States Continue to Use One-Time Tricks to Increase Revenue
Earlier, we looked at a Washington State proposal to increase revenue by selling unclaimed securities upon receipt (instead of waiting at least three years, as under prior law). As we mentioned at the time, this procedure could wind up being detrimental to the owners of unclaimed property — given the flux in the financial markets at any given time, it is quite possible that the securities will be worth more in 3 years. Of course, the state is not following this procedure to protect holders, it is doing so to raise revenue. On that score, it has been successful. According to PubliCola.com, this measure has increased revenue by some $51 million. The News Tribune posted a “Twitter Version” of the Washington State Legislature’s revenue forecast meeting which notes that, during the meeting it was noted that “[m]ost of $96 m increase in [state] revenue is non-economic, due to December law regarding when unclaimed property can be sold (HB 2169).”
In the same vein, a few months ago Michigan overhauled its unclaimed property act by reducing the dormancy period for most property types from 5 years to 3 years. According to a report concerning the legislation from the Michigan House Fiscal Agency, the shortening of the dormancy periods was intended to increase state revenue by more than $160 million in the year of enactment. New York used a similar gambit in an attempt to pass a balanced budget.
The problem with these methods is that they are one-time fixes that are neither “real” nor sustainable. For example, the shortening of dormancy periods (for example, from 5 years to 3) does not really result in the state bringing in more money over the long haul — it simply brings in 3 years’ worth of property in the first year after enactment. In years 2 and 3 after the proposal, when the state is again only bringing in a single year worth of property, collections revert to normal. Similarly, by immediately liquidating securities and putting the resulting funds in the state treasury, Washington is not actually collecting more money, it is simply liquidating it faster — potentially at the expense of the rightful owners who may ultimately want to collect their securities from the state. Thus, these legislative changes are not improvements in any way, they are simply a way to delay the problem for a year or two.
States have often shortened dormancy periods in an effort to pad budgets and increase revenue. Of course, decades ago, when dormancy periods for many items were 15 years, the unclaimed property laws only applied to a narrow set of property types, and unclaimed property audits were rare, states had a number of weapons at their disposal to use unclaimed property laws to (temporarily) increase revenue. Today, with dormancy periods shortening to only a few years, states trying to apply unclaimed property laws to ever more contingent and ephemeral “property” types, and unclaimed property audits increasing in frequency and scope, the states’ quiver of revenue tricks is emptying.