Surety bond requirements intended to protect environments near Pennsylvania coal mines have been producing the very problems they attempt to prevent.

Because coal mine operators in Pennsylvania often have trouble funding the expensive surety bonds required for mine reclamation, they can’t get approved to work on reclaimed sites. As a result, more than 100 abandoned mine discharge sites can be found across the state.

Before surface mining can begin on an existing site, the mine operator must file a Pennsylvania surety bond with the Department of Environmental Protection. The department determines an individual bond amount based on the mine operator’s estimated cost of fulfilling the project. The bond amount must cover the full project amount in case it should be left unfinished, which means the surety bond costs owners pay can be substantial.

The bonds provide a financial guarantee that coal mining sites will be properly reclaimed when the project is finished. However, when mine site operators cannot get the bonds required for mine reclamations, the sites cannot be reclaimed, and taxpayers are left footing the bill on unclaimed mining sites.

To counter the problem, lawmakers in Pennsylvania are considering legislation that would make the required surety bonds more accessible to mine operators. According to the Republican Herald out of Pennsylvania, “Part of House Bill 1813 is also a permanent Pennsylvania Re-Mining Financial Guarantees program that provides affordable bonding coverage as an incentive to encourage operators to re-enter and re-mine abandoned mines sites around the state.”

Simply put, passage of Pennsylvania House Bill 1813 would make it easier for the state’s mine operators to get the surety bonds they need.

On January 11, the Pennsylvania House passed the bill by a vote of 193-1. It currently awaits consideration in the Senate.

Before beginning their commissions, new and renewing notaries in Alabama must now file much larger surety bonds than previously required. The change went into effect January 1.

In 2011, Alabama increased the required notary bond amount from $10,000 to $25,000, which is currently the nation’s highest notary bond amount. The reasoning behind the significant increase is to cut down instances of notary misconduct as a part of America’s recent”robo-signing” crisis.

Notary bonds do not protect notaries; rather, they protect consumers from notaries who might commit fraud or other errors. If a notary should make a mistake that’s against the bond’s terms, a claim can be filed against the bond so that consumers have access to financial reparation.

Surety companies have traditionally issued notary bonds quickly and easily without credit checks. With the significant increase in the bond amount, some surety providers review notary bond applicants more closely.

The Florida Legislature doesn’t want to take any risks when it comes to the possibility of licensing new destination resort casinos.

The Seminole Tribe of Florida currently maintains exclusive casino gaming rights in the state. However, passage of Senate Bill 710 would allow up to three unaffiliated operators to build destination resort casinos.

One part of Senate Bill 710 would require casino operators to file a surety bond with the state before being approved for a destination resort license.

The bond would provide a legal guarantee that operators

• make all required payments to the Chief Financial Officer
• keep the licensee’s books and records
• make reports as provided
• conduct limited gaming activities according to law

The bill would also dissolve the Division of Parimutuel Wagering and establish a new Department of Gaming Control in its place. This new department would set the bond’s penal sum based on a casino’s total annual license fees and estimated taxes.

In lieu of a bond, the operator may deposit another means of financial security, including

• a savings certificate
• a certificate of deposit
• an investment certificate
• a letter of credit from a bank, savings bank, credit union or savings and loan association.

The bill also contains a number of other stipulations that would further regulate new destination resort casinos. According to Florida Today,  “The gambling bill likely will be one of the most heavily lobbied issues of the 2012 session.”

On Monday, the Senate Regulated Industries Committee passed the bill, which was introduced to the Senate on Tuesday. The bill could be discussed in the House Business and Consumer Affairs Committee early next week.

Puppy mill owners and other high volume dog breeders in Ohio have the state’s legislators barking at their heels.

In an effort to reduce puppy mill cruelty, Ohio Senate Bill 130 aims to establish higher standards for the state’s dog breeders.

According to The Humane Society, “Ohio is rapidly becoming one of the leading states for puppy mills, the cruel commercial dog breeding operations that mass-produce puppies for sale through pet stores, over the Internet and directly to the public.”

The bill would amend and add sections to licensing requirements and standards of care for dog breeders in Ohio. One of the proposed rules would require high volume breeders to provide evidence of insurance or a surety bond when applying for a license in the state.

Proposed surety bond amounts for high volume breeders included in SB 130 are as follows:

• $5,000 for fewer than 25 adult dogs
• $10,000 26 to 50 adult dogs
• $50,000 for more than 50 adult dogs

If needed, the funds provided by an Ohio dog breeder surety bond would pay for the maintenance and care of dogs that are seized or otherwise impounded from the high volume breeder.

The bill was introduced on March 3, 2011. The bill was assigned to the Agriculture, Environment & Natural Resources Committee, which has yet to make a report. As such, the proposed legislation currently remains in limbo. However, it could resurface now that the 129th general assembly has reconvened.

South Carolina congressman Mick Mulvaney issued the following press release on December 2.

Hanna, Mulvaney Introduce Surety Bond Bill to Safeguard Small Businesses

Bill provides extra protection to construction industry subcontractors, suppliers

Washington, Dec 2— While the nation’s unemployment rate hasn’t dropped in months, one of the hardest hit industries remains the construction trades.

U.S. Representatives Richard Hanna (R-NY) and Mick Mulvaney (R-SC) introduced legislation that will help ease the worry of subcontractors and suppliers about whether or not they will be paid for their services. Hanna serves on the House Small Business Committee with Mulvaney who is chairman of the Contracting and Workforce Subcommittee.

H.R. 3534, the Security in Bonding Act of 2011, will protect small businesses and taxpayers by strengthening the bonding process and removing opportunities for fraud and abuse. The federal government allows contractors to pledge collateral directly to the government in lieu of furnishing corporate surety bonds.

The Security in Bonding Act of 2011 closes a loophole that allowed unscrupulous businesses to offer inadequate assets to back a bond. The lack of oversight on non-corporate sureties has resulted in a number of documented cases where assets pledged to back the bond have been illusory or insufficient.

Among the highlights of the bill:

• Requires non-corporate sureties to pledge specific and secure assets as required from others providing collateral to the federal government
• Requires those assets be held by a government entity, with the ability to accrue interest, to ensure payment can be made in the event they are needed.
• Allows the government to ensure payment of subcontractors and suppliers.

Hanna and Mulvaney say it’s time to close the loophole and protect honest small businesses.

“The Security in Bonding Act will protect the construction industry from bad practices that hurt their bottom line and hinder their ability to grow and create jobs,” Congressman Hanna said. “I spent more than 30 years in the industry and saw first-hand the damage that can occur when inadequate bonding was secured for a project.  It hurts everyone, particularly the small businesses suppliers and subcontractors who provide goods and services — yet risk not being paid for their work.

“This common-sense fix will strengthen the integrity of the bonding process.  The construction industry has been one of the hardest hit sectors since the beginning of the economic downturn.  This legislation provides more certainty and security for small businesses that deserve to get paid for their work.  These companies should focus on how to expand and create jobs — rather than worry about whether or not they will get paid.”

“The inability of government contracting officers to determine the real value of non-corporate security bonds has caused significant harm to small business, subcontractors and suppliers, and taxpayers,” Chairman Mulvaney said. “This legislation will increase transparency and restore the faith of long-overlooked subcontractors and suppliers — who no longer have to fear they will not receive payment to claims they are owed. The Security in Bonding Act will cut down on fraud and abuse in the non-corporate surety market, providing more certainty for the thousands of businesses who contract with the federal government.”

The following information was posted on the Kentucky State Real Appraisers Board website. The state’s Legislative Research Commission reviewed the bond’s terms at an October 27 meeting.

On July 15, 2011 Kentucky Governor Steven L. Beshear signed a Statement of Emergency for administrative regulations 201 KAR 30:310 to collect the AMC Company registration fee, 30:320 require the surety bond for AMC company registration, and 30:330 complete the AMC company registration form.

The Executive Order grants the Kentucky Real Estate Appraisers Board only the authority referenced above, for purposes of beginning the registration of Appraisal Management Companies desiring to do business within the Commonwealth of Kentucky.

All regulations, including those referenced above, must be presented to the Legislative Research Commission
for review, and there must be a hearing before final approval is binding.

The three administrative regulations does grant the Board the authority to immediately begin accepting registration, collect the fee of $3,500, and require acknowledgement of a surety bond secured by each company in the amount of $500,000.

Registration will require the completion of each of the attached forms, and the forms with payment must be
completed and returned to the Kentucky Real Estate Appraisers Board office at the address identified on each form.

Although the statute requires renewal prior to October 1, registration from July 18, 2011 through September 30, 2012 shall not require renewal prior to October 1, 2012.

If anyone has questions, please contact:

Larry Disney
Executive Director
Kentucky Real Estate Appraisers Board
Phone: (859) 623-1658
Email: larry.disney@ky.gov

A lot more goes into developing surety laws than the public might be aware of. Difficulties can arise at any point during the bonding process. The basic flow works like this.

• Legislators use their discretion to write surety bond laws.
• Companies/individuals apply for bonds they’re required to purchase and hope they’re qualified.
• Surety providers decide which applicants to financially back with a bond.

A lot of people don’t realize that when issues arise during the bonding process, they almost always stem from the same place: the surety bond amount. Determining what any given surety bond amount (technically called a “penal sum”) should be is complicated. Recognizing the potential implications involved with setting excessive or insufficient bonding amounts can help legislators, business owners and surety providers alike better understand their roles in the process.

Legislators pass laws that require surety bonds in a certain amount. Sometimes this is done without proper consideration for what amount is in the best interest of the industry versus what’s in the best interest of the consumer. Sometimes the bond’s penal sum might be too low to actually provide adequate consumer protection. Conversely, if the amount is too high, certain individuals might not be able to qualify for the bond and/or pay for its premium.

Herein lies the problem in determining what the most effective bond amount is. The following examples represent the two major concerns with setting surety bond amounts.

Case study: the insufficient freight broker bond amount

The Fighting Fraud in Transportation Act of 2011 proposes the surety bond amount required of freight brokers be increased from just $10,000 to $100,000. The change was contrived because trucking companies continue to go out of business after being unable to collect due payments on brokered loads. These companies are currently unable to collect their due payments by making surety bond claims because the funds have already been depleted from previous claims. Increasing the bond amount from $10,000 to $100,000 would provide an additional financial cushion for such companies and allow them to stay in business.

However, some people have argued that increasing the bonding amount would discriminate against smaller transport companies that wouldn’t be able to afford the much larger bonds. When applicants have bad credit, surety providers typically require them to post collateral for the full bond amount before issuing them a freight broker bond. Continuing this practice with a $100,000 bonding amount would obviously keep some individuals from working in the industry. Supporters of the bill, though, point out that the new restriction would be completely understandable given the increased instances of industry fraud in recent years. To date, the bill is still under review.

Case study: the excessive appraisal management company bond amount

Within the past two years, 10 states have established regulations that mandate appraisal management companies to post surety bonds. Similar to other bonding requirements, these regulations encourage the faithful performance of a company’s obligations. The appraisal management bond amount can be used to benefit claims against the company if necessary, and consumer claims are given priority in recovering the bond.

So far 9 of the 10 states with new appraisal management company bonds have set the required bond amount at $30,000 or less. However, the Kentucky appraisal management bond amount is currently $500,000, which is obviously significantly higher. Such a high bonding amount will likely keep a great deal of appraisal management companies from getting licensed to work in the state. Kentucky’s Legislative Research Commission is scheduled to review the regulation on October 27, which could potentially result in a lower surety bond amount.

How do high surety bond amounts affect applicants?

Although the primary objective of surety bonds is to provide harmed consumers with a guaranteed way to recover losses, this is not the only purpose they serve. They’re also used to keep financially unstable individuals from accessing a profession through which they might harm consumers. As such, surety providers act as a neutral third party that evaluates whether applicants have the financial credentials necessary to maintain a surety bond.

As a general rule, the higher bonding amount is, the stricter the surety is when evaluating whether to write the bond for any applicant. Problems related to the bonding amount emerge again. Some bonds are historically more risky to underwrite, such as telemarketing bonds or contract bonds. Surety providers might decide not to issue risky bonds with high penal sums to applicants that have poor financial credentials such as bankruptcies or unpaid child support.

When all is said and done, establishing any surety bond amount begs the consideration of three key questions that continue to plague the surety industry.

• How do we set bonding amounts that don’t keep out too many individuals while still providing adequate financial coverage to consumers?
• How can we reinforce the integrity of an industry while possibly setting expectations that are too high for business owners to meet?
• What’s more valuable, keeping a financially unstable business from potentially taking advantage of their customers or keeping small businesses out of the market because they can’t qualify/pay for bonds with large penal sums?

With all of these considerations coming into play now more than ever, surety bond regulations in a number of industries could see an overhaul within the next few years.

Back in July, Governor Steven L. Beshear signed Kentucky Administrative Regulations 201 30:320, an emergency administrative regulation that required the state’s appraisal management companies to file a $500,000 surety bond with the Kentucky Real Estate Appraisers Board. The regulation applies to all appraisal management companies, which had until October 1 to meet the state’s registration deadline.

However, the regulation is still subject to change as the Legislative Research Commission is scheduled to review it later this month. Although it was enacted on July 15, the commission must officially approve the emergency administration regulation at a hearing before it can become legally binding. The review will be conducted at the commission’s board meeting on October 27.

What do appraisal management companies do?

Appraisal management companies act as intermediaries between appraisers and lenders. Their core function is to manage groups of appraisers that handle orders from various lending clients. The collaboration done by appraisal management companies eliminates a significant amount of both work and skepticism for appraisers, brokers and lenders alike. However, appraisal management companies charge fees for doing so.

As such, surety bond requirements provide a financial guarantee that they fulfill their duties according to state laws that regulate the industry. Appraisal management bonds are used to reimburse any person who is damaged by companies that fail to operate according to state law.

Is the $500,000 surety bond requirement reasonable?

Nine other states currently enforce surety bond regulations for appraisal management companies, but the next highest bond amount required to-date is $25,000. Kentucky’s $500,000 surety bond amount appears excessive when juxtaposed with the bond amounts required by other states.

Appraisal management companies were required to be fully licensed, registered and bonded by October 1 if they wanted to continue working in Kentucky. The board’s upcoming review might be too late for companies that weren’t able to afford the premium for a $500,000 surety bond.

New York’s natural gas drillers might have to drill a little deeper into their pocketbooks to pay for surety bond premiums.

New York state comptroller Thomas DiNapoli proposed new legislation, known as the Natural Gas Damage Compensation Fund (Comptroller’s Program Bill # 20), on August 9. If passed, the law would apply to current drilling operations and the high-volume hydraulic fracturing the state is now considering. Among other stipulations, the proposed program would require oil and natural gas companies to post surety bonds to cover any shortfall between fund resources and remediation costs.

In an official statement, DiNapoli explained the reasoning behind the legislation:

“Preventing accidents and contamination should always be our first priority.  But it’s impossible to eliminate all risk.  If an accident does occur, the State needs to be ready with a rapid response and a reliable mechanism to hold polluters responsible.  New Yorkers should not have to bear the burden from contaminations that damage their air, water and property.  Whatever final decisions are made regarding high-volume hydraulic fracturing, this program and new fund will provide the necessary resources to respond to any accidents.”

The text of the bill explains that an owner/operator’s surety bond and/or other means of financial protection will be used as the first means of reparation when the department steps in to remove contamination or contact an outside service to remove the contamination. The department will only draw from the program’s fund if the surety bond amount is not enough to cover all cleanup costs.

Though natural gas contamination is already illegal in New York, a New York Times article explains the current situation in the state.

“Private citizens whose property has been tainted from drilling must currently rely on the courts to seek compensation.”

The program’s new surety bond system would no longer require harmed parties go to court to prove environmental damages before clean-up could begin.

The Georgia Department of Driver Services released the following information on July 25.

From the week starting July 25, the DDS Regulatory Compliance Division will launch an outreach campaign to inform the over 300 driver training programs throughout the state of statutory changes to their surety bond requirements, which become effective January 1, 2012.

Section 20 of House Bill 269, which was enacted during the 2011-2012 Legislative Session of the Georgia General Assembly, amended O.C.G.A. §43-13-4(4) by increasing the surety bond requirements for driver training schools certified by the DDS from $2,500.00 per school location to $10,000.00 per school location.

It is important to note that this law change not only affects driver training schools that apply to become certified on or after January 1, 2012, but also those programs that are currently certified.

To avoid disruption of services, the DDS strongly encourages that driver training schools presently certified by the DDS begin working with their surety provider now to make the necessary changes to their bond prior to January 1, 2012.

The DDS Regulatory Compliance will assist with any questions schools may have leading up to the January 1, 2012 effective date. Staff members can be reached by phone at 678-413-8745 or by e-mail at reginfo@dds.ga.gov.