BILL ANALYSIS Ó SB 112 Page 1 Date of Hearing: June 15, 2011 ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT Cameron Smyth, Chair SB 112 (Liu) - As Amended: March 7, 2011 SENATE VOTE : 40-0 SUBJECT : State mandates: claiming instructions. SUMMARY : Requires any amendment of the parameters and guidelines boilerplate language for purposes of state reimbursement of any claim relating to a statute or executive order that does not increase or decrease reimbursable costs to limit the eligible filing period commencing with the fiscal year in which the amended parameters and guidelines were adopted. Specifically, this bill : 1)Requires any amendment of the parameters and guidelines boilerplate language for purposes of state reimbursement of any claim relating to a statute or executive order that does not increase or decrease reimbursable costs to limit the eligible filing period commencing with the fiscal year in which the amended parameters and guidelines were adopted. 2)Increases from 60 to 90 days the time period the State Controller (Controller) has, after receiving the adopted parameters and guidelines, a reasonable reimbursement methodology from the Commission on State Mandates (Commission), or notification from the Department of Finance, to issue claiming instructions for each mandate that requires state reimbursement to assist local agencies and school districts in claiming costs to be reimbursed. 3)Increases from 60 to 90 days the time period the Controller has, after receiving amended parameters and guidelines, an amended reasonable reimbursement methodology from the Commission or other information necessitating a revision of the claiming instructions, to prepare and issue revised claiming instructions for mandates that require state reimbursement that have been established by the Commission, or after any decision or order of the Commission, or after any action by the Legislature. SB 112 Page 2 EXISTING LAW : 1)Authorizes a local agency, school district, or the state to file a written request with the Commission to amend the parameters and guidelines, including a request to amend the boilerplate language. 2)Defines boilerplate language to mean the language in the parameters and guidelines that is not unique to the state-mandated program that is the subject of the parameters and guidelines. 3)Requires the Controller, no later than 60 days after receiving the adopted parameters and guidelines, a reasonable reimbursement methodology from the Commission, or notification from the Department of Finance, to issue claiming instructions for each mandate that requires state reimbursement to assist local agencies and school districts in claiming costs to be reimbursed. 4)Requires the Controller, within 60 days after receiving amended parameters and guidelines, an amended reasonable reimbursement methodology from the Commission or other information necessitating a revision of the claiming instructions, to prepare and issue revised claiming instructions for mandates that require state reimbursement that have been established by the Commission, or after any decision or order of the Commission, or after any action by the Legislature. FISCAL EFFECT : Unknown COMMENTS : 1)In 1979, voters amended the California Constitution, requiring the state to reimburse local agencies for the costs of new state mandated local programs or higher levels of service. In 1984, the Legislature created the Commission, a quasi-judicial body that decides local agencies' test claims for reimbursement. If the Commission identifies a state-mandated program from the test claim, the Commission adopts parameters and guidelines, defines what activities will be reimbursed, and adopts statewide cost estimates. The Commission is working through a backlog of 51 test claims in SB 112 Page 3 addition to 192 other matters pending before the Commission, such as proposed parameters and guidelines and requests to review claiming instructions. Some of these matters date from 2002. The mandate process is lengthy and complex: a) Test claims. After the new or higher level program is implemented, a local agency has one year to submit a test claim to the Commission. The agency can submit a test claim up to two years following the program, with a 20% deduction of the first year's costs. b) Parameters and guidelines. If the Commission determines a test claim is a reimbursable mandate, the local agency is required to propose parameters and guidelines within 30 days. Parameters and guidelines define what activities are reimbursable. c) Statewide cost estimate. After the Commission adopts parameters and guidelines, it estimates statewide costs. These estimates are reported to the Legislature and form the basis for how the Controller pays reimbursement claims. d) Claiming instructions. After the Commission adopts the parameters and guidelines, the Controller has 60 days to issue claiming instructions. If a program is ongoing, these claiming instructions form the basis for the local agency's annual reimbursement claims. Before issuing claiming instructions, the Controller's office researches each claim and receives public comments from stakeholders. e) Audits. The Controller may audit a reimbursement claim filed by a local agency or school district within three years of the claim's filing or last amendment. If the Controller reduces a specific reimbursement claim via an audit, the local agency may file an Incorrect Reduction Claim with the Commission. f) Reduction claims. Local agencies can file incorrect reduction claims, requests to amend the Commission's parameters and guidelines, and requests to review claiming instructions. 2)According to the author, the Controller, within 60 days, is required to issue claiming instructions for each mandate that requires state reimbursement with the Controller soliciting SB 112 Page 4 input from state agencies and interested parties before issuing new or amended claiming instructions. The author says extending the timeline to 90 days would provide more opportunities for input, further refine the process, and result in more streamlined and cost-effective outcomes. Additionally, the author says SB 112 would require any amendment to boilerplate language that does not increase or decrease the reimbursable cost to be limited to the eligible filing period, commencing with the fiscal year in which the guidelines were adopted. 3)Following the Controller's action using a new auditing rule that reduced reimbursement claims for school districts' four state-mandated programs for 1998 to 2003, seven school districts filed a lawsuit to declare the new set of parameters and guidelines could not be applied because the Controller used a regulation that did not conform to the Administrative Procedure Act. The court of appeal, in Clovis Unified School District v. Chiang (2010) 188 Cal.App.4th 794, ruled in the school districts' favor, saying the Controller had used an invalid underground regulation when performing those audits, but the Controller could re-audit the relevant reimbursement claims based on the documentation requirements of the parameters and guidelines and claiming instructions when the mandate costs were incurred. After Clovis Unified, the Controller revised its parameters and guidelines and its boilerplate language. These changes affected 37 programs: 21 local governments, 12 school districts, and four community colleges. Currently, if any part of the parameters and guidelines are amended, the filing period for reimbursement claims reopens. Any local agency can claim reimbursements for previously unclaimed expenses. Local agencies that may have forgotten to file reimbursement claims for any previous fiscal year can file claims for costs incurred for previous years. SB 112 would limit a local agency's filing period when there is an amendment to the boilerplate language and that amendment does not increase or decrease reimbursable costs to the fiscal year in which the amendment was adopted. The Committee may wish to consider whether reducing the opportunity for local agencies to claim previously unclaimed expenses when parameters and guidelines change would unfairly result in local agencies footing the bill for years when reimbursement SB 112 Page 5 could help offset their costs. 4)Support arguments: Supporters might argue this loophole allowing parameters and guidelines to be reopened should be closed so the filing period is not indefinite. Opposition arguments: Opposition might argue local agencies should not be left footing the bill on a state mandate when there is a revision to the parameters and guidelines. REGISTERED SUPPORT / OPPOSITION : Support Opposition None on file None on file Analysis Prepared by : Jennifer Klein Baldwin / L. GOV. / (916) 319-3958