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California spends millions in late-payment fees

Taxpayer advocates say the $8 million spent on penalties to vendors over the last two years while essential services are being cut is inexcusable.

October 06, 2009|Patrick McGreevy

SACRAMENTO — Bureaucratic bungling, red tape and political gridlock don't come cheap -- especially when they get in the way of paying California's bills.

The state has shelled out more than $8 million in late-payment penalties to vendors, contractors and others over the last two years because Sacramento did not send the checks when they were owed, records show.

The late budget last year was one reason bills didn't get paid when they were due, but not the only one. Confusion over which offices should make payments, delays in invoices being sent from field offices to headquarters and shortages of staff to pay the bills also are responsible.

At a time when the state is slashing services to parks users, the disabled and domestic violence victims, taxpayer advocates said Monday that the waste of millions of dollars on late fees is inexcusable.

"There shouldn't be any reason why the state can't pay its bills on time," said David Kline, of the watchdog group California Taxpayers' Assn. "It's disappointing that tax dollars are being wasted on penalties that should be avoidable."

The penalties are mandated under the California Prompt Payment Act, which requires state agencies to pay properly submitted, undisputed invoices within 45 calendar days of receipt. Every department is required to report annually how many invoices were paid late and the sum of penalties incurred.

For the two-year period ending June 30, state agencies reported paying more than 38,800 invoices late. With a budget some three months overdue last year and 50 days overdue in 2007 because of political gridlock, the state ran out of cash and stopped paying its bills.

"The Legislature failed to produce an on-time budget after the state controller said for months it would cause late fees," said Aaron McLear, a spokesman for Gov. Arnold Schwarzenegger.

That problem was cited by the Department of Corrections and Rehabilitation to explain much of its $3.4 million in late fees during the last two years.

Tardy payments, according to agency spokesman Gordon J. Hinkle, "are unfortunately a reality" in a state with little reserves and constant budget deadlock.

Lawmakers blamed one another Monday. A spokeswoman for Senate President Pro Tem Darrell Steinberg (D-Sacramento) said the governor and Republicans dragged their feet on needed budget measures.

Senate minority leader Dennis Hollingsworth (R-Murrieta) responded: "As soon as budget problems became apparent, cuts needed to be made quickly and decisively. Instead, Democrats delayed the inevitable, costing taxpayers millions more."

The Justice Department, which paid $403,000 in late fees during the last two years, estimated that 38% of its penalties last year and 25% the year before were caused by the late budget. But a system that was not sufficiently computerized was also an issue, according to Scott Gerber, a department spokesman.

The department said it has installed an electronic payment processing system for big vendors "to reduce our interest penalties in future years," according to its annual report.

The Department of Health Care Services said its $288,218 in penalties in the 2007-08 fiscal year were caused, at least in part, by "confusion" over which agency should pay the bills after a reorganization split functions between multiple offices.

The Department of Rehabilitation, which serves the disabled, said in its report that $11,790 in penalties were incurred partly because "we were short-staffed."

At the Department of Parks and Recreation, about 6% of the late payments during the last fiscal year, involving 100 invoices, were attributed to "processing issues," according to Sheryl Watson, a spokeswoman for the agency.

"The invoice came to us late from the district office," Watson said, citing one problem. "Or it came to us on time but not all of the documents came with it," or other information was missing.

The problem of late payments has been known for a long time. An internal audit of the state Parks and Recreation Department last year found that it had incurred late payment penalties of $232,000 in the preceding two years.

"The payment of late payment penalties represents resources that could be better used in furtherance of the department mission," the audit said.

McLear said he was unaware of any red-tape problems. "If there are bureaucracy issues that are keeping us from paying our bills on time we will absolutely correct this," he said.

Those who do business with California government say they incur significant inconvenience when the state pays late, even if it also pays a penalty.

"As a small business, when it comes time to make payroll, it makes it very difficult," said John Riley, co-owner of Sacramento Technology Group, which saw delayed payments of about $750,000 in payments on computer-related contracts. "It can cause us to have to borrow money to meet the credit crunch."



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