legislative Analyst's Office

Analysis of the 2003-04 Budget Bill

State Controller (0840)

The State Controller is responsible for (1) the receipt and disbursement of public funds, (2) reporting on the financial condition of the state and local governments, (3) administering certain tax laws and collecting amounts due the state, and (4) enforcing unclaimed property laws. The Controller is also a member of various boards and commissions, including the Board of Equalization, the Franchise Tax Board, the Commission on State Mandates, the State Lands Commission, the Pooled Money Investment Board, and assorted bond finance committees.

The Governor's budget proposes expenditures of $106 million ($68 million from the General Fund) to support the activities of the State Controller's Office (SCO) in 2003-04. This amount is a decrease of less than one percent from estimated current-year expenditures. The budget proposes $3.5 million from the General Fund and 32 new positions to implement Chapter 1128, Statutes of 2002 (AB 2834, Migden), to perform audits of local government mandate claims and other duties. In addition, the budget proposes changes to the unclaimed property program, which we discuss below.

Fee Revenues Should Replace General Fund Support For the Unclaimed Property Program

The budget proposes trailer bill language to charge a 3 percent processing fee on the value of approved unclaimed property claims. The budget assumes this fee will result in $3 million General Fund in 2003-04 and $6 million annually thereafter. We recommend that the Legislature adopt a fee to cover the full costs of administering the program ($10.8 million annually). (Reduce Item 0840-001-0001 by $2.4 million.)

Unclaimed Property Program. Since 1959, banks and other institutions have been required by law to remit unclaimed property to the state. The most common types of unclaimed property are bank accounts, safe deposit box contents, stocks, and the proceeds of insurance policies. Property is deemed unclaimed when an account has remained dormant for three years and efforts by the institution holding the account to locate the owner have been unsuccessful. The unclaimed property is then transmitted to the State Controller, who maintains records of all such property and attempts to identify the owners. Owners can then file with the SCO to claim their property. Current law requires the SCO to complete its review of all filed claims within 90 days. The SCO approves claims once the owner's identity is confirmed.

$3.2 Billion in Unclaimed Property Held by State. According to the SCO, the state currently holds in excess of $3.2 billion in unclaimed property belonging to over five million individuals and organizations. Historically, the state receives about $300 million annually in unclaimed property funds. In 2001-02, the program returned $190 million, including interest, to approximately 205,000 individuals and organizations. The SCO is projecting a similar level of activity during the budget year.

Governor's Budget Proposes a Processing Fee. The current-year budget includes about $10.8 million General Fund and 140 positions to administer the unclaimed property program. The budget proposes the following:

Fee Appropriate, But Would Not Cover All Costs. We believe the assessment of a fee for this program is appropriate, as customers are receiving a service from the state. A fee would allow the offset of General Fund costs without affecting the level of service provided. The administration, however, is proposing to replace only 56 percent of the General Fund spending with fee revenues.

Recommend Fee to Cover all Program Costs. We recommend that the Legislature impose a fee on all approved claims at a level sufficient to cover administrative program costs. This would result in about $5.4 million in revenues for 2003-04 and $10.8 million in 2004-05—for a General Fund savings of $2.4 million in the budget year and $4.8 million thereafter in comparison to the Governor's budget. We further recommend that the State Controller develop a fee structure that approximates the administrative costs of processing claims.

Return to General Government Table of Contents, 2003-04 Budget Analysis