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On The Money: State’s Late Payment Penalties Cost Taxpayers

Taxpayers Shell Out Millions
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By Mike Luery

California taxpayers are paying millions of dollars in penalties each year – for something they haven’t even done. A CBS 13 investigation reveals the State of California is habitually late in paying its vendors who provide goods and services. Under California’s Prompt Payment Act, the state must pay penalties, whenever invoices are more than 45 days overdue.

John Riley’s Sacramento Technology Group is all too familiar with the late payment process. The State of California was more than 90 days past due on paying his bill.

“It was about $20 thousand dollars,” Riley told CBS 13. “But it’s been as high as half a million – if not higher – about three quarters of a million.” Riley added. Riley did eventually get his payment –
for $19,458 – from a billing he sent out five months ago – in April.

To Riley, it hardly seems fair. “The state can be late paying us, but we sure can’t be late paying our employees,” Riley told CBS 13.

The delinquent client was the Department of Health Care Services. On The Money combed through public records and found DHCS was late 357 times in paying vendors statewide for fiscal year 2009-10, the latest years for which data is available. DHCS had to pay $536,671 in penalties for being late. The Department declined to be interviewed on camera, but spokesman Tony Cava sent CBS 13 a statement saying, “The units responsible for the processing of invoices have been identified, and measures are being taken to address this issue.”

Cava added, “The measures are designed to improve staff performance and ensure that invoices are processed timely and in accordance with departmental standards. Staff in the units are being counseled on the requirements of the prompt payment act through direct meetings and via departmental memo. In the upcoming penalty report from the Department of General Services, you will note that there is significant improvement in the department’s timely payment schedule to vendors. We regret that invoices were not processed in a timely manner, and we are working diligently to ensure this situation is resolved.”

The Department of Health Care Services paid the second highest penalties on the list, topped only by the California Department of Corrections and Rehabilitation. CDCR was late paying bills more than 14,000 times in 2010, with late fees totaling $2.6 million, according to public records.

“We recognize that it’s a massive impact on the community and it’s clearly an unacceptable outcome,” said Stephen Amos of CDCR.

And the problem is about to get worse. On The Money has learned CDCR’s late penalties for 2011 will total more than $8 million.

One big reason is because the California legislature was more than 100 days late in passing a budget last year, rendering every state agency powerless to pay bills on time. In fact, the California legislature has failed to pass an on-time budget 13 times in the past 20 years. And when that happens, “We don’t have the authority to spend money, nor do we have the cash to spend money,” Amos noted.

In all, 83 California state agencies were late in paying their bills for the 2009/2010 fiscal year. That means taxpayers shelled out $5,154,802 in late penalties.

“Taxpayers are being told that we need every cent we can get. Well here’s millions wasted because of unnecessary fines and penalties,” said Jon Coupal of the Howard Jarvis Taxpayers Association.

CBS 13 has learned that California’s tax collecting agencies are also on the delinquent list. Stay tuned for that story in Wednesday’s 6 p.m. newscast.

If you find examples of government waste, send us an e-mail to onthemoney@kovr.com. You can also follow On The Money stories in progress via Twitter at http://twitter.com/#!/mikeluery and on Facebook at facebook.com/CBS13OnTheMoney.

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