BILL ANALYSIS                                                                                                                                                                                                    



                                                                    AB 2116


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          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  








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            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.











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          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.             








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          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  








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          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:










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          Support


          Howard Jarvis Taxpayers Association




          Opposition


          None on file




          Analysis Prepared by:Sophia Kwong Kim / ED. / (916) 319-2087