BILL ANALYSIS Ó AB 2116 Page 1 Date of Hearing: April 6, 2016 ASSEMBLY COMMITTEE ON EDUCATION Patrick O'Donnell, Chair AB 2116 (Gallagher) - As Introduced February 17, 2016 SUBJECT: School bonds: citizens' oversight committees: school bond waste prevention actions SUMMARY: Adds new requirements to the election and oversight of local general obligation education bonds. Specifically, this bill: 1)Requires the governing board of a school district to obtain reasonable and informed projections of assessed property valuations from an independent third party not associated with the bond measure prior to ordering a bond election. 2)Requires a citizens' oversight committee established by the governing board of a school district to annually review the school district's arrangements for issuing and repaying its bonds. 3)Authorizes, in the case of a school district only, a county auditor with jurisdiction over the school district to commence an action to obtain an order restraining and preventing any expenditure of bond proceeds if it appears by the complaint or affidavits that governing board of the school district has AB 2116 Page 2 failed to meet specified conditions. 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 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, 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. AB 2116 Page 3 2)Requires the governing board of a school district or community college district to establish and appoint members to an independent citizens' oversight committee within 60 days of the date that the governing board enters the election results on its minutes. (Education Code (EC) Section 15278(a)) 3)Specifies that the purpose of the citizens' oversight committee shall be to inform the public concerning the expenditure of bond revenues, including advising the public as to whether a school district or community college district is in compliance with the authorized uses of bond funds pursuant to Proposition 39 (2000). (EC Section 15278(b)) 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 school and community college districts the opportunity to seek approval of a local school facilities bond based on 55% vote rather than 2/3 vote, provided that the local bond initiative meets specified accountability measures, including identifying the projects to be funded by the bond measure and conducting annual independent financial and performance audits. 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 (oversight committee) to monitor and review expenditures to ensure compliance with Proposition 39 requirements, and to keep the public informed about bond expenditures. The oversight committee must be comprised of a minimum of seven members. For school districts, they must include representatives of the business community, a bona fide taxpayers' organization, and a senior citizens' organization; a parent of a student attending the school district; and a parent active in a school's parent-teacher organization. AB 2116 Page 4 According to the author, current law is "not enough to protect the public from dodgy bond practices." This bill contains three proposals. Assessed valuations. This bill requires a governing board of a school district to obtain "reasonable and informed" projections of assessed property valuations from an independent third party not associated with the bond measure prior to ordering a bond election. According to the author, bond advisors may present overly positive revenue projections when presenting a proposed bond measure to a governing board. Bonds are paid by an ad valorem tax (up to $60 per $100,000 for a unified school district) based on property values. Higher assessed valuations would yield higher revenues to pay for a bond. The author states that an independent third party would better inform a governing board in determining the amount of a bond to submit to voters. Staff notes that predicting future assessed valuations cannot be guaranteed due to sudden changes to market conditions and the economy. Moreover, bond issuance may be years after voters approve a bond. By the time a school district issues a bond, assessed valuations may be very different than that predicted prior to a bond election. Rather than requiring a school district to pay for an additional report, which may or may not result in more accurate projections, staff recommends requiring projections of assessed valuations to take into consideration projections made by the county assessor. Citizens' oversight committee. The bill requires an oversight committee to annually review the school district's arrangements for issuing and repaying its bonds. Bonds are not always issued frequently. Once an issuance is made, payments are made on a regular schedule. It is unclear why oversight committees should be required to review bond arrangements on an annual basis. Education Code Section 15141 requires bond issuances to be approved through passage of a resolution at a governing board AB 2116 Page 5 meeting containing specified information. There is nothing prohibiting oversight committee members from attending governing board meetings or reviewing bond issuance documents currently. Staff recommends striking this provision. Bond accountability. Under current law, a citizen residing in the school or community college district who is assessed an ad valorem tax may initiate an action to obtain an order restraining or preventing expenditure of bond funds if the expenditure or purpose for the funds are not used in accordance with authorized uses of funds prescribed by Proposition 39 or if a school district has not appointed an oversight committee. This bill authorizes a county auditor with jurisdiction over the school district to initiate an action. Current law already establishes accountability measures, including requiring the establishment of citizens' oversight committees and the requirement for the district to perform an annual performance audit and an annual financial audit (both of which must be provided to the bond oversight committee). Current law, under bond issuance statutes, also prohibits the proceeds of bond funds to be used for any other purpose other than for which the bond was issued. The purpose of the provision allowing an action to be initiated is to give individuals paying the taxes recourse and should be preserved as such. Staff recommends striking this provision. The author states, "Borrowing for school construction has exploded in the last decade. As borrowing hits record highs, it is more important than ever that school construction bond funds be fiscally sound, and their financing mechanisms transparent. AB 2116 ensures that future school construction bonds are subject to stricter scrutiny and transparency." REGISTERED SUPPORT / OPPOSITION: AB 2116 Page 6 Support Howard Jarvis Taxpayers Association Opposition None on file Analysis Prepared by:Sophia Kwong Kim / ED. / (916) 319-2087