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.

Figure 3
The Current Approach of Generating Revenue From Penalties and Fees Is Problematic

Source: California State Auditor’s analysis of state law, financial data, and fund purposes.

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 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 problematic. Table 5 presents a scorecard with a high‑level overview of the factors we identified for consideration: whether estimates existed of the revenue that the penalties and fees were expected 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.

Table 5
Funding State Programs Through Penalty and Fee Revenue Raises Concerns

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 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

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 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.

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 assessment for less than 10 percent of its revenue. Further, many other funds have balances that rose and fell inconsistently over the three years. Some balances fluctuated by 40 percent or 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 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 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 revenue is that many penalties are not being paid. This is demonstrated by the large amount of outstanding delinquent court‑ordered debt, including traffic fines owed. According to 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 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, 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.

As shown in the Introduction, offenses that carry a base fine of $35 can cost an individual $237 after the penalties and fees are included—a six‑fold increase. If an individual is cited for multiple 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 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 consequences. Formerly, failure to pay could have led to suspension of the driver’s license and can still result in an extra assessment and the possibility of imprisonment. Other entities, including the U.S. Department of Justice, have noted this issue as well.

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 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.

Table 7
Most Penalties and Fees Are Used for Purposes Not Directly Related to Traffic Violations

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.

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.

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.

Footnotes

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. Go back to text

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