BILL ANALYSIS �
SB 581
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Date of Hearing: June 12, 2013
ASSEMBLY COMMITTEE ON EDUCATION
Joan Buchanan, Chair
SB 581 (Wyland) - As Amended: April 8, 2013
SENATE VOTE : 37-0
SUBJECT : School bonds: bond accountability
SUMMARY : Requires the governing board of a district to provide
the citizens' oversight committee a response to any and all
findings, recommendations and concerns raised in the Proposition
39 of 2000 annual, independent financial and performance audits
of local education bond funds within three months of receiving
the audits, and requires the draft and final audits to be
submitted to the citizens' oversight committee at the same time
they are submitted to school or community college districts.
EXISTING LAW :
1)Authorizes, under Section 1 of Article XIII A of the
California Constitution, school districts, community college
districts, or county offices of education to pass a general
obligation bond by a 55% vote, provided that the local
initiative includes the following accountability measures:
a) A requirement that the proceeds from the sale of the
bonds be used only for the construction, reconstruction,
rehabilitation, or replacement of school facilities,
including the furnishing and equipping of school
facilities, or the acquisition or lease of real property
for school facilities, and not for any other purpose;
b) Provide a list of the specific school facilities
projects to be funded and certification that the school
district board, community college board, or county office
of education has evaluated safety, class size reduction,
and information technology needs in developing that list;
c) A requirement that the school district board, community
college board, or county office of education conduct an
annual, independent performance audit to ensure that the
funds have been expended only on the specified projects;
and,
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d) A requirement that the school district board, community
college board, or county office of education conduct an
annual, independent financial audit of the proceeds from
the sale of the bonds until all of those proceeds have been
expended for the school facilities projects.
2)Requires the annual, independent financial and performance
audits for the preceding fiscal year to be submitted to the
citizens' oversight committee by March 31 of each year and
requires the audits to be conducted in accordance with the
Government Auditing Standards issued by the Comptroller
General of the United States for financial and performance
audits.
FISCAL EFFECT : None. This bill is keyed non-fiscal by the
Legislative Counsel.
COMMENTS : Proposition 39 . In 2000, voters passed Proposition
39, a Constitutional Amendment which, among others, gave
districts the opportunity to seek approval of a local education
bond based on a 55% vote rather than a 2/3 vote, provided that
the local bond initiative meets the following accountability
measures:
1)The initiative identifies a list of the specific school
facilities projects that will be funded by bond proceeds;
2)A requirement that the school board, community college board,
or county office of education conduct an annual, independent
performance audit to "ensure that the funds have been expended
only on the specific projects listed;" and,
3)A requirement that the school board, community college board,
or county office of education conduct an annual, independent
financial audit of the proceeds from the sale of the bonds
until all of those proceeds have been expended for the school
facilities projects.
Both the financial audit and performance audits must be reviewed
by an independent citizens' oversight committee. AB 1908
(Lempert), Chapter 44, Statutes of 2000, a companion bill to
Proposition 39, requires each district, within 60 days of the
passage of a local bond with 55% to appoint a citizens'
oversight committee to monitor and review expenditures to ensure
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compliance with Proposition 39 requirements, and to keep the
public informed about bond expenditures.
Existing law requires the governing board of the district to
provide the citizens' oversight committee with any necessary
technical and administrative assistance and sufficient resources
to publicize the committee's conclusions, without using bond
funds. All committee proceedings must be open to the public and
notice to the public must be provided in the same manner as the
proceedings of the governing board. The committee is required
to issue regular reports at least once a year, on its
activities, and minutes of the proceedings and all documents
received and reports issued are required to be a matter of
public record and to be made available on an Internet website
maintained by the district.
SB 1473 (Wyland), Chapter 294, Statutes of 2010, requires the
audits to be conducted in accordance with the generally accepted
government auditing standards (GAGAS), informally known as the
"Yellow Book", issued by the comptroller general of the United
States, and SB 423 (Wyland), Chapter 237, Statutes of 2011,
requires the audits to be submitted to the citizens' oversight
committee by March 31 of each year.
This bill has two requirements. The first provision requires
the governing board to provide the citizens' oversight committee
with responses to any and all findings, recommendations, and
concerns addressed in the financial and performance audits
within three months of receiving the audits. The author states,
"The problem is that districts need to respond to their own
audit and justify it." The following is an example provided by
the author's office:
"The Sweetwater Union District High School in San Diego
California passed Proposition O, a $644 million construction
bond passed, in 2006. The Proposition O citizens' bond oversight
committee has struggled to keep track of construction-project
spending since Proposition O was passed in 2006, with little
compliance from the school district.
The district borrowed funds for two years to pay for teacher
salaries and maintenance upkeeps. The district borrowed $28
million in the 2008-2009 school year, $40 million in 2009-2010,
and was looking to borrow $58 million in 2010-2011, until
negative media attention drove them to back away. During this
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time, the District did not respond to the bond oversight
committees concerns, findings and recommendations. In 2012, the
District did not give the committee any financial report.
Additionally, the President of the citizens' bond oversight
committee worked with the district to develop a model report
form that the committee could understand and use to track
expenditures, but the district utilized a form that bore no
relation to the one they had agreed upon."
The second provision requires both the draft and final audits to
be submitted to the citizens' oversight committee at the same
time they are submitted to the school district or community
college district. The author states that the citizens'
oversight committees need to be engaged in the process and
requiring the audits to be provided to the committee when they
are submitted to the school and community college districts will
provide access to the documents to enable the committee to
prepare an appropriate analysis that has been coordinated at an
appropriate time.
Is it appropriate to require sharing of draft audits? Several
organizations oppose this bill unless the requirement to provide
draft audits to the citizens' oversight committee is removed
from the bill. The California Society of CPAs states that
current law precludes drafts of audit reports from being used in
court proceedings; draft audits are works in progress that are
incomplete and could communicate incorrect or misleading
information and should not be relied upon as accurate
information. Staff recommends striking the requirement for
draft audits to be provided to the citizens' oversight committee
at the same time that they are provided to governing board of
school and community college districts.
Technical amendment . This bill creates new subdivisions.
However, the author of this bill had previously authored a bill
to require the audits to be submitted to the citizens' oversight
committee by March 31 of each year. Staff recommends an
amendment to rewrite this section of the law clarifying that the
financial audit shall be submitted to the citizens' oversight
committee when they are submitted to the school and community
college districts, but no later than March 31 of each year.
Related legislation . SB 584 (Wyland), also scheduled for the
June 12, 2013 hearing, requires the State Controller, on or
before January 1, 2015, in consultation with the State
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Allocation Board, the Department of Finance, and the California
Department of Education, to submit content to the Education
Audit Appeals Panel to be included in the audit guide, Standards
and Procedures for Audits of California K-12 Local Educational
Agencies, beginning in the 2015-16 fiscal year, that is related
to the financial and performance audits required for school
facility projects pursuant to Proposition 39 of 2000.
Previous related legislation . SB 423 (Wyland), Chapter 237,
Statutes of 2011, requires the Proposition 39 financial and
performance audits for the preceding fiscal year to be submitted
to the citizens' oversight committees by March 31 of each year.
SB 1473 (Wyland), Chapter 294, Statutes of 2010, requires the
annual, independent financial and performance audits required by
Proposition 39 to be conducted in accordance with the
Government Auditing Standards issued by the Comptroller General
of the United States, to the extent required by Proposition 39.
REGISTERED SUPPORT / OPPOSITION :
Support
California League of Bond Oversight Committees (co-sponsor)
Howard Jarvis Taxpayers Association (co-sponsor)
CalTax
Opposition
California Association of School Business Officials (unless
amended)
California Society of CPAs (unless amended)
Vicenti, Lloyd & Stutzman LLP (unless amended)
Analysis Prepared by : Sophia Kwong Kim / ED. / (916) 319-2087