Pennsylvania Shortens Dormancy Periods
On July 10, Pennsylvania House Bill 278 was approved by the Governor. The 112 page budget bill makes a number of legislative changes, but for purposes of this blog the most notable is the reduction in dormancy period for most property types from 5 years to 3 years.
What’s behind the Pennsylvania push for shorter dormancy periods? As usual, it appears to be a response to a nearly $1 billion budget deficit. According to a Fiscal Study by the Pennsylvania House Appropriations Committee, “it is estimated that the reduction in holding period for the newly identified classes of unclaimed property will generate $150,000,000 in revenue for the General Fund in 2014.”
There are a number of problems, however, with this statement:
- First, with the exception of a clarification regarding IRA accounts, the new legislation does not contain any “newly identified classes of property”; rather, it simply shortens the dormancy period for the classes of property already covered by the Act.
- Second, if the legislative purpose of state unclaimed property laws is to effect only a change in “custody” of unclaimed property (i.e., from the holder corporation to the state) allegedly because the state is a better guardian of the funds, than the characterization of these amounts as Commonwealth “revenue” is misleading. Assuming that the Commonwealth will make all reasonable efforts to reunite its citizens with their unclaimed money (an assumption we won’t challenge for purposes of this post) than the “revenue” received by the Commonwealth is temporary at best.
- Finally, it should be reasonably clear that the shortening of dormancy period itself does not “generate” any unclaimed property. Instead, it essentially requires holders to triple the years reported next April 15. That is, instead of reporting all property that is 5 years old, each will report all property that is 5 years old, 4 years old and 3 years old. The upshot is that the $150 million increase cited is a one time only event, due not to any change in the structure of the Act, but simply because holders next year will be required to essentially report three years worth of property.
This is yet another example of dormancy periods being modified to produce a short-term, artificial increase in governmental revenue.
There are a few other notable provisions of the law that we will get to later in the week.