SB 0506 - Fiscal Note

Fiscal Note - SB 0506 - Substantially revises Article 9 of the Uniform Commercial Code concerning secured transactions

COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. NO.: 2034-01

BILL NO.: Perfected SB 506

SUBJECT: UCC Revision

TYPE: Original

DATE: April 5, 1999

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FISCAL SUMMARY

ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
General Revenue	$0	(Unknown)	(Unknown)
Missouri Housing Trust Fund			(Unknown)
Total Estimated Net Effect on All State Funds	$0	(Unknown)	(Unknown)

ESTIMATED NET EFFECT ON FEDERAL FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
None	$0	$0	$0
Total Estimated Net Effect on All Federal Funds	$0	$0	$0

ESTIMATED NET EFFECT ON LOCAL FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
Local Government	$0	$0	(Unknown)

Numbers within parentheses: ( ) indicate costs or losses

This fiscal note contains 6 pages.

FISCAL ANALYSIS

ASSUMPTION

Officials from the Secretary of State's Office (SOS) assume this proposal would result in an increased number of UCC filings with SOS. There would be a concurrent drop in the number of UCC filings made with the county governments.

This proposal would largely eliminate the current "dual filing" system currently in place that calls for many, but not all, filings to be made at both the state and county level. Currently, certain filings for consumer goods, timber, minerals, oil, gas, etc. are filed at the county level only. This legislation would transfer these filings to the state level, thus increasing the state's workload. Unfortunately, there are no aggregate totals available from the counties that would indicate the total number of filings that would no longer be filed at the county level and instead filed with the SOS. Therefore, the fiscal impact of the anticipated increased filings is not ascertainable.

By way of rough comparison, in FY 98, the UCC Division generated total fees of approximately $1.4 million. Of this amount, approximately $730,000 was attributable to 61,662 initial financing statements. It is not possible to predict how many additional new filings would be made with the SOS under the proposed legislation, but it is anticipated that there would be a significant increase in the FY98 figures.

Additionally, proposed section 400.9-525 sets forth a new fee schedule to be used in calculating UCC filing fees with SOS. The fees that would be changed are: i) $10 for initial public finance transactions or manufactured home transactions; ii) $10 for all other filings of 1 or 2 pages; iii) $20 for all other filings of 3 or more pages; iv) $5 if the filing is communicated in another medium besides written word, and v) $10 for a request for information. Current fees associated with UCC filings are: i) $11.00 for original financing statement; ii) $9.00 for each standard-size continuation statement, and $11.00 for nonstandard-sized; iii) $5.00 for each termination statement; iv) $9.00 for each standard-sized assignment, and $11.00 for each nonstandard-sized (plus $1.00 per page for attachments); v) $9.00 for each standard-sized statement of Release and $11.00 for each nonstandard-size; vi) $13.00 for each Certificate of Filing Information; and vii) $13.00 for each Certificate of copy (plus 50 cents per page). NOTE: The current fees include a $5.00 fee charged under Section 28.660 (the "Technology Fund"). The fee charged under this section is scheduled to sunset on 12/31/2001, after which time all current fees would be reduced by $5.00.

Conversely, Total State Revenues could be adversely affected if the number of filings increases so significantly that additional FTE (and associated E&E) are required to handle the increased ASSUMPTION (continued)

volume. As it is unknown how many filings currently made at the local level would be made with SOS under the proposed legislation, the potential number of additional FTE is not possible to predict. Further, proposed Section 400.9-519(h) requires SOS to process all filings within two (2) business days after receipt. While the UCC Division strives to turn around filings in an expeditious manner, it is not always possible to do so within two (2) working days. In order to fully comply with this new statutory mandate, additional FTE would be required. As stated previously, it is not possible to predict the number of FTE without knowing the number of increased filings that would be filed with the SOS.

Further, proposed Section 400.9-526 requires the SOS to adapt and publish rules to implement the legislation. Section 400.9-526(b) requires such rules to be in harmony with the rules of other states. Further, the rules must be such that not only the practices, but also the technology of the UCC Division must be in harmony with the practices and technologies of other jurisdictions. There will be significant time and expense involved in developing such rules. To the extent the technology of this office is to be compatible with other jurisdictions, significant expense may be incurred.

Section 400.9-527 of the proposed legislation requires the SOS to report annually to the Governor, the President Pro Tempore of the Senate, and the Speaker of the House on the operation of the UCC Division. The report shall include a statement comparing Missouri rules to the rules of other filing offices in other jurisdictions that have enacted all or substantially all of this act, along with the reasons for variations and also report on any rules not in harmony with the most recent revision of the Model Rules promulgated by the International Association of Corporate Administrators. Preparation of this report will require significant legal resources if in fact it is contemplated that the laws of all 50 states must be researched and compared to Missouri's law. Current SOS legal staff would not undertake this sort of comprehensive analysis of the laws of all 50 states. It is anticipated that additional legal FTE and clerical FTE would therefore be required to produce this report.

Section 400.9-519(d) requires certain filings to be accessible under the name of the secured party. Currently, the SOS computer system does not allow this sort of indexing. Thus, additional costs for mainframe programming would be incurred, and it is possible that temporary FTE may be necessary to effectuate this programming change.

Section 400.9-522 of the proposal requires the SOS to maintain a record of all filings for at least one year after that filing lapses. This would require a mainframe computer programming change that might require temporary technical FTE to accomplish.

ASSUMPTION (continued)

Section 400.9-523(f) would require SOS to offer, at least weekly, to the public, copies of all records filed, "in every medium from time to time available to the filing office." It is uncertain what the quoted language would require. If it requires that an electronic version of the UCC database be made available, then modifications would have to be made to the mainframe computer. If the language would require physical copies to be made of the actual paper filings, several additional FTE would be required in order to make the necessary copies.

SOS assumes that some preparation work would need to begin in FY2001, including hiring of additional FTE, in order to be prepared to implement the provisions of the proposal on July 1, 2001.

Oversight notes that elimination of the filing of various instruments on the local level will reduce the user fees currently collected and distributed by the local jurisdictions to the following agencies and/or programs as identified in Section 59.319 RSMo, subsections 1, 2, and 3: Missouri Housing Trust Fund; the Secretary of State for the additional preservation of local records; the Department of Natural Resources (DNR) to restore, maintain, and preserve the land survey monuments; and each individual counties' Recorder's Fund. Oversight is unable to quantify the amount of user fees that would be eliminated because it is based on the number of filings affected by this proposal. Oversight notes that the proposed fees would cover the losses to DNR and the Missouri Housing Trust Fund but would not compensate for the additional administrative costs anticipated by SOS. Therefore, Oversight is showing the fiscal impact of this legislation as a negative unknown.

FISCAL IMPACT - State Government	FY 2000	FY 2001	FY 2002
GENERAL REVENUE
Income - Secretary of State (SOS)
Increased filings			Unknown
Cost - Secretary of State (SOS)
FTE and expense and equipment		(Unknown)	(Unknown)
Loss - SOS preservation of local records			(Unknown)
Loss - DNR land survey monument preservation			(Unknown)
ESTIMATED NET EFFECT ON		(Unknown)	(Unknown)
GENERAL REVENUE FUND
FISCAL IMPACT - State Government	FY 2000	FY 2001	FY 2002
	(10 Mo.)
MISSOURI HOUSING TRUST FUND
Loss - reduction of county user fees			(Unknown)
FISCAL IMPACT - Local Government	FY 2000	FY 2001	FY 2002
	(10 Mo.)
LOCAL GOVERNMENTS
Savings - reduction of recordings	$0	$0	Unknown
Loss - County Recorder's Fund			(Unknown)
ESTIMATED NET EFFECT ON
LOCAL GOVERNMENTS	$0	$0	(Unknown)
FISCAL IMPACT - Small Business
This proposal would affect all businesses, including small businesses, that engage in transactions subject to the Uniform Commercial Code. The proposal would, in certain instances, lessen the paperwork necessary to document a transaction subject to the UCC as perfection of those transactions would be made with only one UCC filing at the state level as opposed to dual filing at both the state and county level.

DESCRIPTION

This proposal substantially revises article 9 of the Uniform Commercial Code concerning secured transactions. The bulk of this proposal would affect the way private debtors and secured parties interact. Several new provisions regarding the perfection of security interests, priority amongst different lien holders and the rights of third parties are outlined in this proposal. The effective date of these changes is July 1, 2001.

This legislation is not federally mandated, would not duplicate any other program and would not require additional capital improvements or rental space. This proposal would increase Total State Revenues.

SOURCES OF INFORMATION

Secretary of State's Office

Jeanne Jarrett, CPA

Director

April 5, 1999