TITLE: CONCERNING FILINGS TO PERFECT SECURITY INTERESTS, AND, IN CONNECTION THEREWITH, AMENDING PROVISIONS GOVERNING THE OPERATION OF THE CENTRAL INDEXING SYSTEM AND MAKING AN APPROPRIATION.

Fiscal Impact Summary	FY 1999/2000	FY 2000/2001
State Revenues Cash Fund	-$1,210,183	-$2,559,724
State Expenditures Cash Fund	-1,655,376	-1,796,816
FTE Position Change	0.0 FTE	0.0 FTE
Other State Impact: TABOR
Effective Date: July 1, 1999.
Appropriation Summary for FY 1999-2000: Secretary of State - ($1,655,376) - Cash Funds
Local Government Impact: This bill removes the offices of county clerks and recorders from the administration of the central indexing system. Counties will no longer generate central indexing system revenue or incur administrative expenditures effective January 1, 2000.

This bill (as amended by the Senate Business Affairs Committee, February 3, 1999) establishes the central filing office in the Office of the Secretary of State to consolidate security interest filing and record maintenance functions currently being conducted by the Secretary of State and the 63 offices of county clerks and recorders. The bill requires the Office of the Secretary of State, effective January 1, 2000, to administer the central filing office and the central information system, and to operate a system to file effective financing statements for farm products.

Central filing officer ( Article 9 of Title 4, proposed). This amended bill establishes the Secretary of State as the central filing officer for the filing and maintenance of records pertaining to security interests within the central filing system. The bill specifies the duties and powers of the central filing officer, including:

• no later than July 1, 2000, assemble a complete central database of central filing system effective financial statements, UCC documents, and related information;

• certify the contents of the central filing officer's files and of the central index.

The bill requires the central filing officer to adjust fees so that the revenue generated from fees approximates the direct and indirect costs of the duties of the office. The bill authorizes the central filing officer to reduce the amount of statutory fees by rule to reduce the uncommitted reserves of the Central Filing Office Cash Fund. After any uncommitted reserves of the fund are sufficiently reduced, the central filing officer may increase the fee amounts by rule.

The bill creates the Central Filing Office Cash Fund to consist of fees collected by the central filing officer. All moneys credited to the fund are to be retained within the fund and not transferred to the state General Fund. Moneys in the fund are to be appropriated by the General Assembly to the central filing officer in the general appropriation bill. The bill provides a manner in which annual unexpended moneys are to be made a part of the successive year's appropriation. The amount of funds appropriated to the cash fund is to not exceed the amount of annual revenue to the cash fund.

The bill requires the central filing officer to ensure that documents may be presented for filing via facsimile or electronic transmission. The central filing officer is authorized to establish prepaid accounts, an electronic debit system, a credit card or electronic funds transfer system, and technical standards. The bill specifies certain conditions in which the central filing officer may refuse to accept a record for filing.

After January 1, 2000, and no later than July 1, 2000, the central filing officer is to obtain from each county clerk and recorder the originals or true copies of certain records for assembling a complete, central database of UCC documents, effective financing statements, and related information. The bill requires the clerk and county recorder of each county to continue to maintain records of financing statements filed in the real estate records of the office of the county clerk and recorder. Financing statements and other documents previously filed only in the real estate records are to continue to be so filed. The bill requires each county clerk and recorder to adopt procedures by January 1, 2000, to notify persons of the procedures to file with the central filing officer.

The bill requires the central filing officer to design and implement procedures to periodically evaluate the accuracy and completeness of the system, the information, the information gathering process, and the performance of the central filing system and the central index. The central filing officer is required to report to the Legislative Audit Committee by November 1, 1999, and quarterly thereafter to November 1, 2000 on the results of the internal audit process.

The bill authorizes the central filing officer to hire all personnel and procure all equipment necessary to conduct the duties of the bill; except that, if the central filing officer fails to do so by January 1, 2000, the bill authorizes the Central Information System Board to do so on the behalf of the central filing officer, with or without the central filing officer's consent.

Central information system (Article 9.3 of Title 4, proposed). The bill changes the name of the Central Indexing System Board to the Central Information System Board, and revises the powers and duties of the board. The bill changes the name of the central indexing system to the central information system and requires the central filing officer to implement and administer the central information system under the supervision of the board.

The bill changes the name of the Central Indexing System Cash Fund to the Central Information System Cash Fund. Revenues collected by the central filing officer from the operation of the central information system are to be credited to the fund. Revenues credited to the cash fund are subject to annual appropriation by the General Assembly to the Central Information System Board. The board may allocate certain revenues to governmental agencies that provide database information to the central information system for public access purposes.

The bill repeals the requirement for a certain portion of fee revenues deposited to the Central Indexing System Cash Fund to be credited to the County Clerk's Technology Fund. The bill requires any moneys remaining in the technology fund as of December 31, 1999, and any equipment or property purchased with moneys from the technology fund be distributed directly to the counties.

Central filing of effective financing statements (Article 9.5 of Title 4, proposed). The amended bill revises certain provisions governing the central filing system adopted for security interests relating to farm products. The amended bill requires the Central Information System Board to operate a system to file effective financing statements with the central filing officer. The bill repeals certain authority and duties of the board and the county clerk and recorder, and transfers that authority and those duties to the central filing officer. The amended bill retains the board's authority under current law to adopt rules and regulations, and to contract with public or private parties to perform some or all of the duties of the board.

The bill requires the board to apply to the United States Secretary of Agriculture by July 1, 1999, for certification that the central filing officer and the central filing system continue to comply with the requirements of the federal "Food Security Act of 1985".

Conforming amendments. The remaining provisions of the amended bill make conforming amendments to related statutes.

Appropriations. The amended bill makes an unspecified appropriation from the Central Filing Office Cash Fund to the Department of State for FY 1999-2000.

Current law. Under current law, the Central Indexing System generated fee revenue to the Central Indexing System Cash Fund of approximately $2.6 million during FY 1995-96 and $3.2 million during FY 1996-97. The fund balance as of June 30, 1998, was approximately $2.2 million. The fund balance for June 30, 1999 is estimated to be approximately $3.1 million. Current estimates for FY 1999-2000 indicate fee revenue will be approximately $3.9 million and operating expenditures will be approximately $3.4 million. As a result, the Central Indexing System Cash Fund balance will be approximately $3.35 million on January 1, 2000.

Additionally, the Secretary of State estimates that cash fee revenue to the Secretary of State Cash Fund will be approximately $735,000 during FY 1998-99 and FY 1999-2000. These fees are collected by the Secretary of State for UCC filings, searches, and copies. In summary, the total amount of cash fees to be generated under current law during FY 1999-2000 by the Secretary of State and the county clerks and recorders is estimated to be approximately $4.635 million.

Proposed law. This amended bill establishes the central filing office in the Office of the Secretary of State to consolidate security interest filing and record maintenance functions currently being conducted by the Secretary of State and the 63 offices of county clerks and recorders. This amended bill authorizes the central filing officer to charge fees for filing and certifying those documents. The bill creates the Central Filing Office Cash Fund and requires those fees to be deposited to that fund starting January 1, 2000. The department estimates annual fee revenue to the cash fund will be $900,000 for FY 1999-2000 (January through June, 2000) and $1,800,000 for FY 2000-01 based upon 120,000 annual UCC filings at a fee rate of $15 per filing.

The bill also changes the name of the Central Indexing System Cash Fund to the Central Information System Cash Fund, effective January 1, 2000. Revenues collected by the central filing officer from the operation of the central information system are to be credited to the Central Information System Cash Fund.

The amount of cash fee revenues to these funds is based upon the following assumptions:

• that, per current law and fee rates, revenue collected by the Secretary of State and the county clerks and recorders will be deposited to the Central Indexing System Cash Fund through December 31, 1999;

• that for the period January to June, 2000, the central filing office will perform approximately 60,000 filings at a fee of $15 per filing;

• that for FY 2000-01, the central filing office will perform 120,000 filings at a fee of $15 per filing; and

• that the central filing office will collect fees for performing information searches and making informational documents and copies starting January 1, 2000.

Table 1 provides a comparison of the estimated amount of fees to be collected under current law and per the provisions of this bill.

Summary. In summary, the provisions of this bill will reduce state cash fund revenue by $1,210,183 for FY 1999-2000 and by $2,559,724 for FY 2000-01.

Note: As a result of this bill, the Central Indexing System Cash Fund may have an unencumbered balance of approximately $4.3 million on January 1, 2000. Under current law, that amount may have been transferred to the County Clerk's Technology Fund. However, this bill repeals those provisions and is silent on the disposition of that fund balance.

For FY 1998-99, the Secretary of State was appropriated $3,364,196 and 2.0 FTE Central Indexing System Cash Fund, and $31,353 and 1.0 FTE Secretary of State Cash Fund, for a total of $3,395,550 and 3.0 FTE to administer the central indexing system and to record Uniform Commercial Code (UCC) filings into the system. Of this amount, approximately $1.08 million is budgeted for contracted services, $386,000 is budgeted for payments to the Department of Revenue Division of Information Technology, and $1.6 million is budgeted for research and development.

During FY 1997-98, a total of 201,510 filings were recorded in the central indexing system. Of the total, 102,084 were filed by the Secretary of State and 99,426 were filed by the 63 county offices. The Secretary of State's office estimates the average number of annual filings will be approximately 120,000 by January 1, 2000.

The amount of cash fund expenditures to support the provisions of this amended bill is based upon the following assumptions:

• that the Secretary of State and the county clerks and recorders will continue to function per current law through December 31, 1999;

• that the central filing office will require funding from the Central Filing Office Cash Fund and the Central Information System Cash Fund starting January 1, 2000;

• that the Office of the Secretary of State will require additional computer programming contracted services for one year starting July 1999 to implement the provisions of the bill; and

• that the Office of the Secretary of State will administer all provisions of the amended bill by utilizing existing personal services and contracted services.

Table 2 provides a summary of the Department of State's annual cash fund expenditures to implement and administer the provisions of the bill.

Summary. In summary, the provisions of this bill will reduce state cash fund expenditures by $1,655,376 for FY 1999-2000 and by $1,796,816 for FY 2000-01.

Pursuant to the Joint Budget Committee’s budget policies, the following expenditures have not been included in this fiscal note:

The Secretary of State retains all filing fees, except for $3 of each fee which is transferred to the County Clerk's Technology Fund for distribution to the 63 counties. According to the State Auditor, the accumulated fund revenues for FY 1995-96 and FY 1996-97 were $372,000. The Central Indexing System Board authorized distribution of the full amount to the 63 counties during FY 1997-98.

The bill requires that all equipment and property purchased with moneys from the County Clerk's Technology Fund become the property of the respective counties in which the property exists. Any unexpended moneys in the fund as of January 1, 2000, are to be distributed directly to each county clerk in an amount equal to the allocation determined by the executive director and the board.

The 63 offices of the county clerks and recorders currently conduct commercial lien data filing and searching functions. During FY 1997-98, approximately 99,426 central indexing system filings were processed by county offices. Those offices are authorized to collect fees and surcharges for filings, data searches, and other related services.

This bill removes the offices of county clerks and recorders from the administration of the central indexing system. Therefore, counties will no longer generate central indexing system revenue or incur administrative expenditures effective January 1, 2000.

This fiscal note would imply the following appropriations would be required by the Office of the Secretary of State for FY 1999-2000 to administer the provisions of this amended bill:

Of these amounts, the Department of Law would require a cash fund exempt spending authority of $4,626.

Table 1 Fund Revenue	FY 1999-2000	FY 1999-2000		FY 2000-01
Table 1 Fund Revenue	Current Law	Proposed Law Jul to Dec, 1999	Proposed Law Jan to Jun, 2000	Proposed Law
Central Indexing System Cash Fund	$3,900,000	$1,950,000	$0	$0
Secretary of State Cash Fund	735,000	367,500	0	0
Central Filing Office Cash Fund	0	0	900,000	1,800,000
Central Information System Cash Fund	0	0	207,317	275,726
Subtotal	$4,635,000	$2,317,500	$1,107,317	$2,075,276
Total	$4,635,000	$3,424,817		$2,075,276

Table 2 - Secretary of State Central Filing Office and Central Information System Expenditures
	FY 1999-2000 Jul to Dec, 1999	FY 1999-2000 Jan to Jun, 2000	FY 2000/2001
Personal Services Project Mgr Adm Asst III Subtotal PERA/Medicare Total	0.5 FTE - $39,366 1.0 FTE - 24,744 64,110 8,238 1.5 FTE - $72,348	0.5 FTE - $39,366 1.0 FTE - 24,744 64,110 8,238 1.5 FTE - $72,348	1.0 FTE - $78,732 2.0 FTE - 49,488 128,220 16,476 3.0 FTE - $144,696
Programming Services	70,720	70,720	0
Contracted Services	678,706	678,706	1,357,412
Operating Expenses	46,000	46,000	92,000
Legal Expenses	2,313	2,313	4,626
Non-recurring Expenses	0	0	0
Total Expenses	1.5 FTE - $870,087	1.5 FTE - $870,087	3.0 FTE - $1,598,734
Central Indexing System Cash Fund	$749,426	$0	$0
Secretary of State Cash Fund	1.5 FTE - $120,661	$0	$0
Central Filing Office Cash Fund	$0	1.5 FTE - $120,661	3.0 FTE - $241,322
Central Information System Cash Fund	$0	$749,426	$1,357,412