BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 581
                                                                  Page  1

          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