The fifth-largest source of revenue for California’s General Fund are found objects that don’t really belong to the state.
They are among 28.4 million unclaimed properties, valued at $7.2 billion, that have gravitated over the years to the state from bank accounts, insurance policies, stocks, securities, expiring gift certificates, safe deposit boxes, utility reimbursements, property transaction fees and other sources under the state’s Unclaimed Property Law (UPL). About 60% of the property is unclaimed, but still claimable.
It’s a substantial haul, accumulated with the original intention of reuniting the true owners with their property, but the state’s independent Legislative Analyst’s Office (LAO) doesn’t think nearly enough is being done to make that happen. A new report (pdf) acknowledges there are legitimate reasons why a lot of the haul—90% are cash assets—will never be claimed, but argues that the $400 million in annual revenues is acting as a powerful disincentive for the state to do more.
The state, on average, reunites about 40% of the properties it picks up—$250 million a year—with the owners. Nearly half the properties are worth $25 or less and 90% are under $500. But there is also a bag of diamonds valued at $500,000 and three gold bars worth $375,000, in addition to baseball cards, liquor and a can of sardines.
The properties end up in the state’s hands after specified periods of dormancy pass at the institutions holding the material.
The state has streamlined the online process for people to search the unclaimed property website run by the State Controller Office (SCO) for their stuff, but the process to claim it is clunky and under-publicized, the report says. To some extent, that is by design.
Language regularly included in the state’s annual budget bill “prohibits SCO from spending more than $50,000 per year to inform the public about the unclaimed property program.” Although the governor has suggested kicking that up to $60,000, the state only spent about $38,000 in 2014, running advertisements in 50 newspapers with a circulation of 4.5 million informing the public of the program’s existence.
The Analyst said the law only limited that general kind of advertising, and suggested the state pony up bigger bucks to individually contact people whose property is shifting to the state or is already in the state’s possession.
Not all the holders of unclaimed property turn it over to the state as required by the law, so back in 2000 the state offered a one-year amnesty to scofflaws if they came forward. The program was extended for a second year and ended up bringing in $196 million, $113 million in cash and $83 million in securities from 4,927 holders of 145,903 properties. That was a nice complement to the $780 million that legally flowed to the state.
Every month, the state sweeps all but $50,000 out the UPL fund and into the General Fund. Only the personal income tax, sales and use tax, corporate tax, and the insurance tax (in that order) provide more revenue. The state regularly takes in more unclaimed property than it reunites with people, and there is no time limit for when people can apply to reclaim their property. So, theoretically, the state’s unclaimed property liability will continue to rise.
Realistically, even with aggressive outreach, there is no chance that all the owners of unclaimed property will come forward. Some of the property records are too sketchy to identify an owner, some owners have died, others have moved away.
The Analyst made several suggestions for returning more property to owners besides letting people know the state has their stuff. California could match unclaimed property records to tax filing information and automatically send people money when there is a match. The state could allow claimants to upload documents online, and clean up errors in the database that reduce the accuracy of online searches. A database feature could be built in that “suggests possible matches to users.”
The Analyst also offered that another amnesty for wayward holders of property might be rewarding, as well as lowering the penalty for noncompliance with the law below the current 12%.