Recommendations

April 2018 Penalty Assessment Funds California’s Traffic Penalties and Fees Provide Inconsistent Funding for State and County Programs and Have a Significant Financial Impact on Drivers Report 2017-126 COMMITMENT INTEGRITY LEADERSHIP CALIFORNIA STATE AUDITOR 621 Capitol Mall, Suite 1200 | Sacramento | CA | 95814 916.445.0255 | TTY 916.445.0033 For complaints of state employee misconduct, contact us through the Whistleblower Hotline: 1.800.952.5665 Don’t want to miss any of our reports? Subscribe to our email list at auditor.ca.gov For questions regarding the contents of this report, please contact Margarita Fernández, Chief of Public Affairs, at 916.445.0255 This report is also available online at www.auditor.ca.gov | Alternate format reports available upon request | Permission is granted to reproduce reports Elaine M. Howle State Auditor April 26, 2018 2017-126 The Governor of California President pro Tempore of the Senate Speaker of the Assembly State Capitol Sacramento, California 95814 Dear Governor and Legislative Leaders: As requested by the Joint Legislative Audit Committee, the California State Auditor presents this audit report concerning the funds that the State and local governments receive from the penalties assessed pursuant to specified Government and Penal Code sections (penalties and fees). This report concludes that California’s current approach to funding state and county programs through penalties and fees from criminal and traffic violations has proven problematic both for the programs that rely on those funds and for drivers who receive costly citations. Specifically, penalties and fees intended to help pay for various programs were added to state law in a piecemeal fashion over time, and the resulting revenue has been inconsistent. Although these penalties and fees generate more than $450 million annually for numerous state funds, the revenue is derived from penalty and fee amounts that do not appear to be based on the needs of the funded programs. Further, the revenue collected from penalties and fees is trending downward, creating challenges for many of the programs that rely on this revenue to provide services. For example, penalty and fee revenues for state funds have decreased by 14 percent to 25 percent over the last three years. Many of these funds rely on penalties for 50 percent or more of their annual revenue. These penalties and fees also create a financial burden on drivers, particularly low-income individuals who may be unable to pay them. In fact, the cost of certain traffic offenses increase six-fold after the penalties and fees are included. Further, many of the penalties are paying for programs that are not directly related to the traffic offenses for which they are incurred. To address the problematic nature of the current funding approach, the Legislature would need to make public policy decisions about whether and to what extent to fund the programs currently receiving penalty and fee revenue. We provide recommendations of possible approaches to address the concerns we identified. Respectfully submitted, ELAINE M. HOWLE, CPA State Auditor 621 Capitol Mall, Suite 1200 Sacramento, CA 95814 916.445.0255 916.327.0019 fax www.auditor.ca.gov iv California State Auditor Report 2017-126 April 2018 Selected Abbreviations Used in This Report EMAT emergency medical air transportation LAO Legislative Analyst’s Office California State Auditor Report 2017-126 v April 2018 Contents Summary 1 Introduction 3 Audit Results No Systematic Strategy Guides the State’s Use of Penalties and Fees to Fund State and Local Programs, and the High Cost Has Burdened Drivers 15 Recommendations 25 Appendix Revenue, Expenditures, and Year‑End Fund Balances of State and County Funds That Receive Penalty and Fee Revenue 27 vi California State Auditor Report 2017-126 April 2018 Blank page inserted for reproduction purposes only. California State Auditor Report 2017-126 1 April 2018 Summary Results in Brief Audit Highlights . . . California’s current approach to funding state and county programs Our review of the revenue received from through penalties and fees from criminal and traffic violations penalties and fees state laws impose on has proven problematic both for the programs that rely on those criminal and traffic violations highlighted funds and for drivers who receive costly citations. Although our the following: report focuses on traffic violations, the state laws that impose the various penalties and fees on traffic violations apply to all criminal » Penalties and fees intended to help pay violations as well. The State and the county entities we reviewed for various programs were added to state distributed the penalty and fee revenue to the appropriate funds law in a piecemeal fashion over time and during the months we reviewed, and they ultimately spent the revenue has been inconsistent. money for allowable purposes; however, the State’s approach lacks a systematic strategy. Specifically, penalties and fees intended » Revenue generated is derived from to help pay for various programs were added to state law in a penalty and fee amounts that do not piecemeal fashion over time, and the resulting revenue has been appear to be based on the needs of the inconsistent. These penalties and fees also create a financial burden programs and is trending downward, for drivers, particularly low‑income individuals who may miss creating a challenge for many of the payments and thus may face additional fines. The Legislature should programs that rely on this revenue. reconsider the entire penalty and fee structure (criminal and traffic), decide whether to adjust or eliminate penalty and fee amounts, » Penalties and fees added to traffic fines and whether to distribute the resulting revenue differently. have gone unpaid partially because they are a significant financial burden Although these penalties and fees currently generate more than for the driving public, especially $450 million annually for numerous state funds, the revenue low‑income individuals. is derived from penalty and fee amounts that do not appear to be based on the needs of the programs. This makes it unclear » Many penalties are paying for programs whether the amount of revenue is sufficient to fund the service or that are not directly connected to program for which it is collected. Further, the revenue collected the offense. from penalties and fees is trending downward, creating challenges for many of the programs that rely on this revenue to provide services. For example, penalty and fee revenues for state funds have decreased by 14 percent to 25 percent over the last three years as the number of criminal cases filed has decreased and as more fines, penalties, and fees have gone unpaid. Penalties and fees added to traffic fines have gone unpaid partially because they are a significant financial burden for the driving public, especially low‑income individuals. Traffic infractions that carry a base fine of $35 can cost an individual $237 after penalties and fees are included. Until recently, those who did not pay their fines and penalties may also have had their licenses suspended. According to the Legislature, these penalties are regressive in that they are particularly harmful to individuals who can least afford to pay high fines. 2 California State Auditor Report 2017-126 April 2018 In addition, many of the penalties are paying for programs that are not directly connected to the offense. While an individual cited for an offense, such as failing to stop at a stop sign, will pay some penalties that support court‑related programs, he or she will also pay other penalties that fund emergency medical air transportation and DNA identification services, neither of which is related to the failure to stop except in very specific circumstances. Pending legislation would address the significant costs to indigent individuals by requiring judges to reduce the amount those individuals must pay in certain cases. However, these changes could also further reduce revenue from penalties. Thus, additional action needs to be taken to address the State’s approach of using penalty and fee revenue to fund programs. Selected Recommendations Legislature To ensure consistent funding streams for state and county programs, the Legislature should consider whether, and to what extent, to fund the programs that currently receive penalty and fee revenue from criminal and traffic violations. The Legislature could adjust or eliminate individual penalties and fees by considering the following factors identified in our report: • Revenue trends and reliability of penalties and fees as funding sources. • The significant financial impact of penalties and fees on low‑income individuals. • How well aligned the uses of penalty and fee revenues are with the offenses that give rise to the penalty or fee. • The seemingly arbitrary amount of the penalty or fee. California State Auditor Report 2017-126 3 April 2018 Introduction Background As an approach to generating revenue for state and county programs, the Legislature has established in several sections of state law numerous financial penalties and fees that are levied on criminal and public offenses, including violations of the Vehicle Code.1 Violations of the Vehicle Code are also referred to as traffic violations. Our review focused on penalties and fees resulting from traffic violations—those penalties and fees that are added to traffic tickets.2 However, the data for penalty and fee revenue that the State collects, and that we reviewed, are an aggregate of all criminal penalties and fees, including those added to traffic and nontraffic violations. These penalties and fees currently generate more than $450 million annually. According to data available from the Judicial Council of California (Judicial Council), traffic cases comprised the large majority—approximately 82 percent on average—of all criminal case filings in the State from fiscal years 2014–15 through 2015–16.3 As such, we used the State’s penalty and fee data for our analysis. An individual who receives a citation for a traffic violation is assessed an amount that consists of a Definitions of Key Terms base fine plus several penalties and fees, as defined in the text box. The base fine depends on the type of Base Fine: A monetary sanction imposed in criminal cases violation. Traffic violations fall into three categories: as set forth in state law. The maximum base fine varies from infractions, misdemeanors, and felonies. Traffic violation to violation. infractions are generally minor offenses not Penalty or Surcharge: An amount added to the base punishable by time in jail but by a base fine of up to fine and imposed as part of the monetary punishment for $100, and they include offenses such as speeding or a crime. failing to stop at a stop sign. State law requires the Fee or Assessment: An amount added to the base fine Judicial Council to establish a uniform traffic that is imposed for cost‑recovery purposes, such as covering penalty schedule for all nonparking infractions of the cost of court operations in processing a case. Fees are the Vehicle Code unless a judge in a particular case intended to be used for specific purposes. specifies a different penalty. Traffic misdemeanors Source: Judicial Council’s 2016 white paper on the Structure and are offenses punishable by imprisonment in a Collection of Criminal Fines and Fees. county jail, a base fine of up to $1,000, or both. This type of violation includes driving under the influence of alcohol and/or drugs and reckless driving. Lastly, traffic felonies are generally serious offenses punishable by imprisonment, a base fine of no less than $1,000 and up to $10,000, or both. An example of a traffic felony is the failure of an individual to stop his or her vehicle after being involved in an accident resulting in injury or death to another person. 1 We explain violations of the Vehicle Code in more detail in the Scope and Methodology section beginning on page 10. 2 The penalties and fees that we reviewed are not imposed on parking tickets. 3 The Judicial Council incorporated traffic and nontraffic infractions into its data on criminal case filings. 4 California State Auditor Report 2017-126 April 2018 In addition to the base fine, state law imposes further penalties, surcharges, and fees on individuals cited for traffic violations. Many of the penalties we reviewed are calculated as a certain dollar amount per every increment of $10, or any part of $10, of the base fine. Figure 1 shows an example calculation for a $35 base fine and a penalty set at $10. As Table 1 demonstrates, many penalties have amounts that range from $1 to $10 per $10 of the base fine. Furthermore, the fees we reviewed are a set amount per conviction, and the state surcharge is calculated as a percentage of the total base fine used to calculate the state penalty. Figure 1 Some Penalties Are Calculated Based on Increments of the Base Fine Increments of $10 or Part of $10 (cid:31)(cid:30) (cid:31)(cid:30) (cid:29)(cid:29)(cid:28) (cid:29) (cid:31) (cid:28)(cid:31)(cid:30) (cid:30) (cid:29)(cid:31)(cid:30) PENALTY (cid:31)(cid:30) INCREMENTS PENALTY FOR EVERY ADDED TO INCREMENT OF $10 THE BASE FINE BASE FINE OR PART OF $10 (cid:29) Source: California State Auditor’s analysis of state law. Table 1 also identifies the administering agencies responsible for overseeing the spending of revenue from the funds associated with the penalties we reviewed, the code and section that established the penalty or fee, and the respective fund into which the penalty or fee must be deposited. These funds support various state and local government programs and services. For the $7 county penalty, each county’s board of supervisors has determined by resolution the proportion of the revenue to be deposited into specific county funds. The base fines are generally transferred to specific funds within the local jurisdiction where the violation occurred. We discuss the different types of programs that these funds help pay for in more detail later in this report. California State Auditor Report 2017-126 5 April 2018 Table 1 The Numerous Penalties and Fees Imposed on All Traffic Violations Are Distributed Into Many State and County Funds CODE (IN EFFECT AS OF PENALTY/FEE FUND ADMINISTERING AGENCY JUNE 26, 2017) AMOUNT ($) State Penalty* State Penalty Fund California Governor’s Office of Penal Code (PC) 1464 $10 for every $10 Emergency Services (Cal OES) or part of $10 Fish and Game California Department of Fish PC 1464 (f)(1) 0.33% Preservation Fund and Wildlife ALL REVENUE FROM THE STATE PENALTY TRANSFERS TO THESE FUNDS YTLANEP ETATS 01$ EHT FO %001 OT PU DDA SEGATNECREP ESEHT Restitution Fund California Victim PC 1464 (f)(2) 32.02% Compensation Board Peace Officers’ Commission on Peace Officer PC 1464 (f)(3) 23.99% Training Fund Standards and Training Driver Training Penalty California Department PC 1464 (f)(4) 25.70% Assessment Fund of Education Corrections Training Board of State and PC 1464(f)(5) 7.88% Fund Community Corrections Local Public Cal OES PC 1464(f)(6) 0.78% up to Prosecutors and Public $850,000 Defenders Training Fund Victim-Witness Cal OES PC 1464 (f)(7) 8.64% Assistance Fund Traumatic Brain Department of Rehabilitation PC 1464 (f)(8)(A) 0.66% Injury Fund County Penalty Various County Government Code $7 for every $10 (GC) 76000 or part of $10 DNA Penalty (county)† DNA Identification County GC 76104.6 (a)(1) $1 for every $10 Fund (county) or part of $10 DNA Penalty (state) DNA Identification California Department GC 76104.7 (a) $4 for every $10 Fund (state) of Justice (DOJ) or part of $10 Emergency Medical Air EMAT Act Fund Department of Health Care GC 76000.10 (c)(1) $4 per conviction Transportation (EMAT) Services Penalty Emergency Medical Services Maddy EMS Fund County GC 76000.5 $2 for every $10 (EMS) Penalty (county) or part of $10 State Court Immediate and Critical Judicial Council GC 70372 $5 for every $10 Construction Penalty Needs Account/ or part of $10 State Court Facilities Construction Fund Criminal Conviction Immediate and Critical Judicial Council GC 70373 $30 per felony or Assessment Needs Account misdemeanor/$35 per infraction Court Operations Trial Court Trust Fund Judicial Council PC 1465.8 $40 per conviction Assessment State Surcharge State General Fund State PC 1465.7 20% of base fine Source: State law. * The State Penalty is split, with 30 percent retained by the county and 70 percent deposited in the State Penalty Fund. This fund is a pass-through fund for the funds listed beneath it in the table. Historically, the State Controller’s Office (State Controller) has distributed the revenue based on the percentages stated in the law; however, recent legislation removed the previously required percentages. According to the Department of Finance (Finance), beginning June 27, 2017, applicable programs can spend directly out of the State Penalty Fund according to their authorized budget. † Of the revenue collected for the county DNA Penalty, 75 percent is deposited in the county DNA Identification Fund and 25 percent is transferred to the State’s DNA Identification Fund. All of the revenue collected for the state DNA Penalty is transferred to the State’s DNA Identification Fund. 6 California State Auditor Report 2017-126 April 2018 The penalties and fees have been added to state law over time, resulting in a significant total cost for each traffic violation. Table 2 shows the year when each penalty or fee was added to state law and the total cost of a violation as of that year. Currently, for example, an individual who is guilty of a traffic infraction with a base fine of $35 could pay up to $237 after all associated penalties and fees are added to the base fine. In fact, the total cost for a traffic infraction almost doubled from 2002 to 2010. It is also important to note that failure to pay all or any portion of a fine may result in an additional civil assessment of up to $300. What is more, until state law changed in 2017, an individual’s driver’s license could be suspended for failure to pay a fine. Table 2 Over Time, Penalties and Fees Have Significantly Increased the Cost of Traffic Violations EXAMPLES OF TOTAL AMOUNTS OWED INFRACTION* MISDEMEANOR* YEAR ADDED AMOUNT TOTAL COST TOTAL COST PENALTY TO STATE LAW (AS OF JUNE 26, 2017) COST (AS OF YEAR IMPOSED) COST (AS OF YEAR IMPOSED) Base fine† $35 $300 State Penalty 1980 $10 for every $10 40 $75 300 $600 or part of $10 County Penalty 1991 $7 for every $10 28 103 210 810 or part of $10 State Court Construction Penalty 2002 $5 for every $10 20 123 150 960 or part of $10 State Surcharge 2002 20% of base fine 7 130 60 1,020 Court Operations Assessment 2003 $40 per conviction 40 170 40 1,060 DNA Penalty (county) 2004 $1 for every $10 4 174 30 1,090 or part of $10 DNA Penalty (state) 2006 $4 for every $10 16 190 120 1,210 or part of $10 EMS Penalty (county) 2006 $2 for every $10 8 198 60 1,270 or part of $10 Criminal Conviction Assessment 2008 $30 felony or misdemeanor/ 35 233 30 1,300 $35 infraction per conviction EMAT Penalty 2010 $4 per conviction 4 237 4 1,304 Sources: State law, legislative bill analyses, and the Judicial Council’s Uniform Bail and Penalty schedules. * An infraction is a minor violation, such as failing to stop at a stop sign ($35). A misdemeanor is a more significant violation, such as driving with a suspended license ($300). † The examples in this table reflect base fines for a first conviction. The base fine for certain Vehicle Code violations increases by $10 for each prior moving violation conviction within the past 36 months, so the base fine for an individual can be higher than the amounts shown. Furthermore, counties can choose whether to levy certain penalties, so the total number and amount of penalties differs by county. For example, Sacramento County did not impose the $2 EMS penalty for every $10 increment or part of $10 until January 2018, so a violation in Sacramento County occurring earlier than 2018 would California State Auditor Report 2017-126 7 April 2018 not have included this penalty while a violation in the counties of San Mateo, Merced, or Los Angeles would have included it. In addition, courts that conduct night or weekend sessions of the court can choose to impose a $1 per case night or weekend court fee. Research has shown that California’s traffic fines are among the highest in the nation. For example, according to a May 2017 report published by the Lawyers’ Committee for Civil Rights, California’s $490 total fine for a red‑light violation is the highest amount of all the states. The Legislative Analyst’s Office (LAO) came to a similar conclusion in 2016, finding that California’s fines and fees associated with common traffic offenses were high compared to 33 other states that the LAO surveyed. The State and County Entities That We Reviewed Have Distributed Penalty and Fee Revenue Appropriately Several state and county entities have a role in collecting, distributing, and spending penalty and fee revenue. Although we did not review the collection processes, we verified that the collected amounts were distributed in the manner state law and county resolution require. As shown in Figure 2 on the following page, the general process starts when a county court collects penalty and fee revenue from traffic citations in its county.4 The court reports this revenue to the county’s auditor‑controller. The auditor‑controller then distributes the county’s portion of the money collected to relevant county funds and sends the State’s portion to the State Controller.5 The State Controller distributes this money to different state funds as the law requires. Administering agencies then must ensure that the funds from penalties and fees are used appropriately. In reviewing the distribution of penalty and fee revenue from fiscal years 2014–15 through 2016–17, we examined the distribution and expenditure processes at four counties: Los Angeles, Merced, Sacramento, and San Mateo. We found that for the months we reviewed, county auditor‑controllers had accurately distributed the revenue that the court reported collecting to the State and select county funds in the proportions required by state law and county resolution. We also reviewed the State Controller’s disbursement process and examined how five state entities spent 4 Some courts use private collection agencies. 5 State law requires that before making any other required distribution, the county treasurer shall transmit 2 percent of all fines, penalties, and forfeitures collected in criminal cases into the State Trial Court Improvement and Modernization Fund to be used exclusively to pay the costs of automated systems of the trial courts, such as automated data collection through case management systems. 8 California State Auditor Report 2017-126 April 2018 the penalty and fee revenue; we found that the State Controller appropriately distributed the revenue from the State Penalty Fund to other state funds. Our review of expenditures from several state and county funds that receive penalty and fee revenue found that state and county entities spent the penalty revenue for allowable purposes. Figure 2 State and County Entities Distribute Penalty and Fee Revenue From Traffic Violations Court receives traffic citations from law enforcement. Court staff or vendors enter citation data into case management system COUNTY STATE Court case management system Court reports County auditor-controller enters County remits state State Controller enters state is configured to calculate revenue monthly the county penalty and fee data penalty and fee revenue penalty and fee data into revenue generated by each state to county into its accounting system, to the State as indicated its fiscal system, as indicated and county penalty and fee. auditor-controller as indicated in the court report. in court report in the county’s remittance. $County $State auditor-controller Controller distributes money to distributes money county funds* to state funds COUNTY STATE Various county departments Various state administering must spend the money agencies must spend money according to the according to the county funds’ purposes. state funds’ purposes. Sources: Description of processes from staff at Los Angeles, Merced, and Sacramento counties’ auditor-controller’s offices, San Mateo County’s County Manager’s Office and county controller’s staff, and the State Controller. * In San Mateo County, the County Manager’s Office distributes county penalty revenue to various county funds, while the county controller sends state penalty revenue to the State Controller. California State Auditor Report 2017-126 9 April 2018 State Entities Have Previously Identified Issues With the Distribution and Use of Penalties and Fees Other state entities have previously raised concerns about the State’s system of penalties and fees. The LAO issued a report in January 2016 that explained its concerns with the State’s system, such as the difficulty the Legislature has in controlling the use of revenue from fines and fees. In addition, the LAO concluded that the existing system distributes revenue in a manner that is generally not based on program needs, which results in certain programs receiving more or less funding than needed. The report also stated that the complexity of the current distribution process makes it difficult to distribute revenue accurately and that complete and accurate data on collections and distributions were lacking. The LAO recommended that the Legislature reevaluate the overall structure of the fine and fee system and that it increase legislative control over the use of this revenue. In an April 2016 white paper, the Judicial Council also noted the complex structure required to administer California’s criminal fines and fees. It reported that the number of criminal case filings dropped overall from fiscal years 2005–06 through 2014–15, and it indicated that future collections may decline in the near term, according to these trends. In addition, the white paper discussed significant public policy issues the Judicial Council believes must be considered, such as the complexity of administering the current fine and fee system, the Legislature’s role in deciding how to spend penalty revenue, and the overall significant increase in the total costs of violations. The Judicial Council recommended to the Legislature that any funding that is decreased or eliminated through a change to the current structure should be assessed for need and any resulting loss in revenue to the judicial branch and the trial courts be fully addressed. It also recommended that the overall structure of criminal fines and fees, including collection and distribution, be simplified. The Legislature Has Acted to Revise the State’s Approaches to Imposing and Distributing Penalty and Fee Revenue To provide relief to individuals who are in violation of court orders because of unpaid traffic fines as well as to collect revenue by encouraging individuals to pay old unpaid fines, the Legislature established an amnesty program in 2015. From October 1, 2015, to April 3, 2017, the one‑time program offered individuals with qualifying infractions and misdemeanors an opportunity to resolve delinquent debt that had been initially due on or before January 1, 2013. Depending on their income, these individuals were allowed to resolve their outstanding debts by paying 10 California State Auditor Report 2017-126 April 2018 20 percent or 50 percent of the total amount due, including fines, fees, and penalties. The program also allowed driving privileges that had previously been suspended to be restored under certain conditions. More recently, legislation proposed in 2017 would require the court, in any case involving an infraction filed with the court, to determine whether the defendant is indigent. If the defendant can prove indigence through specified information, the court would then be required to reduce the base fine and associated fees by 80 percent and offer a payment plan option. This legislation is currently pending consideration in the Legislature. The Legislature has also recently changed the way some penalty revenue is distributed to associated funds. Specifically, changes to state law removed the authority, and the previously required percentages, for distributing revenue from the State Penalty Fund to other state funds as shown earlier in Table 1 on page 5. Instead, according to Finance, beginning June 27, 2017, applicable programs can spend directly out of the State Penalty Fund according to their authorized budget. While this change may alter the specific allocations for the programs that receive funding from the State Penalty Fund, it does not revise the amount of the State Penalty, which is still $10 for every increment of $10, or part of $10, of the base fine on all criminal and traffic violations. Scope and Methodology The Joint Legislative Audit Committee (Audit Committee) directed the California State Auditor (State Auditor) to review the funds that the State and local governments receive from the penalties assessed according to specified Government and Penal Code sections. Table 3 lists the objectives that the Audit Committee approved and the methods we used to address them. California State Auditor Report 2017-126 11 April 2018 Table 3 Audit Objectives and the Methods Used to Address Them AUDIT OBJECTIVE METHOD 1 Review and evaluate the laws, rules, • Reviewed relevant laws, rules, guidelines, and policies related to penalties generated from and regulations significant to the traffic violations. We found that criminal violations, such as misdemeanors and felonies, may be audit objectives. punishable by imprisonment. Infractions are not punishable by imprisonment and are typically not considered criminal violations. However, in this report, we consider all violations of the Vehicle Code that constitute felonies, misdemeanors, or infractions as “criminal” violations and characterize all penalties, surcharges, fines, fees, and assessments imposed for violations of the Vehicle Code as “criminal.” • Interviewed key staff at the State Controller, the Judicial Council, county auditor-controllers’ offices, and local county departments. • Reviewed reports from the Judicial Council and the LAO on the subject of criminal fines and fees. • Identified penalties related to traffic violations by reviewing state law and the Judicial Council’s Uniform Bail and Penalty schedules. The penalties and fees we identified are listed in Table 1 on page 5. 2 Identify the total revenue, • Reviewed state law to identify the state funds that receive penalty and fee revenue. expenditures, and fiscal year-end fund • Queried the State Controller’s fiscal system to determine total yearly cash collected (revenue) balances for each of the state funds and cash disbursed (expenditures) for the funds identified. Also determined the that receive revenue from penalties revenue generated specifically from the penalties and fees listed in Table 1 and identified the for traffic violations from fiscal year-end balances for those funds. years 2014–15 through 2016–17. • Identified trends in revenue, expenditures, and year-end balances. Interviewed staff at administering agencies to identify reasons for and impacts of these trends. • Interviewed State Controller staff to identify internal controls for processing counties’ remittances and reviewed its process for distributing the State Penalty Fund revenue to other funds. 3 From a selection of four counties, To select four counties for review, we considered the following factors: identify the total revenue, total and • The amount of penalty revenue generated in the county. types of expenditures, and fiscal • Representation of urban, suburban, and rural populations. year-end fund balances for each of the local funds that received • Population demographics such as ethnicity and median income to cover a range of revenue from traffic violation fines socioeconomic levels. and fees from fiscal years 2014–15 • The volume of traffic based on average daily miles traveled and major travel corridors. through 2016–17. • The region of California in which the county is located. Selected the counties of Los Angeles, Merced, Sacramento, and San Mateo and performed the following: • Reviewed and analyzed data from each county’s auditor-controller’s office to determine annual revenues, expenditures, and year-end fund balances for county funds that receive penalty and fee revenue. We present the types of expenditures that are allowable from each of the funds in Table 7. • Interviewed staff at local administering agencies to identify reasons for trends in these amounts. • Reviewed internal controls each county put in place to ensure that revenue amounts distributed are accurate and complete as established in state law and county resolution. • Reviewed the configuration in the case management system at a superior court responsible for traffic violations in each county to verify that the system is configured with the penalty and fee amounts established in state law and county resolution. • Examined the processes used by each auditor-controller’s office for distributing the penalty and fee revenues. • Determined whether each auditor-controller distributed revenue completely by verifying that the total revenue received from the respective court was fully distributed to the required state and local funds for one month in each of the fiscal years from 2014–15 through 2016–17. Determined whether each county auditor-controller distributed revenue accurately by verifying that it distributed the correct revenue amounts (as determined by the court’s case management system) into selected funds as established in state law and county resolution. continued on next page . . . 12 California State Auditor Report 2017-126 April 2018 AUDIT OBJECTIVE METHOD 4 Determine whether state agencies • Reviewed state law to identify the agencies responsible for administering the state funds that spent revenue from the penalties receive penalty and fee revenue. that state funds received from fiscal • Reviewed state law and the Manual of State Funds to identify the purpose and allowable uses of years 2014–15 through 2016–17 in each state fund that receives penalty and fee revenue. accordance with the requirements • Selected five state funds to review by identifying the total revenue received, the percentage of the and stated purposes of those funds. total revenue that was from penalties and fees, the fund’s purpose and whether that purpose was related to traffic violations, and the administering agency. • Obtained expenditure data from the administering agencies for fiscal years 2014–15 through 2016–17 and selected five expenditures for testing to determine whether each expenditure was allowable. We did not perform completeness testing on these data because it would have been cost-prohibitive to collect supporting documents located throughout the State. • Reviewed each administering agency’s design of internal controls over processing expenditures. 5 Determine whether the four selected • Selected four county funds to review by examining expenditure data obtained from each county counties spent the revenue from the and identifying the total revenue received, the fund’s purpose, and the administering penalties that local governments county department. received from fiscal years 2014–15 • Identified the administering agency of each of the selected funds and interviewed staff to gain through 2016–17 in accordance with perspective on how the fund is managed, how expenditures are processed, and the controls in the requirements and stated purposes place to ensure that fund revenue is spent appropriately. of those funds. • Selected five expenditures from each of the four funds for testing to determine whether each expenditure was allowable. We did not perform completeness testing on these data because it would have been cost-prohibitive to collect supporting documents for numerous county systems. • Reviewed each administering agency’s design of internal controls over processing expenditures. 6 Review and assess any other issues • Determined whether the amount of each penalty was based on program needs by reviewing the that are significant to the audit. electronically available legislative history and bill analyses for each penalty and fee. • Evaluated how well the purposes for which the penalty or fee can be used aligned with traffic violations. We reviewed the purposes of each fund that receives penalty revenue and assessed whether the purposes directly, indirectly, or do not align with the nature of traffic violations. • Analyzed the increase in total fines from traffic-related penalties and fees over time. • Interviewed key staff at Finance regarding the recent change in state law concerning the transfers from the State Penalty Fund. Source: California State Auditor’s analysis of the Audit Committee’s audit request number 2017-126 and state law, and information and documentation identified in the column titled Method. California State Auditor Report 2017-126 13 April 2018 Assessment of Data Reliability In performing this audit, we obtained electronic data from state and county entities’ information systems. Table 4 describes the analyses we conducted using data from these information systems, our methods for testing, and the results of our assessments. Although these determinations may affect the precision of the numbers we present, there is sufficient evidence in total to support our audit findings, conclusions, and recommendations. Table 4 Methods Used to Assess Data Reliability INFORMATION SYSTEM PURPOSE METHOD AND RESULT CONCLUSION State Controller’s To identify total revenue, We assessed the reliability of revenue, expenditures, and Sufficiently reliable fiscal system expenditures, and year-end fund fund balances by reviewing the testing of the fiscal system’s for the purposes of balances for state funds that features and control environment performed as part of the this audit. received revenue from penalties State’s financial audit. for traffic violations from fiscal years 2014–15 through 2016–17. Selected county To identify total revenue, We performed electronic testing and data-set verification Undetermined auditor-controller expenditures, and year-end fund procedures for the funds we selected under objective 5 and reliability for the and departmental balances for county funds that did not identify any issues. purposes of this audit. accounting systems received revenue from penalties We performed testing to verify that each county for traffic violations from fiscal Although this auditor-controller accurately deposited into the relevant years 2014–15 through 2016–17. determination may county funds the penalty revenue collected for one month in affect the precision each of the three fiscal years from 2014–15 through 2016–17. of the numbers we Some county funds receive other revenue that we did not present, there is test. We also did not test expenditure and fund balance data sufficient evidence to for accuracy or completeness because collecting supporting support our findings documents for numerous county systems would have been and conclusions. cost-prohibitive. Sources: California State Auditor’s analysis of various documents, interviews, and data from the entities listed in this table. 14 California State Auditor Report 2017-126 April 2018 Blank page inserted for reproduction purposes only. California State Auditor Report 2017-126 15 April 2018 Audit Results No Systematic Strategy Guides the State’s Use of Penalties and Fees to Fund State and Local Programs, and the High Cost Has Burdened Drivers Penalties and fees were established as an approach to generating revenue for state and county programs. However, they have been added to state law in a piecemeal fashion over time, without any systematic strategy and with little documented analysis of the expected revenue and the amount needed to support the funded programs. This approach has led to problems both for many of the state and county programs that depend on the revenue and for the driving public. Unpaid penalties and fees, coupled with declining criminal case filings, likely have contributed to a decline in the revenue. This revenue decline has contributed negatively to many state and county fund balances and thus the sustainability of some of the related programs. At the same time, as additional penalties and fees have been added, the total cost to drivers has increased dramatically. Currently, the penalties and fees imposed increase the base fine more than six‑fold for some violations. This cost increase has created a disproportionate financial burden for low‑income drivers, causing some to not pay. As discussed in the Introduction, the Legislature took action to provide relief, in part, to individuals in violation of court orders because of unpaid traffic fines by creating a one‑time amnesty program. State law also currently allows judges the discretion to order individuals to pay reduced amounts based on their ability to pay. However, both of these attempts mirror the piecemeal nature of the penalties themselves, as one was temporary and the other lacked standardization. A more standardized method for mitigating costs to indigent drivers has been proposed in pending legislation that would require courts to reduce indigent individuals’ base fines and associated fees by 80 percent. The progression of this funding approach is depicted in Figure 3 on the following page. Also as discussed in the Introduction, many state entities, including the LAO and the Judicial Council, have identified issues with the current approach. In addition, both the Legislature and the Governor have expressed concern with using penalties to fund programs, and they have indicated an intent to stop doing so. For example, the Legislature found that reliance on penalties is a regressive financing mechanism that is particularly harmful to individuals who can least afford high fines, and therefore it intends to stop relying on this type of revenue to fund emergency medical air transportation services. The Governor has noted that costs 16 California State Auditor Report 2017-126 April 2018 added to traffic tickets should be based on reasonable punishment, not on financing more of the State’s General Fund activities. Similarly, our review found several areas in which the practice of using penalties and fees as a significant revenue source is Variopusr ocobulnetym deaptairctm. Tenatbs le 5 presents a scorecard wViatrhio uas shtaigteh a‑dlmeivniestle orinvge rview must spend the money agencies must spend the money of the factors we identified for consideration: whether estimates according to the according to the couenxtiys ftuendds ’o pfu rtphoese sr.e venue that the penalties and fsetaetse fwunedrs’e p uerxpposeecs.ted to generate, how revenue and fund balances are trending, and whether the funds’ uses align with the related traffic violations. We discuss each of these concerns in greater detail in the following sections. Figure 3 The Current Approach of Generating Revenue From Penalties and Fees Is Problematic IMPACT ON AGENCIES When the penalties and fees Revenue from penalties and fees Actions taken to reduce the were created, there was a lack has declined as the number of financial burden on motorists may of documented analyses criminal and traffic filings has have further affected program establishing how much revenue decreased and delinquent debt revenue. Pending legislation to the program needed. Further, has gone uncollected. These reduce penalties for those who can for many penalties and fees an factors likely contributed to demonstrate that they are indigent estimate of expected revenue decreasing funds for programs. could result in further decreases in was not documented. funding for programs. Penalties and fees were Penalties and fees do not established to generate always generate consistent revenue for various programs. revenue for various funds and programs. As multiple penalties and fees Violators are less likely to be Due to the high rate of nonpayment were added over time, the total able to pay the significant total of fines, a one-time amnesty cost to drivers has increased fine amount, which potentially program was offered from 2015 to dramatically. In addition, some decreases the amount of revenue 2017 allowing violators a reduced programs that receive penalty collected. Additionally, a judge payment option. Pending legislation and fee revenue are not related has the discretion to reduce part would require judges to significantly to traffic violations. or all of a fine. reduce penalties and fees if a violator is determined to be indigent. IMPACT ON DRIVERS Source: California State Auditor’s analysis of state law, financial data, and fund purposes. California State Auditor Report 2017-126 17 April 2018 Table 5 Funding State Programs Through Penalty and Fee Revenue Raises Concerns WAS THERE IS THE FUND AN ESTIMATE PURPOSE OF EXPECTED ARE PENALTY IS THE FUND ALIGNED REVENUE FROM REVENUES BALANCE WITH TRAFFIC PENALTY THE PENALTY? INCREASING? INCREASING? VIOLATIONS? State Penalty No No NA NA YTLANEP ETATS EHT MORF EUNEVER LLA SDNUF ESEHT OT SREFSNART Fish and Game Preservation Fund No No No No Restitution Fund No No Somewhat Somewhat Peace Officers’ Training Fund No No No Yes Driver Training Penalty Assessment Fund No No Somewhat Somewhat Corrections Training Fund No No Somewhat Somewhat Local Public Prosecutors and Public Defenders Training Fund No No Somewhat Somewhat Victim-Witness Assistance Fund No No No Somewhat Traumatic Brain Injury Fund No No Somewhat Somewhat DNA Penalty (state) No No No Somewhat EMAT Penalty Yes No Somewhat Somewhat State Court Construction Penalty Somewhat No Somewhat* Yes Criminal Conviction Assessment Somewhat No Somewhat Yes Court Operations Assessment No No Yes Yes State Surcharge Yes No No No Sources: California State Auditor’s analysis of revenue estimates in legislative bill analyses, revenue and fund balance data from the State Controller’s fiscal system, and state law. Note: This table only lists penalties that fund state programs. It does not include the penalties and fees that fund county programs, which are included in Table 1 on page 5. NA = All revenue initially collected in the State Penalty Fund was then transferred to other state funds. * Portions of the State Court Construction Penalty are deposited into both the Immediate and Critical Needs Account and the State Court Facilities Construction Fund, which are listed in Table 1. n = Yes. n = Somewhat. n = No. Traffic Penalty and Fee Amounts Do Not Appear to be Based on the Revenue Needs of the Funded Programs As discussed in the Introduction, state law established the amounts of the penalties and fees imposed for traffic violations, with the intent of generating revenue for particular programs. However, we were unable to identify evidence that any of the set amounts were based on the needs of the funded program. Absent this information, the dollar amounts of many penalties and fees appear to be arbitrary. In addition, it is unclear for many of these penalties and fees if they were intended to provide all the revenue necessary to operate the respective programs or just to supplement other revenue sources. We reviewed the electronically available legislative history and analyses of the bills and propositions that enacted these penalties and fees in law. Although some bill analyses noted the need for 18 California State Auditor Report 2017-126 April 2018 more revenue, as Table 6 shows, only four of the seven state penalties and fees had documentation with revenue estimates. What is more, three of the four analyses do not make it clear whether the estimated revenue would meet the needs of the funded programs. Table 6 Decreasing Revenue and Fluctuating Fund Balances Demonstrate That State Penalties and Fees Provide Inconsistent Levels of Funding Fiscal Years 2014–15 Through 2016–17 ANNUAL ACTUAL PERCENTAGE FUND PERCENTAGE OF PENALTY AVERAGE OF PENALTY BALANCE FUND BALANCE REVENUE ANNUAL REVENUE CHANGE FISCAL CHANGE FROM ESTIMATE FROM PENALTY FROM FISCAL YEAR-END FISCAL YEAR BILL ANALYSIS REVENUE YEAR 2014–15 2016-17 2014–15 TO REVENUE PENALTY (MILLIONS) (MILLIONS)* TO 2016–17 FUND (MILLIONS) 2016–17 SOURCES State Penalty None $104.7 22% decrease State Penalty Fund: NA NA Single SDNUF ESEHT OT SREFSNART YTLANEP ETATS EHT MORF EUNEVER LLA Fish and Game NA 0.4 14% decrease Fish and Game $69.8 11% decrease Multiple Preservation Fund Preservation Fund Restitution Fund NA 33.6 24% decrease Restitution Fund 99.7 Fluctuated Multiple Peace Officers’ NA 25.8 19% decrease Peace Officers’ Training Fund 5.0 74% decrease Single Training Fund Driver Training NA 26.9 24% decrease Driver Training Penalty 1.0 Fluctuated Single Penalty Assessment Assessment Fund Fund Corrections Training NA 8.4 21% decrease Corrections Training Fund 3.1 Fluctuated Single Fund Local Public NA 0.8 14% decrease Local Public Prosecutors 1.2 Fluctuated Single Prosecutors and and Public Defenders Public Defenders Training Fund Training Fund Victim-Witness NA 9.0 24% decrease Victim-Witness Assistance Fund 4.8 57% decrease Single Assistance Fund Traumatic Brain NA 0.7 24% decrease Traumatic Brain Injury Fund 0.4 Fluctuated Single Injury Fund DNA Penalty (state) None 60.8 20% decrease DNA Identification Fund (state) 6.2 74% decrease Single EMAT Penalty $26.0 7.7 19% decrease EMAT Act Fund 2.1 Fluctuated Single State Court 60 to 80‡ 96.0 24% decrease State Court Facilities 411.0 11% decrease Multiple Construction Penalty† • Construction Fund Criminal Conviction 280‡ 108.6 25% decrease Immediate and Critical Needs 269.0 Fluctuated Multiple Assessment Account Court Operations None 125.4 24% decrease Trial Court Trust Fund 173.5 130% increase Multiple Assessment State Surcharge 45.8 41.9 20% decrease General Fund 3,750.0 22% decrease Multiple Sources: California State Auditor’s analysis of revenue estimates in legislative bill analyses, and revenue and fund balance data from the State Controller’s fiscal system. Note: This table only lists penalties that fund state programs. It does not include the penalties and fees that fund county programs, which are included in Table 1 on page 5. NA = All revenue initially collected in the State Penalty Fund was then transferred to other state funds. * The data for penalty and fee revenue that the State collects are an aggregate of all criminal penalties and fees, including those added to traffic and nontraffic violations. † Portions of the State Court Construction Penalty are deposited into both the Immediate and Critical Needs Account and the State Court Facilities Construction Fund. ‡ The estimate from the bill analysis was based on an aggregation of several penalties and fees that were included in a single bill, and not just for the penalty we are reviewing. The portion of the estimate attributable to the listed penalty was not specified. California State Auditor Report 2017-126 19 April 2018 Further, only two of the four analyses had estimates that were specific to the individual penalty. For example, a bill analysis for the EMAT Penalty documented a revenue estimate and the methodology used to calculate the estimate. In contrast, the other two included only an aggregate revenue estimate for multiple penalties and/or fees that were established at the same time in the same bill. For the other three penalties, there was no documented estimate of the revenue that the individual penalty would generate. In addition, even the penalties that had estimates when established did not generate as much revenue as expected. For the two state penalties with specific estimates of expected revenue, we compared the electronically available estimates to the actual penalty revenue collected for the three fiscal years in our audit period and found that both collected less than was projected. Specifically, the EMAT Penalty collected $7.7 million per year on average—less than a third of the expected $26 million annually. The revenue from the state surcharge, which charges 20 percent on the base fine used to calculate the state penalty, has been declining and for fiscal year 2016–17 amounted to $37.3 million, representing 81 percent of what was projected. The Penalty and Fee Revenue Collected Is Trending Downward, Contributing to Declining Fund Balances for Many Programs Revenue from penalties and fees has decreased over the past three fiscal years, demonstrating that this form of revenue is not consistently available for the programs that rely on it. Table 6 shows the trends in penalty revenue for the 15 state funds we reviewed. The amount of revenue these funds received from penalties decreased by amounts ranging from 14 percent to 25 percent overall from fiscal year 2014–15 to 2016–17. Many of these funds rely on penalties for 50 percent or more of their annual revenue. Several state agencies indicated that the declining revenue from penalties and fees has led them to reduce, or to consider reducing, the services they fund. For example, the Commission on Peace Officer Standards and Training, which administers the Peace Officers’ Training Fund, reduced the types of training it reimburses and the amount of funding it provides to some training programs. Table A.1 beginning on page 27 in the Appendix presents the total revenue from all sources, total revenue from penalties, and total expenditures for fiscal years 2014–15 through 2016–17 as well as the year‑end balances for the state funds we reviewed. 20 California State Auditor Report 2017-126 April 2018 In addition, some state funds’ balances declined from fiscal years 2014–15 through 2016–17 in part due to decreased penalty revenue, which is an unsustainable trend in the long term. For example, the state DNA Identification Fund’s balance decreased by 74 percent, from $23 million to $6.2 million, and the Victim‑Witness Assistance Fund’s balance decreased by 57 percent, from $11 million to $4.8 million. Without reductions to expenses or increases in revenue, those funds will likely be depleted within three years. On the other hand, some state funds that have multiple revenue sources have not consistently experienced decreasing fund balances. In particular, the Trial Court Trust Fund had an increasing fund balance over our audit period; it relies on the court operations Many other funds have balances assessment for less than 10 percent of its revenue. Further, many that rose and fell inconsistently other funds have balances that rose and fell inconsistently over over the three years. Some balances the three years. Some balances fluctuated by 40 percent or fluctuated by 40 percent or more annually. more annually. Many of the county funds we reviewed that receive penalty revenue have also experienced declining revenue in the past three fiscal years, which has created an inconsistent revenue source for the associated programs. According to some county departments that manage these funds, they may begin or have already begun to use other funding sources, including their county general fund. Some do not have such plans and may face program reductions if revenue continues to decline. Like the state funds, some of the county funds had fluctuating or declining balances over the three years, sometimes because of changes in expenditure amounts or declining revenues. Table A.2 beginning on page 30 in the Appendix presents the total revenue and total expenditures for fiscal years 2014–15 through 2016–17 as well as the year‑end balances for the county funds we reviewed. Given these trends, counties should reevaluate how they allocate revenue from the county penalty as they take into consideration any future changes to penalties and fees the Legislature might make. On the other hand, some of the county programs that receive funds from penalties and fees do not spend all the revenue they receive, which can lead to large fund balances. Each of the four counties we reviewed has at least one fund whose fiscal year 2016–17 balance was many times more than its annual expenditures for the three years we reviewed. For example, the Automated Fingerprint Identification Fund in Los Angeles County had a fiscal year 2016–17 fund balance of $79 million and spent only about $8 million each year. Similarly, Merced County’s DNA Identification Fund had a balance of more than $1 million as of the end of fiscal year 2016–17 and was growing by roughly $100,000 each year, while average California State Auditor Report 2017-126 21 April 2018 yearly expenditures were less than $10,000. This suggests that the penalty amount charged could be unnecessarily high for these counties, thus generating a surplus of revenue. Although the Los Angeles County Sheriff’s Department asserted that it has several large projects upcoming that will spend down its fund balance, that balance has increased by more than $1 million per year over the past three fiscal years. According to the Merced County Sheriff’s Department the revenue deposited into its DNA Identification Fund is currently in excess of what the county can reasonably use, and it is considering other allowable uses for the fund. One likely reason penalty revenue has declined is that the number of criminal cases filed has decreased. The offenses that the penalties and fees are levied upon are composed of criminal and public offenses, including traffic violations. According to data in the Judicial Council’s 2017 Court Statistics Report, the total criminal case filings decreased overall between fiscal years 2008–09 and 2015–16. These data also show that traffic filings—the number of both misdemeanor and infraction traffic cases—decreased by 44 percent from fiscal years 2008–09 through 2015–16. According to the data, traffic cases made up more than 80 percent of the total criminal filings during that period. Thus, the decrease in traffic filings likely has had a significant effect on penalty revenue. Another factor that appears to be contributing to the declining Another factor that appears to revenue is that many penalties are not being paid. This is be contributing to the declining demonstrated by the large amount of outstanding delinquent revenue is that many penalties are court‑ordered debt, including traffic fines owed. According to not being paid. the Judicial Council’s 2017 Report on the Statewide Collection of Delinquent Court‑Ordered Debt, such debt at the end of fiscal year 2016–17 was $10 billion—a 3.6 percent increase over the previous year.6 The LAO, which reviewed California’s criminal fines and fees, indicated in its 2016 report that much of this outstanding debt may be uncollectible, as the costs of collection may be greater than the amounts that would be collected. The Judicial Council also noted in a 2016 white paper that high dollar amounts for fines and fees can limit violators’ ability to pay in full or in a timely manner, contributing to the amount that remains unpaid. As described in the Introduction, a recent amnesty program in effect from October 1, 2015, through April 3, 2017, relieved some offenders from paying a portion of their outstanding debt. In the law creating the program, the Legislature declared that the program would provide increased revenue by encouraging payment of old fines that had remained unpaid. A Judicial 6 Penal Code section 1463.010 defines court‑ordered debt as including court-ordered fees, fines, forfeitures, penalties, restitution, and assessments. This type of debt also includes the penalties that are the subject of this report. 22 California State Auditor Report 2017-126 April 2018 Council report stated that the intent of the program included providing relief to individuals who faced significant cost barriers to paying court‑ordered debt and generating revenue for the State Penalty Fund. However, that report also stated that, after costs of $13.5 million to operate the program, only $31.6 million was collected—a small fraction of the estimated $2.6 billion in debts that were eligible for the program. The report also stated that 34 percent of individuals who started a payment plan under the amnesty program defaulted on their reduced amount due. Although the amnesty program has ended, pending legislation has been introduced that would require courts in any case involving an infraction to identify indigent individuals and to reduce the amount they must pay. Previously established state law already allows judges the discretion to order defendants to pay reduced amounts. Although they offer relief to low‑income defendants, both this existing option and the pending legislation to standardize reductions for indigent defendants can reduce the amount of penalty revenue generated and therefore contribute to the inconsistency of this revenue source. Penalties and Fees Associated With Traffic Citations Have Increased Substantially, Increasing the Financial Burden on Drivers As discussed in the Introduction and shown in Table 2 on page 6, the size and number of penalties and fees added to traffic fines can be substantial enough to affect individuals’ ability to pay them, and they create disproportionate financial burdens on low‑income individuals. Additionally, those penalties can seem unfair or incongruous because many of the funds pay for programs with indirect or no connection to the cited traffic violations. For these reasons, when establishing new penalties or revising California’s fine and fee system, the Legislature should decide whether to consider individuals’ ability to pay penalties and fees, and whether penalties and fees should pay only for programs and services with direct connections to the cited violations. Offenses that carry a base fine As shown in the Introduction, offenses that carry a base fine of of $35 can cost an individual $35 can cost an individual $237 after the penalties and fees are $237 after the penalties and fees included—a six‑fold increase. If an individual is cited for multiple are included—a six-fold increase. offenses, such as failure to stop at a stop sign and failure to signal before turning—both of which carry a $35 base fine—the base fines are added together and the penalties and fees are calculated on that total base fine. A driving under the influence offense incurs additional fees unique to that offense, such as an Alcohol Abuse Education and Prevention Penalty Assessment of up to $50, so the $390 base fine for a first offense could generate a total fine amount of approximately $2,024. As a point of context, a 2017 report by the California State Auditor Report 2017-126 23 April 2018 Board of Governors of the Federal Reserve System found that only 56 percent of the U.S. households that responded to their survey could fairly easily handle a $400 emergency expense; the remaining 44 percent indicated that they either could not pay or would have to borrow or sell something to do so. In addition, others have indicated that any punitive effect of the penalties is experienced unevenly among offenders, because the penalties create a greater financial burden on low‑income populations. In fact, legislation to extend the EMAT Penalty in 2015 stated that high fines and penalty assessments can perpetuate a cycle of poverty and inequality, given that individuals with lower incomes are more likely to miss payments and suffer the Formerly, failure to pay could have consequences. Formerly, failure to pay could have led to suspension led to suspension of the driver’s of the driver’s license and can still result in an extra assessment license and can still result in an and the possibility of imprisonment. Other entities, including the extra assessment and the possibility U.S. Department of Justice, have noted this issue as well. of imprisonment. Additionally, the incongruity between a driver’s violation and the purpose of the penalties and fees may create a negative perception for drivers and cause them to question the appropriateness of the penalties. Many of the penalties pay for activities not directly related to the traffic violation, as Table 7 on the following page shows. For example, failing to stop at a stop sign results in penalties that pay for various operations, including fish and game preservation and State General Fund uses, neither of which relates to that particular offense. Most of the other penalties pay for services that result from some, but not all, instances of a traffic violation and are therefore indirectly aligned. For example, the EMAT Penalty would directly relate only to a traffic violation that resulted in an injury requiring air transport to a hospital. In addition, the DNA Identification Penalty would directly relate only to a traffic incident that required law enforcement to collect and analyze DNA. Nevertheless, all traffic violations incur these penalties. Only four of the funds that receive penalty and fee revenue appear to be directly aligned with traffic violations; these funds support law enforcement training and court facilities and operations. To address the problematic nature of the current approach, the Legislature would need to consider these issues and make public policy decisions about how, and to what extent, to fund the programs that currently receive penalty and fee revenue from criminal and traffic violations. We recognize the challenge of both providing sufficient revenue for these programs and levying reasonable amounts on drivers who break the law, and following we provide several recommendations of possible approaches to address the concerns we identified. 24 California State Auditor Report 2017-126 April 2018 Table 7 Most Penalties and Fees Are Used for Purposes Not Directly Related to Traffic Violations ALIGNMENT WITH FUND SUMMARY OF ALLOWABLE FUND USES (AS OF JUNE 26, 2017) TRAFFIC VIOLATIONS State Penalty Fund: The State Penalty Fund money is transferred monthly into the 8 funds below. NA SDNUF ESEHT OT SREFSNART YTLANEP ETATS EHT MORF EUNEVER LLA Fish and Game Preservation Fund Education or training of Department of Fish and Game employees. None Restitution Fund Compensation for those citizens (or their dependents) who are injured and suffer Indirect financial hardship as a result of a crime, or who sustain damage or injury while performing acts that benefit the State. Peace Officers' Training Fund Grants to local governments and districts for the selection and training of law Direct enforcement officers. Driver Training Penalty Driver instruction within the State Department of Education, including costs of Indirect* Assessment Fund instruction in the operation of motor vehicles, and costs of replacing vehicles and simulators used in driver education programs. Corrections Training Fund Development of appropriate corrections standards, training, and program evaluation. Indirect Local Public Prosecutors and Statewide programs of education, training, and research for local public prosecutors Indirect Public Defenders Training Fund and public defenders. Victim-Witness Assistance Fund Services to victims and witnesses of all types of crime. Indirect Traumatic Brain Injury Fund Services for adults with traumatic brain injury sustained after birth, including Indirect supported living, community reintegration, and vocational supportive services. DNA Identification Fund (County) Reimbursement of local sheriff or law enforcement agencies' DNA-related Indirect administrative costs; procurement of equipment and software; and the collection, analysis, and storage of DNA specimens. DNA Identification Fund (State) Operations of the DOJ forensic laboratories, including the implementation of the DNA Indirect Fingerprint, Unsolved Crime and Innocence Protection Act. Emergency Medical Air Transportation Offsetting and augmenting Medi-Cal reimbursements for EMAT services. Indirect Act Fund Maddy EMS Fund (County) Reimbursement of costs to physicians, surgeons, and hospitals for certain emergency Indirect medical services purposes. Immediate and Critical Needs Account Planning, design, construction, rehabilitation, renovation, replacement, or acquisition Direct of court facilities, and for the payment of leases or rentals of court facilities. State Court Facilities Construction Fund Planning, design, construction, rehabilitation, renovation, replacement, leasing, or Direct financing of new court facilities. Trial Court Trust Fund Trial court operations, salaries and benefits of superior court judges, court interpreter Direct services, assigned judge services, and local assistance grants. State General Fund It is the principal operating fund for the majority of governmental activities and None consists of all money received in the Treasury that is not required by law to be credited to any other fund. County Penalty Counties can choose to transfer portions of this assessment to various funds with the Generally Indirect following allowable uses: (1) courthouse construction, (2) criminal justice facilities construction, (3) automated fingerprint identification and digital image photographic suspect identification, (4) forensic laboratory, (5) emergency medical services, (6) DNA identification, and (7) other special purpose. Sources: California State Auditor’s analysis of fund purposes and state law. Note: We deemed a fund purpose to align directly with a traffic violation if the violation would represent a cost to that fund. We deemed a fund purpose to align indirectly if only in certain circumstances the violation would represent a cost to that fund. For example, failing to stop at a stop sign would only result in a medical air transportation cost if someone was injured by the failure to stop. We deemed a fund purpose to not align if the violation would not represent a cost to that fund. * During our audit period, the majority of the revenue deposited in the Driver Training Penalty Assessment Fund was transferred to other funds pursuant to Control Section 24.10 (b) of the annual Budget Act. n = Direct. n = Indirect. n = None. California State Auditor Report 2017-126 25 April 2018 Recommendations Legislature To ensure consistent funding streams for state and county programs, the Legislature should consider whether, and to what extent, to fund the programs that currently receive penalty and fee revenue from criminal and traffic violations. The Legislature could adjust or eliminate individual penalties and fees by considering the following factors identified in our report: • Revenue trends and the reliability of penalties and fees as funding sources. • The significant financial impact of penalties and fees on low‑income individuals • How well aligned the uses of penalty and fee revenues are with the offenses that give rise to the penalty or fee. • The seemingly arbitrary amount of the penalty or fee. To accomplish this, over the next two‑year period the Legislature should review the penalties and fees and the programs that receive the penalty and fee revenue to determine the programs’ needs. If the Legislature determines that a particular penalty or fee is not appropriate for generating revenue for a particular program, it should consider requiring the affected department to identify other funding sources or reduce the program’s scope of services. The Legislature should consider revising state law to redirect all or part of the penalty revenue to the State Penalty Fund and using the budget process to allocate funds to align with legislative priorities. 26 California State Auditor Report 2017-126 April 2018 We conducted this audit under the authority vested in the California State Auditor by Section 8543 et seq. of the California Government Code and according to generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives specified in the Scope and Methodology section of the report. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Respectfully submitted, ELAINE M. HOWLE, CPA State Auditor Date: April 26, 2018 Staff: Nicholas Kolitsos, CPA, Audit Principal Jordan Wright, CFE Michelle J. Sanders Wren Greaney Yuhan Lu Hunter Wang, CFE Kevin Wedman Sean Wiedeman, MBA Legal Counsel: Mary K. Lundeen, Sr. Staff Counsel For questions regarding the contents of this report, please contact Margarita Fernández, Chief of Public Affairs, at 916.445.0255. California State Auditor Report 2017-126 27 April 2018 Appendix REVENUE, EXPENDITURES, AND YEAR‑END FUND BALANCES OF STATE AND COUNTY FUNDS THAT RECEIVE PENALTY AND FEE REVENUE The Audit Committee requested that the State Auditor identify the total revenue, expenditures, and fiscal year‑end fund balances for each of the state funds that received revenue from penalties and fees for traffic violations in fiscal years 2014–15 through 2016–17. We present this information in Table A.1. Additionally, the Audit Committee requested that for a selection of four counties, we identify the total revenue, total and types of expenditures, and fiscal year‑end fund balances for each of the local funds that received revenue from traffic violation penalties and fees in fiscal years 2014–15 through 2016–17. As described in the Introduction, we selected the counties of Los Angeles, Merced, Sacramento, and San Mateo for our analysis. We present the counties’ information in Table A.2 beginning on page 30. Table A.1 Revenue, Expenditures, and Year-End Fund Balances for State Funds that Receive Penalty Revenue % REVENUE FISCAL PENALTY MADE UP BY REVENUE NET OF YEAR-END FUND YEAR FUND REVENUE EXPENDITURES REVENUE PENALTIES EXPENDITURES BALANCE* 2016–17 State Penalty Fund $94,788,274 $94,788,274 $92,475,546 97.6% $0 NA 2015–16 106,113,799 106,113,799 103,337,830 97.4% 0 NA 2014–15 121,378,008 121,378,008 118,147,899 97.3% 0 NA Subtotals $322,280,081 $322,280,081 $313,961,275 $ 0 2016–17 Fish and Game $98,447,952 $115,705,568 $400,279 0.4% $(17,257,616) $69,767,000 Preservation Fund 2015–16 97,125,170 105,776,803 423,636 0.4% (8,651,633) 75,771,000 2014–15 92,658,414 103,585,716 464,779 0.5% (10,927,302) 78,640,000 Subtotals $288,231,536 $325,068,087 $1,288,694 $(36,836,551) 2016–17 Restitution Fund $122,238,723 $74,540,885 $29,172,956 23.9% $47,697,838 $99,702,000 2015–16 72,205,307 127,484,537 33,089,881 45.8% (55,279,230) 49,110,000 2014–15 106,239,777 85,093,672 38,394,040 36.1% 21,146,105 105,556,000 Subtotals $300,683,807 $287,119,094 $100,656,877 $13,564,713 2016–17 Peace Officers’ $31,108,132 $31,216,027 $23,291,619 74.9% $(107,895) $4,991,000 Training Fund † 2015–16 37,308,214 44,653,828 25,419,906 68.1% (7,345,614) 16,499,000 2014–15 37,181,804 51,188,166 28,687,154 77.2% (14,006,362) 19,359,000 Subtotals $105,598,150 $127,058,021 $77,398,679 $(21,459,871) 2016–17 Driver Training Penalty $23,414,911 $23,342,911 $23,414,911 100.0% $71,999 $1,001,000 Assessment Fund 2015–16 26,544,429 27,212,032 26,511,157 99.9% (667,602) 457,000 2014–15 30,732,009 30,422,096 30,732,009 100.0% 309,913 1,175,000 Subtotals $80,691,349 $80,977,039 $80,658,077 $(285,690) continued on next page . . . 28 California State Auditor Report 2017-126 April 2018 % REVENUE FISCAL PENALTY MADE UP BY REVENUE NET OF YEAR-END FUND YEAR FUND REVENUE EXPENDITURES REVENUE PENALTIES EXPENDITURES BALANCE* 2016–17 Corrections Training Fund† $17,347,886 $24,256,465 $7,490,038 43.2% $(6,908,579) $3,140,000 2015–16 18,078,591 12,239,960 8,274,400 45.8% 5,838,630 7,873,000 2014–15 19,223,091 21,513,895 9,422,896 49.0% (2,290,805) 4,030,000 Subtotals $54,649,568 $58,010,320 $25,187,334 $(3,360,754) 2016–17 Local Public Prosecutors $717,252 $842,409 $710,659 99.1% $(125,157) $1,218,000 and Public Defenders 2015–16 749,215 856,862 745,362 99.5% (107,647) 1,212,000 Training Fund 2014–15 830,805 858,473 828,124 99.7% (27,668) 1,239,000 Subtotals $2,297,272 $2,557,744 $2,284,145 $(260,472) 2016–17 Victim-Witness $12,016,388 $13,742,333 $7,871,777 65.5% $(1,725,945) $4,829,000 Assistance Fund† 2015–16 13,080,264 17,983,351 8,912,693 68.1% (4,903,087) 6,837,000 2014–15 24,717,495 17,674,540 10,331,685 41.8% 7,042,955 11,196,000 Subtotals $49,814,147 $49,400,224 $27,116,155 $413,923 2016–17 Traumatic Brain $1,105,093 $896,734 $601,327 54.4% $208,359 $405,000 Injury Fund† 2015–16 1,308,606 919,412 680,843 52.0% 389,194 378,000 2014–15 789,242 837,983 789,242 100.0% (48,741) 427,000 Subtotals $3,202,941 $2,654,129 $2,071,412 $548,812 2016–17 DNA Identification Fund $54,684,105 $54,831,022 $54,615,038 99.9% $(146,917) $6,158,000 2015–16 59,796,761 66,763,329 59,709,445 99.9% (6,966,568) 10,353,000 2014–15 68,232,538 70,949,857 68,150,476 99.9% (2,717,319) 23,375,000 Subtotals $182,713,404 $192,544,208 $182,474,959 $(9,830,804) 2016–17 EMAT Act Fund $6,975,872 $8,116,230 $6,934,162 99.4% $(1,140,358) $2,052,000 2015–16 7,690,958 11,672,088 7,661,377 99.6% (3,981,130) 3,402,000 2014–15 8,595,056 16,860,911 8,543,270 99.4% (8,265,855) 261,000 Subtotals $23,261,886 $36,649,229 $23,138,809 $(13,387,343) 2016–17 State Court Facilities $97,311,512 $111,724,596 $53,484,687 55.0% $(14,413,084) $411,008,000 Construction Fund 2015–16 378,985,799 137,737,539 61,410,298 16.2% 241,248,260 430,281,000 2014–15 240,624,674 185,692,017 71,487,122 29.7% 54,932,657 461,540,000 Subtotals $716,921,985 $435,154,152 $186,382,107 $281,767,833 2016–17 Immediate and Critical $236,922,203 $252,114,327 $123,335,902 52.1% $(15,192,124) $269,008,000 Needs Account 2015–16 234,339,883 169,070,503 139,990,985 59.7% 65,269,380 304,267,000 2014–15 261,095,304 190,297,184 164,178,464 62.9% 70,798,120 254,104,000 Subtotals $732,357,390 $611,482,014 $427,505,351 $120,875,376 2016–17 Trial Court Trust Fund $1,367,510,247 $1,331,234,492 $109,373,333 8.0% $36,275,755 $173,477,000 2015–16 1,352,227,100 1,309,250,640 123,460,765 9.1% 42,976,460 78,338,000 2014–15 1,465,995,838 1,464,160,459 143,296,117 9.8% 1,835,379 75,512,000 Subtotals $4,185,733,185 $4,104,645,591 $376,130,215 $81,087,594 California State Auditor Report 2017-126 29 April 2018 % REVENUE FISCAL PENALTY MADE UP BY REVENUE NET OF YEAR-END FUND YEAR FUND REVENUE EXPENDITURES REVENUE PENALTIES EXPENDITURES BALANCE* 2016–17 State General Fund $122,605,426,496 $126,858,946,528 37,260,126 0.03% $(4,253,520,032) $3,750,297,000 2015–16 120,413,915,840 123,585,483,191 41,652,214 0.03% (3,171,567,351) 3,833,807,000 2014–15 116,388,676,316 115,847,671,224 46,745,059 0.04% 541,005,092 4,790,986,000 Subtotals $359,408,018,652 $366,292,100,943 $125,657,399 $(6,884,082,291) 2016–17 Total Penalty Revenue 477,956,814 ‡ Source: California State Auditor’s analysis of data from the State Controller’s fiscal system. Note: The data for penalty and fee revenue that the State collects are an aggregate of all criminal penalties and fees, including those added to traffic and nontraffic violations. NA = All revenue initially collected in the State Penalty Fund was then transferred to other funds. * Year-end fund balance includes transactions recognized in the fiscal year when they occurred, regardless of when cash was received or disbursed. † Revenue deposited in the Driver Training Penalty Assessment Fund was transferred to the indicated funds pursuant to Control Section 24.10 (b) of the annual Budget Act. ‡ The fiscal year 2016–17 total penalty revenue amount does not include the State Penalty Fund to avoid double counting as it is a pass-through fund. n = Increased from year to year. n = Fluctuated from year to year. n = Decreased from year to year. 30 California State Auditor Report 2017-126 April 2018 Table A.2 Revenues, Expenditures, and Fund Balances for County Funds That Receive Penalty Revenue FISCAL REVENUE NET OF YEAR-END FUND YEAR FUND REVENUE EXPENDITURES EXPENDITURES BALANCE Sacramento County 2016–17 Criminal Justice Facilities $1,464,290 $1,440,000 $24,290 $240,154 Construction Fund* 2015–16 1,672,978 1,740,000 (67,022) 215,864 2014–15 1,752,245 1,800,000 (47,755) 282,886 2016–17 Courthouse Construction 1,245,004 1,260,000 (14,996) 202,415 Fund* 2015–16 1,417,680 1,300,000 117,680 217,412 2014–15 1,473,332 1,480,000 (6,668) 99,731 2016–17 DNA Identification Fund† 365,998 365,998 0 0 2015–16 428,484 428,484 0 0 2014–15 454,312 454,312 0 0 2016–17 Maddy EMS Fund 1,350,909 1,350,909 0 0 2015–16 1,533,284 1,533,284 0 0 2014–15 1,610,303 1,610,303 0 0 2016–17 Automated Fingerprint 220,214 157,298 62,916 1,992,103 Identification Fund 2015–16 263,906 157,357 106,549 1,929,187 2014–15 326,143 114,790 211,353 1,822,638 Merced County 2016–17 Automated Fingerprint $75,092 $336,414 $(261,322) $69,906 Identification Fund 2015–16 75,002 0 75,002 331,228 2014–15 73,216 61,118 12,099 256,226 2016–17 Courthouse Construction Fund 342,611 340,452 2,159 52,971 2015–16 342,228 361,917 (19,689) 50,812 2014–15 339,790 340,468 (678) 70,501 2016–17 DNA Identification Fund 120,691 10,187 110,505 1,019,682 2015–16 115,316 18,927 96,390 909,177 2014–15 107,377 851 106,526 812,788 2016–17 Maddy EMS Fund 709,620 850,946 (141,326) 188,618 2015–16 730,193 743,060 (12,867) 329,944 2014–15 715,682 643,797 71,885 342,811 2016–17 Criminal Justice Facilities 345,307 0 345,307 437,737 Construction Fund 2015–16 346,774 550,000 (203,226) 92,430 2014–15 345,253 550,000 (204,747) 295,656 San Mateo County 2016–17 Courthouse Construction Fund $974,165 $1,222,980 $(248,815) $172,725 2015–16 979,591 1,376,103 (396,512) 421,541 2014–15 1,112,077 1,135,270 (23,193) 818,053 2016–17 Criminal Justice Facilities 940,146 1,100,000 (159,854) 1,504,465 Construction Fund 2015–16 993,971 1,100,000 (106,029) 1,664,319 2014–15 1,118,987 1,100,000 18,987 1,770,348 California State Auditor Report 2017-126 31 April 2018 FISCAL REVENUE NET OF YEAR-END FUND YEAR FUND REVENUE EXPENDITURES EXPENDITURES BALANCE 2016–17 DNA Identification Fund 227,172 249,909 (22,737) 1,414,456 2015–16 250,937 379,634 (128,698) 1,437,193 2014–15 297,522 172,624 124,898 1,565,890 2016–17 Maddy EMS Fund * 1,702,450 1,805,861 (103,412) 2,302,481 2015–16 2,077,111 2,483,392 (406,281) 2,405,892 2014–15 2,342,824 2,545,308 (202,484) 2,812,173 2016–17 Automated Fingerprint 948,661 951,249 (2,589) 214,313 Identification Fund* 2015–16 932,121 982,909 (50,788) 216,902 2014–15 965,930 1,266,709 (300,779) 267,690 Los Angeles County 2016–17 Criminal Justice Facilities $13,965,792 $15,064,004 ($1,098,212) $62,965,138 Construction Fund* 2015–16 15,238,925 6,961,071 8,277,854 64,063,350 2014–15 18,862,207 9,635,946 9,226,261 55,785,496 2016–17 Courthouse Construction Fund* 11,987,484 14,831,327 (2,843,843) 19,497,391 2015–16 13,256,053 20,803,070 (7,547,017) 22,341,235 2014–15 15,231,031 25,278,014 (10,046,983) 29,888,252 2016–17 DNA Identification Fund* 2,313,134 911,470 1,401,664 1,610,871 2015–16 2,751,495 4,876,603 (2,125,109) 209,208 2014–15 3,347,414 3,254,078 93,336 2,334,316 2016–17 Maddy EMS Fund* 16,245,138 16,409,480 (164,342) 1,245,518 2015–16 18,498,885 18,829,244 (330,359) 1,409,860 2014–15 22,958,580 23,111,372 (152,792) 1,740,219 2016–17 Health Services-Physicians 7,829,005 7,829,737 (732) 18,318 Services Fund* 2015–16 8,907,712 8,888,693 19,020 19,050 2014–15 11,025,496 11,038,642 (13,146) 30 2016–17 Health Services-Hospital 4,518,586 9,489,552 (4,970,966) 5,301,575 Services Fund* 2015–16 6,038,225 321,525 5,716,700 10,272,540 2014–15 7,956,885 5,928,292 2,028,593 4,555,841 2016–17 Automated Fingerprint 10,656,298 8,516,082 2,140,216 79,470,913 Identification Fund* 2015–16 10,288,506 6,668,080 3,620,426 77,330,696 2014–15 10,532,056 9,056,483 1,475,573 73,710,270 Source: California State Auditor’s analysis of data from county records. Note: County funds may have other revenue in addition to penalties. The data for penalty and fee revenue that the counties collect are an aggregate of all criminal penalties and fees, including those added to traffic and nontraffic violations. * Fund includes transactions recognized in the fiscal year when they occurred, regardless of when cash was received or disbursed. † The Sacramento County DNA Identification Fund expenditures are split between the Sheriff’s Department and the District Attorney’s Office to reimburse a portion of their DNA-related expenditures. n = Increased from year to year. n = Fluctuated from year to year. n = Decreased from year to year.