BILL NUMBER: SB 186	AMENDED
	BILL TEXT

	AMENDED IN ASSEMBLY  JUNE 19, 2012
	AMENDED IN ASSEMBLY  MARCH 22, 2012
	AMENDED IN SENATE  MAY 31, 2011
	AMENDED IN SENATE  APRIL 6, 2011
	AMENDED IN SENATE  MARCH 22, 2011
	AMENDED IN SENATE  MARCH 10, 2011

INTRODUCED BY   Senators Kehoe and DeSaulnier
   (Principal coauthor: Assembly Member Alejo)
   (Coauthor: Assembly Member Lara)

                        FEBRUARY 7, 2011

   An act to amend Sections 12463, 53890, and 53895 of, to amend,
repeal, and add Section 12464 of, to add Article 6 (commencing with
Section  12485)   12486)  to Chapter 5 of
Part 2 of Division 3 of Title 2 of, and to repeal Sections 
53892.1,  53895.5  ,  and 53895.7 of, the
Government Code, relating to the Controller.


	LEGISLATIVE COUNSEL'S DIGEST


   SB 186, as amended, Kehoe. The Controller.
   (1) Existing law requires the officer of each local agency who has
charge of the financial records of the agency to furnish to the
Controller a report of all the financial transactions of the local
agency during the next preceding fiscal year within 90 days of the
close of each fiscal year, as specified. Existing law defines local
agency, for purposes of these financial reports to mean any city,
county, district, and specified community redevelopment agencies.
   This bill would also include within the definition of local agency
any joint powers agency  , formed pursuant to the Joint
Exercise of Powers Act, that issues conduit revenue bonds, 
and would require that joint powers agency to furnish the Controller
with the required financial reports.
   (2) Existing law requires the Controller to annually compile and
publish reports of the financial transactions of each county, city,
and school district within the state, together with other matters he
or she deems of public interest.
   This bill would additionally require the Controller to annually
compile and publish reports of the financial transactions of each
joint powers agency  that issues conduit revenue bonds
 .
   (3) Existing law provides that if the county, city, or district
reports are not made in a specified manner, or there is reason to
believe that the report is false, the Controller is required to
appoint a qualified accountant to make an investigation and to obtain
the information required for the annual report of financial
transactions. Existing law provides that if a similar investigation
is made of any county, city, or district for 2 successive years, then
a copy of the results of those investigations shall be transmitted
to the grand jury of the county investigated or in which the local
agency investigated is situated. Existing law requires any costs
incurred by the Controller in carrying out those audits to be paid by
the local agency.
   This bill would expand the above provisions to also include a
special district  ,   or  joint powers
authority  , or redevelopment agency  . This bill
would also, until January 1, 2017, authorize the Controller to
perform an audit or investigation of any county, city, special
district,  or  joint powers authority,  or
redevelopment agency,  if the Controller has  reason
to believe, supported by documentation,   made findings
 that the local agency is not complying with the financial
requirements in state law,  state  grant agreements, local
charters, or local ordinances  . This bill would 
 and  require  , until January 1, 2017, 
the Controller to prepare  and file  a report of the results
of the audit or investigation  and to file a copy with the
local legislative body   ,   as specified 
. This bill would require that, until January 1, 2017, if the
results of those audits determine that the financial report filed by
the local agency did not contain false, incomplete, or incorrect
information, then the Controller shall waive the costs of the
investigation, and would authorize the Controller to establish a
payment program to assist a local agency to pay for any costs that
cannot be waived.
   This bill would additionally authorize the Controller, if
requested by a local agency,  to conduct a preliminary review
to determine the existence of a local agency financial problem, and
perform an audit upon completion of that review, subject to specified
criteria  .
    The bill would require the Controller, if requested by a
local agency,  to convene a local agency financial review
committee with a specified membership  , and authorize the
committee to recommend a financial recovery plan for a local agency
requesting assistance. The bill would require the Controller to
report to the Legislature annually on the actions of a committee
formed pursuant to this act and the status of all engagements with
local agencies pursuant to this act   to provide
assistance in reviewing and assessing its financial condition, as
specified  .
   (4) Existing law provides that an officer of a local agency who
fails or refuses to make and file his or her financial report within
20 days after receipt of a written notice of the failure from the
Controller forfeits to the state a specified amount depending on the
amount of total revenue of that local agency. Existing law raises
these amounts in the case of a community redevelopment agency and a
joint powers agency that issues conduit revenue bonds in the 2nd and
3rd consecutive year.
   This bill would raise the forfeiture amounts for all local
agencies, as specified. The bill would double these fines if the
agency fails to submit the report to the Controller for 2 consecutive
years, and would triple the fines if the agency fails to submit the
report to the Controller for 3 consecutive years. The bill would also
require the Controller to conduct an audit, as specified, of the
local agency if the local agency fails to provide the financial
reports for 3 consecutive years. 
   (5) Existing law requires the Superintendent of Public Instruction
to make available to the Controller, on an as-needed basis, data and
other matters required to permit the compilation of the financial
transactions of school districts by the Controller. 

   This bill would repeal this provision. 
   Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
   
  SECTION 1.    The Legislature finds and declares
all of the following:
   (a) The economic recession has disproportionately affected
California and, in particular, the local agencies that deliver vital
services to the public. Many local agencies have been forced to take
unprecedented steps to avert financial crisis and maintain a sound
credit rating.
   (b) California has a vital financial interest in the solvency of
its local agencies. When insolvency occurs at a local agency, the
municipal credit in the state can be negatively impacted, costing the
state and local governments millions of dollars, making borrowing
more difficult, and hindering the state's economic recovery.
   (c) The health and welfare of the citizens of the state would be
adversely affected by the insolvency of local agencies. Therefore,
the fiscal health of local agencies is vitally necessary to the
interests of this state in providing necessary governmental services.

   SEC. 2.  SECTION 1.   Section 12463 of
the Government Code is amended to read:
   12463.  (a) The Controller shall compile and publish reports of
the financial transactions of each county, city, special district,
 or   and  joint powers agency
formed pursuant to the Joint Exercise of Powers Act (Article 1
(commencing with Section 6500) of Chapter 5 of Division 7 of Title 1)
that issues conduit revenue bonds  , respectively, within
this state, together with any other matter he or she deems of public
interest. The reports shall include the appropriations limits and the
total annual appropriations subject to limitation of the counties,
cities, and special districts. The reports to the Controller shall be
made in the time, form, and manner prescribed by the Controller.
   (b) Effective January 1, 2005, the Controller shall compile and
publish reports of the financial transactions of each county, city,
 and  special district,  or  
and  joint powers agency  formed pursuant to the Joint
Exercise of Powers Act (Article 1 (commencing with Section 6500) of
Chapter 5 of Division 7 of Title 1) that issues conduit revenue bonds
 , pursuant to subdivision (a) on or before August 1,
September 1, and October 1 respectively, of each year following the
end of the annual reporting period. The Controller shall make data
collected pursuant to this subdivision available upon request to the
Legislature and its agents, on or before April 1 of each year.
   (c) The Controller shall annually publish reports of the financial
transactions of each school district within this state, together
with any other matter he or she deems of public interest. The reports
shall include the appropriations limit and the total annual
appropriations subject to limitation of the school district. The
reports to the Controller shall be made in the time, form, and manner
prescribed by the Controller.
   (d) As used in this section, the following terms have the
following meanings:
   (1) "School district" means a school district as defined in
Section 80 of the Education Code.
   (2) "Special district" means either of the following:
   (A) A special district as defined in Section 95 of the Revenue and
Taxation Code.
   (B) A nonprofit corporation that is any of the following:
   (i) Was formed in accordance with the provisions of a joint powers
agreement to carry out functions specified in the agreement.
   (ii) Issued bonds, the interest on which is exempt from federal
income taxes, for the purpose of purchasing land as a site for, or
purchasing or constructing, a building, stadium, or other facility,
that is subject to a lease or agreement with a local public entity.
   (iii) Is wholly owned by a public agency.
   SEC. 3.   SEC. 2.  Section 12464 of the
Government Code is amended to read:
   12464.  (a) If the county, city, special district,  or 
joint powers authority  , or redevelopment agency 
reports are not made in the time, form, and manner required or there
is reason to believe that a report is false, incomplete, or
incorrect, the Controller shall appoint a qualified accountant to
make an investigation and to obtain the information required. The
accountant appointed shall report to the Controller the results of
the investigation, and a copy shall be filed with the legislative
body of the county, city, special district,  or  joint
powers authority , or redevelopment agency,  the
accounts of which were investigated. If a similar investigation has
to be made of the accounts of any county, city, special district,
 or  joint powers authority  , or redevelopment
agency,  for two successive years, a certified copy of the
results of the investigation last made shall be transmitted to the
grand jury of the county that was investigated or in which the local
agency investigated is situated, or, if the agency is situated in
more than one county, in the county in which any portion of the
agency is situated.
   (b) (1) If the Controller has  reason to believe 
 made findings pursuant to subdivision (c)  that any
county, city, special district,  or  joint powers authority
 , or redevelopment agency  is not complying with
the financial requirements in state law,  state grant agreements,
 local charters, or local ordinances, he or she may perform an
audit or investigation of the issue if he or she makes a
determination that sufficient funds exist  within his or her
budget  to conduct the audit or investigation.
   (2) The Controller shall prepare a report of the results of the
audit or investigation that shall include  detailed 
documentation  used as the basis   of the
material basis  for the  decision to perform 
 findings   included in  the audit or
investigation. A copy of the report shall be filed with the
legislative body of the county, city, special district,  or 
joint powers authority  , or redevelopment agency 
subject to the audit or investigation. Any finding of illegal acts or
fraud shall be communicated to the appropriate authorities,
including the county grand jury.
   (c) (1)  The basis for the decision to conduct an audit or
investigation under subdivision (a) or (b) shall be supported by
credible documentation, including input from the local agency.
  Prior to an audit or investigation being conducted
pursuant to subdivision (b), the Controller, after consultation with
the local agency, shall make written findings that explain the legal
and factual basis supporting the decision to conduct the audit or
investigation, and the Controller shall give the local agency a
reasonable opportunity to respond to these findings.  
   (2) In cases in which the Controller seeks to audit or investigate
compliance with the financial requirements in local charters or
local ordinances, the Controller shall first share with the local
agency the evidence relied upon in determining the need for the audit
or investigation and provide the local agency the opportunity to
conduct its own audit or investigation of the matter in a reasonable
period of time. If the local agency elects to conduct an audit or
investigation, the local agency shall provide the results to the
Controller promptly upon completion. If the Controller subsequently
proceeds with his or her own audit or investigation, he or she shall
make specific written findings concerning the evidence relied upon in
determining the need for the audit or investigation and that each
issue to be audited or investigated has not been or is not likely to
be addressed by local means, which may include, but are not limited
to, a civil grand jury or district attorney. The Controller shall not
audit or investigate compliance with the financial requirements in
local charters or local ordinances if the matter is the subject of
actual or completed litigation. In addition, if the matter involves a
pending policy or administrative decision, such as adoption of a
budget or negotiations of labor or other contracts, the Controller
shall not audit or investigate the matter until after a final
decision has been adopted by the local agency.  
   (2) 
    (3)  For purposes of this subdivision, documentation
means any handwriting, typewriting, printing, photostating,
photographing, photocopying, transmitting by electronic mail or
facsimile, and every other means of recording upon any tangible thing
any form of communication or representation, including letters,
words, pictures, sounds, or symbols, or combinations thereof, and any
record thereby created, regardless of the manner in which the record
has been stored. 
   (4) The Controller shall not initiate or conduct an audit or
investigation pursuant to subdivision (b) of any local agency that
falls within the date the local agency has initiated the neutral
evaluation process, pursuant to Article 5 (commencing with Section
53760) of Chapter 4 of Part 1 of Title 2, and the date that process
has been completed. 
   (d) (1) Any costs incurred by the Controller pursuant to
subdivision (a), including contracts with, or employment of,
certified public accountants or public accountants, in compiling a
financial report pursuant to Section 12463 or 12463.3 of this code,
or as required by Section 33684 of the Health and Safety Code, shall
be borne by the county, city, special district,  or  joint
powers authority  , or redevelopment agency,  and
shall be a charge against any unencumbered funds of the county, city,
special district,  or  joint powers authority  , or
redevelopment agency  . Any forfeiture imposed by Section
53895 or 53895.5 may be offset up to the total costs incurred by the
Controller. Any remaining balance shall be forfeited in accordance
with Sections 53895 and 53895.5. Any costs incurred by the Controller
in excess of the forfeiture imposed shall be a charge against any
unencumbered funds of the county, city, special district,  or
 joint powers authority  , or redevelopment agency
 .
   (2) If an investigation conducted pursuant to subdivision (a)
determines that the financial report filed by the county, city,
special district,  or  joint powers authority  , or
redevelopment agency did not contain  materially 
false, incomplete, or incorrect information, the Controller shall
waive the costs of the investigation. The Controller may establish a
payment program, with interest, for up to five years to assist a
local agency to pay for the costs that cannot be waived.
   (e) This section shall remain in effect only until January 1,
2017, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2017, deletes or extends
that date.
   SEC. 4.   SEC. 3.   Section 12464 is
added to the Government Code, to read:
   12464.  (a) If the county, city, special district,  or 
joint powers authority  , or redevelopment agency 
reports are not made in the time, form, and manner required or there
is reason to believe that a report is false, incomplete, or
incorrect, the Controller shall appoint a qualified accountant to
make an investigation and to obtain the information required. The
accountant appointed shall report to the Controller the results of
the investigation, and a copy shall be filed with the legislative
body of the county, city, special district,  or  joint
powers authority  , or redevelopment agency,  the
accounts of which were investigated. If a similar investigation has
to be made of the accounts of any county, city, special district,
 or  joint powers authority  , or redevelopment
agency,  for two successive years, a certified copy of the
results of the investigation last made shall be transmitted to the
grand jury of the county that was investigated or in which the local
agency investigated is situated, or, if the agency is situated in
more than one county, in the county in which any portion of the
agency is situated.
   (b) Any costs incurred by the Controller pursuant to subdivision
(a), including contracts with, or employment of, certified public
accountants or public accountants, in compiling a financial report
pursuant to Section 12463 or 12463.3 of this code, or as required by
Section 33684 of the Health and Safety Code, shall be borne by the
county, city, special district,  or  joint powers authority
 , or redevelopment agency,  and shall be a charge
against any unencumbered funds of the county, city, special district,
 or  joint powers authority  , or redevelopment
agency  . Any forfeiture imposed by Section 53895 or 53895.5
may be offset up to the total costs incurred by the Controller. Any
remaining balance shall be forfeited in accordance with Sections
53895 and 53895.5. Any costs incurred by the Controller in excess of
the forfeiture imposed shall be a charge against any unencumbered
funds of the county, city, special district,  or  joint
powers authority  , or redevelopment agency  .
   (c) This section shall become operative on January 1, 2017.
   SEC. 5.   SEC. 4.   Article 6
(commencing with Section  12485)   12486) 
is added to Chapter 5 of Part 2 of Division 3 of Title 2 of the
Government Code, to read:

      Article 6.   Voluntary  Local Agency Financial Review
 and Assistance 


   12485.  (a) The Controller may conduct a preliminary review to
determine the existence of a local agency financial problem if the
governing body, chief administrative officer, or chief executive of a
local agency requests a preliminary review under this section. The
request shall be in writing and shall identify the existing fiscal
conditions that make the request necessary.
   (b) The local agency shall reimburse the Controller for any costs
incurred by the Controller in conducting a preliminary review. The
Controller shall establish a payment schedule of up to five years,
with interest.
   (c) The local agency shall make its books and records available to
the Controller for the purpose of conducting a preliminary review
pursuant to this section.
   (d) In conducting a preliminary review pursuant to this section,
the Controller shall meet with local agency officials to receive,
discuss, and consider information provided by the local agency
concerning the agency's financial condition.
   (e) The Controller shall provide written notification to the
Governor and the Legislature within 120 days after beginning a
preliminary review pursuant to this section if the review has
determined that one or more conditions indicative of a financial
problem exist within the local agency. A condition indicative of a
financial problem may include, but is not limited to, the following:
   (1) A default in the payment of principal or interest upon bonded
indebtedness for which no funds, or insufficient funds, are on hand
and segregated in a special trust fund.
   (2) Failure for a period of 30 days or more beyond the due date to
transfer one or more of the following to the appropriate agency:
   (A) Taxes withheld on the income of employees.
   (B) Taxes collected by the local agency as agent for another
governmental entity or taxing authority.
   (C) Any contribution required by a pension, retirement, or benefit
plan.
   (3) Failure for a period of 30 days or more to pay wages and
salaries or other compensation or benefits owed to local agency
employees or retirees.
   (4) The total amount of accounts payable for the current fiscal
year, as determined by the financial records of the local agency, is
in excess of 10 percent of the total expenditures of the local agency
in that fiscal year.
   (5) Failure to eliminate an existing deficit in any fund of the
local agency within the two-year period preceding the end of the
local agency's fiscal year for which a preliminary review was
conducted.
   (6) Projection of a deficit in the general fund of the local
agency for the current fiscal year in excess of 10 percent of the
budgeted revenues for the general fund.
   (7) Material defects in financial reporting and transactions have
been identified through an audit conducted by the Bureau of State
Audits or the Controller. 
   12486.  (a) At the written request of the governing body, chief
administrative officer, or chief executive of a local agency, the
Controller may convene a local agency financial review committee to
provide assistance to  local agencies that seek help in
averting or managing a serious financial problem   the
local agency in reviewing and assessing its financial condition and
related internal controls to avert or manage a serious financial
problem  . 
   (b) The request shall include a description of the factors that
support the existence of the serious financial problem. These factors
may include, but are not limited to, the following: 

   (1) Material defects in financial reporting and transactions have
been identified through an audit conducted by the Bureau of State
Audits or the Controller.  
   (2) An expectation that one or more of the following payments will
not be made in full or in a timely manner:  
   (A) The minimum payment required to be made to the employees'
pension fund.  
   (B) The minimum payment to bondholders.  
   (C) The required payment of salaries and wages to employees of the
local agency.  
   (D) The required distribution of local tax revenues to state and
local agencies. 
   (E) The payments to private or nonprofit organizations that are
required to provide services under programs funded with state funds.
 
   (c) The Controller shall provide written notification to the
Department of Finance and the Treasurer when a review is initiated
pursuant to this section.  
   (b) The request shall include a description of the factors that
warrant the need for a review and assessment.  
   (d) 
    (c)  The local agency shall reimburse the Controller for
any costs incurred by the Controller in conducting a review pursuant
to this section. The Controller may establish a payment program for
up to five years, with interest. 
   (e) 
    (d)  A  local agency financial review 
committee shall be chaired by the Controller and include 
representatives of the Treasurer and the Department of Finance.
  both state and local government representatives
selected by the Controller. The Controller shall allow at least two
local government representatives to serve on the committee, selected
as follows: 
    (1) If the local agency is a city, representatives selected
by the League of California Cities. 
    (2) If the local agency is a county, representatives selected
by the California State Association of Counties. 
    (3) If the local agency is a special district,
representatives selected by the California Special Districts
Association.  
   (f) 
    (e)  The Controller shall utilize the services of a
consultant that has extensive financial management and accounting
experience with local agencies in the state to assist the 
Controller   committee  in evaluating and assisting
 the  local  agencies that are undergoing or facing
a financial problem   agency  . 
   (g) 
    (f)  In consultation with the local agency requesting
assistance,  and using any applicable data from a preliminary
review conducted pursuant to this article if a preliminary review
has occurred,  the local agency financial review committee
shall  provide a written report to the local agency, that may
include its recommendat   ions, assessment of the local
agency's financial practices and condition, and internal controls
related to its financial condition.   recommend a
financial recovery plan for the local agency. The financial recovery
plan shall consider both of the following:  
   (1) Conducting the operations of the local agency within the
resources available according to the data provided by the local
agency.  
   (2) The payment in full of the scheduled debt service requirements
on all bonded and other indebtedness and other uncontested legal
obligations of the local agency.  
   (h) 
    (g)  Assistance provided pursuant to this section shall
not include direct financial payments or loans to local agencies that
are not otherwise authorized by statute. 
   (i) The Controller shall report to the Legislature, no later than
June 30, 2013, and annually thereafter, on the actions of a local
agency financial review and the status of all engagements with local
agencies pursuant to this section.  
   (h) If the local agency notifies the Controller that it has
initiated the neutral evaluation process pursuant to Article 5
(commencing with Section 53760) of Chapter 4 of Part 1 of Title 2,
the Controller shall suspend all activities under this section,
unless the local agency requests that the activities be continued.
The local agency shall be liable for costs under subdivision (c).

   12487.  For purposes of this article, "local agency" means a city,
county, city and county,  joint powers agency, or  special
district  , or redevelopment agency  .
   SEC. 6.   SEC. 5.   Section 53890 of the
Government Code is amended to read:
   53890.  As used in this article, "local agency" means a city, a
county, a district,  a community redevelopment agency
required to furnish financial reports pursuant to Section 12463.1 or
12463.3,  and a joint powers agency  formed pursuant
to the Joint Exercise of Powers Act (Article 1 (commencing with
Section 6500) of Chapter 5 of Division 7 of Title 1) that issues
conduit revenue bonds  . 
  SEC. 7.    Section 53892.1 of the Government Code
is repealed. 
   SEC. 8.   SEC. 6.   Section 53895 of the
Government Code is amended to read:
   53895.  (a) An officer of a local agency who fails or refuses to
make and file his or her report within 20 days after receipt of a
written notice of the failure from the Controller shall forfeit to
the state:
   (1) Two thousand five hundred dollars ($2,500) in the case of a
local agency with total revenue, in the prior year, of less than one
hundred thousand dollars ($100,000), as reported in the Controller's
annual financial reports.
   (2) Five thousand five hundred dollars ($5,500) in the case of a
local agency with total revenue, in the prior year, of at least one
hundred thousand dollars ($100,000) but less than two hundred fifty
thousand dollars ($250,000), as reported in the Controller's annual
financial reports.
   (3) Ten thousand dollars ($10,000) in the case of a local agency
with total revenue, in the prior year, of at least two hundred fifty
thousand dollars ($250,000), as reported in the Controller's annual
financial reports.
   (b) (1) Upon the request of the Controller, the Attorney General
shall prosecute an action for the forfeiture in the name of the
people of the State of California.
   (2) Upon a satisfactory showing of good cause, the Controller may
waive the penalties for late filing provided in this section.
   (c) If an officer of a local agency fails or refuses to make and
file his or her report within 20 days after receipt of a written
notice pursuant to subdivision (a) for two consecutive years, the
forfeiture or fine assessed pursuant to paragraphs (1), (2), and (3)
of subdivision (a) in the second year shall be doubled.
   (d)  (1)    If an officer of a
local agency fails or refuses to make and file his or her report
within 20 days after receipt of a written notice pursuant to
subdivision (a) for three consecutive years, the forfeiture or fine
assessed pursuant to paragraphs (1), (2), and (3) of subdivision (a)
in the third year shall be tripled. The Controller shall also conduct
or cause to be conducted an independent financial audit report. In
the case of a community redevelopment agency, the audit report shall
be consistent with the requirements of Section 33080.1 of the Health
and Safety Code, and in the case of a joint powers agency, the audit
report shall be consistent with Section 6505. The agency shall
reimburse the Controller for the cost of complying with this
subdivision. 
   (2) A redevelopment agency shall not use any of the funds in the
Low and Moderate Income Housing Fund to fund any forfeiture or fine
assessed pursuant to this section. 
   (e) An agency that makes a forfeiture or payment pursuant to this
section shall still file the report required pursuant to Section
53891.
   SEC. 9.   SEC. 7.   Section 53895.5 of
the Government Code is repealed.
   SEC. 10.   SEC. 8.   Section 53895.7 of
the Government Code is repealed.