BILL ANALYSIS Ó SENATE GOVERNANCE & FINANCE COMMITTEE Senator Lois Wolk, Chair BILL NO: AB 392 HEARING: 6/12/13 AUTHOR: Jones-Sawyer FISCAL: Yes VERSION: 6/5/13 TAX LEVY: No CONSULTANT: Weinberger STATE MANDATED LOCAL PROGRAMS Lets the State Controller use the most cost effective allocation method for payment when the state budget appropriates $1,000 or less for state-mandated program reimbursement. Background and Existing Law In 1979, the voters amended the California Constitution, requiring the state to reimburse local governments for the cost of new programs or higher levels of service mandated by the Legislature or any state agency. In 1984, the Legislature created the Commission on State Mandates. The Commission is a quasi-judicial body which decides test claims alleging that the Legislature or a state agency imposed a state-mandated local program. If the Commission identifies a state-mandated program, it adopts parameters and guidelines defining what activities will be reimbursed, and adopts statewide cost estimates. After receiving the adopted parameters and guidelines for a mandate, the State Controller's Office (SCO) issues claiming instructions to guide local agencies and school districts in claiming reimbursable costs. The SCO receives, pays, and audits reimbursement claims from local agencies and school districts. The SCO can reduce reimbursement claims it deems excessive or unreasonable. The State Constitution requires the Legislature to either appropriate funds in the budget bill to pay all outstanding claims for a mandate, or suspend or repeal the mandate (Proposition 1A, 2004). This requirement does not apply to school and employee relations mandates. When the state budget appropriates an amount that is insufficient to pay all mandate reimbursement claims approved by the SCO, state law requires the SCO to prorate claims in a specified AB 392 -- 6/5/13 -- Page 2 manner (AB 1668, McAllister, 1986). To reimburse the costs of state mandated school programs, recent state budgets have typically appropriated only one thousand dollars per program. SCO staff notes that prorating the thousands of small payments that result from such small appropriations is inefficient and costly. The SCO wants the flexibility to pay mandate claims in a more cost-effective manner when the state budget only appropriates one thousand dollars or less for reimbursements. The SCO also wants the Legislature to repeal a duplicative reporting requirement relating to prorated mandate claims. Proposed Law Assembly Bill 392 requires the State Controller to determine the most cost-effective allocation method for reimbursing approved claims for the costs of state-mandated local programs when the state budget allocates one thousand dollars or less for a program. AB 392 repeals a requirement that the Controller must report to the Director of Finance and the Chairperson of specified legislative committees whenever the Controller finds it necessary to prorate claims. State Revenue Impact No estimate. Comment Purpose of the bill . When the state budget appropriates an amount that is insufficient to pay all claims for a state mandate, the SCO must prorate the payments it makes to claimants. When the budget appropriates $1,000 or less to pay claims for a mandate, the administrative costs of prorating hundreds of claims can far exceed the total value of the reimbursements. The SCO cites one state mandated local program for which it was forced to prorate $1,000 of appropriated state funds among 520 eligible claimants. At an estimated average cost of $22 per claim, this process cost the SCO more than $11,000 to process payments that AB 392 -- 6/5/13 -- Page 3 ranged from $1 to $10 for each of the 520 claimants. This is not an isolated example. SCO staff notes that the Budget Act of 2009 appropriated $1,000 to reimburse mandate claims for each of 39 school district programs. The SCO issued 1,861 warrants for claims related to those 39 programs, of which 1,626 were for less than five dollars. AB 392 saves taxpayers money by preventing SCO staff and local government staff from spending time processing state mandate reimbursement payments that are worth less, in total, than the administrative costs that they generate. Assembly Actions Assembly Local Government Committee: 9-0 Assembly Appropriations Committee:17-0 Assembly Floor: 75-0 Support and Opposition (6/6/13) Support : State Controller John Chiang. Opposition : Unknown.