FISCAL NOTE

Date Requested: January 10, 2018
Time Requested: 02:52 PM
Agency: Treasurer's Office, WV
CBD Number: Version: Bill Number: Resolution Number:
1031 Introduced SB109
CBD Subject: Estates and Trusts


FUND(S):

Special

Sources of Revenue:

Special Fund Unclaimed Property Fund

Legislation creates:

Decreases Existing Expenses



Fiscal Note Summary


Effect this measure will have on costs and revenues of state government.


    The purpose of Senate Bill 109 is to limit the amount of funds from the Unclaimed Property Fund that may be deducted during a fiscal year for the purpose of paying expenses of administering the Unclaimed Property Fund and the Unclaimed Property Trust Fund.
    
    
    Specifically, beginning July 1, 2018, Senate Bill 109 limits the amount of administrative expenses for the operation of Unclaimed Property in any single fiscal year to $2 million. For fiscal year 2018, anticipated expenditures are $15,735,141. Of this amount, it is expected that administrative expenses will be $4.7 million.
    
    Current Unclaimed Property operations include Administration, Claims, Receipts, Safekeeping, Information Technology, Local Government Specialists, Law Enforcement and Security, Records Management, Fixed Assets and Maintenance and Facilities. Each of these provide for the direct day-to-day operations of the Unclaimed Property Division (UPD).
    
    To explain the Unclaimed Property operations and the importance of proper funding, under the Uniform Unclaimed Property Act, W. Va. Code §36-8-1 et seq., the State Treasurer is the Administrator. After analyzing the various periods of abandonment depending on the nature of the property and after due diligence efforts to attempt to locate the owners, holders are to report presumed abandoned personal property to the UPD. Through technology that has been specifically developed and maintained by in-house personnel, holders of unclaimed property generally report property online and then remit the property as directed by the UPD. Insurance companies must report by May 1 each year; all other holders must report by November 1 each year.
    
    Every day staff must assist holders with questions about abandonment periods, reporting requirements, how to remit property, indemnification, etc. Annually the staff conducts holder training at locations throughout the state to facilitate reporting and assist holders.
    
    Once property is reported to the UPD, the next tasks are to collect, receipt, account and safekeep the property. Each type of property has its own procedures for these tasks. For example, we must treat stocks, checking accounts, collectible coins, weapons and other items differently. The UPD currently uses a national software system to account for the property, Wagers, for which we contract. With over $253 million in yet to be claimed property, very meticulous accounting for the property is required.
    
    The UPD is then required to publish notice and lists of abandoned property in an effort to locate the rightful owners. While we do publish the lists of the names of persons for whom property was reported as abandoned, we also have developed in-house an online system that connects to Wagers so that the public can search property being held. In addition, the UPD is required to hold public sales of the property capable of being sold.
    
    Within 90 days of a claim being filed, the UPD is required to allow or deny the claim and to give written notice of the decision to the claimant. If a claim is denied, the UPD must explain. If a claim is allowed, the UPD must pay or deliver the property within 30 days.
    
    Working with claimants usually requires a staff member to speak with the claimant personally. Claims below $1,000 may be filed online; all other claims must be filed directly. Claims filed online with exactly the required documentation still require staff to be heavily involved in insuring the proper person is being paid.
    
    Records management is a major component of the UPD operations. The nature of the records, which contain social security numbers and other confidential information, require strict attention to privacy matters, maintenance and accessibility. The imaging contract alone costs in excess of $130,000 per year, and for which costs rise every year.
    
    The internal controls for receipting property and approving claims require segregation of duties among highly trained staff and a chain of command with approval authorizations. Over the past five years, the amount of property reported has been approximately $26.3 million per year. Claims paid over the last five years have ranged from $7 million to $13.9 million.
    
    The UPD is authorized to examine records and to have audits conducted. The current purchase order for audits requires the audit firm to be paid 11.5% of the amount collected. Approximately, $1 million is collected annually due to these audits. Each audit authorized must be managed and monitored by staff.
    
    The Unclaimed Stolen Property Held by Law-Enforcement Agencies Act is also administered by the Treasurer pursuant to W. Va. Code §36-8A-1 et seq., in connection with the Unclaimed Property Fund. By September 1st of each year, law-enforcement agencies throughout the State must file annual reports. The UPD must respond within 30 days of when a report is filed informing the law-enforcement agency what it is authorized to do with the reported property. The UPD staff must often collect weapons received pursuant to this Act. Again, once property is reported to the UPD, the next tasks are to collect, receipt, account and safekeep the property. Safekeeping firearms and ammunition requires additional efforts and equipment.
    
    Again, staff must assist with questions, hold public auctions (both online and live) and provide training to the law-enforcement agencies throughout the state. The nature of the auctions requires compliance with very particular federal laws, e.g., only selling to licensed dealers. To ensure compliance, we work with federal law enforcement for each auction.
    
    
    
    Currently, our total unclaimed property administrative expenses are approximately $4.7 million annually. Reducing that to less than half, $2 million, will have a direct and immediate negative impact to the State.
    
    Of that $4.7 million, our fixed administrative expenses run approximately $1.1 million per year. Larger expenses include $300,000 for contractual services (software, audits and imaging), $255,000 for rent and utilities, $250,000 for notices and publication of lists of names of persons for whom we hold unclaimed property, and $185,000 for professional services. Few of our non-personnel related expenses can be reduced because they are required for the basic operations and are set by contract, without regard to the number of employees.
    
    Cutting the current administrative expenses of $4.7 million to $2 million, with in excess of $1 million in non-personnel related fixed expenses, would leave less than $1 million for personnel. This would require a draconian reduction of approximately 2/3 of the staff, which amounts to 30 employees losing their jobs.
    
    Collections have been increasing annually due to the diligence of the staff to ensure compliance with the two Acts. Providing assistance and training to the holders and conducting audits facilitates compliance. In fiscal year 2013-2014, we received $21 million. In each of fiscal years 2014-2015, 2015-2016 and 2016-2017, we received nearly $30 million.
    
    Other than paying claims since 1997, approximately $123 million has been transferred from unclaimed property funds for other purposes. $87.6 million of which has been transferred to the General Fund of the State. For example, in fiscal years 2014-2015 and 2015-2016, $12 million and $15 million, respectively, were transferred to the General Fund in an effort to assist the State in meeting its revenue needs. In fiscal year 2016-2017, we transferred $7 million to the General Fund and an additional $2.9 million to PEIA. This fiscal year we are to transfer $10 million to the General Fund. In future fiscal years we are to transfer $7 million annually to the General Fund.
    
    The impact of cutting the administrative expenses by more than one-half will be immediate. We will no longer be able to provide training sessions for holders or law-enforcement agencies. Customer service will be dramatically reduced. Instead of a person answering the phone, an automated system will be the norm. Returned calls will take days or weeks. Employees that holders normally call for assistance will no longer be employed.
    
    Compliance efforts will be dramatically curtailed, as we will no longer have sufficient staff to timely assist with reviews, audits or compliance. System upgrades will be limited without the staff to implement and downtime will no longer be the exception. Segregation of duties and internal controls will be impacted and errors may occur that would increase the risks of erroneous payments and fraud, thereby affecting the liability of the State. Failure to timely pay claims will also subject the State to litigation and liability, which will be very expensive.
    
    We anticipate that reporting and collections will decline each year and that claims will begin to outpace collections. If that occurs, the state will have to provide General Funds to pay claims. Our collection of unclaimed property will no longer be available to assist the General Fund, PEIA or any other entity.
    
    In West Virginia state government, fixed expenses increase each year, while salaries are stagnant. Codifying such a draconian cut on administrative expenses will ensure that the UPD will not have sufficient staff to comply with the unclaimed property Acts. In fact, staff will have to decrease each year because fixed expenses will generally increase each year, collections will reduce, staff will have to be reduced each year, and payment of legitimate claims will be delayed. The reduction required by Senate Bill 109 will not improve the financial picture of the State of West Virginia; it will impair it.
    
    



Fiscal Note Detail


Effect of Proposal Fiscal Year
2018
Increase/Decrease
(use"-")
2019
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 0 0
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 0
2. Estimated Total Revenues 0 0 0


Explanation of above estimates (including long-range effect):


    See discussion in Fiscal Note Summary.



Memorandum


    Please identify any areas of vagueness, technical defects, reasons a bill would not have a fiscal impact, and/or any special issues not captured elsewhere on this form.
    
    See discussion in Fiscal Note Summary.



    Person submitting Fiscal Note: Diana Stout
    Email Address: diana.stout@wvsto.com