CBA Publications >> Members' Only Publications >> Current Events

Current Events - 09/09/2002

Privacy bill killed in final minutes of legislative session

The good news is, SB 773 was defeated in the final minutes of the legislative session. The bad news is, the issue of information sharing is not likely to go away.

SB 773 failed passage on the Assembly Floor on August 31 by a vote of 34-36. After the original bill was defeated, a coalition of Democrats and Republicans amended SB 773 to limit its application to third-party sharing, an amendment Sen. Speier was unwilling to take prior to the bill going up for vote. As amended, the bill would have required an "opt-in" for information sharing with non-affiliated, non-financial, third parties. Affiliate sharing and joint marketing agreements were exempted from the bill. The bill was overwhelmingly passed by the Assembly and sent back to the Senate for concurrence. (This means that the Senate would have to approve and pass all the amendments that were accepted by the Assembly.) Sen. Speier, the bill's author, was so infuriated that other legislators proposed and accepted amendments on her pet-project, that she actively encouraged her fellow senators to vote against the bill. So, for the second year in a row, Sen. Speier called for the no vote on her own legislation. The bill failed in the Senate by a vote of 1-33 a 11:58 p.m. - just two minutes before the end of the legislative session. This is the second year in a row that SB 773 was defeated on the final day of session.

Although we have won this battle, the war is not over. Local governments continue to propose and pass privacy ordinances. The California Legislature will pursue privacy legislation next session -a goal precisely outlined by Senate President Pro Tempore John Burton late last week. And, the possibility of an initiative still exists. In preparation for the next legislative session, consumer groups will be active during the coming months using every opportunity to attack the practices of our industry. They will attempt to make privacy an issue in elections.

We have been successful during the past three years defeating legislation that would take us beyond Gramm-Leach-Bliley; however, the momentum for change is growing.

CBA would like to thank all of its members who participated in this entire legislative campaign. We had several members who engaged their local newspapers in the battle, others to provided much-needed financial resources to mount a very effective advertising campaign, and still others who wrote countless letters to their legislators urging a no vote on the bill. We believe this was one of the most successful implementations of our grassroots network, but, because of the flurry of activity in the last few weeks, we do not have information from all of our banks on their efforts to defeat the bill. If you would please send an e-mail to Anissa Yates (ayates@calbankers.com) and let her know of your bank's efforts to help defeat SB 773, we can use the information to further develop our grassroots program.

Strunk and Associates become Endorsed Vendor

CBA is pleased to announce the addition of Strunk & Associates to its select list of Endorsed Vendors. Strunk & Associates is well-known for its innovative design, development and implementation of sustainable profit improvement solutions for the financial institution community. Specifically, CBA is endorsing Strunk & Associates' Overdraft Privilege and Free Checking Program. The Overdraft Privilege allows account-holders to overdraw their transaction accounts subject to pre-set dollar limits. While the financial institution continues to collect fees for each overdraft item, the accountholders are saved from the credit and debit bureau problems and merchants fees. For more information on the Overdraft Privilege and Free Checking Program, please contact Strunk & Associates' Greg Lander at 623/582-9194.

Budget Deal Done

On the evening of August 31, the Assembly and Senate struck a budget deal that was adopted by both houses of the Legislature. Amendments to the tax package were made to AB 2065 (Oropeza).

The overall budget agreement includes:

1. Reduction in total spending by about $1.762 billion. This is accomplished by: (a) adjusting the Prop. 98 guarantee by about $850 million (reflecting a lower amount of revenues into the General Fund); and (b) a 5 percent unallocated reduction in state government (which should be worth about $850 million) [NOTE: This language is apparently permissive in nature, so it would require an affirmative act by the Governor).

2. Linking the revenue enhancements package to a spending cap.

3. Eliminating an additional 1,000 state positions.

4. Include about $2.433 billion in revenue enhancements during the budget year, an amount that is only $835 million in the next fiscal year.

5. Dedicating a portion of General Fund revenues to state and local infrastructure projects.

Here is a list of the provisions of the tax package:

Bank bad debt conformity - Conforms with provisions of federal law that require large banks ($500 million in assets or more) to use the specific charge-off method for deducting bad debt. Previously, federal law permitted large banks to reduce their taxable income by the amount added to the bad debt reserve prior to the loan going bad. However, in converting to the specific charge-off method, federal law required large banks to recapture 100 percent of these deductions. In conforming to federal law, CBA was able to negotiate the exclusion of 50 percent of these deductions under state law from recapture, effectively making half of these deductions a permanent tax benefit. While this raises $285 million for the state, it also provides a corresponding tax benefit for banks and thrifts.

NOL Suspension / Increase - Suspended for 2002 and 2003 tax years; increase carryforward to 100 percent on 1/1/04 from planned 65 percent level, raising $2 billion over two fiscal years; about $450 million annually in revenue losses starting Yr3. The Senate version had increase to 80 percent; Governor proposed no increase in carryforward percentage. Earlier in the day, the Senate was prepared to only increase NOL to 90 percent; however, Assembly Republicans refused to vote for this provision unless it was at 100 percent.

Suspend teacher tax credit for 2002 only - same as Senate version (raises $170 million)

Suspend land donation credit for 2002 only - same as Senate version (raises $3 million)

Waive interest and penalties by FTB and SBE for certain "high-risk delinquent accounts" - same as Senate version and what Governor had proposed (raises $145 million)

Enhance FTB settlement and collections programs - same as Senate version and what Governor had proposed (raises $212 million) - in Budget bill.
Increase ERPA charge on electricity sales - same as Senate version [capped at $10 million annually]

Withhold at 3 1/3 percent of the sales price of the CA real property conveyed" for residents who make commercial real estate sales - not in Senate version, but proposed by Governor in his May Revise (raises $225 million as an acceleration). Details: Must exceed $100K sales price; escrow agent must give written notification; not applicable to foreclosures or principal residences or IRC 1031 or 1033 exchanges; effective for property dispositions on or after 1/1/03

Increase withholding rate on stock options and bonus payments to 9.3 percent - not in Senate version, but proposed by Governor during budget conference committee negotiations (raises $400 million as an acceleration) Details: Effective for stock options/bonus payments paid on or after 1/1/03 (changed from 1/1/02).