BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 1074| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- CONSENT Bill No: SB 1074 Author: Knight (R), et al. Amended: 5/8/14 Vote: 21 SENATE GOVERNMENTAL ORGANIZATION COMMITTEE : 10-0, 4/22/14 AYES: Correa, Berryhill, Cannella, De León, Galgiani, Hernandez, Lieu, Padilla, Torres, Vidak NO VOTE RECORDED: Vacancy SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8 SUBJECT : State government: state funds SOURCE : Author DIGEST : This bill makes it a misdemeanor, punishable by up to one year in a county jail, or a $2,500 fine, or both, for a state employee to transfer or use state money outside of the State Treasury System (STS), except as authorized pursuant to a valid appropriation or to the reversion requirements set forth in statute. ANALYSIS : Existing law: 1.Creates the STS to deposit state money held by state agencies prior to expenditure. CONTINUED SB 1074 Page 2 2.Specifies that all money in the possession of, or collected by, any state agency or department constitutes state money, as defined, and is subject to provisions governing its deposit and handling in trust accounts. 3.Provides that if state money withdrawn from the STS pursuant to a valid act of appropriation is subsequently returned, in whole or part, the State Controller shall credit it back to the special or general appropriation from which it was drawn, and it is then available for the purpose for which it was appropriated. This bill makes it a misdemeanor, punishable by up to one year in a county jail, or a $2,500 fine, or both, for a state employee to transfer or use state money outside of the STS, except as authorized pursuant to a valid appropriation or to the reversion requirements set forth in statute. Background Financial issues at Department of Parks and Recreation (DPR) . In July 2012, newspapers first reported that officials at DPR had maintained a secret surplus in the State Parks and Recreation Fund, which at the time amounted to $20 million. Although the surplus amount varied over time, there was no specific evidence that the money had been spent illegally. The surplus would have been enough to avoid budget cuts as DPR moved to close 70 parks to achieve state budget savings. A later investigation by the California State Auditor (CSA) revealed that DPR officials maintained the hidden cash surplus for as long as 20 years. The report tracked a surplus going back to 1993 in the State Parks and Recreation Fund, which is the primary fund that collects and disburses revenue generated by the 278 state parks. According to the CSA, the surplus existed because DPR officials routinely reported different fund totals to the State Controller's Office (SCO) and the Department of Finance (DOF) - in violation of state accounting rules. As in other investigations completed by DOF, the SCO and the Attorney General's office, the CSA was unable to explain how the surplus accumulated in the first place. The DOF, on numerous occasions between 1999 and 2003, warned DPR CONTINUED SB 1074 Page 3 that it was reporting improper fund balances, according to the audit. In 2012, after the hidden funds were revealed, DOF imposed a new rule stating that department heads are now required to certify - under penalty of perjury - that the accounting information they report is accurate. Comments According to the author: For years, the state Department of Forestry and Fire Protection (Cal Fire) deposited monies from wild land fire cost recovery into the Wildland Fire Fund, and through an agreement with an outside non-profit organization, circumvented state laws designating the money collected in this fashion as 'state money,' which is required to be held in trust accounts monitored by the State Treasury and Controller. During an audit requested by the Joint Legislative Audit Committee, Cal Fire stated that the funds were not 'state money' because they were possessed and collected by the outside non-profit organization. Although the State Auditor in her report (2013-107) strongly disagreed with the Cal Fire interpretation that the funds were not 'state money,' to date, it is unknown if any Cal Fire employees that were responsible for the misappropriation of funds were punished for their actions. SB 1074 makes sure there are consequences to bad actions by employees doing what they know is wrong. When SB 1074 is enacted, state agencies, such as Cal Fire will be held accountable when they choose to set up future accounts in a private fund rather than turning over money to the general fund or requesting a new account through the Department of Finance. Following the recent scandal by the state Department of Parks and Recreation, where they knowingly hid $20 million while still closing many parks, proves that this measure is needed to clean up more than one agency in this state as soon as possible. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: Yes CONTINUED SB 1074 Page 4 According to the Senate Appropriations Committee: Likely minor costs to the courts as there will probably be very few prosecutions for this new misdemeanor (Trial Court Trust Fund). Unknown, likely minor potential penalty revenue gains (various funds). No state costs related to the mandate. Any local costs related to the creation of a new crime are not reimbursable by the state. SUPPORT : (Verified 5/8/14) Howard Jarvis Taxpayers Association ARGUMENTS IN SUPPORT : The Howard Jarvis Taxpayers Association (HJTA) explains that the rationale for this bill stems from a 2012 scandal within DPR, in which $20 million was intentionally misappropriated. Making matters worse, according to HJTA, was that this came at a time when dozens of parks were threatened with closure, and the system as a whole faced a maintenance backlog in the hundreds of millions of dollars. Supporters state that, in order to restore faith and trust in the government we support with our tax dollars, creating this nominal criminal penalty seems abundantly appropriate. MW:e 5/8/14 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED