BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 911 HEARING: 5/4/11
AUTHOR: de León FISCAL: No
VERSION: 4/26/11 TAX LEVY: No
CONSULTANT: Weinberger
LOCAL AGENCIES' BONDS
Expands reporting requirements for local governments that
issue voter-approved bonds.
Background and Existing Law
The California Constitution requires counties, cities, and
school districts to get voter approval for long-term debt.
Many bonds commonly sold by local governments require voter
approval, including:
General obligation (GO) bonds. Cities, counties, school
districts, community college districts, and most special
districts can issue GO bonds, secured by ad valorem
property tax revenues, with 2/3-voter approval, with two
exceptions:
Bonds to repair, reconstruct, or replace
structurally unsafe schools require majority-voter
approval.
Bonds to build, rehabilitate, or replace schools
require 55% voter approval, if they meet specified
requirements.
Revenue bonds. Cities, counties, school districts, and
community college districts need majority-voter approval
before issuing some types of revenue bonds, which they
repay from the revenues generated by enterprise activities
such as parking garages, water systems, or airports.
Mello-Roos Act bonds. Local governments must get 2/3-voter
approval to issue bonds under the Mello-Roos Community
Facilities Act to pay for public works projects, usually
for new development. If the area is legally uninhabited
(less than 12 registered voters), the landowners may vote
instead.
SB 911 -- 4/26/11 -- Page 2
Any local bond measure that is subject to voter approval
must provide accountability measures that include:
A statement indicating the specific purposes of the
bond.
A requirement that the proceeds be applied only to
the specific purposes.
The creation of an account into which the proceeds
must be deposited.
An annual report.
(SB 165, Alarcón, 2000)
The chief fiscal officer of a local agency that issues
voter-approved bonds must file the annual report with the
agency's governing body. The report must contain:
The amount of bond funds collected and expended.
The status of any project required or authorized to
be funded, as identified in the measure approving the
bonds.
Proposition 39 (2000) authorized a school district,
community college district, or county office of education
(COE) to levy an ad valorem property tax, approved by 55%
of voters, to secure bonds to construct, reconstruct,
rehabilitate, furnish, equip, or replace school facilities,
or acquire or lease real property for school facilities. A
local bond measure approved by 55% of voters must include
the following accountability requirements:
Bond proceeds must be used only for specified
purposes, and not for any other purpose, including
teacher and administrator salaries and other school
operating expenses.
Specific projects to be funded must be listed and
the district board or COE must certify that it has
evaluated safety, class size reduction, and
information technology needs in developing that list.
The district board or COE must conduct both an
annual, independent performance audit of bond
expenditures and an annual, independent financial
audit of the bond proceeds.
State law implementing Proposition 39 lets a school
district or community college district issue GO bonds with
55% voter approval (AB 1908, Lempert, 2000). If voters
approve such a bond measure, the school district board or
community college district board must appoint an
independent citizens' oversight committee to inform the
public about bond revenue expenditures. The citizens'
SB 911 -- 4/26/11 -- Page 3
oversight committee must report to the public regularly,
and at least annually, on its oversight activities.
In response to recent newspaper reports alleging that Los
Angeles Community College District officials mismanaged
millions of dollars of bond proceeds, some legislators want
to expand the reporting and oversight requirements that
apply to voter-approved bonds.
Proposed Law
Senate Bill 911 requires that the annual report filed by
the chief fiscal officer of a bond-issuing local agency
must include a bond fund transparency component, including
all of the following information for each expenditure of
bond proceeds greater than $5,000:
The name and principal location of each recipient
of funds.
The amount of the expenditure.
The type of transaction.
The identity of the local agency or authorized
entity making the expenditure.
The funding source for the expenditure.
A brief description of any item or service
purchased pursuant to the expenditure.
The bill specifies that the bond fund transparency
requirement must not be construed to require the disclosure
of information deemed confidential or otherwise exempt from
disclosure under state or federal law.
SB 911 requires the information contained in the annual
report to be posted on the agency's Internet Web site in a
format accessible to the public.
The bill provides that a chief fiscal officer's failure to
file an annual report by the annual deadline results in a
suspension in the expenditure of bond proceeds until the
report is submitted.
If a citizens' oversight committee fails to issue a report
at least once a year, as required by current law, SB 911
prohibits a bond-issuing local agency from expending bond
proceeds until a report is issued.
SB 911 -- 4/26/11 -- Page 4
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . Exposing government decisions and
documents to public review is an important ingredient of an
informed democracy because scrutiny can prevent mischief
and even corruption. As the late U.S. Supreme Court
Justice Brandeis wrote in 1913, Sunlight is said to be the
best of disinfectants. Recent newspaper reports allege
that the Los Angeles Community College District (LACCD)
mismanaged millions of dollars in voter-approved bond
proceeds by, among other things, paying markups to private
companies that employed staff to administer bond projects,
awarding contracts that appeared to violate conflict of
interest laws, and failing to adequately ensure the quality
of the work financed by the bonds. The citizens' oversight
committee that was supposed to ensure that the LACCD spent
bond proceeds responsibly reportedly failed to issue a
report to taxpayers for eight years. SB 911 responds by
requiring local officials to annually provide basic
information about their bond expenditures, thereby allowing
the public to assess whether their money is spent
appropriately by the governments that serve them.
2. Responsibility, not reporting . Local governments'
bonds are already subject to extensive oversight and
reporting requirements to ensure that local officials
comply with laws that govern bond proceeds and prohibit
conflicts of interest. In addition to the accountability
measures required by Proposition 39, the Alarcón bill, and
the Lempert bill from 2000, bond-issuing local governments
must comply with federal annual disclosure requirements,
must provide reports on their expenditures annually to the
State Controller, and are subject to the state's open
meetings and public records laws. Some of the reported
problems with the LACCD's bond expenditures, including
spending on projects that were later cancelled and on
projects to fix substandard construction, are not likely to
be prevented by requiring a more detailed annual report.
No amount of additional financial reporting can substitute
for local voters' holding local elected officials
SB 911 -- 4/26/11 -- Page 5
accountable for their stewardship of public funds.
3. Burdensome . SB 911 requires local governments that
issue voter-approved bonds to include detailed information
in their annual reports about each expenditure of bond
proceeds over $5,000. For a local government that spends
millions of dollars on bond-financed infrastructure in a
year, publicly reporting the details of every $5,000
transaction may create significant administrative costs.
School districts don't even have to seek competitive bids
for contracts of less than $15,000. At a time when local
governments confront significant fiscal challenges and
struggle to invest in infrastructure, is it worthwhile to
ask them to provide even more expensive reporting on the
bonds that they use to finance that infrastructure?
Instead of expanding the annual reporting requirement, the
Committee may wish to consider amending SB 911 to require a
local government that issues voter-approved bonds to make
the detailed information specified in the bill available to
any individual who requests it.
4. Setting deadlines . Current law requires annual reports
from bond-issuing local agencies' fiscal officers and from
independent citizens oversight committees, but doesn't
specify any particular date on which those annual reports
are due. To let the public know when to expect annual
reports, and help determine whether those reports are
overdue, the Committee may wish to consider amending SB 911
to specify that the annual reports must be filed within 60
days of the end of an agency's fiscal year.
Support and Opposition (4/28/11)
Support : American Federation of State, County and
Municipal Employees, California Association of County
Treasurers and Tax Collectors.
Opposition : Unknown.