Fiscal Note & Local Impact Statement

126 th General Assembly of Ohio

Ohio Legislative Service Commission

77 South High Street, 9th Floor, Columbus, OH 43215-6136 ˛ Phone: (614) 466-3615

˛ Internet Web Site: http://www.lsc.state.oh.us/

BILL:

Am. Sub. H.B. 150

DATE:

May 25, 2006

STATUS:

As Passed by the Senate

SPONSOR:

Rep. Gibbs

LOCAL IMPACT STATEMENT REQUIRED:

No —

Minimal cost

 


CONTENTS:

Imposes new requirements on licensed junk yard owners, requires scrap metal processors to maintain specified records regarding canceled motor vehicle titles, and adds definitions to the Real Estate Brokers Law and expands the duties of licensees

 

State Fiscal Highlights

 

State FUND

FY 2007

FY 2008

FUTURE YEARS

General Revenue Fund

     Revenues

Potential minimal gain from state court costs

Potential minimal gain from state court costs

Potential minimal gain from state court costs

     Expenditures

- 0 -

- 0 -

- 0 -

Victims of Crime/Reparation Fund (Fund 402)

     Revenues

Potential minimal gain from state court costs

Potential minimal gain from state court costs

Potential minimal gain from state court costs

     Expenditures

- 0 -

- 0 -

- 0 -

Real Estate Recovery Fund (Fund 548) – Department of Commerce

     Revenues

Potential gain

Potential gain

Potential gain

     Expenditures

- 0 -

- 0 -

- 0 -

Real Estate Fund (Fund 549) – Department of Commerce

     Revenues

- 0 -

- 0 -

- 0 -

     Expenditures

Potential increase or decrease

Potential increase or decrease

Potential increase or decrease

Note:  The state fiscal year is July 1 through June 30.  For example, FY 2006 is July 1, 2005 – June 30, 2006.

·        New penalty for licensed Junk Yard operators.  This bill creates a new penalty.  Namely, no licensed junk yard operator may accept junk for future resale during a suspension of the operator's license.  Whoever violates this prohibition is guilty of a misdemeanor of the fourth degree.  As a result, it is possible that some persons, who may not have been prosecuted and convicted under existing law, will be prosecuted and convicted.  This creates the possibility that the state may gain locally collected court cost revenues that are deposited to the credit of the GRF and the Victims of Crime/Reparations Fund (Fund 402).  It is uncertain how many cases will result from the penalty created by the bill, but it appears that the number and any associated revenue gain are likely to be minimal.

·        Real Estate Recovery Fund Revenue.  The bill prohibits a real estate broker who is representing a seller under an exclusive right to sell or lease listing agreement from misleading the public to believe that the seller is not represented by a real estate broker.  Current law provides for the Division of Real Estate to initiate disciplinary action or serve a citation upon the licensee for false advertisement violations.  The citation also must contain a fine of at least $200 per violation, but not more than $2,500 for the whole citation.  If the Division initiates disciplinary action, upon administrative hearings, the Real Estate Commission may also sanction violators through, among other means, a fine of not more than $2,500 per violation credited to the Real Estate Recovery Fund (Fund 548).  As such, the Real Estate Recovery Fund (Fund 548) may realize a gain in revenue depending on the number of citations served and sanctions issued by the Real Estate Commission.

·        Real Estate Disciplinary Actions and Administrative Hearings.  As the bill would create more opportunities for violations, it is possible that the Real Estate Fund (Fund 549) may experience an additional burden on existing resources to initiate disciplinary actions and conduct administrative hearings to adjudicate alleged violations of the law by licensees.  However, since the bill clarifies exactly what duties a broker or salesperson is to perform and provides a "waiver of duties statement" to ensure the consumer is aware of the services he or she will be receiving, it may be that the Division of Real Estate and Professional Licensing receives fewer complaints and thus, performs fewer investigations and administrative hearings.  Therefore, it may be that a decrease in expenses for the Real Estate Fund (Fund 549) occurs, the magnitude of which is uncertain.

Local Fiscal Highlights

 

LOCAL GOVERNMENT

FY 2006

FY 2007

FUTURE YEARS

Counties, municipalities, and townships

     Revenues

Potential minimal increase in revenue from fines and taxes to counties and municipalities

Potential minimal increase in revenue from fines and taxes to counties and municipalities

Potential minimal increase in revenue from fines and taxes to counties and municipalities

     Expenditures

Potential minimal decrease due to more efficient enforcement; potential minimal increase or decrease in adjudication and administrative costs

Potential minimal decrease due to more efficient enforcement; potential minimal increase or decrease in adjudication and administrative costs

Potential minimal decrease due to more efficient enforcement; potential minimal increase or decrease in adjudication and administrative costs

Note:  For most local governments, the fiscal year is the calendar year.  The school district fiscal year is July 1 through June 30.

 

·        Suspensions for operators out of compliance.  This bill requires the chief executive officer of a municipality or a county auditor to suspend the license of a junk yard owner for 90 days if the owner, after receiving a notice (under current law) to make changes and improvements necessary to conform to the Secondhand Dealers and Junk Yards Law, fails to make the required changes or improvements within the 60-day period specified in current law.  This provision may result in a negligible increase in administrative costs to carry out the suspensions.

·        License revocation and increased penalty taxes.  If the owner has not made the required changes prior to the end of the suspension, law enforcement personnel may make another inspection.  If the required changes or improvements still have not been made, the chief executive officer of the municipality or the county auditor must revoke the owner's license.  In addition to the revocation, the bill increases from $20 to $100 the tax that a delinquent owner is subject to for each day after revocation that the violation persists.  This provision may increase administrative expenses for counties and municipalities negligibly for any additional inspections that may need to be made.  However, revenue to the counties and municipalities where the junk yards are located may also increase slightly from the increased daily tax amount on the owner.

·        Local criminal justice expenditures.  Because this bill creates a new penalty, the bill could increase local criminal justice expenditures related to investigating, prosecuting, adjudicating, and sanctioning offenders who have violated the prohibition against licensees accepting junk for future resale during the 90 days in which a junk yard owner's license is suspended.  Any appeals to county courts of common pleas of license suspensions may further add to county adjudication costs.  However, court cost and fine revenue may alleviate any additional local criminal justice expenditures related to this bill.

·        Additionally, the new enforcement methods of license suspension and revocation may result in more efficiently processed cases, which could also minimally lower the costs of enforcement for counties and municipalities.  Even so, the number of offenders affected would most likely be small, resulting in only minimal county or municipal justice system savings.

·        The adjudication and administrative costs or any new revenues as a result of this bill could vary widely depending on the size of the county and the number of junk yard's and secondhand dealers doing business in those counties.



 

Detailed Fiscal Analysis

 

State fiscal effects

 

Junk Yards

 

            Current law requires county sheriffs to enforce permits issued to secondhand dealers and junk yards through the inspection of these facilities and the response to complaints.  Currently, a violation of Chapter 4737. of the Revised Code would result in a civil action and a fine between $25 and $1,000 (please see the LSC Bill Analysis for details regarding the provisions in the Secondhand Dealers and Junk Yards Law).  The Buckeye State Sheriffs Association estimated that there are approximately three junk yards per county.  As such, it appears that the number of offenders of the Secondhand Dealers and Junk Yards Law that might be prosecuted as a result of this bill will not be very large.

 

            This bill adds additional enforcement methods by which violators of the Secondhand Dealers and Junk Yards Law may be dealt with.  These new methods include the suspension of a locally issued license for a noncompliant junk yard owner and subsequent revocation of the license if the remedies sought by local law enforcement are not provided.  This bill also includes a new penalty for violations of the law governing junk yards and secondhand dealers.  Specifically, no licensee may accept junk for future resale during a suspension of the junk yard license.  Whoever violates this prohibition is guilty of a misdemeanor of the fourth degree, which carries a maximum sentence of 30 days and a maximum fine of $250.  This may minimally increase the state court cost revenue given to the GRF ($15 per case) and the Victims of Crime Reparation Fund ($9 per case).  However, it is not certain how many more individuals would be prosecuted as a result of the bill.  There would appear to be no new potential incarceration costs for the state as persons incarcerated as a result of convictions on misdemeanors of state statutes are typically housed in county jails. 

 

Real Estate Law Changes

 

Background

 

Ohio law, in Chapter 4735. of the Revised Code, regulates real estate brokers and sales persons.  With certain exceptions for out-of-state entities, no person, partnership, association, limited liability or partnership, or corporation may act as a real estate broker or real estate salesperson, without a license.  The types of agency relationships currently permitted in a real estate transaction are limited to:  (1) an agency relationship between the licensee and the seller, (2) an agency relationship between the licensee and the purchaser, (3) a dual agency relationship between the licensee and both the seller and the purchaser, and (4) a sub-agency relationship between the licensee and the client of another licensee.  Furthermore, current law dictates that certain provisions must be included in an agency agreement and that the licensee must furnish a copy of any written agency agreement to a client in a timely manner.  This bill would ensure that consumers are fully aware of the services they will receive when contracting with real estate brokerages to sell their house.

 

Definitions

 

The bill creates definitions for three distinct types of agency agreements:  exclusive right to sell or lease listing agreements, exclusive agency agreements, and exclusive purchaser agency agreements.  These agreements grant the broker the exclusive right to represent the seller or purchaser (depending on the agreement) in the purchase or lease of property and provide that the broker will be compensated in accordance with the terms in the listing agreement or under other certain circumstances. 

 

Advertising

 

Under current law, any licensed real estate broker or salesperson who advertises to buy, sell, exchange, or lease real estate must be identified in the advertisement by name and indicate that the licensee is a real estate broker or real estate salesperson.  The bill prohibits a real estate broker who is representing a seller under an exclusive right to sell or lease listing agreement from advertising property to the public as "for sale by owner" or otherwise mislead the public to believe that the seller is not represented by a real estate broker.  The Department of Commerce is uncertain how prevalent this practice is across the state.  Thus, the exact number of additional disciplinary actions that may be initiated is difficult to predict.

 

As noted above, current law provides for the Division of Real Estate to initiate disciplinary action or serve a citation upon the licensee for false advertisement violations.  The citation also must contain a fine of $200 per violation, not to be more than $2,500 for the whole citation.  All fines collected from these citations are deposited into the Real Estate Recovery Fund (Fund 548).  Therefore, the bill creates more opportunities for violations.  While the bill may result in a gain in revenue to the Real Estate Recovery Fund (Fund 548), if the Division chooses to initiate disciplinary action, there may be an additional burden on the Real Estate Fund (Fund 549), the main operating fund for the Division of Real Estate and Professional Licensing, to conduct investigations and administrative hearings to adjudicate alleged violations of the law by licensees.  The Department stated that the Division of Real Estate does not require a deposit when complaints are filed to cover investigation costs.  Also, since the bill does not include an increase to the Division's fee structure, the Division would need to absorb the associated additional enforcement costs within existing resources.

 

Upon administrative hearings, the Real Estate Commission may sanction violators through license revocation, a fine of not more than $2,500 per violation (credited to the Real Estate Recovery Fund), a public reprimand, or completion of additional continuing education coursework. 

 

Waiver of Duties

 

Under current law, a real estate broker or salesperson must meet certain general fiduciary duties on behalf of a client.  A broker or salesperson is also obligated to perform certain specific duties when representing a seller or a purchaser.  The bill directs the Superintendent of Real Estate, with the approval of the Ohio Real Estate Commission, to establish, by rule, a "waiver of duties statement."  The client may sign a waiver of duties statement to relieve the licensed broker or salesperson from meeting certain specific duty requirements.  However, a client may not waive the general fiduciary duties required of a licensee. 

 

The bill requires the waiver of duties statement to contain a list of the general fiduciary duties required of all licensees, a list of those duties a licensee owes to either a seller or buyer, which must be set forth in a manner that allows for the parties to indicate which of those duties are being waived, a statement that no other licensee is required to perform the waived duty on behalf of the client, a statement that legal counsel or other professionals may be hired by the client, and a place for the client and licensee to sign and date the statement.  There would likely only be negligible costs for the Division of Real Estate to develop the waiver of duties statement.

 

Duties of Licensee Representing a Seller or Purchaser

 

Under current law, in representing a seller in an agency relationship, a real estate broker or salesperson must seek a purchase offer at a price and with terms acceptable to the seller, present any purchase offer to the seller in a timely manner, and provide the seller with a copy of any agency disclosure form signed by the purchaser.  The bill retains the first two duties described above, drops the requirement regarding any agency disclosure form, and adds various duties. 

 

Under the bill, the broker or salesperson must, within the scope of knowledge required for licensure, answer the seller's questions and provide information to the seller regarding any offers or counteroffers, assist the seller in developing, communicating, and presenting offers or counteroffers, and, within the scope of knowledge required for licensure, answer the seller's questions regarding the steps the seller must take to fulfill the terms of any contract.  The duties of real estate brokers and salespersons representing purchasers are similar to those above for sellers.  Likewise, the bill generally adds the same duties that would be required of brokers or salespersons representing sellers to brokers or salespersons representing purchasers.

 

As this bill would clarify exactly what duties a broker or salesperson is to perform and provides a "waiver of duties statement" to ensure the consumer is aware of the services he or she will be receiving, it may be that the Division of Real Estate and Professional Licensing receives fewer complaints and thus, performs fewer investigations and administrative hearings.  The magnitude of any such savings is uncertain.

 

Local fiscal effects

 

            License suspension and increased penalty

 

Current law requires semiannual inspections of junk yards by local law enforcement personnel.  When these inspections reveal that the junk yard is not being managed in accordance with the requirements of the Secondhand Dealers and Junk Yards Law, the applicable local law enforcement personnel must immediately notify the junk yard owner of the particular deficiencies.  The notice is sent to the owner by registered mail and describes the areas that are not in conformance with the law.  A copy of the notice is also sent to the local officials in the area in which the junk yard is located.  Current law also requires the junk yard owner to complete the modifications or improvements to the junk yard in 60 days.  At the end of the 60-day period, the local law enforcement personnel must make a further inspection and if the changes have not been made, the owner of the junk yard is subject to a tax of $20 each day the violation persists. 

 

This bill requires the particular chief executive officer of the municipality or county auditor, after receiving notice of noncompliance along with an order to suspend the owner’s license from local law enforcement personnel, to suspend the license of a junk yard owner for 90 days if the owner, after receiving the notice under current law to make the necessary changes and improvements, fails to make the required changes or improvements within the 60-day period specified in current law.  During a license suspension, the bill requires that the owner make the necessary changes or improvements to conform the junk yard to the requirements of the law.  An owner whose license is suspended may appeal the suspension to the county court of common pleas where the political subdivision that issued the order is located in accordance with Chapter 2506. of the Revised Code, which provides for appeals from orders of administrative officers and agencies.  Such appeals may also minimally add to county adjudication costs.

 

The bill would allow, at any time during the 90-day suspension period, the junk yard owner to apply to the appropriate local law enforcement personnel to have the junk yard inspected.  If the applicable local law enforcement personnel determine that the junk yard has met the requirements of the law, local law enforcement must send notice of compliance along with an order to remove the suspension and reinstate the owner’s license to the chief executive officer of the municipality or the county auditor.  After the notice of compliance and reinstatement order is received, the chief executive officer or county auditor must remove the suspension and reinstate the owner's license.

 

If the junk yard owner's license has not been reinstated before the end of the suspension, local law enforcement personnel are to make another inspection.  If the required changes or improvements still have not been made, the chief executive officer of the municipality or the county auditor, after receiving another notice of noncompliance and a license revocation order from local law enforcement personnel, must revoke the owner's license.  In addition to the revocation, the bill increases the tax that a delinquent owner is subject to for each day after revocation that the violation persists from $20 to $100.  This provision may increase costs for counties and municipalities negligibly for any additional administrative costs to carry out any license suspensions and any additional inspections that may need to be made.  However, revenue to the counties and municipalities the junk yard is located in may also increase slightly from the increased daily tax amount on the junk yard owner if such situations occur.

 

Scrap metal processor record keeping

 

Current law requires a scrap metal processor who receives a motor vehicle from an owner to mark the certificate of title for the vehicle “to be cancelled,” keep a record of the cancellation, and forward the certificate to the appropriate clerk of the court.  The clerk is then to notify the registrar of motor vehicles of such cancellation.  The bill would require the scrap metal processor to keep a record of the cancellation for three years following the creation of the record and to make such records available to any requesting law enforcement agency.  This provision appears to have no direct fiscal effect.

 

New penalty

 

As noted above, this bill creates a new penalty.  That is, no licensee may accept junk for future resale during the license's suspension.  Whoever violates this prohibition is guilty of a misdemeanor of the fourth degree, which carries a maximum sentence of 30 days and a maximum fine of $250.  As a result, some persons, who may not have been successfully prosecuted under existing law, could be prosecuted and sanctioned under this new penalty provision.  This could in turn increase local criminal justice expenditures related to investigating, prosecuting, adjudicating, and sanctioning offenders who have violated the Secondhand Dealers and Junk Yards Law. 

 

Any individuals charged with a first offense would most likely not be incarcerated since fourth degree misdemeanors typically do not result in jail stays, according to LSC fiscal analysts familiar with Ohio's criminal justice system.  However, the severity of the sentence in a case involving a misdemeanor is entirely up to the judge's discretion, as several factors, such as available bed space in the jail, severity of the crime, the presence of a repeat offender, and the judge's attitudes about the crime in question, can influence the decision.

 

Alternatively, the additional enforcement methods of license suspension and revocation may result in more efficiently processed cases, which could also minimally lower the costs of enforcement for counties and municipalities.  Even so, since the number of offenders affected would most likely be small, any county or municipal justice system savings are likely to be minimal.

 

Considering these factors, any increase in the annual operating costs of any given county or municipal criminal justice system seems unlikely to exceed minimal and could be offset or outweighed through efficiency gains in prosecuting and adjudicating these cases, the increased tax penalty revenue on a delinquent junk yard owner, and court cost and fine revenue.  However, it is also important to note that the adjudication and administrative costs or any new revenues as a result of this bill could vary depending on the size of the county and the number of junk yard's and secondhand dealers doing business in those counties.

 

 

 

LSC fiscal staff:  Jason Phillips, Budget Analyst

 

HB0150SP/lb