Backlog of CA business filings may get relief

March 19, 2013

By Katy Grimes

SACRAMENTO — Operating more like the Dewey Decimal System, the California Secretary of State’s Office has been under a great deal of scrutiny lately for its historic backlog in processing business filings. And for good cause.

The recent reports of up to an 122-day backlog is not news to anyone in the private sector. This has only been a surprise to state lawmakers.

As an emergency stopgap measure, the Assembly voted Monday to immediately give $2 million to Secretary of State Debra Bowen. The funds are to be used to pay overtime for existing staff members and hire some temporary workers, with the goal of speeding up processing of permits to five days.

Slowing businesses from starting up

It may be only a quick fix, but some say it’s a very important quick fix. This prompted Assembly Speaker John Perez to fast-track AB 113. The bill “appropriates $2 million of business filing fees to the Secretary of State only to be used for overtime pay and temporary staffing to reduce business filing processing times by amending the 2012-13 Budget Act.”

The bill also requires the secretary of state to report monthly progress to the Joint Legislative Budget Committee.

Reports vary on exactly how many days business filings are backlogged.

The analysis of AB 113 says the standard is 20 days to process business filings. A Sacramento Bee report cited evidence putting the current average delay at 43 days. Assemblyman Bob Blumenfield, D-Los Angeles, said the current system can take up to 65 days to process the paperwork for a new business. AB 113 also says that last year, “budget cuts and insufficient staff pushed processing times to an all-time high of 85 days.” But the Secretary of State’s Office has said that at its worst, the backlog was 122 days.

Whatever figure is correct, the state is getting in the way of its own entrepreneurs and delaying future tax revenues.

It was not that long ago in California that an aspiring business owner could have his new business documentation filed by the Secretary of State’s Office while he waited.

Lawmakers seek to make state ‘a little bit better’

Fortunately, state lawmakers have realized that until a business is up and operating, the state isn’t getting its cut of revenue.

“This is our chance to make state government a little bit better,” Blumenfield said. “Five days or less [to process business permits] will make California one of the best.”

Every lawmaker who spoke in favor of the bill agreed. “California businesses face needless delays with the Secretary of State’s Office, due to budget cuts,” said freshman Assemblyman Jose Medina, D-Riverside. “These are the very people we should be supporting.”

It wasn’t just Medina who blamed the backlog on budget cuts. So did every Assembly Democrat who spoke on the bill. But other states have had revenue shortfalls as well during the national economic downturn. Yet in New York, it takes about five days to process a business permit. In Texas, it takes about three to five business days to process an application. For an extra $25, the state will process a business application in one business day. Texas also has its system automated online.

At a press conference Monday following AB 113’s passage, Assembly Speaker John Perez, D-Los Angeles, Blumenfield and Assemblyman Tom Daly, D-Anaheim, together with business stakeholders, hailed bipartisan support of AB 113 to “aid California businesses and help advance the state’s economic recovery.”

Representatives from the national Federation of Independent Business, California Manufacturers and Technology Association, The California Chamber of Commerce, Silicon Valley Leadership Group, and the California Business Roundtable attended the press conference in support of the bill.

John Kabateck with the NFIB called the delays  at the Secretary of State’s Office “outrageous,” and “an unnecessary burden on businesses in the state.”

Kabateck said there are 22,000 small businesses members in California and 300,000 members across the country.  There are 3.6 million small businesses in California. “We are very grateful to Speaker Perez for this much-needed fix.” Kabateck added, “Every big business was once a small business.”

Behind the problem: yet another state computer mess

But even with the announcement of help for the Secretary of State’s Office, some in the media still wanted to know how the office got so backlogged. According to Perez, “resource limitations” led to the backlog. “But we’re not here to assign blame,” he said.

Perez explained how his office decided last summer to lend the secretary of state $1.5 million out of Perez’s discretionary fund to clear up the backlog. He said he thought it was a one-time issue because of recent budget cuts.

However, lawmakers also want to give Bowen $8.9 million in the 2013-14 budget year to hire nearly 70 more staff members. Until a new computer system comes online in 2016, the Secretary of State’s Office would have to maintain the five-day processing standard, according to AB 113.

The new computer system is estimated to cost taxpayers $20 million. Initiated in 2011, the project is not expected to be completed until 2016.

Such delays are unheard of in the private sector, when months can matter in the life and death of a business, and extra employees can’t just be added to do the work.

The five-year time frame to implement a computer system has many scratching their heads, wondering how the state that is home to Silicon Valley can be so bungling and ineffectual with its computers. There have also been computer debacles with state attempts to upgrade its basic payroll system and with the Department of Motor Vehicles.